EXHIBIT 10.29
EXHIBIT A
TO
SECURITIES
PURCHASE
AGREEMENT
THIS CONVERTIBLE NOTE AND THE SHARES ISSUABLE UPON CONVERSION HEREOF HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"). THE SECURITIES REPRESENTED HEREBY 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.
CONVERTIBLE NOTE
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January 26, 1999 $4,000,000
FOR VALUE RECEIVED, INTERACTIVE MAGIC, INC., a corporation
organized under the laws of the State of North Carolina (hereinafter called the
"BORROWER" or the "CORPORATION") hereby promises to pay to the order of RGC
INTERNATIONAL INVESTORS, LDC or registered assigns (the "HOLDER") the sum of
Four Million Dollars ($4,000,000) on January 26, 2002 (the "AUTOMATIC CONVERSION
DATE") and to pay interest on the unpaid principal balance hereof at the rate of
six percent (6%) per annum from the date hereof (the "ISSUE DATE") until the
same becomes due and payable (which interest shall accrue on a daily basis),
whether at maturity or upon conversion, redemption, acceleration or otherwise.
Any amount of principal of or interest on this Note which, to the extent not
converted in accordance with the provisions hereof, is not paid when due shall
bear interest at the rate of fifteen percent (15%) per annum from the due date
thereof until the same is paid. Interest shall be calculated based on a 360-day
year and shall commence accruing on the Issue Date and, to the extent not
converted in accordance with the provisions hereof, shall be payable in arrears
at such time as the outstanding principal balance hereof with respect to which
such interest has accrued becomes due and payable hereunder. All payments of
principal and interest (to the extent not converted into shares of the
Corporation's common stock, par value $.10 per share ("COMMON STOCK"), in
accordance with the terms hereof) shall be made in, and all references herein to
monetary denominations shall refer to, lawful money of the United States of
America. All payments shall be made at such address as Holder shall hereafter
give to the Borrower by written notice made in accordance with the provisions of
this Note. The Automatic Conversion Date is subject to extension as provided in
Article IV hereof.
This Note is being issued by the Borrower pursuant to the Securities
Purchase Agreement, dated as of January 25, 1999, between the Borrower and
Holder (the "PURCHASE AGREEMENT"). Each capitalized term used, but not otherwise
defined, herein shall have the meaning ascribed thereto in the Purchase
Agreement. For purposes hereof, the term "NOTES" shall be deemed to refer to
this Note, all other convertible notes issued pursuant to the Purchase Agreement
and all convertible notes issued in replacement hereof or thereof or otherwise
with respect hereto or thereto.
I. REDEMPTION
A. MANDATORY REDEMPTION. If any of the following events (each,
a "MANDATORY REDEMPTION EVENT") shall occur:
(1) The Corporation (i) fails to issue shares of Common Stock
or Warrants to the holders of the Notes upon exercise by the holders of their
conversion rights in accordance with the terms of the Notes (for a period of at
least 60 days if such failure is solely as a result of the circumstances
governed by the second paragraph of Article II.F below and the Corporation is
using its best efforts to authorize a sufficient number of shares of Common
Stock as soon as practicable), (ii) fails to transfer or to cause its transfer
agent to transfer (electronically or in certificated form) any certificate for
shares of Common Stock issued to the holders upon conversion of or otherwise
pursuant to the Notes or upon exercise of or otherwise pursuant to the Warrants
(as defined in Article II.E below) as and when required by the Notes, the
Warrants or the Registration Rights Agreement, dated as of January 25, 1999, by
and among the Corporation and the other signatories thereto (the "REGISTRATION
RIGHTS AGREEMENT"), (iii) fails to remove any restrictive legend (or to withdraw
any stop transfer instructions in respect thereof) on any certificate or any
shares of Common Stock issued to the holders of the Notes upon conversion of or
otherwise pursuant to the Notes or upon exercise of or otherwise pursuant to the
Warrants as and when required by the Notes, the Warrants, the Purchase Agreement
or the Registration Rights Agreement, or (iv) fails to fulfill its obligations
pursuant to Sections 4(c), 4(e), 4(h), 4(i), 4(l) or 5 of the Purchase Agreement
(or makes any announcement, statement or threat that it does not intend to honor
the obligations described in this paragraph) and any such failure shall continue
uncured (or any announcement, statement or threat not to honor its obligations
shall not be rescinded in writing) for ten days after the Corporation shall have
been notified thereof in writing by any holder of the Notes;
(2) The Corporation fails to obtain effectiveness with the
Securities and Exchange Commission (the "SEC") prior to June 25, 1999 of the
Registration Statement(s) (as defined in the Registration Rights Agreement, the
"REGISTRATION STATEMENT(S)") required to be filed pursuant to Section 2(a) of
the Registration Rights Agreement, or fails to obtain the effectiveness of any
additional Registration Statement (required to be filed pursuant to Section 3(b)
of the Registration Rights Agreement) within 120 days after the Registration
Trigger Date (as defined in the Registration Rights Agreement), or any such
Registration Statement, after its initial effectiveness and during the
Registration Period (as defined in the Registration Rights Agreement), lapses in
effect or sales of all of the Registrable Securities (as defined in the
Registration Rights Agreement, the "REGISTRABLE SECURITIES") otherwise cannot be
made thereunder (whether by reason of the
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Corporation's failure to amend or supplement the prospectus included therein in
accordance with the Registration Rights Agreement, the Corporation's failure to
file and obtain effectiveness with the SEC of an additional Registration
Statement required pursuant to Section 3(b) of the Registration Rights Agreement
or otherwise) for more than 30 consecutive days or more than 60 days in any 12-
month period after such Registration Statement becomes effective;
(3) The Corporation or any subsidiary of the Corporation shall
make an assignment for the benefit of creditors, or apply for or consent to the
appointment of a receiver or trustee for it or for all or substantially all of
its property or business; or such a receiver or trustee shall otherwise be
appointed and shall not be discharged within 30 days;
(4) Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against the Corporation or
any material subsidiary of the Corporation and, if not instituted by the
Corporation or any such subsidiary, shall be consented to or acquiesced in by
the Corporation or such subsidiary, shall be converted to a voluntary case or
shall remain for 60 days undismissed;
(5) The Corporation shall fail to maintain the listing of the
Common Stock on one of the Nasdaq National Market ("NASDAQ"), the New York Stock
Exchange ("NYSE") or the American Stock Exchange ("AMEX");
(6) The sale, conveyance or disposition of all or
substantially all of the assets of the Corporation or 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 (other than
transactions described in subparagraph (7) or (8) below, which shall be governed
by such subparagraphs);
(7) the consolidation, merger or other business combination of
the Corporation with or into any other individual, corporation, limited
liability company, partnership, association, trust or other entity or
organization (each a "PERSON") or Persons when the Corporation is not the
Survivor (as defined below) and either (i) the Survivor is not subject to the
periodic filing requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934 (the "SEC FILING REQUIREMENTS"), or (ii) the Survivor is subject to
the SEC Filing Requirements and the consideration to be paid to the stockholders
of the Corporation in such transactions consists of cash or a combination of
cash and securities or other property;
(8) the consolidation, merger or other business combination of
the Corporation with or into any other Person or Persons when the Corporation is
not the Survivor and (i) the Survivor is subject to the SEC Filing Requirements,
(ii) the consideration to be paid to the stockholders of the Corporation in such
transaction consists solely of capital stock of the Survivor and (iii) (A) the
