SECURITIES PURCHASE AND EXCHANGE AGREEMENT
SECURITIES PURCHASE AND EXCHANGE AGREEMENT (this "AGREEMENT"), dated as
of November 8, 1999, between Interactive Magic, Inc., a corporation organized
under the laws of the State of North Carolina (the "COMPANY"), with headquarters
located at ▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇, and the
purchaser (the "PURCHASER") set forth on the execution page hereof (the
"EXECUTION PAGE").
WHEREAS:
A. The Company and the Purchaser are executing and delivering this
Agreement in reliance upon the exemptions from securities registration afforded
by Rule 506 of Regulation D ("Regulation D"), as promulgated by the United
States Securities Exchange Commission (the "SEC") under the Securities Act of
1933, as amended (the "SECURITIES ACT"), and by Section 3(a)(9) under the
Securities Act;
B. Pursuant to a Securities Purchase Agreement, dated as of January
25, 1999, between the Company and the Purchaser (the "SECURITIES PURCHASE
AGREEMENT"), the Company issued and sold to the Purchaser a convertible note in
the original principal amount of $4,000,000 (the "NOTE"), (i) convertible into
shares of the Company's common stock, par value $.10 per share (the "COMMON
STOCK") and (ii) in certain circumstances, entitling the holder to warrants to
acquire a number of shares of Common Stock determined at the time of such
conversion. As of the date hereof, the principal amount of the Note outstanding
(after giving effect to the prior conversion of a portion of the Note) is
$3,310,844, and there is accrued interest thereon and other amounts payable with
respect thereto in an aggregate amount in excess of $500,000 and no such
warrants have been issued. All references in this Agreement to the Note shall be
deemed to include all such accrued interest and such other amounts.
C. Subject to the terms and conditions set forth herein, (i) the
Company and the Purchaser desire to exchange the Note for newly issued shares of
the Company's Series D Convertible Preferred Stock, par value $.10 per share
(the "PREFERRED SHARES"), the rights and preferences of which, including the
terms on which the Preferred Shares are convertible into shares of Common Stock,
are set forth in the Articles of Amendment, attached hereto as Exhibit A (the
"ARTICLES OF AMENDMENT") and (ii) the Purchaser desires to purchase additional
Preferred Shares. The shares of Common Stock issuable upon conversion of or
otherwise pursuant to the Preferred Shares are referred to herein as the
"CONVERSION SHARES" and the Preferred Shares and the Conversion Shares are
collectively referred to herein as the "SECURITIES."
D. Contemporaneous with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement,
in the form attached hereto as Exhibit B (the "REGISTRATION RIGHTS AGREEMENT"),
pursuant to which the Company has agreed to
provide certain registration rights under the Securities Act and the rules and
regulations promulgated thereunder, and applicable state securities laws;
NOW, THEREFORE, the Company and the Purchaser hereby agree as follows:
1. PURCHASE AND EXCHANGE OF SECURITIES
a. Purchase of, and Exchange of Note for, Preferred Shares. On the
Closing Date (as defined below), subject to the satisfaction (or waiver) of the
conditions set forth in Section 6 and Section 7 below, (i) the Company shall
issue and deliver to the Purchaser duly executed certificates representing a
number of Preferred Shares (the "EXCHANGE SHARES") having an aggregate Stated
Value (as such term is defined in the Articles of Amendment) equal to the sum of
(x) the principal amount of the Note outstanding as of the Closing Date, plus
(y) $500,000, and the Purchaser shall deliver to the Company the Note for
cancellation and (ii) the Company shall issue and sell to the Purchaser, and the
Purchaser agrees to purchase from the Company, additional Preferred Shares (the
"PURCHASE SHARES") having an aggregate Stated Value equal to $1,100,000 for an
aggregate purchase price (the "PURCHASE PRICE") equal to $1,100,000. The
Purchaser shall pay the Purchase Price by wire transfer to the Company in
accordance with the Company's written wiring instructions. The term "Preferred
Shares" shall mean both the Exchange Shares and the Purchase Shares.
b. Closing Date. The date and time of the issuance and delivery of the
Exchange Shares in exchange for the Note and the issuance and sale of the
Purchase Shares pursuant to this Agreement (the "CLOSING") shall be as soon as
practicable (but in any event within three business days following the
satisfaction (or waiver) of the conditions thereto set forth in Section 6 and
Section 7 below and in no event later than November 15, 1999) (the "CLOSING
DATE"). The Closing shall occur at the offices of Klehr, Harrison, ▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇.
2. PURCHASER'S REPRESENTATIONS AND WARRANTIES
The Purchaser represents and warrants to the Company as follows:
a. Investment Purpose. The Purchaser is purchasing the Securities for
the Purchaser's own account and not with a present view towards the public sale
or distribution thereof; provided, however, by making the representations
herein, the Purchaser does not agree to hold any of the Securities for any
minimum or other specific term and reserves the right to dispose of the
Securities at any time in accordance with or pursuant to a registration
statement or an exemption under the Securities Act.
b. Accredited Investor Status. The Purchaser is an "ACCREDITED
INVESTOR" as that term is defined in Rule 501(a) of Regulation D.
c. Reliance on Exemptions. The Purchaser understands that the
Securities are being offered and exchanged or sold, as the case may be, to the
Purchaser in reliance upon specific
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exemptions from the registration requirements of United States federal and state
securities laws and that the Company is relying upon the truth and accuracy of,
and the Purchaser's compliance with, the representations, warranties,
agreements, acknowledgments and understandings of the Purchaser set forth herein
in order to determine the availability of such exemptions and the eligibility of
the Purchaser to acquire the Securities.
d. Information. The Purchaser and its counsel have been furnished all
materials relating to the business, finances and operations of the Company and
materials relating to the offer and sale of the Securities which have been
specifically requested by the Purchaser or its counsel. The Purchaser and its
counsel have been afforded the opportunity to ask questions of the Company and
have received what the Purchaser believes to be satisfactory answers to any such
inquiries. Neither such inquiries nor any other due diligence investigation
conducted by the Purchaser or its counsel or any of its representatives shall
modify, amend or affect the Purchaser's right to rely on the Company's
representations and warranties contained in Section 3 below. The Purchaser
understands that the Purchaser's investment in the Securities involves a
significant degree of risk.
e. Governmental Review. The Purchaser understands that no United States
federal or state agency or any other government or governmental agency has
passed upon or made any recommendation or endorsement of the Securities.
