STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of February 4, 1998, by and between
INTERACTIVE MAGIC, INC., a corporation organized under the laws of the State of
Maryland (the "Company"), and VERTICAL FINANCIAL HOLDINGS, a corporation
organized under the laws of Liechtenstein (the "Investor").
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of Shares
1.1. Agreement to Purchase. Subject to the terms and conditions of
this Agreement and in reliance on the representations, warranties and
agreements of the Company contained herein, the Investor agrees to purchase
at the Closing (as defined in Section 1.2 below), and the Company agrees to
sell and issue to the Investor at the Closing, 1,552,915 shares (the
"Shares") of the Company's Series B Convertible Preferred Stock, par value
$.10 per share (the "Series B Preferred Stock"), for an aggregate purchase
price of $3,500,000 (the "Purchase Price").
1.2. Closing. The purchase and sale of the Shares to be purchased by
the Investor shall take place at the offices of Bachner, Tally, Xxxxxxx &
Xxxxxx LLP, New York, New York, on February 4, 1998, or at such other time
and place as shall be mutually agreed upon between the Investor and the
Company (the "Closing"). At the Closing, the Company shall deliver to the
Investor a certificate or certificates representing the Shares that the
Investor is purchasing, in such names and denominations as the Investor may
request not less than two (2) business days prior to the date of the
Closing, against receipt of a certified check payable to the order of the
Company or a wire transfer of the purchase price to an account designated
by the Company not less than two (2) business days prior to the date of the
Closing.
2. Representations and Warranties of the Company. Except for the exceptions
set forth on the Schedule of Exceptions attached hereto as Exhibit A and
furnished to the Investor, which exceptions shall be deemed to be
representations and warranties as if made hereunder, the Company hereby
represents and warrants to the Investor that:
2.1 Organization, Good Standing, Qualification and Corporate Power.
(a) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Maryland and has
all requisite corporate power and authority to carry on its business
as now conducted and as presently proposed to be conducted. The
Company is duly qualified to transact business, and is in good
standing as a foreign corporation in North Carolina and in each other
jurisdiction in which the failure so to qualify would have a material
adverse effect on its business or properties. True and correct copies
of the Company's Articles of Incorporation, as amended (the "Articles
of Incorporation") and Amended By-laws (the "By-laws") as currently in
effect have been provided to the Investor.
(b) The Company has all requisite legal and corporate power to
execute and deliver this Agreement, the Investors' Rights Agreement of
even date herewith, by and among
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the Company and the Investor, the form of which is attached hereto as
Exhibit B (the "Rights Agreement"), and the Marketing Agreement of
even date herewith, by and among the Company and General Capital, the
form of which is attached hereto as Exhibit C (the "Marketing
Agreement"), to issue and sell the Shares hereunder and to carry out
and perform its obligations under the terms of this Agreement, the
Rights Agreement and the Marketing Agreement.
2.2 Capitalization and Voting Rights. The authorized capital of the
Company consists of:
(a) Preferred Stock. 5,000,000 shares of Preferred Stock, par
value $.10 per share (the "Preferred Stock"), of which (i) 175,000
shares have been designated Series A Convertible Preferred Stock, of
which 248,193 shares are issued and outstanding, (ii) 1,552,915 shares
have been designated Series B Convertible Preferred Stock, of which no
shares will be issued and outstanding until consummation of the
transactions contemplated hereby, and (iii) 265,487 shares have been
designated Series C Convertible Preferred Stock (the "Series C
Preferred Stock"), of which no shares will be issued and outstanding
until consummation of the transactions contemplated hereby. The
rights, privileges and preferences of the Series B Preferred Stock and
Series C Preferred Stock are as stated in the Company's Articles
Supplementary to the Articles of Incorporation, the form of which is
attached hereto as Exhibit D (the "Articles Supplementary").
(b) Common Stock. 10,000,000 shares of Class A Common Stock
(Voting), par value $.10 per share (the "Class A Common Stock"), of
which 6,291,392 shares are issued and outstanding and 10,000,000
shares of Class B Common Stock (Nonvoting), par value $.10 per share
(the "Class B Common Stock"), of which 30,750 shares are issued and
outstanding (the Class A Common Stock and the Class B Common Stock,
collectively, the "Common Stock").
(c) Except for the conversion privileges of the Series A
Convertible Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock and except as otherwise set forth on Exhibit A, there
are not outstanding any options, warrants, rights (including
conversion or preemptive rights) or agreements for the purchase or
acquisition from the Company of any shares of its capital stock. A
list of all holders of 5% or more of shares of capital stock of the
Company is set forth on Exhibit A, together with the number of shares,
options or other derivative securities held by each such person and
entity.
