SECURITIES PURCHASE AGREEMENT
dated as of
October 14, 1997
by and among
TAKE-TWO INTERACTIVE SOFTWARE, INC.,
as the Company,
and
INFINITY INVESTORS LIMITED
and
INFINITY EMERGING OPPORTUNITIES LIMITED
and
GLACIER CAPITAL LIMITED
as the Purchasers
SECURITIES PURCHASE AGREEMENT
AGREEMENT, dated as of October 14, 1997 among Take-Two Interactive Software
Inc., a Delaware corporation (the "Company"), and INFINITY INVESTORS LIMITED, a
Nevis, West Indies corporation, INFINITY EMERGING OPPORTUNITIES LIMITED, a
Nevis, West Indies corporation, and GLACIER CAPITAL LIMITED, a Nevis, West
Indies corporation (collectively, the "Purchasers").
The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. Definitions. The following terms, as used herein, have the
following meanings:
"Acceptable Letters of Credit" means letters of credit under which the
Company is the sole beneficiary (i) issued by U.S. commercial banks rated P-1 or
better by Standard & Poors Ratings Service, (ii) issued to provide for the
payment of the purchase price of Products sold by the Company, and (iii) which
have been assigned to the Purchasers, with acknowledgment of such assignment by
the issuers of such letters of credit, in form and substance satisfactory to the
Purchasers in their sole discretion.
"Additional Collateral" has the meaning set forth in Section 3.9(b).
"Additional Grant Shares" shall mean a number of shares of Common Stock
equal to the product of 50,000 multiplied by the Closing Market Price, with such
amount divided by the average of the Closing Bid Prices of the Common Stock for
each Trading Day during the Test Period, and subtracting from such result the
number of Grant Shares issued at the Closing. The number of Additional Grant
Shares issued to the Purchasers shall, however, be subject to the Payment Option
for Additional Grant Shares.
"Affiliate" means, with respect to any Person (the "Subject Person"), (i)
any other Person (a "Controlling Person") that directly, or indirectly through
one or more intermediaries, Controls the Subject Person or (ii) any other Person
(other than the Subject Person or a Consolidated Subsidiary of the Subject
Person) which is Controlled by or is under common Control with a Controlling
Person (other than, in the case of a Subject Person that is a Consolidated
Subsidiary, any other Consolidated Subsidiary of the same Controlling Person).
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(Take-Two Interactive Software, Inc.)
"Agreement" means this Securities Purchase Agreement, as amended,
supplemented or otherwise modified from time to time in accordance with its
terms.
"Asset Sale" has the meaning set forth in Section 8.20.
"Balance Sheet" has the meaning set forth in Section 5.5
"Balance Sheet Date" has the meaning set forth in Section 5.5.
"Barclays Bank Debt" means that certain Debt owed by Take-Two Interactive
Software Europe Limited, a wholly-owned Subsidiary of the Company, payable to
Barclays Bank in the United Kingdom, not to exceed 500,000 pounds aggregate
principal amount at any time outstanding, which is secured by certain assets of
Take-Two Interactive Software Europe Limited.
"Benefit Arrangement" means at any time an employee benefit plan within the
meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan and
which is maintained or otherwise contributed to by the Company.
"Benefit Plans" has the meaning set forth in Section 5.7(b).
"Bridge Period" means the time period commencing on the Closing Date and
ending February 28, 1998.
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in the City of New York are authorized or required by law
to close.
"Capital Expenditures" means any expenditure by the Company or any
Subsidiary for an asset which will be used in a year or years subsequent to the
year in which the expenditure is made and which asset is properly classifiable
in relevant financial statements as property, equipment, improvements or fixed
assets, or a similar type of capitalized asset in accordance with GAAP.
"Capital Reorganization" has the meaning set forth in Section 11.5.
"Cash Equivalents" means (i) securities issued or directly and fully
guaranteed or insured as to principal and interest by the United States of
America or any agency or instrumentality thereof (provided that the full faith
and credit of the United States of America is pledged in support thereof),
maturing within one year of the date of acquisition, (ii) time deposits and
certificates of deposit of any domestic commercial bank having combined capital,
surplus and undivided profits of not less than $100,000,000 (including a
domestic branch of a foreign bank) whose outstanding senior long-term debt
securities are rated, or that is a wholly owned Subsidiary of a bank holding
company whose outstanding senior long-term debt securities are
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(Take-Two Interactive Software, Inc.)
rated, either A- or higher by Standard & Poor's Ratings Service or A3 or higher
by ▇▇▇▇▇'▇ Investors Service, Inc., maturing within one year of the date of
acquisition, (iii) repurchase obligations with a term of not more than 7 days
for underlying securities of the types described in clause (i) above entered
into with any bank meeting the qualifications specified in clause (ii) above,
(iv) commercial paper rated at least A-1 or the equivalent thereof by Standard &
Poor's Ratings Service or at least P-1 or the equivalent thereof by ▇▇▇▇▇'▇
Investors Service, Inc., maturing within one year after the date of acquisition
and (v) investments in money market funds substantially all of whose assets are
comprised of securities of the types described in clauses (i) through (iv)
above.
"Change of Control" means (i) after the date of this Agreement any person
or group of persons (within the meaning of Sections 13 and 14 of the Exchange
Act and the rules and regulations of the Commission relating to such Sections)
shall have acquired beneficial ownership (within the meaning of Rules 13d-3 and
13d-5 promulgated by the Commission pursuant to the Exchange Act) of 50.1% or
more of the outstanding shares of Common Stock of the Company, or (ii)
individuals constituting the board of directors of the Company on the date
hereof (together with any new directors whose election by such board of
directors or whose nomination for election by the stockholders of the Company
was approved by a vote of at least 50.1% of the directors then still in office
who were either directors as of the date hereof or whose election or nomination
for election was previously so approved) ceases for any reason to constitute a
majority of the board of directors of the Company then in office.
"Citibank Debt" means that certain Debt payable to Citibank, N.A., not to
exceed $250,000 aggregate principal amount at any time outstanding, which may be
secured by certain assets of the Company.
"Closing" or "Closing Date" means the date on which all of the conditions
set forth in Sections 7.1 and 7.2 shall have been satisfied and the Grant
Shares, the Convertible Notes and the Warrants have been issued by the Company
and the Purchase Price therefore has been paid by the Purchasers.
"Closing Bid Price" shall mean the closing bid price of the Company's
Common Stock as reported by Bloomberg L.P. on the Nasdaq Market or, if not
reported by Bloomberg, L.P. on the Nasdaq Market, as reported by such other
exchange or market where the Common Stock is then traded.
"Closing Market Price" means the Market Price of the Common Stock as of the
date immediately prior to the Closing.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral" has the meaning set forth in Section 3.9(a).
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(Take-Two Interactive Software, Inc.)
"Commission" means the Securities and Exchange Commission or any entity
succeeding to all of its material functions.
"Common Stock" means the common stock, $.01 par value per share, of the
Company.
"Company" means Take-Two Interactive Software, Inc., a corporation
incorporated under the laws of Delaware, and its successors.
"Company Corporate Documents" means the certificate of incorporation and
by-laws of the Company.
"Consolidated Net Worth" means at any date the total shareholder's equity
which would appear on a consolidated balance sheet of the Company prepared as of
such date.
"Consolidated Subsidiary" means at any date with respect to any Person any
Subsidiary or other entity, the accounts of which would be consolidated with
those of such Person in its consolidated financial statements if such statements
were prepared as of such date.
"Control" (including, with correlative meanings, the terms "Controlling,"
"Controlled by" and under "common Control with"), as used with respect to any
Person, means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of that Person, whether
through the ownership of voting securities, by contract or otherwise .
"Conversion Date" shall mean the date of delivery (including delivery via
telecopy) of a Notice of Conversion for all or a portion of a Convertible Note
by the holder thereof to the Company and the Transfer Agent.
"Conversion Limit" has the meaning set forth in Section 10.5(c).
"Conversion Price" shall mean the formula F/P where F = the outstanding
principal amount of the Convertible Note being converted, and P = 75% multiplied
by the lowest daily weighted average sales price of the Common Stock as reported
by Bloomberg, L.P. (the "DWASP") during the Lookback Period; provided, however,
commencing after the first anniversary of this Agreement the Conversion Price
shall be the lesser of the foregoing amount and the product of 75% multiplied by
the DWASP during the then applicable Lookback Period (the "Maximum Conversion
Price").
"Conversion Shares" means the shares of Common Stock issuable upon
conversion of the Convertible Notes.
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"Convertible Note(s)" means the Company's 10% secured convertible
promissory notes issuable at the Closing pursuant to the terms of this
Agreement, substantially in the form set forth as Exhibit A hereto.
"Crestar Debt" means that certain Debt owed by Inventory Management
Systems, Inc., a wholly-owned Subsidiary of the Company, payable to Crestar
Bank, Richmond, Virginia, not to exceed $250,000 aggregate principal amount at
any time outstanding, which is secured by certain assets of Inventory Management
Systems, Inc.
"Deadline" has the meaning set forth in Section 10.3.
"Debt" of any Person means at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes, or other similar instruments
issued by such Person, (iii) all obligations of such Person as lessee which (y)
are capitalized in accordance with GAAP or (z) arise pursuant to sale-leaseback
transactions, (iv) all reimbursement obligations of such Person in respect of
letters of credit or other similar instruments, (v) all Debt of others secured
by a Lien on any asset of such Person, whether or not such Debt is otherwise an
obligation of such Person and (vi) all Debt of others Guaranteed by such Person.
"Default" means any event or condition which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"Default Fee" has the meaning set forth in the Registration Rights
Agreement.
"Derivative Securities" has the meaning set forth in Section 10.2.
"Discounted Equity Offerings" has the meaning set forth in Section 10.2.
"Directors" means the individuals then serving on the board of directors or
similar such management council of the Company.
"DWASP" has the meaning set forth in the definition of Conversion Price.
"Environmental Laws" means any and all federal, state, local and foreign
statutes, laws, regulations, ordinances, rules, judgments, orders, decrees,
permits, concessions, grants, franchises, licenses, agreements or other
governmental restrictions relating to the environment or to emissions,
discharges or releases of pollutants, contaminants, petroleum or petroleum
products, chemicals or industrial, toxic or hazardous substances or wastes into
the environment, including, without limitation, ambient air, surface water,
ground water, or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport
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(Take-Two Interactive Software, Inc.)
or handling of pollutants, contaminants, petroleum or petroleum products,
chemicals or industrial, toxic or hazardous substances or wastes or the cleanup
or other remediation thereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor statute.
"ERISA Group" means the Company and each Subsidiary and all members of a
controlled group of corporations and all trades or businesses (whether or not
incorporated) under common control which, together with the Company or any
Subsidiary, are treated as a single employer under the Code.
"Event of Default" has the meaning set forth in Article XII hereof.
"Excess Shares" has the meaning set forth in Section 4.1.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Financing" means a public or private financing consummated (meaning
closing and funding) through the issuance of equity securities and/or debt
securities (or securities convertible into or exchangeable for debt securities)
of the Company.
"Financing Documents" means this Agreement, the Warrants, the Transfer
Agent Agreement, the Registration Rights Agreement, the Security Agreement, the
Subsidiary Security Agreement and the Convertible Notes.
"Fixed Price(s)" has the meaning set forth in Section 11.1.
"Formula Price" shall mean a dollar amount equal to the product of (x) the
number of shares of Common Stock into which the Convertible Notes are then
convertible at the then applicable Conversion Price and (y) the last reported
sales price of the Common Stock as reported by Bloomberg, L.P. on the applicable
date the Convertible Notes are redeemed as set forth in Section 3.6 hereof, plus
accrued and unpaid interest through the date of repayment.
"GAAP" has the meaning set forth in Section 1.2.
"Grant Shares" means the 50,000 shares of Common Stock to be issued to the
Purchasers on the Closing Date.
"Guarantee" or "Guaranties" by any Person means any obligation, contingent
or otherwise, of such Person directly or indirectly guaranteeing (whether by
virtue of partnership arrangements, by agreement to keep well, to purchase
assets, goods, securities or services, to take-or-pay, or to maintain a minimum
net worth, financial ratio or similar requirements, or otherwise) any Debt of
any other Person and, without limiting the generality of the foregoing,
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SECURITIES PURCHASE AGREEMENT - Page 6
(Take-Two Interactive Software, Inc.)
any obligation, direct or indirect, contingent or otherwise, of such Person (i)
to purchase or pay (or advance or supply funds for the purchase or payment of)
such Debt or (ii) entered into for the purpose of assuring in any other manner
the holder of such Debt of the payment thereof or to protect such holder against
loss in respect thereof (in whole or in part); provided that the term Guarantee
shall not include endorsements for collection or deposit in the ordinary course
of business. The term Guarantee used as a verb has a corresponding meaning.
"Hazardous Materials" means any hazardous materials, hazardous wastes,
hazardous constituents, hazardous or toxic substances or petroleum products
(including crude oil or any derivative or fraction thereof), defined or
regulated as such in or under any Environmental Laws.
"Intellectual Property" has the meaning set forth in Section 5.19.
"Investment" means any investment in any Person, whether by means of share
purchase, partnership interest, capital contribution, loan, time deposit or
otherwise.
"Lien" means, any lien, mechanic's lien, materialmen's lien, lease,
easement, charge, encumbrance, mortgage, conditional sale agreement, title
retention agreement, agreement to sell or convey, option, claim, title
imperfection, encroachment or other survey defect, pledge, restriction, security
interest or other adverse claim, whether arising by contract or under law or
otherwise (including, without limitation, any financing lease having
substantially the same economic effect as any of the foregoing, and the filing
of any financing statement under the Uniform Commercial Code or comparable law
of any jurisdiction in respect of any of the foregoing).
"Limitation on Conversion" has the meaning set forth in Section 10.5(a).
"Lockbox Event" has the meaning set forth in Section 3.9(b).
"Lookback Period" shall mean with respect to each Convertible Note, the
period commencing on the date the Convertible Notes are initially convertible
pursuant to their stated terms, a period of fifteen (15) Trading Days prior to
the Conversion Date, increasing by two (2) Trading Days each thirty (30) Trading
Days thereafter, up to a maximum of thirty-one (31) Trading Days prior to the
Conversion Date.
"Majority Holders" means (i) as of the Closing Date, the Purchasers and
(ii) at any time thereafter, the holders of more than 50% in aggregate principal
amount of the Convertible Notes outstanding at such time.
"Market Price" shall mean the Closing Bid Price of the Common Stock
preceding the date of determination.
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SECURITIES PURCHASE AGREEMENT - Page 7
(Take-Two Interactive Software, Inc.)
"Material Plan" means at any time a Plan or Plans having aggregate Unfunded
Liabilities in excess of $250,000.
"Maturity Date" shall mean September 30, 1999.
"Maximum Conversion Price" has the meaning set forth in the definition of
Conversion Price.
"Maximum Number of Shares" has the meaning set forth in Section 10.5(d).
"Multiemployer Plan" means at any time an employee pension benefit plan
within the meaning of Section 4001(a)(3) of ERISA to which any member of the
ERISA Group is then making or accruing an obligation to make contributions or
has within the preceding five plan years made contributions, including for these
purposes any Person which ceased to be a member of the ERISA Group during such
five year period.
"Nasdaq Market" means the Stock Market's SmallCap Division.
"Nasdaq Redemption Event" has the meaning set forth in Section 3.5(a).
"National Bank of Canada Debt" means that certain Debt payable to National
Bank of Canada, New York Branch,, not to exceed $800,000 aggregate principal
amount at any time outstanding, which may be secured by certain assets of the
Company.
"Net Cash Proceeds" means, with respect to any transaction, the total
amount of cash proceeds received by the Company or any Subsidiary less (i)
reasonable underwriters' fees, brokerage commissions, reasonable professional
fees and other customary out-of-pocket expenses payable in connection with such
transaction, and (ii) in the case of dispositions of assets, (A) actual transfer
taxes (but not income taxes) payable with respect to such dispositions, and (B)
the amount of Debt, if any, secured by a Lien on the asset or assets disposed of
and required to be, and actually repaid by the Company or any Subsidiary in
connection therewith, and any trade payables specifically relating to such asset
or assets sold by the Company or any Subsidiary that are not assumed by the
purchaser of such asset or assets.
"Note Maturity Date" has the meaning set forth in Section 4.1.
"Notice of Conversion" means the form to be delivered by a holder of a
Convertible Note upon conversion of all or a portion thereof to the Transfer
Agent and the Company substantially in the form of Exhibit B attached hereto.
"Notice of Exercise" means the form to be delivered by a holder of a
Warrant upon exercise of all or a portion thereof to the Company substantially
in the form of Exhibit C attached hereto.
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SECURITIES PURCHASE AGREEMENT - Page 8
(Take-Two Interactive Software, Inc.)
"Officer's Certificate" shall mean a certificate executed by the President,
chief executive officer or chief financial officer of the Company in the form of
Exhibit G attached hereto.
