EXHIBIT 10.28
SECURITIES PURCHASE AGREEMENT
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SECURITIES PURCHASE AGREEMENT (this "AGREEMENT"), dated as of January
25, 1999, between Interactive Magic, Inc., a corporation organized under the
laws of the State of North Carolina (the "COMPANY"), with headquarters located
at 215 Southport Drive, Suite 1000, Morrisville, NC 27560, and the purchaser
(the "PURCHASER") set forth on the execution page hereof (the "EXECUTION PAGE").
WHEREAS:
A. The Company and the Purchaser are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by the provisions of Regulation D ("REGULATION D"), as promulgated by the United
States Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "SECURITIES ACT");
B. The Purchaser desires to purchase from the Company, upon the terms
and conditions stated in this Agreement, a convertible note in the aggregate
principal amount of $4,000,000, in the form attached hereto as Exhibit A (the
"NOTE"), (i) convertible into shares of the Company's common stock, par value
$.10 per share (the "COMMON STOCK") and (ii) in certain circumstances, entitling
the holder to warrants (the "WARRANTS") to acquire a number of shares of Common
Stock determined at the time of such conversion. The shares of Common Stock
issuable upon conversion of or otherwise pursuant to the Note are referred to
herein as the "CONVERSION SHARES" and the shares of Common Stock issuable upon
exercise of or otherwise pursuant to the Warrants are referred to herein as the
"WARRANT SHARES". The Note, the Warrants, the Conversion Shares and the Warrant
Shares are collectively referred to herein as the "SECURITIES."
C. Contemporaneous with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement,
in the form attached hereto as Exhibit B (the "REGISTRATION RIGHTS AGREEMENT"),
pursuant to which the Company has agreed to provide certain registration rights
under the Securities Act and the rules and regulations promulgated thereunder,
and applicable state securities laws;
NOW, THEREFORE, the Company and the Purchaser hereby agree as follows:
1. PURCHASE AND SALE OF SECURITIES
a. Purchase of Note. On the Closing Date (as defined below), subject to
the satisfaction (or waiver) of the conditions set forth in Section 6 and
Section 7 below, the Company shall issue and sell to the Purchaser, and the
Purchaser agrees to purchase from the Company, the Note for an aggregate
purchase price (the "PURCHASE PRICE") equal to $4,000,000.
b. Form of Payment. On the Closing Date, the Purchaser shall pay the
aggregate Purchase Price hereunder by wire transfer to the Company, in
accordance with the Company's written wiring instructions, against delivery of
the duly executed Note and the Company shall deliver the Note against delivery
of the Purchase Price.
c. Closing Date. Subject to the satisfaction (or waiver) of the
conditions thereto set forth in Section 6 and Section 7 below, the date and time
of the issuance and sale of the Note pursuant to this Agreement (the "CLOSING")
shall be 12:00 noon Eastern Standard Time on January 26, 1999, subject to a two
business day grace period at either party's option, but in no event later than
January 28, 1999, or such other time as may be mutually agreed upon by the
Company and the Purchaser (the "CLOSING DATE"). The Closing shall occur at the
offices of Klehr, Harrison, Harvey, Branzburg & Ellers LLP, 1401 Walnut Street,
Philadelphia, Pennsylvania 19102.
2. PURCHASER'S REPRESENTATIONS AND WARRANTIES
The Purchaser represents and warrants to the Company as follows:
a. Investment Purpose. The Purchaser is purchasing the Securities for
the Purchaser's own account and not with a present view towards the public sale
or distribution thereof; provided, however, by making the representations
herein, the Purchaser does not agree to hold any of the Securities for any
minimum or other specific term and reserves the right to dispose of the
Securities at any time in accordance with or pursuant to a registration
statement or an exemption under the Securities Act.
b. Accredited Investor Status. The Purchaser is an "ACCREDITED
INVESTOR" as that term is defined in Rule 501(a) of Regulation D.
c. Reliance on Exemptions. The Purchaser understands that the
Securities are being offered and sold to the Purchaser in reliance upon specific
exemptions from the registration requirements of United States federal and state
securities laws and that the Company is relying upon the truth and accuracy of,
and the Purchaser's compliance with, the representations, warranties,
agreements, acknowledgments and understandings of the Purchaser set forth herein
in order to determine the availability of such exemptions and the eligibility of
the Purchaser to acquire the Securities.
d. Information. The Purchaser and its counsel have been furnished all
materials relating to the business, finances and operations of the Company and
materials relating to the offer and sale of the Securities which have been
specifically requested by the Purchaser or its counsel. The Purchaser and its
counsel have been afforded the opportunity to ask questions of the Company and
have received what the Purchaser believes to be satisfactory answers to any such
inquiries. Neither such inquiries nor any other due diligence investigation
conducted by the Purchaser or its counsel or any of its representatives shall
modify, amend or affect the Purchaser's right to rely on the Company's
representations and warranties contained in Section 3 below. The Purchaser
understands that Purchaser's investment in the Securities involves a significant
degree of risk.
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e. Governmental Review. The Purchaser understands that no United States
federal or state agency or any other government or governmental agency has
passed upon or made any recommendation or endorsement of the Securities.
f. Transfer or Resale. The Purchaser understands that (i) except as
provided in the Registration Rights Agreement, the sale or resale of the
Securities has not been and is not being registered under the Securities Act or
any applicable state securities laws, and the Securities may not be transferred
unless (a) the Securities are sold pursuant to an effective registration
statement under the Securities Act, (b) the Purchaser shall have delivered to
the Company an opinion of counsel (which opinion shall be in form, substance and
scope customary for opinions of counsel in comparable transactions and shall be
given by counsel reasonably acceptable to the Company) to the effect that the
Securities to be sold or transferred may be sold or transferred pursuant to an
exemption from such registration, (c) the Securities are sold or transferred to
an "affiliate" (as defined in Rule 144 promulgated under the Securities Act (or
a successor rule) ("RULE 144")) of the Purchaser who agrees to sell or otherwise
transfer the Securities only in accordance with this Section 2(f) and who is an
Accredited Investor or (d) the Securities are sold pursuant to Rule 144; (ii)
any sale of such Securities made in reliance on Rule 144 may be made only in
accordance with the terms of such Rule and further, if such Rule is not
applicable, any resale of such Securities under circumstances in which the
seller (or the person through whom the sale is made) may be deemed to be an
underwriter (as that term is defined in the Securities Act) may require
compliance with some other exemption under the Securities Act or the rules and
regulations of the SEC thereunder; and (iii) neither the Company nor any other
person is under any obligation to register such Securities under the Securities
Act or any state securities laws or to comply with the terms and conditions of
any exemption thereunder (in each case, other than pursuant to the Registration
Rights Agreement). Notwithstanding the foregoing or anything else contained
herein to the contrary, the Securities may be pledged as collateral in
connection with a bona fide margin account or other lending arrangement;
provided that any transfer by the pledgee of such Securities must be in
accordance with Rule 144.
g. Legends. The Purchaser understands that the Note and the Warrants
and, until such time as the Conversion Shares and the Warrant Shares have been
registered under the Securities Act as contemplated by the Registration Rights
Agreement or otherwise may be sold pursuant to Rule 144(k) (or a successor
rule), the Conversion Shares and the Warrant Shares shall bear a restrictive
legend in substantially the following form (and a stop-transfer order may be
placed against transfer of the certificates for such Securities):
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended. The
securities may not be sold, transferred or assigned in the
absence of an effective registration statement for the
securities under such Act, or an opinion of counsel, in form,
substance and scope customary for opinions of counsel in
comparable transactions, that registration is not required
under such Act or unless sold pursuant to Rule 144 under such
Act."
