EXHIBIT 4
[EXECUTION COPY]
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FUNDING AGREEMENT
FUNDING AGREEMENT (the "Funding Agreement") dated as of the 13th day of
May, 1997 among Interactive Entertainment Limited, a Bermuda exempted company
("IEL" or "Borrower"), and Sky Games International Ltd., a Bermuda exempted
company ("SGI"), Xxxxxx'x Interactive Investment Company, a Nevada corporation
("HIIC" or "Lender"), and SGI Holding Corporation Limited, a Bermuda exempted
company ("SGIH").
RECITALS
WHEREAS, SGI is the parent of SGIH; and
WHEREAS, SGIH and SGI have requested that (i) prior to the amalgamation of
IEL and SGIH (the "Subsidiary Amalgamation"), Lender provide IEL with all or a
portion of the funds required to permit IEL to carry on its day-to-day business
activities by means of a loan to Borrower and (ii) following the Subsidiary
Amalgamation, Lender assist in providing funding to IEL by means of a purchase
of shares of common stock, par value Cdn. $.01 per share, of SGI (the "Shares");
and
WHEREAS, the loan will provide IEL with the funds prior to the Subsidiary
Amalgamation and the purchase of equity of SGI will provide SGI with funds to
contribute to IEL, in each case, in order to permit IEL to carry on IEL's day to
day business activities; and
WHEREAS, Lender is willing to make such loan and to purchase such equity,
although Lender is under no obligation to do so; and
WHEREAS, Lender's agreement to make the loan is conditioned on the guaranty
of such loan by SGIH, the receipt of a stock pledge from SGIH and a security
agreement and SGI's grant of warrants to Lender ("Warrant Rights") to purchase
the capital stock of SGI under certain terms, and the issuance to Lender of a
promissory note in the amount of the loan convertible into capital stock of SGI,
and
WHEREAS, Borrower is willing to borrow such funds and enter into the other
credit accommodations herein and to commit to sell its equity on the terms and
subject to the conditions set forth herein. Except where otherwise noted, all
monetary amounts set forth herein are denominated in United States currency.
AGREEMENT
In consideration of the mutual covenants and agreements set forth herein,
the parties hereto hereby agree as follows:
1. Loan. Lender agrees to make a loan to Borrower in the aggregate
principal amount of $1,000,000 (the "Loan") on the terms and subject to the
conditions set forth herein and in the Financing Agreements. The Convertible
Promissory Note attached hereto as Exhibit A, the Pledge Agreement attached as
Exhibit B, the Guaranty attached as Exhibit C, the Warrant Agreement attached as
Exhibit D, the Security Agreement attached as Exhibit E and this Funding
Agreement are referred to herein as the "Financing Agreements".
2. Consideration for Lending. Borrower and SGIH acknowledge and agree
that they are directly benefited by the Loan advances since the utilization of
the Loan proceeds by IEL for working capital purposes will assist IEL to
continue to operate and develop its business.
3. Use of Proceeds. The Loan is to be used only for the working capital
needs of IEL and shall not be distributed to the shareholders of Borrower.
4. Funding of Loan.
a. Subject to compliance with the terms hereof and the Financing
Agreements, Lender shall advance the Loan to IEL from time to time as required
by IEL's manager and HIIC's affiliate, Xxxxxx'x Interactive Entertainment
Company ("HIEC"), (each, a "Funding Date") during the period from the date
hereof through the earlier of (i) the consummation of the Subsidiary
Amalgamation and (ii) June 21, 1997. Funding shall occur as requested by HIEC as
necessary to fund IEL's immediate working capital needs. Upon consummation of
the Subsidiary Amalgamation, Outstanding Amounts (as defined in the Note) under
the Note shall automatically convert into shares of common stock, $.01 par
value, of SGI ("Common Stock") and HIIC shall receive a warrant to purchase
shares of Common Stock in an amount equal to the difference between (x) one
million shares of Common Stock and (y) any Common Stock received pursuant to the
conversion of Outstanding Amounts under the Note.