"Other Taxes" has the meaning set forth in Section 3.8(b).
"Par Value Redemption Price" has the meaning set forth in Section 3.4.
"Payment Option for Additional Grant Shares" shall have the meaning set
forth in Section 4.1.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Permits" means all domestic and foreign licenses, permits and approvals
required for the full operation of the Company and the Subsidiaries, including
state, federal, city and county permits and approvals.
"Permitted Debt" has the meaning set forth in Section 8.8.
"Permitted Transferee" means any Person that acquires the Grant Shares,
Additional Grant Shares, Convertible Notes or Warrants, or the Conversion Shares
or Warrant Shares, in compliance with Article X other than any Person who
acquires such Grant Shares, Additional Grant Shares, Convertible Notes,
Warrants, Conversion Shares or Warrant Shares (i) in a public offering or (ii)
in the open market, pursuant to sales under Rule 144 of the Securities Act or
otherwise.
"Person" means an individual, corporation, partnership, trust, incorporated
or unincorporated association, joint venture, joint stock company, government
(or any agency or political subdivision thereof) or other entity of any kind.
"Plan" means at any time an employee pension benefit plan (other than a
Multiemployer Plan) which is covered by Title IV of ERISA or subject to the
minimum funding standards under the Code and either (i) is maintained, or
contributed to, by any member of the ERISA Group for employees of any member of
the ERISA Group or (ii) has at any time within the preceding five years been
maintained, or contributed to, by any Person which was at such time a member of
the ERISA Group for employees of any Person which was at such time a member of
the ERISA Group.
"Products" means the Nintendo versions of Wheel of Fortune (R) and Jeopardy
(R) distributed or sold by the Company.
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(Take-Two Interactive Software, Inc.)
"Purchase Price" means the purchase price for the Convertible Notes as set
forth in Section 2.1(d) hereof.
"Purchasers" means, collectively, those entities listed in the introduction
to this Agreement and their successors and assigns, including holders from time
to time of the Convertible Notes.
"Qualified Financing" shall mean any issuance of debt or equity securities
of the Company that is not prohibited pursuant to the terms of this Agreement.
"Registrable Securities" has the meaning set forth in Section 10.1.
"Registration Default" has the meaning set forth in Section 10.1(e).
"Registration Maintenance Period" has the meaning set forth in the
Registration Rights Agreement.
"Registration Statement" has the meaning set forth in Section 10.1(b).
"Registration Rights Agreement" means the agreement between the Company and
the Purchasers dated the date hereof substantially in the form set forth in
Exhibit D attached hereto.
"Reimbursement Fee" has the meaning set forth in Section 13.4.
"Required Effectiveness Date" has the meaning set forth in the Registration
Rights Agreement.
"Restricted Payment" means, with respect to any Person, (i) any dividend or
other distribution on any shares of capital stock of such Person (except
dividends payable solely in shares of capital stock of the same or junior class
of such Person and dividends from a wholly-owned direct or indirect Subsidiary
of the Company to its parent corporation), (ii) any payment on account of the
purchase, redemption, retirement or acquisition of (a) any shares of such
Person's capital stock or (b) any option, warrant or other right to acquire
shares of such Person's capital stock or (iii) any loan, or advance or capital
contribution to any Person (a "Stockholder") owning any capital stock of such
Person other than relocation, travel or like advances to officers and employees
in the ordinary course of business.
"Revaluation Date" shall mean the date on which the Registration Statement
is declared effective by the Commission.
"Revolving Credit Debt" means any borrowing by the Company under a
revolving credit working capital facility, provided the full amount of Debt owed
thereunder is required to be, and is, reduced to zero for at least thirty (30)
consecutive days during each calendar year.
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"Rights Offering" has the meaning set forth in Section 11.3.
"SEC Reports" shall have the meaning set forth in Section 5.5.
"Securities" means the Grant Shares, Additional Grant Shares, Convertible
Notes, Warrants and, as applicable, the Conversion Shares and the Warrant
Shares.
"Securities Act" means the Securities Act of 1933, as amended.
"Security Agreement" means the agreement between the Company and the
Purchasers dated the date hereof substantially in the form set forth in Exhibit
K attached hereto.
"Share Note" has the meaning set forth in Section 4.1.
"Share Reorganization" has the meaning set forth Section 11.2.
"Solvency Certificate" shall mean a certificate executed by the chief
financial officer of the Company as to the solvency of the Company, the adequacy
of its capital and its ability to pay its debts which such Solvency Certificate
shall be in the form of Exhibit F attached hereto.
"Special Distribution" has the meaning set forth in Section 11.4.
"Subsidiary" means, with respect to any Person, any corporation or other
entity of which a majority of the capital stock or other ownership interests
having ordinary voting power to elect a majority of the board of directors or
other persons performing similar functions are at the time directly or
indirectly owned by such Person. Unless specified to the contrary, "Subsidiary"
means a Subsidiary of the Company.
"Subsidiary Corporate Documents" means the certificates of incorporation
and by-laws of each Subsidiary.
"Subsidiary Security Agreement" means the agreement between the Company's
wholly-owned Subsidiary, Inventory Management Systems, Inc., and the Purchasers
dated as of the date hereof substantially in the form set forth in Exhibit L
attached hereto.
"Taxes" has the meaning set forth in Section 3.8.
"Test Period" means the period ending thirty (30) days after the
Revaluation Date.
"Trading Day" shall mean any Business Day in which the Nasdaq Market or
other automated quotation system or exchange on which the Common Stock is then
traded is open for trading for at least four (4) hours.
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(Take-Two Interactive Software, Inc.)
"Transfer" means any disposition of Securities that would constitute a sale
thereof under the Securities Act.
"Transfer Agent" means the Company's stock transfer agent; specifically,
American Stock Transfer & Trust Company.
"Transfer Agent Agreement" means the agreement dated the date hereof among
the Company, the Transfer Agent and the Purchasers, dated the date hereof
substantially in the form set forth in Exhibit H attached hereto.
"Unfunded Liabilities" means, with respect to any Plan at any time, the
amount (if any) by which (i) the present value of all benefits under such Plan
exceeds (ii) the fair market value of all Plan assets allocable to such benefits
(excluding any accrued but unpaid contributions), all determined as of the then
most recent valuation date for such Plan, but only to the extent that such
excess represents a potential liability of a member of the ERISA Group to the
PBGC or any other Person under Title IV of ERISA.
"Warrants" means the Common Stock Purchase Warrants issued to the
Purchasers on the Closing Date in the form of Exhibit I hereto to purchase
250,000 shares of Common Stock (subject to adjustment as set forth therein).
"Warrant Shares" means the shares of Common Stock issuable upon exercise of
the Warrants.
"Whale" means Whale Securities Co., L.P.
"Whale Warrants" has the meaning set forth in Section 2.2(e).
SECTION 1.2. Accounting Terms and Determinations. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial statements
required to be delivered hereunder shall be prepared, in accordance with
generally accepted accounting principles as in effect from time to time, applied
on a consistent basis (except for changes concurred in by the Company's
independent public accountants) ("GAAP"); provided that if the Company notifies
each of the Purchasers that it wishes to amend any covenant in Article VIII to
eliminate the effect of any change in GAAP on the operation of such covenant (or
if any of the Purchasers notify the Company that the Majority Holders wish to
amend Article VIII for such purpose), then the Company's compliance with such
covenant shall be determined on the basis of GAAP in effect immediately before
the relevant change in GAAP became effective, until either such notice is
withdrawn or such covenant is amended in a manner satisfactory to the Company
and the Majority Holders. All references to "dollars," "Dollars" or "$" are to
United States dollars unless otherwise indicated.
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ARTICLE II
PURCHASE AND SALE OF SECURITIES
SECTION 2.1. Commitment to Purchase.
(a) Subject to the terms and conditions set forth herein and in reliance on
the representations and warranties of the Purchasers contained herein, the
Company agrees to issue and sell and, subject to the terms and conditions set
forth herein and in reliance on the representations and warranties of the
Company contained herein, the Purchasers agree to purchase, on the Closing Date
an aggregate principal amount of $4,200,000 of Convertible Notes.
(b) In connection with the Purchasers' agreement to purchase the
Convertible Notes specified in this Article II, the Company shall issue and
deliver to the Purchasers on the Closing Date (x) the Warrants and (y) the Grant
Shares.
(c) The portion of the Convertible Notes, Warrants and Grant Shares to be
acquired by each Purchaser on the Closing Date is set forth on Schedule 2.1
attached hereto.
(d) The aggregate consideration payable by the Purchasers to the Company
for the Convertible Notes shall be $4,032,000 (representing 96% of the original
principal amount of the Convertible Notes issued on the Closing Date) (the
"Purchase Price").
SECTION 2.2. Purchase of Securities.
(a) On the Closing Date, subject to the satisfaction of all terms and
conditions set forth herein, each of the Purchasers shall deliver by wire
transfer to the Transfer Agent immediately available funds the portion of the
Purchase Price of the Convertible Notes to be purchased by it on such Closing
Date, less the Reimbursement Fee.
(b) On the Closing Date, against payment as set forth in subsection 2.2 (a)
above, the Company shall deliver to the Transfer Agent (i) a single Convertible
Note for each Purchaser representing the principal amount of such Convertible
Notes issued to such Purchaser, (ii) a single Warrant for each Purchaser
representing the aggregate Warrants issued to such Purchaser, and (iii) a single
shares certificate representing the aggregate Grant Shares issues to such
Purchaser.
(c) As contemplated by the Transfer Agent Agreement, immediately upon
receipt of the items specified in subsections 2.2 (a) and (b) above, the
Transfer Agent shall (i) disburse the Purchase Price in accordance with Section
1 of the Transfer Agent Agreement, (ii) deliver the
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(Take-Two Interactive Software, Inc.)
Warrants and Grant Shares to the Purchasers and (iii) retain the Convertible
Notes for the benefit of the Purchasers, as described therein.
(d) As further contemplated by Section 1(d) of the Transfer Agent
Agreement, in lieu of effecting the closing of the purchase and sale of the
Convertible Notes through the Transfer Agent, the Company and the Purchasers may
directly consummate the deliveries described above.
(e) The Company shall (x) pay Whale a cash fee of 4% of the principal
amount of Convertible Notes issued at the Closing and (y) issue (i) warrants to
acquire 20,000 shares of Common Stock (the "Whale Warrants") and (ii) 5,000
shares of Common Stock. The Whale Warrants and shares of Common Stock issued to
Whale will not be entitled to any of the pricing reset features described in
this Agreement attributable to the Grant Shares and Warrants issued to the
Purchasers.
ARTICLE III
PAYMENT TERMS OF CONVERTIBLE NOTES
SECTION 3.1. Payment of Principal and Interest; Payment Mechanics. The
Company will pay all sums becoming due on each Convertible Note by the method
and at the address specified for such purpose set forth in the Transfer Agent
Agreement.
SECTION 3.2. Conversion at Maturity. On the Maturity Date, the unpaid
principal balance of each Convertible Note shall automatically be converted into
shares of Common Stock on such date at the then applicable Conversion Price and
the Maturity Date shall be deemed the Conversion Date with respect to such
conversion without the requirement of delivery of a Notice of Conversion;
provided, however, if on such date an Event of Default exists, such conversion
shall not occur and the remaining balance of each Convertible Note shall be paid
in cash at the Formula Price unless the holder thereof delivers to the Company a
Notice of Conversion.
SECTION 3.3. Payment of Interest. Interest shall accrue on the outstanding
principal amount of the Convertible Notes from day to day at the rate of 10% per
annum to be calculated on the basis of a 360-day year. Interest shall be payable
quarterly in cash as specified in each Convertible Note.
SECTION 3.4. Voluntary Prepayments. During the Bridge Period, the Company
may, at its option, repay, in whole or in part, the Convertible Notes at a price
equal to 100% of the aggregate principal amount then outstanding, together with
all accrued and unpaid interest thereon (the "Par Value Redemption Price").
Thereafter, the Company may, at its option, following thirty (30) days prior
written notice to the Purchasers (the expiration of such 30 day period being
referred to as the "prepayment date"; provided, however, that if such date is
not a
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Business Day, the prepayment date shall be the next Business Day thereafter)
prepay all of any portion of the Convertible Notes remaining unconverted on the
prepayment date at the Formula Price. Partial prepayments shall be in an
aggregate principal amount of $100,000 or a multiple thereof.
SECTION 3.5. Mandatory Repayment.
(a) Upon (i) the occurrence of a Change of Control of the Company, (ii) a
transfer of all or substantially all of the assets of the Company to any Person
in a single transaction or series of related transactions, (iii) a
consolidation, merger or amalgamation of the Company with or into another Person
(other than a merger (x) which does not result in any reclassification,
conversion, exchange or cancellation of outstanding shares of Common Stock or
(y) which is effected solely to change the jurisdiction of incorporation of the
Company and results in a reclassification, conversion or exchange of outstanding
shares of Common Stock solely into shares of Common Stock), (iv) the issuance of
the Maximum Number of Shares and the failure within sixty (60) days of such
issuance to obtain shareholder approval to issue additional shares of Common
Stock as described in Section 10.5(c) (the "Nasdaq Redemption Event") or (v) the
occurrence of a Registration Default and the delivery to the Company by the
holders of the Convertible Notes of a notice demanding that the Company redeem
such Convertible Notes, then, in each case, the Company shall redeem all of the
Convertible Notes for cash. If such redemption occurs prior to the expiration of
the Bridge Period, the redemption price shall be Par Value Redemption Price. If
such redemption occurs after the expiration of the Bridge Period, the redemption
price shall be the Formula Price.
(b) Upon the consummation of any Discounted Equity Offering or other
Financing that is not a Qualified Financing, the Company shall use the Net Cash
Proceeds therefrom to redeem the Convertible Notes for cash. If such redemption
occurs prior to the expiration of the Bridge Period, the redemption price shall
be Par Value Redemption Price. If such redemption occurs after the expiration of
the Bridge Period, the redemption price shall be the Formula Price.
(c) The Company shall be required to prepay the Convertible Notes in an
amount equal to all payments and other collections (including, without
limitation pursuant to draws under letters of credit constituting Collateral)
received by the Company after December 31, 1997 with respect to the sale of
Products immediately upon the receipt of such payments and collections. Amounts
received by Purchasers after December 31, 1997 pursuant to draws under letters
of credit constituting Collateral shall be applied to payment of the Convertible
Notes. If such redemption occurs prior to the expiration of the Bridge Period,
the redemption price shall be Par Value Redemption Price. If such redemption
occurs after the expiration of the Bridge Period, the redemption price shall be
the Formula Price.
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SECTION 3.6. Prepayment Procedures.
(a) Any prepayment or redemption of the Convertible Notes pursuant to
Sections 3.4 or 3.5 above shall be deemed to be effective and consummated (for
purposes of determining the Formula Price, and the time at which the Purchasers
shall thereafter not be entitled to deliver a Notice of Conversion for the
Convertible Notes) as follows:
(I) A prepayment pursuant to Sections 3.4, the "prepayment date"
specified therein;
(II) A redemption pursuant to Section 3.5(a), the date of consummation
of the applicable Change of Control, merger, asset sale, or delivery of the
notice specified following the Registration Default;
(III) A redemption pursuant to Section 3.5(a), the date of
consummation of the applicable Discounted Equity Offering or other
Financing; and
(IV) A redemption pursuant to Section 3.5(c), the date of the receipt
by the Company of the proceeds of the sales of Products.
(b) Within one (1) Business Day after (x) the Maturity Date (if applicable)
or (y) the effective date of a repayment or redemption of the Convertible Notes,
the Company shall deposit the applicable repayment/redemption price with the
Transfer Agent for immediate delivery to each Purchaser of the Convertible Notes
subject to redemption as contemplated by the Transfer Agent Agreement.
Notwithstanding those procedures set forth in the Transfer Agent Agreement, the
Purchaser may authorize the Company to pay all amounts due under the Convertible
Notes directly to the Purchasers, followed by notice of the amount so paid to
the Transfer Agent. Should any Purchaser not receive payment of any amounts due
on redemption of its Convertible Notes by reason of the Company's failure to
make payment at the times prescribed above for any reason, the Company shall pay
to the applicable holder on demand (x) interest on the sums not paid when due at
an annual rate equal to the lesser of (I) the maximum lawful rate of interest
that may be paid thereon and (II) the then applicable interest rate on the
Convertible Notes being redeemed plus four percent (4%) compounded at the end of
each thirty (30) days, until the applicable holder is paid in full, and (y) all
costs of collection, including, but not limited to, reasonable attorneys' fees
and costs, whether or not suit or other formal proceedings are instituted. All
payments shall first be applied to accrued and unpaid interest.