average of the Closing Bid Prices of the Common Stock for the 20 consecutive
Trading Days (as defined in Article II.B) ending on the later of (I) the third
Trading Day immediately preceding the closing of such transaction, and (II) the
date such transaction is approved
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by the holders of the requisite percentage of outstanding capital stock of the
Corporation (such later date, the "MEASUREMENT DATE") (such average being
hereinafter referred to as the "AVERAGE PRICE") is less than the product of (x)
two, multiplied by (y) the Conversion Price in effect on the Measurement Date or
(B) if the Average Price is equal to or greater than the product of (x) two,
multiplied by (y) the Conversion Price in effect on the Measurement Date, the
Closing Bid Price of the Common Stock on the Trading Day immediately preceding
the Measurement Date is less than the Average Price; or
(9) The Corporation breaches in any material respect any
covenant contained in Article III hereof and such breach continues uncured for a
period of ten days after written notice thereof to the Corporation from any
holder of Notes;
then, upon the occurrence and during the continuation of any Mandatory
Redemption Event specified in subparagraphs (1), (2), (5), (6), (8) or (9) at
the option of the holders of at least 50% of the then outstanding principal
amount of the Notes exercisable by the delivery of written notice (the
"MANDATORY REDEMPTION NOTICE") to the Corporation of such Mandatory Redemption
Event, or upon the occurrence of any Mandatory Redemption Event specified in
subparagraphs (3), (4) or (7) the Notes shall become immediately redeemable and
the Corporation shall purchase each holder's Notes for an amount equal to the
greater of (i) 120% multiplied by the sum of (a) the then outstanding principal
amount of the Notes, plus (b) all accrued and unpaid interest thereon for the
period beginning on the Issue Date and ending on the date of payment of the
Mandatory Redemption Amount (the "MANDATORY REDEMPTION DATE"), plus (c) all
Conversion Default Payments (as defined in Article II.F below), Delivery Default
Payments (as defined in Article II.D(3) below) and any other amounts owed to
such holder pursuant to Section 2(c) of the Registration Rights Agreement, and
(ii) the "PARITY VALUE" of the Notes to be redeemed, where parity value means
(except as provided below with respect to a Mandatory Redemption Event described
in subparagraph (7) above) the product of (a) the highest number of shares of
Common Stock issuable upon conversion of such Notes in accordance with Article
II below (without giving any effect to any limitations on conversions of Notes
contained herein, and treating the Trading Day immediately preceding the
Mandatory Redemption Date as the "CONVERSION DATE" (as defined in Article
II.B(1)) for purposes of determining the lowest applicable Conversion Price,
unless the Mandatory Redemption Event arises as a result of a breach in respect
of a specific Conversion Date in which case such Conversion Date shall be the
Conversion Date), multiplied by (b) the highest Closing Bid Price (as defined in
Article II.B(1)) for the Common Stock during the period beginning on the date of
first occurrence of the Mandatory Redemption Event and ending one day prior to
the Mandatory Redemption Date (the greater of such amounts being referred to as
the "MANDATORY REDEMPTION AMOUNT"). In the case of a Mandatory Redemption Event
described in subparagraph (7) above, "parity value" means the product of (a) the
highest number of shares of Common Stock issuable upon conversion of the Notes
to be redeemed in accordance with Article II below (without giving effect to any
limitations on conversions of Notes contained herein) based on the lowest
Conversion Price that would have been in effect for a conversion occurring on
any Trading Day during the period beginning on the Announcement Date (as defined
in Article II.B(2)) with respect to the transaction giving rise to such
Mandatory Redemption Event and ending on the Measurement Date (the "MEASUREMENT
PERIOD"), multiplied by (b) the highest Closing Bid Price for the Common
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Stock during the Measurement Period. The Mandatory Redemption Amount, together
with all other ancillary amounts payable hereunder, shall immediately become due
and payable, all without demand, presentment or notice, all of which hereby are
expressly waived, together with all costs, including, without limitation,
reasonable legal fees and expenses of collection, and Holder shall be entitled
to exercise all other rights and remedies available at law or in equity. For
purposes of this Agreement, "Survivor" means, with respect to any consolidation,
merger or other business combination to which the Corporation is a party, the
surviving entity of such transaction; provided, however, if the Corporation
merges with and into another Person and more than 50% of the outstanding voting
stock of the Corporation (if the Corporation is the surviving entity), or more
than 50% of the outstanding voting stock of such Person (if such Person is the
surviving entity), is owned by another Person that is subject to the SEC Filing
Requirements, then the Person subject to such requirements shall be deemed the
Survivor.
B. TRADING MARKET REDEMPTION. If any Notes cease to be
convertible by any holder as a result of the limitations described in Article
II.A(2) below (a "TRADING MARKET REDEMPTION EVENT"), and the Corporation has
not, prior to the date that such Trading Market Redemption Event arises, (1)
either (i) obtained the Stockholder Approval (as defined in Article II.A(2)) or
(ii) eliminated any prohibitions under applicable law or the rules or
regulations of any stock exchange, interdealer quotation system or other
self-regulatory organization with jurisdiction over the Corporation or any of
its securities on the Corporation's ability to issue shares of Common Stock in
excess of the Maximum Share Amount (as defined in Article II.A(2)) and (2)
delivered to the holders of the Notes a Share Limit Waiver (as defined in
Article II.A), then the Corporation shall be obligated to redeem immediately all
of the then outstanding principal amount of the Notes, in accordance with this
Article I.B. An irrevocable redemption notice (the "TRADING MARKET REDEMPTION
NOTICE") shall be delivered promptly to the holders of the Notes in accordance
with the terms hereof and shall state (i) that the Maximum Share Amount (as
defined in Article II.A(2)) has been issued upon conversion of the Notes, (ii)
that the Corporation is obligated to redeem all of the outstanding Notes and
(iii) the Mandatory Redemption Date, which shall be a date within five business
days of the earlier of (a) the date of the Trading Market Redemption Notice or
(b) the date on which the holders of the Notes notify the Corporation of the
occurrence of a Trading Market Redemption Event. On the Mandatory Redemption
Date, the Corporation shall make payment of the Mandatory Redemption Amount (as
defined in Article I.A above) in cash.
C. FAILURE TO PAY REDEMPTION AMOUNTS. In the case of a
Mandatory Redemption Event, if the Corporation fails to pay the Mandatory
Redemption Amount within five business days of written notice that such amount
is due and payable, then (assuming there are sufficient authorized shares) in
addition to all other available remedies, Holder shall have the right at any
time, so long as the Mandatory Redemption Event continues, to require the
Corporation, upon written notice, to issue as soon as practicable thereafter (in
accordance with and subject to the terms of Article II below, including
paragraph A(2) thereof), in lieu of the Mandatory Redemption Amount, the number
of shares of Common Stock of the Corporation equal to such applicable redemption
amount divided by any Conversion Price, as chosen in the sole discretion of
Holder, in effect from the date of the Mandatory Redemption Event until the date
Holder elects to exercise its rights pursuant to this Article I.C. In the case
of a Trading Market Redemption Event, if the
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Corporation fails to pay the Mandatory Redemption Amount within five business
days after the occurrence of the Trading Market Redemption Event, the
Corporation shall be required to immediately deliver to the holders of the Notes
the Share Limit Waiver, provided that the conditions set forth in Article
I.B(1)(i) or (ii) have been satisfied.
