STOCK PURCHASE AND INVESTMENT AGREEMENT
COMMON STOCK
BY AND AMONG
INTERACTIVE NETWORK, INC.
AND
THE INVESTORS NAMED ON SCHEDULE A
SEPTEMBER 13, 2000
TABLE OF CONTENTS
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PAGE
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1. Purchase of Units; Escrow Account........................................1
1.1. Purchase of Units................................................1
1.2. Escrow Account...................................................1
2. Closing..................................................................2
3. Representations and Warranties of INNN...................................2
3.1. Organization and Standing........................................2
3.2. Corporate Power..................................................2
3.3. Subsidiaries.....................................................3
3.4. Capitalization...................................................3
3.5. No Violation.....................................................3
3.6. Shares Validly Issued............................................4
3.7. Financial Statements.............................................4
3.8. Changes..........................................................4
3.9. Title to Properties and Assets; Liens............................4
3.10. Intellectual Properties..........................................5
3.11. Proprietary Information of Third Parties.........................5
3.12. Compliance With Other Instruments................................5
3.13. Litigation.......................................................5
3.14. No Defaults......................................................6
3.15. Insurance........................................................6
3.16. Governmental Consent.............................................6
3.17. Disclosure.......................................................6
3.18. Offering.........................................................6
3.19. Registration Rights..............................................6
3.20. Agreements; Changes..............................................6
3.21. Taxes............................................................7
3.22. Employees........................................................7
3.23. Transactions With Affiliates.....................................7
3.24. Retirement Obligations...........................................8
3.25. Benefit Plans....................................................8
3.26. Brokers..........................................................9
3.27. Year 2000 Compliance.............................................9
3.28. Litigation.......................................................9
3.29. SEC Filings......................................................9
4. Representations and Warranties of Investors.............................10
4.1. Authority.......................................................10
4.2. Investment Representations......................................10
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5. Conditions to the Investors' Obligations at Closing.....................11
5.1. Representations and Warranties Correct; Performance
of Obligations................................................11
5.2. Certain Deliveries at Closing...................................11
5.3. Qualifications..................................................11
5.4. Board of Advisors of INNN.......................................11
5.5. Board of Directors of INNN......................................11
5.6. Proceedings and Documents.......................................11
5.7. No Restraints...................................................12
5.8. No Governmental Litigation......................................12
5.9. No Other Litigation.............................................12
6. Conditions to Obligations of INNN.......................................12
6.1. Representations and Warranties Correct; Performance
of Obligations................................................12
6.2. Qualifications..................................................12
6.3. No Restraints...................................................12
6.4. No Governmental Litigation......................................13
6.5. No Other Litigation.............................................13
7. Covenants...............................................................13
7.1. Financial Information...........................................13
7.2. Inspection......................................................14
7.3. Confidentiality of Information..................................14
7.4. Use of Proceeds.................................................14
7.5. Negative Covenants..............................................14
7.6. Compliance With Laws............................................15
7.7. Keeping of Records and Books of Account.........................15
7.8. Payment of Taxes................................................15
7.9. Maintain Corporate Existence....................................15
7.10. Future Financings...............................................15
7.11. Board of Directors of TWIN Entertainment........................16
7.12. Termination of Covenants........................................16
8. Registration Obligation.................................................16
8.1. Certain Definitions.............................................16
8.2. Registration....................................................17
8.3. Rule 144 Reporting..............................................21
8.4. Assignment of Registration Rights...............................21
8.5. Amendment of Registration Rights................................21
8.6. Limitation on Subsequent Registration Rights....................21
9. Restrictive Legends.....................................................22
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10. Miscellaneous...........................................................22
10.1. Successors and Assigns..........................................22
10.2. Governing Law...................................................22
10.3. Survival........................................................22
10.4. Entire Agreement; Amendment.....................................22
10.5. Notices.........................................................23
10.6. Delays or Omissions.............................................23
10.7. Counterparts....................................................23
10.8. Severability....................................................23
10.9. Interpretation..................................................24
10.10. Investigation...................................................24
10.11. Publicity.......................................................24
10.12. Specific Performance............................................24
SCHEDULES
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Schedule A........List of Investors
Schedule B........Use of Proceeds
EXHIBITS
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Exhibit A.........Form of Warrant
Exhibit B.........Form of Escrow Agreement
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STOCK PURCHASE AND INVESTMENT AGREEMENT
---------------------------------------
THIS AGREEMENT is made and entered into as of the 13th day of
September, 2000, by and among Interactive Network, Inc., a California
corporation ("INNN"), and the investors named on SCHEDULE A hereto (each an
"Investor" and together the "Investors").
WHEREAS, the Investors desire to acquire from INNN, and INNN desires to
issue to the Investors, a minimum ("Minimum") of 615,000 units ("Units") and a
maximum (the "Maximum") of 3,250,000 Units for $1.22 per Unit, each Unit
consisting of a share of the no par value common stock of INNN ("Common Stock")
and a warrant to purchase one share of Common Stock at an exercise price of
$1.90 per share (the "Warrants"); and
WHEREAS, INNN owns fifty percent (50%) of the outstanding capital stock
of TWIN Entertainment, Inc. ("TWIN Entertainment"), a corporate joint venture
between INNN and Two Way TV Limited under the terms of a Joint Venture and Stock
Purchase Agreement dated as of December 6, 1999 (the "Joint Venture Agreement").
NOW, THEREFORE, in consideration of the mutual promises, covenants and
conditions hereinafter set forth, the parties hereto agree as follows:
1. PURCHASE OF UNITS; ESCROW ACCOUNT.
1.1. PURCHASE OF UNITS. INNN will sell to the Investors, and
the Investors will purchase from INNN, the Minimum of 615,000 Units and up to
the Maximum of 3,250,000 Units for $1.22 per Unit. The number of Units each
Investor will acquire is set forth on SCHEDULE A. The Warrants shall have a term
of five (5) years and shall otherwise be in the form attached hereto as EXHIBIT
A, which may be amended from time to time after the date of this Agreement. Each
purchase and sale of the Units shall be subject to the terms and conditions of
this Agreement and shall be made in reliance upon the representations,
warranties and agreements contained in this Agreement. The purchase price for
the Units shall be paid at each "Closing" (as defined below) by check made
payable to "Interactive Network, Inc. Escrow Account" ("Escrow Account") or by
wire transfer of funds to the Escrow Account against delivery of certificates
evidencing the shares of Common Stock ("Shares") and Warrants comprising the
Units registered in the name of, or as otherwise directed by, each Investor.
1.2. ESCROW ACCOUNT. Until the Minimum is sold by INNN at a
Closing, the proceeds from the sale of the Units shall be deposited by INNN in
an escrow account (the "Escrow Account") at Associated Bank Minnesota, a state
banking association (the "Escrow Agent"), pursuant to the escrow agreement the
form attached hereto as EXHIBIT B (the "Escrow Agreement").
2. CLOSING. The closing of the purchase and sale of the Minimum number
of Units (the "Initial Closing") shall be held at the offices of Winthrop &
Weinstine, P.A., 3000 ▇▇▇▇ ▇▇▇▇▇▇▇▇ Plaza, ▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, at 10:00 a.m. local time, on or before September 13, 2000 or at
such other time and place to which INNN and the Investors may agree. The closing
of subsequent purchases and sales of Units hereunder (the "Subsequent Closings")
shall be held at such time and place as INNN and the Investors may agree. (The
Initial Closing and the Subsequent Closings are each referred to herein as the
"Closing" and the date of the Initial Closing and the Subsequent Closings each
as the "Closing Date.")
3. REPRESENTATIONS AND WARRANTIES OF INNN.
INNN represents and warrants to the Investors that the statements
contained in this Section 3 are true and correct, except as set forth in the
Disclosure Schedule delivered by INNN to the Investors concurrently herewith
("INNN Disclosure Schedule"). All exceptions noted in the INNN Disclosure
Schedule shall be numbered to correspond to the applicable sections of this
Agreement to which such section refers.
3.1. ORGANIZATION AND STANDING. INNN is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California. INNN has the requisite corporate power and authority to own, lease
and operate its properties and assets and to carry on its business as presently
conducted and as proposed to be conducted. INNN is duly licensed or qualified as
a foreign corporation and is in good standing in every state or other
jurisdiction wherein the character of its property or the nature of its
activities makes such licensing or qualification necessary and wherein the
failure to be so licensed or qualified could have an "INNN Material Adverse
Effect" (as defined below). "INNN Material Adverse Effect" means an effect that
is materially adverse to (i) the business of INNN or (ii) INNN's ability to
perform any of its material obligations under this Agreement or to issue the
Units to the Investors.
3.2. CORPORATE POWER. INNN has now, and will have at each
Closing Date, all requisite legal and corporate power to enter into this
Agreement, to sell the Units hereunder, and to carry out and perform its
obligations under the terms of this Agreement. INNN has heretofore delivered and
made available to the Investors complete and accurate copies of the Articles of
Incorporation, Bylaws and other governing instruments of INNN, as currently in
effect, and other organizational documents and agreements defining the rights of
INNN with respect to any material joint ventures, partnerships or other
businesses in which INNN owns a less than 100% interest, including, without
limitation, the Joint Venture Agreement. The execution and delivery by INNN of
this Agreement, and the consummation by INNN of the transactions contemplated
hereby, have been duly and validly authorized and approved by INNN's Board of
Directors, no other actions of INNN's Board of Directors or corporate proceeding
on the part of INNN are necessary to authorize this Agreement, and no other
action of INNN's Board of Directors or corporate action on the part of INNN is
necessary to consummate the transactions contemplated hereby. This Agreement has
been duly and validly executed and delivered by INNN and, assuming due execution
and delivery by the Investors, constitutes the valid and binding obligation of
INNN, enforceable against INNN in accordance with its terms, subject to laws of
general application relating to bankruptcy, insolvency, and the relief of
debtors and rules of law governing specific performance, injunctive relief, or
other equitable remedies.
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3.3. SUBSIDIARIES. Other than its ownership interest in TWIN
Entertainment, INNN does not own or control, directly or indirectly, any equity,
partnership or other ownership interest or investment in any other corporation,
association, partnership, joint venture or other business entity. Each of the
outstanding shares of capital stock owned by INNN of TWIN Entertainment is duly
authorized, validly issued, fully paid and nonassessable, and is owned,
beneficially and of record, by INNN, free and clear of any lien, mortgage,
pledge, security interest, encumbrance or charge of any kind ("Lien").
3.4. CAPITALIZATION. As of the date hereof, INNN's entire
authorized capital stock consists of (i) 150,000,000 shares of Common Stock, of
which 39,427,605 shares are issued and outstanding, and (ii) 10,000,000 shares
of preferred stock, no par value per share, of which no shares are outstanding.