b. Upon the advice of HIEC, IEL shall request funds on behalf of the
Borrower by delivering a Notice of Borrowing to Lender (with a copy to SGIH)
identifying (i) the total amount of the Loan to be funded and (ii) the Funding
Date. Within three (3) days of receipt of a Notice of Borrowing, SGIH and SGI
shall cause their respective Chief Executive Officer to deliver to HIIC
Officer's Certificates of SGIH and SGI which shall state that, as of the date
thereof and on the Funding Date, the representations set forth herein shall be
true and correct and no default of SGI or SGIH exists under the Note.
c. Following receipt and review of the required documentation, Lender
shall advance the Loan requested on the Funding Date if such documentation is
reasonably satisfactory to Lender in all material respects.
d. If either or both of SGIH and SGI fail to timely deliver the
Officer's Certificate, HIIC may, at its sole discretion (i) declare this
Agreement in default; or (ii) elect to advance the funds requested.
e. IEL may prepay any amounts outstanding under the Loan at any time
and from time to time. Any such prepayments shall be used to repay the Loan with
the earliest advances under the Loan to be repaid first.
5. Purchase of Equity.
a. Subject to compliance with and possible reduction pursuant to the
terms hereof and the consummation on the Subsidiary Amalgamation, HIIC hereby
subscribes for and agrees to purchase from SGI during the period from the day
after the Subsidiary Amalgamation through the 90th day after the Subsidiary
Amalgamation (the "Commitment Period") up to 650,000 Shares (the "Equity
Commitment") at a price of $1.00 per Share (the "Subscription Price")when
requested by IEL in accordance with the schedule set forth herein (each also, a
"Funding Date") as required to fund the working capital needs of IEL. Subject to
possible reduction as set forth below, IEL shall be able to require Lender to
purchase a number of Shares equal to one-third of the Equity Commitment on each
of the 30th, 60th and 90th days (or first business day thereafter) after the
Subsidiary Amalgamation; provided any amounts which are not required to be
purchased on any such scheduled date may be required to be purchased at any
remaining scheduled date. The Subscription Price payable by Lender shall be
payable in cash or other immediately available funds. In the event that IEL
fails to satisfy its obligations under the Note upon maturity thereof, such
failure shall be deemed
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to be "exigent circumstances" as described in Section 2.4(b) of the Shareholders
Agreement dated December 30, 1994 among SGIH, HIIC and IEL.
b. Borrower shall deliver a Notice of Exercise to Lender identifying
(i) the portion of the Equity Commitment required to be exercised and (ii) the
Funding Date. Within three (3) days of receipt of a Notice of Exercise, SGI and
IEL shall cause their respective Chief Executive Officer to deliver to HIIC
Officer's Certificates of SGI and IEL which shall state that, as of the date
thereof and on the Funding Date, the representations set forth herein shall be
true and correct and no default of SGI or IEL exists under this Agreement.
c. Following receipt and review of the required documentation, Lender
shall pay the Subscription Price for the portion of the Equity Commitment
required to be exercised on the Funding Date if such documentation is reasonably
satisfactory to Lender in all material respects and provided that all the
conditions contained herein are satisfied in all material respects.
d. When Lender shall make full payment to SGI for the Shares
subscribed by Lender, and such payment is received by SGI, the proper officers
of SGI shall execute and deliver to Lender a certificate representing said
Shares and the Shares shall be validly issued, fully paid and non-assessable.
e. Any then unexercised portions of the Equity Commitment shall be
reduced in an amount equal to the dollar amount of all cash proceeds, net of any
underwriter or brokers discounts, allowances, fees or commissions, to SGI from
the sale of Shares or securities convertible into Shares during the Commitment
Period.
f. If SGI shall at any time prior to the exercise of the Equity
Commitment, (i) pay a dividend in Shares or make a pro rata distribution to all
of its shareholders in Shares, (ii) subdivide its outstanding Shares into a
greater number of Shares, or (iii) combine its outstanding Shares into a smaller
number of Shares, the Subscription Price in effect immediately after the record
date for such dividend or distribution or the effective date of such subdivision
or combination shall be adjusted so that it shall equal the price determined by
multiplying the Subscription Price in effect immediately prior thereto by a
fraction, the numerator of which shall be the number of Shares outstanding
immediately before such dividend, distribution, subdivision or combination, and
the denominator of which shall be the number of Shares outstanding immediately
after such dividend, distribution, subdivision or combination. Such
adjustments shall be made successively whenever any event specified above shall
occur.