2.3 Subsidiaries. A list of the direct and indirect subsidiaries of
the Company (each, a "Subsidiary") is set forth on Exhibit A, and the
Company does not own, directly or indirectly, any capital stock or other
equity ownership or proprietary interests in any other corporation,
association, trust, partnership, joint venture or other entity. Each
Subsidiary is a corporation duly organized and validly existing under the
laws of the state or country set forth on Exhibit A, and the capital stock
of each Subsidiary set forth on Exhibit A is owned by the Company in the
percentage amounts set forth on Exhibit A free and clear of all liens,
encumbrances, security interests, claims, restrictions on transfer and
other defects in title ("Encumbrances").
2.4 Authorization. This Agreement, the Rights Agreement and the
Marketing Agreement have been duly authorized, executed and delivered by
the Company and constitute the legal, valid and binding obligations of the
Company, enforceable in accordance with their respective terms, except (i)
as limited by applicable bankruptcy, insolvency, reorganization, moratorium
and
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other laws of general application affecting the enforcement of creditors'
rights generally, (ii) as limited by laws relating to the availability of
specific performance, injunctive relief or other equitable remedies and
(iii) to the extent that the indemnification provisions contained in the
Rights Agreement may be limited by applicable laws.
2.5 Valid Issuance of Common Stock.
(a) The issuance, sale and delivery of the Series B Preferred
Stock which is being purchased by the Investor hereunder and the
reservation for issuance of the Class A Common Stock issuable upon
conversion thereof have been duly authorized by all required corporate
action on the part of the Company, and when issued, sold, and
delivered in accordance with the terms hereof for the consideration
expressed herein, will be duly and validly issued, fully paid and
non-assessable and, based in part upon the representations and
warranties of the Investor in this Agreement, will be issued in
compliance with all applicable federal and state securities laws. The
Class A Common Stock issuable upon conversion of the Series B
Preferred Stock purchased under this Agreement has been duly and
validly reserved for issuance and, upon issuance in accordance with
the terms of the Articles of Incorporation and the Articles
Supplementary, shall be duly and validly issued, fully paid, and
non-assessable, and based in part upon the representations and
warranties of the Investor in this Agreement, issued in compliance
with all applicable securities laws, as presently in effect, of the
United States and each of the states whose securities laws govern the
issuance of any of the Series B Preferred Stock hereunder. The Series
B Preferred Stock issued hereunder (and the Class A Common Stock
issuable upon conversion of such Series B Preferred Stock) will be
free and clear from any liens or encumbrances other than those created
by, or imposed upon, the holders thereof through no action of the
Company, other than restrictions on transfer under the Rights
Agreement and under applicable federal and state securities laws.
(b) The outstanding shares of capital stock of the Company are
all duly and validly authorized and issued, fully paid, and
non-assessable, and to the best of the Company's knowledge, were
issued in compliance with all applicable federal and state securities
laws.
2.6 Financial Statements. The Company has delivered to the Investor
its audited consolidated balance sheets as of March 31, 1995, 1996 and
1997, and the related consolidated statements of operations, cash flows and
stockholder's equity as of, and for the fiscal years ended, March 31, 1995,
1996 and 1997 (the "Audited Financial Statements"). The Audited Financial
Statements are complete and correct in all material respects and have been
prepared in accordance with United States generally accepted accounting
principles applied on a consistent basis throughout the periods indicated.
The Company has also provided the Investor with its unaudited consolidated
balance sheet as of September 30, 1997, and the related consolidated
statements of operations, cash flows and stockholder's equity as of, and
for the six months ended, September 30, 1997 (the "Interim Financial
Statements"), certified by the chief financial officer of the Company and
reviewed by the Company's independent accountants. The Company has also
provided the Investor with its unaudited consolidated balance sheets as of
October 31, 1997, November 30, 1997 and December 31, 1997, and the related
consolidated statements of operations, cash flows and stockholder's equity
as of, and for the seven months ended October 31, 1997, the eight months
ended November 30, 1997 and the nine months ended December 31, 1997 (the
"Internal Financial Statements"), certified by the chief financial officer
of the Company. The Audited Financial Statements, the Interim Financial
Statements and the Internal Financial Statements (collectively, the
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"Financial Statements") fairly present the financial condition and results
of operations of the Company on a consolidated basis as of the dates and
during the periods indicated therein, subject to normal year-end audit
adjustments which are neither individually nor in the aggregate expected to
be material. As of the date of the balance sheet included in the Interim
Financial Statements (the "Interim Balance Sheet Date") and except as set
forth in such Interim Financial Statements, to the best of the Company's
knowledge, the Company has no liabilities or obligations of any nature
(absolute, accrued, contingent or otherwise), other than (i) liabilities
incurred in the ordinary course of business, consistent with past
practices, subsequent to the Interim Balance Sheet Date and (ii)
obligations under contracts and commitments incurred in the ordinary course
of business, consistent with past practices, which in the case of both (i)
and (ii) above, individually or in the aggregate, are immaterial to the
financial condition or operating results of the Company, which were not
fully reflected or reserved against in the Financial Statements, and all
reserves established by the Company and set forth on such balance sheet
were adequate for the purposes for which they were established.