All such issued and outstanding shares are duly authorized and validly issued,
fully paid and nonassessable and have been issued in compliance with all
applicable state and federal laws concerning the issuance of securities. Subject
to the terms and conditions hereof, the Company has authorized the issuance on
the Closing Dates of up to 3,250,000 shares of Common Stock comprising a portion
of the Units (the "Unit Shares") and Warrants to purchase up to 3,250,000 shares
of Common Stock (the "Warrant Shares"), and has authorized the reservation of
the Warrant Shares. There are 5,000,000 shares of Common Stock reserved for
issuance under INNN's 1999 Stock Option Plan, as amended (the "1999 Option
Plan"), pursuant to options granted or to be granted to employees, non-employee
directors and non-employee consultants ("Employee Reserved Shares"), of which
2,731,000 shares are issuable upon the exercise of outstanding options. Except
for the foregoing, and except for options to acquire 1,150,000 shares of Common
Stock which are outstanding under INNN's 1988 Stock Option Plan (which expired
in September 1998) (the "1998 Option Plan"), (i) no subscription, warrant,
option, convertible security or other right permitting any party other than INNN
to purchase or acquire any shares of capital stock of INNN is authorized or
outstanding, and (ii) INNN has no commitment to issue any such subscription,
warrant, option, convertible security or other right, or to issue or distribute
to holders of any shares of its capital stock (by reason of their holding such
capital stock) any evidences of indebtedness or assets. INNN has no obligation,
contingent or otherwise, to purchase, redeem or otherwise acquire any shares of
its capital stock or any interest therein or to pay any dividend or make any
other distribution in respect thereof. Upon the effectiveness of this Agreement,
no person or entity will be entitled to any preemptive right, right of first
refusal or similar right with respect to the issuance, sale, redemption or
transfer of any capital stock of INNN or any rights with respect to the
registration of any capital stock of INNN under federal or state securities
laws, except for the rights of first refusal and registration obligations
contained in this Agreement. There are no existing voting or stock restriction
agreements or similar agreements between INNN and any of its shareholders.
3.5. NO VIOLATION. The execution and delivery of this
Agreement will not violate any provision of law, any order of any court or other
agency of government, any indenture, agreement or other instrument to which INNN
is a party or to which any of their properties or assets are bound, or conflict
with, result in a breach of, or constitute a default under any such indenture,
agreement or other instrument, or result in the creation or imposition of any
lien upon any of the properties of assets of INNN.
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3.6. SHARES VALIDLY ISSUED. The Unit Shares, when issued in
compliance with the provisions of this Agreement, and the Warrant Shares, when
issued in accordance with the terms of the Warrants, will be validly issued,
fully paid and nonassessable, free of any Liens imposed by or through INNN, with
all original issuance taxes paid thereon, and will be free of restrictions on
transfer other than restrictions on transfer under this Agreement and under
applicable state and federal securities laws.
3.7. FINANCIAL STATEMENTS. INNN has furnished the Investors
with copies of its audited consolidated financial statements as of and for the
year ended December 31, 1999 ("Audited Financials") and its unaudited
consolidated financial statements as of and for the six months ended June 30,
2000 ("Unaudited Financials") (the Audited Financials and Unaudited Financials
are referred to in this Agreement as the "Financial Statements"). The Financial
Statements were prepared in accordance with INNN's books and records and in
accordance with United States generally accepted accounting principles applied
on a consistent basis during the periods involved (except as may be indicated
therein or on the notes thereto or, in the case of the Unaudited Financials, as
permitted by Form 10-Q of the Securities and Exchange Commission ("SEC")) and
fairly present the financial position and results of operations of INNN as of
the dates and for the periods indicated, subject, however, to normal year end
audit adjustments not anticipated to be material in amount. INNN has no
liabilities or obligations of any nature (whether absolute, accrued, contingent
or otherwise) which are not shown or provided for in the Financial Statements,
except those incurred since June 30, 2000 in the ordinary course of business and
of a type and in an amount consistent with past practice and which, individually
or in the aggregate, could not be expected to have an INNN Material Adverse
Effect.
3.8. CHANGES. Since June 30, 2000, there has not been any (a)
INNN Material Adverse Effect; (b) damage, destruction, or loss, not covered by
insurance, that would, individually or in the aggregate, reasonably be expected
to have an INNN Material Adverse Effect; or (c) material change by INNN in
accounting methods or principles used for financial reporting purposes, except
as required by a change in applicable law or generally accepted accounting
principles and concurred with by INNN's independent public accountants.
3.9. TITLE TO PROPERTIES AND ASSETS; LIENS. Except as may be
reflected in the consolidated balance sheet dated June 30, 2000 included in the
Unaudited Financial Statements ("INNN Interim Balance Sheet"), INNN has good and
marketable title, free and clear of all Liens (other than Liens for current
taxes not yet delinquent) to all of the properties and assets, tangible or
intangible, reflected in the INNN Interim Balance Sheet as being owned by INNN
as of the date thereof. To INNN's knowledge, all buildings and all the material
fixtures, equipment and other property and assets held under leases or subleases
by INNN are held under valid leases or subleases, enforceable in accordance with
their respective terms (except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws affecting
creditors' rights generally and by general equitable principles).
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3.10. INTELLECTUAL PROPERTIES. INNN has sufficient and valid
right, title and ownership, free and clear of all Liens, and has the valid and
exclusive right to use, sell, license or dispose of, all patents, copyrights,
trademarks, service marks, and applications and registrations therefor; URLs and
internet domain names and applications therefor; computer programs and other
computer software; source code and object code; trade names; licenses; trade
secrets; inventions; know-how; and other proprietary rights (collectively,
"Intellectual Property") necessary for its business as now conducted and as
currently proposed to be conducted. Neither the holding or use by INNN of any of
its Intellectual Property nor the sale or offering of any services or products
of INNN violates or is alleged to violate any license, sublicense or other
agreement, or infringes any common law or statutory right, of any third party.
3.11. PROPRIETARY INFORMATION OF THIRD PARTIES. No third party
has claimed or has reason to claim that any person employed by or affiliated
with INNN has (a) violated any of the terms and conditions of his employment,
non-competition or nondisclosure agreement with such third party, (b) disclosed
or utilized any trade secret or proprietary information of such third party, or
(c) interfered or may be interfering in the employment relationship between such
third party and any of its present or former employees.
3.12. COMPLIANCE WITH OTHER INSTRUMENTS. INNN is not in
violation of any term of its Articles of Incorporation, By-laws, or any material
contract, judgment, decree, order or, to its knowledge, any statute, rule or
regulation applicable to INNN. The execution, delivery and performance of and
compliance with this Agreement, and the issuance of the Units, Unit Shares, and
Warrants pursuant hereto, and the exercise of the Warrants and the issuance of
the Warrant Shares pursuant hereto, will not result in any such violation or be
in conflict with or constitute, with or without the passage of time and giving
of notice, a material default under any such term, or result in the creation of
any Lien upon any of the properties or assets of INNN pursuant to any such
terms.
3.13. LITIGATION. There is no action, suit, proceeding or
investigation pending or, to INNN's knowledge, threatened against or affecting
INNN, including any that question the validity of this Agreement or the right of
INNN to enter into it or to consummate the transactions contemplated hereby, or
which might result, either individually or in the aggregate, in any material
adverse change in the assets, condition, affairs or prospects of INNN,
financially or otherwise, or any change in the current equity ownership of INNN,
nor does INNN know of any basis for the foregoing. INNN is not a party or
subject to the provisions of any order, writ, injunction, judgment or decree of
any court or government agency or instrumentality.
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3.14. NO DEFAULTS. INNN and, to INNN's knowledge, each other
party thereto, has in all material respects performed all the obligations
required to be performed by them to date, have received no notice of default and
are not in default under any lease, agreement or contract now in effect to which
INNN is a party or by which it or its property may be bound. INNN has no present
expectation or intention of not fully performing all its obligations under each
such lease, contract or other agreement, and INNN has no knowledge of any breach
or anticipated breach by the other party to any contract or commitment to which
INNN is a party.
3.15. INSURANCE. The insurable properties of INNN are insured
for the benefit of INNN, with commercially reasonable coverage for a company of
its size and for the type of business it conducts.
3.16. GOVERNMENTAL CONSENT. Based in part on the
representations and warranties of the Investors in Section 4, no consent,
approval, order or authorization of, or registration, qualification,
designation, declaration or filing with, any governmental authority on the part
of INNN is required in connection with the consummation of the transactions
contemplated by this Agreement.
3.17. DISCLOSURE. To its knowledge, INNN has fully provided
the Investors with all the written information which the Investors have has
requested for the purpose of deciding whether to purchase the Units, including
INNN's Annual Report on Form 10-K for the year ended December 31, 1999, INNN's
Quarterly Report on Form 10-Q for the quarters ended March 31, 2000 and June 30,
2000, and INNN's notice of annual meeting and proxy statement for the INNN
shareholders' meeting held on June 30, 2000 (collectively the "SEC Reports").
Neither this Agreement nor any other written statements, information or
certificates made or delivered in connection herewith, including the SEC
Reports, contain any untrue statement of a material fact or, to the knowledge of
INNN, omit to state a material fact that would be necessary to make the
statements herein or therein not misleading.
3.18. OFFERING. Subject in part to the truth and accuracy of
the Investors' representations in Section 4 of this Agreement, the offer, sale
and issuance of the Units as contemplated by this Agreement are exempt from the
registration requirements of any applicable state and federal securities laws,
and neither INNN nor any authorized agent acting on its behalf will take any
action hereafter that would cause the loss of such exemption.
3.19. REGISTRATION RIGHTS. Except as contemplated by this
Agreement, INNN has not granted or agreed to grant any registration rights,
including piggyback rights, to any person or entity.
3.20. AGREEMENTS; CHANGES. Since June 30, 2000, INNN has not
(i) declared or paid any dividends, or authorized or made any distribution upon
or with respect to any class or series of its capital stock, (ii) incurred any
indebtedness for money borrowed or incurred any other liabilities individually
presently in excess of $10,000.00 or in excess of $30,000.00 in the aggregate,
other than in the ordinary course of business, (iii) made any loans or advances
to any person, other than in the ordinary course of business, (iv) entered into
any material transaction other than in the ordinary course of business, or (v)
sold, exchanged or otherwise disposed of any of its assets or rights, other than
in the ordinary course of business.
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3.21. TAXES. INNN has accurately prepared and timely filed all
state, local, United States, foreign or other income tax returns or reports
which are required to be filed by it, and has paid, or made provision for the
payment of, all taxes which have or may have become due pursuant to said returns
or pursuant to any assessment which has been received by it, including all taxes
which it is obligated to withhold from amounts owing to employees, creditors and
third parties. Adequate reserves have been established for all taxes accrued but
not yet payable. No controversy in respect of taxes of any type is pending, or
to the knowledge of INNN, threatened. The income tax returns of INNN have never
been audited by any federal or state governmental authority and, to INNN's
knowledge, no such audits are pending. For purposes of this Agreement, "tax" and
"taxes" shall mean and include taxes, duties, withholdings, assessments, and
charges assessed or imposed by any governmental authority (together with any
interest, penalties and additions to tax imposed with respect thereto),
including all federal, state, county, local and foreign income, profits, gross
receipts, import, ad valorem, real and personal property, franchise, license,
sales, use, value added, stamp, transfer, withholding, payroll, employment,
excise, custom, duty, and any other taxes, obligations and assessments of any
kind whatsoever; and "tax" and "taxes" shall also include any liability for
taxes arising as a result of being (or ceasing to be) a member of any
affiliated, consolidated, combined, or unitary group, as well as any liability
for taxes under any tax allocation, tax sharing, tax indemnity, or similar
agreement.