6. Representations by IEL, SGIH and SGI.
a. Authority. IEL, SGIH and SGI have all requisite corporate power
and authority to execute this Agreement and the other Financing Agreements to
which each is a party or by which each is bound in connection with the
transactions contemplated by this Agreement. IEL, SGI and SGIH have each taken
all necessary action to authorize the execution, delivery and performance of
this Agreement and the other Financing Agreements to which each is a party or by
which each is bound and to consummate the transactions contemplated hereby and
thereby.
b. No Violation. Neither the execution and delivery of the Financing
Agreements, nor any other agreement, certificate or instrument to be executed or
delivered in connection therewith by IEL, SGI or SGIH nor the consummation of
the transactions contemplated hereunder or thereunder or the compliance with or
performance of the terms and conditions herein or therein, is prevented by,
limited by, in conflict in
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any material respect with, or will result in a breach or violation of, or a
default (with due notice or lapse of time or both) under, which would have a
material adverse effect on IEL, SGI or SGIH, or the creation or imposition of
any lien, charge, or encumbrance of any nature whatsoever upon any of its
property or assets by virtue of, the terms, conditions or provisions of: (i)
each of their respective organizational documents; (ii) any indenture, evidence
of indebtedness, loan or financing agreement, or other material agreement or
instrument of whatever nature to which each is a party or by which each is
bound; or (iii) any provision of any existing law, rule, regulation, order,
writ, injunction or decree of any court, gaming authority or governmental
authority to which each is subject.
c. Enforceability. This Agreement and each of the other Financing
Agreements, when executed and delivered by each of IEL, SGI and SGIH, will
constitute a legal, valid and binding obligation of each of IEL, SGI and SGIH,
enforceable against each of IEL, SGI and SGIH in accordance with the respective
terms of each such agreement (except to the extent that enforcement may be
affected by laws relating to bankruptcy, reorganization, insolvency and
creditors rights and by the availability of injunctive relief, specific
performance and other equitable remedies).
d. No Defaults. None of IEL, SGI, or SGIH is in violation of or in
default with respect to any material agreement, or applicable laws and/or
regulations which materially and adversely affect the business, financial
condition or property of IEL, SGI or SGIH.
e. No Untrue Statements. All statements, representations and
warranties made by IEL, SGI and SGIH in this Agreement and the Financing
Agreements (i) are and shall be true, correct and complete in all material
respects, at the time they were made and on and as of each Funding Date, (ii) do
not and shall not contain any untrue statement of a material fact, and (iii) do
not and shall not omit to state a material fact necessary in order to make the
information contained therein not misleading or incomplete. IEL, SGI and SGIH
understand that all such statements, representations and warranties shall be
deemed to have been relied upon by Lender as a material inducement to enter into
this Agreement and the Financing Agreements.
f. Solvency. IEL, SGI and SGIH have generally been paying their
obligations as they come due, are not insolvent on the date hereof, and, after
giving effect to the transactions contemplated by this Agreement and the
Financing Agreements, will not be rendered insolvent or unable to pay their
obligations as they come due. Each of IEL, SGI and SGIH has and, after giving
effect to the transactions contemplated by this Agreement and the Financing
Agreements, will have adequate capital to operate its facilities and conduct its
business in the manner in which it is currently being conducted, and, after
giving effect to the transactions contemplated by such Agreements, neither IEL,
nor SGI, nor SGIH is or will be engaged in a business or transaction for which
the remaining assets of such party are unreasonably small in relation to the
business or transaction. Neither IEL, nor SGI, nor SGIH is subject to
liabilities, and the Loan does not represent indebtedness, and neither IEL, nor
SGI, nor SGIH will incur debts that it believes, or reasonably should believe
are, beyond such party's ability to pay as such debts mature.
g. Value of Collateral. The fair market value of the consideration
received by IEL and SGIH hereunder, including without limitation, the Loan,
exceeds the fair market value of the liens and security interests granted to
Lender as set forth in Exhibits B and E.
h. No Intent to Defraud. None of IEL, SGI, or SGIH is entering into
the transactions contemplated herein with any actual intent to hinder, delay or
defraud any creditor.