2.7 Governmental Consents. Except as listed on Exhibit A, no consent,
approval, order, or authorization of, or registration, qualification,
designation, declaration or filing with, any United States federal, state,
local or provincial governmental authority on the part of the Company or
any Subsidiary is required in connection with (i) the consummation of the
transactions contemplated by this Agreement or (ii) the offer, issuance,
sale and delivery hereunder of the Shares (and the Class A Common Stock
issuable upon conversion of the Shares). To the best of the Company's
knowledge, the Company and each Subsidiary has complied (and in carrying
out their respective businesses the Company and each Subsidiary will be in
compliance) with all laws, ordinances and regulations applicable to it and
its business, which the failure to comply with would, either individually
or in the aggregate, have a materially adverse effect upon the Company and
its Subsidiaries taken as a whole. The Company and each Subsidiary has
obtained all British, German and United States federal, state, local and
foreign governmental licenses and permits material to and necessary in the
conduct of their respective businesses, such licenses and permits are in
full force and effect, no material violations are or have been recorded in
respect of any such licenses or permits, and no proceeding is pending or,
to the best of the Company's knowledge, threatened to revoke or limit any
thereof.
2.8 Litigation. Except as described on Exhibit A hereto, (i) there is
no action, suit, proceeding, or investigation pending or to the Company's
knowledge currently threatened against the Company or any Subsidiary (nor,
to the Company's knowledge, is there any reasonable basis for any such
action, suit, proceeding, or investigation which, if determined adversely
to the Company, would have a material adverse effect on the Company and its
Subsidiaries taken as a whole); (ii) neither the Company nor any Subsidiary
is a party or, to the best of the Company's knowledge, subject to the
provisions of any order, injunction, judgment, or decree of any court or
government agency or instrumentality; and (iii) there is no action, suit,
proceeding or investigation by the Company or any Subsidiary currently
pending or which the Company or any Subsidiary intends to initiate.
2.9 Patents and Trademarks. Except as set forth on Exhibit A hereto,
the Company and each Subsidiary owns or possesses sufficient legal rights
to all Intellectual Property (as defined below) (i) free and clear of all
material liens and encumbrances and (ii) to the best of the Company's
knowledge (but without having conducted any special investigation or patent
search),
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without any conflict with or infringement of the rights of others, if the
effect of such conflict or infringement would materially adversely affect
the Company and its Subsidiaries taken as a whole. Exhibit A attached
hereto contains a complete list of items of Intellectual Property which are
required for the conduct of the business of the Company and each
Subsidiary. Except as shown on Exhibit A, there are no outstanding options,
licenses, or agreements of any kind relating to the Intellectual Property,
nor is the Company or any Subsidiary bound by or a party to any options,
licenses, or agreements of any kind with respect to the patents,
trademarks, service marks, trade names, copyrights, trade secrets,
licenses, information, proprietary rights, and processes of any other
person or entity. To the best of the Company's knowledge (but without
having conducted any special investigation or patent search), the
Intellectual Property does not violate any of the patents, trademarks,
service marks, trade names, copyrights, or trade secrets or other
proprietary rights of any other person or entity. The Company is not aware
that any of the employees of the Company or any Subsidiary is obligated
under any contract (including licenses, covenants, or commitments of any
nature) or other agreement, or subject to any judgment, decree or order of
any court or administrative agency, that would interfere with the use of
such employee's best efforts to promote the interests of the Company and
such Subsidiary, as the case may be, or that would conflict with the
business of the Company or such Subsidiary as proposed to be conducted.
Except as disclosed on Exhibit A, none of the past or present employees,
officers, directors, shareholders or consultants of the Company or any
Subsidiary has any ownership or any other material rights in any of the
Intellectual Property. Neither the execution nor delivery of this
Agreement, the Rights Agreement or the Marketing Agreement nor the carrying
on of the business of the Company and each Subsidiary by the employees of
the Company and each Subsidiary, nor the conduct of the business of the
Company and each Subsidiary as proposed, will, to the Company's knowledge,
conflict with or result in a breach of the terms, conditions or provisions
of, or constitute a default under, any contract, covenant or instrument
under which any of such employees is now obligated. Exhibit A sets forth
all copyrights owned by the Company and each Subsidiary and all copyright
applications which have been made by the Company and each Subsidiary.
"Intellectual Property" includes all patents, patent applications,
trademarks (whether or not registered), trade names, service marks (whether
or not registered), trademark and service xxxx registrations (and pending
applications therefor), copyrights, computer software (including without
limitation all object code and source code owned by the Company or any
Subsidiary or authored or developed for the Company or any Subsidiary by
any of their respective employees or agents), licenses, sublicenses and
franchise agreements of the Company or any Subsidiary, and all know-how,
formulae, processes, techniques, confidential business information,
designs, patterns, shapes, inventions (whether or not patented or
patentable), trade secrets and other proprietary information and technology
used in the business of the Company and each Subsidiary or required to
operate such business.