II. CONVERSION AT THE OPTION OF HOLDER
A. OPTIONAL CONVERSION
(1) CONVERSION AMOUNT. Subject to Article II.A(2) below,
Holder may, at its option at any time and from time to time, upon surrender of
this Note, convert all or any portion of this Note into Common Stock as set
forth below (an "OPTIONAL CONVERSION"). This Note shall be convertible into such
number of fully paid and nonassessable shares of Common Stock as such Common
Stock exists on the Issue Date, or any other shares of capital stock or other
securities of the Corporation into which such Common Stock is thereafter changed
or reclassified, as is determined by dividing (a) the Conversion Amount (as
defined below) by (b) the Conversion Price (as defined in Article II.B below);
provided, however, that in no event (other than pursuant to the Automatic
Conversion (as defined in Article IV)) shall Holder be entitled to convert this
Note to the extent that the sum of (x) the number of shares of Common Stock
beneficially owned by Holder and its affiliates (other than shares of Common
Stock which may be deemed beneficially owned through the ownership of the
unconverted portion of this Note, the unexercised Warrants or the unexercised or
unconverted portion of any other securities of the Corporation subject to a
limitation on conversion or exercise analogous to the limitations contained
herein) and (y) the number of shares of Common Stock issuable upon the
conversion of the portion of this Note with respect to which the determination
of this proviso is being made, would result in beneficial ownership by Holder
and Holder's affiliates of more than 4.99% of the outstanding shares of Common
Stock. For purposes of the proviso to the immediately preceding sentence,
beneficial ownership shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended, and Regulation 13D-G thereunder,
except as otherwise provided in clause (x) of such proviso. "CONVERSION AMOUNT"
means the portion of the principal amount of this Note being converted, plus all
accrued and unpaid interest thereon for the period beginning on the Issue Date
and ending on the Conversion Date (as defined in Article II(B)(1)), plus any
Conversion Default Payments (as defined in Article II.F) and Delivery Default
Payments (as defined in Article II.D(3)) payable with respect thereto, together
with any other amounts owed to Holder pursuant to Section 2(c) of the
Registration Rights Agreement.
(2) TRADING MARKET LIMITATION. Unless the Corporation (a)
either (i) is permitted by the applicable rules and regulations of the principal
securities market on which the Common Stock is listed or traded to issue shares
of Common Stock upon conversion of or otherwise pursuant to the Notes and upon
exercise of or otherwise pursuant to the Warrants in excess of the Maximum Share
Amount (as defined below) or (ii) has obtained stockholder approval of the
issuance of shares of Common Stock upon conversion of or otherwise pursuant to
the Notes and upon exercise of or otherwise pursuant to the Warrants in excess
of the Maximum Share Amount
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in accordance with applicable law and the rules and regulations of any stock
exchange, interdealer quotation system or other self-regulatory organization
with jurisdiction over the Corporation or any of its securities (the
"STOCKHOLDER APPROVAL"), and (b) has provided written notice to the holders of
the Notes that it has waived the restrictions contained in this subparagraph (2)
on issuing shares of Common Stock upon conversion of or otherwise pursuant to
the Notes and upon exercise of or otherwise pursuant to the Warrants in excess
of the Maximum Share Amount (as defined below) (the "SHARE LIMIT WAIVER"), in no
event shall the total number of shares of Common Stock issued upon conversion of
or otherwise pursuant to the Notes and upon exercise of or otherwise pursuant to
the Warrants (including any shares of capital stock or rights to acquire shares
of capital stock issued by the Corporation which are aggregated or integrated
with the Common Stock issued or issuable upon conversion of the Notes and upon
exercise of or otherwise pursuant to the Warrants for purposes of any such rule
or regulation) exceed the maximum number of shares of Common Stock that the
Corporation can so issue pursuant to any rule of the principal United States
securities market on which the Common Stock trades (including Rule 4460(i) of
the Nasdaq Stock Market or any successor rule) (the "MAXIMUM SHARE AMOUNT")
which, as of the Issue Date, shall be 2,119,889 (19.99% of the total shares of
Common Stock outstanding on the Issue Date), subject to equitable adjustments
from time to time for stock splits, stock dividends, combinations, capital
reorganizations and similar events relating to the Common Stock occurring after
the Issue Date. With respect to each Holder of Notes, the Maximum Share Amount
shall refer to such Holder's pro rata share thereof determined in accordance
with Article VI.K below. In the event that (a) the aggregate number of shares of
Common Stock actually issued upon conversion of or otherwise pursuant to the
Notes and upon exercise of or otherwise pursuant to the Warrants represents at
least 50% of the Maximum Share Amount and (b) the sum of (x) the aggregate
number of shares of Common Stock actually issued upon conversion of or otherwise
pursuant to the Notes and upon exercise of or otherwise pursuant to the Warrants
plus (y) the aggregate number of shares of Common Stock that remain issuable
upon conversion of the then outstanding Notes at the then effective Conversion
Price and upon exercise of or otherwise pursuant to the Warrants, represents at
least 100% of the Maximum Share Amount (the "TRIGGERING EVENT"), the Corporation
will use its best efforts to seek and obtain Stockholder Approval (or obtain
such other relief as will allow conversions hereunder in excess of the Maximum
Share Amount) as soon as practicable following the Triggering Event.
B. CONVERSION PRICE.
(1) CALCULATION OF CONVERSION PRICE. Subject to subparagraph
(2) below, the "CONVERSION PRICE" shall be the lesser of the Market Price and
the Fixed Conversion Price. The Conversion Price shall be subject to adjustments
pursuant to the provisions of Article II.C below. "MARKET PRICE" shall mean the
product of (x) the Applicable Percentage (as defined below) and (y) the average
of the lowest Closing Bid Prices on any two Trading Days (which days need not be
consecutive) (the "MARKET PRICE DAYS") during the 22 consecutive Trading Day
period ending one Trading Day prior to the date (the "CONVERSION DATE") the
Notice of Conversion (as defined in Article II.D) is sent by a holder to the
Corporation via facsimile (the "PRICING PERIOD"). The Market Price Days shall be
designated by the converting holder (from among the days comprising the Pricing
Period) in the Notice of Conversion. "FIXED CONVERSION PRICE" shall mean the
product of (x) the Applicable Percentage and (y) $4.0125 (subject to adjustment
for stock splits, stock
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dividends and similar events). The "APPLICABLE PERCENTAGE" shall initially mean,
in the case of the Market Price, 93%, and, in the case of the Fixed Conversion
Price, 120%; provided, however, that on each of the 151st, 211th, 271st, 331st,
391st, 451st, 511th and 571st day after the Issue Date, the Applicable
Percentage shall be reduced by two full percentage points (2%) for a total
reduction of sixteen full percentage points (16%) by such 571st day (for
example, on such 151st day, the Applicable Percentage shall be reduced to, in
the case of the Market Price, 91%, and, in the case of the Fixed Conversion
Price, 118%, in accordance with this proviso); provided, further, however, that
in the event the average daily trading volume of the Common Stock on the
principal market on which the Common Stock is traded (provided such market is at
least one of the Nasdaq, the NYSE or the AMEX) is less than 45,000 shares in any
given calendar month, the Applicable Percentage will be permanently reduced by
an additional two full percentage points (2%) beginning on the first day of the
next succeeding calendar month; provided, further, however, that the Applicable
Percentage shall be permanently reduced by an additional two full percentage
points (2%) (or a pro rata portion thereof) for each 30 day period (or any
portion thereof) with respect to which any Holder is entitled to payments
pursuant to Section 2(c) of the Registration Rights Agreement with such
reduction occurring on each date such payments are due pursuant to the
Registration Rights Agreement; provided, further, however, that in the event the
Corporation's Common Stock is no longer listed and authorized for trading on at
least one of the Nasdaq, the NYSE or the AMEX, the Applicable Percentage will be
permanently reduced by an additional ten full percentage points (10%). The
Applicable Percentage shall be subject to further adjustment as provided herein.
