INVESTMENT AGREEMENT
Exhibit
10.1
Execution
Copy
INVESTMENT
AGREEMENT (this “Agreement”) dated as of
September 30, 2008, is by and among Las Vegas Gaming, Inc., a Nevada corporation
(the “Company”), and
IGT, a Nevada corporation (the “Investor”).
RECITAL
The
Company intends to sell to the Investor, and the Investor intends to purchase
from the Company, shares of a series of convertible perpetual cumulative
preferred stock (the “Convertible Preferred
Stock”), to be evidenced by share certificates incorporating the terms
and attributes set forth in Exhibit A (the “Certificate of
Designations”), and a warrant for the purchase of Common Stock and Common
Stock Series A of the Company, all on the terms and subject to the conditions
set forth herein.
NOW
THEREFORE, in consideration of the foregoing and the mutual covenants herein
contained, the parties hereto hereby agree as follows:
Section
1. Definitions. The
following terms used herein will have the meanings set forth below or in the
section cross-referenced below, as applicable:
“Advance Agreement” means that
certain Agreement dated July 17, 2008, as thereafter amended, between the
Company and Investor, pursuant to which Investor advanced the sum of $1,500,000
to the Company on the terms set forth therein.
“Ad-Line” means Ad-Line
Network Holdings, Inc., a Georgia corporation, and its
subsidiaries.
“Ad-Line Acquisition” means
the proposed repurchase and termination by the Company of all of the
intellectual property license(s) the Company has previously granted to Ad-Line,
in consideration for which the Company will issue 750,000 shares of Common
Stock, such repurchase to otherwise be on terms reasonably acceptable to
Investor.
“Affiliate” has the meaning
set forth in Rule 12b-2 under the Exchange Act.
“Agreement” has the meaning
set forth in the preamble and as this Agreement may be amended, modified or
supplemented.
“Benefit Plan” means all
employee welfare benefit plans within the meaning of Section 3(1) of ERISA, all
employee pension benefit plans within the meaning of Section 3(2) of ERISA,
including, but not limited to, plans that provide retirement income or result in
a deferral of income by employees for periods extending to termination of
employment or beyond, and plans that provide medical, surgical, or hospital care
benefits or benefits in the event of sickness, accident, disability, death
or
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unemployment,
and all other employee benefit agreements or arrangements, including, but not
limited to, all bonus, incentive, deferred compensation, vacation, stock
purchase, stock option, stock award, severance, employment, change of control,
golden-parachute, consulting, dependent care, cafeteria, employee assistance,
scholarship, or fringe benefit or similar plans, programs, agreements or
policies, in all cases whether written, unwritten or otherwise, funded or
unfunded, and whether or not ERISA is applicable to such plan, program,
agreement or policy.
“Board of Directors” means the
Board of Directors of the Company.
“Business Day” means any day
that is not a Saturday, a Sunday or a day on which banking institutions are
required or permitted by law or other governmental action to be closed in the
State of Nevada.
“CAMOFI” means CAMOFI Master
LDC, a Cayman Islands limited duration company.
“CAMOFI Debt” means all
existing indebtedness owing by the Company or any of its subsidiaries to CAMOFI
or any of CAMOFI’s Affiliates, including any accrued but unpaid interest thereon
and including any prepayment penalties or other obligations, including without
limitation, the indebtedness under and pursuant to the Amended and Restated
Senior Secured Convertible Note due January 1, 2010 and any related
agreements.
“CAMOFI Satisfaction and Termination
Agreement” means that certain Satisfaction and Termination Agreement,
pursuant to which (a) CAMOFI confirms the amount of the CAMOFI Debt due and
owing by the Company and its subsidiaries to CAMOFI, (b) CAMOFI confirms that
upon receipt of such amount, all liabilities and obligations owing by the
Company and its subsidiaries to CAMOFI and its Affiliates will be paid in full,
and that all liens, security interests and other claims by CAMOFI or any of its
Affiliates on any assets of the Company and any of its subsidiaries are
released, (c) CAMOFI agrees that all existing agreements between the Company and
any of its subsidiaries, on the one hand, and CAMOFI and any of its Affiliates,
on the other hand, are terminated (except for the CAMOFI Warrants) and (d)
CAMOFI and the Company agree to a mutual release; all of the foregoing on terms
otherwise acceptable to Investor.
“CAMOFI Warrants” means (i)
that certain Common Stock Purchase Warrant dated March 31, 2006 pursuant to
which the Company granted CAMOFI the right to purchase up to 2,500,000 shares of
Common Stock, and (ii) that certain Common Stock Purchase Warrant dated
March 21, 2007 pursuant to which the Company granted CAMOFI the right to
purchase up to 175,000 shares of Common Stock.
“Certificate of Designations”
has the meaning set forth in the recital.
“Closing” has the meaning set
forth in Section
2(b).
“Closing Date” has the meaning
set forth in Section
2(b).
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“Commission” means the United
States Securities and Exchange Commission, or any successor agency
thereto.
“Common Stock” means the
Common Stock, par value $.001 per share, of the Company.
“Common Stock Series A” means
the Common Stock Series A, par value $.001 per share, of the
Company.
“Company” has the meaning set
forth in the preamble.
“Company Financial Statements”
has the meaning set forth in Section
3(f).
“Company Regulatory Approvals”
means the filing of the Certificate of Designations with the Secretary of State
of the State of Nevada by the Company.
“Company SEC Documents” has
the meaning set forth in Section
3(e).
“Company Significant
Agreement” means any contract or agreement that is a “material contract”
within the meaning of Item 601(b)(10) of Regulation S-K to be performed in whole
or in part after the date of this Agreement or that is otherwise material to the
Company or its prospects.
“Competitor”
means any gaming equipment or gaming software supplier with aggregate gross
revenue greater than $100,000,000 in any annual period.
“Conversion Shares” means the
shares of Common Stock and Common Stock Series A issuable or to be issued upon
conversion of the Preferred Shares, as determined pursuant to Section
10(a)(ii).
“Convertible Preferred Stock”
has the meaning set forth in the recitals.
“Disclosure Schedule” means
the Disclosure Schedule dated as of the date hereof and attached to this
Agreement.
“ERISA” means the Employee
Retirement Income Security Act of 1974, as amended.
“Exchange Act” means the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated by the Commission thereunder.
“GAAP” has the meaning set
forth in Section
3(f).
“Governmental Entity” means
any court, administrative agency or commission or other governmental authority
or instrumentality, whether federal, state, local or foreign, and any applicable
industry self-regulatory organization, including the Nevada Gaming Commission
and the Nevada Gaming Control Board.
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“Intellectual Property Access
Agreement” means that certain Intellectual Property Access Agreement
between the Company and Investor in substantially the form attached hereto as
Exhibit
C.
“Investment Company Act” means
the Investment Company Act of 1940, as amended.
“Investor” has the meaning set
forth in the preamble.