f. Transfer or Resale. The Purchaser understands that (i) except as
provided in the Registration Rights Agreement, the sale or resale of the
Securities has not been and is not being registered under the Securities Act or
any applicable state securities laws, and the Securities may not be transferred
unless (a) the Securities are sold pursuant to an effective registration
statement under the Securities Act, (b) the Purchaser shall have delivered to
the Company an opinion of counsel (which opinion shall be in form, substance and
scope customary for opinions of counsel in comparable transactions and shall be
given by counsel reasonably acceptable to the Company) to the effect that the
Securities to be sold or transferred may be sold or transferred pursuant to an
exemption from such registration, (c) the Securities are sold or transferred to
an "affiliate" (as defined in Rule 144 promulgated under the Securities Act (or
a successor rule) ("RULE 144")) of the Purchaser who agrees to sell or otherwise
transfer the Securities only in accordance with this Section 2(f) and who is an
Accredited Investor or (d) the Securities are sold pursuant to Rule 144; (ii)
any sale of such Securities made in reliance on Rule 144 may be made only in
accordance with the terms of such Rule and further, if such Rule is not
applicable, any resale of such Securities under circumstances in which the
seller (or the person through whom the sale is made) may be deemed to be an
underwriter (as that term is defined in the Securities Act) may require
compliance with some other exemption under the Securities Act or the rules and
regulations of the SEC thereunder; and (iii) neither the Company nor any other
person is under any obligation to register such Securities under the Securities
Act or any state securities laws or to comply with the terms and conditions of
any exemption thereunder (in each case, other than pursuant to the Registration
Rights Agreement). Notwithstanding the foregoing or anything else contained
herein to the contrary, the Securities may be pledged as collateral in
connection with a bona fide margin account or other lending arrangement;
provided that any transfer by the pledgee of such Securities must be in
accordance with Rule 144.
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g. Legends. The Purchaser understands that the Preferred Shares and,
until such time as the Conversion Shares have been registered under the
Securities Act as contemplated by the Registration Rights Agreement or otherwise
may be sold pursuant to Rule 144(k) (or a successor rule), the Conversion Shares
shall bear a restrictive legend in substantially the following form (and a
stop-transfer order may be placed against transfer of the certificates for such
Securities):
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended. The
securities may not be sold, transferred or assigned in the
absence of an effective registration statement for the
securities under such Act, or an opinion of counsel, in form,
substance and scope customary for opinions of counsel in
comparable transactions, that registration is not required
under such Act or unless sold pursuant to Rule 144 under such
Act."
The legend set forth above shall be removed and the Company
shall issue a certificate without such legend to the holder of any Security upon
which it is stamped, if, unless otherwise required by applicable state
securities laws, (a) such Security is registered for sale under an effective
registration statement filed under the Securities Act or otherwise may be sold
pursuant to Rule 144(k) (or a successor rule), or (b) such holder provides the
Company with an opinion of counsel, in form, substance and scope customary for
opinions of counsel in comparable transactions and given by counsel reasonably
acceptable to the Company, to the effect that a public sale or transfer of such
Security may be made without registration under the Securities Act and such sale
or transfer is effected or (c) such holder provides the Company with reasonable
assurances that such Security can be sold pursuant to Rule 144 and such sale is
effected. The Purchaser agrees to sell all Securities, including those
represented by a certificate(s) from which the legend has been removed, in
compliance with applicable prospectus delivery requirements, if any.
h. Authorization; Enforcement. This Agreement has been duly authorized,
executed and delivered on behalf of the Purchaser and is a valid and binding
agreement of the Purchaser, enforceable against the Purchaser in accordance with
its terms. The Registration Rights Agreement has been duly authorized and, when
executed and delivered on behalf of the Purchaser, will be a valid and binding
agreement of the Purchaser, enforceable against the Purchaser in accordance with
its terms.
i. Residency. The Purchaser is a resident of the jurisdiction set forth
under the Purchaser's name on the Execution Page hereto executed by the
Purchaser.
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3.REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to the Purchaser as follows:
a. Organization and Qualification. The Company and each of its
Subsidiaries (as defined below) is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction in which it is
incorporated, and has the requisite corporate power to own, lease and operate
its properties and to carry on its business as and where now owned, leased,
used, operated and conducted. Section 3(a) of the Disclosure Letter, dated of
even date herewith, delivered by the Company to the Purchaser (the "DISCLOSURE
LETTER") sets forth a list of all of the Subsidiaries of the Company and the
jurisdiction in which each is incorporated. The Company and each of its
Subsidiaries is duly qualified as a foreign corporation to do business and is in
good standing in every jurisdiction in which its ownership or use of property or
the nature of the business conducted by it makes such qualification necessary
and where the failure so to qualify would have a Material Adverse Effect.
"MATERIAL ADVERSE EFFECT" means any material adverse effect on (i) the
Securities, (ii) the ability of the Company to perform its obligations hereunder
or under the Articles of Amendment or the Registration Rights Agreement or (iii)
the business, operations, properties, prospects or financial condition of the
Company and its Subsidiaries, taken as a whole. "SUBSIDIARY" shall have the
meaning set forth in Regulation S-X promulgated by the SEC.
b. Authorization; Enforcement. (i) The Company has the requisite
corporate power and authority to enter into and perform its obligations under
this Agreement and the Registration Rights Agreement, to issue and exchange or
sell, as the case may be, the Preferred Shares in accordance with the terms
hereof and to issue the Conversion Shares upon conversion of the Preferred
Shares or otherwise pursuant to the Articles of Amendment in accordance with the
terms thereof; (ii) the execution, delivery and performance of this Agreement
and the Registration Rights Agreement by the Company and the consummation by it
of the transactions contemplated hereby and thereby (including, without
limitation, the issuance of the Preferred Shares and the issuance and
reservation for issuance of the Conversion Shares), have been duly authorized by
the Company's Board of Directors and, except as set forth in Section 3(b) of the
Disclosure Letter, no further consent or authorization of the Company, its Board
of Directors or its stockholders is required; (iii) this Agreement has been duly
executed and delivered by the Company; and (iv) this Agreement constitutes, and
upon execution and delivery by the Company of the Registration Rights Agreement
and upon execution by the Company and filing of the Articles of Amendment, such
agreements and instruments will constitute, valid and binding obligations of the
Company, enforceable against the Company in accordance with their terms, subject
to applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
relating to creditors' rights generally and the application of equitable
principles in any action, legal or equitable, and except as rights to indemnity
or contribution may be limited by applicable law.
c. Capitalization. The capitalization of the Company as of the date
hereof, including the authorized capital stock, the number of shares issued and
outstanding, the number of shares issuable and reserved for issuance pursuant to
the Company's stock option plans, the number of shares issuable and reserved for
issuance pursuant to securities (other than the Preferred Shares) exercisable
for, or convertible into or exchangeable for any shares of capital stock and the
number of shares to
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be reserved for issuance upon conversion of or otherwise pursuant to the
Preferred Shares is set forth in Section 3(c) of the Disclosure Letter. All of
such outstanding shares of capital stock have been, or upon issuance will be,
validly issued, fully paid and nonassessable. No shares of the authorized and
unissued capital stock of the Company (including the Conversion Shares) are
subject to preemptive rights or any other similar rights of the stockholders of
the Company or any liens or encumbrances. Except for the Securities and the Note
and as set forth in Section 3(c) of the Disclosure Letter, as of the date of
this Agreement, (i) there are no outstanding options, warrants, scrip, rights to
subscribe for, puts, calls, rights of first refusal, agreements, understandings,
claims or other commitments or rights of any character whatsoever relating to,
or securities or rights convertible into or exercisable or exchangeable for, any
shares of capital stock of the Company or any of its Subsidiaries, or
arrangements by which the Company or any of its Subsidiaries is or may become
bound to issue additional shares of capital stock of the Company or any of its
Subsidiaries, (ii) there are no agreements or arrangements under which the
Company or any of its Subsidiaries is obligated to register the sale of any of
its or their securities under the Securities Act (except the Registration Rights
Agreement and the Registration Rights Agreement, dated as of January 25, 1999,
between the Company and the Purchaser (the "JANUARY REGISTRATION RIGHTS
AGREEMENT")) and (iii) there are no anti-dilution or price adjustment provisions
contained in any security issued by the Company (or in any agreement providing
rights to security holders). There are no securities or instruments containing
antidilution or similar provisions that will be triggered by the issuance of the
Securities in accordance with the terms of this Agreement or the Articles of
Amendment. The Company has furnished to the Purchaser true and correct copies of
the Company's Articles of Incorporation as in effect on the date hereof
("ARTICLES OF INCORPORATION"), the Company's By-laws as in effect on the date
hereof (the "BY-LAWS"), and all other instruments and agreements to which the
Company is a party governing securities convertible into or exercisable or
exchangeable for capital stock of the Company other than agreements under the
Company's option and stock plans for its directors, officers and employees in
accordance with such plans.