3.22. EMPLOYEES. There are no material controversies pending
or, to the knowledge of INNN, currently threatened between it and its employees.
To INNN's knowledge, no officer or key employee has any present intention of
terminating his or her employment with INNN and INNN has no present intention of
terminating any such employment. Except as would not, individually or in the
aggregate, reasonably be expected to have an INNN Material Adverse Effect: (i)
no unfair labor practice complaint against INNN is pending before the National
Labor Relations Board, and there is no labor strike, slowdown, or stoppage
pending or, to the knowledge of INNN, threatened in writing against or involving
INNN; (ii) no unionizing efforts have, to the knowledge of INNN, been made by
employees of INNN, INNN is not a party to or subject to any collective
bargaining agreement, and no collective bargaining agreement is currently being
negotiated by INNN; and (iii) there is no labor dispute pending or, to the
knowledge of INNN, threatened in writing between INNN and its employees.
3.23. TRANSACTIONS WITH AFFILIATES. No director, officer,
employee or stockholder of INNN, or member of the family of any such person, or
any corporation, partnership, trust or other entity in which any such person, or
any member of the family of any such person, has a substantial interest or is an
officer, director, trustee, or partner thereof, is a party to any transaction
with INNN, including any contract, agreement or other arrangement providing for
the employment of, furnishing of services by, rental of real or personal
property from or otherwise requiring payments to any such person or firm.
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3.24. RETIREMENT OBLIGATIONS. INNN has no pension, retirement
or similar plan or obligation, whether of a legally binding nature or in the
nature of informal understandings.
3.25. BENEFIT PLANS.
(a) INNN does not sponsor, maintain, contribute to, or has it,
within the past five years, sponsored, maintained, or contributed to or
been required to contribute to, any "employee pension benefit plan"
("Pension Plan"), as such term is defined in Section 3(2) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
including, solely for the purpose of this subsection and subsection
4.15(a), a plan excluded from coverage by Section 4(b)(5) of ERISA.
(b) INNN does not sponsor, maintain, contribute to, or has it,
within the past five years, sponsored, maintained, or contributed to or
been required to contribute to, any Pension Plan that is subject to
Title IV of ERISA.
(c) INNN does not sponsor, maintain, or contribute to any
"employee welfare benefit plan" ("Welfare Plan"), as such term is
defined in Section 3(1) of ERISA, whether insured or otherwise. INNN
has not established or contributed to any "voluntary employees'
beneficiary association" within the meaning of Section 501(c)(9) of the
Internal Revenue Code of 1986, as amended ("Code").
(d) INNN does not currently maintain or contribute to any oral
or written bonus, profit-sharing, compensation (incentive or
otherwise), commission, stock option, or other stock-based
compensation, retirement, severance, change of control, vacation, sick
or parental leave, dependent care, deferred compensation, cafeteria,
disability, hospitalization, medical, death, retiree, insurance, or
other benefit or welfare or other similar plan, policy, agreement,
trust, fund, or arrangement providing for the remuneration or benefit
of all or any INNN employees, directors or any other person that is
neither a Pension Plan nor a Welfare Plan (collectively, the
"Compensation Plans").
(e) INNN has provided or made available to the Investors (i)
copies of all employment agreements with officers of INNN (or copies of
forms of agreements setting forth representative employment terms and
conditions); (ii) copies of all severance, bonus or incentive
agreements, programs and policies of INNN with or relating to any of
its employees; and (iii) copies of all plans, programs, agreements and
other arrangements of INNN with or relating to any of its employees
that contain change in control provisions.
8
(f) The execution of, and performance of the transactions
contemplated in, this Agreement will not (either alone or upon the
occurrence of any additional or subsequent events) constitute an event
under any Pension Plan, Welfare Plan, Compensation Plan, or other
arrangement of INNN that will or may result in any payment (whether of
severance pay or otherwise), acceleration, forgiveness of indebtedness,
vesting, distribution, increase in benefits, or obligation to fund
benefits.
3.26. BROKERS. INNN has no contract, arrangement or
understanding with any broker, finder, or similar agent with respect to the
transactions contemplated by this Agreement.
3.27. YEAR 2000 COMPLIANCE. All hardware and software used by
INNN in the ordinary course of business is "Year 2000 Compatible" (as defined
below). For purposes of this Agreement, "Year 2000 Compatible" means that
neither performance nor functionality is affected by dates prior to, during,
spanning or after January 1, 2000 and shall include: (i) accurately processing
(including calculating, comparing and sequencing) date/time data from, into and
between the 20th and 21st centuries and the years 1999 and 2000 and leap year
calculations; (ii) functioning without error, interruption, or decreased
performance relating to such date/time data; (iii) accurately processing such
date/time data when used in combination with other Year 2000 compatible
technology; (iv) accurate date/time data century recognition; (v) calculations
that accurately use same-century and multi-century formulas and date/time
values; (vi) date/time interface values that reflect the correct century; and
(vii) processing, storing, receiving and outputting all date/time data in a
format that accurately indicates the century of the date/time data.
3.28. LITIGATION. There are no claims, actions, suits,
proceedings or, to the knowledge of INNN, investigations or reviews of any kind,
pending or, to the knowledge of INNN, threatened in writing, against INNN or any
asset or property of INNN, except for such claims, actions, suits, proceedings,
investigations or reviews that would not, individually or in the aggregate,
reasonably be expected to have an INNN Material Adverse Effect.
3.29. SEC FILINGS. INNN has filed with the SEC all forms,
statements, reports and documents required to be filed by it prior to the date
hereof under each of the Securities Act of 1933, as amended ("Securities Act"),
the Securities Exchange Act of 1934, as amended ("Exchange Act"), and the
respective rules and regulations thereunder (a) all of which, as amended, if
applicable, complied when filed in all material respects with all applicable
requirements of the applicable Act and the rules and regulations thereunder, and
(b) none of which, as amended, if applicable, including any financial statements
or schedules included therein, contains any untrue statement of material fact or
omits to state a material fact required to be stated therein or necessary in
order to make the statements made therein, in light of the circumstances under
which they were made, not misleading.
9
4. REPRESENTATIONS AND WARRANTIES OF INVESTORS. Each of the Investors
represents and warrants to INNN as follows:
4.1. AUTHORITY. If a corporation, partnership, limited
liability corporation, trust, limited liability partnership, or other entity,
the Investor is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, and all action necessary for the
purchase of the Units and the performance of its obligations hereunder has been
taken or will be taken prior to each Closing Date. If an individual, the
Investor is of the legal age of majority and is competent and has the full
capacity to enter into this Agreement. This Agreement, when executed and
delivered by the Investor, will constitute a valid and legally binding
obligation of the Investor, enforceable in accordance with its terms, except as
enforcement may be limited by applicable bankruptcy laws or other similar laws
affecting creditors' rights generally and by general principles of equity.
4.2. INVESTMENT REPRESENTATIONS. This Agreement is made with
each of the Investors upon the understanding as a specific representation to
INNN by that Investor that:
(a) the Units purchased hereunder will be acquired for the
Investor's own account and not with a view to the distribution of any
part thereof, and the Investor has no present intention of selling,
granting participation in, or otherwise distributing the same;
(b) the Investor has the knowledge and experience in financial
and business matters so as to be capable of evaluating the merits and
risks of investing in the Units and protecting the Investor's own
interests in connection with the Investor's purchase of such Units, has
had the opportunity to ask such questions of INNN and to review such
documents as the Investor deemed necessary in connection with his or
its purchase of Units, is able to fend for the Investor in the
transactions contemplated by this Agreement and has the ability to bear
the economic risk of such Investor's investment pursuant to this
Agreement;
(c) the Investor is an "accredited investor," as defined in
Rule 501 promulgated by the SEC under the Securities Act; and
(d) the Investor understands that the Units are characterized
as "restricted securities" under the federal securities laws and
certain state securities laws inasmuch as they are being acquired from
INNN in a transaction not involving a public offering and that under
such laws and applicable regulations such Units may be resold without
registration under the Securities Act and those state securities laws
only in certain limited circumstances. In this connection, the Investor
represents that such Investor is familiar with Rule 144 promulgated by
the SEC under the Securities Act, and understands the resale
limitations imposed thereby and by the Securities Act.
10
5. CONDITIONS TO THE INVESTORS' OBLIGATIONS AT CLOSING. The obligation
of each Investor to purchase Units at each Closing is subject to the fulfillment
on or prior to each Closing Date of each of the following conditions:
5.1. REPRESENTATIONS AND WARRANTIES CORRECT; PERFORMANCE OF
OBLIGATIONS. The representations and warranties made by INNN in Section 3 hereof
shall be true and correct when made, and shall be true and correct on each
Closing Date with the same force and effect as if they had been made on and as
of said date, subject to changes contemplated by this Agreement, and INNN shall
have performed all obligations and conditions herein required to be performed or
observed by it on or prior to the Closing Date.
5.2. CERTAIN DELIVERIES AT CLOSING. The Investor (or the
Investor's representative) shall have received the following documents at
Closing: (a) a copy of INNN's Articles of Incorporation, as amended, certified
by the Secretary of State of the State of California; (b) a copy, certified by
the Chief Executive Officer, secretary or assistant secretary of INNN, of INNN's
By-Laws; (c) all corporate resolutions adopted by the Board of Directors or
shareholders of INNN with respect to the transactions contemplated hereby,
certified by the Chief Executive Officer, secretary or assistant secretary of
INNN; (d) a certificate, executed by the President of INNN, dated as of that
Closing Date, certifying the fulfillment of the conditions set forth in Section
5.1; (e) certificates of good standing, as of the most recent practicable date,
issued by the Secretary of State of California and the secretaries of state for
each jurisdiction in which INNN is qualified to conduct business; and (f) for
each Closing that is not the Initial Closing, a description of the use of
proceeds from INNN pursuant to Section 7.4 that is satisfactory to the Investors
or their representative(s), in their sole discretion.
5.3. QUALIFICATIONS. All authorizations, approvals or permits
of any governmental authority that are required in connection with the lawful
issuance and sale of the Units under this Agreement shall have been duly
obtained and shall be effective.
5.4. BOARD OF ADVISORS OF INNN. On or before the Initial
Closing Date, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ shall be appointed to the Board of Advisors of
INNN.
5.5. BOARD OF DIRECTORS OF INNN. On or before the Initial
Closing Date, ▇▇▇▇ ▇. ▇▇▇▇▇▇ shall resign from the Board of Directors of INNN.
5.6. PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated hereby and all
documents and instruments incident to such transactions shall be reasonably
satisfactory in substance and form to the Investors and counsel to the
Investors, and the Investors shall have received all such counterpart originals
or certified or other copies of such documents as they may reasonably request.
11
5.7. NO RESTRAINTS. No temporary restraining order,
preliminary or permanent injunction or other order preventing the consummation
of the transactions contemplated by this Agreement shall have been issued since
the date of this Agreement by any United States federal or state court of
competent jurisdiction and shall remain in effect, and no United States federal
or state law, statute, rule, regulation or decree that makes consummation of
such transactions illegal shall have been enacted or adopted since the date of
this Agreement and shall remain in effect.