(c) The Company shall select the Convertible Notes to be redeemed in any
redemption in which not all of the Convertible Notes are to be redeemed so that
the ratio of the Convertible Notes of each holder selected for redemption to the
total Convertible Notes owned by that holder shall be the same as the ratio of
all such Convertible Notes selected for redemption bears to the total of all
then outstanding Convertible Notes. Should any Convertible Notes be required to
be redeemed under the terms hereof not be redeemed solely by reason of
limitations
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imposed by law, the applicable Convertible Notes shall be redeemed on the
earliest possible dates thereafter that the applicable Convertible Notes may be
redeemed to the maximum extent permitted by law.
(d) Any Notice of Conversion delivered by any Purchaser (including delivery
via telecopy) to the Company and the Transfer Agent after the date the
Convertible Notes become convertible by their terms and prior to the (x)
Maturity Date (if applicable) or (y) effective date of a redemption specified in
Section 3.6(a) above, shall be honored by the Company and the conversion of the
Convertible Notes shall be deemed effected on the Conversion Date. In addition,
between the effective date of a redemption specified in Section 3.6(a) above and
the date the Company is required to deliver the redemption proceeds to the
Purchasers, if the Convertible Notes are convertible by their terms, the
Purchasers may deliver a Notice of Conversion to the Company. Such notice will
be (x) of no force or effect if the Company timely pays the redemption proceeds
to the Purchasers when due or (y) honored as of the date of the Notice of
Conversion if the Company fails to timely pay the redemption proceeds to the
Purchasers when due.
SECTION 3.7. Ranking. The Convertible Notes will rank as secured
obligations of the Company, parri passu to all other indebtedness of the Company
not expressly subordinated to these Convertible Notes.
SECTION 3.8. Payment of Additional Amounts.
(a) Any and all payments by the Company hereunder or under the
Convertible Notes to any Purchaser and each "qualified assignee" thereof
shall be made free and clear of and without deduction or withholding for
any and all present or future taxes, levies, imposts, deductions, charges
or withholdings, and all liabilities with respect thereto (all such taxes,
levies, imposts, deductions, charges, withholdings and liabilities being
hereinafter referred to as "Taxes") unless such Taxes are required by law
or the administration thereof to be deducted or withheld. If the Company
shall be required by law or the administration thereof to deduct or
withhold any Taxes from or in respect of any sum payable under the
Convertible Notes (i) the holders of Convertible Notes subject to such
Taxes shall have the right, but not the obligation, for a period of thirty
(30) days commencing upon the day it shall have received written notice
from the Company that it is required to withhold Taxes to transfer all or
any portion of the Convertible Notes to a qualified assignee to the extent
such transfer can be effected in accordance with the other provisions of
this Agreement and applicable law; (ii) the Company shall make such
deductions or withholdings; and (iii) the Company shall forthwith pay the
full amount deducted or withheld to the relevant taxation or other
authority in accordance with applicable law. A "qualified assignee" of a
Purchaser is a Person that is organized under the laws of (I) the United
States or (II) any jurisdiction other than the United States or any
political subdivision thereof and that (y) represents and warrants to each
of the Company that payments of the Company to such assignee under the laws
in existence on the date of
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this Agreement would not be subject to any Taxes and (z) from time to time,
as and when requested by the Company, executes and delivers to the Company
and the Internal Revenue Service forms, and provides the Company with any
information necessary to establish such assignee's continued exemption from
Taxes under applicable law.
(b) If Taxes are imposed upon the Company and the holders of
Convertible Notes subject to such Taxes have not exercised their right to
transfer the Convertible Notes to a qualified assignee as set forth in this
Section 3.8 (either by notice to the Company to that effect or failure to
exercise such right within the thirty (30) day period prescribed), the
Company shall either:
(i) On the fifth (5th) Business Day after the failure to exercise
such right (such day being referred to as the "redemption date")
prepay all of the Convertible Notes remaining unconverted on the
redemption date and held by a party subject to Taxes in cash for the
Par Value Redemption Price; or
(ii):
(I) The sum payable by the Company to the Purchasers shall be
increased as may be necessary by the Company so that after
making all required deductions or withholdings (including
deductions and withholdings applicable to additional amounts
paid under this Section 3.8), such Purchaser receives an
amount equal to the sum it would have received if such
deduction or withholding had been made; and
(II) The Company shall indemnify each Purchaser or qualified
assignee, for the full amount of Taxes or Other Taxes
(including, without limitation, any taxes or Other Taxes
imposed by any jurisdiction on amounts payable under this
Section 3.8) paid by each Purchaser, or qualified assignee,
and any liability (including penalties, interest and
expenses) arising therefrom or with respect thereto, whether
or not such Taxes or Other Taxes were correctly or legally
asserted. Payment under this indemnification shall be made
within thirty (30) days from the date such Purchaser or
assignee makes written demand therefore. A certificate as to
the amount of such Taxes or Other Taxes submitted to the
Company by such Purchaser or assignee shall be inclusive
evidence of the amount due from the Company to such party.
(c) If the Company pays any Taxes or Other Taxes, the Purchasers shall
cooperate in good faith with the Company to receive any tax credit or
refund in the amount of such Taxes or Other Taxes applicable to the
Purchasers (each a "Tax Refund").
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Upon the receipt by the Purchasers of any Tax Refund, the Purchasers shall
promptly remit the same to the Company.
(d) The Company shall forthwith pay any present or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies (all such taxes, charges and levies hereinafter referred to as
"Other Taxes") which arise from any payment made under any of the Financing
Documents or from the execution, delivery or registration of, or otherwise
with respect to, this Agreement other than Taxes payable solely as a result
of the transfer from the Purchasers to a Person of any Security.
(e) The Company shall indemnify each Purchaser, or qualified assignee,
for the full amount of Taxes or Other Taxes (including, without limitation,
any Taxes or Other Taxes imposed by any jurisdiction on amounts payable
under this Section 3.8) paid by each Purchaser, or qualified assignee, and
any liability (including penalties, interest and expenses) arising
therefrom or with respect thereto, whether or not such Taxes or Other Taxes
were correctly or legally asserted. Payment under this indemnification
shall be made within 30 days from the date such Purchaser or assignee makes
written demand therefor. A certificate as to the amount of such Taxes or
Other Taxes submitted to the Company by such Purchaser or assignee shall be
conclusive evidence of the amount due from the Company to such party.
(f) Within 30 days after the date of any payment of Taxes, the Company
will furnish to each Purchaser the original or a certified copy of a
receipt evidencing payment thereof.
(g) Each of the Purchasers shall provide to the Company a Form W-8,
stating that it is a non-U.S. person, together with any additional tax
forms which may be required under the Code, as amended after the date
hereof, to allow interest payments to be made to it without deduction.
SECTION 3.9. Collateral; Collateral Maintenance.
(a) Payment of the Convertible Notes and all indebtedness, liabilities and
obligations of the Company under this Agreement and the other Financing
Documents shall be secured by a first priority security interest on, in and to
the collateral security described in the Security Agreement and the Subsidiary
Security Agreement (collectively, the "Collateral"). Purchasers shall be
entitled to retain, as collateral security, for the payment of the Secured
Obligations (as defined in the Security Agreement), any amounts drawn under
letters of credit constituting Collateral to the extent that the Company has not
complied with this Section 3.9 hereof and to apply such amounts to payment of
the Convertible Notes.
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(b) Not later than fourteen (14) days after the Closing Date (the
"Additional Collateral Date"), the Company shall assign to the Purchasers (or
their representative), and shall grant to the Purchasers a security interest in,
Acceptable Letters of Credit such that at all times after the Additional
Collateral Date the outstanding undrawn aggregate face amount of the Acceptable
Letters of Credit which have been assigned to the Purchasers (and in which the
Purchasers shall have been granted a first priority security interest) shall
equal or exceed the unpaid principal balance of the Convertible Notes. In the
event that the Company fails to assign such additional Acceptable Letters of
Credit to the Purchasers (and grant to the Purchasers a first priority security
interest in such Acceptable Letters of Credit) by the Additional Collateral
Date, or if on any date after the Additional Collateral Date the unpaid
principal balance of the Convertible Notes exceeds the outstanding undrawn
aggregate face amount of the Acceptable Letters of Credit which have been
assigned to the Purchasers and in which the Purchasers have a first priority
security interest (in either event, a "Lockbox Event"), the Company shall,
within two (2) Business Days after the occurrence of such Lockbox Event,
establish a lockbox account with Citibank, N.A., pursuant to the form of
agreement attached as Exhibit K hereto, as to which the Purchasers or their
representative shall have the sole right of withdrawal and into which all
payments and collections with respect to the Products and all accounts
receivable and purchase orders of the Company and its Subsidiaries relating
thereto, will be deposited, all of the terms and conditions of which shall be
satisfactory to the Purchasers in their sole discretion. The Company shall
deliver to the Purchasers, on the date of assignment, the original counterparts
of all additional Acceptable Letters of Credit assigned to the Purchasers
pursuant to this Section 3.9(b).
ARTICLE IV
ADDITIONAL GRANT SHARES
SECTION 4.1. Additional Grant Shares. Upon expiration of the Test Period,
the Company shall issue the Additional Grant Shares to the Purchasers if, but
only if, the Closing Bid Prices of the Common Stock for each Trading Day during
the Test Period does not equal or exceed the Market Price of the Common Stock on
the day prior to the Closing Date. All such Additional Grant Shares shall be
delivered no later than July 7, 1998 to the Purchasers, without additional
compensation paid by the Purchasers, pro rata according to the number of Grant
Shares issued on the Closing Date. Notwithstanding the foregoing, if the number
of Additional Grant Shares would exceed 50,000 shares (the number of shares in
excess of 50,000 being referred to as "Excess Shares"), then the Company shall
deliver 50,000 shares of Common Stock to the Purchasers and, at the Company's
option, the Company will either (x) deliver the Excess Shares to the Purchasers,
or (y) deliver a note in a principal amount equal to the product of the number
of Excess Shares and the Closing Bid Price on the last day of the Test Period
(the "Share Note") bearing interest at ten percent (10%) per annum payable in
full in ninety (90) days (the "Note Maturity Date") (the "Payment Option for
Additional Grant Shares"). On the Note Maturity Date the Company will either (x)
pay the Share Note in full in cash to the Purchasers or (y) deliver to the
Purchasers the greater of (i) the number of Excess Shares or (ii) a number of
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(Take-Two Interactive Software, Inc.)
shares equal to the Share Note amount divided by the Closing Bid Price on the
Note Maturity Date.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchasers, and each of them, as
of the Closing Date as set forth herein.
SECTION 5.1. Corporate Existence and Power. The Company and each Subsidiary
is a corporation (or other legal entity) duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation and is duly
qualified to conduct business as a foreign corporation, and has all corporate
power and all governmental licenses, authorizations, permits, consents and
approvals required to carry on its business as now conducted and as proposed to
be conducted, except where such failure would not have a material adverse effect
on the Company or the ability of the Company to continue its current operations
or to fulfill its obligations hereunder and under the Financing Documents.
SECTION 5.2. Authorization and Execution. The execution, delivery and
performance by the Company of each Financing Document to which it is a party and
the issuance by the Company of the Securities have been duly and validly
authorized and are within its corporate powers. This Agreement and each
Financing Document to which it is a party has been duly executed and delivered
by the Company and constitutes the valid and binding agreement of the Company.
Each of the Financing Documents constitutes the valid and binding obligation of
the Company, enforceable against the Company or such Subsidiary Guarantor, as
the case may be, in accordance with its respective terms, subject to (i)
applicable bankruptcy, insolvency or similar laws affecting the enforceability
of creditors rights generally and (ii) equitable principles of general
applicability.
SECTION 5.3. Governmental Authorization; the Securities. The execution and
delivery by the Company of the Financing Documents does not and will not, the
issuance and sale by the Company of the Securities does not and will not, and
the consummation of the transactions contemplated hereby and thereby will not,
require any action by or in respect of, or filing with, any governmental body,
agency or governmental official except (a) such actions or filings that have
been undertaken or made prior to the date hereof and that will be in full force
and effect (or as to which all applicable waiting periods have expired) on and
as of the date hereof or which are not required to be filed on or prior to the
Closing Date, (b) such actions or filings that, if not obtained, would not in
the aggregate impose materially adverse conditions upon the Company and (c)
listing applications to be filed with the Nasdaq Market relating to the Grant
Shares, Additional Grant Shares (if applicable), Conversion Shares and Warrant
Shares. Upon conversion in accordance with the terms of the Convertible Notes,
or upon exercise in accordance with the terms of the Warrants (assuming the
payment of the exercise price set forth
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in the Warrants), the shares of Common Stock when issued upon conversion or
exercise and in accordance with the terms thereof shall be duly and validly
issued and outstanding, fully paid and nonassessable, free and clear of any
claims or preemptive rights. Assuming the representations and warranties of the
Purchasers herein are true and correct in all material respects, each of the
Securities will have been issued in material compliance with all applicable U.S.
federal and state securities laws.
SECTION 5.4. Contravention. The execution and delivery by the Company of
the Financing Documents to which it is a party did not and will not, the
issuance and sale by the Company of the Securities did not and will not and the
consummation of the transactions contemplated hereby and thereby will not
(including without limitation, execution, delivery and performance of the
Lockbox Agreement), contravene or constitute a default under or violation of (i)
any provision of applicable law or regulation, (ii) the Company Corporate
Documents, (iii) any agreement, judgment, injunction, order, decree or other
instrument binding upon the Company or any Subsidiary or any of their respective
assets, or result in the creation or imposition of any Lien on any asset of the
Company. The Company and each Subsidiary is in compliance with and conforms to
all statutes, laws, ordinances, rules, regulations, orders, restrictions and all
other legal requirements of any domestic or foreign government or any
instrumentality thereof having jurisdiction over the conduct of its businesses
or the ownership of its properties, except where such failure would not have a
material adverse effect on the business, condition (financial or otherwise),
operations, performance, properties or prospects of such corporation.
SECTION 5.5. Financial Information and SEC Reports. The Company has timely
filed all forms, reports and documents with the Commission since April 30, 1997
required to be filed by it under the Exchange Act through the date hereof
(collectively, the "SEC Reports"). Such SEC Reports, at the time filed, complied
in all material respects with the requirements of the Exchange Act. None of the
SEC Reports, including without limitation any financial statements or schedules
included therein, contained any untrue statement of a material fact or omitted
to state a material fact necessary in order to make the statements made, in
light of the circumstances under which they were made, not misleading at the
time they were filed. There have been no material adverse changes in the
Company's business, properties, results of operations, condition (financial or
otherwise) since the date of the Company's most recent Report on Form 10-Q for
the period ended July 31, 1997, which have not been disclosed in the SEC Reports
or to the Purchasers in writing. The audited and unaudited consolidated balance
sheets of the Company contained in the SEC Reports, the related consolidated
statements of income, changes in stockholders' equity and changes in cash flows
for the period ended July 31, 1997, including the footnotes thereto, except as
indicated therein, have been prepared in accordance with GAAP consistently
followed throughout the periods indicated, except that the unaudited financial
statements may be subject to normal audit adjustments and normal annual
adjustments. The SEC Reports and the most recent report on Form 10-Q present
fairly, in all material respects, the financial condition of the Company at the
date thereof and, except as indicated therein, present fairly, in all material
respects, the results of the operations of the Company and the cash flows for
the period indicated.
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SECTION 5.6. Litigation. Except as disclosed in the SEC Reports, there is
no action, suit or proceeding pending or, to the knowledge of the Company,
threatened against the Company or any Subsidiary, before any court or arbitrator
or any governmental body, agency or official in which there is a reasonable
possibility of an adverse decision which could materially adversely affect the
business, condition (financial or otherwise), operations, performance,
properties or prospects of the Company or any Subsidiary or which challenges the
validity of any Financing Document.
SECTION 5.7. Compliance with ERISA and other Benefit Plans.
(a) Each member of the ERISA Group has fulfilled its obligations under the
minimum funding standards of ERISA and the Code with respect to each Plan and is
in compliance in all material respects with the presently applicable provisions
of ERISA and the Code with respect to each Plan. No member of the ERISA Group
has (i) sought a waiver of the minimum funding standard under Section 412 of the
Code in respect of any Plan, (ii) failed to make any required contribution or
payment to any Plan or Multiemployer Plan or in respect of any Benefit
Arrangement, or made any amendment to any Plan or Benefit Arrangement, which has
resulted or could result in the imposition of a Lien or the posting of a bond or
other security under ERISA or the Code or (iii) incurred any liability under
Title IV of ERISA other than a liability to the PBGC for premiums under Section
4007 of ERISA.
(b) The benefit plans not covered under clause (a) above (including profit
sharing, deferred compensation, stock option, employee stock purchase, bonus,
retirement, health or insurance plans, collectively the "Benefit Plans")
relating to the employees of the Company are duly registered where required by,
and are in good standing, in all material respects, under, all applicable laws.
All required employer and employee contributions and premiums under the Benefit
Plans to the date hereof have been made, the respective fund or funds
established under the Benefit Plans are funded in accordance with applicable
laws, and no past service funding liabilities exist thereunder.