“Investor Regulatory
Approvals” means the qualification or approval of the Investor as a
“suitable investor” (or similar designation) with respect to its investment in
the Company as contemplated herein, including with respect to the Preferred
Shares, the Conversion Shares, the Warrant and the Warrant Shares.
“License and Application Support
Agreement” means that certain License and Support Agreement between the
Company and Investor in substantially the form attached hereto as Exhibit
D.
“Material Adverse Effect” or
“Material Adverse
Change” means any circumstance, event, change, development or effect
that, individually or in the aggregate, (i) is material and adverse to the
business, assets, results of operations, financial condition, or prospects of
the Company and its subsidiaries taken as a whole or (ii) would materially
impair the ability of the Company to perform its obligations under this
Agreement or to consummate a Closing.
“Minimum Investment” means
that number of shares of Common Stock and Common Stock Series A (or any class of
securities successor thereto) equal to at least 5% of the total number of shares
of Common Stock and Common Stock Series A acquired by Investor on the Closing
Date, assuming for purposes of this computation the conversion of all of the
Convertible Preferred Stock and the exercise in full of the Warrant as of the
Closing Date. Minimum Investment pursuant to Section 10(c) will be
computed without giving effect to any stock splits, reverse stock splits or
other similar events that may occur following the Closing Date.
“Person” means an individual,
corporation, partnership, association, joint stock company, limited liability
company, joint venture, trust, Governmental Entity, unincorporated organization
or other legal entity.
“Preferred Shares” has the
meaning set forth in Section
2(a).
“Registrable Securities” means
all shares of Common Stock issued or issuable directly or indirectly with
respect to the shares of Convertible Preferred Stock or the Warrant, by way of
conversion, exercise or exchange thereof or share dividend or share split or in
connection with a combination of shares, recapitalization, reclassification,
merger, amalgamation, arrangement, consolidation, or other
reorganization. As to any securities constituting Registrable
Securities, such securities will cease to be Registrable Securities when (i) a
registration statement with respect to the sale by the holder thereof is
declared effective under the Securities Act and such securities
have
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been
disposed of in accordance with such registration statement, (ii) they have been
acquired by the Company, (iii) they have been sold to the public pursuant to
Rule 144 or other exemption from registration under the Securities Act, or (iv)
they are able to be sold in their entirety by the Investor or transferee holding
such securities pursuant to Rule 144 under the Securities Act without volume or
other limitations.
“Regulation S-K” means
Regulation S-K, which specifies the standard instructions for filing forms with
the Commission under the Securities Act and the Exchange Act.
“Regulation S-X” means
Regulation S-X, which specifies the specific format and content of financial
reports for filings with the Commission under the Securities Act and Exchange
Act.
“Regulatory Approvals” means
the receipt of approvals and authorizations (including gaming approvals and
authorizations) of filings and registrations with or notifications to, to the
extent applicable and required to permit the Investor to acquire and own the
Preferred Shares and the Warrant, to convert the Investor’s Preferred Shares
into Conversion Shares and to own such Conversion Shares, and to exercise the
Warrant for Warrant Shares and to own such Warrant Shares without the Investor
being in violation of any applicable law or regulation.
“Retrofit License Agreement”
means that certain Retrofit License Agreement between the Company and Investor
in substantially the form attached hereto as Exhibit
E.
“Rule 144” means Rule 144
promulgated under the Securities Act.
“Xxxxxxxx-Xxxxx Act” has the
meaning set forth in Section
3(s).
“Securities Act” means the
Securities Act of 1933, as amended, and the rules and regulations promulgated by
the Commission thereunder.
“Stockholder Consents” means
the due and binding consent by the holders of each series of outstanding
preferred stock of the Company to (i) extinguishment, on terms satisfactory to
the Investor, of any and all rights that could conflict with, interfere with,
impede, delay, or hinder any of the rights, designations, preferences, or
privileges of the Preferred Shares under the Certificate of Designations and
(ii) extinguishment, on terms satisfactory to the Investor, of any and all
anti-dilution, preemptive or similar rights that could permit any adjustment or
rearrangement of the rights of any such preferred stock in the event of any
issuance by the Company or any of its subsidiaries of any securities, whether
debt, equity or mixed, other than strictly proportional adjustments in the event
of any stock split, stock dividend, reverse stock split or similar
transaction.
“Taxes” means all taxes,
charges, levies, penalties or other assessments imposed by any United States
federal, state, local or foreign taxing authority, including any income, excise,
property, sales, transfer, franchise, payroll, withholding, social security or
other taxes, together with any interest or penalties attributable thereto,
all
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liabilities
in respect of such taxes, charges, penalties or other assessments arising as a
result of being a member of any affiliated, consolidated, combined, unitary or
similar group, under Treasury Regulations Section 1.1502-6 or similar provisions
under applicable state, local or foreign tax laws and any payments made or owing
to any other Person measured by such taxes, charges, levies, penalties or other
assessment, whether pursuant to a tax indemnity agreement, tax sharing
agreement, or otherwise (other than pursuant to commercial agreements or Benefit
Plans).
“Tax Return” means any return,
report, information return or other document (including any related or
supporting information) required to be filed with any taxing authority with
respect to Taxes, any claims for refunds of Taxes and any amendments or
supplements to any of the foregoing.
“Warrant” means a warrant for
the purchase of an aggregate of 1,500,000 shares of Common Stock and Common
Stock Series A, for a strike price of $2.45 per share, subject to adjustment as
set forth therein, in the form attached hereto as Exhibit
B.
“Warrant Shares” means the
shares of Common Stock and Common Stock Series A issuable or to be issued upon
exercise of the Warrant, as determined pursuant to Section
10(a)(ii).
Section
2. Purchase;
Closing.
(a)
Purchase. On
the terms and subject to the conditions set forth herein, at the Closing the Investor hereby
agrees to purchase from the Company, and the Company hereby agrees to issue and
sell to the Investor, 4,693,878 shares of Convertible Preferred Stock (the
“Preferred Shares”),
and the Warrant, for aggregate consideration of $11,500,000 (the “Purchase
Price”).
(b)
Closing. The
consummation of the purchase and sale of the Preferred Shares and the Warrant as
contemplated hereby (the “Closing”) shall occur at the
offices of the Investor listed in Section 13, two
Business Days after the satisfaction or waiver of the conditions set forth in
Section 8,
or such other date as the parties may agree. The date that the
Closing takes place is the “Closing Date”.
Section
3. Representations and
Warranties of the Company. The Company represents and warrants
to the Investor as follows:
(a)
Organization and
Authority. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Nevada, and
each of the Company’s subsidiaries is duly organized, validly existing and in
good standing under the laws of the jurisdiction of its organization or
incorporation, as applicable, and each of the Company and the Company’s
subsidiaries is duly qualified to do business and is in good standing in all
jurisdictions where its ownership or leasing of property or the conduct of its
business requires it to be so qualified, and has all requisite corporate power
and authority to carry on its business as now conducted and as proposed to be
conducted. Except as disclosed in the Disclosure Schedules, the
Company owns beneficially and of record all of the outstanding equity interests
of
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its
subsidiaries free of any lien or encumbrance, and there are no outstanding
options, warrants, convertible securities or other instruments or agreements
pursuant to which a Person other than the Company has the right or obligation to
acquire equity interests of the Company or its subsidiaries.