5.8. NO GOVERNMENTAL LITIGATION. There shall not be pending
before any United States federal or state court of competent jurisdiction any
suit, action or proceeding commenced by any United States federal or state
governmental body (and no United States federal or state governmental body shall
have overtly threatened to commence any action, suit or proceeding before any
United States federal or state court of competition jurisdiction) challenging or
seeking to restrain or prohibit the consummation or the transactions
contemplated by this Agreement.
5.9. NO OTHER LITIGATION. There shall not be pending before
any United States federal or state court of competent jurisdiction any suit,
action or proceeding commenced by any person against INNN in which there is a
reasonable likelihood of a judgment against INNN providing for an award of
damages or other relief that would adversely affect the right of INNN to own its
assets or operate its business.
6. CONDITIONS TO OBLIGATIONS OF INNN. The obligations of INNN to sell
and issue the Units at each Closing are subject to the fulfillment on or prior
to each Closing Date of the following conditions:
6.1. REPRESENTATIONS AND WARRANTIES CORRECT; PERFORMANCE OF
OBLIGATIONS. The representations and warranties made by the Investors in Section
4 hereof shall be true and correct when made, and shall be true and correct on
the Closing Date with the same force and effect as if they had been made on and
as of said date, and the Investors shall have performed all obligations and
conditions herein required to be performed by them on or prior to the Closing
Date.
6.2. QUALIFICATIONS. All authorizations, approvals or permits
of any governmental authority that are required in connection with the lawful
issuance and sale of the Units under this Agreement shall have been duly
obtained and shall be effective.
6.3. NO RESTRAINTS. No temporary restraining order,
preliminary or permanent injunction or other order preventing the consummation
of the transactions contemplated by this Agreement shall have been issued since
the date of this Agreement by any United States federal or state court of
competent jurisdiction and shall remain in effect, and no United States federal
or state law, statute, rule, regulation or decree that makes consummation of
such transactions illegal shall have been enacted or adopted since the date of
this Agreement and shall remain in effect.
12
6.4. NO GOVERNMENTAL LITIGATION. There shall not be pending
before any United States federal or state court of competent jurisdiction any
suit, action or proceeding commenced by any United States federal or state
governmental body (and no United States federal or state governmental body shall
have overtly threatened to commence any action, suit or proceeding before any
United States federal or state court of competition jurisdiction) challenging or
seeking to restrain or prohibit the consummation or the transactions
contemplated by this Agreement.
6.5. NO OTHER LITIGATION. There shall not be pending before
any United States federal or state court of competent jurisdiction any suit,
action or proceeding commenced by any person against INNN in which there is a
reasonable likelihood of a judgment against INNN providing for an award of
damages or other relief that would adversely affect the right of INNN to own its
assets or operate its business.
7. COVENANTS. INNN and the Investors hereby covenant and agree as
follows:
7.1. FINANCIAL INFORMATION. INNN will furnish the following
reports to the Investors:
(a) ANNUAL FINANCIAL STATEMENTS. As soon as practicable, but
in any event within ninety (90) days after the end of each fiscal year
of INNN, INNN shall furnish to the Investors a consolidated balance
sheet of INNN as of the end of such fiscal year, and related
consolidated statements of income, shareholders' equity and cash flows
for such fiscal year, prepared in accordance with generally accepted
accounting principles, and audited and certified by an independent
public accounting firm of nationally recognized standing selected by
INNN and reasonably acceptable to the Investors.
(b) QUARTERLY FINANCIAL STATEMENTS. Within 45 days of the end
of each of the first, second and third fiscal quarters, INNN shall
furnish to the Investors an unaudited consolidated balance sheet of
INNN and consolidated statements of income, shareholders' equity and
cash flows for such quarter, prepared in accordance with generally
accepted accounting principles and certified by INNN's Chief Financial
Officer.
(c) NOTICE OF CLAIMS AND MATERIAL EVENTS. Promptly after the
commencement or occurrence thereof, notice of all actions, suits,
claims, proceedings, investigations, inquiries, defaults and claimed
deficiencies that could result in an INNN Material Adverse Effect and
promptly after, or in the case of a transaction prior to, the
occurrence thereof, notice and description of any event or transaction
which could result in an INNN Material Adverse Effect.
13
(d) OTHER INFORMATION. INNN shall furnish to the Investors
such other information relating to the financial condition, business,
prospects or corporate affairs of INNN or TWIN Entertainment as such
Investors may from time to time reasonably request.
7.2. INSPECTION. INNN shall permit the Investors, and such
persons as they may designate, to visit and inspect the properties of each of
INNN and TWIN Entertainment, to examine its books of account and records and to
discuss its affairs, finances and accounts with its officers, employees and
public accountants, all at such reasonable times as may be requested by an
Investor upon reasonable notice to INNN.
7.3. CONFIDENTIALITY OF INFORMATION. Each of the Investors
agrees to maintain the confidentiality of any information obtained by that
Investor pursuant to Section 7.1 or Section 7.2 or otherwise in connection with
this Agreement which may be proprietary to INNN or that is otherwise
confidential and which has not been made available by INNN to the public or to
any other third party on a non-confidential basis. Each of the Investors further
agrees to use the proprietary and confidential information only to benefit INNN
or to monitor such Investor's investment in INNN and to make no disclosure
thereof to a third party (other than its officers or directors, staff and legal
and other professional advisers) without INNN's prior written consent (which may
be conditioned upon receipt of a similar undertaking by the third party but
otherwise shall not be unreasonably withheld).
7.4. USE OF PROCEEDS. On the Initial Closing Date, INNN will
use $750,000 of the gross proceeds from the sale of the Units subject to that
Closing to make a capital contribution in that amount to TWIN Entertainment (the
"Initial Capital Contribution"). INNN will use the proceeds from the sale of
Units hereunder, other than the $750,000 for the Initial Capital Contribution as
provided in the preceding sentence, as set forth on SCHEDULE B hereto. Said
SCHEDULE B may be amended by INNN from time to time; provided, however, that
prior to the distribution to INNN of any gross proceeds at any Closing, the
Investors shall have reviewed and approved of any such amendment.
7.5. NEGATIVE COVENANTS.
(a) So long as any of the Investors own any Unit Shares,
Warrants or Warrant Shares, INNN shall not, without obtaining the
approval of the Investors holding more than 50% of the Unit Shares and
Warrant Shares (including Warrant Shares subject to Warrants not yet
exercised):
(i) create any new class or series of shares having
rights, privileges or preferences senior to the Common Stock
(other than rights based solely on the price of such series);
or
(ii) amend INNN's Articles of Incorporation or Bylaws
in a manner which materially and adversely affects the holders
of Common Stock (which shall be deemed to include any
amendment which authorizes the issuance of any additional
series, or additional shares of an existing series, that is
senior in preference to the Common Stock).
14
7.6. COMPLIANCE WITH LAWS. INNN shall comply with all of
applicable laws, rules, regulations and orders, the non-compliance with which
could result in an INNN Material Adverse Effect.
7.7. KEEPING OF RECORDS AND BOOKS OF ACCOUNT. INNN shall keep
adequate records and books of account, in which complete entries will be made in
accordance with U.S. GAAP, reflecting all financial transactions of INNN.
7.8. PAYMENT OF TAXES. INNN shall pay and discharge promptly,
when due and payable, (i) all taxes, assessments and governmental charges or
levees imposed upon it or upon its income or upon any of its properties, as well
as all claims of any kind, which, if unpaid, might by law become a lien, charge
or encumbrance upon its properties; (ii) withhold all monies required to be
withheld by it from employees for income taxes, social security and unemployment
insurance taxes; and (iii) complete and file, on a timely basis, all tax returns
and reports required to be filed by it.
7.9. MAINTAIN CORPORATE EXISTENCE. INNN shall do or cause to
be done all things necessary to preserve and keep in full force and effect its
corporate existence and all of its corporate rights, franchises, licenses and
permits.
7.10. FUTURE FINANCINGS.
(a) RIGHT OF FIRST REFUSAL. INNN grants to the Investors, for
a period of two years from the date(s) Units are issued to each
Investor, the right of first refusal to purchase the Purchaser's
"pro-rata share" (as defined below) of any equity securities of INNN,
including shares of Common Stock or securities of any type convertible
into, or entitling the holder thereof to purchase shares of, Common
Stock, proposed to be issued by INNN subsequent to the date hereof
(such securities being hereafter referred to in this Section 7.10 as
the "Securities" and such issuance being referred to herein as a
"Future Financing"). Each Investor's "pro-rata share" shall be that
portion of the Securities proposed to be issued which bears the same
relation to all of the Securities proposed to be issued as the Unit
Shares and the Warrant Shares (including Warrant Shares subject to
Warrants not yet exercised) held by that Investor bear to all
outstanding shares of the Common Stock (assuming in each case the
conversion of all outstanding securities which are convertible into
Common Stock, including the Warrants), all determined immediately prior
to the offering of the Securities.
15
(b) NOTICE. If INNN proposes to undertake an issue of
Securities, it shall deliver to the Investors written notice of its
intention, describing such Securities, specifying each Investor's
pro-rata share and stating the purchase price and other terms upon
which it proposes to issue the same (the "Option Notice"). For a period
of 30 days from the receipt of the Option Notice, each Investor shall
have the right to elect, by written notice to INNN, to purchase all or
any portion of such Investor's pro-rata share of the Securities
described in the Option Notice. If an Investor fails to exercise such
Investor's rights of first refusal within the specified period, or the
Investor elects to acquire less than such Investor's aggregate pro-rata
share pursuant to the exercise of such right, then INNN may sell, free
of any right of first refusal on such Investor's part, the portion of
such Investor's pro-rata share not purchased pursuant to such right of
first refusal, upon the same terms specified in the Option Notice.
(c) EXCEPTIONS. The right of first refusal granted under this
Section 7.10 shall not apply to (i) the issuance of Employee Reserved
Shares or the Warrant Shares; or (ii) the issuance of Securities upon a
stock split or stock dividend with respect to the Common Stock.
7.11. BOARD OF DIRECTORS OF TWIN ENTERTAINMENT. ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇ shall be elected or appointed, as soon as practicable after the date of
this Agreement, to the Board of Directors of TWIN Entertainment.
7.12. TERMINATION OF COVENANTS.
The covenants set forth in Section 7.4 shall terminate at such
time as the Investors no longer owns any Unit Shares, Warrants, or Warrant
Shares. All of the covenants and obligations of INNN set forth in this Agreement
shall inure to the benefit of an assignee or transferee of an Investor who
acquires Unit Shares, Warrants, or Warrant Shares from an Investor, other than
assignees or transferees acquiring such securities from an Investor in a
registration described in Section 8.
8. REGISTRATION OBLIGATION.
8.1. CERTAIN DEFINITIONS. As used in this Section 8 and
elsewhere in this Agreement, the following terms shall have the following
respective meanings:
"REGISTRABLE SECURITIES" shall mean (i) the Unit Shares, (ii) the
Warrant Shares, and (iii) any securities issued as a dividend or other
distribution with respect to, or in exchange or in replacement of, the Unit
Shares and Warrant Shares.
"REGISTRATION EXPENSES" shall mean all expenses (except for "Selling
Expenses," as defined below) incurred by INNN in complying with Section 8.2 of
this Agreement, including all registration and filing fees, printing expenses,
and reasonable fees and disbursements of INNN's legal counsel and accountants.
16
The terms "REGISTER", "REGISTERED" and "REGISTRATION" shall refer to a
registration effected by preparing and filing a Registration Statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such Registration Statement.