2.10 Compliance with Other Instruments. Except as noted in Exhibit A
hereto, neither the Company nor any Subsidiary is in violation or default
of any provisions of its respective Articles of Incorporation or By-laws
(or other organizational documents) or of any instrument, judgment, order,
writ, decree, or contract to which it is a party or by which it is bound
or, to the Company's knowledge, of any provision of British, German,
federal or state statute, rule or regulation, license, or permit applicable
to the Company or any Subsidiary, the violation or default of which would
have a material adverse effect on the Company and its Subsidiaries taken as
a whole. The execution, delivery, and performance of this Agreement, the
Rights Agreement and the Marketing Agreement and the consummation of the
transactions contemplated hereby and thereby will not result in any such
violation or be in conflict with or constitute, with or without the passage
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of time and giving of notice, either a material default under any such
provision, instrument, judgment, order, writ, decree, or contract or an
event which results in the creation of any material lien, charge, or
encumbrance upon any assets of the Company or any Subsidiary. The Company
does not have any knowledge of any termination or material breach or
anticipated termination or material breach by the other parties to any
material contract or commitment to which the Company or any Subsidiary is a
party or to which any of the Company's or any Subsidiary's assets is
subject. To the Company's knowledge, there are no warranty claims or other
uninsured claims against the Company or any Subsidiary under completed
contracts which might involve a material monetary liability which is not
reserved against in the Financial Statements.
2.11 Agreements; Action.
(a) Except as listed on Exhibit A hereto and except for
agreements explicitly contemplated hereby and standard employee
benefits and salaries paid in compensation for services rendered,
there are no agreements, understandings, or proposed transactions
between the Company or any Subsidiary and any of their respective
officers, directors, affiliates, or any affiliate thereof.
(b) Except as listed on Exhibit A hereto, there are no
agreements, understandings, instruments, contracts or proposed
transactions to which the Company or any Subsidiary is a party or by
which it is bound which (i) involve obligations (contingent or
otherwise) of, or payments to, the Company or any Subsidiary in excess
of, $100,000, (ii) are material to the conduct and operations of the
Company's or any Subsidiary's business or properties, including,
without limitation, the license of any patent, copyright, trade
secret, or other proprietary rights to or from the Company or any
Subsidiary or provisions restricting or affecting the development,
manufacture, or distribution of the Company's or any Subsidiary's
products or services, or (iii) involve any employment or consulting
arrangement, whether written or oral, between the Company or any
Subsidiary and any person, except for oral agreements which may be
terminated by the Company or any Subsidiary at will.
(c) Except as listed on Exhibit A hereto, since the Interim
Balance Sheet Date, neither the Company nor any Subsidiary has (i)
declared or paid any dividends, or authorized or made any distribution
upon or with respect to any class or series of its capital stock, (ii)
incurred any indebtedness for money borrowed or any other liabilities
individually in excess of $100,000 or, in the case of indebtedness
and/or liabilities individually less than $100,000, in excess of
$200,000 in the aggregate, (iii) made any loans or advances that have
not been repaid to any person, other than ordinary advances for travel
expenses, or (iv) sold, exchanged, or otherwise disposed of any of its
assets or rights, other than the sale of its inventory in the ordinary
course of business.
(d) For the purposes of subsections (b) and (c) above, all
indebtedness, liabilities, agreements, understandings, instruments,
contracts, and proposed transactions involving the same person or
entity (including persons or entities the Company or any Subsidiary
has reason to believe are affiliated therewith) shall be aggregated
for the purpose of meeting the individual minimum dollar amounts of
such subsections.
2.12 Disclosure. The Company has fully provided the Investor with a
copy of the Company's most recently available financial projections (the
"Projections") and all other information which the Investor has requested
for deciding whether to purchase the Shares sold
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hereunder. The Projections were prepared by the Company in good faith and
were carefully reviewed by management of the Company, and the Company
believes that the assumptions underlying the Projections were reasonable.
Neither this Agreement, nor any other statements or certificates made or
delivered by the Company or its employees in connection herewith, contains
any untrue statement of a material fact or omits to state a material fact
necessary to make the statements herein or therein not misleading in light
of the circumstances in which they were made.
2.13 Registration Rights. Except as provided in Section 1 of the
Rights Agreement, and as set forth on Exhibit A hereto, the Company has not
granted or agreed to grant any registration rights, including piggyback
rights, to any person or entity.
2.14 Title to Property and Assets. Except as set forth on Exhibit A
hereto, the Company and each Subsidiary has good and marketable title to
the property and assets it owns free and clear of all mortgages, liens,
loans, and encumbrances, except such encumbrances and liens which arise in
the ordinary course of business and do not materially impair the Company's
or such Subsidiary's ownership or use of such property or assets. With
respect to the property and assets it leases, the Company and each
Subsidiary is in material compliance with such leases and, to its
knowledge, holds a valid leasehold interest free of any liens, claims, or
encumbrances. All of the Company's and each Subsidiary's properties and
assets are, in all material respects, in good operating and usable
condition, subject to normal wear and tear.