"CLOSING BID PRICE" means, for any security as of any date, the closing bid
price on Nasdaq as reported by Bloomberg Financial Markets or an equivalent
reliable reporting service mutually acceptable to and hereafter designated by
the holders of a majority in interest of the Notes and the Corporation
("BLOOMBERG") or, if Nasdaq is not the principal trading market for such
security, the closing bid price of such security on the principal securities
exchange or trading market where such security is listed or traded as reported
by Bloomberg, or if the foregoing do not apply, the closing bid price of such
security in the over-the-counter market on the electronic bulletin board for
such security as reported by Bloomberg, or, if no closing bid price of such
security is available in the over-the-counter market on the electronic bulletin
board for such security or in any of the foregoing manners, the average of the
bid prices of any market makers for such security that are listed in the "pink
sheets" by the National Quotation Bureau, Inc. If the Closing Bid Price cannot
be calculated for such security on such date in the manner provided above, the
Closing Bid Price shall be the fair market value as mutually determined by the
Corporation and the holders of a majority in interest of the Notes being
converted for which the calculation of the Closing Bid Price is required in
order to determine the Conversion Price of such Notes. "TRADING DAY" shall mean
any day on which the Common Stock is traded for any period on Nasdaq, or on the
principal securities exchange or other securities market on which the Common
Stock is then being traded.
(2) CONVERSION PRICE DURING MAJOR ANNOUNCEMENTS.
Notwithstanding anything contained in subparagraph (1) of this Paragraph B to
the contrary, in the event the Corporation (a) makes a public announcement that
it intends to consolidate or merge with any other corporation (other than a
merger in which the Corporation is the surviving or continuing corporation and
its capital stock is unchanged) or sell or transfer all or substantially all of
the assets of the Corporation or (b) any person, group or entity (including the
Corporation) publicly announces a
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tender offer to purchase 50% or more of the Corporation's Common Stock (or any
other takeover scheme) (the date of the announcement referred to in clause (a)
or (b) is hereinafter referred to as the "ANNOUNCEMENT DATE"), then the
Conversion Price shall, effective upon the Announcement Date and continuing
through the Adjusted Conversion Price Termination Date (as defined below), be
equal, for each such date, to the lower of (x) the Conversion Price which would
have been applicable for an Optional Conversion occurring on the Announcement
Date and (y) the Conversion Price that would otherwise be in effect on such
date. From and after the Adjusted Conversion Price Termination Date, the
Conversion Price shall be determined as set forth in subparagraph (1) of this
Article II.B. For purposes hereof, "ADJUSTED CONVERSION PRICE TERMINATION DATE"
shall mean, with respect to any proposed transaction or tender offer (or
takeover scheme) for which a public announcement as contemplated by this
subparagraph (2) has been made, the date upon which the Corporation (in the case
of clause (a) above) or the person, group or entity (in the case of clause (b)
above) consummates or publicly announces the termination or abandonment of the
proposed transaction or tender offer (or takeover scheme) which caused this
subparagraph (2) to become operative.
C. ADJUSTMENTS TO CONVERSION PRICE. The Conversion Price shall
be subject to adjustment from time to time as follows:
(1) ADJUSTMENT TO CONVERSION PRICE DUE TO STOCK SPLIT, STOCK
DIVIDEND, ETC. If at any time when this Note is outstanding, the number of
outstanding shares of Common Stock is increased or decreased by a stock split,
stock dividend, combination, reclassification or other similar event, which
event shall have taken place during the reference period for determination of
the Conversion Price for any Optional Conversion or Automatic Conversion, then
the Conversion Price shall be calculated giving appropriate effect to the stock
split, stock dividend, combination, reclassification or other similar event. In
such event, the Corporation shall notify the Transfer Agent of such change on or
before the effective date thereof.
(2) ADJUSTMENT DUE TO MERGER, CONSOLIDATION, ETC. If, at any
time when this Note is outstanding and prior to the conversion of all Notes,
there shall be any merger, consolidation, exchange of shares, recapitalization,
reorganization, or other similar event (other than a transaction described in
Article V), as a result of which shares of Common Stock of the Corporation shall
be changed into the same or a different number of shares of another class or
classes of stock or securities of the Corporation or another entity, or in case
of any sale or conveyance of all or substantially all of the assets of the
Corporation other than in connection with a plan of complete liquidation of the
Corporation, then Holder shall thereafter have the right to receive upon
conversion of this Note, upon the basis and upon the terms and conditions
specified herein and in lieu of the shares of Common Stock immediately
theretofore issuable upon conversion, such stock, securities or assets which
Holder would have been entitled to receive in such transaction had this Note
been converted in full immediately prior to such transaction (without regard to
any limitations on conversion contained herein), and in any such case
appropriate provisions shall be made with respect to the rights and interests of
Holder to the end that the provisions hereof (including, without limitation,
provisions for adjustment of the Conversion Price and of the number of shares of
Common Stock issuable upon conversion of this Note) shall thereafter be
applicable,
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as nearly as may be practicable in relation to any securities or assets
thereafter deliverable upon the conversion of this Note. The Corporation shall
not effect any transaction described in this subparagraph (2) unless (a) it
first gives, to the extent practical, prior written notice of the record date of
the special meeting of stockholders to approve, or if there is no such record
date, the consummation of, such merger, consolidation, exchange of shares,
recapitalization, reorganization or other similar event or sale of assets to the
extent required by law (during which time Holder shall be entitled to convert
this Note), which notice shall be given concurrently with the first public
announcement of such transaction, and (b) the resulting successor or acquiring
entity (if not the Corporation) assumes by written instrument the obligations of
the Corporation hereunder (including under this subparagraph (2)). The above
provisions shall similarly apply to successive consolidations, mergers, sales,
transfers or share exchanges.
(3) ADJUSTMENT DUE TO DISTRIBUTION. If the Corporation shall
declare or make any distribution of its assets (or rights to acquire its assets)
to holders of Common Stock as a dividend, stock repurchase, by way of return of
capital or otherwise (including any dividend or distribution to the
Corporation's shareholders in cash or shares (or rights to acquire shares) of
capital stock of a subsidiary (i.e., a spin-off)) (a "DISTRIBUTION"), then
Holder shall be entitled, upon any conversion of this Note after the date of
record for determining shareholders entitled to such Distribution, to receive
the amount of such assets which would have been payable to Holder with respect
to the shares of Common Stock issuable upon conversion had Holder converted the
Note and been the holder of the number of shares of Common Stock into which the
Note was convertible on the record date for the determination of shareholders
entitled to such Distribution.
(4) PURCHASE RIGHTS. If at any time when this Note is
outstanding the Corporation issues any convertible securities or rights to
purchase stock, warrants, securities or other property (the "PURCHASE RIGHTS")
pro rata to the record holders of any class of Common Stock, then Holder will be
entitled to acquire, upon the terms applicable to such Purchase Rights, the
aggregate Purchase Rights which Holder could have acquired if Holder had held
the number of shares of Common Stock acquirable upon complete conversion of this
Note (without regard to any limitations on conversion contained herein and based
upon the lesser of the Market Price and the Fixed Conversion Price as would then
be in effect) immediately before the date on which a record is taken for the
grant, issuance or sale of such Purchase Rights, or, if no such record is taken,
the date as of which the record holders of Common Stock are to be determined for
the grant, issue or sale of such Purchase Rights.