(c) No Benefit Plans have any unfunded liabilities, either on a "going
concern" or "winding up" basis and determined in accordance with all applicable
laws and actuarial practices and using actuarial assumptions and methods that
are reasonable in the circumstances. No event has occurred and no condition
exists with respect to any Benefit Plans that has resulted or could reasonably
be expected to result in any pension plan having its registration revoked or
wound up (in whole or in part) or refused for the purposes of any applicable
laws or being placed under the administration of any relevant pension benefits
regulatory authority or being required to pay any taxes or penalties (in any
material amounts) under any applicable laws.
SECTION 5.8. Environmental Matters. The costs and liabilities associated
with Environmental Laws (including the cost of compliance therewith) are
unlikely to have a material adverse effect on the business, condition (financial
or otherwise), operations, performance,
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properties or prospects of the Company or any Subsidiary. Each of the Company
and the Subsidiaries conducts its businesses in compliance in all material
respects with all applicable Environmental Laws.
SECTION 5.9. Taxes. All United States federal, state, county, municipality
local or foreign income tax returns and all other material tax returns
(including foreign tax returns) which are required to be filed by or on behalf
of the Company and each Subsidiary have been filed or will be filed within the
time prescribed by law (including any extension of time approved by the
appropriate taxing authority) and all material taxes due pursuant to such
returns or pursuant to any assessment received by the Company have been paid
except those being disputed in good faith and for which adequate reserves have
been established. The charges, accruals and reserves on the books of the Company
in respect of taxes or other governmental charges have been established in
accordance with GAAP.
SECTION 5.10. Investments, Joint Ventures. The Company has no Subsidiaries
or other direct or indirect Investment in any Person, and the Company is not a
party to any partnership, management, shareholders' or joint venture or similar
agreement other than as set forth on Schedule 5.10 hereto.
SECTION 5.11. Not an Investment Company. Neither the Company nor any
Subsidiary is an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
SECTION 5.12. Full Disclosure. The written information heretofore furnished
by the Company to the Purchasers for purposes of or in connection with this
Agreement or any transaction contemplated hereby does not (taken together and on
the date as of which such information is furnished), contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements contained therein, in the light of the circumstances
under which they are made, not misleading.
SECTION 5.13. Capitalization. As of the date hereof, the authorized, issued
and outstanding capital stock of the Company is as set forth on Schedule 5.13
hereto; and no other shares of capital stock of the Company will be outstanding.
Other than as set forth on Schedule 5.13 hereto, there are no subscriptions,
options, warrants, rights, convertible securities, exchangeable securities or
other agreements or commitments of any character pursuant to which the Company
is required to issue any shares of its capital stock. The Common Stock is
registered under Section 12(g) of the Exchange Act.
SECTION 5.14. Solicitation. No form of general solicitation or general
advertising was used by the Company or, to the best of its actual knowledge, any
other Person acting on behalf of the Company in connection with the offer and
sale of the Securities. Neither the Company, nor, to its knowledge, any Person
acting on behalf of the Company, has, either directly or indirectly, sold or
offered for sale to any Person (other than the Purchasers) any of the
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Securities or, within the six months prior to the date hereof, any other similar
security of the Company except as contemplated by this Agreement, and the
Company represents that neither itself nor any Person authorized to act on its
behalf (except that the Company makes no representation as to the Purchasers and
their Affiliates) will sell or offer for sale any such security to, or solicit
any offers to buy any such security from, or otherwise approach or negotiate in
respect thereof with, any Person or Persons so as thereby to cause the issuance
or sale of any of the Securities to be in violation of any of the provisions of
Section 5 of the Securities Act. The issuance of the Securities to the
Purchasers will not be integrated with any other issuance of the Company"s
securities (past, current or future) which requires stockholder approval under
the rules of the Nasdaq Market.
SECTION 5.15. Permits. (a) Each of the Company and its Subsidiaries has all
material Permits as are necessary for the conduct of its business as it is
currently carried on; (b) all such Permits are in full force and effect, and the
Company has fulfilled and performed all material obligations with respect to
such Permits; (c) to the best of the Company's knowledge, no event has occurred
which allows, or after notice or lapse of time would allow, revocation or
termination by the issuer thereof or which results in any other material
impairment of the rights of the holder of any such Permit; and (d) the Company
has no reason to believe that any governmental body or agency is considering
limiting, suspending or revoking any such Permit.
SECTION 5.16. Leases. Except as disclosed on Schedule 5.16 hereto, neither
the Company nor any Subsidiary is a party to any capital lease obligation with a
value greater than $100,000 or to any operating lease with an aggregate annual
rental greater than $100,000 during the life of such lease.
SECTION 5.17. Absence of Any Undisclosed Liabilities or Capital Calls.
There are no liabilities of the Company or any Subsidiary of any kind
whatsoever, whether accrued, contingent, absolute, determined, determinable or
otherwise, and there is no existing condition, situation or set of circumstances
which could reasonably be expected to result in such a liability, other than (i)
those liabilities provided for in the financial statements delivered pursuant to
Section 5.5 hereof, (ii) other undisclosed liabilities which, individually or in
the aggregate, are not material to the Company, and (iii) obligations to perform
under commitments incurred in the ordinary course of business of the Company
after the Balance Sheet Date.
SECTION 5.18. Governmental Regulation. Neither the Company nor any
Subsidiary is, or will be upon the issuance and sale of the Securities and the
use of the proceeds described herein, subject to regulation under the Public
Utility Holding Company Act of 1935, as amended, the Federal Power Act, the
Interstate Commerce Act or to any federal or state statute or regulation
limiting its ability to issue and perform its obligations under any Financing
Document.
SECTION 5.19. Intellectual Property Rights. Each of the Company and its
Subsidiaries owns, or is licensed under, and has the rights to use, all material
patents, trademarks, trade names, copyrights, technology, know-how and processes
(collectively, "Intellectual
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Property") used in, or necessary for the conduct of its business as currently
conducted; to the best of the Company's knowledge, no claims have been asserted
by any Person to the use of any such Intellectual Property or challenging or
questioning the validity or effectiveness of any license or agreement related
thereto. To the best of the Company's knowledge, there is no valid basis for any
such claim and the use of such Intellectual Property by the Company will not
infringe upon the rights of any Person.
SECTION 5.20. Insurance. The Company and its Subsidiaries maintain, with
financially sound and reputable insurance companies, insurance in at least such
amounts and against such risks such that any uninsured loss would not have a
material adverse effect on the business, condition (financial or otherwise),
operations, performance, properties or prospects of the Company. All insurance
coverages of the Company are in full force and effect and there are no past due
premiums in respect of any such insurance.
SECTION 5.21. Title to Properties. The Company and its Subsidiaries have
good and marketable title to all their respective properties reflected on the
financial statements referred to in Section 5.5, and, except for the Liens (x)
permitted by Section 8.11 or (y) listed on Schedule 5.21 hereto there is no Lien
on any asset of the Company. Except for financing statements (or their
equivalent) filed, recorded or registered with respect to Liens permitted by
Section 8.11, there are no currently effective financing statements (or their
equivalent) of record in any jurisdiction covering any tangible or intangible
assets of the Company.
SECTION 5.22. Eligibility to use Form S-3. The Company will take all
necessary action to meet, the "registrant eligibility" requirements set forth in
the general instructions to Form S-3 promulgated by the Commission from and
after April 15, 1998.
SECTION 5.23. Internal Accounting Controls. The Company maintains 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 GAAP 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.
SECTION 5.24. Waiver of Registration Rights. The Company hereby represents
that only those Persons listed on Schedule 5.24 attached hereto have the right,
contractual or otherwise, to require the Company to include any securities (as
defined in Section 2(1) of the Securities Act, including, without limitation,
the Common Stock or any derivative securities thereof) of the Company in the
Registration Statement.
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ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
SECTION 6.1. Purchase for Investment; Authority; Binding Agreement. Each
Purchaser as to itself only hereby represents and warrants to the Company that:
(a) the Purchaser is an "accredited investor" within the meaning of Rule
501(a) under the Securities Act and the Securities to be acquired by it pursuant
to this Agreement are being acquired for its own account and not with a view
toward, or for sale in connection with, any resale thereof except in compliance
with applicable United States federal and state securities law; provided that
the disposition of the Purchaser's property shall at all times be and remain
within its control;
(b) the execution, delivery and performance of this Agreement and the
purchase of the Securities pursuant hereto are within the Purchaser's corporate
or partnership powers, as applicable, and have been duly and validly authorized
by all requisite corporate or partnership action;
(c) this Agreement has been duly executed and delivered by the Purchaser;
(d) the execution and delivery by the Purchaser of the Financing Documents
to which it is a party does not, and the consummation of the transactions
contemplated hereby and thereby will not, contravene or constitute a default
under or violation of (i) any provision of applicable law or regulation, or (ii)
any agreement, judgment, injunction, order, decree or other instrument binding
upon the Purchasers;
(e) Purchaser understands that the Securities have not been registered
under the Securities Act and may not be transferred or sold except as specified
in this Agreement;
(f) this Agreement constitutes a valid and binding agreement of the
Purchaser enforceable in accordance with its terms, subject to (i) applicable
bankruptcy, insolvency or similar laws affecting the enforceability of creditors
rights generally and (ii) equitable principles of general applicability;
(g) the Purchaser has such knowledge and experience in financial and
business matters so as to be capable of evaluating the merits and risks of its
investment in the Securities and the Purchaser is capable of bearing the
economic risks of such investment;
(h) the Purchaser is knowledgeable, sophisticated and experienced in
business and financial matters; the Purchaser has previously invested in
securities similar to the Securities and fully understands the limitations on
transfer described herein; the Purchaser has been afforded access to information
about the Company and the financial condition, results of operations,
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property, management and prospects of the Company sufficient to enable it to
evaluate its investment in the Securities; the Purchaser has been afforded the
opportunity to ask such questions as it has deemed necessary of, and to receive
answers from, representatives of the Company concerning the terms and conditions
of the offering of the Securities and the merits and the risks of investing in
the Securities; and the Purchaser has been afforded the opportunity to obtain
such additional information which the Company possesses or can acquire that is
necessary to verify the accuracy and completeness of the information given to
the Purchaser concerning the Company. The foregoing does not in any way relieve
the Company of its representations and other undertakings hereunder, and shall
not limit the Purchasers' ability to rely thereon;
(i) Each of the Purchasers is a Nevis, West Indies corporation.
(j) no part of the source of funds used by the Purchaser to acquire the
Securities constitutes assets allocated to any separate account maintained by
the Purchaser in which any employee benefit plan (or its related trust) has any
interest.
ARTICLE VII
CONDITIONS PRECEDENT TO PURCHASE OF SECURITIES
SECTION 7.1. Conditions Precedent to Purchase on the Closing Date. The
obligation of the Purchasers to purchase Convertible Notes pursuant to the
Agreement on the Closing Date is subject to the condition precedent that each of
the following conditions shall have been satisfied to the reasonable
satisfaction of the Purchasers as of such Closing Date:
(a) Receipt by each of the Purchasers of a Solvency Certificate executed by
the chief financial officer of the Company;
(b) Receipt by each of the Purchasers of evidence satisfactory to it as to
(i) the receipt by the Company of all governmental, board of directors,
shareholders and third party consents and approvals necessary or desirable in
connection with the issuance and sale of the Securities, and (ii) the expiration
of all applicable waiting periods without any action having been taken by any
competent authority that could restrain, prevent or impose any materially
adverse conditions thereon or that could seek or threaten any of the foregoing;
(c) Receipt by each of the Purchasers of duly executed counterparts of this
Agreement, the Registration Rights Agreement, the Security Agreement, the
Subsidiary Security Agreement and the Transfer Agent Agreement signed by the
Company and, with respect to the Transfer Agent Agreement, signed by the
Transfer Agent;
(d) Each of the Purchasers shall have received an opinion, dated the
Closing Date, of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ LLP substantially in the form attached as
Exhibit I hereto;
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(e) All fees and expenses due and payable by the Company on or prior to the
Closing Date shall have been paid or duly provided for in full as contemplated
by the Transfer Agent Agreement;
(f) The Grant Shares, Convertible Notes and Warrants being acquired by the
Purchasers on the Closing Date shall have been duly executed and delivered as
provided in the Transfer Agent Agreement;
(g) The Purchasers shall have received an Officer's Certificate executed by
the President, chief executive officer or chief financial officer of the
Company;
(h) The Company Corporate Documents and the Subsidiary Corporate Documents
shall be in full force and effect and no term or condition thereof shall have
been amended, waived or otherwise modified in violation of this Agreement;
(i) The Purchasers or the Transfer Agent, as applicable, shall have
confirmed receipt of the Grant Shares, Convertible Notes and the Warrants to be
issued on the Closing Date, duly executed by the Company, in the denominations
and registered in the names of the Purchasers specified in or pursuant to
Schedule 2.1;
(j) Receipt by the Purchasers of the original letters of credit
constituting the Collateral, with assignments thereof to the Purchasers in form
satisfactory to the Purchasers, acknowledged by the issuers of such letters of
credit;
(k) Receipt by the Purchasers of evidence reasonably satisfactory to them
that their security interests in the Collateral are of first priority;
(l) Receipt by each of the Purchasers of duly executed counterparts of a
lien subordination agreement, in a form satisfactory to the Purchaser, with
respect to the Citibank Debt, the National Bank of Canada Debt and the Crestar
Debt;
(m) Receipt by the Purchasers of Uniform Commercial Code financing
statements duly executed by the Company with respect to any Collateral for
filing in the State of New York pursuant to the Security Agreement; and
(n) The Purchasers shall have received all other opinions, resolutions,
certificates, instruments, agreements or other documents as they shall
reasonably request.
SECTION 7.2. Conditions to the Company's Obligations. The obligations of
the Company to issue and sell to the Purchasers the Securities to be issued and
sold pursuant to this Agreement are subject to the satisfaction, at or prior to
Closing Date, of the following conditions:
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(a) The representations and warranties of the Purchasers contained herein
shall be true and correct in all material respects on the Closing Date and the
Purchasers shall have performed and complied in all material respects with all
agreements required by this Agreement to be performed or complied with by the
Purchasers at or prior to Closing Date;
(b) The issue and sale of the Securities by the Company shall not be
prohibited by any applicable law, court order or governmental regulation;
(c) On the Closing Date, receipt by the Company of duly executed
counterparts of this Agreement, the Registration Rights Agreement, and the
Transfer Agent Agreement signed by the Purchasers, and, with respect to the
Transfer Agent Agreement, signed by the Transfer Agent; and
(d) The Company shall have received payment of the Purchase Price of the
Convertible Notes to be purchased on such Closing Date in the manner
contemplated by the Transfer Agent Agreement.
ARTICLE VIII
COVENANTS
The Company hereby agrees that, from and after the date hereof for so long
as any Convertible Notes remain outstanding (except for Sections 8.1(a) and (d),
8.14 and 8.22 - 8.24, which shall apply for so long as any Convertible Notes or
Warrants remain outstanding) and for the benefit of the Purchasers:
SECTION 8.1. Information. The Company will deliver to each holder of the
Convertible Notes:
(a) promptly upon the filing thereof, copies of all registration statements
(other than the exhibits thereto and any registration statements on Form S-8 or
its equivalent) and reports on Forms 10-K, 10-Q and 8-K (or their equivalents)
which the Company or any Subsidiary has filed with the Commission;
(b) simultaneously with the delivery of each item referred to in clause (a)
above, a certificate from the Company stating that no Default or Event of
Default has occurred and is continuing, or, if as of the date of such delivery a
Default or Event of Default shall have occurred and be continuing, a certificate
from the Company setting forth the details of such Default or Event of Default
and the action which the Company is taking or proposes to take with respect
thereto;
(c) within three (3) Business Days after any executive officer of the
Company obtains knowledge of a Default or Event of Default, a certificate of the
chief financial officer or the chief
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accounting officer of the Company setting forth the details thereof and the
action which the Company is taking or proposes to take with respect thereto;
(d) promptly upon the mailing thereof to the shareholders of the Company
generally, copies of all financial statements, reports and proxy statements so
mailed and any other document generally distributed to shareholders;
(e) if and when any member of the ERISA Group (i) gives or is required to
give notice to the PBGC of any "reportable event" (as defined in Section 4043 of
ERISA) with respect to any Plan which might constitute grounds for a termination
of such Plan under Title IV of ERISA, or knows that the plan administrator of
any Plan has given or is required to give notice of any such reportable event, a
copy of the notice of such reportable event given or required to be given to the
PBGC; (ii) receives notice of complete or partial withdrawal liability under
Title IV of ERISA or notice that any Multiemployer Plan is in reorganization, is
insolvent or has been terminated, a copy of such notice; (iii) receives notice
from the PBGC under Title IV of ERISA of an intent to terminate, impose
liability (other than for premiums under Section 4007 of ERISA) in respect of,
or appoint a trustee to administer any Plan, a copy of such notice; (iv) applies
for a waiver of the minimum funding standard under Section 412 of the Code, a
copy of such application; (v) gives notice of intent to terminate any Plan under
Section 4041(c) of ERISA, a copy of such notice and other information filed with
the PBGC; (vi) gives notice of withdrawal from any Plan pursuant to Section 4063
of ERISA, a copy of such notice; or (vii) fails to make any required payment or
contribution to any Plan or Multiemployer Plan or in respect of any Benefit
Arrangement or makes any amendment to any Plan or Benefit Arrangement which has
resulted or could result in the imposition of a Lien or the posting of a bond or
other security, a certificate of the chief financial officer or the chief
accounting officer of the Company setting forth details as to such occurrence
and action, if any, which the Company or applicable member of the ERISA Group is
required or proposes to take; and
(f) promptly following the commencement thereof, notice and a description
in reasonable detail of any litigation or proceeding to which the Company or any
Subsidiary is a party in which the amount involved is $500,000 or more and not
covered by insurance or in which injunctive or similar relief is sought.