d. Issuance of Shares. The Conversion Shares are duly authorized and
reserved for issuance and, upon conversion of the Preferred Shares in accordance
with the terms thereof, will be validly issued, fully paid and non-assessable,
and free from all taxes (other than taxes payable by the Company), liens, claims
and encumbrances (other than such as may arise from obligations or agreements of
the Purchaser) and will not be subject to preemptive rights or other similar
rights of stockholders of the Company and will not impose personal liability
upon the holder thereof.
e. No Conflicts. The execution, delivery and performance of this
Agreement and the Registration Rights Agreement by the Company, the execution
and filing by the Company of the Articles of Amendment and the consummation by
the Company of the transactions contemplated hereby and thereby (including,
without limitation, the issuance and reservation for issuance, as applicable, of
the Preferred Shares and the Conversion Shares) will not (i) conflict with or
result in a violation of any provision of the Articles of Incorporation or
By-laws or (ii) conflict with, or result in a breach of any provision of, or
constitute a default (or an event which with notice or lapse of time or both
could become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture, patent,
patent license or instrument to which the Company or any of its Subsidiaries is
a party, or (iii) result in a violation of any law, rule,
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regulation, order, judgment or decree (including U.S. federal and state
securities laws and regulations and regulations of any self-regulatory
organizations to which the Company or its securities are subject) applicable to
the Company or any of its Subsidiaries or by which any property or asset of the
Company or any of its Subsidiaries is bound or affected (except, with respect to
clauses (ii) and (iii), for such conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations as would not, individually or in the
aggregate, have a Material Adverse Effect). Neither the Company nor any of its
Subsidiaries is in violation of its Articles of Incorporation, By-laws or other
organizational documents and neither the Company nor any of its Subsidiaries is
in default (and no event has occurred which, with notice or lapse of time or
both, could put the Company or any of its Subsidiaries in default) under, nor
has there occurred any event giving others (with notice or lapse of time or
both) any rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which the Company or any of its
Subsidiaries is a party or by which any property or assets of the Company or any
of its Subsidiaries is bound or affected, except for actual or possible
violations, defaults or rights as would not, individually or in the aggregate,
have a Material Adverse Effect and except for defaults existing under the Note
and the January Registration Rights Agreement. The businesses of the Company and
its Subsidiaries are not being conducted, and shall not be conducted so long as
the Purchaser owns any of the Securities, in violation of any law, ordinance or
regulation of any governmental entity, except for actual or possible violations,
if any, the sanctions for which either singly or in the aggregate would not have
a Material Adverse Effect. Subject to the accuracy of the representations and
warranties of the Purchaser set forth herein, except as specifically
contemplated by this Agreement and as required under the Securities Act and any
applicable state securities laws, the Company is not required to obtain any
consent, approval, authorization or order of, or make any filing or registration
with, any court or governmental agency or any regulatory or self-regulatory
agency, the NASDAQ SmallCap Market ("NASDAQ") or any third party in order for it
to execute, deliver or perform any of its obligations under this Agreement or
the Registration Rights Agreement, or to perform any of its obligations under
the Articles of Amendment, in each case in accordance with the terms hereof or
thereof, other than such as will have been made or obtained by the Closing. All
consents, authorizations, orders, filings and registrations which the Company is
required to obtain pursuant to the preceding sentence have been obtained or
effected on or prior to the date hereof. The Company and its Subsidiaries are
unaware of any facts or circumstances which might give rise to any of the
foregoing.
f. SEC Documents, Financial Statements. Except as set forth in Section
3(f) of the Disclosure Letter, since July 27, 1998, the date on which the
Company completed its initial public offering (the "IPO DATE"), the Company has
timely filed all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC pursuant to the reporting requirements
of the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT") (all of
the foregoing filed prior to the date hereof and on or after the IPO Date and
all exhibits included therein and financial statements and schedules thereto and
documents incorporated by reference therein, being hereinafter referred to
herein as the "SEC DOCUMENTS"). The Company has delivered to the Purchaser true
and complete copies of the SEC Documents, except for the exhibits and schedules
thereto and the documents incorporated therein. As of their respective dates,
the SEC Documents complied in all material respects with the applicable
requirements of the Exchange Act or the Securities Act, as the case may be, and
the rules and regulations of the SEC promulgated thereunder applicable to the
SEC
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Documents, and none of the SEC Documents, at the time they were filed with
the SEC, contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. As of their respective dates, the financial statements of the
Company included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC applicable with respect thereto. Such financial
statements have been prepared in accordance with U.S. generally accepted
accounting principles, consistently applied, during the periods involved (except
(i) as may be otherwise indicated in such financial statements or the notes
thereto, or (ii) in the case of unaudited interim statements, to the extent they
may not include footnotes or may be condensed or summary statements) and fairly
present in all material respects the consolidated financial position of the
Company and its consolidated Subsidiaries as of the dates thereof and the
consolidated results of their operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to immaterial year-end
audit adjustments). Except as set forth in the financial statements of the
Company included in the SEC Documents and as disclosed in Section 3(f) of the
Disclosure Letter, the Company has no liabilities, contingent or otherwise,
other than (i) liabilities incurred in the ordinary course of business
subsequent to the date of such financial statements, (ii) obligations under
contracts and commitments incurred in the ordinary course of business and not
required under generally accepted accounting principles to be reflected in such
financial statements and (iii) liabilities related to borrowings under lines of
credit in existence on the date of such financial statements (which liabilities
and obligations referred to in clauses (i), (ii) and (iii), individually or in
the aggregate, are not material to the financial condition or operating results
of the Company).
g. Absence of Certain Changes. Since December 31, 1998, there has been
no material adverse change and no material adverse development in the assets,
liabilities, business, properties, operations, financial condition, results of
operations or prospects of the Company and its Subsidiaries, except as disclosed
in or as contemplated by the SEC Documents.