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The legend set forth above shall be removed and the Company
shall issue a certificate without such legend to the holder of any Security upon
which it is stamped, if, unless otherwise required by applicable state
securities laws, (a) such Security is registered for sale under an effective
registration statement filed under the Securities Act or otherwise may be sold
pursuant to Rule 144(k) (or a successor rule), or (b) such holder provides the
Company with an opinion of counsel, in form, substance and scope customary for
opinions of counsel in comparable transactions and given by counsel reasonably
acceptable to the Company, to the effect that a public sale or transfer of such
Security may be made without registration under the Securities Act and such sale
or transfer is effected or (c) such holder provides the Company with reasonable
assurances that such Security can be sold pursuant to Rule 144 and such sale is
effected. The Purchaser agrees to sell all Securities, including those
represented by a certificate(s) from which the legend has been removed, in
compliance with applicable prospectus delivery requirements, if any.
h. Authorization; Enforcement. This Agreement has been duly authorized,
executed and delivered on behalf of the Purchaser and is a valid and binding
agreement of the Purchaser, enforceable against the Purchaser in accordance with
its terms. The Registration Rights Agreement has been duly authorized and, when
executed and delivered on behalf of the Purchaser, will be a valid and binding
agreement of the Purchaser, enforceable against the Purchaser in accordance with
its terms.
i. Residency. The Purchaser is a resident of the jurisdiction set forth
under the Purchaser's name on the Execution Page hereto executed by the
Purchaser.
j. Transactions in the Common Stock. Purchaser has not sold (including
any short sale), offered to sell, granted any option or purchased any contract
to sell, or granted any option or purchased any contract to buy, any Common
Stock during the period commencing 20 trading days prior to the Closing Date.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to the Purchaser as follows:
a. Organization and Qualification. The Company and each of its
Subsidiaries (as defined below) is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction in which it is
incorporated, and has the requisite corporate power to own, lease and operate
its properties and to carry on its business as and where now owned, leased,
used, operated and conducted. Schedule 3(a) sets forth a list of all of the
Subsidiaries of the Company and the jurisdiction in which each is incorporated.
The Company and each of its Subsidiaries is duly qualified as a foreign
corporation to do business and is in good standing in every jurisdiction in
which its ownership or use of property or the nature of the business conducted
by it makes such qualification necessary and where the failure so to qualify
would have a Material Adverse Effect. "MATERIAL ADVERSE EFFECT" means any
material adverse effect on (i) the Securities, (ii) the ability of the Company
to perform its obligations hereunder or under the Note or the Registration
Rights Agreement or (iii) the business, operations, properties, prospects or
financial condition of the
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Company and its Subsidiaries, taken as a whole. "SUBSIDIARY" shall have the
meaning set forth in Regulation S-X promulgated by the SEC.
b. Authorization; Enforcement. (i) The Company has the requisite
corporate power and authority to enter into and perform its obligations under
this Agreement, the Note, the Warrants and the Registration Rights Agreement, to
issue and sell the Note in accordance with the terms hereof, to issue the
Conversion Shares upon conversion of or otherwise pursuant to the Note in
accordance with the terms thereof, to issue the Warrants in accordance with the
terms of the Note and to issue the Warrant Shares in accordance with the terms
of the Warrants; (ii) the execution, delivery and performance of this Agreement,
the Note, the Warrants and the Registration Rights Agreement by the Company and
the consummation by it of the transactions contemplated hereby and thereby
(including, without limitation, the issuance of the Note and the Warrants and
the issuance and reservation for issuance of the Conversion Shares and the
Warrant Shares, subject to the terms and conditions set forth in the Note) have
been duly authorized by the Company's Board of Directors and no further consent
or authorization of the Company, its Board of Directors or its stockholders is
required, except as contemplated by Article II.A.2 of the Note and Section
7(g)(ii) of the Warrants; (iii) this Agreement has been duly executed and
delivered by the Company; and (iv) this Agreement constitutes, and upon
execution and delivery by the Company of the Registration Rights Agreement, the
Note and the Warrants, such agreements will constitute, valid and binding
obligations of the Company enforceable against the Company in accordance with
their terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to creditors' rights generally and the
application of equitable principles in any action, legal or equitable, and
except as rights to indemnity or contribution may be limited by applicable law.
c. Capitalization. The capitalization of the Company as of the date
hereof, including the authorized capital stock, the number of shares issued and
outstanding, the number of shares issuable and reserved for issuance pursuant to
the Company's stock option plans, the number of shares issuable and reserved for
issuance pursuant to securities (other than the Note and the Warrants)
exercisable for, or convertible into or exchangeable for any shares of capital
stock and the number of shares to be reserved for issuance upon conversion of or
otherwise pursuant to the Note and upon exercise of or otherwise pursuant to the
Warrants is set forth on Schedule 3(c). All of such outstanding shares of
capital stock have been, or upon issuance will be, validly issued, fully paid
and nonassessable. No shares of the authorized and unissued capital stock of the
Company (including the Conversion Shares and the Warrant Shares) are subject to
preemptive rights or any other similar rights of the stockholders of the Company
or any liens or encumbrances. Except for the Securities and as disclosed in
Schedule 3(c), as of the date of this Agreement, (i) there are no outstanding
options, warrants, scrip, rights to subscribe for, puts, calls, rights of first
refusal, agreements, understandings, claims or other commitments or rights of
any character whatsoever relating to, or securities or rights convertible into
or exercisable or exchangeable for, any shares of capital stock of the Company
or any of its Subsidiaries, or arrangements by which the Company or any of its
Subsidiaries is or may become bound to issue additional shares of capital stock
of the Company or any of its Subsidiaries, (ii) there are no agreements or
arrangements under which the Company or any of its Subsidiaries is obligated to
register the sale of any of its or their securities under the Securities Act
(except the Registration Rights Agreement) and (iii) there are no anti-
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dilution or price adjustment provisions contained in any security issued by the
Company (or in any agreement providing rights to security holders). Except as
set forth on Schedule 3(c), there are no securities or instruments containing
antidilution or similar provisions that will be triggered by the issuance of the
Securities in accordance with the terms of this Agreement, the Note or the
Warrants. The Company has furnished to the Purchaser true and correct copies of
the Company's Certificate of Incorporation as in effect on the date hereof
("CERTIFICATE OF INCORPORATION"), the Company's Bylaws as in effect on the date
hereof (the "BY-LAWS"), and all other instruments and agreements to which the
Company is a party governing securities convertible into or exercisable or
exchangeable for capital stock of the Company other than (i) agreements under
the Company's option and stock plans for its directors, officers and employees
in accordance with such plans, (ii) the Jamco Warrant (defined below), and (iii)
warrants the Company has agreed to issue to investment banking firms exercisable
for up to 200,000 shares of Common Stock at an exercise price per share of
Common Stock equal to or greater than the closing sale price of the Common Stock
on the trading day immediately preceding the date such warrants are issued.