SECTION 8.2. Payment of Obligations. The Company and each Subsidiary will
pay and discharge, at or before maturity, all their respective material
obligations, including, without limitation, tax liabilities, except where the
same may be contested in good faith by appropriate proceedings and will
maintain, in accordance with GAAP, appropriate reserves for the accrual of any
of the same.
SECTION 8.3. Maintenance of Property; Insurance. The Company and each
Subsidiary will keep, all property useful and necessary in its business in good
working order and condition, ordinary wear and tear excepted. In addition, the
Company and each Subsidiary will
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maintain insurance in at least such amounts and against such risks as it has
insured against as of the Closing Date.
SECTION 8.4. Maintenance of Existence. The Company and each Subsidiary will
continue to engage in business of the same general type as now conducted by the
Company and such Subsidiaries, and will preserve, renew and keep in full force
and effect its respective corporate existence and their respective material
rights, privileges and franchises necessary or desirable in the normal conduct
of business.
SECTION 8.5. Compliance with Laws. The Company and each Subsidiary will
comply, in all material respects, with all federal, state, municipal, local or
foreign applicable laws, ordinances, rules, regulations, municipal by-laws,
codes and requirements of governmental authorities (including, without
limitation, Environmental Laws and ERISA and the rules and regulations
thereunder) except (i) where compliance therewith is contested in good faith by
appropriate proceedings or (ii) where non-compliance therewith could not
reasonably be expected, in the aggregate, to have a material adverse effect on
the business, condition (financial or otherwise), operations, performance,
properties or prospects of the Company or such Subsidiary.
SECTION 8.6. Inspection of Property, Books and Records. The Company and
each Subsidiary will keep proper books of record and account in which
transactions are recorded as necessary to permit preparation of financial
statements in accordance with GAAP and to maintain asset accountability in
relation to their respective businesses and activities; and will permit, during
normal business hours, H.W. Partners, L.P., or an affiliate thereof, as
representatives of the Purchasers, to visit and inspect any of their respective
properties, upon reasonable prior notice, to examine and make abstracts from any
of their respective books and records and to discuss their respective affairs,
finances and accounts with their respective executive officers and independent
public accountants, during usual business hours.
SECTION 8.7. Investment Company Act. The Company will not be or become an
open-end investment trust, unit investment trust or face-amount certificate
company that is or is required to be registered under Section 8 of the
Investment Company Act of 1940, as amended.
SECTION 8.8. Limitation on Debt or Other Liabilities. Neither the Company
nor any Subsidiary will create, incur, assume or suffer to exist (at any time
after the Closing Date, after giving effect to the application of the proceeds
of the issuance of the Securities) any Debt exceeding, in the aggregate for the
Company and such Subsidiaries, $750,000, except for the following (such Debt
being referred to as "Permitted Debt"):
(i) Debt incurred or assumed solely to pay all or any part of the purchase
price or cost of construction, of any real or personal property (or any
improvement thereon) acquired or constructed by the Company or a Subsidiary
after the Closing Date provided: (a) any Lien with respect to such Debt shall
extend solely to the item or items of such property (or
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improvements thereon) so acquired or constructed and, if required by the terms
of the instrument originally creating such Lien, other property (or improvement
thereon) which is an improvement to or is acquired for specific use in
connection with such acquired or constructed property (or improvement thereon)
or which is real property being improved by such acquired or constructed
property (or improvement thereon); (b) the principal amount of the Debt for such
property shall at no time exceed an amount equal to the cost of the acquisition
or the operation of the property (or improvement thereon) so acquired or
constructed; and (c) any Lien with respect to such Debt shall be created within
sixty (60) days of the acquisition or construction of such property;
(ii) Non-recourse Debt which, by its terms, bars the lender thereof from
action against the Company or any Subsidiary, as borrower, if the security value
falls below the amount required to repay such Debt;
(iii) Debt incurred in connection with equipment leases to which the
Company or its Subsidiary is a party incurred in the ordinary course of
business;
(iv) Debt incurred in connection with trade accounts payable arising in the
ordinary course of business;
(v) Revolving Credit Debt;
(vi) Debt incurred with respect to the Convertible Notes;
(vii) Debt incurred from time to time in connection with working capital
credit facilities of the Company and its Subsidiaries as in effect as of the
Closing Date of this Agreement (including the Citibank Debt, the National Bank
of Canada Debt, the Crestar Debt and the Barclays Bank Debt);
(viii) Unsecured Debt subordinated to the convertible Notes on terms
reasonably satisfactory to the Purchasers;
(ix) Guaranties of a Subsidiary by the Company or by the Company of any
Subsidiary of Permitted Debt;
(x) Reimbursement obligations in respect of Letters of Credit and similar
obligations established by the Company in favor of suppliers the Products and
other inventory items in the ordinary course of business;
(xi) Debt of a Subsidiary owing to the Company or another Subsidiary;
(xii) Debt in an amount sufficient to prepay in full or redeem in full the
Convertible Notes when required or permitted hereunder; and
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(xiii) Debt of the Company and its Subsidiaries reflected on the Company's
balance sheet as of July 31, 1997 and the notes thereto included in the
Company's Quarterly Report on Form 10-QSB for the quarter ended July 31, 1997.
SECTION 8.9. Restricted Payments. Neither the Company nor any Subsidiary
will declare or make Restricted Payments in excess of $100,000 during any twelve
(12) month period.
SECTION 8.10. Investments. Neither the Company nor any Subsidiary will make
or acquire any Investment in any Person, other than in the ordinary course of
business which shall be limited to (a) Investments in Cash Equivalents and (b)
Investments in Subsidiaries existing on the Closing Date and in Subsidiaries
permitted by Section 8.21.
SECTION 8.11. Liens. Neither the Company nor any Subsidiary will create,
assume or suffer to exist any Lien on any asset now owned or hereafter acquired
by it, except:
(i) (A) inchoate mechanics, workmen's and carriers' liens, incident to
current construction, (B) mechanics, warehousemen's, unpaid vendors and
carriers' liens incident to such construction, (C) statutory and common law
Liens of landlords under equipment leases to which the Company or any
Subsidiary is a party and (D) Liens of carriers, warehousemen, mechanics
and materialmen or other similar statutory Liens, security deposits under
leases and with utilities and surety or appeal bonds;
(ii) Liens incurred on deposits made in the ordinary course of
business in connection with workers' compensation, performance bonds,
unemployment insurance and other types of social security, other than any
Lien imposed by or under ERISA;
(iii) Liens for taxes not yet due, the availability or amount of which
is being contested in good faith by the Company or any Subsidiary;
(iv) Easements, rights of way, permits, licenses, zoning ordinances,
covenants, restrictions, defects, minor irregularities of title and other
similar Liens on property which in the case of any particular parcel of
real property do not materially detract from the value or utilization of
such real property;
(v) Liens created by or resulting from any litigation or legal
proceeding which is currently being contested by such Company or Subsidiary
in good faith and by appropriate proceedings;
(vi) Liens securing Permitted Debt;
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(vii) Liens in favor of customs and all other similar governmental
authorities for customs duties and similar charges in connection with
importation of the Products and the inventory items by the Company; and
(viii) Security interests on personal property of the Company or its
subsidiaries securing the Citibank Debt, the National Bank of Canada Debt,
the Crestar Debt and the Barclays Bank Debt, and in the case of the
Citibank Debt, The National Bank of Canada Debt and the Crestar Debt,
subordinated to the security interest of the Purchasers in the Collateral
on terms reasonably satisfactory to the Purchasers.
Notwithstanding any other provision hereof, the Company shall not permit any
lien to exist with respect to the Collateral.
SECTION 8.12. Transactions with Affiliates. The Company and each Subsidiary
will not, directly or indirectly, pay any funds to or for the account of, make
any investment (whether by acquisition of stock or indebtedness, by loan,
advance, transfer of property, guarantee or other agreement to pay, purchase or
service, directly or indirectly, any Debt, or otherwise) in, lease, sell,
transfer or otherwise dispose of any assets, tangible or intangible, to, or
participate in, or effect any transaction in connection with any joint
enterprise or other joint arrangement with, any Affiliate, except, (1) pursuant
to those agreements specifically identified on Schedule 8.12 attached hereto
(with a copy of such agreements annexed to such Schedule 8.12) and (2) on terms
to the Company or such Subsidiary no less favorable than terms that could be
obtained by the Company or such Subsidiary from a Person that is not an
Affiliate of the Company upon negotiation at arms' length, as determined in good
faith by the Board of Directors of the Company; provided that no determination
of the Board of Directors shall be required with respect to any such
transactions entered into in the ordinary course of business. In addition,
transactions between the Company and its Consolidated Subsidiaries or among such
Subsidiaries which do not violate any other provisions of this Agreement shall
not be prohibited.
SECTION 8.13. Merger or Consolidation. The Company will not, in a single
transaction or a series of related transactions, (i) consolidate with or merge
with or into any other Person, or (ii) permit any other Person to consolidate
with or merge into it, unless (w) either (A) the Company shall be the survivor
of such merger or consolidation or (B) the surviving Person shall expressly
assume by supplemental agreement all of the obligations of the Company under the
Securities and this Agreement; (x) immediately before and immediately after
giving effect to such transaction (including any indebtedness incurred or
anticipated to be incurred in connection with the transaction), no Default or
Event of Default shall have occurred and be continuing and, following the
transaction, the Company may incur $1.00 of Debt without violating Section 8.8
hereof; (y) if the Company is not the surviving entity, such surviving entity's
common shares shall be listed on either The New York Stock Exchange, American
Stock Exchange, or the Nasdaq Stock Market's National Market or the Nasdaq Small
Cap Market and (z) the Company has delivered to the Purchasers an officers'
certificate stating that such consolidation, merger or transfer complies with
this Agreement, that the surviving Person agrees to be bound thereby and
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that all conditions precedent in this Agreement relating to such transaction
have been satisfied; provided, however, nothing contained in this Section 8.13
shall alter or diminish the Company's obligations under Section 3.5(a) of this
Agreement.
SECTION 8.14. Maintenance of Reporting Status; Supplemental Information. So
long as any of the Securities are outstanding, the Company shall timely file all
reports required to be filed with the SEC pursuant to the Exchange Act. 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. If at any time the Company is not
subject to the requirements of Section 13 or 15(d) of the Exchange Act, the
Company will promptly furnish at its expense, upon request, for the benefit of
the holders from time to time of Securities, and prospective purchasers of
Securities, information satisfying the information requirements of Rule 144
under the Securities Act.
SECTION 8.15. Use of Proceeds. The proceeds from the issuance and sale of
the Securities by the Company shall initially be used solely to fund
manufacturing costs for the Products, more commonly known as "Nintendo 64" video
games. None of the proceeds from the issuance and sale of Securities by the
Company pursuant to this Agreement will be used directly or indirectly for the
purpose, whether immediate, incidental or ultimate, of purchasing or carrying
any "margin stock" within the meaning of Regulation G of the Board of Governors
of the Federal Reserve System.
SECTION 8.16. Limitation on Restrictions Affecting Subsidiaries. The
Company will not enter into, or suffer to exist, any agreement (other than the
Financing Documents) with any Person which prohibits or limits the ability of
any Subsidiary to (a) pay dividends or make other distributions or pay any Debt
owed to the Company or any Subsidiary, (b) make loans or advances to the Company
or any Subsidiary or (c) transfer any of its properties or assets to the Company
or any Subsidiary.
SECTION 8.17. Restrictions on Certain Amendments. Neither the Company nor
any Subsidiary will waive any provision of, amend, or suffer to be amended, any
provision of such entity's existing indebtedness, any material contract or
agreement previously or hereafter filed by the Company with the Commission as
part of its SEC Reports, any Company Corporate Document or Subsidiary Corporate
Document if such amendment would materially adversely affect the Purchasers or
the holders of the Securities without the prior written consent of the Majority
Holders, which such consent shall not be unreasonably withheld.
SECTION 8.18. Compliance with Terms and Conditions of Contracts. The
Company will comply, in all material respects, with all terms and conditions of
all material contracts to which it is subject.
SECTION 8.19. Consolidated Net Worth. The Company will not permit its
Consolidated Net Worth at the end of any of its fiscal quarters to be less than
$5,000,000.
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SECTION 8.20. Limitation on Asset Sales. Neither the Company nor any
Subsidiary will consummate an Asset Sale unless (i) it receives consideration in
cash at the time of such Asset Sale at least equal to the fair market value of
the assets sold or otherwise disposed of (as determined in good faith by the
Company's Board of Directors) and (ii) the Net Cash Proceeds of such sale are
used to either (a) purchase similar assets in the same line of business of
equivalent value within sixty (60) days of the date of the Asset Sale or (b)
immediately redeem or prepay the Convertible Notes or (c) a combination of
purchases and prepayment permitted by the foregoing clauses (a) and (b), except
that the Company can engage in Asset Sales otherwise prohibited by this Section
8.21 not exceeding $500,000 over the life of the Convertible Notes and sales of
obsolete, worn-out or no longer useful assets in the ordinary course of
business. As used herein, "Asset Sale" means any sale, lease, transfer or other
disposition (or series of related sales, leases, transfers or dispositions) of
shares of capital stock of a Subsidiary (other than directors' qualifying
shares), property or other assets (each referred to for the purposes of this
definition as a "disposition"), except sale of Products and other inventory or
goods in the ordinary course of business including any disposition by means of a
merger, consolidation or similar transaction (other than as permitted under
Section 8.13).
SECTION 8.21. Limitation on Subsidiaries. Neither the Company nor any
Subsidiary shall permit the creation of any Subsidiaries not in existence on the
Closing Date unless approved, in writing, by the Majority Holders, which such
consent shall not be unreasonably withheld.
SECTION 8.22. Reserved Shares and Listings.
(a) The Company will reserve from its authorized but unissued shares
of Common Stock a sufficient number of shares of Common Stock to permit
issuance of the Grant Shares, Additional Grant Shares, Conversion Shares
and Warrant Shares.
(b) The Company will maintain the listing of its Common Stock on the
Nasdaq Market 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 and such exchanges, as applicable. The
Company shall promptly provide to the Purchasers' representative, for
delivery to the Purchasers, copies of any notices it receives from Nasdaq
regarding the continued eligibility of the Common Stock for listing on the
Nasdaq Market;
(c) The Company will not repurchase or otherwise enter into any other
transaction (including stock split, recapitalization or other transaction)
which would cause a decrease in the number of its shares of Common Stock
issued and outstanding (other than transactions that similarly decrease the
number of shares of Common Stock into which the Convertible Notes and
Warrants are convertible or exercisable, as the case may be);
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(d) The Company will (i) retain the Transfer Agent as the stock
transfer agent for the Company's Common Stock, and (ii) if the Transfer
Agent voluntarily or involuntarily fails to so serve, select an
independent, unaffiliated replacement stock transfer agent willing to
perform the duties of the Transfer Agent under the Transfer Agent
Agreement; and
(e) On or prior to the date that the Commission declares effective the
Registration Statement, the Company shall promptly secure the listing of
the Grant Shares, Additional Grant Shares (if applicable), Conversion
Shares and the Warrant 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 listings
of all Grant Shares, Additional Grant Shares (if applicable), Conversion
Shares from time to time issuable upon conversion of the Convertible Notes
or Warrant Shares issuable upon exercise of the Warrants.
SECTION 8.23. Issuance of Shares of Common Stock. Upon conversion of any
Convertible Notes in accordance with their terms, and/or exercise of any
Warrants in accordance with their terms, the Company will, and will use its best
lawful efforts to cause the Transfer Agent to, issue one or more certificates
representing Conversion Shares or Warrant Shares, as the case may be, in such
name or names and in such denominations specified by a Purchaser in a Notice of
Conversion or Notice of Exercise, as the case may be. As long as the
Registration Statement contemplated by the Registration Rights Agreement shall
remain effective and the following shares are registered thereunder, the Grant
Shares, Additional Grants Shares, Conversion Shares and Warrant Shares shall be
issued to any transferee of such shares from a Purchaser without restrictive
legend, provided such shares have been disposed of in a manner in accordance
with the plan of distribution set forth in the prospectus forming part of the
Registration Statement and the Transfer Agent has received a confirmation in a
form customarily utilized by the applicable registered broker/dealer
substantially to the effect that the prospectus delivery requirements have been
satisified. The Company further warrants and agrees that no instructions other
than these instructions have been or will be given to the Transfer Agent.