(b)
Authorization. Each
of this Agreement and the Warrant has been duly and validly authorized, and this
Agreement has been, and at Closing the Warrant will be, duly and validly
executed and delivered by the Company, and the Agreement constitutes and at
Closing the Warrant will constitute a binding obligation of the Company
enforceable against it in accordance with its terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
similar laws affecting creditors’ rights and remedies generally, and subject, as
to enforceability, to general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in equity). All of
the Preferred Shares to be issued at Closing, the Conversion Shares to be issued
upon conversion of the Preferred Shares, and the Warrant Shares to be issued
upon exercise of the Warrant, have been duly authorized for issuance and, when
issued, paid for and delivered at Closing, upon conversion of the Preferred
Shares in accordance with the terms of the Certificate of Designation and upon
exercise of the Warrant in accordance with its terms, respectively, will be
validly issued, fully paid and non-assessable.
(c)
Capitalization. The
authorized capital stock of the Company consists of 90,000,000 shares of
common stock (comprising 65,000,000 shares of Common Stock and 25,000,000 shares
of Common Stock Series A) and 10,000,000 shares of preferred stock, $.001 par
value per share, of which, as of June 30, 2008 (i) 13,579,340 shares of
Common Stock Series A and no shares of Common Stock are issued and outstanding,
(ii) no shares of Common Stock or Common Stock Series A and no shares of
any series or class of preferred stock are issued and held in treasury,
(iii) 6,608,709 shares of Common Stock Series A are reserved for issuance
upon exercise of options and other awards granted under the Company’s stock
option and incentive plans, warrants or pursuant to compensation arrangements
(iv) no shares of the Company's Series A Convertible Preferred Stock, 76,750
shares of the Company's Series B Convertible Preferred Stock, no shares of the
Company's Series C Convertible Preferred Stock, no shares of the Company's
Series D Convertible Preferred Stock, 810,800 shares of the Company's Series E
Convertible Preferred Stock, 200,000 shares of the Company's Series F
Convertible Preferred Stock, 150,000 shares of the Company's Series G
Convertible Preferred Stock, and 98,500 shares of the Company's Series H
Convertible Preferred Stock are issued and outstanding. Except as
disclosed in the Disclosure Schedule, the Company has not issued any shares of
capital stock since June 30, 2008, other than shares of Common Stock Series A
upon exercise of options and other awards granted under the Company’s stock
option and incentive plans or pursuant to compensation
arrangements. All of the outstanding shares of capital stock of the
Company have been duly authorized, are validly issued, fully paid and
nonassessable and were offered, sold and issued in compliance with all
applicable federal and state securities laws and without violating any
contractual obligation or any other preemptive or similar
rights. Except as disclosed in the Disclosure Schedule, there are no
declared or
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unpaid
dividends payable in shares of equity securities of the Company, and the Company
has not established a record date with respect thereto. The Common
Stock and the Common Stock Series A are pari passu in all respects and have
identical rights, preferences, powers, privileges and restrictions,
qualifications and limitations, and vote together as a single
class.
(d)
No
Conflicts. The issuance and sale of the Preferred Shares, the
Conversion Shares, the Warrant and the Warrant Shares, the execution, delivery
and performance by the Company of this Agreement and the Warrant, the compliance
by the Company with all of the provisions of this Agreement and the consummation
of the transactions herein and therein contemplated will not (i) conflict with
or result in a breach or violation of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument to which the Company is a party or by
which the Company is bound or to which any of the property or assets of the
Company is subject, (ii) result in any violation of the provisions of any of the
organizational or governing documents of the Company or any statute, order, rule
or regulation of any court or governmental agency or body having jurisdiction
over the Company or any of its properties, or (iii) require any consent,
approval, authorization, order, registration or qualification of or with any
court or governmental agency or body having jurisdiction over the Company or any
of its properties, except for the Company Regulatory Approvals and the Investor
Regulatory Approvals.
(e)
Reports. Since
December 31, 2006, the Company has filed with the Commission all forms, reports,
schedules, statements and other documents required to be filed by it through the
date hereof under the Exchange Act or the Securities Act (all such documents, as
supplemented and amended since the time of filing, the “Company SEC
Documents”). The Company SEC Documents, including all
financial statements and schedules included in the Company SEC Documents, at the
time filed or, in the case of any Company SEC Document amended or superseded by
a filing prior to the date of this Agreement, then on the date of such amending
or superseding filing, and, in the case of registration statements and proxy
statements, on the dates of effectiveness and the dates of mailing,
respectively, (i) did not contain any untrue statement of a material fact
or omit 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, and (ii) complied in all material respects with
the applicable requirements of the Exchange Act and the Securities Act, as
applicable.
(f)
Financial
Statements. The Company’s financial statements, including the
notes thereto, included in the Company SEC Documents (the “Company Financial
Statements”) have been prepared in accordance with U.S. generally
accepted accounting principles as in effect on the date hereof (“GAAP”) consistently applied
(except as may be indicated in the notes and schedules thereto) during the
periods involved and present fairly the Company’s consolidated financial
position at the dates thereof and of its operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal
audit adjustments and the provisions of
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Regulation
S-X). Since the date of the most recent balance sheet included in the
Company Financial Statements, (i) the Company has not effected any change in any
method of accounting or accounting practice, except for any such change required
because of a concurrent change in GAAP, nor has it been advised by its
independent registered accounting firm or any Governmental Entity that any such
change in method of accounting or accounting practice is appropriate, and (ii)
there has been no Material Adverse Change.
(g)
No Undisclosed
Liabilities. Neither the Company nor any of its subsidiaries
has any liabilities or obligations of any nature (absolute, accrued, contingent
or otherwise) that are not properly reflected or reserved against in the Company
Financial Statements, except for (i) liabilities that have arisen since June 30,
2008 in the ordinary and usual course of business and consistent with past
practice and (ii) contractual liabilities under agreements entered into in the
ordinary course of business or that are disclosed in the Company SEC
Documents.
(h)
Company Significant
Agreements. Except as disclosed in the Disclosure
Schedule: each of the Company Significant Agreements is valid and
binding on the Company or its subsidiaries, as applicable, and in full force and
effect; the Company and each of its subsidiaries, as applicable, are in all
material respects in compliance with and have in all material respects performed
all obligations required to be performed by them to date under each Company
Significant Agreement; and neither the Company nor any of its subsidiaries has
received notice of any material violation or default (or any condition which
with the passage of time or the giving of notice would cause such a violation of
or a default) by any party under any Company Significant Agreement.