d. Issuance of Shares. The Conversion Shares and Warrant Shares are
duly authorized and reserved for issuance and, (i) upon conversion of the Note
in accordance with the terms thereof and (ii) exercise of the Warrants in
accordance with the terms thereof and the terms of the Note, will be validly
issued, fully paid and non-assessable, and free from all taxes (other than taxes
payable by the Company), liens, claims and encumbrances (other than such as may
arise from obligations or agreements of the Purchaser) and will not be subject
to preemptive rights or other similar rights of stockholders of the Company and
will not impose personal liability upon the holder thereof.
e. No Conflicts. The execution, delivery and performance of this
Agreement, the Registration Rights Agreement, the Note and the Warrants by the
Company, and the consummation by the Company of the transactions contemplated
hereby and thereby (including, without limitation, the issuance and reservation
for issuance, as applicable, of the Note, the Warrants and the Conversion Shares
and the Warrant Shares) will not (i) conflict with or result in a violation of
any provision of the Certificate of Incorporation or By-laws or (ii) conflict
with, or result in a breach of any provision of, or constitute a default (or an
event which with notice or lapse of time or both could become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture, patent, patent license or instrument
to which the Company or any of its Subsidiaries is a party, or (iii) result in a
violation of any law, rule, regulation, order, judgment or decree (including
U.S. federal and state securities laws and regulations and regulations of any
self-regulatory organizations to which the Company or its securities are
subject) applicable to the Company or any of its Subsidiaries or by which any
property or asset of the Company or any of its Subsidiaries is bound or affected
(except, with respect to clause (ii), for such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations as would
not, individually or in the aggregate, have a Material Adverse Effect). Neither
the Company nor any of its Subsidiaries is in violation of its Certificate of
Incorporation, By-laws or other organizational documents and neither the Company
nor any of its Subsidiaries is in default (and no event has occurred which, with
notice or lapse of time or both, could put the Company or any of its
Subsidiaries in default) under, nor has there occurred any event giving others
(with notice or lapse of time or both) any rights of termination, amendment,
acceleration or cancellation of, any
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agreement, indenture or instrument to which the Company or any of its
Subsidiaries is a party or by which any property or assets of the Company or any
of its Subsidiaries is bound or affected, except for actual or possible
violations, defaults or rights as would not, individually or in the aggregate,
have a Material Adverse Effect. The businesses of the Company and its
Subsidiaries are not being conducted, and shall not be conducted so long as the
Purchaser owns any of the Securities, in violation of any law, ordinance or
regulation of any governmental entity, except for actual or possible violations,
if any, the sanctions for which either singly or in the aggregate would not have
a Material Adverse Effect. Subject to the accuracy of the representations and
warranties of the Purchaser set forth herein, except as specifically
contemplated by this Agreement and the Note and as required under the Securities
Act and any applicable state securities laws, the Company is not required to
obtain any consent, approval, authorization or order of, or make any filing or
registration with, any court or governmental agency or any regulatory or
self-regulatory agency, the NASDAQ National Market ("NASDAQ") or any third party
in order for it to execute, deliver or perform any of its obligations under this
Agreement, the Registration Rights Agreement, the Note or the Warrants, in each
case in accordance with the terms hereof or thereof, other than such as will
have been made or obtained by the Closing. Except as disclosed in SCHEDULE 3(E),
all consents, authorizations, orders, filings and registrations which the
Company is required to obtain pursuant to the preceding sentence have been
obtained or effected on or prior to the date hereof. The Company and its
Subsidiaries are unaware of any facts or circumstances which might give rise to
any of the foregoing. The Company is not in violation of the maintenance
requirements of NASDAQ and does not reasonably anticipate that the Common Stock
will be delisted by NASDAQ for the foreseeable future.
f. SEC Documents, Financial Statements. Since July 27, 1998, the date
on which the Company completed its initial public offering (the "IPO DATE"), the
Company has timely filed all reports, schedules, forms, statements and other
documents required to be filed by it with the United States Securities and
Exchange Commission ("SEC") pursuant to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT") (all of the
foregoing filed prior to the date hereof and on or after the IPO Date and all
exhibits included therein and financial statements and schedules thereto and
documents incorporated by reference therein, being hereinafter referred to
herein as the "SEC DOCUMENTS"). The Company has delivered to the Purchaser true
and complete copies of the SEC Documents, except for the exhibits and schedules
thereto and the documents incorporated therein. As of their respective dates,
the SEC Documents complied in all material respects with the applicable
requirements of the Exchange Act or the Securities Act, as the case may be, and
the rules and regulations of the SEC promulgated thereunder applicable to the
SEC Documents, and none of the SEC Documents, at the time they were filed with
the SEC, contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. As of their respective dates, the financial statements of the
Company included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC applicable with respect thereto. Such financial
statements have been prepared in accordance with U.S. generally accepted
accounting principles, consistently applied, during the periods involved (except
(i) as may be otherwise indicated in such financial statements or the notes
thereto, or (ii) in the case of unaudited
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interim statements, to the extent they may not include footnotes or may be
condensed or summary statements) and fairly present in all material respects the
consolidated financial position of the Company and its consolidated Subsidiaries
as of the dates thereof and the consolidated results of their operations and
cash flows for the periods then ended (subject, in the case of unaudited
statements, to immaterial year-end audit adjustments). Except as set forth in
the financial statements of the Company included in the SEC Documents, the
Company has no liabilities, contingent or otherwise, other than (i) liabilities
incurred in the ordinary course of business subsequent to the date of such
financial statements, (ii) obligations under contracts and commitments incurred
in the ordinary course of business and not required under generally accepted
accounting principles to be reflected in such financial statements, (iii)
liabilities related to the proposed acquisition of MPG-Net, Inc. and (iv)
liabilities related to borrowings under lines of credit in existence on the date
of such financial statements (which liabilities and obligations referred to in
clauses (i) and (ii), individually or in the aggregate, are not material to the
financial condition or operating results of the Company).
g. Absence of Certain Changes. Since December 31, 1997, there has been
no material adverse change and no material adverse development in the assets,
liabilities, business, properties, operations, financial condition, results of
operations or prospects of the Company and its Subsidiaries, except as disclosed
in or as contemplated by the SEC Documents.
h. Absence of Litigation. Except as disclosed in the SEC Documents,
there is no action, suit, claim, proceeding, inquiry or investigation before or
by any court, public board, government agency, self-regulatory organization or
body pending or, to the knowledge of the Company or any of its Subsidiaries,
threatened against or affecting the Company, any of its Subsidiaries, or any of
their respective directors or officers in their capacities as such that could
have a Material Adverse Effect. There are no facts which, if known by a
potential claimant or governmental authority, could give rise to a claim or
proceeding which, if asserted or conducted with results unfavorable to the
Company or any of its Subsidiaries, could have a Material Adverse Effect.