Nothing in this Section shall affect in any way a Purchaser's obligations to
comply with all securities laws applicable to such Purchaser upon resale of such
shares of Common Stock, including any prospectus delivery requirements.
SECTION 8.24. Form D; Blue Sky Laws. The Company agrees to file a Form D
with respect to the Securities as required under Regulation D and to provide a
copy thereof to the Purchasers' Representative promptly after such filing. The
Company shall take such action as the Company shall reasonably determine is
necessary to qualify the Securities for sale to the Purchasers at the Closing
under applicable state securities or "blue sky" laws of the states of the United
States (or to obtain an exemption from such qualifications), and shall provide
evidence of any such action so taken to the Purchasers' Representative on or
prior to the Closing Date.
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SECTION 8.25. Further Assurances - Collateral. The Company agrees that at
any time and from time to time it will promptly execute and deliver to the
Purchasers all further instruments and documents and take all further action
that may be reasonably necessary, or that the Purchasers may reasonably request,
in order to establish, perfect and protect the security interests granted to the
Purchasers under the Security Agreement and the Subsidiary Security Agreement or
to enable the Purchasers to exercise and enforce their rights and remedies
thereunder with respect to any Collateral. The Company acknowledges and agrees
that all costs and expenses incurred in connection with perfecting and securing
the security interests of the Purchasers in the additional acceptable letters of
credit shall be borne by the Company and shall be payable to the Purchasers on
demand. Such costs and expenses shall include, without limitation, all filing
and recording fees and taxes, handling and courier fees, and the costs of search
reports obtained in connection with such filings and records, wherever incurred.
ARTICLE IX
LIMITATION ON TRANSFERS
SECTION 9.1. Restrictions on Transfer. From and after their respective
dates of issuance, none of the Securities shall be transferable except upon the
conditions specified in this Article IX, which conditions are intended to ensure
compliance with the provisions of the Securities Act in respect of the Transfer
of any of such Securities or any interest therein. Each Purchaser will use its
best efforts to cause any proposed transferee of any Securities held by it to
agree to take and hold such Securities subject to the provisions and upon the
conditions specified in this Article IX.
SECTION 9.2. Restrictive Legends.
(a) Each certificate for Securities issued to a Purchaser or to a
subsequent transferee shall (except as contemplated by Section 8.23 and Section
10.3 hereof) include a legend in substantially the following form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER
HEREOF, BY PURCHASING SUCH SECURITIES, AGREES FOR THE BENEFIT OF THE COMPANY
THAT SUCH SECURITIES MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO
THE COMPANY, (B) PURSUANT TO THE EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER, IF AVAILABLE, OR (C) IF
REGISTERED UNDER THE SECURITIES ACT.
SECTION 9.3. Notice of Proposed Transfers. Prior to any proposed Transfer
of the Securities other than a transfer (i) registered under the Securities Act,
(ii) to an affiliate of a
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Purchaser which is an "accredited investor" within the meaning of Rule 501(a)
under the Securities Act, provided that any such transferee shall agree to be
bound by the terms of this Agreement, or (iii) to be made in reliance on Rule
144 under the Securities Act, the holder thereof shall give written notice to
the Company of such holder's intention to effect such Transfer, setting forth
the manner and circumstances of the proposed Transfer, which shall be
accompanied by (A) an opinion of counsel reasonably satisfactory to the Company,
confirming that such transfer does not give rise to a violation of the
Securities Act, (B) representation letters in form and substance reasonably
satisfactory to the Company and its counsel to ensure compliance with the
provisions of the Securities Act and (C) letters in form and substance
reasonably satisfactory to the Company and its counsel from each such transferee
stating such transferee's agreement to be bound by the terms of this Agreement
and the Registration Rights Agreement. Such proposed Transfer (other than as
specified in clauses (i), (ii) or (iii) above) may be effected only if the
Company shall have received such notice of transfer, opinion of counsel,
representation letters and other letters referred to in the immediately
preceding sentence, whereupon the holder of such Securities shall be entitled to
Transfer such Securities in accordance with the terms of the notice delivered by
the holder to the Company.
ARTICLE X
ADDITIONAL AGREEMENTS AMONG THE PARTIES
SECTION 10.1. Registration Rights.
(a) The Company shall grant the Purchasers registration rights covering the
Grant Shares, Additional Grant Shares, Conversion Shares and Warrant Shares (the
"Registrable Securities") on the terms set forth in the Registration Rights
Agreement.
(b) The Company shall prepare and file, no later than April 14, 1998, a
registration statement (the "Registration Statement") on Form S-3 (or such other
form as is then available for registration) covering the sale of the Registrable
Securities. The Company shall use its best efforts to cause the Registration
Statement to be declared effective by the Commission no later than June 15,
1998. The Company shall pay all expenses of registration (other than
underwriting fees and discounts, if any, in respect of Registrable Securities
offered and sold under such Registration Statement by the Purchasers) in
accordance with the terms of the Registration Rights Agreement.
(c) If the Registration Statement is (x) not declared effective by the
Commission by the Required Effectiveness Date, or (y) such effectiveness is not
maintained for the Registration Maintenance Period, the Company shall pay to
each Purchaser monthly, as liquidated damages and not as a penalty, the greater
of (x) its pro rata portion of an amount equal to 1.5% of the aggregate
outstanding principal amount of the Convertible Notes, which monthly amount will
be increased to 2% in the event that the Registration Statement is not declared
effective by the Commission by July 15 or (y) $2,000 for each day the
Registration Statement (i) is not declared effective by the
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Commission by the Required Effectiveness Date or (ii) such period effectiveness
is not maintained for the Registration Maintenance Period (the "Default Fee").
(d) Any such Default Fee shall be paid in cash by the Company to the
Purchasers by wire transfer in immediately available funds on the last day of
each calendar month following the event requiring its payment.
(e) The Company shall be obligated to maintain the effectiveness of the
Registration Statement for a period of five (5) years following the Closing;
provided, that if the Warrants are no longer outstanding, such period shall be
reduced to two (2) years. If, for any reason, (including but not limited to the
issuance of all shares of Common Stock covered by the prospectus included in the
Registration Statement), the Registration Statement (i) is not declared
effective by June 15, 1998 or (ii) ceases to be effective for more than thirty
(30) days during any consecutive twelve month period (a "Registration Default"),
the holders of a majority of the Convertible Notes then outstanding may elect to
cause the Company to repay the Convertible Notes in full at the Formula Price.
SECTION 10.2. Prohibition on Equity Offerings.
(a) Until such time as all of the Convertible Notes have been repaid or
converted in full, the Company agrees that it will not issue (or, unless such
issuance would, upon the closing thereof, result in the repayment in full of the
Convertible Notes, agree to issue) any of its equity securities (or securities
convertible into or exchangeable or exercisable for equity securities (the
"Derivative Securities"), on terms that allow a holder thereof to acquire such
equity securities (or Derivative Securities) at a discount to the Market Price
of the Common Stock at the time of issuance or, in the case of Derivative
Securities (other than Convertible Notes), at a conversion price based on any
formula (other than standard anti-dilution provisions) based on the Market Price
on a date later than the date of issuance (each such event, a "Discounted Equity
Offering"). As used herein, "discount" shall include, but not be limited to, (1)
any warrant, right or other security granted or offered in connection with such
issuance which, on the applicable date of grant is offered with an exercise or
conversion price, as the case may be, at less than the then current Market Price
of the Common Stock or, if such security has an exercise or conversion price
based on any formula (other than standard anti-dilution provisions) based on the
Market Price on a date later than the date of issuance, then such price shall be
at least equal to the Market Price on such date of exercise or conversion, as
the case may be, or (2) any commissions, fees or other allowances paid in
connection with such issuances (other than customary underwriter or placement
agent commissions, fees or allowances). For the purposes of determining the
Market Price at which Common Stock is acquired under this Section, normal
underwriting commissions and placement fees (including underwriters' warrants)
are permitted.
(b) Until such time as all of the Convertible Notes have been repaid or
converted in full, the Company agrees it will not issue (or, unless such
issuance would, upon the closing thereof, result in the repayment in full of the
Convertible Notes, agree to issue) any of its equity securities
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(or securities convertible into or exchangeable or exercisable for equity
securities), unless any shares of Common Stock issued or issuable in connection
therewith are "restricted securities". As used herein "restricted securities"
shall mean securities which may not be sold by virtue of contractual
restrictions imposed by the Company either pursuant to an exemption from
registration under the Securities Act or pursuant to a registration statement
filed by the Company with the Commission, in each case prior to eighteen (18)
months following the date of issuance of such securities.
(c) The restrictions contained in this Section 10.2 shall not apply to the
issuance by the Company of (or the agreement to issue) Common Stock or
Derivative Securities in connection with (w) the acquisition (including by
merger) of a business or of assets otherwise permitted under this Agreement, (x)
stock option or other compensatory plans, (y) Derivative Securities outstanding
on the date hereof, or (z) issuances of Common Stock and Derivative Securities
which do not violate or otherwise create a violation hereunder or issuances of
Common Stock upon conversion and/or exercise of such Derivative Securities.
SECTION 10.3. Liquidated Damages.
(a) The Company shall, and shall use its best efforts to cause the Transfer
Agent to, issue and deliver shares of Common Stock (x) within three (3) New York
Stock Exchange Trading Days of delivery of a Notice of Conversion or Notice of
Exercise, as applicable, with a restrictive legend, and/or (y) within five (5)
New York Stock Exchange Trading Days of delivery of a Notice of Conversion or a
Notice of Exercise, as applicable, without a restrictive legend, provided that
such shares of Common Stock have been disposed of in accordance with the plan of
distribution set forth in the prospectus forming a part of the Registration
Statement (the "Deadline"). If for any reason, other than as a result of actions
taken by a Purchaser in breach of this Agreement, the Company fails to issue
such certificates of Common Stock by the Deadline, then, as compensation, and
not as a penalty, the Company agrees to pay liquidated damages to the Purchaser
that delivered such Notice of Conversion or Notice of Exercise for such late
issuance of such certificates an amount equal to $1,000 per day for each day
such certificates are not delivered for the first ten (10) days after the
Deadline and $2,000 per day for each day thereafter. The Company understands
that a delay in the issuance of such certificates after the Deadline could
result in economic loss to the Purchaser.
(b) Upon demand, the Company shall promptly pay the Purchasers any
liquidated damages incurred under this Section by wire transfer in immediately
available funds to an account designated by the Purchasers. Nothing herein shall
waive the Company's obligations to timely deliver Grant Shares, Additional Grant
Shares, Conversion Shares or Warrant Shares or limit any Purchaser's right to
pursue actual damages (less the amount of any liquidated damages received
pursuant to the foregoing) for the Company's failure to issue and deliver shares
of Common Stock to such Purchaser consistent with the terms of this Agreement.
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SECTION 10.4. Conversion Notice. The Company agrees that, in addition to
any other remedies which may be available to the Purchasers, including, but not
limited to, the remedies available under Section 10.3, in the event the Company
fails for any reason (other than as a result of actions taken by a Purchaser in
breach of this Agreement) to effect delivery to a Purchaser of certificates
representing Conversion Shares or Warrant Shares on or prior to the Deadline,
such Purchaser will be entitled, if prior to the delivery of such certificates,
to revoke the Notice of Conversion or Notice of Exercise by delivering a notice
to such effect to the Company and to the Transfer Agent, whereupon the Company
and the Purchaser shall each be restored to their respective positions
immediately prior to delivery of such Notice of Conversion or Notice of
Exercise.
SECTION 10.5. Limitation on Conversion Prior to Default.
(a) In addition to and not in lieu of the limitations on conversion set
forth in the Convertible Notes and Warrants, the conversion and exercise rights
of the Purchasers set forth in the Convertible Notes and Warrants, as
applicable, shall be limited, solely to the extent required, from time to time,
such that in no instance shall the maximum number of shares of Common Stock
which the Purchasers (singularly, together with any Persons who in the
determination of such Purchasers, together with such Purchasers, constitute a
"group" as defined in Rule 13d-5 of the Exchange Act) may receive in respect of
any conversion of the Convertible Notes or exercise of the Warrants, exceed, at
any one time, an amount equal to the remainder of (i) 4.99% of the then issued
and outstanding shares of Common Stock of the Company following such conversion
or exercise minus (ii) the number of shares of Common Stock of the Company then
owned by the Purchasers (but exclusive of any shares of Common Stock deemed
beneficially owned due to ownership of the Convertible Notes and Warrants) (the
foregoing being herein referred to as the "Limitation on Conversion"). At the
written request of the Company, the applicable Purchasers shall certify in each
Notice of Conversion and Notice of Exercise that it is in compliance with the
Limitation on Conversion.
(b) The Limitation on Conversion shall not apply, and shall be of no
further force and effect, (i) upon the occurrence of any voluntary or mandatory
redemption transaction described in Sections 3.4 or 3.5 hereof, (ii) on and
following the Maturity Date or (iii) following the occurrence of any Event of
Default described in Section 12.1 hereof and for which the applicable Purchaser
has provided written notice thereof and which is not cured within the greater of
the applicable time period specified in either (A) such written notice of the
applicable Purchaser or (B) Section 12.1 hereof.
(c) If, at any time, the aggregate shares of Common Stock issuable upon
conversion of the Convertible Notes, issuance of the Grant Shares and Additional
Grant Shares and exercise of the Warrants exceeds the Conversion Limit (as
hereafter defined) then in effect, (I) the Company shall deliver a notice to
that effect to the Purchasers and the Transfer Agent ("Company Notice") and (ii)
the Company shall, at the option of he Purchasers, within sixty (60) days of the
Company Notice either (a) obtain approval of the Company's shareholders (or an
appropriate waiver from the
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Nasdaq Market) of the issuance of shares of Common Stock in excess of the
Conversion Limit in a quantity reasonably acceptable to the purchasers and in
all events sufficient to honor conversion in full of the Convertible Notes,
issuance of the Grant Shares and Additional Grant shares and exercise in full of
the Warrants, or (b) repay the Convertible Notes at the Formula Price and redeem
the Warrants at the Warrant Redemption Price. The term "Warrant Redemption
Price" shall mean the greater of (x) the appraised value of the Warrants on the
date they are called for redemption (determined with reference to a
"Black-Sholes" or similar option pricing model) and (y) the product of the
excess of (1) the Market Price of the Common Stock on the date that the Warrants
for called for redemption over (2) the exercise price of the Warrants.
(d) As used herein, "Conversion Limit" shall mean twenty percent (19.9%) of
the then issued and outstanding shares of Common Stock of the Company as of the
applicable date of determination, or such greater number of shares as the
shareholders of the Company may have previously approved (the "Maximum Number of
Shares").
(e) Subject to the foregoing limitations, each Purchaser shall, at its
option, have the sole right to determine whether to exercise the right of
conversion or exercise for the Convertible Notes and Warrants. The Company shall
honor each Notice of Conversion and Notice of Exercise in the order received.
ARTICLE XI
ADJUSTMENT OF FIXED PRICE
SECTION 11.1. Reorganization. The exercise price of the Warrants set forth
therein (collectively, the "Fixed Prices") shall be adjusted as hereafter
provided.
SECTION 11.2. Share Reorganization. If and whenever the Company shall:
(i) subdivide the outstanding shares of Common Stock into a greater
number of shares;
(ii) consolidate the outstanding shares of Common Stock into a smaller
number of shares;
(iii) issue Common Stock or securities convertible into or
exchangeable for shares of Common Stock as a stock dividend to all or
substantially all the holders of Common Stock; or
(iv) make a distribution on the outstanding Common Stock to all or
substantially all the holders of Common Stock payable in Common Stock or
securities convertible into or exchangeable for Common Stock;
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any of such events being herein called a "Share Reorganization", then in each
such case the applicable Fixed Price shall be adjusted, effective immediately
after the record date at which the holders of Common Stock are determined for
the purposes of the Share Reorganization or, if no record date is fixed, the
effective date of the Share Reorganization, by multiplying the applicable Fixed
Price in effect on such record or effective date, as the case may be, by a
fraction of which:
(I) the numerator shall be the number of shares of Common Stock
outstanding on such record or effective date (without giving effect to the
transaction); and
(II) the denominator shall be the number of shares of Common Stock
outstanding after giving effect to such Share Reorganization, including, in
the case of a distribution of securities convertible into or exchangeable
for shares of Common Stock, the number of shares of Common Stock that would
have been outstanding if such securities had been converted into or
exchanged for Common Stock on such record or effective date.