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7. Representations by HIIC.
a. Authority. HIIC has all requisite corporate power and authority to
execute this Agreement and the other Financing Agreements to which it is a party
or by which it is bound in connection with the transactions contemplated by this
Agreement. HIIC has taken all necessary action to authorize the execution,
delivery and performance of this Agreement and the other Financing Agreements to
which it is a party or by which it is bound and to consummate the transactions
contemplated hereby and thereby.
b. No Violation. Neither the execution and delivery of the Financing
Agreements, nor any other agreement, certificate or instrument to be executed or
delivered in connection therewith by HIIC nor the consummation of the
transactions contemplated hereunder or thereunder or the compliance with or
performance of the terms and conditions herein or therein, is prevented by,
limited by, in conflict in any material respect with, or will result in a breach
or violation of, or a default (with due notice or lapse of time or both) under,
which would have a material adverse effect on HIIC, or the creation or
imposition of any material lien, charge, or encumbrance of any nature whatsoever
upon any of its property or assets by virtue of, the terms, conditions or
provisions of: (i) its organizational documents; (ii) any indenture, evidence of
indebtedness, loan or financing agreement, or other material agreement or
instrument of whatever nature to which it is a party or by which it is bound; or
(iii) any provision of any existing law, rule, regulation, order, writ,
injunction or decree of any court, gaming authority or governmental authority to
which each is subject.
c. Enforceability. This Agreement and each of the other Financing
Agreements, when executed and delivered by HIIC, will constitute a legal, valid
and binding obligation of HIIC, enforceable against HIIC in accordance with the
respective terms of each such agreement (except to the extent that enforcement
may be affected by laws relating to bankruptcy, reorganization, insolvency and
creditors rights and by the availability of injunctive relief, specific
performance and other equitable remedies).
d. No Defaults. HIIC is not in violation of or in default with
respect to any material agreement, or applicable laws and/or regulations which
materially and adversely affect the business, financial condition or property of
HIIC.
e. No Untrue Statements. All statements, representations and
warranties made by HIIC in this Agreement and the Financing Agreement (i) are
and shall be true, correct and complete in all material respects, at the time
they were made and on and as of each Funding Date, (ii) do not and shall not
contain any untrue statement of a material fact, and (iii) do not and shall not
omit to state a material fact necessary in order to make the information
contained therein not misleading or incomplete. HIIC understands that all such
statements, representations and warranties shall be deemed to have been relied
upon by Borrower and SGIH as a material inducement to enter into this Agreement
and the Financing Agreements.
f. Investment Intent. All Shares acquired by or for HIIC pursuant to
this Agreement are being or have been acquired solely for investment and not
with a view to the distribution thereof or with any intention of distributing or
reselling any such Shares, and that, irrespective of any other provisions of
this Agreement, any sale or other transfer of such Shares by HIIC will be made
only in compliance with all applicable federal and state securities laws,
including without limitation the Securities Act of 1933, as amended (the "Act").
SGI and HIIC acknowledge that the Shares acquired pursuant to the Financing
Agreements shall be covered by a registration rights agreement between SGI and
HIIC, pursuant to which HIIC shall have the right to have the Shares acquired
registered upon HIIC's demand, subject to the terms and conditions thereof.
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g. Nature of Shares. All Shares acquired by or for HIIC will not be
registered under the Act and must be held by HIIC until such Shares are
registered under the Act or an exemption from such registration is available.