(i)
Governmental
Consents. Other than the Company Regulatory Approvals and the
Investor Regulatory Approvals, and the securities or blue sky laws of the
various states, no material notice to, registration, declaration or filing with,
exemption or review by, or authorization, order, consent or approval of, any
Governmental Entity, nor expiration or termination of any statutory waiting
periods, is necessary for the consummation by the Company of the transactions
contemplated by this Agreement.
(j)
Controls and
Procedures. The Company (i) subject to disclosure control
deficiencies identified in its most recent Form 10-K and 10-Q filed with the
Commission, has implemented and maintains disclosure controls and procedures (as
defined in Rule 13a-15(e) of the Exchange Act) to ensure that material
information relating to the Company, including its subsidiaries, is made known
to the chief executive officer and the chief financial officer of the Company by
others within those entities, and (ii) has disclosed, based on its most recent
evaluation prior to the date hereof, to the Company’s outside auditors and the
audit committee of the Board of Directors (A) any significant deficiencies and
material weaknesses in the design or operation of internal controls over
financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that are
reasonably likely to adversely affect the Company’s ability to record, process,
summarize and report financial information and (B) any fraud, whether or not
material, that involves management or other employees who have a significant
role in the Company’s internal controls over financial reporting.
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(k)
Properties and
Leases. The Company and its subsidiaries have good and
marketable title to all real properties and all other properties and assets with
a book value greater than $50,000 that purport to be owned by them, in each
case, except as set forth on the Disclosure Schedule, free from liens,
encumbrances, claims and defects that would affect the value thereof or
interfere with the use made or to be made thereof by them. The
Company and its subsidiaries hold all leased real or personal property under
valid and enforceable leases with no exceptions that would interfere with the
use made or to be made thereof by them, and neither the Company nor any
subsidiary has any notice of any claim of any sort that has been asserted by
anyone adverse to the rights of the Company or any such subsidiary under any
such leases, or affecting or questioning the rights of such entity to the
continued possession of the leased premises.
(l)
Taxes. (i)
Each of the Company and its subsidiaries has (A) duly and timely filed
(including pursuant to applicable extensions granted without penalty) all Tax
Returns required to be filed by it and (B) paid in full all Taxes due or made
adequate provision in the financial statements of the Company (in accordance
with GAAP) for any such Taxes, whether or not shown as due on such Tax Returns;
(ii) no material deficiencies for any Taxes have been proposed, asserted or
assessed in writing against or with respect to any Taxes due by or Tax Returns
of the Company or any of its subsidiaries, which deficiencies have not since
been resolved, except for Taxes proposed, asserted or assessed that are being
contested in good faith by appropriate proceedings and for which reserves
adequate in accordance with GAAP have been provided; and (iii) there are no
liens for Taxes upon the assets of either the Company or its subsidiaries except
for statutory liens for current Taxes not yet due or liens for Taxes that are
being contested in good faith by appropriate proceedings and for which reserves
adequate in accordance with GAAP have been provided.
(m)
Litigation and Other
Proceedings. Except as set forth on the Disclosure Schedule,
there is no pending or, to the knowledge of the Company, threatened, claim,
action, suit, investigation or proceeding, against the Company or any of its
subsidiaries or to which any of their assets are subject, nor is the Company or
any of its subsidiaries subject to any order, judgment or decree, in each case
except as would not reasonably be expected to have a Material Adverse
Effect.
(n)
Compliance with
Laws. The Company and each of its subsidiaries have all
material permits, licenses, franchises, authorizations, orders and approvals of,
and have made all filings, applications and registrations with, Governmental
Entities that are required in order to permit them to own or lease their
properties and assets and to carry on their business as presently
conducted. Except as disclosed in the Disclosure Schedule, the
Company and each of its subsidiaries have complied in all material respects and
is not in default or violation in any respect of, and none of them is, to the
knowledge of the Company, under investigation with respect to or, to the
knowledge of the Company, has been threatened to be charged with or given notice
of any material violation of, any applicable domestic (federal, state or local)
or foreign law, statute, ordinance, license, rule, regulation, policy or
guideline, order, demand, writ, injunction, decree or judgment of any
Governmental Entity.
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(o)
Anti-takeover Provisions Not
Applicable. The Board of Directors has taken all necessary
action to ensure that the transactions contemplated by this Agreement will be
deemed approved by the Board of Directors for the purposes of any law or
regulation limiting or restricting the rights of Persons acquiring securities
from the Company.
(p)
Off-Balance Sheet
Arrangements. There is no transaction, arrangement or other
relationship between the Company and an unconsolidated or other off-balance
sheet entity that is required to be disclosed by the Company in its Company SEC
Documents and is not so disclosed. There are no such transactions,
arrangements or other relationships with the Company that may create
contingencies or liabilities that are not otherwise disclosed by the Company in
its Company SEC Documents.
(q)
Private
Placement. Assuming the accuracy of each of the
representations and warranties set forth in Section 5, the offer
and issuance by the Company of the Preferred Shares and the Warrant is exempt
from registration under the Securities Act.
(r)
No Integrated
Offering. None of the Company, its subsidiaries, any of their
Affiliates, and any Person acting on their behalf has, directly or indirectly,
made any offers or sales of any security or solicited any offers to buy any
security, under circumstances that would require registration of the issuance of
any of the Preferred Shares, the Conversion Shares, the Warrant, or the Warrant
Shares under the Securities Act, whether through integration with prior
offerings or otherwise. None of the Company, its subsidiaries, their
Affiliates and any Person acting on their behalf will take any action or steps
referred to in the preceding sentence that would require registration of the
issuance of any of the Preferred Shares, the Conversion Shares, the Warrant or
the Warrant Shares under the Securities Act or cause the offering of the
Preferred Shares, the Conversion Shares, the Warrant and the Warrant Shares to
be integrated with other offerings for purposes of any such applicable
stockholder approval provisions.
(s)
Xxxxxxxx-Xxxxx. Solely
to the extent that the Xxxxxxxx-Xxxxx Act of 2002, as amended, and the rules and
regulations promulgated by the Commission and NYSE thereunder (collectively, the
“Xxxxxxxx-Xxxxx Act”)
has been applicable to the Company and subject to the disclosure control
deficiencies identified in its most recent Form 10-K and 10-Q filed with the
Commission, there is and has been no failure on the part of the Company to
comply in all material respects with any provision of the Xxxxxxxx-Xxxxx
Act.
(t)
Shell Company
Status. The Company is not, nor has ever been, an issuer of
the type described in Rule 144(i)(l) under the Securities Act.
(u)
No Misrepresentations or
Omissions. In connection with the sale of the Preferred Shares
and the Warrant to the Investor under this Agreement, the Company has made no
misrepresentation of any material fact or omitted to state a material fact
necessary to make any representation or warranty under this Agreement not
misleading.
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Section
4. Representations and
Warranties of the Investor. The Investor represents and
warrants to the Company as follows:
(a)
Organization and
Authority. The Investor is a corporation duly organized,
validly existing and in good standing under the laws of the State of Nevada, and
is duly qualified to do business and is in good standing in all jurisdictions
where its ownership or leasing of property or the conduct of its business
requires it to be so qualified, and has all requisite corporate power and
authority to carry on its business as now conducted.