"REGISTRATION STATEMENT" shall mean a registration statement on Form
S-1 or Form S-3 (or any successor form) filed by INNN with the SEC.
"SELLING EXPENSES" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities pursuant to Section
8.2 and all fees and disbursements of counsel for the Investors not included in
Registration Expenses.
8.2. REGISTRATION.
(a) As soon as reasonably practicable after the Initial
Closing, but no later than ninety (90) days after the date of this
Agreement, INNN shall file with the SEC a Registration Statement on
Form S-3 or any successor short-form registration statement promulgated
by the SEC or, if INNN cannot use a Form S-3, a Registration Statement
on Form S-1, to register the resale by the Investors of the Registrable
Securities under the Securities Act. After the Registration Statement
is filed, INNN shall use its best efforts to (i) have the Registration
Statement declared effective by the SEC, (ii) thereafter prepare and
file, as INNN shall determine may be required under the Securities Act
and the rules and regulations thereunder, a prospectus supplement or
supplements to the prospectus contained in the Registration Statement
or a post-effective amendment or amendments to the Registration
Statement and, with respect to any post-effective amendment, cause such
post-effective amendment to be declared effective by the SEC, (iii)
maintain the effectiveness of the Registration Statement until the
earlier of (A) the date two years from the date of effectiveness of the
Registration Statement, or (B) the sale of all of the Registrable
Securities pursuant to the Registration Statement. INNN further agrees
that it will (i) furnish to the Investors and to the underwriters of
the Registrable Securities, if any, such reasonable number of copies of
the Registration Statement, preliminary prospectus and prospectus
supplement, final prospectus and prospectus supplement and such other
documents as such Investors may reasonably request in order to
facilitate the public offering of the Registrable Securities, (ii) use
its best efforts to register or qualify the Registrable Securities
covered by the Registration Statement under such state securities or
blue sky laws of such jurisdictions as the Investors may reasonably
request in writing within 20 days following the original filing of the
Registration Statement, except that INNN shall not for any purpose be
required to execute a general consent to service of process or to
qualify to do business as a foreign corporation in any jurisdiction
wherein it is not so qualified, (iii) notify the Investors, promptly
after it shall receive notice thereof, of the time when the
Registration Statement has become effective or a supplement to any
prospectus forming a part of the Registration Statement has been filed,
(iv) notify the Investors promptly of any request by the SEC for the
amending or supplementing of the Registration Statement or prospectus
or prospectus supplement or for additional information, (v) prepare and
file with the SEC, promptly upon the request of any Investor then owing
17
Registrable Securities, any amendments or supplements to the
Registration Statement or prospectus or prospectus supplement which, in
the opinion of counsel for the Investors (and concurred in by counsel
for INNN), is required under the Securities Act or the rules and
regulations thereunder in connection with the distribution of the
Registrable Securities by such Investor, (vi) prepare and promptly file
with the SEC and promptly notify the Investor of the filing of such
amendment or supplement to the Registration Statement or prospectus or
prospectus supplement as may be necessary to correct any statements or
omissions if, at the time when a prospectus relating to such securities
is required to be delivered under the Securities Act, any event shall
have occurred as the result of which any such prospectus or any other
prospectus or prospectus supplement as then in effect would include an
untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein, in the light of the
circumstances in which they were made, not misleading, and (vii) advise
the Investors, promptly after INNN shall receive notice or obtain
knowledge thereof, of the issuance of any stop order by the SEC
suspending the effectiveness of the Registration Statement or the
initiation or threatening of any proceeding for that purpose and
promptly use its reasonable best efforts to prevent the issuance of any
stop order or to obtain its withdrawal if such stop order should be
issued. Each Investor hereby agrees to cooperate with all reasonable
requests by INNN necessary to effectuate the preparation and filing of
the Registration Statement and agrees to provide INNN with all
information required in connection therewith in a timely manner and to
comply with the procedures specified in Section 8.2(b) below. For
purposes of this Section 8.2(a), a general consent to service of
process shall not include a "Uniform Consent to Service of Process" or
other similar consent to service of process which relates only to an
action or proceeding arising out of or in connection with the sale of
securities, or out of a violation of the laws of the jurisdiction
requesting such consent.
(b) Prior to any sales of Registrable Securities under the
Registration Statement by an Investor, the Investor contemplating the
sales will provide INNN with written notice of such intention,
addressed to INNN's Chief Financial Officer (a "Sale Notice"). INNN
will notify such Investor within two (2) business days following
receipt of the Sale Notice as to whether sales by the Investor may be
made or will be limited as provided below. Upon notice from INNN
permitting sales by the Investor, for a period beginning on the date of
receipt by the Investor of such notice and ending 45 days thereafter
(the "Window Period"), the Investor may offer and sell Registrable
Securities from time to time pursuant to the Registration Statement.
Anything in this Agreement to the contrary notwithstanding, the ability
of an Investor to sell Registrable Securities pursuant to the
Registration Statement and this Agreement shall be suspended if, upon
receiving a Sale Notice or during any Window Period, INNN's Chief
Financial Officer certifies to the Investors that, in the good faith
judgment of such officer (upon consultation to the extent practicable
with the INNN Board of Directors), (A) the sale would interfere in any
material respect with any financing, acquisition, corporate
reorganization or other similar material transaction under
consideration by INNN, or (B) there is some other material development
relating to the condition (financial or otherwise) of INNN that has not
been generally publicly disclosed and as to which INNN deems advisable
upon the advice of counsel at the time of the Sale Notice not to
18
publicly disclose; provided, however, that, upon any such event
specified in (A) or (B) above, INNN may not suspend sales by Investors
under the Registration Statement for a period of more than forty-five
(45) days from the date of such certification by INNN's Chief Financial
Officer. If, upon receipt of the Sale Notice, INNN has reasonably
determined that it is necessary to file and cause to be declared
effective a post-effective amendment to the Registration Statement or
file a new or amended prospectus supplement or to otherwise cause
disclosure to be made under the Exchange Act and incorporated by
reference into the Registration Statement, and INNN determines not to
rely on the proviso set forth in the preceding sentence in order to
delay the making of such disclosure, INNN will take such action within
seven (7) business days following receipt of the applicable Sale
Notice.
(c) In connection with the registration of the Registrable
Securities, INNN shall bear all Registration Expenses. The Selling
Expenses shall be borne by the Investors of the Registrable Securities
so registered pro rata on the basis of the number of shares so
registered.
(d) With respect to such registration:
(i) Subject to compliance by a holder of Registrable
Securities with Section 8.2(b), INNN will indemnify and hold
harmless each holder of Registrable Securities which are
included in the Registration Statement, and any underwriter
(as defined in the Securities Act) for such holder and each
person, if any, who controls such holder or such underwriter
within the meaning of the Securities Act, from and against,
and will reimburse such holder and each such underwriter and
controlling person with respect to, any and all loss, damage,
liability, cost and expense to which such holder or any such
underwriter or controlling person may become subject under the
Securities Act or otherwise, insofar as such losses, damages,
liabilities, costs or expenses are caused by any untrue
statement or alleged untrue statement of any material fact
contained in the Registration Statement, any prospectus or
prospectus supplement contained therein or any amendment or
supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which
they were made, not misleading; provided, however, that INNN
will not be liable in any such case to the extent that any
such loss, damage, liability, cost or expense arises out of or
is based upon an untrue statement or alleged untrue statement
or omission or alleged omission so made in strict conformity
with information furnished by such holder, such underwriter or
such controlling person in writing specifically for use in the
preparation thereof.
(ii) Each holder of Registrable Securities which are
included in the Registration Statement will indemnify and hold
harmless INNN, its directors and officers, and any controlling
person thereof and any underwriter from and against, and will
reimburse INNN, its directors and officers, and any such
controlling person and any underwriter with respect to, any
and all loss, damage, liability, cost or expense to which BVI
or any controlling person and any underwriter may become
subject under the Securities Act or otherwise, insofar as such
losses, damages, liabilities, costs or expenses are caused by
19
any untrue or alleged untrue statement of any material fact
contained in the Registration Statement, any prospectus or
prospectus supplement contained therein or any amendment or
supplement thereto, or arise out of or are based upon the
omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which
they were made, not misleading, in each case to the extent,
but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was so made
in reliance upon and in strict conformity with written
information furnished by such holder specifically for use in
the preparation thereof.
(e) Each party entitled to indemnification under Section
8.2(d) (the "Indemnified Party") shall give notice to the party
required to provide indemnification (the "Indemnifying Party") promptly
after such Indemnified Party has actual knowledge of any claim as to
which indemnity may be sought, and shall permit the Indemnifying Party,
at such party's expense, to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or
litigation, shall be approved by the Indemnified Party (whose approval
shall not unreasonably be withheld), and the Indemnified Party may
participate in such defense at such party's expense (except for the
payment of fees, costs and expenses provided for below), and PROVIDED
further that the failure of any Indemnified Party to give notice as
provided herein shall not relieve the Indemnifying Party of its
obligations under this Agreement, unless such failure to give notice
shall materially adversely affect the Indemnifying Party in the defense
of any such claim or any such litigation. No Indemnifying Party, in the
defense of any such claim or litigation shall, except with the consent
of each Indemnified Party, consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such Indemnified
Party of a release from all liability in respect to such claim or
litigation. Notwithstanding the election of the Indemnifying Party to
assume the defense of any such claim or litigation, the Indemnified
Party shall have the right to employ separate counsel and to
participate in the defense of such claim or litigation, and the
Indemnifying Party shall bear the reasonable fees, costs and expenses
of such separate counsel if (A) the use of the counsel chosen by the
Indemnifying Party to represent the Indemnified Party would present
such counsel with a conflict of interest; (B) the defendants in, or
targets of, any such claim or litigation include both the Indemnified
Party and the Indemnifying Party and the Indemnified Party shall have
reasonably concluded that there may be legal defenses available to it
or to other Indemnified Parties which are different from or additional
to those available to the Indemnifying Party (in which case the
Indemnifying Party shall not have the right to direct the defense of
such action on behalf of the Indemnified Party); (C) in the exercise of
the Indemnified Party's reasonable judgment, the Indemnifying Party
shall not have employed satisfactory counsel to represent the
Indemnified Party within a reasonable time after notice of the
institution of such claim or litigation; or (D) the Indemnifying Party
shall authorize the Indemnified Party to employ separate counsel at the
expense of the Indemnifying Party. The Indemnified Party shall not
settle any such claim or litigation without the consent of the
Indemnifying Party.
20
(f) Notwithstanding the provisions of Sections 8.2(e) and
8.2(f), if a registration is subject to a firm commitment underwriting,
neither INNN nor an Investor including Registrable Securities in the
registration shall be required to indemnify any other party to a
greater extent than the obligation of INNN or such Investor to the
underwriters pursuant to the underwriting agreement pertaining to such
registration.