i. Intellectual Property. Each of the Company and its Subsidiaries owns
or is licensed to use all patents, patent applications, trademarks, trademark
applications, trade names, service marks, copyrights, copyright applications,
licenses, permits, know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or procedures) and
other similar rights and proprietary knowledge (collectively, "INTELLECTUAL
PROPERTY") necessary for the conduct of its business as now being conducted and
as described in the Company's Prospectus dated July 21, 1998 included in the
Company's Registration Statement on Form SB-2, SEC File No. 333-53755. To the
knowledge of the Company, neither the Company nor any of its Subsidiaries
infringes or is in conflict with any right of any other person with respect to
any Intellectual Property which, individually or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would have a Material
Adverse Effect. Neither the Company nor any of its Subsidiaries has received
written notice of any pending conflict with or infringement upon such third
party Intellectual Property. Neither the Company nor any of its Subsidiaries has
entered into any consent, indemnification, forbearance to sue or settlement
agreements with respect to the validity of the Company's or its Subsidiaries'
ownership or right to use its Intellectual Property and,
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to the knowledge of the Company, there is no reasonable basis for any such claim
to be successful. The Intellectual Property is valid and enforceable and no
registration relating thereto has lapsed, expired or been abandoned or canceled
or is the subject of cancellation or other adversarial proceedings, and all
applications therefor are pending and in good standing. The Company and its
Subsidiaries have complied, in all material respects, with their respective
contractual obligations relating to the protection of the Intellectual Property
used pursuant to licenses. To the best knowledge of the Company, no person is
infringing on or violating the Intellectual Property owned or used by the
Company of its Subsidiaries. The Company and each of its Subsidiaries have taken
reasonable security measures to protect the secrecy, confidentiality and value
of their Intellectual Property.
j. No Materially Adverse Contracts, Etc. Except as disclosed in the SEC
Documents, neither the Company nor any of its Subsidiaries is subject to any
charter, corporate or other legal restriction, or any judgment, decree, order,
rule or regulation which, to the knowledge of the Company, has or could
reasonably be expected in the future to have a Material Adverse Effect. Neither
the Company nor any of its Subsidiaries is a party to any contract or agreement
which, to the knowledge of the Company, has or is expected to have a Material
Adverse Effect.
k. Year 2000 Compliance. All of the Company's computer software and
computer hardware, and other similar or related items of automated, computerized
or software systems that are used or relied on by the Company in the conduct of
its business or that were, or currently are being, sold or licensed by the
Company to customers (collectively, "INFORMATION TECHNOLOGY"), are Year 2000
Compliant, except to the extent any noncompliance would not have a Material
Adverse Effect. For purposes of this Agreement, the term "YEAR 2000 COMPLIANT"
means, with respect to the Company's Information Technology, that the
Information Technology is designed to be used prior to, during and after the
calendar Year 2000 A.D., and the Information Technology used during each such
time period will accurately receive, provide and process date and time data
(including, but not limited to, calculating, comparing and sequencing) from,
into and between the 20th and 21st centuries, including the years 1999 and 2000,
and leap-year calculations and will not malfunction, cease to function, or
provide invalid or incorrect results as a result of date or time data, to the
extent that other information technology, used in combination with the
Information Technology, properly exchanges date and time data with it.
l. Foreign Corrupt Practices. Neither the Company, nor any of its
Subsidiaries, nor any director, officer, agent, employee or other person acting
on behalf of the Company or any Subsidiary has, in the course of his actions
for, or on behalf of, the Company, used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; made any direct or indirect unlawful payment to any foreign
or domestic government official or employee from corporate funds; violated or is
in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977;
or made any bribe, rebate, payoff, influence payment, kickback or other unlawful
payment to any foreign or domestic government official or employee.
m. Disclosure. All information relating to or concerning the Company or
its Subsidiaries set forth in this Agreement or provided to the Purchaser
pursuant to Section 2(d) hereof or in the
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SEC Documents and otherwise in connection with the transactions contemplated
hereby is true and correct in all material respects and the Company has not
omitted to state any material fact necessary in order to make the statements
made herein or therein, in light of the circumstances under which they were
made, not misleading. No event or circumstance has occurred or exists with
respect to the Company or its Subsidiaries or their respective businesses,
properties, prospects, operations or financial conditions, which has not been
publicly disclosed but, under applicable law, rule or regulation, would be
required to be disclosed by the Company in a registration statement filed on the
date hereof by the Company under the Securities Act with respect to a primary
issuance of the Company's securities other than (i) the proposed acquisition by
the Company of MPG-Net, Inc., (ii) financial information relating to the
Company's fiscal year ended December 31, 1998, (iii) events or circumstances
contemplated by the SEC Documents and (iv) such events or circumstances that
have occurred or exist in the ordinary course of the Company's business.
n. Acknowledgment Regarding the Purchaser's Purchase of the Securities.
The Company acknowledges and agrees that the Purchaser is acting solely in the
capacity of an arm's- length purchaser with respect to this Agreement and the
transactions contemplated hereby. The Company further acknowledges that the
Purchaser is not acting as a financial advisor or fiduciary of the Company (or
in any similar capacity) with respect to this Agreement or the transactions
contemplated hereby and that any statement made by the Purchaser or any of its
representatives or agents in connection with this Agreement and the transactions
contemplated hereby is not advice or a recommendation and is merely incidental
to the Purchaser's purchase of Securities and, except for the representations
and warranties of the Purchaser set forth in Section 2 hereof, has not been
relied upon by the Company, its officers or directors in any way. The Company
further represents to the Purchaser that the Company's decision to enter into
this Agreement has been based solely on an independent evaluation by the Company
and its representatives.
o. Form SB-2 and S-1 Eligibility. The Company is currently eligible to
register the resale of its Common Stock on a registration statement on Form SB-2
or S-1 under the Securities Act. There exist no facts or circumstances known to
the Company that would prohibit the preparation and filing of a registration
statement on Form SB-2 or S-1 with respect to the Registrable Securities (as
defined in the Registration Rights Agreement) within the time periods referred
to therein.
p. No General Solicitation. Neither the Company nor any distributor
participating on the Company's behalf in the transactions contemplated hereby
(if any) nor any person acting for the Company, or any such distributor, has
conducted any "general solicitation," as such term is defined in Regulation D,
with respect to any of the Securities being offered hereby.
q. No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offerers to
buy any security under circumstances that would require registration of the
Securities being offered hereby under the Securities Act or cause this offering
of Securities to be integrated with any other offering of securities of the
Company (past, current or future) for purposes of any stockholder approval
provisions applicable to the Company or its securities.
-10-
r. Brokers. The Company has taken no action which would give rise to
any claim by any person for brokerage commissions, finder's fees or similar
payments by the Purchaser relating to this Agreement or the transactions
contemplated hereby, except for dealings with Jamco Holding, Inc. ("JAMCO"),
whose commissions and fees will be paid by the Company. The Company has agreed
to issue a warrant to Jamco (the "JAMCO WARRANT") exercisable for up to 200,000
shares of Common Stock in connection with this Agreement and the transactions
contemplated hereby and no other securities of the Company will be issued to
Jamco in connection with this Agreement and the transactions contemplated
hereby. The Jamco Warrant shall contain terms and conditions satisfactory to
Purchaser.
s. Acknowledgment of Dilution. The Company understands and acknowledges
the potentially dilutive effect to the Common Stock upon the issuance of the
Conversion Shares upon conversion of or otherwise pursuant to the Note and upon
issuance of the Warrant Shares upon exercise of or otherwise pursuant to the
Warrants. The Company has studied and fully understands the nature of the
Securities being sold hereunder. The Company acknowledges that its obligation to
issue Conversion Shares in accordance with the terms of the Note and to issue
the Warrant Shares in accordance with the terms of the Warrants is absolute and
unconditional, regardless of the dilution that such issuance may have on the
ownership interests of other stockholders. Taking the foregoing into account,
the Company's Board of Directors has determined in its good faith business
judgment that the issuance of the Note hereunder and the issuance of the
Warrants in accordance with the terms of the Note and the consummation of the
other transactions contemplated hereby and thereby are in the best interests of
the Company and its stockholders.