(b) Authorization. This
Agreement has been duly and validly authorized, executed and delivered by the
Investor and constitutes a binding obligation of the Investor enforceable
against it in accordance with its terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar laws
affecting creditors’ rights and remedies generally, and subject, as to
enforceability, to general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in equity).
(c)
No
Conflicts. The execution, delivery and performance by the
Investor of this Agreement, the compliance by the Investor with all of the
provisions of this Agreement and the consummation of the transactions herein
contemplated will not (i) conflict with or result in a breach or violation of
any of the terms or provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, loan agreement or other agreement or instrument to
which the Investor is a party or by which the Investor is bound or to which any
of the property or assets of the Investor is subject, (ii) result in any
violation of the provisions of any of the organizational or governing documents
of the Investor or any statute, order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Investor or any of its
properties, or (iii) except for the Investor Regulatory Approvals, require any
consent, approval, authorization, order, registration or qualification of or
with any court or governmental agency or body having jurisdiction over the
Investor, or any of its properties (except as has already been obtained), in
each case, where any such breach, violation or default, or where the failure to
obtain any such consent, approval, authorization, order, registration or
qualification would prevent Investor from performing its obligations
hereunder.
(d)
Governmental
Consents. Other than the Regulatory Approvals, no material
notice to, registration, declaration or filing with, exemption or review by, or
authorization, order, consent or approval of, any Governmental Entity, nor
expiration or termination of any statutory waiting periods, is necessary for the
consummation by the Investor of the transactions contemplated by this
Agreement.
Section
5. Acknowledgement of the
Investor. The Investor acknowledges that neither the Preferred
Shares, the Conversion Shares, the Warrant nor the Warrant Shares have been
registered under the Securities Act or under any state securities
laws. The Investor (i) is acquiring the Preferred Shares and the
Warrant, and will acquire the Conversion Shares and the Warrant Shares pursuant
to an exemption from registration under the Securities Act solely for investment
with no present intention to
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distribute
any of the Preferred Shares, the Conversion Shares, the Warrant or Warrant
Shares to any Person, (ii) will not sell or otherwise dispose of any of the
Preferred Shares, the Conversion Shares, the Warrant or Warrant Shares except in
compliance with the registration requirements or exemption provisions of the
Securities Act and any other applicable securities laws, (iii) has such
knowledge and experience in financial and business matters and in investments of
this type that it is capable of evaluating the merits and risks of its
investment in the Preferred Shares, the Conversion Shares, the Warrant and the
Warrant Shares and of making an informed investment decision, (iv) is an
“accredited investor” (as that term is defined by Rule 501 of the Securities
Act), and (v) has had the opportunity to ask questions of and receive answers
from the Company concerning the Company and has been provided with such
additional information from the Company that Investor has
requested.
Section
6. Deliveries at
Closing.
(a)
At the
Closing, the Company shall deliver to the Investor the following:
(i)
The
Warrant, duly executed by the Company;
(ii)
a duly
executed copy of the irrevocable instructions to the transfer agent for the
Company instructing the transfer agent to promptly deliver to Investor duly executed and valid
certificate(s) representing the Preferred Shares purchased by Investor at the
Closing;
(iii) A
certificate of a senior officer of the Company on its behalf to the effect that
(A) the representations and warranties of the Company set forth herein are true
and correct on and as of the Closing Date, except for representations and
warranties made as of a specified date, which will be true and correct as of
such specified date, and (B) the Company has complied in all material respects
with its obligations hereunder that are required to be complied with by it at or
prior to the Closing;
(iv)
A
certificate from the secretary of the Company having attached thereto true and
complete copies of (A) the articles of incorporation and bylaws of the Company
(B) the resolutions adopted by the Board of Directors and, (C) the Stockholder
Consents required in connection with the transactions contemplated hereby;
and
(v)
A copy of
all items required to be obtained pursuant to Section 8 for
the Closing.
(b)
At the
Closing, the Investor shall pay the Purchase Price as follows:
(i)
1,500,000
in cash, which was previously paid to the Company on July 17, 2008 pursuant to
the terms of the Advance Agreement was credited against the Purchase Price owing
by Investor on the Closing Date and such amount is deemed to have been paid by
Investor hereunder; and
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(ii)
$10,000,000
by wire transfer of immediately available funds to an account specified by the
Company in writing; provided, that the Company hereby directs the Investor to
pay directly to CAMOFI, for the account of the Company, out of such $10,000,000,
the amount indicated in the CAMOFI Satisfaction and Termination Agreement that
is necessary to pay in full and extinguish the CAMOFI Debt (such amount not to
exceed $10,000,000).
Section
7. Covenants.
(a)
The
Investor will, and will cause its Affiliates to, cooperate with the Company and
use commercially reasonable efforts to take, or cause to be taken, all
commercially reasonable actions in order to facilitate the successful
consummation of the transactions contemplated hereby. The Company
will, and will cause its Affiliates to (i) cooperate with the Investor and use
its best efforts to take, or cause to be taken, all actions in order to
facilitate the successful consummation of the transactions contemplated hereby
(including the prompt delivery to the Investor of the valid share certificate or
certificates representing the Preferred Shares), and (ii) assist the Investor in
any appearances and proceedings before and consents, approvals, or waivers
sought from any Governmental Entity with respect to the consummation of the
transactions contemplated hereby.