h. Absence of Litigation. Except as disclosed in the SEC Documents,
there is no action, suit, claim, proceeding, inquiry or investigation before or
by any court, public board, government agency, self-regulatory organization or
body pending or, to the knowledge of the Company or any of its Subsidiaries,
threatened against or affecting the Company, any of its Subsidiaries, or any of
their respective directors or officers in their capacities as such that could
have a Material Adverse Effect. There are no facts which, if known by a
potential claimant or governmental authority, could give rise to a claim or
proceeding which, if asserted or conducted with results unfavorable to the
Company or any of its Subsidiaries, could have a Material Adverse Effect.
i. Intellectual Property. Each of the Company and its Subsidiaries owns
or is licensed to use all patents, patent applications, trademarks, trademark
applications, trade names, service marks, copyrights, copyright applications,
licenses, permits, 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 (collectively, "INTELLECTUAL
PROPERTY") necessary for the conduct of its business as now being conducted and
as described in the Company's Prospectus dated September 9, 1999 included in the
Company's Registration Statement on Form SB-2, SEC File
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No. 333-84691 (the "SEPTEMBER SB-2"). Except as disclosed in Section 3(i) of the
Disclosure Letter, to the knowledge of the Company, neither the Company nor any
of its Subsidiaries infringes or is in conflict with any right of any other
person with respect to any Intellectual Property which, individually or in the
aggregate, if the subject of an unfavorable decision, ruling or finding, would
have a Material Adverse Effect. Except as disclosed in Section 3(i) of the
Disclosure Letter, neither the Company nor any of its Subsidiaries has received
written notice of any pending conflict with or infringement upon such third
party Intellectual Property. Neither the Company nor any of its Subsidiaries has
entered into any consent, indemnification, forbearance to ▇▇▇ or settlement
agreements with respect to the validity of the Company's or its Subsidiaries'
ownership or right to use its Intellectual Property and, to the knowledge of the
Company, there is no reasonable basis for any such claim to be successful. The
Intellectual Property is valid and enforceable and no registration relating
thereto has lapsed, expired or been abandoned or canceled or is the subject of
cancellation or other adversarial proceedings, and all applications therefor are
pending and in good standing. The Company and its Subsidiaries have complied, in
all material respects, with their respective contractual obligations relating to
the protection of the Intellectual Property used pursuant to licenses. Except as
disclosed in Section 3(i) of the Disclosure Letter, to the best knowledge of the
Company, no person is infringing on or violating the Intellectual Property owned
or used by the Company of its Subsidiaries. The Company and each or its
Subsidiaries have taken reasonable security measures to protect the secrecy,
confidentiality and value of their Intellectual Property.
j. No Materially Adverse Contracts, Etc. Except as disclosed in the SEC
Documents, neither the Company nor any of its Subsidiaries is subject to any
charter, corporate or other legal restriction, or any judgment, decree, order,
rule or regulation which, to the knowledge of the Company, has or could
reasonably be expected in the future to have a Material Adverse Effect. Neither
the Company nor any of its Subsidiaries is a party to any contract or agreement
which, to the knowledge of the Company, has or is expected to have a Material
Adverse Effect.
k. Year 2000 Compliance. All of the Company's computer software and
computer hardware, and other similar or related items of automated, computerized
or software systems that are used or relied on by the Company in the conduct of
its business or that were, or currently are being, sold or licensed by the
Company to customers (collectively, "INFORMATION TECHNOLOGY"), are Year 2000
Compliant, except to the extent any noncompliance would not have a Material
Adverse Effect. For purposes of this Agreement, the term "YEAR 2000 COMPLIANT"
means, with respect to the Company's Information Technology, that the
Information Technology is designed to be used prior to, during and after the
calendar Year 2000 A.D., and the Information Technology used during each such
time period will accurately receive, provide and process date and time data
(including, but not limited to, calculating, comparing and sequencing) from,
into and between the 20th and 21st centuries, including the years 1999 and 2000,
and leap-year calculations and will not malfunction, cease to function, or
provide invalid or incorrect results as a result of date or time data, to the
extent that other information technology, used in combination with the
Information Technology, properly exchanges date and time data with it.
l. Foreign Corrupt Practices. Neither the Company, nor any of its
Subsidiaries, nor any director, officer, agent, employee or other person acting
on behalf of the Company or any Subsidiary
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has, in the course of his actions for, or on behalf of, the Company, used any
corporate funds for any unlawful contribution, gift, entertainment or other
unlawful expenses relating to political activity; made any direct or indirect
unlawful payment to any foreign or domestic government official or employee from
corporate funds; violated or is in violation of any provision of the U.S.
Foreign Corrupt Practices Act of 1977; or made any bribe, rebate, payoff,
influence payment, kickback or other unlawful payment to any foreign or domestic
government official or employee.
m. Disclosure. All information relating to or concerning the Company or
its Subsidiaries set forth in this Agreement or in the Disclosure Letter or
provided to the Purchaser pursuant to Section 2(d) hereof or in the SEC
Documents and otherwise in connection with the transactions contemplated hereby
is true and correct in all material respects and the Company has not omitted to
state any material fact necessary in order to make the statements made herein or
therein, in light of the circumstances under which they were made, not
misleading. No event or circumstance has occurred or exists with respect to the
Company or its Subsidiaries or their respective businesses, properties,
prospects, operations or financial conditions, which has not been publicly
disclosed but, under applicable law, rule or regulation, would be required to be
disclosed by the Company in a registration statement filed on the date hereof by
the Company under the Securities Act with respect to a primary issuance of the
Company's securities other than (i) events or circumstances contemplated by the
SEC Documents and (ii) such events or circumstances that have occurred or exist
in the ordinary course of the Company's business.
n. Acknowledgment Regarding the Purchaser's Acquisition of the
Securities. The Company acknowledges and agrees that the Purchaser is acting
solely in the capacity of an arm's-length purchaser with respect to this
Agreement and the transactions contemplated hereby. The Company further
acknowledges that the Purchaser is not acting as a financial advisor or
fiduciary of the Company (or in any similar capacity) with respect to this
Agreement or the transactions contemplated hereby and that any statement made by
the Purchaser or any of its representatives or agents in connection with this
Agreement and the transactions contemplated hereby is not advice or a
recommendation and is merely incidental to the Purchaser's acquisition of the
Securities and, except for the representations and warranties of the Purchaser
set forth in Section 2 hereof, has not been relied upon by the Company, its
officers or directors in any way. The Company further represents to the
Purchaser that the Company's decision to enter into this Agreement has been
based solely on an independent evaluation by the Company and its
representatives.
o. Form S-3 Eligibility. The Company is currently eligible to register
the resale of its Common Stock on a registration statement on Form S-3 under the
Securities Act. There exist no facts or circumstances known to the Company that
would prohibit the preparation and filing of a registration statement on Form
S-3 with respect to the Registrable Securities (as defined in the Registration
Rights Agreement) within the time periods referred to therein.
p. No General Solicitation. Neither the Company nor any distributor
participating on the Company's behalf in the transactions contemplated hereby
(if any) nor any person acting for the Company, or any such distributor, has
conducted any "general solicitation," as such term is defined in Regulation D,
with respect to any of the Securities being offered hereby.