(5) ADJUSTMENT FOR RESTRICTED PERIODS. In the event that (a)
the Corporation fails to obtain effectiveness with the SEC of any Registration
Statement required to be filed pursuant to the Registration Rights Agreement on
or prior to the date on which such Registration Statement is required to become
effective pursuant to the terms of the Registration Rights Agreement, or (b) any
such Registration Statement, after its initial effectiveness and during the
Registration Period, lapses in effect, or sales of all of the Registrable
Securities (as defined in the Registration Rights Agreement) otherwise cannot be
made thereunder, whether by reason of the Corporation's failure or inability to
amend or supplement the prospectus (the "PROSPECTUS") included therein in
accordance with the Registration Rights Agreement or otherwise, then, at the
election of
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Holder, the Pricing Period shall be comprised of (x) in the case of an event
described in clause (a), the 22 Trading Days preceding the date on which such
Registration Statement is required to become effective pursuant to the terms of
the Registration Rights Agreement plus all Trading Days through and including
the third Trading Day following the actual date of effectiveness of the
Registration Statement and (y) in the case of an event described in clause (b),
the 22 Trading Days preceding the date on which Holder is first notified that
sales may not be made under the Registration Statement, plus all Trading Days
through and including the third Trading Day following the date on which Holder
is first notified that such sales may again be made under the Registration
Statement. If Holder determines that sales may not be made pursuant to the
Registration Statement (whether by reason of the Corporation's failure or
inability to amend or supplement the Prospectus or otherwise) it shall so notify
the Corporation in writing and, unless the Corporation provides such holder with
a written opinion of the Corporation's counsel to the contrary, such
determination shall be binding for purposes of this paragraph.
D. MECHANICS OF CONVERSION. In order to convert this Note into
shares of Common Stock, Holder shall: (1) submit a copy of the fully executed
notice of conversion in the form attached hereto as Exhibit A ("NOTICE OF
CONVERSION") to the Corporation by facsimile dispatched prior to Midnight, New
York City time (the "CONVERSION NOTICE DEADLINE"), on the date specified therein
as the Conversion Date (as defined in Article II.D(5)) (or by other means
resulting in, or reasonably expected to result in, written notice to the
Corporation on the date specified therein as the Conversion Date) to the office
of the Corporation, which notice shall specify the principal amount of this Note
to be converted, the applicable Conversion Price and a calculation of the number
of shares of Common Stock issuable upon such conversion; and (2) subject to
Article II.D(1) below, surrender this Note along with a copy of the Notice of
Conversion to the office of the Corporation as soon as practicable thereafter.
In the case of a dispute as to the calculation of the Conversion Price, the
Corporation shall promptly issue that number of shares of Common Stock as is not
disputed in accordance with subparagraph (3) below. The Corporation shall submit
the disputed calculations to its outside accountant via facsimile within two
business days of receipt of the Notice of Conversion. The accountant shall
review the calculations and notify the Corporation and Holder of the results no
later than 48 hours from the time it receives the disputed calculations. The
accountant's calculation shall be deemed conclusive absent manifest error.
(1) Notwithstanding anything to the contrary set forth herein,
upon conversion of this Note in accordance with the terms hereof, Holder shall
not be required to physically surrender this Note to the Corporation unless the
entire unpaid principal amount of this Note is so converted. Holder and the
Corporation shall maintain records showing the principal amount so converted and
the dates of such conversions or shall use such other method, reasonably
satisfactory to Holder and the Corporation, so as not to require physical
surrender of this Note upon each such conversion. In the event of any dispute or
discrepancy, such records of the Corporation shall be controlling and
determinative in the absence of manifest error. Notwithstanding the foregoing,
if any portion of this Note is converted as aforesaid, Holder may not transfer
this Note unless Holder first physically surrenders this Note to the
Corporation, whereupon the Corporation will forthwith issue and deliver upon the
order of Holder a new Note of like tenor, registered as Holder may request,
representing in the aggregate the remaining unpaid principal amount of this
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Note. Holder and any assignee, by acceptance of this Note, acknowledge and agree
that, by reason of the provisions of this paragraph, following conversion of a
portion of this Note, the unpaid and unconverted principal amount of this Note
may be less than the amount stated on the face hereof.
(2) LOST OR STOLEN NOTES. Upon receipt by the Corporation of
evidence of the loss, theft, destruction or mutilation of this Note, and (in the
case of loss, theft or destruction) of indemnity reasonably satisfactory to the
Corporation, and upon surrender and cancellation of this Note, if mutilated, the
Corporation shall execute and deliver a new Note of like tenor and date.
(3) DELIVERY OF COMMON STOCK UPON CONVERSION. Upon the
submission of a Notice of Conversion, the Corporation shall, within three
business days after the Conversion Date (the "DELIVERY PERIOD"), issue and
deliver (or cause its Transfer Agent so to issue and deliver) in accordance with
the terms hereof and the Purchase Agreement (including, without limitation, in
accordance with the requirements of Section 2(g) of the Purchase Agreement) to
or upon the order of Holder that number of shares of Common Stock for the
portion of this Note converted as shall be determined in accordance herewith. In
addition to any other remedies available to Holder, including actual damages
and/or equitable relief, the Corporation shall pay to Holder $2,000 per day in
cash for each day beyond a two-day grace period following the Delivery Period
that the Corporation fails to deliver Common Stock (a "DELIVERY DEFAULT")
issuable upon conversion of this Note pursuant to the Notice of Conversion until
such time as the Corporation has delivered all such Common Stock (the "DELIVERY
DEFAULT PAYMENTS"); provided, however, in the event of a failure by the
Corporation to deliver shares upon conversion as a result of a Conversion
Default (as defined below), Holder shall not be entitled to receive Delivery
Default Payments but shall be entitled to receive Conversion Default Payments in
accordance with Article II.F. Such Delivery Default Payments shall be paid to
Holder by the fifth day of the month following the month in which they have
accrued or, at the option of Holder (by written notice to the Corporation by the
first day of the month following the month in which they have accrued), shall be
convertible into Common Stock in accordance with the terms of this Article II.
In lieu of delivering physical certificates representing the
Common Stock issuable upon conversion, provided the Corporation's Transfer Agent
is participating in the Depository Trust Company ("DTC") Fast Automated
Securities Transfer ("FAST") program, upon written request of Holder and its
compliance with the provisions contained in Article II.A and in this Article
II.D, the Corporation shall use its best efforts to cause its Transfer Agent to
electronically transmit the Common Stock issuable upon conversion to Holder by
crediting the account of Holder's Prime Broker with DTC through its Deposit
Withdrawal Agent Commission ("DWAC") system. The time periods for delivery and
penalties described in the immediately preceding paragraph shall apply to the
electronic transmittals described herein.
(4) NO FRACTIONAL SHARES. If any conversion of this Note would
result in a fractional share of Common Stock or the right to acquire a
fractional share of Common Stock, such fractional share shall be disregarded and
the number of shares of Common Stock issuable upon conversion of this Note shall
be the next higher number of shares.
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(5) CONVERSION DATE. The "CONVERSION DATE" shall be the date
specified in the Notice of Conversion, provided that the Notice of Conversion is
submitted by facsimile (or by other means resulting in, or reasonably expected
to result in, written notice) to the Corporation or its Transfer Agent before
Midnight, New York City time, on the date so specified, otherwise the Conversion
Date shall be the first business day after the date so specified (provided that
the Notice of Conversion is actually received by the Corporation or its Transfer
Agent on such business day). The person or persons entitled to receive the
shares of Common Stock issuable upon conversion shall be treated for all
purposes as the record holder or holders of such securities as of the Conversion
Date and all rights with respect to this Note (or portion thereof) surrendered
shall forthwith terminate except the rights set forth in Article VI.▇.