t. Tax Status. Except as set forth in the SEC Documents or on Schedule
3(t), the Company and each of its Subsidiaries has made or filed all federal,
state, foreign and local income and all other tax returns, reports and
declarations required by any jurisdiction to which it is subject (unless and
only to the extent that the Company and each of its Subsidiaries has set aside
on its books provisions reasonably adequate for the payment of all unpaid and
unreported taxes) and has paid all taxes and other governmental assessments and
charges that are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith
and has set aside on its books provisions reasonably adequate for the payment of
all taxes for periods subsequent to the periods to which such returns, reports
or declarations apply. There are no unpaid taxes in any material amount claimed
to be due by the taxing authority of any jurisdiction, and the officers of the
Company know of no basis for any such claim. The Company has not executed a
waiver with respect to any statute of limitations relating to the assessment or
collection of any federal, state or local tax. None of the Company's tax returns
has been or is being audited by any taxing authority.
u. Certain Transactions. Except as set forth in the SEC Documents, and
except for arm's length transactions pursuant to which the Company or any of its
Subsidiaries makes payments in the ordinary course of business upon terms no
less favorable than the Company or any of its Subsidiaries could obtain from
third parties and other than the grant of stock options disclosed on Schedule
3(c), none of the officers, directors, or employees of the Company is presently
a party to any transaction with the Company or any of its Subsidiaries (other
than for services as employees,
-11-
officers and directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental of real
or personal property to or from, or otherwise requiring payments to or from any
officer, director or such employee or, to the knowledge of the Company, any
corporation, partnership, trust or other entity in which any officer, director
or any such employee has a substantial interest or is an officer, director,
trustee or partner.
v. Title. The Company and its Subsidiaries have good and marketable
title in fee simple to all real property and good and marketable title to all
personal property owned by them which is material to the business of the Company
and its Subsidiaries, in each case free and clear of all liens, encumbrances and
defects except such as are described in Schedule 3(v) or such as do not
materially affect the value of such property and do not materially interfere
with the use made and proposed to be made of such property by the Company and
its Subsidiaries. Any real property and facilities held under lease by the
Company and its Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not
materially interfere with the use made and proposed to be made of such property
and buildings by the Company and its Subsidiaries.
w. Permits; Compliance. The Company and each of its Subsidiaries is in
possession of all franchises, grants, authorizations, licenses, permits,
easements, variances, exemptions, consents, certificates, approvals and orders
necessary to own, lease and operate its properties and to carry on its business
as it is now being conducted (collectively, the "COMPANY PERMITS"), and there is
no action pending or, to the knowledge of the Company, threatened regarding
suspension or cancellation of any of the Company Permits, except for such
Company Permits the absence of which would not have a Material Adverse Effect.
Neither the Company nor any of its Subsidiaries is in conflict with, or in
default or violation of, any of the Company Permits, except for any such
conflicts, defaults or violations which, individually or in the aggregate, would
not reasonably be expected to have a Material Adverse Effect. Since the IPO
Date, neither the Company nor any of its Subsidiaries has received any
notification with respect to possible conflicts, defaults or violations of
applicable laws, except for notices relating to possible conflicts, defaults or
violations, which conflicts, defaults or violations would not have a Material
Adverse Effect.
x. Internal Accounting Controls. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient, in
the judgment of the Company's board of directors, to provide reasonable
assurance that (i) transactions are executed in accordance with management's
general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management's general or
specific authorization and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
-12-
4. COVENANTS.
a. Best Efforts. The parties shall use their best efforts to satisfy
timely each of the conditions described in Section 6 and Section 7 of this
Agreement.
b. Form D; Blue Sky Laws. The Company agrees, if required, to file a
Form D with respect to the Securities as required under Regulation D and to
provide a copy thereof to the Purchaser promptly after such filing. The Company
shall, on or before the Closing Date, take such action as the Company shall
reasonably determine is necessary to qualify the Securities for sale to the
Purchaser pursuant to this Agreement under applicable securities or "blue sky"
laws of the states of the United States or obtain exemption therefrom, and shall
provide evidence of any such action so taken to the Purchaser on or prior to the
Closing Date.
c. Reporting Status; Eligibility to Use Forms SB-2, S-1 and S-3. The
Company's Common Stock is registered under Section 12(g) of the Exchange Act. So
long as the Purchaser beneficially owns any of the Securities, the Company shall
timely file all reports required to be filed with the SEC pursuant to the
Exchange Act, and the Company shall not terminate its status as an issuer
required to file reports under the Exchange Act even if the Exchange Act or the
rules and regulations thereunder would permit such termination. The Company
meets the "registrant eligibility" requirements set forth in the general
instructions to Forms SB-2 and S-1 and will take all action necessary to
continue to meet such requirements. From and after such time as the Company
meets the "registrant eligibility" requirements set forth in the general
instructions to Form S-3 or any successor form, the Company will use its best
efforts to continue to meet such requirements.
d. Use of Proceeds. The Company shall use the proceeds from the sale of
the Note in the manner set forth in Schedule 4(d) attached hereto and shall not,
except as set forth in such Schedule 4(d), directly or indirectly, use such
proceeds for any loan to or investment in any other corporation, partnership,
enterprise or other person (except in connection with its currently existing
direct or indirect Subsidiaries).
e. Additional Equity Capital; Right of First Offer. Subject to the
exceptions described below, the Company agrees that during the period (the
"LOCK-UP PERIOD") beginning on the date hereof and ending on the date that is
180 days after the effective date of the Registration Statement (as defined in
the Registration Rights Agreement) required pursuant to Section 2(a) of the
Registration Rights Agreement, the Company will not, without the prior written
consent of the Purchaser, contract with any party to obtain additional financing
in which any equity or equity- linked securities are issued (including any debt
financing with an equity component) ("FUTURE OFFERINGS"). In addition, the
Company will not conduct any Future Offering during the 180-day period
immediately following the expiration of the Lock-Up Period, unless it shall have
first delivered to the Purchaser, at least 15 days prior to the closing of such
Future Offering, written notice describing the proposed Future Offering,
including the terms and conditions thereof, and providing the Purchaser and its
affiliates an option during the ten-day period following delivery of such notice
to purchase all of the securities being offered in the Future Offering on the
same terms
-13-
as contemplated by such Future Offering (the limitations referred to in this and
the immediately preceding sentence are collectively referred to as the "CAPITAL
RAISING LIMITATIONS"). The Capital Raising Limitations shall not apply to (i)
any transaction involving issuances of securities as consideration in a merger,
consolidation or acquisition of assets, or in connection with any strategic
partnership or joint venture (the primary purpose of which is not to raise
equity capital), or as consideration for the acquisition of a business, product
or license by the Company, (ii) the issuance of securities pursuant to a firm
commitment underwritten public offering (other than a continuous offering
pursuant to Rule 415 of the SEC), (iii) the issuance of securities upon exercise
or conversion of the Company's options, warrants or other convertible securities
outstanding as of the date hereof and/or disclosed on Schedule 3(c) hereto, (iv)
the grant of additional options or warrants, or the issuance of additional
securities, under any Company stock option or restricted stock plan approved by
the stockholders of the Company, (v) the issuance of Common Stock or securities
convertible into or exchangeable for Common Stock in a private placement by the
Company (A) that is consummated within the Lock-Up Period, and (B) wherein the
cash consideration received by the Company for each share of Common Stock issued
in such private placement, or for each security (or portion thereof) convertible
or exchangeable into one share of Common Stock, is equal to or greater than the
product of (x) two multiplied by (y) the Fixed Conversion Price (as defined in
the Note) or (vi) the issuance of warrants by the Company to an institutional
lender in connection with a commercial loan facility permitted by Article III.C
of the Note at an exercise price equal to or greater than the closing sale price
of the Common Stock on the trading day immediately preceding the date such
warrants are issued.