-10-
q. No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would require registration of the
Securities being offered hereby under the Securities Act or cause this offering
of Securities to be integrated with any other offering of securities of the
Company (past, current or future) for purposes of any stockholder approval
provisions applicable to the Company or its securities.
r. Brokers. The Company has taken no action which would give rise to
any claim by any person for brokerage commissions, finder's fees or similar
payments by the Purchaser relating to this Agreement or the transactions
contemplated hereby.
s. Acknowledgment of Dilution. The Company understands and acknowledges
the potentially dilutive effect to the Common Stock upon the issuance of the
Conversion Shares upon conversion of or otherwise pursuant to the Preferred
Shares. The Company has studied and fully understands the nature of the
Securities being sold hereunder. The Company acknowledges that its obligation to
issue Conversion Shares in accordance with the terms of the Articles of
Amendment is absolute and unconditional, regardless of the dilution that such
issuance may have on the ownership interests of other stockholders. Taking the
foregoing into account, the Company's Board of Directors has determined in its
good faith business judgment that the issuance of the Preferred Shares hereunder
and the consummation of the other transactions contemplated hereby and thereby
are in the best interests of the Company and its stockholders.
t. Tax Status. Except as set forth in the SEC Documents, the Company
and each of its Subsidiaries has made or filed all federal, state, foreign and
local income and all other tax returns, reports and declarations required by any
jurisdiction to which it is subject (unless and only to the extent that the
Company and each of its Subsidiaries has set aside on its books provisions
reasonably adequate for the payment of all unpaid and unreported taxes) and has
paid all taxes and other governmental assessments and charges that are material
in amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and has set aside on
its books provisions reasonably adequate for the payment of all taxes for
periods subsequent to the periods to which such returns, reports or declarations
apply. There are no unpaid taxes in any material amount claimed to be due by the
taxing authority of any jurisdiction, and the officers of the Company know of no
basis for any such claim. The Company has not executed a waiver with respect to
any statute of limitations relating to the assessment or collection of any
federal, state or local tax. None of the Company's tax returns has been or is
being audited by any taxing authority.
u. Certain Transactions. Except as set forth in the SEC Documents, and
except for arm's length transactions pursuant to which the Company or any of its
Subsidiaries makes payments in the ordinary course of business upon terms no
less favorable than the Company or any of its Subsidiaries could obtain from
third parties and other than the grant of stock options disclosed in Section
3(c) of the Disclosure Letter, none of the officers, directors, or employees of
the Company is presently a party to any transaction with the Company or any of
its Subsidiaries (other than for services as employees, officers and directors),
including any contract, agreement or other arrangement providing
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for the furnishing of services to or by, providing for rental of real or
personal property to or from, or otherwise requiring payments to or from any
officer, director or such employee or, to the knowledge of the Company, any
corporation, partnership, trust or other entity in which any officer, director
or any such employee has a substantial interest or is an officer, director,
trustee or partner.
v. Title. The Company and its Subsidiaries own no real property and
have good and marketable title to all personal property owned by them which is
material to the business of the Company and its Subsidiaries, free and clear of
all liens, encumbrances and defects except such as are described in Section 3(v)
of the Disclosure Letter or 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 its Subsidiaries. Any real property and
facilities held under lease by the Company and its Subsidiaries are held by them
under valid, subsisting and enforceable leases with such exceptions as are not
material and do not materially interfere with the use made and proposed to be
made of such property and buildings by the Company and its Subsidiaries.
w. Permits; Compliance. The Company and each of its Subsidiaries is in
possession of all franchises, grants, authorizations, licenses, permits,
easements, variances, exemptions, consents, certificates, approvals and orders
necessary to own, lease and operate its properties and to carry on its business
as it is now being conducted (collectively, the "COMPANY PERMITS"), and there is
no action pending or, to the knowledge of the Company, threatened regarding
suspension or cancellation of any of the Company Permits, except for such
Company Permits the absence of which would not have a Material Adverse Effect.
Neither the Company nor any of its Subsidiaries is in conflict with, or in
default or violation of, any of the Company Permits, except for any such
conflicts, defaults or violations which, individually or in the aggregate, would
not reasonably be expected to have a Material Adverse Effect. Since the IPO
Date, neither the Company nor any of its Subsidiaries has received any
notification with respect to possible conflicts, defaults or violations of
applicable laws, except for notices relating to possible conflicts, defaults or
violations, which conflicts, defaults or violations would not have a Material
Adverse Effect.
x. Internal Accounting Controls. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient, in
the judgment of the Company's board of directors, to provide reasonable
assurance that (i) transactions are executed in accordance with management's
general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management's general or
specific authorization and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
y. No Commissions. The Company is issuing the Exchange Shares solely in
exchange for the Note and is issuing the Purchase Shares solely for the Purchase
Price, and no commission or other remuneration has been or will be paid or
given, directly or indirectly, by or on behalf of the Company for soliciting
such exchange or such Purchase Price.
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4. COVENANTS.
a. Best Efforts. The parties shall use their best efforts to satisfy
timely each of the conditions described in Section 6 and Section 7 of this
Agreement.
b. Form D; Blue Sky Laws. The Company agrees, if required, to file a
Form D with respect to the Securities as required under Regulation D of the SEC
and to provide a copy thereof to the Purchaser promptly after such filing. The
Company shall, on or before the Closing Date, take such action as the Company
shall reasonably determine is necessary to qualify the Securities for issuance
to the Purchaser pursuant to this Agreement under applicable securities or "blue
sky" laws of the states of the United States or obtain exemption therefrom, and
shall provide evidence of any such action so taken to the Purchaser on or prior
to the Closing Date.
c. Reporting Status; Eligibility to Use Form S-3. The Company's Common
Stock is registered under Section 12(g) of the Exchange Act. So long as the
Purchaser beneficially owns any of the Securities, the Company shall timely file
all reports required to be filed with the SEC pursuant to the Exchange Act, and
the Company shall not terminate its status as an issuer required to file reports
under the Exchange Act even if the Exchange Act or the rules and regulations
thereunder would permit such termination. The Company meets the "registrant
eligibility" requirements set forth in the general instructions to Form S-3 and
will take all action necessary to continue to meet such requirements.
d. Financial Information. The Company agrees to send the following
reports to the Purchaser until the Purchaser transfers, assigns or sells all of
its Securities: (i) within ten days after the filing with the SEC, a copy of its
Annual Report on Form 10-KSB, its Quarterly Reports on Form 10-QSB, its proxy
statements and any Current Reports on Form 8-K; (ii) within one day after
release, copies of all press releases issued by the Company or any of its
Subsidiaries; and (iii) contemporaneously with the making available or giving to
the stockholders of the Company, copies of any notices or other information the
Company makes available or gives to such stockholders.