8.3. RULE 144 REPORTING. With a view to making available the
benefits of certain rules and regulations of the SEC which may at any time
permit the sale of INNN's capital stock to the public without registration, at
all times after the date hereof, INNN agrees to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act;
(b) file with the SEC in a timely manner all reports and other
documents required to be filed by INNN under the Securities Act and the
Exchange Act; and
(c) furnish to each Investor forthwith upon request a written
statement by INNN as to its compliance with the reporting requirements
of such Rule 144 and of the Securities Act and the Exchange Act, a copy
of the most recent annual or quarterly report of INNN, and such other
reports and documents so filed by INNN as an Investor may reasonably
request in availing itself of any rule or regulation of the SEC
allowing that Investor to sell any such securities without
registration.
8.4. ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause
INNN to register Registrable Securities pursuant to this Section 8 may be
assigned by an Investor to a transferee or assignee of Registrable Securities,
any person or entity who is a subsidiary, parent, general partner or limited
partner of an Investor.
8.5. AMENDMENT OF REGISTRATION RIGHTS. Any provision of this
Section 8 may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or prospectively)
only with the written consent of INNN and the Investors (or their assignees or
transferees) who own at least seventy-five percent (75%) of the Registrable
Securities. Any amendment or waiver effected in accordance with this Section 8.5
shall be binding upon each Investor and INNN. By acceptance of any benefits
under this Section 8, Investors who own Registrable Securities hereby agree to
be bound by the provisions hereunder.
8.6. LIMITATION ON SUBSEQUENT REGISTRATION RIGHTS. >From and
after the date of this Agreement, INNN shall not, without the prior written
consent of Investors (or their assignees or transferees) who own at least a
majority of the outstanding Registrable Securities, enter into any agreement
with any person or persons providing for the granting to such holder of
registration rights pari passu or senior to those granted to the Investors
pursuant to this Section 8, or of registration rights which might cause a
reduction in the number of shares includable by the Investors in any offering
pursuant to this Section 8.
21
9. RESTRICTIVE LEGENDS. Each certificate evidencing Unit Shares issued
or sold under this Agreement shall contain or otherwise be imprinted with
suitable legends in substantially the following form:
This security has not been registered under the Securities Act of 1933
or any state securities act, and has been acquired for investment and
not with view to, or for sale in connection with, any distribution
thereof within the meaning of the Securities Act of 1933, as amended.
INNN is hereby authorized to place "stop transfer" instructions on its
records or to instruct any transfer agent to prevent the transfer of the Unit
Shares, Warrants and Warrant Shares except in conformity with this Agreement.
10. MISCELLANEOUS.
10.1. SUCCESSORS AND ASSIGNS. All covenants and agreements
contained in this Agreement made by or on behalf of any of the parties hereto
shall bind and inure to the benefit of the respective successors and assigns of
such parties, except as otherwise provided in Section 7.11 and Section 8.
10.2. GOVERNING LAW. The internal laws of the State of
Delaware (regardless of conflict of laws principles) shall govern all issues
concerning the construction, validity and interpretation of this Agreement.
10.3. SURVIVAL. The representations and warranties of INNN
contained in Section 3 of this Agreement shall survive the Closing for a period
of three years, and thereafter no action, suit or claim shall be brought by any
Investor alleging any misrepresentation or untruthfulness based upon the subject
matter of such representations or warranties, and any such action, suit or claim
shall be forever barred; PROVIDED, HOWEVER, that any action based upon fraud
shall not be barred and may be brought notwithstanding the provisions of this
Section.
10.4. ENTIRE AGREEMENT; AMENDMENT. This Agreement and the
other documents delivered pursuant hereto or contemplated hereby constitute the
full and entire understanding and agreement between the parties with regard to
the subjects hereof and thereof. Neither this Agreement nor any term hereof may
be amended, waived, discharged or terminated except by a written instrument
signed by INNN and the Investors owing of at least a majority of the Unit Shares
and the Warrant Shares (including Warrant Shares subject to Warrants not yet
exercised).
22
10.5. NOTICES. All notices and other communications required
or permitted hereunder shall be in writing and shall be made by hand delivery,
first-class mail (registered or certified, return receipt requested),
telecopier, or overnight air courier guaranteeing next day delivery, addressed
as follows: (a) if to ▇▇▇▇▇▇▇ Capital Management, Inc., to ▇▇▇▇▇▇▇ Capital
Management, Inc., ▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, Attention: ▇▇.
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, with a copy to ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇▇, Winthrop &
Weinstine, P.A., 3000 ▇▇▇▇ ▇▇▇▇▇▇▇▇ Plaza, ▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, (b) if to any other Investor, at such address as such Investor
shall have furnished to INNN in writing, or, until any such Investor so
furnishes an address to INNN, then to and at the address of the last Investor of
such Shares who has so furnished an address to INNN, and (c) if to INNN, at ▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, with a copy to ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇,
Esq., ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇-▇▇▇▇, or to such other person or address as the party receiving such
notice shall have properly designated to the other parties hereto in writing.
Each such notice shall be deemed given at the time delivered by hand, if
personally delivered; five business days after being deposited in the mail,
postage prepaid, if mailed; when receipt acknowledged, if telecopied; and the
next business day after timely delivery to the courier, if sent by overnight air
courier guaranteeing next day delivery.
10.6. DELAYS OR OMISSIONS. No delay or omission in exercising
any right, power or remedy accruing to any holder of the Shares upon any breach
or default of INNN under this Agreement shall impair any such right, power or
remedy of such holder, nor shall it be construed to be a waiver of any such
breach or default, or an acquiescence therein, or of or in any similar breach or
default thereunder occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. All remedies, either under this Agreement, or by law or
otherwise afforded to any holder, shall be cumulative and not alternative.
10.7. COUNTERPARTS. This Agreement may be executed in any
number of counterparts, some of which may have signature pages differing as to
form, each of which shall be enforceable against the parties actually executing
such counterparts and all of which together shall constitute one instrument.
10.8. SEVERABILITY. If any provision of this Agreement, or its
application to any person or circumstances, is invalid or unenforceable, then
the remainder of this Agreement or the application of such provision to other
persons or circumstances, shall not be affected thereby. Further, if any
provision or application hereof is invalid or unenforceable then a suitable and
equitable provision shall be substituted therefor in order to carry out so far
as may be valid or enforceable the intent and purposes of the invalid and
unenforceable provision.
23
10.9. INTERPRETATION. When reference is made in this Agreement
to Recitals, Sections, Exhibits or Schedules, such reference shall be to a
Recital or Section of, or Schedule or Exhibit to, this Agreement unless
otherwise indicated. The Table of Contents and article and section headings
contained in this Agreement are inserted for reference purposes only and shall
not affect the meaning or interpretation of this Agreement. Whenever the words
"include," "includes" or "including" are used in this Agreement, it shall be
deemed followed by the words "without limitation." This Agreement shall be
construed without regard to any presumption or other rule requiring the
resolution of any ambiguity regarding the interpretation or construction hereof
against the party causing this Agreement to be drafted.
10.10. INVESTIGATION. The respective representations and
warranties of INNN and the Investors contained herein or in any certificates or
other documents delivered prior to or at any Closing shall not be deemed waived
or otherwise affected by any investigation made by any parties hereto.
10.11. PUBLICITY. All statements or communications to the
public or press regarding this Agreement will be mutually agreed upon by INNN
and the Investors, except as provided in the following sentence. No parties
shall, without such mutual agreement or the prior consent of the other, file any
document or issue any statement of communication to the public or to the press
regarding this Agreement, or any of the terms, conditions or other matters with
respect to this Agreement, except as required by law and then only (a) upon the
advice of such party's legal counsel; (b) to the extent required by law; and (c)
following prior notice to, and consultation with, the other parties (which
notice shall include a copy of the proposed statement or communication to be
issued to the press or public).
10.12. SPECIFIC PERFORMANCE. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or in equity.
The foregoing Agreement is hereby executed as of the date first above
written.
Investors: Interactive Network, Inc.
See Schedule A
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
-------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇
24
THE ISSUANCE OF THIS WARRANT AND THE SHARES OF COMMON STOCK PURCHASABLE UPON THE
EXERCISE HEREOF HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY
APPLICABLE STATE SECURITIES LAWS. THIS WARRANT AND SUCH SHARES OF COMMON STOCK
MAY NOT BE TRANSFERRED UNTIL INTERACTIVE NETWORK, INC. ("COMPANY") HAS BEEN
FURNISHED WITH EVIDENCE SATISFACTORY TO COUNSEL FOR THE COMPANY THAT THERE HAS
BEEN COMPLIANCE WITH ALL APPLICABLE FEDERAL AND STATE OR TERRITORIAL SECURITIES
LAWS WITH RESPECT TO THE SALE OR OTHER TRANSFER OF THE WARRANTS AND SUCH SHARES
OF COMMON STOCK INCLUDING, WITHOUT LIMITATION, AN OPINION OF COUNSEL
SATISFACTORY IN FORM AND SUBSTANCE TO COUNSEL FOR THE COMPANY THAT THE SALE OR
OTHER TRANSFER OF THE WARRANTS AND SUCH SHARES OF COMMON STOCK IS EXEMPT UNDER
FEDERAL STATE SECURITIES LAWS.
COMMON STOCK PURCHASE WARRANT
Date of Issuance: __________, 2000 Warrant Certificate No. ____
For value received, Interactive Network, Inc., a California corporation (the
"Company"), hereby grants to ___________ or his or its registered assigns (the
"Initial Holder") the right to purchase from the Company (the "Purchase Rights")
up to an aggregate of _____ shares (the "Shares") of the Company's Common Stock
at an initial exercise price ("Initial Exercise Price") of $1.90 per share. The
number of Shares and the Initial Exercise Price of this Warrant are subject to
adjustment pursuant to the provisions contained in this Warrant. (The terms
"Registered Holder" or "Registered Holders" shall mean herein the Initial
Registered Holder and any other Persons to which all or part of this Warrant has
been duly transferred pursuant to the terms of this Warrant.) This Warrant is
one of a series of warrants to purchase an aggregate of up to 3,250,000 shares
of Common Stock at an exercise price of $1.90 per share issued by the Company in
2000 (the "2000 Warrants"). Certain capitalized terms used herein are defined in
Section 3 hereof.
This Warrant is subject to the following provisions:
Section 1. EXERCISE OF WARRANT.
1.1 EXERCISE PERIOD. Subject to the provisions of Section 6 hereof, the
Purchase Rights may be exercised in whole or in part (but not as to a fractional
share of Common Stock) at any time beginning on the Date of Issuance and ending
at 5:00 o'clock p.m., Pacific time, on ____________, 2005 (the "Exercise
Period"). To the extent not exercised during the Exercise Period, the Purchase
Rights shall expire and shall not be exercisable after such Exercise Period.
1
1.2 EXERCISE PROCEDURE.
(a) Subject to the provisions of Section 8 hereof, the
Purchase Rights will be deemed to have been exercised when the
Company has received, examined, and accepted all of the
following items (the "Exercise Time"):
(i) a duly completed and signed Exercise Agreement,
as described in Section 1.3 of this Agreement,
executed by the person exercising such Purchase
Rights (the "Purchaser");
(ii) this Warrant;
(iii) if this Warrant is not registered in the name
of the Purchaser, a duly completed and signed
Assignment or Assignments in the form set forth in
EXHIBIT II evidencing the assignment of this Warrant
to the Purchaser, in which case the Registered Holder
will have complied with the provisions set forth in
Section 6 hereof;
(iv) a certified, cashier's or bank check or, in the
sole discretion of the Company, a personal check, in
an amount equal to the product of the Exercise Price
(as defined in Section 2) multiplied by the number of
Shares of Common Stock being purchased upon such
exercise; and
(v) an opinion of counsel as described in Section 6.2
hereof that the exercise of this Warrant is
permissible under applicable securities laws.