2.15 Labor Agreements and Actions; Employee Benefits. Neither the
Company nor any Subsidiary is bound by or subject to (and none of their
respective assets or properties are bound by or subject to) any written or
oral, express or implied, contract, commitment, or arrangement with any
labor union, and no labor union has requested or, to the knowledge of the
Company, has sought to represent any of the employees, representatives, or
agents of the Company or any Subsidiary. There is no strike or other labor
dispute involving the Company or any Subsidiary pending, or, to the
knowledge of the Company, threatened, which could have a material adverse
effect on the assets, properties, financial condition, operating results,
or business of the Company and its Subsidiaries taken as a whole (as such
business is presently conducted and as it is proposed to be conducted), nor
is the Company aware of any labor organization activity involving its
employees. Except as set forth on Exhibit A, neither the Company nor any
Subsidiary has any employment contract, deferred compensation agreement or
bonus, incentive or profit-sharing plans currently in force and effect, and
there are no existing or proposed material arrangements or transactions
between the Company or any Subsidiary and any officer or director or holder
of capital stock of the Company or any Subsidiary, other than transactions
referred to in this Agreement. To the best of the Company's knowledge, no
officer or key employee of the Company or any Subsidiary is in violation of
(a) any material term of any employment agreement, non-disclosure
agreement, noncompete agreement or other similar agreement with any
previous employer of such employee (and the employment of such employee
with the Company or any Subsidiary will not result in a violation of any
such agreement) or (b) any obligation binding on such employee which would
prohibit the use of information obtained from such employee which the
Company or any Subsidiary has used or proposes to use.
2.16 Tax Matters. Except as set forth on Exhibit A hereto, the Company
and each Subsidiary (i) has timely filed all tax returns that are required
to have been filed by it with all appropriate governmental agencies (and
all such returns are true and correct in all material respects and fairly
reflect its operations for tax purposes); and (ii) has paid all taxes owed
or
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assessments by it (other than taxes the validity of which are being
contested in good faith by appropriate proceedings and which are reserved).
The assessment of any additional taxes for periods for which returns have
been filed is not expected to exceed the recorded liability therefor and,
to the Company's knowledge, there are no material unresolved questions or
claims concerning the Company's or any Subsidiary's tax liability. Neither
the Company's nor any Subsidiary's tax returns have been audited by any
taxing authority. There is no pending dispute with any taxing authority
relating to any of said returns.
2.17 Insurance. All insurable properties of the Company and each
Subsidiary are insured for the benefit of the Company or the respective
Subsidiary against such risks as are usually insured against, and in such
amounts as are usually obtained, by persons owning or operating similar
properties in the locality where such properties are located, under
policies issued by insurers of recognized responsibility. Exhibit A hereto
sets forth a description of the liability insurance carried by the Company
and each Subsidiary, including policy amounts, deductibles, carriers and
coverage.
3. Representations and Warranties of the Investor. The Investor hereby
represents and warrants to the Company that:
3.1 Authorization. This Agreement and the Rights Agreement constitute
its valid and legally binding obligations, enforceable in accordance with
their terms. The Investor represents that it has full power and authority
to enter into this Agreement and the Rights Agreement.
3.2 No Unregistered Distribution. The Shares to be received by the
Investor pursuant to the terms hereof (and the Class A Common Stock
issuable upon conversion thereof) will be acquired for investment for the
Investor's own account, without any view to the unregistered public
distribution or resale thereof and, except with respect to certain
assignees of the Investor who may participate in the purchase of the Shares
at the Closing, the Investor represents that it does not currently have any
contract, undertaking, agreement or arrangement with any person to sell or
transfer any of the Shares; provided, that such representations shall not
in any way prejudice the right of the Investor at any time lawfully to sell
or otherwise to dispose of all or any part of the Shares (and the Class A
Common Stock issuable upon conversion thereof) pursuant to registration or
any exemption therefrom under the Securities Act of 1933, as amended (the
"Act"), and applicable state securities laws.
3.3 Restricted Securities. The Investor understands that the Shares it
is purchasing (and the Class A Common Stock issuable upon conversion
thereof) are characterized as "restricted securities" under the federal
securities laws inasmuch as they are being acquired from the Company in a
transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration
under the Act only in certain limited circumstances.
3.4 Accredited Investor Status. The Investor represents and warrants
that it is an "accredited investor" within the meaning of Rule 501(a) of
Regulation D, promulgated under the Act.
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3.5 Legends. It is understood that the certificates evidencing the
Shares (and the Class A Common Stock issuable upon conversion thereof) may
bear one or all of the following legends:
(a) "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION
STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR
AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT."
(b) Any legend required by the laws of the State of Maryland.
The legend referred to in clause (a) above shall be removed by the
Company from any certificate at such time as the holder of the Shares (or
the Class A Common Stock issuable upon conversion thereof) represented by
the certificate delivers an opinion of counsel reasonably satisfactory to
the Company to the effect that such legend is not required in order to
establish compliance with any provisions of the Act, or at such time as the
holder of such shares satisfies the requirements of Rule 144(k) under the
Act, provided that Rule 144(k) as then in effect does not differ
substantially from Rule 144(k) as in effect as of the date of this
Agreement, and provided further that the Company has received from the
holder a written representation that such holder satisfies the requirements
of Rule 144(k) as then in effect with respect to such shares.