e. Reservation of Shares. The Company shall at all times have
authorized and reserved for the purpose of issuance a sufficient number of
shares of Common Stock to provide for the full conversion of the Preferred
Shares and issuance of the Conversion Shares in connection therewith (based on
the Conversion Price (as defined in the Articles of Amendment) in effect from
time to time thereunder) and as otherwise required by, and subject to the terms
and conditions of, the Articles of Amendment. The Company shall not reduce the
number of shares reserved for issuance upon conversion of or otherwise pursuant
to the Preferred Shares (except as a result of any such conversion thereof)
without the consent of the Purchaser. The Company shall use its best efforts at
all times to maintain the number of shares of Common Stock so reserved for
issuance at no less than the number that is then actually issuable upon full
conversion of the Preferred Shares (based on the Conversion Price in effect from
time to time). If at any time the number of shares of Common Stock authorized
and reserved for issuance is below the aggregate number of Conversion Shares
issued and issuable upon conversion of or otherwise pursuant to the Preferred
Shares (based on the Conversion Price in effect from time to time), the Company
will promptly take all corporate action necessary to
-13-
authorize and reserve a sufficient number of shares, including, without
limitation, calling a special meeting of stockholders to authorize additional
shares to meet the Company's obligations under this Section 4(e), in the case of
an insufficient number of authorized shares, and using its best efforts to
obtain shareholder approval of an increase in such authorized number of shares.
f. Listing. The Company shall promptly secure the listing of the
Conversion Shares upon each national securities exchange or automated quotation
system, if any, upon which shares of Common Stock are then listed (subject to
official notice of issuance) and shall maintain, so long as any other shares of
Common Stock shall be so listed, such listing of all Conversion Shares from time
to time issuable upon conversion of or otherwise pursuant to the Preferred
Shares. The Company will use its best efforts to continue the listing and
trading of its Common Stock on the NASDAQ, the NASDAQ National Market ("NNM"),
the New York Stock Exchange ("NYSE") or the American Stock Exchange ("AMEX") and
will comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the National Association of Securities
Dealers, Inc. ("NASD") and such exchanges, as applicable. In the event the
Common Stock is not eligible to be traded on any of the NASDAQ, the NNM, the
NYSE or the AMEX and the Common Stock is not eligible for listing on any such
exchange or system, the Company shall use its best efforts to cause the Common
Stock to be eligible for trading on the over-the-counter bulletin board at the
earliest practicable date and remain eligible for trading while any Conversion
Shares are outstanding. The Company shall provide to the Purchaser and any
holder of the Preferred Shares copies of any notices it receives from NASDAQ and
any other exchanges or quotation system on which the Common Stock is then listed
regarding the continued eligibility of the Common Stock for listing on such
exchanges and quotation systems simultaneously with or promptly after such
notices are publicly available.
g. No Integrated Offerings. The Company shall not make any offers or
sales of any security (other than the Securities) under circumstances that would
require registration of the Securities being offered hereunder under the
Securities Act or cause this offering of Securities to be integrated with any
other offering of securities by the Company for purposes of any stockholder
approval provision applicable to the Company or its securities.
h. Waivers. The Company shall cause each of ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, the
trustee of certain trusts for ▇▇. ▇▇▇▇▇▇▇'▇ children, and Vertical Financial
Holdings, and shall use its best efforts to cause each of Bluestone Capital
Partners, L.P., Royce Investment Group, Inc., Virtual Business Designs, Inc.,
▇▇▇▇▇▇ ▇. ▇▇▇▇▇, IFM Venture Group, ▇▇▇▇▇ ▇▇▇▇▇▇ and the former shareholders of
MPG-Net, Inc., to execute and deliver to the Purchaser, prior to or
simultaneously with the Closing hereunder, waivers (the "WAIVERS") by such
persons and entities of their right to require the Company to include any shares
of the capital stock of the Company which they beneficially own or have voting
power with respect to (excluding, in the case of ▇▇. ▇▇▇▇▇▇▇ and Vertical
Financial Holdings, the shares of Common Stock to be issued to them prior to or
simultaneously with the Closing hereunder as described in Sections 7(m) and 7(l)
hereof, respectively) in any Registration Statement (as defined in the
Registration Rights Agreement) required to be filed by the Company pursuant to
the Registration Rights Agreement.
-14-
i. Use of Proceeds. The Company shall use the proceeds from the sale of
the Purchase Shares in the manner set forth in Section 4(i) of the Disclosure
Letter and shall not, except as set forth in such Section 4(i) of the Disclosure
Letter, directly or indirectly, use such proceeds for any loan to or investment
in any other corporation, partnership, enterprise or other person (except in
connection with its currently existing direct or indirect Subsidiaries).
j. Waiver of Certain Agreements. Upon and subject to the occurrence of
the Closing, the Purchaser waives all rights to any payments owed to the
Purchaser by the Company pursuant to the Note and Section 2(c) of the January
Registration Rights Agreement that have accrued and remain unpaid on and as of
the Closing Date (other than payments that are being exchanged for Exchange
Shares hereunder), provided that such waiver shall not apply to any payments
owed pursuant to such Section 2(c) that accrue after the Closing Date.
k. The Company shall use its best efforts (i) to prepare and file with
the SEC as promptly as practicable and in no event later than November 24, 1999
a proxy statement in accordance with Section 14 of the Securities Exchange Act
of 1934, as amended, and the rules and regulations of the SEC promulgated
thereunder requesting the shareholders of the Company to approve the issuance of
the Series D Preferred Stock and the shares of Common Stock issuable upon
conversion of or otherwise pursuant to the Series D Preferred Stock pursuant to
Rule 4310(c)(25)(H)(i) of the Nasdaq Stock Market or any successor rule
("SHAREHOLDER APPROVAL") and (ii) to hold an annual or special meeting (the
"SHAREHOLDER MEETING") of its shareholders as promptly as practicable and in no
event later than December 31, 1999, and to obtain at such meeting the
Shareholder Approval provided that such date set forth in this clause (ii) shall
be extended to February 15, 2000 if the staff of the SEC reviews and provides to
the Company written comments requiring changes to such proxy statement. The
Company shall, through its Board of Directors, recommend to its shareholders
that they approve the matters described in clause (i) above and the Company
shall use its best efforts to solicit proxies from its shareholders in favor of
such matters sufficient to satisfy all legal requirements relevant to obtaining
the Shareholder Approval.
5. TRANSFER AGENT INSTRUCTIONS.
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The Company shall issue irrevocable instructions to its transfer agent
to issue certificates, registered in the name of the Purchaser or its nominee,
for the Conversion Shares in such amounts as specified from time to time by the
Purchaser to the Company upon conversion of the Preferred Shares in accordance
with the terms thereof (the "IRREVOCABLE TRANSFER AGENT INSTRUCTIONS"). Prior to
registration of the Conversion Shares under the Securities Act or the date on
which such shares may be sold pursuant to Rule 144(k) (or any successor rule),
all such certificates shall bear the restrictive legend specified in Section
2(g) of this Agreement. The Company warrants that no instruction other than the
Irrevocable Transfer Agent Instructions referred to in this Section 5, and stop
transfer instructions to give effect to Sections 2(f) and 2(g) hereof (in the
case of the Conversion Shares, prior to registration of the Conversion Shares
under the Securities Act or the date on which the Conversion Shares may be sold
pursuant to Rule 144(k) (or any successor rule)), will be given by the Company
to its transfer agent and that the Securities shall otherwise be freely
transferable on the books and records of the Company to the extent provided, and
subject to the terms and conditions of, this Agreement and the Registration
Rights Agreement. Nothing in this Section shall affect in any way the
Purchaser's obligations and agreement set forth in Section 2(g) hereof to comply
with all applicable prospectus delivery requirements, if any, upon resale of the
Securities. If the Purchaser provides the Company with (i) an opinion of
counsel, in form, substance and scope customary for opinions in comparable
transactions and given by counsel reasonably acceptable to the Company, to the
effect that a public sale or transfer of such Securities may be made without
registration under the Securities Act and such sale or transfer is effected or
(ii) the Purchaser provides reasonable assurances that the Securities can be
sold pursuant to Rule 144 and such sale is effected, the Company shall permit
the transfer, and, in the case of the Conversion Shares, promptly instruct its
transfer agent to issue one or more certificates, free from any restrictive
legend, in such name and in such denominations as specified by the Purchaser.