f. Expenses. The Company shall pay to Rose Glen Capital Management,
L.P. at the Closing a non-accountable expense allowance equal to $30,000
($10,000 of which has been previously paid by the Company) for the expenses
incurred by it in connection with the negotiation, preparation, execution and
delivery of this Agreement and the other agreements to be executed in connection
herewith, including, without limitation, attorneys' and consultants' fees and
expenses.
g. Financial Information. The Company agrees to send the following
reports to the Purchaser until the Purchaser transfers, assigns or sells all of
its Securities: (i) within ten days after the filing with the SEC, a copy of its
Annual Report on Form 10-KSB, its Quarterly Reports on Form 10-QSB, its proxy
statements and any Current Reports on Form 8-K; (ii) within one day after
release, copies of all press releases issued by the Company or any of its
Subsidiaries; and (iii) contemporaneously with the making available or giving to
the stockholders of the Company, copies of any notices or other information the
Company makes available or gives to such stockholders.
h. Reservation of Shares. The Company shall at all times have
authorized and reserved for the purpose of issuance a sufficient number of
shares of Common Stock to provide for the full conversion of the Note and
issuance of the Conversion Shares in connection therewith (based on the lesser
of the Market Price in effect from time to time and the Fixed Conversion Price
(each as defined in the Note)) and as otherwise required by, and subject to the
terms and conditions of, the Note and the full exercise of the Warrants and the
issuance of the Warrant Shares in connection therewith (based on the Exercise
Price (as defined in the Warrants) in effect from time to time
-14-
thereunder) and as otherwise required by the Warrant. The Company shall not
reduce the number of shares reserved for issuance upon conversion of or
otherwise pursuant to the Note and upon exercise of or otherwise pursuant to the
Warrants (except as a result of any such conversion or exercise thereof) without
the consent of the Purchaser. The Company shall use its best efforts at all
times to maintain the number of shares of Common Stock so reserved for issuance
at no less than two times the number that is then actually issuable upon full
conversion of the Note (based on the lesser of the Market Price in effect from
time to time and the Fixed Conversion Price) and full exercise of the Warrants
(based on the Exercise Price (as defined in the Warrants) in effect from time to
time thereunder), subject to the limitations on issuance contained in Article
II.A(2) of the Note and Section 7(g)(ii) of the Warrants until such time as a
Triggering Event (as defined in the Note) occurs, and thereafter without regard
to such limitations. If at any time the number of shares of Common Stock
authorized and reserved for issuance is below the aggregate number of Conversion
Shares issued and issuable upon conversion of or otherwise pursuant to the Note
(based on the lesser of the Market Price in effect from time to time and the
Fixed Conversion Price) and the aggregate number of Warrant Shares issued and
issuable upon exercise of or otherwise pursuant to the Warrants (based on the
Exercise Price (as defined in the Warrants) in effect from time to time
thereunder), subject to the limitations on issuance contained in Article II.A(2)
of the Note and Section 7(g)(ii) of the Warrants until such time as a Triggering
Event occurs, and thereafter without regard to such limitations, the Company
will promptly take all corporate action necessary to authorize and reserve a
sufficient number of shares, including, without limitation, calling a special
meeting of stockholders to authorize additional shares to meet the Company's
obligations under this Section 4(h), in the case of an insufficient number of
authorized shares, and using its best efforts to obtain shareholder approval of
an increase in such authorized number of shares.
i. Listing. The Company shall promptly secure the listing of the
Conversion Shares and the Warrant Shares upon each national securities exchange
or automated quotation system, if any, upon which shares of Common Stock are
then listed (subject to official notice of issuance) and shall maintain, so long
as any other shares of Common Stock shall be so listed, such listing of all
Conversion Shares from time to time issuable upon conversion of or otherwise
pursuant to the Note and all Warrant Shares from time to time issuable upon
exercise of or otherwise pursuant to the Warrants, subject to the limitations on
issuance contained in Article II.A(2) of the Note and Section 7(g)(ii) of the
Warrants until such time as a Triggering Event occurs and thereafter without
regard to such limitations. The Company will use its best efforts to continue
the listing and trading of its Common Stock on the NASDAQ, the New York Stock
Exchange ("NYSE") or the American Stock Exchange ("AMEX") and will comply in all
respects with the Company's reporting, filing and other obligations under the
bylaws or rules of the National Association of Securities Dealers, Inc. ("NASD")
and such exchanges, as applicable. In the event the Common Stock is not eligible
to be traded on any of the NASDAQ, the NYSE or the AMEX and the Common Stock is
not eligible for listing on any such exchange or system, the Company shall use
its best efforts to cause the Common Stock to be eligible for trading on the
NASDAQ SmallCap Market or the over-the-counter bulletin board at the earliest
practicable date and remain eligible for trading while any Conversion Shares are
outstanding. The Company shall provide to the Purchaser and any holder of the
Note copies of any notices it receives from NASDAQ and any other exchanges or
quotation system on which the Common Stock is then listed regarding the
continued eligibility of the Common Stock for listing on
-15-
such exchanges and quotation systems simultaneously with or promptly after such
notices are publicly available.
j. [Intentionally Omitted]
k. No Integrated Offerings. The Company shall not make any offers or
sales of any security (other than the Securities) under circumstances that would
require registration of the Securities being offered or sold hereunder under the
Securities Act or cause this offering of Securities to be integrated with any
other offering of securities by the Company for purposes of any stockholder
approval provision applicable to the Company or its securities.
l. Redemptions and Dividends. So long as the Purchaser beneficially
owns the Note, the Company shall not, without first obtaining the written
approval of the Purchaser, redeem, or declare or pay any cash dividend or
distribution on, any shares of capital stock of the Company.
m. Trading Limitations. So long as the Purchaser owns any Securities,
the Purchaser shall not sell shares of Common Stock in any calendar month in
excess of the product of (i) 25% multiplied by (ii) the total trading volume of
the Common Stock for the immediately preceding calendar month as reported by the
principal securities exchange or trading market on which the Common Stock is
then listed or admitted for trading; provided, however, the foregoing limitation
shall not (A) restrict the Purchaser from selling in any trading day a number of
shares not exceeding 15% of the total trading volume of the Common Stock (as so
reported) for such trading day or (B) apply to block sales of at least 10,000
shares of Common Stock to a single purchaser. The Purchaser will conduct all
transactions in the Common Stock in compliance with applicable securities laws
and will not execute a trade at or below the then low trading price of the
Common Stock.
n. Voting Agreements; Waivers.
(i) The Company shall cause each of James W. Stealey, David H.