3.6 Information. The Investor represents that it has had an
opportunity to ask questions and receive answers from the Company regarding
the terms and conditions of the offer and sale of the Shares hereunder and
the business, properties, prospects, and financial condition of the
Company; however, this representation does not limit or modify the
representations and warranties of the Company in Section 2 hereof or the
right of the Investor to rely thereon.
3.7 Foreign Investor. The Investor represents that it is satisfied as
to the full observance of the laws of its jurisdiction in connection with
the offer and sale of the Shares hereunder, including (i) the legal
requirements of the Investor's jurisdiction for the purchase of the Shares,
(ii) any foreign exchange restrictions applicable to such purchase, (iii)
any governmental or other consents that may need to be obtained, and (iv)
the income tax and other tax consequences, if any, which may be relevant to
the purchase, holding, sale or transfer of the Shares. The Investor's
subscription and payment for, and continued beneficial ownership of, the
Shares will not result in any material violation of any applicable
securities or other laws of the Investor's jurisdiction.
4. Conditions of Investor's Obligations at Closing. The obligations of the
Investor under subsection 1.2 of this Agreement are subject to the fulfillment
on or before the Closing of each of the following conditions, the waiver of
which shall not be effective against the Investor unless the Investor has
consented in writing thereto:
4.1 Representations and Warranties. The representations and warranties
of the Company contained in Section 2 shall be true and correct on and as
of the Closing with the same effect as though such representations and
warranties had been made on and as of the date of the Closing.
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4.2 Performance. The Company shall have performed and complied with
all agreements, obligations, and conditions contained in this Agreement
that are required to be performed or complied with by it on or before the
Closing.
4.3 Compliance Certificate. The President and Chief Financial Officer
of the Company shall deliver to the Investor at the Closing a certificate
certifying that the relevant conditions specified in Sections 4.1 and 4.2
have been fulfilled.
4.4 Secretary's Certificate. The Secretary of the Company shall
deliver to the Investor at the Closing a certificate certifying: (i) that
attached thereto is a true and complete copy of the By-laws as in effect at
the Closing; (ii) that attached thereto is a true and complete copy of all
resolutions adopted by the Board of Directors and the stockholders of the
Company authorizing the transactions contemplated hereby and that such
resolutions have not been amended or modified and are in full force and
effect; (iii) that the Articles of Incorporation (a true and correct copy
of which are attached) have not been further amended since January 21,
1997; (iv) to the incumbency and specimen signatures of each officer of the
Company executing this Agreement and the other agreements and certificates
contemplated hereby.
4.5 Qualifications. The Company shall have obtained all necessary Blue
Sky law permits and qualifications, or secured exemptions therefrom,
required by any state for the offer and sale of the Shares hereunder.
4.6 Opinions of Company Counsel. The Investor shall have received from
Smith, Anderson, Blount, Dorsett, Xxxxxxxx & Xxxxxxxx, L.L.P., special
counsel for the Company, an opinion, dated as of the Closing, in the form
attached hereto as Exhibit E.
4.7 Articles Supplementary. The Articles Supplementary in the form
attached hereto as Exhibit D shall have been filed with the Secretary of
State of the State of Maryland on or prior to the Closing.
4.8 Consents and Waivers. The Company shall have obtained any and all
consents and waivers necessary or appropriate for consummation of the
transactions contemplated by this Agreement and the Rights Agreement.
4.9 Rights Agreement. The Company and the Investor shall have executed
and delivered the Rights Agreement.
4.10 Marketing Agreement. The Company and General Capital shall have
executed and delivered the Marketing Agreement.
4.11 Conversion of Indebtedness. The Investor shall have received
evidence satisfactory to it and its counsel that (i) an aggregate of at
least $2,000,000 of indebtedness of the Company to the Chairman of the
Board of the Company shall have been converted into Class A Common Stock at
a conversion price equal to $2.26 and (ii) an aggregate of at least
$600,000 of indebtedness of the Company to the President of the Company
shall have been converted into Series C Preferred Stock.
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5. Conditions of Company's Obligations at Closing. The obligations of the
Company under subsection 1.2 of this Agreement are subject to the fulfillment on
or before the Closing of the following conditions, the waiver of which shall not
be effective against the Company unless the Company has consented in writing
thereto:
5.1 Representations and Warranties. The representations and warranties
of the Investor contained in Section 3 shall be true and correct on and as
of the Closing with the same effect as though such representations and
warranties had been made on and as of the date of the Closing.
5.2 Qualifications. The Company shall have obtained all necessary Blue
Sky law permits and qualifications, or secured exemptions therefrom,
required by any state for the offer and sale of the Shares hereunder.