SGI will have no obligation to take any actions that may be necessary to make
available any exemption from registration under the Act.
h. Rule 144. HIIC is familiar with Rule 144 promulgated by the
Securities and Exchange Commission under the Act, which establishes guidelines
governing, among other things, the resale of "restricted securities" (securities
such as the Shares, which are acquired from the issuer of such securities in a
transaction not involving any public offering). In connection with a sale or
other transfer of the Shares pursuant to an exemption from registration under
the Act, or if available, under Rule 144 or pursuant to some other exemption,
HIIC may be required by SGI to deliver to SGI an opinion from counsel for HIIC,
and/or receive an opinion from counsel for SGI, to the effect that all
applicable federal and state securities law requirements have been met.
i. Access to Information. In order to adequately evaluate the merits
and risks of an investment in SGI, HIIC has had an opportunity to (i) ask
questions and receive answers from SGI and its representatives concerning SGI
and HIIC's investment therein, and (ii) obtain any additional information which
HIIC has requested with respect to SGI and HIIC's investment therein. HIIC
understands that no federal or state agency has recommended or endorsed the
purchase of Shares or made any determination or finding as to the fairness of
the provisions of this Agreement. HIIC understands and is cognizant of all the
risk factors related to the purchase of the Shares, and HIIC's knowledge and
experience in financial and business matters is such that HIIC is capable of
evaluating the risks of an investment in the Shares.
8. Covenant. SGI, SGIH and HIIC each agree to use their reasonable
best efforts and to do all things necessary to effect the Subsidiary
Amalgamation and the amalgamation of SGI and IEL as promptly as practicable.
9. Conditions. The advance of Loans shall be conditioned upon:
a. on the initial Funding Date only receipt by Lender of all of the
following:
(i) Evidence of the authority for each of IEL, SGI and SGIH to
execute, deliver and perform the Financing Agreements to
which each is a party;
(ii) Executed Convertible Promissory Note (the "Note") - Exhibit
A;
(iii) Executed Guaranty of the Note of SGI and SGIH - Exhibit C;
(iv) Executed Pledge and Security Agreement of IEL Shares
acquired by SGIH subsequent to the date hereof - Exhibit B;
(v) Executed copy of Security Agreement - Exhibit E;
(vi) Executed Warrant Agreement - Exhibit D;
(vii) Opinion of Counsel for SGI and SGIH;
(viii) Resolutions of the Board of Directors of IEL, SGI and SGIH,
certified by the Secretary thereof, authorizing execution of
the Financing Agreements and all transactions and
obligations contained therein; and
(ix) the holders of the Shares which are being held in escrow by
Montreal Trust Company of Canada pursuant to the Escrow
Agreement dated as of May 27, 1992 having entered into a
binding agreement effective as of the date of execution to
have SGI redeem their Shares at a redemption ratio of 1
newly issued Share for every 3 escrow Shares redeemed; and
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b. on each Funding Date, including the initial Funding Date, each of
the following conditions have been satisfied in all material respects:
(i) there not being an uncured Event of Default under this
Agreement;
(ii) there not being a material uncured default under the
Software License and Software Services Agreement and the
Services Agreement, each dated November 7, 1995, between IEL
and Singapore Airlines Ltd.;
(iii) no bankruptcy, reorganization or insolvency proceedings,
including, without limitation, an assignment for the benefit
of creditors having been instituted by or against any of
SGI, SGIH or IEL and, if instituted against any of SGI, SGIH
or IEL, such proceedings having been consented to (except
for any of the foregoing due to HIIC's failure to fund its
obligations to IEL or to advance the Loan when required
hereby);
(iv) there not having been a material adverse change from the
existing 1997 Annual IEL business plan as adopted by the
Board of Directors of IEL;
(v) there not being a material adverse change in the financial
condition of SGI, on a stand alone basis prior to the
amalgamation of IEL with and into SGI, except as a result of
the writedown of SGI's real estate assets;
(vi) following execution of binding documents with respect to
such transaction, there not being a material breach of the
representations and warranties in the agreements to effect
the amalgamation of IEL and SGIH or the amalgamation of SGI
and IEL; and
(vii) there not being any litigation which would or could
reasonably be expected to have the effect of halting or
materially delaying the amalgamation of IEL and SGIH or the
amalgamation of SGI and IEL.