6. CONDITIONS TO THE COMPANY'S OBLIGATIONS.
The obligation of the Company hereunder to issue and deliver the
Exchange Shares and to issue and sell the Purchase Shares to the Purchaser
hereunder is subject to the satisfaction, at or before the Closing Date, of each
of the following conditions thereto, provided that these conditions are for the
Company's sole benefit and may be waived by the Company at any time in its sole
discretion.
a. The Purchaser shall have executed the signature page to this
Agreement and the Registration Rights Agreement, and delivered such pages to the
Company.
b. The Purchaser shall have delivered the Note and the Purchase Price
in accordance with Section 1(a).
c. The representations and warranties of the Purchaser shall be true
and correct as of the date when made and as of the Closing Date as though made
at that time (except for representations and warranties that speak as of a
specific date, which representations and warranties shall be true and correct as
of such date), and the Purchaser shall have performed, satisfied and complied in
all material
-16-
respects with the covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the Purchaser at or
prior to the Closing Date.
d. No statute, rule, regulation, executive order, decree, ruling,
injunction, action or proceeding shall have been enacted, entered, promulgated
or endorsed by any court or governmental authority of competent jurisdiction or
any self-regulatory organization having authority over the matters contemplated
hereby which questions the validity of, or challenges or prohibits the
consummation of any of the transactions contemplated by this Agreement.
e. The Articles of Amendment shall have been accepted for filing with
the Secretary of State of the State of North Carolina.
f. The Purchaser shall have executed and delivered a proxy, in form and
substance to be agreed upon by the parties hereto (the "PURCHASER PROXY"),
wherein the purchaser shall authorize the Company to vote all the shares of
Common Stock held of record by the Purchaser on the record date for the
Shareholder Meeting solely to approve the issuance of the Series D Preferred
Stock and the shares of Common Stock issuable upon conversion of or otherwise
pursuant to the Series D Preferred Stock pursuant to Rule 4310(c)(25)(H)(i) of
the Nasdaq Stock Market or any successor rule and the Purchaser Proxy shall not
authorize the Company to vote such shares with respect to any other matters.
7. CONDITIONS TO THE PURCHASER'S OBLIGATIONS.
The obligation of the Purchaser hereunder to exchange the Note for the
Exchange Shares and to purchase the Purchase Shares hereunder is subject to the
satisfaction, at or before the Closing Date, of each of the following
conditions, provided that these conditions are for the Purchaser's sole benefit
and may be waived by the Purchaser at any time in the Purchaser's sole
discretion:
a. The Company shall have executed the signature page to this Agreement
and the Registration Rights Agreement, and delivered such pages to the
Purchaser.
b. The Company shall have delivered to the Purchaser (i) the duly
executed certificates representing the Exchange Shares and (ii) the duly
executed certificates representing the Purchase Shares, all in accordance with
Section 1(a).
c. The Articles of Amendment shall have been accepted for filing with
the Secretary of State of the State of North Carolina and a copy thereof
certified by such official shall have been delivered to the Purchaser.
d. The Common Stock shall be authorized for quotation on NASDAQ and
trading in the Common Stock (or NASDAQ generally) shall not have been suspended
by the SEC or NASDAQ.
e. The representations and warranties of the Company shall be true and
correct as of the date when made and as of the Closing Date as though made at
that time (except for representations and warranties that speak as of a specific
date, which representations and warranties shall be true and
-17-
correct as of such date) and the Company shall have performed, satisfied and
complied in all material respects with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by the
Company at or prior to the Closing Date. The Purchaser shall have received a
certificate, executed by the Chief Executive Officer of the Company, dated as of
the Closing Date, to the foregoing effect, and as to such other matters as may
be reasonably requested by the Purchaser.
f. No statute, rule, regulation, executive order, decree, ruling,
injunction, action or proceeding shall have been enacted, entered, promulgated
or endorsed by any court or governmental authority of competent jurisdiction or
any self-regulatory organization having authority over the matters contemplated
hereby which questions the validity of, or challenges or prohibits the
consummation of, any of the transactions contemplated by this Agreement.
g. The Purchaser shall have received an opinion of the Company's
counsel, dated as of the Closing Date, in form, scope and substance reasonably
satisfactory to the Purchaser and in substantially the form of Exhibit C
attached hereto (which opinion shall state that the holding period of the
Exchange Shares and related Conversion Shares will "tack" with the holding
period of the Note for purposes of Rule 144(d) under the Securities Act).
h. The Irrevocable Transfer Agent Instructions, in the form attached
hereto as Exhibit D, shall have been delivered to and acknowledged in writing by
the Company's transfer agent and a copy of such instructions and acknowledgment
shall have been delivered to the Purchaser.
i. No material adverse change or development in the business,
operations, properties, prospects, financial condition, or results of operations
of the Company shall have occurred since the date hereof.
j. The Company shall have delivered to the Purchaser the Waiver(s) in
form and substance satisfactory to the Purchaser, duly executed by ▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇, the trustee of certain trusts for ▇▇. ▇▇▇▇▇▇▇'▇ children, and Vertical
Financial Holdings.
k. The Company shall have satisfied all conditions to the continued
listing of the Common Stock on NASDAQ as set forth in the letter, dated October
11, 1999, from NASDAQ to the Company and shall not have received notice from
NASDAQ that the Company must satisfy any additional requirements (other than
normal maintenance requirements applicable to all listed companies) to maintain
such listing.
l. Prior to or simultaneously with the Closing, Vertical Financial
Holdings (together with any designee of Vertical Financial Holdings) shall
collectively have purchased from the Company 1,100,000 shares of Common Stock
and paid to the Company an aggregate purchase price of at least $1,100,000 for
such shares of Common Stock.
m. Prior to or simultaneously with the closing, ▇▇▇▇ ▇. ▇▇▇▇▇▇▇ shall
have arranged to the satisfaction of the Purchaser for (x) all debt and other
obligations (including any refinancing
-18-
thereof) in the amount of $1,000,000 (the "OBLIGATIONS") owed by the Company to
any bank, including, without limitation to Branch Banking &Trust Company,
described in the September SB-2 as of the date the September SB-2 was declared
effective to have been fully satisfied (other than by the Company) and/or (y)
the Company to have been unconditionally released from the Obligations, and in
return for such arrangement the Company shall have issued to ▇▇▇▇ ▇. ▇▇▇▇▇▇▇ no
more than 1,000,000 shares of Common Stock and the Company shall have paid no
other consideration in connection with such arrangement.
n. The Company shall have taken all actions necessary or desirable, in
the opinion of the Purchaser, to amend or supplement the September SB-2 so that
sales of all the remaining Registrable Securities (as defined in the January
Registration Rights Agreement) are permitted to be made by the Purchaser
pursuant to the September SB-2 in such amounts and at such times as the
Purchaser may determine.
8. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law; Jurisdiction. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed in the State of New York (without regard to
principles of conflict of laws). The Company irrevocably consents to the
jurisdiction of the United States federal courts and the state courts located in
New York County, New York in any suit or proceeding based on or arising under
this Agreement, the agreements entered into in connection herewith or the
transactions contemplated hereby or thereby and irrevocably agrees that all
claims in respect of such suit or proceeding may be determined in such courts.
The Company irrevocably waives the defense of an inconvenient forum to the
maintenance of such suit or proceeding. The Company further agrees that service
of process upon the Company mailed by first class mail shall be deemed in every
respect effective service of process upon the Company in any such suit or
proceeding. Nothing herein shall affect the right of the Purchaser to serve
process in any other manner permitted by law. The Company agrees that a final
non-appealable judgment in any such suit or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on such judgment or in any other
lawful manner.
b. Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party. This Agreement, once executed by a party, may be
delivered to the other parties hereto by facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this Agreement.
In the event any signature is delivered by facsimile transmission, the party
using such means of delivery shall cause the manually executed Execution Page(s)
hereof to be physically delivered to the other party within five days of the
execution hereof.
c. Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
-19-
d. Severability. 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.
e. Entire Agreement; Amendments. This Agreement and the instruments
referenced herein contain the entire understanding of the parties with respect
to the matters covered herein and therein and, except as specifically set forth
herein or therein, neither the Company nor the Purchaser makes any
representation, warranty, covenant or undertaking with respect to such matters.
Notwithstanding anything contained herein to the contrary, as of the Closing
Date, none of the covenants contained in the Securities Purchase Agreement shall
remain in effect, except the covenant contained in Section 4(e) of the
Securities Purchase Agreement which shall remain in full force and effect in
accordance with its terms. Except as provided herein to the contrary, the
entirety of the January Registration Rights Agreement shall remain in full force
and effect in accordance with its terms. No provision of this Agreement may be
waived or amended other than by an instrument in writing signed by the party to
be charged with enforcement and no provision of this Agreement may be amended
other than by an instrument in writing signed by the Company and the Purchaser.
f. Notices. Any notices required or permitted to be given under the
terms of this Agreement shall be sent by certified or registered mail (return
receipt requested) or delivered personally or by courier (including a recognized
overnight delivery service) or by facsimile, and shall be effective five days
after being placed in the mail, if mailed, or upon receipt or refusal of
receipt, if delivered personally or by courier or by facsimile, in each case
addressed to a party. The addresses for such communications shall be:
If to the Company:
Interactive Magic, Inc.
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
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Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: Chief Executive Officer
If to the Purchaser, to the address set forth under the Purchaser's
name on the signature page hereto executed by the Purchaser. Each party shall
provide notice to the other party of any change in address or facsimile number.
g. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and assigns. Except as
provided herein, neither the Company nor the Purchaser shall assign this
Agreement or any rights or obligations hereunder. Notwithstanding the foregoing,
the Purchaser may assign its rights hereunder to any person that purchases
Securities in a private transaction from the Purchaser in accordance with the
securities laws or to any of the Purchaser's "affiliates," as that term is
defined under the Exchange Act, without the consent of the Company or to any
other person or entity with the consent of the Company. This
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provision shall not limit the Purchaser's right to transfer the Securities
pursuant to the terms of this Agreement or the Registration Rights Agreement or
to assign the Purchaser's rights hereunder or thereunder to any such transferee.
h. Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
i. Survival. The representations and warranties of the Company and the
agreements and covenants set forth in Sections 3, 4, 5 and 8 hereof and in the
Disclosure Letter shall survive the Closing hereunder until the Purchaser no
longer beneficially owns any Securities notwithstanding any due diligence
investigation conducted by or on behalf of the Purchaser. Moreover, none of the
representations and warranties made by the Company herein or in the Disclosure
Letter shall act as a waiver of any rights or remedies the Purchaser may have
under applicable federal or state securities laws. The Company agrees to
indemnify and hold harmless the Purchaser and each of the Purchaser's officers,
directors, employees, partners, members, agents and affiliates for loss or
damage arising as a result of or related to any breach or alleged breach by the
Company of any of its representations, warranties or covenants set forth herein,
in the Disclosure Letter or in the Registration Rights Agreement, including
advancement of expenses as they are incurred.
j. Publicity. The Company and the Purchaser shall have the right to
review a reasonable period of time before issuance any press releases, SEC,
NASDAQ or NASD filings, or any other public statements with respect to the
transactions contemplated hereby; PROVIDED, HOWEVER, that the Company shall be
entitled, without the prior approval of the Purchaser, to make any press release
or SEC, NASDAQ or NASD filings with respect to such transactions as is required
by applicable law and regulations (although the Purchaser shall be consulted by
the Company in connection with any such press release prior to its release and
shall be provided with a copy thereof and be given an opportunity to comment
thereon).
k. Further Assurances. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
l. Joint Participation in Drafting. Each party to this Agreement has
participated in the negotiation and drafting of this Agreement, the Articles of
Amendment and the Registration Rights Agreement. As such, the language used
herein and therein shall be deemed to be the language chosen by the parties
hereto to express their mutual intent, and no rule of strict construction will
be applied against any party to this Agreement.
m. Equitable Relief. The Company acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to the Purchaser by
vitiating the intent and purpose of the transactions contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law
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for a breach of its obligations hereunder (including, but not limited to, its
obligations pursuant to Section 5 hereof) will be inadequate and agrees, in the
event of a breach or threatened breach by the Company of the provisions of this
Agreement (including, but not limited to, its obligations pursuant to Section 5
hereof), that the Purchaser shall be entitled, in addition to all other
available remedies, to an injunction restraining any breach and requiring
immediate issuance and transfer, without the necessity of showing economic loss
and without any bond or other security being required.
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IN WITNESS WHEREOF, the undersigned Purchaser and the Company have
caused this Agreement to be duly executed as of the date first above written.
INTERACTIVE MAGIC, INC.
By:__________________________________
Name:________________________________
Title:_______________________________
PURCHASER:
RGC INTERNATIONAL INVESTORS, LDC
By: ▇▇▇▇ ▇▇▇▇ Capital Management, L.P.,
Investment Manager
By: RGC General Partner Corp.,
as General Partner
By:___________________________
Name:____________________
Managing Director
RESIDENCE: Cayman Islands
ADDRESS: ▇/▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇.▇.
Three Bala Plaza East
Suite 200
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Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
with copies of all notices to:
Klehr, Harrison, ▇▇▇▇▇▇, Branzburg & ▇▇▇▇▇▇
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Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esquire