(b)
At any
time and from time to time following the Closing Date, Investor will have the
right to nominate individuals who satisfy all legal and regulatory requirements
regarding service as a director of the Company, to serve as a director of the
Company (the “Board
Representatives”). The number of Board Representatives to
which the Investor shall be entitled shall be that number of Board
Representatives such that the proportion, expressed as a percentage, that the
number of the Investor’s Board Representatives bears to the number of directors
comprising the entire Board of Directors is equal to the proportion, expressed
as a percentage, that the aggregate number of equity securities of the Company
held by the Investor and its Affiliates (on a fully-diluted basis after giving
effect to the exercise, exchange or conversion of any documents or instruments
held by the Investor and its Affiliates that are exercisable, exchangeable or
convertible into such equity securities) that are entitled to vote in the
election of the members of the Board of Directors bears to the total issued and
outstanding equity securities of the Company that are entitled to vote in the
election of the members of the Board of Directors (on a fully-diluted basis
after giving effect to the exercise, exchange or conversion of any documents or
instruments issued by the Company that are exercisable, exchangeable or
convertible into such equity securities). Following the
identification of a Board Representative, the Board of Directors will promptly,
and in no event later than five days following such identification, interview
such Board Representative in a manner and subject to standards consistent with
interviews conducted for candidates for election to the Board of Directors who
have not been nominated by Investor. Following the interview and
subject to the approval of the Nominating Committee of the Board of Directors
(the “Nominating
Committee”) (such approval process and approval standards to be
consistent with the approval process and approval standards employed by the
Nominating Committee with respect to candidates who have not been nominated
by
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Investor;
provided, the Nominating Committee shall make its determination of any Investor
nominee no later than five days following the interview of such nominee by the
Board of Directors) the Company will promptly, and in no event later than five
days following approval by the Nominating Committee, cause such Board
Representative to be elected or appointed to the Board of
Directors. Thereafter, the Company shall nominate and support the
election by the Company’s stockholders of each Board Representative at each
shareholder’s meeting where such Board Representative is required to stand for
election to the Board of Directors. If any Board Representative
interviewed by the Board of Directors (i) is not approved by the Nominating
Committee, (ii) is not elected to a subsequent term at any annual stockholders
meeting or (iii) upon the death, resignation, retirement, disqualification or
removal from office of any Board Representative, Investor will have the right to
again nominate a replacement Board Representative pursuant to this Section
7(b). Board Representatives will be entitled to the same
compensation and same indemnification in connection with his or her role as a
director as the other members of the Board of Directors, and each Board
Representative will be entitled to reimbursement for documented, reasonable
out-of-pocket expenses incurred in attending meetings of the Board of Directors
or any committees thereof, to the same extent as the other members of the Board
of Directors. The Company will notify the Board Representatives of
all regular and special meetings of the Board of Directors and will notify each
Board Representative of all regular and special meetings of any committee of the
Board of Directors of which such Board Representative is a
member. The Company will provide the Board Representatives with
copies of all notices, minutes, consents and other materials provided to all
other members of the Board of Directors concurrently as such materials are
provided to the other members. At the request of Investor, the
Company will enter into a customary indemnification agreements with each Board
Representative on terms satisfactory to the Investor.
(c)
Right of First
Negotiation.
(i)
Subject
to the terms and conditions specified in this Section 7(c), and
except in connection with the Ad-Line Acquisition, in the event the Company or
any of its subsidiaries considers a transaction pursuant to which it would (A)
offer or sell any debt securities or any rights with respect to any debt
securities of the Company or any of its subsidiaries, (B) enter into any merger,
consolidation, share exchange, business combination, or similar transaction,
including an acquisition of assets (including pursuant to a license), in which
the Company will issue, sell, transfer or otherwise convey 30% or more of its
issued and outstanding capital stock or (C) enter into any sale, lease,
exchange, mortgage, pledge, transfer or other disposition of 15% or more of its
issued and outstanding capital stock or assets as part of a capital raising
transaction (each, a “Material
Transaction”), the Company will first notify Investor and will not
proceed with any such Material Transaction unless and until it has complied with
the provisions of this Section 7(c);
provided, that this Section 7(c) will not
apply to any permitted issuance of options (or shares of capital stock pursuant
to the exercise of such options) of the Company described by Section 3.2(i) of the
Certificate of Designations.
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(ii)
The
Company will deliver to Investor a written notice of its bona fide intention to
initiate a Material Transaction (the “Notice”) stating (A) the
general nature of the potential Material Transaction and (B) the expected
material terms of the Material Transaction (to the extent then determined by the
Company), including, but not limited to, price, conditions, terms and time
period to close the Material Transaction.
(iii)
By
written notification received by the Company, within ten days after Investor’s
receipt of the Notice, Investor may elect to require the Company to enter into
exclusive negotiations with Investor regarding the potential Material
Transaction described in the Notice (the “Noticed
Transaction”). If Investor does not provide such written
notice to the Company within the time period prescribed above, Investor shall
have no further rights under this Section 7(c) with
respect to the Noticed Transaction, and the Company shall be free to negotiate
and consummate a Material Transaction of the type described in the Notice
(without limitation on the terms and conditions thereof) with one or more third
parties.
(iv)
If
Investor validly elects to exercise its right of first negotiation with respect
to the Noticed Transaction pursuant to this Section 7(c), then,
for a period of up to 10 days following such election by Investor, the parties
shall negotiate in good faith regarding the terms upon which they may enter into
the Noticed Transaction.
(v)
If, at
the end of such 10-day period, the parties have not reached mutual agreement
with regard to such terms as evidenced by a fully written, executed and
delivered definitive agreement with respect to the Noticed Transaction and have
not agreed to extend the exclusivity period for continued negotiations, Investor
shall have no further rights under this Section 7(c) with
respect to the Noticed Transaction, and the Company shall be free to negotiate
and consummate a Material Transaction of the type described in the Notice
(without limitation on the terms and conditions thereof) with one or more third
parties, subject to the other provisions of this Agreement and the Certificate
of Designations. The failure to approve or execute an agreement
regarding the terms of a Material Transaction shall not constitute a breach of
this Agreement by either party.
(vi)
If the
Company does not enter into an agreement with a third party for a Material
Transaction of the type described in a Notice within six months following the
end of the applicable 10-day period described above (or any extension thereof),
or if such agreement is not consummated within 180 days after the execution
thereof, the right of first negotiation provided pursuant to this Section 7(c) will be
deemed to be revived and applicable to such potential Material
Transaction.
(vii)
The right
of first negotiation set forth in this Section 7(c) may not
be assigned or transferred except that such right is assignable by Investor to
any Affiliate of Investor.
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(viii) The
provisions of this Section 7(c) will
commence on the Closing Date and terminate on the 18-month anniversary of the
Closing Date.
(d)
From the
date of this Agreement until the Closing Date, the Company will not and will not
permit any of its subsidiaries to directly or indirectly:
(i)
enter
into, create, incur, assume or suffer to exist any indebtedness, other than
accounts payable, or liens of any kind, on or with respect to any of its
property or assets now owned or hereafter acquired or any interest therein or
any income or profits therefrom;
(ii)
amend its
articles of incorporation, bylaws or to its charter documents so as to adversely
affect any rights of the Investor;
(iii)
repay,
repurchase or offer to repay, repurchase or otherwise acquire any of its Common
Stock or Common Stock Series A or other equity securities other than repurchases
of shares of the Company’s Series B Convertible Preferred Stock, to the extent
any holder thereof validly elects to exercise its right set forth in the
certificate of designation therefore to require the Company to repurchase the
holder’s shares of Series B Convertible Preferred Stock (which right expires
October 31, 2008), up to a maximum repurchase pursuant thereto of an aggregate
of 76,750 shares of Series B Convertible Preferred Stock;
(iv)
engage in
any transactions with any officer, director, employee or any Affiliate of the
Company, 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 entity in
which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner, in each case in excess of $10,000
other than (A) for payment of salary or consulting fees for services rendered,
(B) reimbursement for expenses incurred on behalf of the Company and (C) for
other employee benefits, including stock option agreements under any stock
option plan of the Company;
(v)
sell,
transfer or otherwise dispose of any of its assets on terms where it is or may
be leased to or re-acquired or acquired by the Company or any of its
subsidiaries;
(vi)
dispose,
in a single transaction, or in a series of transactions all or any part of its
assets other than sales of inventory in the ordinary course of business and
consistent with past practices;
(vii)
dissolve,
liquidate or wind up or permit any Deemed Liquidation Event (as such term is
defined in the Certificate of Designations) to occur;
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(viii)
declare
or pay any dividend on any of the Common Stock, Common Stock Series A or other
equity securities, whether payable in cash or in shares of any Common Stock,
Common Stock Series A or other equity securities of the Company other than as
required by existing agreements and instruments that are filed as exhibits to
the Company SEC Documents; or
(ix)
enter
into any agreement, arrangement or understanding with respect to any of the
foregoing.