▇. WARRANTS. Subject to Article II.A(2), on any Conversion
Date relating to a conversion of this Note by Holder on which the Common Stock
trades at a price higher than the Fixed Conversion Price, the Corporation shall
deliver to Holder warrants (the "WARRANTS") in the form attached hereto as
Exhibit B exercisable for one share of Common Stock for every two shares of
Common Stock issued as a result of such conversion at an exercise price equal to
the applicable Conversion Price. Holder shall have the option to exercise such
Warrants, in whole or in part, on such Conversion Date, in which event Holder
shall so indicate on the Notice of Conversion in respect of such Conversion Date
and pay to the Corporation, in immediately available funds, on or within one
business day following the Conversion Date, the aggregate exercise price for the
shares of Common Stock issuable as a result of the exercise of such Warrants.
F. RESERVATION OF SHARES. A number of shares of the authorized
but unissued Common Stock sufficient to provide for the conversion in full of
the Notes outstanding (based on the lesser of the then current Market Price and
the Fixed Conversion Price) and the exercise in full of the Warrants shall at
all times be reserved by the Corporation, free from preemptive rights, for such
conversion or exercise. As of the Issue Date, 2,119,889 authorized and unissued
shares of Common Stock have been duly reserved for issuance upon conversion of
the Notes and upon exercise of the Warrants (the "RESERVED AMOUNT"). The
Reserved Amount shall be increased from time to time in accordance with the
Corporation's obligations pursuant to Section 4(h) of the Purchase Agreement. In
addition, if the Corporation shall issue any securities or make any change in
its capital structure which would change the number of shares of Common Stock
into which the Notes shall be convertible and for which the Warrants shall be
exercisable, the Corporation shall at the same time also make proper provision
so that thereafter there shall be a sufficient number of shares of Common Stock
authorized and reserved, free from preemptive rights, for conversion of the
Notes and exercise of the Warrants.
If at any time Holder submits a Notice of Conversion, and the
Corporation does not have sufficient authorized but unissued shares of Common
Stock duly reserved and available for issuance to effect such conversion in
accordance with the provisions of this Article II (a "CONVERSION DEFAULT"),
subject to Article VI.K, the Corporation shall issue to Holder all of the shares
of Common Stock which are available to effect such conversion. The portion of
the principal amount of this Note included in the Notice of Conversion which
exceeds the amount which is then convertible into available shares of Common
Stock (the "EXCESS AMOUNT") shall, notwithstanding
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anything to the contrary contained herein, not be convertible into Common Stock
in accordance with the terms hereof until (and at Holder's option at any time
after) the date additional shares of Common Stock are authorized and duly
reserved by the Corporation to permit such conversion, at which time the
Conversion Price in respect thereof shall be the lesser of (i) the Conversion
Price on the Conversion Default Date (as defined below) and (ii) the Conversion
Price on the Conversion Date elected by Holder in respect thereof. The
Corporation shall use its best efforts to effect an increase in the authorized
number of shares of Common Stock as soon as possible following the earlier of
(x) such time that Holder notifies the Corporation or that the Corporation
otherwise becomes aware that there are or likely will be insufficient authorized
and unissued shares to allow full conversion hereof and (y) a Conversion
Default. In addition, the Corporation shall pay to Holder payments ("CONVERSION
DEFAULT PAYMENTS") for a Conversion Default in the amount of (a) .24, multiplied
by (b) the Conversion Default Amount (as defined below), multiplied by (c)
(N/365), where N = the number of days from the day Holder submits a Notice of
Conversion giving rise to a Conversion Default (the "CONVERSION DEFAULT DATE")
to the date (the "AUTHORIZATION DATE") that the Corporation, authorizes a
sufficient number of shares of Common Stock to effect conversion of the Notes.
"CONVERSION DEFAULT AMOUNT" means the then outstanding principal amount of all
Notes held by Holder plus the aggregate accrued interest thereon as of the first
day of the Conversion Default. The Corporation shall send notice to Holder of
the authorization of additional shares of Common Stock, the Authorization Date
and the amount of Holder's accrued Conversion Default Payments. The accrued
Conversion Default Payment for each calendar month shall be paid in cash or
shall be convertible into Common Stock at the applicable Conversion Price, at
the Corporation's option, as follows:
(1) In the event the Corporation elects to make such payment
in cash, cash payment shall be made to Holder by the fifth day of the month
following the month in which it has accrued; provided, however, that if such
payment is not made on or before such day, the Corporation shall make such
payment in Common Stock (at the Conversion Price as in effect at the time of
Conversion) not later than the second business day after such cash payment was
due (so long as there is then a sufficient number of authorized shares of Common
Stock); and
(2) In the event the Corporation elects to make such payment
in Common Stock, Holder may convert such payment amount into Common Stock at the
Conversion Price (as in effect at the time of Conversion) at any time after the
fifth day of the month following the month in which it has accrued in accordance
with the terms of this Article II (so long as there is then a sufficient number
of authorized shares of Common Stock).
The Corporation's election shall be made in writing to Holder
at any time prior to 9:00 p.m, New York City time, on the third day of the month
following the month in which Conversion Default payments have accrued. If no
election is made, the Corporation shall be deemed to have elected to make such
payment in shares of Common Stock. Nothing herein shall limit Holder's right to
pursue actual damages (to the extent in excess of the Conversion Default
Payments) for the Corporation's failure to maintain a sufficient number of
authorized shares of Common Stock, and Holder shall have the right to pursue all
remedies available at law or in equity (including a decree of specific
performance and/or injunctive relief).
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G. NOTICE OF CONVERSION PRICE ADJUSTMENTS. Upon the occurrence
of each adjustment or readjustment of the Conversion Price pursuant to this
Article II, the Corporation, at its expense, shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and prepare and
furnish to Holder a certificate setting forth such adjustment or readjustment
and showing in detail the facts upon which such adjustment or readjustment is
based. The Corporation shall, upon the written request at any time of Holder,
furnish or cause to be furnished to Holder a like certificate setting forth (i)
such adjustment or readjustment, (ii) the Conversion Price at the time in effect
and (iii) the number of shares of Common Stock and the amount, if any, of other
securities or property which at the time would be received upon conversion of
this Note.
III. CERTAIN COVENANTS
A. DISTRIBUTIONS ON CAPITAL STOCK. So long as the Corporation
shall have any obligation under this Note, the Corporation shall not, without
the written consent of the holders of a majority of the then outstanding
principal amount of the Notes, (a) pay, declare or set apart for such payment,
any dividend or other distribution (whether in cash, property or other
securities) on shares of capital stock or (b) directly or indirectly through any
subsidiary make any other payment or distribution in respect of its capital
stock, in either case other than dividends on shares of Common Stock solely in
the form of additional shares of Common Stock.
B. RESTRICTION ON STOCK REPURCHASES. So long as the
Corporation shall have any obligation under this Note, the Corporation shall
not, without the written consent of the holders of a majority of the then
outstanding principal amount of the Notes, redeem, repurchase or otherwise
acquire (whether for cash or in exchange for property or other securities or
otherwise) in any one transaction or series of related transactions any shares
of capital stock of the Corporation or any warrants, rights or options to
purchase or acquire any such shares, except pursuant to the "cashless exercise"
provisions of such securities.
C. BORROWINGS. So long as the Corporation shall have any
obligation under this Note, the Corporation shall not, without the written
consent of the holders of a majority of the then outstanding principal amount of
the Notes, create, incur, assume or suffer to exist any liability for borrowed
money, except (a) borrowings in existence or committed on the date hereof and of
which the Corporation has informed Holder in writing prior to the date hereof,
(b) indebtedness to trade creditors incurred in the ordinary course of business,
(c) borrowings, the proceeds of which shall be used to repay this Note and (d)
borrowings under loan agreements or lines of credit entered into with banks or
other financial institutions engaged principally in commercial lending.