10. Default. Each of the following shall constitute an "Event of Default"
under this Funding Agreement:
a. the failure of IEL to pay in full any amount due under the Note by
the date the same is due, as provided therein, and such failure shall continue
for five (5) days after written notice from HIIC to IEL of such failure, or
IEL's failure to pay in fill any amount due hereunder upon maturity of the Note,
by acceleration or otherwise:
b. the failure of IEL to perform, satisfy and observe in all material
respects, when due, any of the obligations, covenants, conditions and
restrictions under the Financing Agreements or the failure of any
representations and warranties thereunder to be true and correct in any material
respect, not involving the payment of money, and such failure shall continue for
fifteen (15) days after written notice from HIIC to IEL of such failure, or if
said failure cannot reasonably be cured within said fifteen (15) day period, IEL
shall not have pursued the cure with reasonable diligence and shall not have
cured such failure within a reasonable time after the written notice from HIIC
to IEL or SGI and SGIH described above;
c. an uncured default by IEL shall exist under the other Financing
Agreements; or
d. an uncured default by either or both of SGI or SGIH shall exist
under any of the Financing Agreements.
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11. General.
a. Notices. All notices and other communications to be delivered or
made hereunder shall be in writing and shall be (i) delivered personally, (ii)
sent by post prepaid certified mail, return receipt requested, (iii) sent by
express courier service, or (iv) sent by facsimile at the following addresses or
such other addresses described in a written notice as provided herein:
IEL and HIIC: 0000 Xxxxxx Xxxx
Xxxxxxx, XX 00000
Attn: Xxxx Xxxxxx
Facsimile No.: 000-000-0000
With a copy to: Xxxx X. XxXxxxxx, Esq.
0000 Xxxxxx Xxxx
Xxxxxxx, XX 00000
Facsimile No.: 000-000-0000
SGI and SGIH: 000 Xxxx Xxxxxx, Xxxxx 0000
Xxxxxxxxx, X.X. X0X 0X0
Attn: Xxxxxxx X. Xxxxx
Facsimile No.: 604-687-8678
With a copy to: Altheimer & Xxxx
00 Xxxxx Xxxxxx Xxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000
Attn: Xxxxxx X. XxXxxx, Esq.
Facsimile No.: 000-000-0000
All such notices and communications shall be deemed effective, if mailed, upon
the expiration of the fifth (5th) day following the date of mailing (except that
any notice of change of address shall be effective only upon receipt by the
party to whom such notice is addressed), if delivered personally or delivered by
courier, upon receipt or refusal of delivery, and if by facsimile, upon the
first business day following confirmed transmission; provided such notice or
communication is also mailed in accordance with the foregoing requirements
within two (2) days of delivery by facsimile.
b. Counterparts. This Agreement and the Financing Agreements may be
executed by the parties hereto in any number of separate counterparts with the
same as if the signatures were upon the same instrument. All such counterparts
shall together constitute but one and the same document.
c. Choice of Law and Forum. This Agreement and the Financing
Agreements shall be governed by and construed in accordance with the laws of the
State of Tennessee. IEL, SGIH and SGI further agree that the determination of
any action relating to this Agreement or any of the Financing Agreements
delivered in favor of Lender pursuant to the terms thereof shall be either an
appropriate court of the State of Tennessee or the United States District Court
for the Western District of Tennessee.
d. Successors and Assigns. All of the terms, covenants, warranties and
conditions contained in this Agreement and the Financing Agreements shall be
binding upon and inure to the sole and exclusive benefit of the parties hereto
and their respective successors and assigns.
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e. Further Assurances. Borrowers, SGI and SGIH will do, execute,
acknowledge and deliver, or cause to be done, executed, acknowledged and
delivered, such amendments or supplements hereto or to any of the Financing
Agreements and such further documents, instruments and transfers as the Lender
may require in connection with or to effect the transactions contemplated hereby
or in any of the Financing Agreements.
IN WITNESS WHEREOF, the parties hereto have affixed their signatures on the
day and date first above written.
INTERACTIVE ENTERTAINMENT LIMITED XXXXXX'X INTERACTIVE INVESTMENT COMPANY
By:/s/ Xxxxxxx Xxxxx By:/s/ Xxxx Xxxxxx
------------------------------ ----------------------
Its:Vice President Its:Senior Vice President
----------------------------- ---------------------
SGI HOLDING CORPORATION LIMITED
By:/s/ Xxxxxxx Xxxxx
------------------------------
Its:President
-----------------------------
SKY GAMES INTERNATIONAL LTD.
By:/s/ Xxxxxxx Xxxxx
------------------------------
Its:President
-----------------------------
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