Kestel, as trustee of certain trusts for Mr. Stealey's children, and Vertical
Financial Holdings (each a "STOCKHOLDER" and collectively, the "STOCKHOLDERS")
to execute and deliver to the Purchaser, prior to or simultaneously with the
Closing hereunder, irrevocable voting agreements (the "VOTING AGREEMENTS")
pursuant to which each such Stockholder agrees to vote all shares of the capital
stock of the Company (A) which are identified under the caption "Principal
Shareholders" in the Company's Registration Statement on Form SB-2, SEC File No.
333-53755, as being beneficially owned by such Stockholder or over which such
Stockholder has voting power and (B) which such Stockholder may subsequently
acquire beneficial ownership of, or voting power with respect to, in favor of
this Agreement, the Note, the Warrants and the transactions contemplated hereby
and thereby (including, without limitation, the issuance of the Note and the
Warrants, the issuance of Conversion Shares upon conversion of or otherwise
pursuant to the Note and the issuance of Warrant Shares upon exercise of or
otherwise pursuant to the Warrants) at any meeting of the stockholders of the
Company or any other circumstance when such stockholders are entitled to vote
with respect thereto, whether pursuant to the Company's obligation to seek and
obtain the Stockholder Approval (as defined in the Note) or otherwise. The
Voting Agreements shall also
-16-
contain waivers by the Stockholders of their right to require the Company to
include any shares of the capital stock of the Company which they beneficially
own, or have voting power with respect to, in any Registration Statement (as
defined in the Registration Rights Agreement) required to be filed by the
Company pursuant to the Registration Rights Agreement.
(ii) The Company agrees that any registration rights to be
granted to the shareholders of MPG-Net, Inc. in connection with the Company's
acquisition of MPG-Net, Inc. shall exclude the right to have the shares of the
Company's capital stock to be issued to such shareholders in connection with
such acquisition included in any Registration Statement (as defined in the
Registration Rights Agreement) required to be filed by the Company pursuant to
the Registration Rights Agreement.
(iii) The Company shall cause each of Bluestone Capital
Partners, L.P. and Royce Investment Group, Inc. (each an "UNDERWRITER" and
collectively, the "UNDERWRITERS") to execute and deliver to the Purchaser, prior
to or simultaneously with the Closing hereunder, waivers (the "WAIVERS") by the
Underwriters of their right to require the Company to include any shares of the
capital stock of the Company which they beneficially own or have voting power
with respect to in any Registration Statement (as defined in the Registration
Rights Agreement) required to be filed by the Company pursuant to the
Registration Rights Agreement.
5. TRANSFER AGENT INSTRUCTIONS.
The Company shall issue irrevocable instructions to its transfer agent
to issue certificates, registered in the name of the Purchaser or its nominee,
for the Conversion Shares and the Warrant Shares in such amounts as specified
from time to time by the Purchaser to the Company upon conversion of the Note
and upon exercise of the Warrants in accordance with the terms thereof (the
"IRREVOCABLE TRANSFER AGENT INSTRUCTIONS"). Prior to registration of the
Conversion Shares and the Warrant Shares under the Securities Act or the date on
which such shares may be sold pursuant to Rule 144(k) (or any successor rule),
all such certificates shall bear the restrictive legend specified in Section
2(g) of this Agreement. The Company warrants that no instruction other than the
Irrevocable Transfer Agent Instructions referred to in this Section 5, and stop
transfer instructions to give effect to Sections 2(f) and 2(g) hereof (in the
case of the Conversion Shares and the Warrant Shares, prior to registration of
the Conversion Shares and the Warrant Shares under the Securities Act or the
date on which the Conversion Shares and the Warrant Shares may be sold pursuant
to Rule 144(k) (or any successor rule), will be given by the Company to its
transfer agent and that the Securities shall otherwise be freely transferable on
the books and records of the Company to the extent provided, and subject to the
terms and conditions of, this Agreement, the Note and the Registration Rights
Agreement. Nothing in this Section shall affect in any way the Purchaser's
obligations and agreement set forth in Section 2(g) hereof to comply with all
applicable prospectus delivery requirements, if any, upon resale of the
Securities. If the Purchaser provides the Company with (i) an opinion of
counsel, in form, substance and scope customary for opinions in comparable
transactions and given by counsel reasonably acceptable to the Company, to the
effect that a public sale or transfer of such Securities may be made without
registration under the Securities Act and such sale or transfer is effected or
(ii) the Purchaser provides reasonable assurances that the
-17-
Securities can be sold pursuant to Rule 144 and such sale is effected, the
Company shall permit the transfer, and, in the case of the Conversion Shares and
the Warrant Shares, promptly instruct its transfer agent to issue one or more
certificates, free from any restrictive legend, in such name and in such
denominations as specified by the Purchaser.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell the Note to
the Purchaser hereunder is subject to the satisfaction, at or before the Closing
Date, of each of the following conditions thereto, provided that these
conditions are for the Company's sole benefit and may be waived by the Company
at any time in its sole discretion.
a. The Purchaser shall have executed the signature page to this
Agreement and the Registration Rights Agreement, and delivered such pages to the
Company.
b. The Purchaser shall have delivered the Purchase Price in accordance
with Section 1(b).
c. The representations and warranties of the Purchaser shall be true
and correct as of the date when made and as of the Closing Date as though made
at that time (except for representations and warranties that speak as of a
specific date, which representations and warranties shall be true and correct as
of such date), and the Purchaser shall have performed, satisfied and complied in
all material respects with the covenants, agreements and conditions required by
this Agreement to be performed, satisfied or complied with by the Purchaser at
or prior to the Closing Date.
d. No statute, rule, regulation, executive order, decree, ruling,
injunction, action or proceeding shall have been enacted, entered, promulgated
or endorsed by any court or governmental authority of competent jurisdiction or
any self-regulatory organization having authority over the matters contemplated
hereby which questions the validity of, or challenges or prohibits the
consummation of any of the transactions contemplated by this Agreement.
7. CONDITIONS TO THE PURCHASER'S OBLIGATION TO PURCHASE.
The obligation of the Purchaser hereunder to purchase the Note
hereunder is subject to the satisfaction, at or before the Closing Date, of each
of the following conditions, provided that these conditions are for the
Purchaser's sole benefit and may be waived by the Purchaser at any time in the
Purchaser's sole discretion:
a. The Company shall have executed the signature page to this Agreement
and the Registration Rights Agreement, and delivered such pages to the
Purchaser.
b. The Company shall have delivered to the Purchaser the duly executed
Note (in such denominations as such Purchaser shall request) in accordance with
Section 1(b).
-18-
c. The Common Stock shall be authorized for quotation on NASDAQ and
trading in the Common Stock (or NASDAQ generally) shall not have been suspended
by the SEC or NASDAQ.
d. The representations and warranties of the Company shall be true and
correct as of the date when made and as of the Closing Date as though made at
that time (except for representations and warranties that speak as of a specific
date, which representations and warranties shall be true and correct as of such
date) and the Company shall have performed, satisfied and complied in all
material respects with the covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the Company at or prior
to the Closing Date. The Purchaser shall have received a certificate, executed
by the Chief Executive Officer of the Company, dated as of the Closing Date, to
the foregoing effect and as to such other matters as may be reasonably requested
by the Purchaser.
e. No statute, rule, regulation, executive order, decree, ruling,
injunction, action or proceeding shall have been enacted, entered, promulgated
or endorsed by any court or governmental authority of competent jurisdiction or
any self-regulatory organization having authority over the matters contemplated
hereby which questions the validity of, or challenges or prohibits the
consummation of, any of the transactions contemplated by this Agreement.
f. The Purchaser shall have received an opinion of the Company's
counsel, dated as of the Closing Date, in form, scope and substance reasonably
satisfactory to the Purchaser and in substantially the form of Exhibit C
attached hereto.
g. The Irrevocable Transfer Agent Instructions, in the form attached
hereto as Exhibit D, shall have been delivered to and acknowledged in writing by
the Company's transfer agent and a copy of such instructions and acknowledgment
shall have been delivered to the Purchaser.
h. No material adverse change or development in the business,
operations, properties, prospects, financial condition, or results of operations
of the Company shall have occurred since the date hereof.
i. The Company shall have delivered to the Purchaser the Voting
Agreement(s) in form and substance satisfactory to the Purchaser, duly executed
by each of the Stockholders, and the Waiver(s) in form and substance
satisfactory to the Purchaser, duly executed by each of the Underwriters.
8. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law; Jurisdiction. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed in the State of New York (without regard to
principles of conflict of laws). The Company irrevocably consents to the
jurisdiction of the United States federal courts and the state courts located in
New York County, New York in any suit or proceeding based on or arising under
this
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Agreement, the agreements entered into in connection herewith or the
transactions contemplated hereby or thereby and irrevocably agrees that all
claims in respect of such suit or proceeding may be determined in such courts.
The Company irrevocably waives the defense of an inconvenient forum to the
maintenance of such suit or proceeding. The Company further agrees that service
of process upon the Company mailed by first class mail shall be deemed in every
respect effective service of process upon the Company in any such suit or
proceeding. Nothing herein shall affect the right of the Purchaser to serve
process in any other manner permitted by law. The Company agrees that a final
non-appealable judgment in any such suit or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on such judgment or in any other
lawful manner.
b. Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party. This Agreement, once executed by a party, may be
delivered to the other parties hereto by facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this Agreement.
In the event any signature is delivered by facsimile transmission, the party
using such means of delivery shall cause the manually executed Execution Page(s)
hereof to be physically delivered to the other party within five days of the
execution hereof.
c. Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
d. Severability. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement and the instruments
referenced herein contain the entire understanding of the parties with respect
to the matters covered herein and therein and, except as specifically set forth
herein or therein, neither the Company nor the Purchaser makes any
representation, warranty, covenant or undertaking with respect to such matters.
No provision of this Agreement may be waived or amended other than by an
instrument in writing signed by the party to be charged with enforcement and no
provision of this Agreement may be amended other than by an instrument in
writing signed by the Company and the Purchaser.
f. Notices. Any notices required or permitted to be given under the
terms of this Agreement shall be sent by certified or registered mail (return
receipt requested) or delivered personally or by courier (including a recognized
overnight delivery service) or by facsimile, and shall be effective five days
after being placed in the mail, if mailed, or upon receipt or refusal of
receipt, if delivered personally or by courier or by facsimile, in each case
addressed to a party. The addresses for such communications shall be:
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If to the Company:
Interactive Magic, Inc.
215 Southport Drive, Suite 1000
Morrisville, NC 27560
Facsimile: (919) 461-0723
Attention: Chief Executive Officer
If to the Purchaser, to the address set forth under the Purchaser's
name on the signature page hereto executed by the Purchaser. Each party shall
provide notice to the other party of any change in address or facsimile number.
g. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and assigns. Except as
provided herein, neither the Company nor the Purchaser shall assign this
Agreement or any rights or obligations hereunder. Notwithstanding the foregoing,
the Purchaser may assign its rights hereunder to any person that purchases
Securities in a private transaction from the Purchaser in accordance with the
securities laws or to any of the Purchaser's "affiliates," as that term is
defined under the Exchange Act, without the consent of the Company or to any
other person or entity with the consent of the Company. This provision shall not
limit the Purchaser's right to transfer the Securities pursuant to the terms of
this Agreement, the Note, the Warrants or the Registration Rights Agreement or
to assign the Purchaser's rights hereunder or thereunder to any such transferee.
h. Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
i. Survival. The representations and warranties of the Company and the
agreements and covenants set forth in Sections 3, 4, 5 and 8 shall survive the
Closing hereunder until the Purchaser no longer beneficially owns any Securities
notwithstanding any due diligence investigation conducted by or on behalf of the
Purchaser. Moreover, none of the representations and warranties made by the
Company herein shall act as a waiver of any rights or remedies the Purchaser may
have under applicable federal or state securities laws. The Company agrees to
indemnify and hold harmless the Purchaser and each of the Purchaser's officers,
directors, employees, partners, members, agents and affiliates for loss or
damage arising as a result of or related to any breach or alleged breach by the
Company of any of its representations, warranties or covenants set forth herein
or in the Registration Rights Agreement, including advancement of expenses as
they are incurred.
j. Publicity. The Company and the Purchaser shall have the right to
review a reasonable period of time before issuance any press releases, SEC,
NASDAQ or NASD filings, or any other public statements with respect to the
transactions contemplated hereby; PROVIDED, HOWEVER, that the Company shall be
entitled, without the prior approval of the Purchaser, to make any press release
or SEC, NASDAQ or NASD filings with respect to such transactions as is required
by
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applicable law and regulations (although the Purchaser shall be consulted by the
Company in connection with any such press release prior to its release and shall
be provided with a copy thereof and be given an opportunity to comment thereon).
k. Further Assurances. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
l. Joint Participation in Drafting. Each party to this Agreement has
participated in the negotiation and drafting of this Agreement, the Note, the
Warrants and the Registration Rights Agreement. As such, the language used
herein and therein shall be deemed to be the language chosen by the parties
hereto to express their mutual intent, and no rule of strict construction will
be applied against any party to this Agreement.
m. Equitable Relief. The Company acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to the Purchaser by
vitiating the intent and purpose of the transactions contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach of its
obligations hereunder (including, but not limited to, its obligations pursuant
to Section 5 hereof) will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Agreement (including,
but not limited to, its obligations pursuant to Section 5 hereof), that the
Purchaser shall be entitled, in addition to all other available remedies, to an
injunction restraining any breach and requiring immediate issuance and transfer,
without the necessity of showing economic loss and without any bond or other
security being required.
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IN WITNESS WHEREOF, the undersigned Purchaser and the Company have
caused this Agreement to be duly executed as of the date first above written.
INTERACTIVE MAGIC, INC.
By: /s/ J. W. Stealey
----------------------
Name: J. W. Stealey
---------------------
Title: Chairman and Chief Executive Officer
------------------------------------
PURCHASER:
RGC INTERNATIONAL INVESTORS, LDC
By: Rose Glen Capital Management, L.P.,
Investment Manager
By: RGC General Partner Corp.,
as General Partner
By: /s/ Steve Katznelson
----------------------------
Name: Steve Katznelson
-----------------------
Managing Director
RESIDENCE: Cayman Islands
ADDRESS: c/o Rose Glen Capital Management, L.P.
Three Bala Plaza East
Suite 200
251 St. Asaphs Road
Bala Cynwyd, PA 19004
Facsimile: 610-617-0570
Telephone: 610-617-5900
with copies of all notices to:
Klehr, Harrison, Harvey, Branzburg & Ellers
1401 Walnut Street
Philadelphia, PA 19102
Telecopy: (215) 568-6603
Attention: Robert W. Cleveland, Esquire