D. ADVANCES AND LOANS. So long as the Corporation shall have
any obligation under this Note, the Corporation shall not, without the written
consent of the holders of a majority of the then outstanding principal amount of
the Notes, lend money, give credit or make advances to any person, firm, joint
venture or corporation, including, without limitation, officers, directors,
employees, subsidiaries and affiliates of the Corporation, except loans, credits
or advances (a) in
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existence or committed on the date hereof and which the Corporation has informed
Holder in writing prior to the date hereof, and (b) made in the ordinary course
of business.
E. CONTINGENT LIABILITIES. So long as the Corporation shall
have any obligation under this Note, the Corporation shall not, without the
written consent of the holders of a majority of the then outstanding principal
amount of the Notes, assume, guarantee, endorse, contingently agree to purchase
or otherwise become liable upon the obligation of any person, firm, partnership,
joint venture or corporation, except by the endorsement of negotiable
instruments for deposit or collection and except assumptions, guarantees,
endorsements and contingencies (a) in existence or committed on the date hereof
and which the Corporation has informed Holder in writing prior to the date
hereof, and (b) similar transactions in the ordinary course of business.
IV. AUTOMATIC CONVERSION
Subject to the limitations on conversion set forth in Article
II.A.(2), so long as (i) all of the shares of Common Stock issuable upon
conversion of or otherwise pursuant to all of the then outstanding Notes are
then (x) authorized and reserved for issuance, (y) registered for re-sale under
the Securities Act by the holders of the Notes (or may otherwise be resold
publicly without restriction) and (z) eligible to be traded on Nasdaq, the NYSE
or the AMEX and (ii) there is not then a continuing Mandatory Redemption Event
or Trading Market Redemption Event, the entire principal amount of the Notes
then outstanding (together with any accrued and unpaid interest thereon,
Conversion Default Payments, Delivery Default Payments and all other amounts due
and payable by the Corporation pursuant to Section 2(c) of the Registration
Rights Agreement) outstanding on the Automatic Conversion Date, automatically
shall be converted into shares of Common Stock on such date at the then
effective Conversion Price in accordance with, and subject to, the provisions of
Article II hereof (the "AUTOMATIC CONVERSION"). The Automatic Conversion Date
shall be delayed by one Trading Day for each Trading Day occurring prior thereto
and prior to the full conversion of the Notes that (i) any Registration
Statement required to be filed and to be effective pursuant to the Registration
Rights Agreement is not effective or sales of all of the Registrable Securities
otherwise cannot be made thereunder during the Registration Period (whether by
reason of the Corporation's failure to properly supplement or amend the
prospectus included therein in accordance with the terms of the Registration
Rights Agreement or otherwise), (ii) any Mandatory Redemption Event or Trading
Market Redemption Event exists, without regard to whether any cure periods shall
have run or (iii) the Corporation is in breach of any of its obligations
pursuant to Section 4(h) of the Purchase Agreement. The Automatic Conversion
Date shall be the Conversion Date for purposes of determining the Conversion
Price and the time within which certificates representing the Common Stock must
be delivered to the holder.
V. MANDATORY CONVERSION IN CERTAIN EVENTS
In the event that the Corporation enters into a consolidation, merger
or other business combination with any Person or Persons when the Corporation is
not the Survivor and (i) the
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Survivor is subject to the SEC Filing Requirements, (ii) the consideration to be
paid to the stockholders of the Corporation in such transaction consists solely
of capital stock of the Survivor ("SURVIVOR CAPITAL STOCK"), (iii) the Average
Price is equal to or greater than the product of (x) two, multiplied by (y) the
Conversion Price in effect on the Measurement Date, and (iv) the Closing Bid
Price of the Common Stock on the Trading Day immediately preceding the
Measurement Date is equal to or greater than the Average Price, then, so long as
the Survivor Capital Stock is then listed on Nasdaq, the NYSE or the AMEX and
the resale thereof by Holder has been registered under the Securities Act or
such stock may be resold by Holder without registration or restriction
(including volume limitations) under the Securities Act, the entire principal
amount of the Notes then outstanding (together with any accrued and unpaid
interest thereon, Conversion Default Payments, Delivery Default Payments and all
other amounts due and payable by the Corporation pursuant to Section 2(c) of the
Registration Rights Agreement) automatically shall be converted on the closing
date for such transaction into the number of shares of Survivor Capital Stock
that Holder would have received in such transaction if Holder had converted this
Note in full into Common Stock in accordance with, and subject to, the
provisions of Article II, but without regard to the limitations contained in
Article II.A.(2), at the lowest Conversion Price that would have been in effect
for a conversion occurring on any Trading Day during the Measurement Period. The
Corporation shall not effect any transaction described in this Article V unless
(a) it first gives, to the extent practical, prior written notice of the record
date of the special meeting of stockholders to approve, or if there is no such
record date, the consummation of, such transaction, to the extent required by
law, which notice shall be given concurrently with the first public announcement
of such transaction and (b) the Survivor assumes by written instrument the
obligations of the Corporation under this Article V. The Holder shall be
permitted to convert this Note in accordance with the terms of Article II at any
time following receipt of the notice described in clause (a) of the preceding
sentence.
VI. MISCELLANEOUS
A. FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on
the part of Holder in the exercise of any power, right or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such power, right or privilege preclude other or further exercise thereof or
of any other right, power or privilege.
B. NOTICES. Any notices required or permitted to be given
under the terms of this Note 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 Corporation:
Interactive Magic, Inc.
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
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Facsimile: 461-0723
Attention: Chief Executive Officer
If to Holder, to the address set forth immediately below Holder's name on the
signature pages to the Purchase Agreement or such other address as is
communicated to the Corporation by notice by Holder in accordance with the terms
hereof.
C. AMENDMENT PROVISION. The Notes may be amended only by an
instrument in writing signed by the Corporation and the holders of a majority of
the then outstanding principal amount of the Notes.
D. ASSIGNABILITY. This Note shall be binding upon the
Corporation and its successors and assigns and shall inure to the benefit of
Holder and its successors and assigns. Holder may assign this Note, in whole or
in part, or any of its rights hereunder, subject to compliance with Sections
2(f), 2(g) and 8(g) of the Purchase Agreement. In the event Holder shall sell or
otherwise transfer any portion of this Note, each transferee shall be allocated
a pro rata portion of such transferor's Maximum Share Amount and Reserved
Amount. Any portion of the Maximum Share Amount or Reserved Amount which remains
allocated to any person or entity which does not hold any Notes shall be
allocated to the remaining holders of Notes, pro rata based on the total
principal amount of Notes then held by such holders.
E. COST OF COLLECTION. If default is made in the payment of
this Note, the Corporation shall pay Holder costs of collection, including
reasonable attorneys' fees.
F. GOVERNING LAW. This Note 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 Corporation irrevocably consents to the jurisdiction
of the United States federal courts and state courts located in the New York
County, New York in any suit or proceeding based on or arising under this Note,
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 Corporation
irrevocably waives the defense of an inconvenient forum to the maintenance of
such suit or proceeding. The Corporation further agrees that service of process
upon the Corporation mailed by first class mail shall be deemed in every respect
effective service of process upon the Corporation in any such suit or
proceeding. Nothing herein shall affect Holder's right to serve process in any
other manner permitted by law. The Corporation 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.