6. Covenants of the Company and the Investor
6.1 Sale Event.
(a) The Company agrees that it shall use its best efforts to
prepare and file with the Securities and Exchange Commission (the
"SEC") a registration statement on Form S-1 or SB-2 (or any equivalent
successor form) under the Act relating to a firm commitment
underwritten initial public offering of securities (an "IPO") no later
than June 30, 1998 and, subject to the Investor's rights pursuant to
Section 6.1(b) below, that it shall use its best efforts to consummate
such IPO or another Sale Event (defined below) no later than September
30, 1998; provided, that the Company shall have no liability for the
breach of such covenants if, after using its best efforts and in the
reasonable exercise of its fiduciary duty, the Board of Directors of
the Company determines that it would not be in the best interests of
the Company to consummate such IPO or other Sale Event. A "Sale Event"
shall include (i) an IPO, (ii) the consummation by the Company of a
merger or consolidation or other acquisition transaction in which more
than fifty percent (50%) of the voting power of the Company is
transferred (excluding any merger effected exclusively for the purpose
of changing the domicile of the Company) or (iii) a sale or other
disposition of all or substantially all of the assets of the Company.
(b) No Sale Event in which the Company Valuation (as defined in
the Articles Supplementary) is less than $50,000,000 will be
consummated by the Company without the prior written consent of the
Investor.
7. Indemnification
7.1. Indemnification by the Company. The Company shall indemnify
Investor and each of its officers and directors and hold each of them
harmless from, against and in respect of, and shall on demand reimburse
such persons for all of their losses, liabilities, damages, costs and
expenses arising from any misrepresentation or breach of any
representation, warranty, covenant or agreement on the part of the Company
under this Agreement, and any and all actions, suits, proceedings,
elections, demands, assessments, judgments, costs and expenses, including
without limitation, reasonable legal fees and expenses actually incurred,
incident to any of the
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foregoing or incurred in investigating or attempting to avoid same or to
oppose the imposition thereof, or in enforcing this indemnity.
Notwithstanding the foregoing, in the event that a court of competent
jurisdiction having final adjudicative authority and from which no appeal
is available shall determine that the Investor or such other person is not
entitled to indemnification, then the Investor or such other person, as the
case may be, shall not be entitled to recover its legal fees with respect
to such claim from the Company.
7.2. Indemnification by Investor. The Investor shall indemnify the
Company and each of its officers and directors and hold each of them
harmless from, against and in respect of, and shall on demand reimburse
such persons for all of their losses, liabilities, damages, costs and
expenses arising from or in connection with any misrepresentation or breach
of any representation, warranty, covenant or agreement on the part of the
Investor under this Agreement, and any and all actions, suits, proceedings,
elections, demands, assessments, judgments, costs and expenses, including
without limitation, reasonable legal fees and expenses actually incurred,
incident to any of the foregoing or incurred in investigating or attempting
to avoid same or to oppose the imposition thereof, or in enforcing this
indemnity. Notwithstanding the foregoing in the event that a court of
competent jurisdiction having final adjudicative authority and from which
no appeal is available shall determine that the Company or such other
person is not entitled to indemnification then the Company or such other
person, as the case may be, shall not be entitled to recover its legal fees
with respect to such claim from the Investor.
7.3. Procedures for Indemnification. Promptly after receipt by an
indemnified party under sections 7.1 or 7.2 of notice of the commencement
of any action for which indemnification may be available under section 7.1
or 7.2 such indemnified party shall, if a claim in respect thereof is to be
made against an indemnifying party under such section, give notice to the
indemnifying party of the commencement thereof, but the failure so to
notify the indemnifying party shall not relieve it of any liability that it
may have to any indemnified party except to the extent the indemnifying
party demonstrates that the defense of such action is prejudiced thereby.
In case any such action shall be brought against an indemnified party and
it shall give notice to the indemnifying party of the commencement thereof,
the indemnifying party shall be entitled to participate therein and, to the
extent that it shall elect, to assume the defense thereof with counsel
reasonably satisfactory to such indemnified party and, after notice from
the indemnifying party to such indemnified party of its election so to
assume the defense thereof, the indemnifying party shall not be liable to
such indemnified party under such section for any fees of other counsel or
any other expenses, in each case subsequently incurred by such indemnified
party in connection with the defense thereof, other than reasonable costs
of investigation and costs and expenses of legal counsel, if the
indemnified party and the indemnifying party are both parties to the action
and the indemnified party has been advised by counsel that there may be one
or more defenses available to it and not available to the indemnifying
party. If an indemnifying party assumes the defense of such an action, (a)
no compromise or settlement thereof may be effected by the indemnifying
party without the indemnified party's consent (which shall not be
unreasonably withheld) unless (i) there is no finding or admission of any
violation of law or any violation of the rights of any person and no effect
on any other claims that may be made against the indemnified party or (ii)
the sole relief provided is monetary damages that are paid in full by the
indemnifying party and (b) the indemnifying party shall have no liability
with respect to any compromise or settlement thereof effected without its
consent (which shall not be unreasonably withheld). If notice is given to
an indemnifying party of the commencement of any action and it does not,
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within ten business days after the indemnified party's notice is given,
give notice to the indemnified party of its election to assume the defense
thereof, the indemnifying party shall be bound by any determination made in
such action or any compromise or settlement thereof effected by the
indemnified party. Notwithstanding the foregoing, if an indemnified party
determines in good faith that there is a reasonable probability that an
action may materially and adversely affect it or its affiliates other than
as a result of monetary damages, such indemnified party may, by notice to
the indemnifying party, assume the exclusive right to defend such action,
but the indemnifying party shall have the right to participate in such
action and not be bound by any determination of an action so defended or
any compromise or settlement thereof effected without its consent (which
shall not be unreasonably withheld).