SECTION 11.3. Rights Offering. If and whenever the Company shall issue to
all or substantially all the holders of Common Stock, rights, options or
warrants under which such holders are entitled, during a period expiring not
more than 45 days after the record date of such issue, to subscribe for or
purchase Common Stock (or securities convertible into or exchangeable for Common
Stock), at a price per share (or, in the case of securities convertible into or
exchangeable for Common Stock, at an exchange or conversion price per share at
the date of issue of such securities) of less than 95% of the Market Price of
the Common Stock on such record date (any such event being herein called a
"Rights Offering"), then in each such case the applicable Fixed Price shall be
adjusted, effective immediately after the record date at which holders of Common
Stock are determined for the purposes of the Rights Offering, by multiplying the
applicable Fixed Price in effect on such record date by a fraction of which:
(i) the numerator shall be the sum of:
(I) the number of shares of Common Stock outstanding on such record
date; and
(II) a number obtained by dividing:
(A) either,
(x) the product of the total number of shares of Common Stock so
offered for subscription or purchase and the price at which such
shares are so offered, or
(y) the product of the maximum number of shares of Common Stock
into or for which the convertible or exchangeable securities so
offered for subscription or
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purchase may be converted or exchanged and the conversion or exchange
price of such securities,
as the case may be, by
(B) the Market Price of the Common Stock on such record date; and
(ii) the denominator shall be the sum of:
(I) the number of shares of Common Stock outstanding on such
record date; and
(II) the number of shares of Common Stock so offered for
subscription or purchase (or, in the case of securities convertible
into or exchangeable for Common Stock, the maximum number of shares of
Common Stock for or into which the securities so offered for
subscription or purchase may be converted or exchanged).
To the extent that such rights, options or warrants are not exercised prior to
the expiry time thereof, the applicable Fixed Price shall be readjusted
effective immediately after such expiry time to the applicable Fixed Price which
would then have been in effect upon the number of shares of Common Stock (or
securities exchangeable into Common Stock) actually delivered upon the exercise
of such rights, options or warrants.
SECTION 11.4. Special Distribution. If and whenever the Company shall issue
or distribute to all or substantially all the holders of Common Stock:
(i) shares of the Company of any class, other than Common Stock;
(ii) rights, options or warrants; or
(iii) any other assets (excluding cash dividends and equivalent
dividends in shares paid in lieu of cash dividends in the ordinary course);
and if such issuance or distribution does not constitute a Share Reorganization
or a Rights Offering (any such event being herein called a "Special
Distribution"), then in each such case the applicable Fixed Price shall be
adjusted, effective immediately after the record date at which the holders of
Common Stock are determined for purposes of the Special Distribution, by
multiplying the applicable Fixed Price in effect on such record date by a
fraction of which:
(i) the numerator shall be the difference between:
(A) the product of the number of shares of Common Stock outstanding on
such record date and the Market Price of the Common Stock on such date; and
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(B) the fair market value, as determined by the Directors (whose
determination shall be conclusive), to the holders of Common Stock of the
shares, rights, options, warrants, evidences of indebtedness or other
assets issued or distributed in the Special Distribution (net of any
consideration paid therefor by the holders of Common Stock), and
(ii) the denominator shall be the product of the number of shares of
Common Stock outstanding on such record date and the Market Price of the
Common Stock on such date.
SECTION 11.5. Capital Reorganization. If and whenever there shall occur:
(i) a reclassification or redesignation of the shares of Common Stock
or any change of the shares of Common Stock into other shares, other than
in a Share Reorganization;
(ii) a consolidation, merger or amalgamation of the Company with, or
into another body corporate; or
(iii) the transfer of all or substantially all of the assets of the
Company to another body corporate;
(any such event being herein called a "Capital Reorganization"), then in each
such case the holder who exercises the right to convert Convertible Notes or
exercise the Warrants after the effective date of such Capital Reorganization
shall be entitled to receive and shall accept, upon the exercise of such right,
in lieu of the number of shares of Common Stock to which such holder was
theretofore entitled upon the exercise of the conversion privilege, the
aggregate number of shares or other securities or property of the Company or of
the body corporate resulting from such Capital Reorganization that such holder
would have been entitled to receive as a result of such Capital Reorganization
if, on the effective date thereof, such holders had been the holder of the
number of shares of Common Stock to which such holder was theretofore entitled
upon conversion; provided, however, that no such Capital Reorganization shall be
consummated in effect unless all necessary steps shall have been taken so that
such holders shall thereafter be entitled to receive such number of shares or
other securities of the Company or of the body corporate resulting from such
Capital Reorganization, subject to adjustment thereafter in accordance with
provisions the same, as nearly as may be possible, as those contained above.
SECTION 11.6. Adjustment Rules. The following rules and procedures shall be
applicable to adjustments made in this Article X:
(a) no adjustment in the applicable Fixed Price shall be required
unless such adjustment would result in a change of at least 1% in the
applicable Fixed Price then in
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(Take-Two Interactive Software, Inc.)
effect, provided, however, that any adjustments which, but for the
provisions of this clause would otherwise have been required to be made,
shall be carried forward and taken into account in any subsequent
adjustment;
(b) no adjustment in the applicable Fixed Price shall be made pursuant
to this Article XI in respect of the issue from time to time of Common
Stock to holders of Common Stock who exercise an option to receive
substantially equivalent dividends in Common Stock in lieu of receiving
cash dividends in the ordinary course; and
(c) if a dispute shall at any time arise with respect to any
adjustment of the applicable Fixed Price, such dispute shall be
conclusively determined by the auditors of the Company or, if they are
unable or unwilling to act, by a firm of independent chartered accountants
selected by the Directors and any such determination shall be binding upon
the Company and Purchasers.
SECTION 11.7. Certificate as to Adjustment. The Company shall from time to
time promptly after the occurrence of any event which requires an adjustment in
the applicable Fixed Price deliver to the Purchasers a certificate specifying
the nature of the event requiring the adjustment, the amount of the adjustment
necessitated thereby, the applicable Fixed Price after giving effect to such
adjustment and setting forth, in reasonable detail, the method of calculation
and the facts upon which such calculation is based.
SECTION 11.8. Notice to Noteholders. If the Company shall fix a record date
for:
(a) any Share Reorganization (other than the subdivision of
outstanding Common Stock into a greater number of shares or the
consolidation of outstanding Common Stock into a smaller number of shares),
(b) any Rights Offering.,
(c) any Special Distribution,
(d) any Capital Reorganization (other than a reclassification or
redesignation of the Common Stock into other shares), or
(e) any cash dividend,
the Company shall, not less than 10 days prior to such record date or, if no
record date is fixed, prior to the effective date of such event, give to the
Purchasers notice of the particulars of the proposed event or the extent that
such particulars have been determined at the time of giving the notice.
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(Take-Two Interactive Software, Inc.)
ARTICLE XII
EVENTS OF DEFAULT
SECTION 12.1. Events of Default. If one or more of the following events
(each an "Event of Default") shall have occurred and be continuing:
(a) failure by the Company to pay or prepay when due, all or any part
of the principal on any of the Convertible Notes;
(b) failure by the Company to pay (i) within three (3) Business Days
of the due date thereof any interest on any Convertible Notes or (ii)
within five (5) Business Days following the delivery of notice to the
Company of any fees or any other amount payable (not otherwise referred to
in (a) above or this clause (b)) by the Company under this Agreement;
(c) failure by the Company to timely comply with the requirements of
Section 10.3 hereof, which failure is not cured within seven (7) days of
such failure;
(d) failure on the part of the Company to observe or perform any
covenant or agreement contained in any other Financing Document, which
failure is not cured within the time period set forth therein;
(e) failure on the part of the Company to observe or perform any
covenant contained in Sections 3.9, 8.4, 8.7-8.14 and 8.20 of this
Agreement;
(f) failure on the part of the Company to observe or perform any
covenant contained in this Agreement (other than those covered by clauses
(a), (b), (c) or (e) above) for 30 days from the date of such occurrence;
(g) the trading in the Common Stock shall have been suspended by the
Commission or by the Nasdaq Market (except for any suspension of trading of
limited duration solely to permit dissemination of material information
regarding the Company and except if, at the time there is any suspension on
the Nasdaq Market, the Common Stock is then listed and approved for trading
on either the New York Stock Exchange, the American Stock Exchange, the
Nasdaq Stock Market's Small Cap Market, or the Nasdaq National Market
within ten (10) Trading Days thereof);
(h) failure of the Company to obtain the listing of the Grant Shares,
Additional Grant Shares, Conversion Shares and Warrant Shares as set forth
in Section 8.23, which failure is not cured within fifteen (15) Business
Days of such failure;
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(Take-Two Interactive Software, Inc.)
(i) the Company shall have its Common Stock delisted from the Nasdaq
Market for at least ten (10) consecutive Trading Days and is unable to
obtain a listing on either the New York Stock Exchange, the American Stock
Exchange, the Nasdaq Stock Market's Small Cap Market or the Nasdaq Stock
Market's National Market within such ten (10) Trading Days;
(j) the Registration Statement shall not have been declared effective
by the Commission, with such effectiveness maintained, for the Registration
Maintenance Period, which results in the Company incurring the Default Fee
for a period of ten (10) days;
(k) the Company or any Subsidiary has commenced a voluntary case or
other proceeding seeking liquidation, winding-up, reorganization or other
relief with respect to itself or its debts under any bankruptcy,
insolvency, moratorium or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator, custodian or
other similar official of it or any substantial part of its property, or
has consented to any such relief or to the appointment of or taking
possession by any such official in an involuntary case or other proceeding
commenced against it, or has made a general assignment for the benefit of
creditors, or has failed generally to pay its debts as they become due, or
has taken any corporate action to authorize any of the foregoing;
(l) an involuntary case or other proceeding has been commenced against
the Company or any Subsidiary, seeking liquidation, winding-up,
reorganization or other relief with respect to it or its debts under any
bankruptcy, insolvency, moratorium or other similar law now or hereafter in
effect or seeking the appointment of a trustee, receiver, liquidator,
custodian or other similar official of it or any substantial part of its
property, and such involuntary case or other proceeding shall remain
undismissed and unstayed for a period of 60 days, or an order for relief
has been entered against the Company or any Subsidiary under the federal
bankruptcy laws as now or hereafter in effect;
(m) payment default in respect of any Debt in excess of $500,000 of
the Company or any Subsidiary, or the Company or any Subsidiary has failed
to pay at maturity or within any applicable period of grace any such Debt;
(n) judgments or orders for the payment of money which in the
aggregate at any one time exceed $500,000 and are not covered by insurance
have been rendered against the Company or any Subsidiary by a court of
competent jurisdiction and such judgments or orders shall continue
unsatisfied and unstayed for a period of 60 days;
(o) any representation, warranty, certification or statement made by
the Company in any Financing Document or which is contained in any
certificate, document
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or financial or other statement furnished at any time under or in
connection with any Financing Document shall prove to have been untrue in
any material respect when made;
(p) any member of the ERISA Group has failed to pay when due an amount
or amounts aggregating in excess of $100,000 which it shall have become
liable to pay under Title IV of ERISA; or notice of intent to terminate a
Material Plan has been filed under Title IV of ERISA by any member of the
ERISA Group, any plan administrator or any combination of the foregoing; or
the PBGC has instituted proceedings under Title IV of ERISA to terminate,
to impose liability (other than for premiums under Section 4007 of ERISA)
in respect of, or to cause a trustee to be appointed to administer any
Material Plan; or a condition has existed by reason of which the PBGC is
entitled to obtain a decree adjudicating that any Material Plan must be
terminated; or there has occurred a complete or partial withdrawal from, or
a default, within the meaning of Section 4219(c) (5) of ERISA, with respect
to, one or more Multiemployer Plans which could cause one or more members
of the ERISA Group to incur a current payment obligation in excess of
$100,000;
(q) any Letter of Credit in which the Purchasers are granted a
security interest pursuant to the Security Agreement and/or the Subsidiary
Security Agreement shall, for any reason, cease to be an enforceable
obligation of the issuer thereof or if any such issuer shall deny that it
has any further liability or obligation thereunder, other than by reason of
payment of the full amount of any Letter of Credit (unless within five (5)
days of such denial letter, such issuer either retracts such denial or the
Company delivers to the Purchasers cash equal to the face amount of the
Letter of Credit);
then, and in every such occurrence, any Purchaser may, with respect to an
Event of Default specified in paragraphs (a) or (b), and the Majority
Holders may, with respect to any other Event of Default, by notice to the
Company, declare the Convertible Notes to be, and the Convertible Notes
shall thereon become immediately due and payable; provided that in the case
of any of the Events of Default specified in paragraph (k) or (l) above
with respect the Company or any Subsidiary, then, without any notice to the
Company or any other act by any Purchaser, the entire amount of the
Convertible Notes shall become immediately due and payable, provided
further, if any Event of Default has occurred and is continuing, and
irrespective of whether any Convertible Note has been declared immediately
due and payable hereunder, any Purchaser of Convertible Notes may proceed
to protect and enforce the rights of such Purchaser by an action at law,
suit in equity or other appropriate proceeding, whether for the specific
performance of any agreement contained herein or in any Convertible Note,
or for an injunction against a violation of any of the terms hereof or
thereof, or in aid of the exercise of any power granted hereby or thereby
or by law or otherwise, and provided further, in the case of an Event of
Default, the amount declared due and payable on the Convertible Notes shall
be (x) prior to the expiration of the Bridge Period, the Par Value
Redemption Price and (y) after the expiration of the Bridge Period the
Formula Price thereof.
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(Take-Two Interactive Software, Inc.)
SECTION 12.2. Powers and Remedies Cumulative. No right or remedy herein
conferred upon or reserved to the Purchasers is intended to be exclusive of any
other right or remedy, and every right and remedy shall, to the extent permitted
by law, be cumulative and in addition to every other right and remedy given
hereunder or now or hereafter existing at law or in equity or otherwise. The
assertion or employment of any right or remedy hereunder, or otherwise, shall
not prevent the concurrent assertion or employment of any other appropriate
right or remedy. Every power and remedy given by the Convertible Notes or by law
may be exercised from time to time, and as often as shall be deemed expedient,
by the Purchasers.
ARTICLE XIII
MISCELLANEOUS
SECTION 13.1. Notices. All notices, demands and other communications to any
party hereunder shall be in writing (including telecopier or similar writing)
and shall be given to such party at its address set forth on the signature pages
hereof, or such other address as such party may hereafter specify for the
purpose to the other parties. Each such notice, demand or other communication
shall be effective (i) if given by telecopy, when such telecopy is transmitted
to the telecopy number specified on the signature page hereof, (ii) if given by
mail, four days after such communication is deposited in the mail with first
class postage prepaid, addressed as aforesaid or (iii) if given by any other
means, when delivered at the address specified in or pursuant to this Section.
SECTION 13.2. No Waivers; Amendments.
(a) No failure or delay on the part of any party in exercising any right,
power or remedy hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any such right, power or remedy preclude any other
or further exercise thereof or the exercise of any other right, power or remedy.
(b) Any provision of this Agreement may be amended, supplemented or waived
if, but only if, such amendment, supplement or waiver is in writing and is
signed by the Company and the Majority Holders; provided, that without the
consent of each holder of any Convertible Note affected thereby, an amendment or
waiver may not (a) reduce the aggregate principal amount of Convertible Notes
whose holders must consent to an amendment or waiver, (b) reduce the rate or
extend the time for payment of interest on any Convertible Note, (c) reduce the
principal amount of or extend the stated maturity of any Convertible Note or (d)
make any Convertible Note payable in money or property other than as stated in
such Convertible Note. In determining whether the holders of the requisite
principal amount of Convertible Notes have concurred in any direction, consent,
or waiver as provided in any Financing Document, Convertible Notes which are
owned by the Company or any other obligor on or guarantor of the Convertible
Notes, or by any Person Controlling, Controlled by, or under Common Control with
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(Take-Two Interactive Software, Inc.)
any of the foregoing, shall be disregarded and deemed not to be outstanding for
the purpose of any such determination; and provided further that no such
amendment, supplement or waiver which affects the rights of the Purchasers and
their affiliates otherwise than solely in their capacities as holders of
Convertible Notes shall be effective with respect to them without their prior
written consent.
SECTION 13.3. Indemnification. The Company agrees to indemnify and hold
harmless each Purchaser, its affiliates, and each Person, if any, who controls
such Purchaser, or any of its affiliates, within the meaning of the Securities
Act or the Exchange Act (a Controlling Person"), and the respective partners,
agents, employees, officers and directors of the Purchasers, their affiliates
and any such Controlling Person (each an Indemnified Party" and collectively,
the "Indemnified Partie ), from and against any and all losses, claims, damages,
liabilities and expenses (including, without limitation and as incurred,
reasonable costs of investigating, preparing or defending any such claim or
action, whether or not such Indemnified Party is a party thereto, provided that
the Company shall not be obligated to advance such costs to any Indemnified
Party other than the Purchasers unless it has received from such Indemnified
Party an undertaking to repay to the Company the costs so advanced if it should
be determined by final judgment of a court of competent jurisdiction that such
Indemnified Party was not entitled to indemnification hereunder with respect to
such costs) which may be incurred by such Indemnified Party in connection with
any investigative, administrative or judicial proceeding brought or threatened
that relates to or arises out of, or is in connection with any activities
contemplated by any Financing Document or any other services rendered in
connection herewith; provided that the Company will not be responsible for any
claims, liabilities losses, damages or expenses that are determined by final
judgment of a court of competent jurisdiction to result from such Indemnified
Party's gross negligence, willful misconduct or bad faith.