G. DENOMINATIONS. At the request of Holder, upon surrender of
this Note, the Corporation shall promptly issue new Notes in the aggregate
outstanding principal amount hereof, in the form hereof, in such denominations
of at least $25,000 as Holder shall request.
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H. STATEMENTS OF AVAILABLE SHARES. The Corporation shall
deliver (or cause its transfer agent to deliver) to Holder a written report
notifying Holder of any occurrence which prohibits the Corporation from issuing
Common Stock upon any conversion of Notes. The Corporation (or its transfer
agent) shall also provide, within 15 days after delivery to the Corporation of a
written request by Holder, any of the following information as of the date of
such request: (i) the total outstanding principal amount of all Notes, (ii) the
total number of shares of Common Stock issued upon all conversions of all Notes
prior to such date, (iii) the total number of shares of Common Stock which are
reserved for issuance upon conversion of the Notes which are then outstanding,
and (iv) the total number of shares of Common Stock which may thereafter be
issued by the Corporation upon conversion of the Notes before the Corporation
would exceed the Maximum Share Amount and the Reserved Amount.
I. PAYMENT OF CASH; DEFAULTS. Whenever the Corporation is
required to make any cash payment to Holder under this Note (as a Conversion
Default Payment or otherwise but not including payments of principal and
interest hereunder), such cash payment shall be made to Holder within five
Trading Days after delivery by Holder of a notice specifying that Holder elects
to receive such payment in cash and the method (E.G., by check, wire transfer)
in which such payment should be made and appropriate delivery instructions,
including any necessary wire transfer instructions. If such payment is not
delivered within such five-Trading Day period, Holder shall thereafter be
entitled to interest on the unpaid amount at a per annum rate equal to the lower
of 24% and the highest interest rate permitted by applicable law until such
amount is paid in full to Holder.
J. STATUS AS NOTEHOLDER. Upon submission of a Notice of
Conversion by Holder, the principal amount of this Note and the interest thereon
covered thereby (other than any portion of this Note, if any, which cannot be
converted because the conversion thereof would exceed such holder's allocated
portion of the Maximum Share Amount or Reserved Amount) shall be deemed
converted into shares of Common Stock as of the Conversion Date and Holder's
rights as a holder of this Note shall cease and terminate, excepting only the
right to receive certificates for such shares of Common Stock and to any
remedies provided herein or otherwise available at law or in equity to such
holder because of a failure by the Corporation to comply with the terms of this
Note. Notwithstanding the foregoing, if Holder has not received certificates for
all shares of Common Stock prior to the tenth business day after the expiration
of the Delivery Period with respect to a conversion for any reason, then (unless
Holder otherwise elects to retain its status as a holder of Common Stock by so
notifying the Corporation) the portion of the principal amount and interest
thereon subject to such conversion shall be deemed outstanding under this Note
and the Corporation shall, as soon as practicable, return this Note to Holder.
In all cases, Holder shall retain all of its rights and remedies (including,
without limitation, (i) the right to receive Conversion Default Payments
pursuant to Article II.F to the extent required thereby for such Conversion
Default and any subsequent Conversion Default and (ii) the right to have the
Conversion Price with respect to subsequent conversions determined in accordance
with Article II.F) for the Corporation's failure to convert this Note.
K. PRO RATA ALLOCATIONS. The Maximum Share Amount and the
Reserved Amount (including any increases thereto) shall be allocated by the
Corporation pro rata among the
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holders of the Notes based on the total principal amount of Notes originally
issued to each holder. Each increase to the Maximum Share Amount and the
Reserved Amount shall be allocated pro rata among the holders of the Notes based
on the total principal amount of Notes held by each holder at the time of the
increase in the Maximum Share Amount or Reserved Amount. In the event a holder
shall sell or otherwise transfer any of such holder's shares of the Notes, each
transferee shall be allocated a pro rata portion of such transferor's Maximum
Share Amount and Reserved Amount. Any portion of the Maximum Share Amount or
Reserved Amount which remains allocated to any person or entity which does not
hold any the Notes shall be allocated to the remaining holders of shares of the
Notes, pro rata based on the total principal amount of Notes held by such
holders.
L. REMEDIES CUMULATIVE. The remedies provided in this Note
shall be cumulative and in addition to all other remedies available under this
Note, at law or in equity (including a decree of specific performance and/or
other injunctive relief), no remedy contained herein shall be deemed a waiver of
compliance giving rise to such remedy and nothing herein shall limit Holder's
right to pursue actual damages for any failure by the Corporation to comply with
the terms of this Note. The Corporation acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to Holder and that the remedy
at law for any such breach may be inadequate. The Corporation therefore agrees,
in the event of any such breach or threatened breach, Holder shall be entitled,
in addition to all other available remedies, to an injunction restraining any
breach, without the necessity of showing economic loss and without any bond or
other security being required.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-20-
IN WITNESS WHEREOF, Borrower has caused this Note to be signed
in its name by its duly authorized officer as of the date first above written.
INTERACTIVE MAGIC, INC.
By: /s/ ▇.▇. ▇▇▇▇▇▇▇
-------------------------
Name: ▇. ▇. ▇▇▇▇▇▇▇
Title: Chairman and Chief Executive Officer
-21-
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Notes)
The undersigned hereby irrevocably elects to convert $________
principal amount of the Note (defined below) into shares of common stock, par
value $.10 per share ("Common Stock"), of Interactive Magic, Inc., a North
Carolina corporation (the "CORPORATION") according to the conditions of the
convertible notes of the Corporation dated as of [_________] (the "Notes"), as
of the date written below. If securities are to be issued in the name of a
person other than the undersigned, the undersigned will pay all transfer taxes
payable with respect thereto and is delivering herewith such certificates. No
fee will be charged to the Holder for any conversion, except for transfer taxes,
if any. A copy of each Note is attached hereto (or evidence of loss, theft or
destruction thereof).
The Corporation shall electronically transmit the Common Stock issuable
pursuant to this Notice of Conversion to the account of the undersigned or its
nominee with DTC through its Deposit Withdrawal Agent Commission system ("DWAC
Transfer").
Name of DTC Prime Broker:___________________________________________
Account Number:_____________________________________________________
|_| In lieu of receiving shares of Common Stock issuable pursuant to this
Notice of Conversion by way of a DWAC Transfer, the undersigned hereby
requests that the Corporation issue a certificate or certificates for
the number of shares of Common Stock set forth below (which numbers are
based on the Holder's calculation attached hereto) in the name(s)
specified immediately below or, if additional space is necessary, on an
attachment hereto:
Name:_______________________________________________________________
Address:____________________________________________________________
The undersigned represents and warrants that all offers and sales by
the undersigned of the securities issuable to the undersigned upon conversion of
the Notes shall be made pursuant to registration of the securities under the
Securities Act of 1933, as amended (the "ACT"), or pursuant to an exemption from
registration under the Act.
Date of Conversion:___________________________
Market Price Days:____________________________
Applicable Conversion Price:__________________
Number of Shares of Common Stock to be Issued
Pursuant to Conversion of the Notes:__________
Signature:____________________________________
Name:_________________________________________
Address:______________________________________
AGREED and ACKNOWLEDGED:
INTERACTIVE MAGIC, INC.
By:__________________________________
Name and Title:______________________
*The Corporation is not required to issue shares of Common Stock until the
original Note(s) (or evidence of loss, theft or destruction thereof) to be
converted are received by the Corporation or its Transfer Agent. The Corporation
shall issue and deliver shares of Common Stock to an overnight courier not later
than three business days following receipt of the original Note(s) to be
converted, and shall make payments pursuant to the Notes for the number of
business days such issuance and delivery is late.