(e)
The
Company covenants and agrees that at all times following the date of this
Agreement (and pending compliance with Section 7(f)), the Common
Stock and Common Stock Series A shall be pari passu in all respects, shall have
identical rights, preferences, powers, privileges and restrictions,
qualifications and limitations and shall vote together as a single class on all
matters. In addition, if at any time following the date of this
Agreement (and pending compliance with Section 7(e)), the Company
lists and qualifies either its Common Stock or its Common Stock Series A for
trading on any exchange, the Nasdaq Stock Market or any other market (including
the over-the-counter market), then the Company shall also list and qualify its
Common Stock Series A and its Common Stock, respectively.
(f)
The
Company shall use its best efforts to eliminate, no later than its next annual
meeting of shareholders, its Common Stock class of securities such that its
Common Stock Series A will be the Company’s sole class of common stock,
including by appropriate amendment to its articles of
incorporation. In connection with such action, each share of Common
Stock that is issued and outstanding, if any, shall be converted into a share of
Common Stock Series A, and any document, instrument or other right to subscribe
for or purchase a share of Common Stock (including by exercise, conversion or
exchange), if any, shall thereafter become a right to acquire a share
of Common Stock Series A. If the shareholders of the Company are
required by law to approve any such action but shall fail to do so, the Company
will use its best efforts to effect such elimination at each subsequent
shareholder meeting until approved. Investor covenants and agrees
that it will vote all shares of capital stock of the Company that Investor holds
that are entitled to vote on such matter in favor of such matter.
(g)
Legends. The
Investor agrees that all certificates or other instruments representing the
Preferred Shares, the Conversion Shares, the Warrant and the Warrant Shares
subject to this Agreement will bear a legend substantially to the following
effect:
THE
SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR SECURITIES LAWS OF ANY STATE AND MAY NOT
BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO A REGISTRATION
STATEMENT RELATING THERETO IN EFFECT UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT OR
SUCH LAWS.
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Upon
request of the Investor, upon (i) receipt by the Company of an opinion of
counsel reasonably satisfactory to the Company to the effect that such legend is
no longer required under the Securities Act and applicable state laws, or
(ii) the Investor providing the Company with reasonable assurance that the
securities can be sold, assigned or transferred pursuant to Rule 144, the
Company will promptly cause the legend to be removed from any certificate for
any Preferred Shares, Conversion Shares, the Warrant or Warrant Shares to be
transferred by the Investor in accordance with the terms of this
Agreement.
(h)
Use of
Proceeds. The Company covenants and agrees that it shall use
the funds paid for the Preferred Shares and the Warrant solely for (A) working
capital purposes, (B) to fully repay the CAMOFI Debt, as contemplated herein and
(C) to pay accrued but unpaid dividends as of the date hereof on the Company’s
Series F Convertible Preferred Stock and Series G Convertible Preferred Stock,
up to an amount not to exceed $100,000.
(i)
Employee
Non-Solicitation. Each of the Company and Investor agrees that
for the period of twelve (12) months immediately following the Closing Date,
neither will solicit to employ, offer to hire, or enter into any contract or
discussions relating to employment with any employee of the other, provided,
however, that (i) general solicitations of employment for employees published in
a journal, newspaper or other such publication that is posted on the internet or
otherwise circulated on a broad basis, and that are not directed specifically
toward one or more employees of the other and any resulting offer to hire shall
not be deemed to be in violation of this Section 7(j), and
(ii) it shall not be a violation of this provision for the Company or Investor
to engage in discussions concerning employment or to hire an employee of the
other if that employee initiated such discussions without being directly or
indirectly solicited by the Company or the Investor, as applicable, in violation
of this provision.
(j)
Investor Regulatory
Approvals. The Investor covenants and agrees that following
the Closing, it will make the required filings and applications with the
applicable gaming regulators in each applicable jurisdiction concerning the
Investor Regulatory Approvals, in each case within forty-five (45) days
following the Closing.
Section
8. Conditions to
Closing.
(a)
Conditions to the Company’s
Obligations to Close. The obligations of the Company to
consummate the sale of the Preferred Shares and the Warrant are subject to the
fulfillment, prior to or on the Closing Date, of the following
conditions:
(i)
the
representations and warranties of the Investor set forth herein are true and
correct on and as of the Closing Date, except for representations and warranties
made as of a specified date, which will be true and correct as of such specified
date;
(ii)
the
Investor has complied in all material respects with its obligations hereunder
that are required to be complied with by it at or prior to the
Closing;
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(iii)
No
judgment, injunction, decree or other legal restraint shall prohibit the
consummation of the transactions contemplated by this Agreement;
(iv) The
Company shall have received the Stockholder Consents;
(v) The
Company, CAMOFI and the other parties thereto shall have duly executed and
delivered the CAMOFI Satisfaction and Termination Agreement;
(vi) The
Company shall have obtained all material Regulatory Approvals applicable to it
and the Investor shall have obtained all material Regulatory Approvals
applicable to it; and
(vii) The
Company shall have received the items to be delivered to the Company pursuant to
Section 6.
(b)
Conditions to the Investor’s
Obligations to Close. The obligations of the Investor to
consummate the purchase of the Preferred Shares and the Warrant are subject to
the fulfillment, prior to or on the Closing Date, of the following
conditions:
(i)
the
representations and warranties of the Company set forth herein are true and
correct on and as of the Closing Date, except for representations and warranties
made as of a specified date, which will be true and correct as of such specified
date;
(ii)
the
Company has complied in all material respects with its obligations hereunder
that are required to be complied with by it at or prior to the
Closing;
(iii)
No
judgment, injunction, decree or other legal restraint shall prohibit the
consummation of the transactions contemplated by this Agreement;
(iv)
The
Company shall have received the Stockholder Consents;
(v)
The
Company shall have filed the Certificate of Designation with the Secretary of
State of the State of Nevada, and such Certificate of Designation shall be in
full force and effect;
(vi)
The
Company shall have eliminated all series of preferred stock for which there are
no shares currently outstanding by terminating, withdrawing or otherwise
eliminating the certificates of designation relating thereto and by complying
with all other requirements of applicable state law;
(vii)
The
Company shall have obtained all material Regulatory Approvals applicable to it
and the Investor shall have obtained all material Regulatory Approvals
applicable to it;
(viii) The
Company, CAMOFI and the other parties thereto shall have duly executed and
delivered the CAMOFI Satisfaction and Termination Agreement (and, without
limiting the terms thereof, effective as of Closing, the CAMOFI Debt shall be
paid in full as contemplated herein);
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(ix)
The
Investor shall have completed its due diligence investigation of the Company,
and the results of such investigation shall be satisfactory to the Investor in
its sole discretion;
(x) The
Company shall have delivered to Investor the License and Support Agreement, the
Retrofit License, and the IP Access Agreement, in each case duly executed by the
Company;
(xi)
The
Investor shall have received the items to be delivered to the Investor pursuant
to Section 6;
and
(xii)
The
Investor shall have received a legal opinion from counsel to the Company in form
and substance reasonably acceptable to the Investor.