If any action shall be brought against an Indemnified Party with respect to
which indemnity may be sought against the Company under this Agreement, such
Indemnified Party shall promptly notify the Company in writing and the Company,
at its option, may, assume the defense thereof, including the employment of
counsel reasonably satisfactory to such Indemnified Party and payment of all
reasonable fees and expenses. The failure to so notify the Company shall not
affect any obligations the Company may have to such Indemnified Party under this
Agreement or otherwise unless the Company is materially adversely affected by
such failure. Such Indemnified Party shall have the right to employ separate
counsel in such action and participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of such Indemnified Party,
unless: (i) the Company has failed to assume the defense and employ counsel or
(ii) the named parties to any such action (including any impleaded parties)
include such Indemnified Party and the Company, and such Indemnified Party shall
have been advised by counsel that there may be one or more legal defenses
available to it which are different from or additional to those available to the
Company, in which case, if such Indemnified Party notifies the Company in
writing that it elects to employ separate counsel at the expense of the Company,
the Company shall not have the right to assume the defense of such action or
proceeding on behalf of such Indemnified Party, provided, however, that the
Company
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(Take-Two Interactive Software, Inc.)
shall not, in connection with any one such action or proceeding or separate but
substantially similar or related actions or proceedings in the same jurisdiction
arising out of the same general allegations or circumstances, be responsible
hereunder for the reasonable fees and expenses of more than one such firm of
separate counsel, which counsel shall be designated by the Purchasers. The
Company shall not be liable for any settlement of any such action effected
without the written consent of the Company (which shall not be unreasonably
withheld) and the Company agrees to indemnify and hold harmless each Indemnified
Party from and against any loss or liability by reason of settlement of any
action effected with the consent of the Company. In addition, the Company will
not, without the prior written consent of the Purchasers, which consent will not
be unreasonably withheld, settle or compromise or consent to the entry of any
judgment in or otherwise seek to terminate any pending or threatened action,
claim, suit or proceeding in respect to which indemnification or contribution
may be sought hereunder (whether or not any Indemnified Party is a party
thereto) unless such settlement, compromise, consent or termination includes an
express unconditional release of the Purchasers and the other Indemnified
Parties, satisfactory in form and substance to the Purchasers, from all
liability arising out of such action, claim, suit or proceeding.
If for any reason the foregoing indemnity is unavailable (otherwise than
pursuant to the express terms of such indemnity) to an Indemnified Party or
insufficient to hold an Indemnified Party harmless, then in lieu of indemnifying
such Indemnified Party, the Company shall contribute to the amount paid or
payable by such Indemnified Party as a result of such claims, liabilities,
losses, damages, or expenses (i) in such proportion as is appropriate to reflect
the relative benefits received by the Company on the one hand and by the
Purchasers on the other from the transactions contemplated by this Agreement or
(ii) if the allocation provided by clause (i) is not permitted under applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits received by the Company on the one hand and the Purchasers on the
other, but also the relative fault of the Company and the Purchasers as well as
any other relevant equitable considerations. Notwithstanding the provisions of
this Section 13.3, the aggregate contribution of all Indemnified Parties shall
not exceed the amount of interest and fees actually received by the Purchasers
pursuant to this Agreement. It is hereby further agreed that the relative
benefits to the Company on the one hand and the Purchasers on the other with
respect to the transactions contemplated hereby shall be determined by reference
to, among other things, whether any untrue or alleged untrue statement of
material fact or the omission or alleged omission to state a material fact
related to information supplied by the Company or by the Purchasers and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation
The indemnification, contribution and expense reimbursement obligations set
forth in this Section 13.3 (i) shall be in addition to any liability the Company
may have to any Indemnified Party at common law or otherwise, (ii) shall survive
the termination of this Agreement and the other Financing Documents and the
payment in full of the Convertible Notes and (iii) shall
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(Take-Two Interactive Software, Inc.)
remain operative and in full force and effect regardless of any investigation
made by or on behalf of the Purchasers or any other Indemnified Party.
SECTION 13.4. Expenses: Documentary Taxes. The Company agrees to pay (i)
the out-of-pocket costs, expenses and other payments in connection with the
purchase and sale of the Securities as contemplated by this Agreement, including
the fees and disbursements of special counsel for the Purchasers incurred in
connection with the preparation of the Financing Documents, in the amount of
$25,000 (the "Reimbursement Fee"), (ii) all reasonable out-of-pocket expenses of
the Purchasers, including fees and disbursements of counsel, in connection with
any waiver or consent hereunder or under any other Financing Document or any
amendment hereof or thereof and (iii) all reasonable out-of-pocket expenses of
the Purchasers and each holder of Securities, including fees and disbursements
of counsel, in connection with any collection, bankruptcy, insolvency and other
enforcement proceedings resulting therefrom. In addition, the Company agrees to
pay any and all stamp, transfer and other similar taxes, assessments or charges
payable in connection with the execution and delivery of any Financing Document
or the issuance of the Securities to the Purchasers, excluding their assigns.
SECTION 13.5. Payment. The Company agrees that, so long as a Purchaser
shall own any Convertible Notes purchased by it from the Company hereunder, the
Company will use its best efforts to cause the Transfer Agent to make payments
to such Purchaser (or the Company will, if authorized under Section 3.6(b), make
payments to such Purchaser) of all amounts due thereon by wire transfer by 1:00
P.M. (New York City time) on the date of payment to the Transfer Agent for
disbursement to the Purchasers as required by the Transfer Agent Agreement.
SECTION 13.6. Successors and Assigns. This Agreement shall be binding upon
the Company and upon the Purchasers and their respective successors and assigns;
provided that the Company shall not assign or otherwise transfer its rights or
obligations under this Agreement to any other Person without the prior written
consent of the Majority Holders. All provisions hereunder purporting to give
rights to Purchasers and their affiliates or to holders of Securities are for
the express benefit of such Persons and their successors and assigns.
SECTION 13.7. Brokers. The Company represents and warrants that it has not
employed any broker, finder, financial advisor or investment banker other than
Alpine Capital Partners, Inc. or Whale (whose fees are summarized on Schedule
13.7) who would be entitled to any brokerage, finder's or other fee or
commission payable by the Company or the Purchasers in connection with the sale
of the Securities. Each Purchaser hereby warrants that it has not employed any
broker, finder, financial advisor or investment banker who would be entitled to
any brokerage, finder's or other fee or commission payable by the Company in
connection with the sale of the Securities.
SECTION 13.8. New York Law; Submission to Jurisdiction; Waiver of Jury
Trial; Appointment of Agent. THIS AGREEMENT AND FINANCING DOCUMENTS SHALL BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF
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SECURITIES PURCHASE AGREEMENT - Page 55
(Take-Two Interactive Software, Inc.)
THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE CHOICE OF LAW PROVISIONS
THEREUNDER. EACH PARTY HERETO HEREBY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION
OF THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS AND OF
ANY TEXAS STATE COURT SITTING IN DALLAS, TEXAS FOR PURPOSES OF ALL LEGAL
PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY. EACH PARTY HERETO IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING
OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT
ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT
FORUM. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY
JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
SECTION 13.9. Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction to be invalid,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated unless a failure of consideration
would result thereby.
SECTION 13.10 Survival. The provisions hereof shall survive the termination
of this Agreement and the payment in full of the Convertible Notes and shall
remain operative and in full force and effect, except the representations and
warranties of the Company and Purchasers shall survive for a period of two (2)
years following the Closing.
SECTION 13.11. Counterparts. This Agreement may be executed by telecopy
signature and in any number of counterparts each of which shall be an original
with the same effect as if the signatures there to and hereto were upon the same
instrument.
[Signature Pages Follow]
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SECURITIES PURCHASE AGREEMENT - Page 56
(Take-Two Interactive Software, Inc.)
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers, as of the date first
above written.
TAKE-TWO INTERACTIVE SOFTWARE, INC.
By: /s/ ▇▇▇▇ ▇▇▇▇▇
-----------------------------------
Name: ▇▇▇▇ ▇▇▇▇▇
-----------------------------------
Title: CEO
-----------------------------------
Address: ▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇. ▇▇▇▇ ▇▇▇▇▇
INFINITY INVESTORS LIMITED
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-----------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-----------------------------------
Title: Director
-----------------------------------
Address: ▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇
011-44-171-355-4975
Attn: ▇. ▇. ▇▇▇▇▇▇▇▇
INFINITY EMERGING OPPORTUNITIES LIMITED
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-----------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-----------------------------------
Title: Director
-----------------------------------
Address: ▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇
Fax: ▇▇▇-▇▇-▇▇▇-▇▇▇-▇▇▇▇
Attn: ▇. ▇. ▇▇▇▇▇▇▇▇
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SECURITIES PURCHASE AGREEMENT - Page 57
(Take-Two Interactive Software, Inc.)
GLACIER CAPITAL LIMITED
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-----------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-----------------------------------
Title: President
-----------------------------------
Address: ▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇
Fax: ▇▇▇-▇▇-▇▇▇-▇▇▇-▇▇▇▇
Attn: ▇. ▇. ▇▇▇▇▇▇▇▇
Address: ▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇
Fax: ▇▇▇-▇▇-▇▇▇-▇▇▇-▇▇▇▇
Attn: ▇. ▇. ▇▇▇▇▇▇▇▇
With a copy to: HW Partners, L.P.
▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, Esq.
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SECURITIES PURCHASE AGREEMENT - Page 58
(Take-Two Interactive Software, Inc.)
SCHEDULES
---------
Schedule 2.1 - Pro Rata Portion of Securities
Schedule 5.10 - Investments, Joint Ventures
Schedule 5.13 - Capitalization
Schedule 5.16 - Leases
Schedule 5.21 - .
Liens
Schedule 7.1(m) - Waivers of Registration Rights
Schedule 8.12 - Transactions with Affiliates
Schedule 13.7 Broker Fees
EXHIBITS
--------
Exhibit A - Form of Convertible Note
Exhibit B - Form of Notice of Conversion
Exhibit C - Form of Notice of Exercise
Exhibit D - Form of Registration Rights Agreement
Exhibit E - Form of Solvency Certificate
Exhibit F - Form of Officer's Certificate
Exhibit G - Form of Transfer Agent Agreement
Exhibit H - Form of Warrant
Exhibit I - Form of Company Counsel's Opinion
Exhibit J - Form of Security Agreement
Exhibit K - Form of Lockbox Agreement
Exhibit L - Form of Subsidiary Security Agreement
SCHEDULE 2.1
CONVERTIBLE NOTES [to be confirmed]
--------------------------------------------------------------------------------
Aggregate Principal
Name Purchase Price Amount of Notes
--------------------------------------------------------------------------------
Infinity Investors Limited $2,092,000 $2,200,000
--------------------------------------------------------------------------------
Infinity Emerging
Opportunities Limited $960,000 $1,000,000
--------------------------------------------------------------------------------
Glacier Capital Limited $960,000 $1,000,000
--------------------------------------------------------------------------------
GRANT SHARES
--------------------------------------------------------------------------------
Name Number of Shares
--------------------------------------------------------------------------------
Infinity Investors Limited 27,000
--------------------------------------------------------------------------------
Infinity Emerging
Opportunities Limited 11,500
--------------------------------------------------------------------------------
Glacier Capital Limited 11,500
--------------------------------------------------------------------------------
WARRANTS
--------------------------------------------------------------------------------
Name Warrants
--------------------------------------------------------------------------------
Infinity Investors Limited 135,000
--------------------------------------------------------------------------------
Infinity Emerging
Opportunities Limited 57,500
--------------------------------------------------------------------------------
Glacier Capital Limited 57,500
--------------------------------------------------------------------------------
SCHEDULE 5.10
Investments, Joint Ventures, Subsidiaries
Inventory Management Systems, Inc.
Take-Two Interactive Software Europe Limited
Alternative Reality Technologies, Inc.
Mission Studios Corporation
SCHEDULE 5.13
Capitalization as of October 14, 1997
Outstanding Securities:
Form of Securities Amount Outstanding
------------------ ------------------
$.01 Common Stock 9,195,043
Public Warrants 1,890,000
Underwriter's Warrants 320,000
Options under 1994 Option Plan 879,991
Options under 1997 Option Plan 275,000
Non-Plan Options 80,320
$.01 Warrants 391,199
----------
(fully diluted) 12,981,553
==========
SCHEDULE 5.16
Leases as of October 14, 1997
Capital Leases with value greater than $100,000.
1. Computer/Software Package lease with U.S. Media Capital in the
amount of $340,000.
2. Computer Equipment and software leases (2) with Lighthouse
Capital in the amounts of $110,450 and $54,540, respectively.
Operating Leases with annual rental greater than $100,000.
None.
SCHEDULE 5.21
Liens as of October 14, 1997
1. Security interest in all existing and after-acquired personal property and
fixtures of the Company and the proceeds thereof in favor of Citibank, N.A.
securing all obligations of the Company to Citibank, including advances
under $250,000 line of credit.
2. Security interest in all existing and after-acquired personal property of
the Company in favor of National Bank of Canada, New York Branch, and the
proceeds thereof securing all obligations of the Company to National Bank
of Canada, New York branch, including an $800,000 term loan.
3. Capital leases of computer equipment and software between the Company and
AT&T Leasing Services, U.S. Media Capital and Lighthouse Capital.
4. Security interest in all existing and after-acquired personal property and
fixtures of Inventory Management Systems, Inc. ("IMSI"), a Subsidiary of
the Company, in the favor of Crestar Bank ("Crestar"), Richmond, Virginia,
and the proceeds thereof, securing all obligations of IMSI to Crestar,
including advances under a $250,000 line of credit.
5. Security interest in all existing personal property of Take-Two Interactive
Software Europe Limited ("Take-Two Europe"), a Subsidiary of the Company,
and the proceeds thereof, securing all obligations of Take-Two Europe to
Barclays Bank, United Kingdom, including advances under a 500,000 pounds
(UK) line of credit.
6. Pledge of shares of common stock of Mission Studios Corporation to ▇▇▇▇▇▇
▇▇▇▇ to secure payment of a promissory note issued by the Company to ▇▇▇▇▇▇
▇▇▇▇ having a principal balance of approximately of $221,000.
SCHEDULE 5.24
Registration Rights as of October 1, 1997
GameTek, Inc.:
406,553 shares of Common Stock (one holder)
SCHEDULE 8.12
Transactions with Affiliates
None.
SCHEDULE 13.7
Broker Fees
None, except for any fees payable to Whale Securities, Co., L.P. and Alpine
Capital Partners, Inc. [Describe How Much]
EXHIBIT C
FORM OF NOTICE OF EXERCISE - WARRANT
(To be executed only upon exercise or conversion
of the Warrant in whole or in part)
To Take-Two Interactive Software, Inc.
The undersigned registered holder of the accompanying Warrant hereby
exercises such Warrant or portion thereof for, and purchases thereunder,
______________(1) shares of Common Stock (as defined in such Warrant) and
herewith makes payment therefor in the amount and manner set forth below, as of
the date written below. The undersigned requests that the certificates for such
shares of Common Stock be issued in the name of, and delivered to,
_________________________________ whose address is __________________________
_________________________________.
The Exercise Price is paid as follows:
|_| Bank draft payable to the Company in the amount of $__________.
|_| Wire transfer to the account of the Company in the amount of
$________.
|_| Delivery of ___________ previously held shares having an aggregate
Market Value of $_________.
|_| Cashless exercise. Surrender of __________ shares purchasable under
this Warrant for such shares of Common Stock issuable in exchange
therefor pursuant to the Cashless Exercise provisions of the within
Warrant, as provided in Section 1.1(iv) thereto.
Upon exercise pursuant to this Notice of Exercise, the holder will be in
compliance with the Limitation on Exercise (as defined in the Securities
Purchase Agreement pursuant to which this Warrant was issued).
Dated: ____________________
_______________________________________
(Name must conform to name of holder as
specified on the face of the Warrant)
By:___________________________________
(1) Insert the number of shares of Common Stock as to which the accompanying
Warrant is being exercised. In the case of a partial exercise, a new
Warrant or Warrants will be issued and delivered, representing the
unexercised portion of the accompanying Warrant, to the holder surrendering
the same.
Name:_________________________________
Title:________________________________
Address of holder: ______________________________________
______________________________________
______________________________________
Date of exercise:____________________