8. Miscellaneous
8.1 Survival of Warranties. The warranties, representations, and
covenants of the Company and the Investor contained in or made pursuant to
this Agreement shall survive the execution and delivery of this Agreement
and the Closing until one month following the delivery to the Investor of
the Company's financial statements for the fiscal year ending March 31,
1999 (together with an opinion of the Company's independent auditors) and
shall in no way be affected by any investigation of the subject matter
thereof made by or on behalf of the Investor or the Company; provided, that
covenants and agreements contained in or made pursuant to this Agreement
which by their terms are required to be performed or complied with after
such time shall survive until they are, by their terms, no longer
applicable.
8.2 Successors and Assigns. Except as otherwise provided herein, the
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties. Nothing
in this Agreement, express or implied, is intended to confer upon any party
other than the parties hereto or their respective successors and assigns
any rights, remedies, obligations, or liabilities under or by reason of
this Agreement, except as expressly provided in this Agreement.
8.3 Governing Law. This Agreement shall be governed by and construed
under the laws of the State of New York, disregarding any New York
principles of conflicts of laws that would otherwise provide for the
application of the substantive laws of another jurisdiction.
8.4 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
8.5 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
8.6 Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be
deemed effectively given upon personal delivery to the party to be
notified, upon delivery by registered or certified mail, postage prepaid,
return receipt requested and addressed to the party to be notified at the
address indicated for such party on the signature page hereof, or at such
other address as such party may designate by ten
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(10) days' advance written notice to the other parties, with a copy for the
Company to Smith, Anderson, Blount, Dorsett, Xxxxxxxx & Xxxxxxxx, L.L.P.,
P.O. Box 2611, 0000 Xxxxx Xxxxx Xxxxxxx Xxxxxx, Xxxxxxx, Xxxxx Xxxxxxxx
00000, Attention: Xxxxxx X. Xxxxx, Esq. and a copy for the Investor to
Bachner, Tally, Xxxxxxx & Xxxxxx, LLP, 000 Xxxxxxx Xxxxxx, Xxx Xxxx, Xxx
Xxxx 0000-0000, Attention: Xxxx X. Xxxxxxxx, Esq.
8.7 Finder's Fee. Except as set forth on Exhibit A hereto, each party
represents that it neither is nor will be obligated for any finder's fee or
commission in connection with this transaction. The Company agrees to
indemnify and hold harmless the Investor from any liability for any
commission or compensation in the nature of a finder's fee (and the costs
and expenses of defending against such liability or asserted liability) for
which the Company or any of its officers, employees, or representatives is
responsible. The Investor agrees to indemnify and hold harmless the Company
from any liability for any commission or compensation in the nature of a
finder's fee (and the costs and expenses of defending against such
liability or asserted liability) for which the Investor or any of its
officers, employees or representatives is responsible.
8.8 Entire Agreement; Amendments and Waivers. This Agreement
constitutes the full and entire understanding and agreement between the
parties with regard to the subjects hereof. Any term of this Agreement may
be amended and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the
Investor. Any amendment or waiver effected in accordance with this Section
8.8 shall be binding upon each holder of any securities purchased under
this Agreement at the time outstanding (including securities into which
such securities are convertible), each future holder of all such
securities, and the Company.
8.9 Severability. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted
as if such provision were so excluded and shall be enforceable in
accordance with its terms.
8.10 Expenses. Whether or not the transactions contemplated by this
Agreement shall be consummated, each party agrees that all fees and
expenses incurred by it in connection with this Agreement and the
transactions contemplated hereby shall be borne by it, including, without
limitation, all fees of counsel, actuaries and accountants.
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IN WITNESS WHEREOF, the parties hereto have caused this Stock Purchase
Agreement to be duly executed all as of the day and year first above written.
INTERACTIVE MAGIC, INC.
By: /s/ Xxxxxx X. Xxxxxxx
____________________________________________
Name: Xxxxxx X. Xxxxxxx
Title: President
Address: X.X. Xxx 00000
Xxxxxxxx Xxxxxxxx Xxxx, XX 00000
VERTICAL FINANCIAL HOLDINGS
By: /s/ Xxxxx Xxxx
____________________________________________
Name: Xxxxx Xxxx
Title: Chairman
Address: Xxxxxxxxxxxxxxxxxxxx 00
XX-0000 Xxxxxxxxxx, Xxxxxxxxxxx
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