(b) Certificates evidencing the Shares of Common Stock
purchased upon exercise of the Purchase Rights will be
delivered by the Company to the Purchaser within fifteen (15)
days after the date of the Exercise Time. Unless all of the
Purchase Rights have expired or have been exercised, the
Company will prepare a new Warrant, substantially identical
hereto, representing the Purchase Rights formerly represented
by this Warrant which have not expired or been exercised and
will, within such fifteen (15) day period, deliver such new
Warrant to the Person duly designated for delivery in the
Exercise Agreement described in Section 1.2(a)(i).
(c) The Shares of Common Stock issuable upon the exercise of
the Purchase Rights will be deemed to have been issued to the
Purchaser at the Exercise Time, and the Purchaser will be
deemed for all purposes to have become the record holder of
such Shares at the Exercise Time.
(d) The issuance of certificates evidencing Shares of Common
Stock acquired upon exercise of the Purchase Rights will be
made without charge to the Registered Holders or the
Purchasers for any issuance tax or other cost incurred by the
Company in connection with such exercise and the related
issuance of Shares of Common Stock. Each Share of Common Stock
2
issuable upon exercise of the Purchase Rights will, upon
payment of the Exercise Price therefor, be fully paid and
nonassessable and free from all liens and charges with respect
to the issuance thereof, except such as may have been created
or caused by the Registered Holder or Purchaser.
(e) The Company will not close its books against the transfer
of this Warrant or of any share of Common Stock issued or
issuable upon the exercise of the Purchase Rights in any
manner which interferes with the timely exercise of the
Purchase Rights. The Company will from time to time take all
such action as may be necessary to assure that the par value
per share of the unissued Common Stock acquirable upon
exercise of the Purchase Rights is at all times equal to or
less than the Exercise Price then in effect.
1.3 EXERCISE AGREEMENT. Upon any exercise of the Purchase Rights, the
Purchaser shall duly complete, sign, and deliver to the Company an Exercise
Agreement in the form set forth in EXHIBIT I, and, in addition, if the Shares of
Common Stock are not to be issued in the name of the Person in whose name this
Warrant is registered, the Exercise Agreement also will state the name of the
Person to whom the certificates for the Shares of Common Stock are to be issued,
and if the number of Shares of Common Stock to be issued does not include all
the Shares of Common Stock purchasable hereunder, it will also state the name of
the Person to whom a new Warrant for the unexercised portion of the Purchase
Rights is to be delivered. Such Exercise Agreement will be dated the actual date
of execution thereof.
1.4 FRACTIONAL SHARES. If a fractional Share of Common Stock would, but
for the provision of Section 1.1 hereof, be issuable upon exercise of the
Purchase Rights, the Company will, within fifteen (15) business days after the
date of the Exercise Time deliver to the Purchaser a check payable to the
Purchaser in lieu of such fractional share in an amount equal to the difference
between the Market Price of such fractional share as of the date of the Exercise
Time and the Exercise Price of such fractional share.
1.5 RESERVATION OF SHARES. The Company shall reserve, out of the
authorized and unissued shares of Common Stock, a number of shares sufficient to
provide for the exercise of the Purchase Rights represented by this Warrant, and
the Company and its transfer agent, if any, are hereby irrevocably authorized
and directed at all times until the expiration of the Purchase Rights to reserve
such number of authorized and unissued shares as shall be requisite for such
purpose. The Company will supply its transfer agent with duly executed stock
certificates for such purpose. The Company will furnish to its transfer agent a
copy of all notices of adjustments, and certificates related thereto,
transmitted pursuant to this Warrant.
Section 2. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES.
To prevent dilution of the Purchase Rights, the Initial Exercise Price of any
Purchase Rights, or the Initial Exercise Price as adjusted pursuant to this
Section 2, shall be subject to adjustment from time to time as provided in this
Section 2 (the Initial Exercise Price or the Initial Exercise Price as last
3
adjusted pursuant to the terms of this Section 2, as the case may be, is called
the "Exercise Price"), and the number of Shares of Common Stock obtainable upon
exercise of the Purchase Rights shall be subject to adjustment from time to time
as provided in this Section 2.
2.1 SUBDIVISION OR COMBINATION OF COMMON STOCK. If the Company at any
time subdivides (by any stock split, stock dividend or otherwise) one or more
classes of its outstanding shares of Common Stock into a greater number of
shares, the Exercise Price of all Purchase Rights in effect immediately prior to
such subdivision will be proportionately reduced, and the number of Shares of
Common Stock obtainable upon exercise of such Purchase Rights will be
proportionately increased. If the Company at any time combines (by reverse stock
split or otherwise) one or more classes of its outstanding shares of Common
Stock into a smaller number of shares, the Exercise Price of all Purchase Rights
in effect immediately prior to such combination will be proportionately
increased, and the number of Shares of Common Stock obtainable upon exercise of
such Purchase Rights will be proportionately decreased.
2.2 REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE.
Any capital reorganization, reclassification, amalgamation, consolidation,
merger or sale of all or substantially all of the Company's assets to another
Person which is effected in such a way that holders of Common Stock are entitled
to receive (either directly or upon subsequent liquidation) stock, securities or
assets with respect to or in exchange for Common Stock, is referred to herein as
an "Organic Change." Prior to the consummation of any Organic Change, the
Company will make appropriate provision (in form and substance satisfactory to
the registered holders of 2000 Warrants representing a majority of the Common
Stock purchasable upon exercise of the 2000 Warrants (the "2000 Majority
Registered Holders") to insure that each of such registered holders will
thereafter have the right to acquire and receive in lieu of or addition to the
Shares of Common Stock immediately theretofore acquirable and receivable upon
the exercise of the Purchase Rights of all of the 2000 Warrants such shares of
stock, securities or assets as may be issued or payable with respect to or in
exchange for the number of Shares of Common Stock immediately theretofore
acquirable and receivable upon exercise of the Purchase Rights of all of the
2000 Warrants had such Organic Change not taken place. In any such case, the
Company will make appropriate provision (in form and substance satisfactory to
the 2000 Majority Registered Holders) with respect to the Registered Holder's
rights and interests to insure that the provisions of this Section 2 will
thereafter be applicable to this Warrant. The Company will not effect any such
amalgamation, consolidation, merger or sale unless, prior to the consummation
thereof, the successor corporation (if other than the Company) resulting from
such amalgamation, consolidation or merger or the corporation purchasing such
assets assumes by written instrument (in form and substance satisfactory to the
2000 Majority Registered Holders) the obligation to deliver to each such holder
such shares of stock, securities or assets as, in accordance with the foregoing
provisions, such holder may be entitled to acquire.
2.3 CERTAIN DISTRIBUTIONS. If the Company shall distribute to all
holders of its shares of Common Stock notes or other evidence of indebtedness or
assets (other than cash dividends not in excess of the Company's earnings for
the immediately preceding fiscal year) or Options or Convertible Securities,
then in each case the number of Shares of Common Stock thereafter obtainable
upon the exercise of the Purchase Rights shall be determined by multiplying the
number of Shares theretofore obtainable upon such exercise by a fraction, of
4
which the numerator shall be the then current Market Price per share of Common
Stock on the date of such distribution, and of which the denominator shall be
the then current Market Price per share of Common Stock, less the then current
Market Price of the portion of the assets, notes or other evidence of
indebtedness so distributed or of such Options or Convertible Securities
applicable to one share of Common Stock. Such adjustment shall be made whenever
any such distribution is made, and shall become effective on the date of
distribution retroactive to the record date for the determination of
shareholders entitled to receive such distribution. In the event of a
distribution by the Company to all holders of its shares of Common Stock of
stock of a Subsidiary or securities convertible into or exercisable for such
stock, then in lieu of an adjustment in number of Shares of Common Stock
acquirable upon the exercise of the Purchase Rights, the Registered Holder of
this Warrant, upon the exercise thereof at any time after such distribution,
shall be entitled to receive from the Company, such Registered Subsidiary, or
both, as the Company shall determine, the stock or other securities to which
such Registered Holder would have been entitled if such Registered Holder had
exercised the Purchase Rights immediately prior thereto.
2.4 CERTAIN EVENTS.
(a) ADJUSTMENT. If any event occurs of the type contemplated
by the provisions of this Section 2 but not expressly provided
for by such provisions, then the Company's board of directors
will make an appropriate adjustment in the Exercise Price and
the number of Shares of Common Stock obtainable upon exercise
of the Purchase Rights so as to protect the rights of the
Registered Holders of the Warrants.
(b) NO IMPAIRMENT. The Company will not, by amendment of its
charter or bylaws or through any Organic Change or other
reorganization, amalgamation, transfer of assets,
reclassification, merger, dissolution, issue or sale of
securities, or otherwise, avoid or seek to avoid the
observance or performance of any of the terms to be observed
or performed by the Company under this Warrant but will at all
times in good faith assist in the carrying out of all the
provisions of this Warrant and in the taking of all such
actions as may be necessary or appropriate in order to protect
the rights of the Registered Holders of this Warrant against
impairment.
2.5 NOTICES.
(c) Immediately upon any adjustment of the Exercise Price or
number of Shares subject to this Warrant, the Company will
give written notice thereof to each Registered Holder.
(d) The Company will give written notice to the Registered
Holder at least fifteen (15) business days prior to the date
on which the Company closes its books or takes a record with
respect to any dividend or distribution upon the Common Stock,
with respect to any pro rata subscription offer to holders of
Common Stock, or for determining rights to vote with respect
to any Organic Change, dissolution or liquidation.
5
(e) The Company also will give written notice to the
Registered Holders at least fifteen (15) business days prior
to the date on which any Organic Change, dissolution or
liquidation will take place.
Section 3. DEFINITIONS.
For purposes of this Warrant, the following terms have the meanings set forth
below:
3.1 "COMMON STOCK" means, collectively, the Company's common stock, no
par value, and any capital stock of any class of the Company hereafter
authorized which is not limited to a fixed sum or percentage of par or stated
value in respect to the rights of the holders thereof to participate in
dividends or in the distribution of assets upon any liquidation, dissolution or
winding up of the Company.
3.2 "MARKET PRICE" of a share of Common Stock as of a particular date
(the "Determination Date") shall mean:
(a) If the Company's Common Stock is traded on an exchange or is quoted
on The Nasdaq National Market, the average closing or last sale prices,
respectively, reported for the ten (10) trading days immediately
preceding the Determination Date;
(b) If the Company's Common Stock is not traded on an exchange or on
The Nasdaq National Market but is traded in the over-the-counter
market, the average of the closing bid and asked prices reported for
the ten (10) trading days immediately preceding the Determination Date;
or
(c) If the Common Stock is not traded publicly, the value of the Common
Stock determined by the Company and the Registered Holder(s) of this
Warrant; provided, that if such parties are unable to reach agreement
within five (5) trading days after the Determination Date, such Market
Price shall be determined by an appraiser jointly selected by the
Company and the 2000 Majority Registered Holders.
3.3 "PERSON" means an individual, partnership, joint venture,
corporation, association, joint stock company, trust, unincorporated
organization and government entity or any department, agency or political
subdivision thereof.
3.4 "SUBSIDIARY" means a corporation, partnership, joint venture,
association, joint stock company, trust, or unincorporated organization as to
which the Company has "control" (as the term "control" is defined in the
Securities Exchange Act of 1934).
6
Section 4. REDEMPTION RIGHTS OF THE COMPANY.
4.1 This Warrant may be redeemed by the Company at any time on or
before __________, 2005 at a redemption price of $0.01 per Share, upon giving
notice of such redemption as set forth below, provided that (i) the closing sale
price of the Common Stock exceeds $4.00 per share (subject to adjustment as
provided in Section 2) for any thirty (30) consecutive trading days prior to
such notice and (ii) a registration statement covering the resale of the Shares
as provided in Article 8 of that certain Stock Purchase and Investment Agreement
by and between the Company and, among others, the Initial Registered Holder,
dated _______, 2000 has been filed by the Company with the United States
Securities and Exchange Commission and is effective as of the date of such
notice.
4.2 Notice of redemption shall be mailed not less than thirty (30)
calendar days prior to the date fixed for redemption to the Registered Holder(s)
of this Warrant at his or their last registered address(es). Each such notice
shall specify the date set for redemption, the place of redemption and the
redemption price of $0.01 per Share at which each Warrant is to be redeemed, and
shall state that payment of redemption price of the Warrant will be made on
surrender of the Warrant at such place of redemption, and that if not exercised
by the close of business on the date fixed for redemption, the Purchase Rights
shall expire unless extended by the Company.
4.3 If notice of redemption is given in compliance with this Section 4,
the Purchase Rights of this Warrant identified for redemption shall expire at
the close of business on such date of redemption unless extended by the Company.
Upon presentation and surrender of the Warrant at such place of payment
specified in the notice, the Warrant shall be redeemed at the redemption price
of $0.01 per Share.
Section 5. NO VOTING RIGHTS.
This Warrant does and will not entitle the Registered Holder(s) hereof to any
voting rights or other rights as a shareholder of the Company with respect to
the Shares unless and to the extent the Warrant is exercised.
Section 6. CONDITIONS TO EXERCISE OR TRANSFER OF WARRANT.
6.1 TRANSFER OF WARRANT. Subject to the conditions referred to in the
legend endorsed hereon and as hereinafter set forth, this Warrant and all rights
hereunder are transferable, in whole or in part, without charge to the
Registered Holder, upon surrender of this Warrant with a properly executed
Assignment (in the form of EXHIBIT II hereto) at the principal office of the
Company.
6.2 CONDITIONS TO TRANSFER. The Registered Holder, by acceptance
hereof, agrees to give written notice to the Company before transferring this
Warrant or any part hereof, or before transferring any Common Stock issued upon
the exercise hereof, of the Registered Holder's intention to do so, describing
briefly the manner of any proposed transfer. Promptly upon receiving such
written notice, or promptly upon receiving from the Registered Holder the items
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described in Sections 1.2(a)(i) through (iv) hereof, the Company shall present
copies thereof to the Company's counsel. If, in the opinion of such counsel, the
proposed exercise or transfer may be effected without registration or
qualification of the Warrant or the Shares of Common Stock purchasable upon the
exercise hereof, under any federal, state, or territorial securities laws, the
Company, as promptly as practicable, shall notify the Registered Holder of such
opinion. The Registered Holder then shall be entitled to exercise or transfer
this Warrant or any part hereof or to dispose of Shares of Common Stock received
upon the previous exercise of this Warrant in accordance with the terms of the
notice delivered by the Registered Holder to the Company; provided, however,
that an appropriate legend may be endorsed on the Warrant or the certificates
evidencing the Shares of Common Stock purchasable upon exercise of the Warrant,
which legend sets forth the restrictions upon the transfer thereof necessary or
advisable in the opinion of counsel satisfactory to the Company to prevent
further transfers which would be in violation of Section 5 of the Securities Act
of 1933, as amended, and applicable state or territorial securities laws. If, in
the opinion of the counsel referred to in this Section, the proposed exercise or
transfer or disposition of the Warrant or Shares described in the written notice
given pursuant to this Section may not be effected without registration or
qualification of this Warrant or the Shares of Common Stock issued upon the
exercise hereof, the Company shall promptly give written notice thereof to the
Registered Holder, and the Registered Holder will limit and conduct his
activities in respect to such as, in the opinion of such counsel, are permitted
by law.
Section 7. RIGHT TO CONVERT.
7.1 CONVERSION RIGHT. The Registered Holder shall have the right to
require the Company to convert this Warrant (the "Conversion Right"), at any
time prior to its expiration, into shares of Common Stock as provided for in
this Section. Upon exercise of the Conversion Right, the Company shall deliver
to the Registered Holder (without payment by the Registered Holder of any
exercise price) that number of shares of Common Stock equal to the quotient
obtained by dividing (i) the value of the Warrant at the time the Conversion
Right is exercised (determined by subtracting the aggregate exercise price for
the Shares in effect immediately prior to the exercise of the Conversion Right
from the aggregate Market Price for the Shares immediately prior to the exercise
of the Conversion Right) by (ii) the Market Price of one share of Common Stock
immediately prior to the exercise of the Conversion Right.
7.2 EXERCISE OF CONVERSION RIGHT. The Conversion Right may be exercised
by the Registered Holder, at any time or from time to time, prior to its
expiration, on any business day, by delivering a written notice (the "Conversion
Notice"), the form of which is attached hereto as EXHIBIT III, to the Company at
the offices of the Company exercising the Conversion Right and specifying (i)
the total number of Shares the Registered Holder will purchase pursuant to such
conversion, and (ii) a place, and a date not less than five (5) nor more than
twenty (20) trading days from the date of the Conversion Notice, for the closing
of such purchase.
7.3 CLOSING OF CONVERSION RIGHT. At any closing under Section 7.2
hereof, (i) the Registered Holder will surrender the Warrant and deliver the
items described in Sections 1.2(a)(iii) (if applicable) and 1.2(a)(v), (ii) the
Company will deliver to the Registered Holder a certificate or certificates for
the number of Shares of Common Stock issuable upon such conversion, together
with cash, in lieu of any fraction of a share, and (iii) the Company will
deliver to the Registered Holder a new Warrant representing the number of
Shares, if any, with respect to which the Warrant shall not have been exercised.
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Section 8. WARRANT EXCHANGEABLE FOR DIFFERENT DENOMINATIONS.
This Warrant is exchangeable, upon the surrender hereof by the Registered Holder
at the principal office of the Company, for new Warrants of like tenor
representing in the aggregate the Purchase Rights hereunder, and each of such
new Warrants will represent such portion of such Purchase Rights as is
designated by the Registered Holder at the time of such surrender. The date the
Company initially issues this Warrant will be deemed to be the "Date of
Issuance" hereof regardless of the number of times new certificates representing
the unexpired and unexercised Purchase Rights formerly represented by this
Warrant shall be issued. All Warrants representing portions of the Purchase
Rights hereunder are referred to herein as the "Warrants."
Section 9. REPLACEMENT.
Upon receipt of evidence reasonably satisfactory to the Company of the ownership
and the loss, theft, destruction or mutilation of any certificate evidencing
this Warrant and, in the case of any such loss, theft or destruction, upon
receipt of indemnity reasonably satisfactory to the Company or, in the case of
any such mutilation, upon surrender of such certificate, the Company will (at
its expense) execute and deliver in lieu of such certificate a new certificate
of like kind representing the same rights represented by such lost, stolen,
destroyed or mutilated certificate and dated the date of such lost, stolen,
destroyed or mutilated certificate.
Section 10. NOTICES.
Except as otherwise expressly provided herein, all notices given pursuant to or
in connection with this Warrant will be in writing and will be delivered
personally or by telecopy or by registered or certified mail, return receipt
requested, postage prepaid, and will be deemed to have been given when so
delivered or confirmed as received by telecopy or five (5) days after the date
on which so mailed (i) to the Company, at its principal executive offices, (ii)
to the Registered Holder of this Warrant at such Registered Holder's address as
it appears in the records of the Company (unless otherwise indicated by any such
Registered Holder), and (iii) to such other address as the Company or the
Registered Holder shall advise the other pursuant to the provisions of this
Section.
Section 11. AMENDMENT AND WAIVER.
Except as otherwise provided herein, the provisions of the 2000 Warrants,
including this Warrant, may be amended, and the Company may take any action
herein prohibited, or omit to perform any act herein required to be performed by
it, only if the Company has obtained the written consent of the 2000 Majority
Registered Holders.
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Section 12. DESCRIPTIVE HEADINGS; GOVERNING LAW; DOLLAR AMOUNTS.
The descriptive headings of the several parts and paragraphs of this Warrant are
inserted for convenience only and do not constitute a part of this Warrant. The
construction, validity and interpretation of this Warrant will be governed by
the internal law, and not the conflicts law, of the State of Delaware. All
dollar amounts used herein are in United States dollars.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed and
attested by its duly authorized officers under its corporate seal and to be
dated the Date of Issuance hereof.
INTERACTIVE NETWORK, INC.
Attest: By:
-----------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇
Its: President and Chief Executive
Officer
------------------------------
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EXHIBIT I
---------
EXERCISE AGREEMENT
------------------
To:
Dated:
The undersigned, pursuant to the provisions set forth in the attached Warrant
(Certificate No. _____), hereby agrees to subscribe for and purchase _______
shares of the Common Stock covered by such Warrant and makes payment in full at
the price per share provided by such Warrant.
-------------------------------------
Signature
-------------------------------------
Name Typed or Printed
-------------------------------------
Address
-------------------------------------
EXHIBIT II
----------
ASSIGNMENT
----------
FOR VALUE RECEIVED, ______________________________ sells, assigns and transfers
all of the rights under the attached Warrant (Certificate No. _____) with
respect to the number of shares of the Common Stock set forth below, unto:
NAME OF ASSIGNEE ADDRESS NO. OF
---------------- ------- SHARES
------
Dated:
---------------------------------------
Signature
---------------------------------------
Name Typed or Printed
Witness:
-------------------------------
EXHIBIT III
-----------
CONVERSION NOTICE
-----------------
To: Interactive Network, Inc.
Dated: ___________________, 2000
The undersigned, pursuant to Section 7 of the attached Warrant Certificate
(Certificate No.____), hereby agrees to subscribe for and purchase _________
shares of Common Stock covered by such Warrant by converting other shares
covered by such Warrant according to the following formula:
multiplied by
---------------------------- -------------------------------------
Per Share Market Price number of shares subject to Warrant
MINUS
multiplied by
---------------------------- -------------------------------------
Exercise price per share number of shares subject to Warrant
DIVIDED BY
Per share Market Price
EQUALS:
----------------------------
Please indicate dates and price for each day used to determine Market Price:
Dates: _____ _____ _____ _____ _____ _____ _____ _____ _____ _____
Last
Sales Price:_____ _____ _____ _____ _____ _____ _____ _____ _____ _____
--------------------------------------
Signature
--------------------------------------
Name Typed or Printed
--------------------------------------
Address
--------------------------------------
--------------------------------------
Telephone number (including area code)
EXHIBIT A
common Stock purchase warrant