Section
9. Termination; Effect of
Termination.
(a) Termination. This
Agreement may be terminated prior to Closing:
(i)
at any time by mutual written consent of the Company and the
Investor;
(ii) by
either the Company or the Investor by written notice to the other if a condition
to the obligations of the terminating party hereunder with respect to the
Closing has not been satisfied or waived by October 29, 2008; provided, however,
that this provision shall not be available to the terminating party if the
terminating party is at that time in breach of any term of this
Agreement;
(iii) by
either the Company or the Investor on written notice to the other if there has
been a breach by such other party of any term of this Agreement which has
prevented the satisfaction of any condition to the obligations of the
non-breaching party with respect to the Closing and (A) such breach has not been
waived by the non-breaching party and (B) such breach is not capable of being
cured or, if capable of being cured, shall not have been cured prior to the
earlier of (1) ten (10) days after written notice of such breach from the
breaching party to the non-breaching party and (2) October 29, 2008; provided,
however, that this provision shall not be available to a party who is at that
time itself in breach of this Agreement; and
(iv) by
either the Company or the Investor on written notice to the other if any court
of competent jurisdiction issues an order that is final and nonappealable
preventing, permanently restraining, enjoining or otherwise prohibiting the
consummation of the transactions contemplated by this Agreement; provided,
however, that the right to terminate this Agreement under this section shall not
be available to any party requesting or supporting such order.
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(b) Effect of
Termination.
(i) In
the event of termination of this Agreement as provided in Section 9(a), this
Agreement shall immediately become void and there shall be no liability or
obligation on the part of the Company, the Investor or their respective
officers, directors, stockholders or Affiliates, except as set forth in Section 9(b)(ii) and
except that each party hereto shall remain liable to the other for any breach of
this Agreement occurring prior to such termination and the rights and remedies
of the non-breaching party shall not be affected by such
termination.
(ii) Notwithstanding
any other term of this Agreement, if the Closing has not occurred by October 29,
2008 for any reason whatsoever, or if this Agreement is terminated by either
party prior to October 29, 2008 for any reason pursuant to Section 9(a), then
the Company shall repay the sum advanced by Investor to the Company pursuant to
the Advance Agreement by paying to Investor a total of $1,525,000 in cash by
wire transfer of immediately available funds no later than 11:59 p.m. on October
29, 2008 (the “Repayment”). If
the Company does not pay such sum to Investor by the deadline set forth in the
previous sentence, then, in lieu of paying such sum to Investor, (A) effective
October 30, 2008, the Company shall be deemed to have issued to Investor,
750,000 shares of Common Stock, such shares to be duly authorized, validly
issued, fully paid and non-assessable (with a certificate or certificate
representing such shares to be delivered to Investor promptly, but in no event
later than three (3) business following October 30, 2008), and (B) effective
October 30, 2008 and continuing thereafter, Investor shall have, automatically
and without need of any further action on the part of the Company or the
Investor, a first right of refusal to take an exclusive license on the same
terms and conditions as any other offeree from the Company to any and all
patents owned or controlled by the Company which have one or more claims
covering the Company’s PlayerVision-related hardware and firmware (“PVT”) based on the Company’s
currently existing technology and patent pool. During the period from
the date this Agreement until the earlier of either the Closing or the
Repayment, the Company covenants that it will not grant any license or take any
other action that would alter, limit, diminish, preclude or interfere in any
manner the first right of refusal described in this Section
9(b)(ii). The parties intend that the provisions of this Section 9(b)(ii) will
survive any termination of this Agreement (for any reason whatsoever) prior to
Closing.
Section
10. Additional
Covenants.
(a)
Reservation for
Issuance.
(i) The
Company will at all times reserve and keep available, out of its authorized but
unissued Common Stock and/or Common Stock Series A, solely for the purpose of
effecting the conversion of the Preferred Shares and the exercise of the
Warrant, the full number of Conversion Shares and Warrant Shares,
respectively.
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(ii)
Notwithstanding
the foregoing, the Investor agrees that prior to the elimination by the Company
of its Common Stock class of securities as contemplated in Section 7(f), if the
Investor seeks to convert any Preferred Shares or seeks to exercise any portion
of the Warrant, the Investor will receive shares of Common Stock Series A upon
such conversion or exercise, respectively, if the Company has authorized a
sufficient number of shares of Common Stock Series A for issuance upon such
conversion or exercise; provided, that if at the time of such conversion or
exercise the Company does not have a sufficient number of authorized shares of
Common Stock Series A, then the Investor will receive upon such conversion or
exercise shares of Common Stock. (For the avoidance of doubt, once
the Company has eliminated its Common Stock class of securities as
contemplated in Section
7(f), the Company will at all times reserve and keep
available, out of its authorized but unissued Common Stock Series A, solely for
the purpose of effecting the conversion of the Preferred Shares and the exercise
of the Warrant, the full number of Conversion Shares and Warrant Shares,
respectively.)
(b)
Reports Under the Exchange
Act. With a view to making available to the Investor the
benefits of Rule 144, the Company agrees to (i) make and keep public
information available, as those terms are understood and defined in Rule 144,
(ii) file with the Commission in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act
so long as the Company remains subject to such requirements and the filing of
such reports and other documents is required for the applicable provisions of
Rule 144; and (iii) furnish to the Investor so long as the Investor owns
Registrable Securities, promptly upon request (A) a written statement by
the Company, if true, that it has complied with the reporting requirements of
Rule 144, the Securities Act and the Exchange Act, (B) a copy of the most
recent annual or quarterly report of the Company and such other reports and
documents so filed by the Company, and (C) such other information as may be
reasonably requested to permit the Investor to sell such securities pursuant to
Rule 144 without registration.
(c)
Issuance of Capital
Stock. For so long as Investor and the Affiliates of Investor
continue to hold (or have the right to acquire upon exercise, conversion or
exchange), in the aggregate, the Minimum Investment, then the Company shall not,
except with the prior written consent of Investor, which may be withheld in its
sole discretion, sell, convey or otherwise issue, directly or indirectly, any
shares of capital stock, any rights to acquire capital stock of the Company, or
any documents or instruments convertible, exercisable or exchangeable for any
shares of capital stock of the Company (regardless of whether such rights are
then exercisable or whether such documents or instruments may be then
convertible, exercisable or exchangeble for any such capital stock) to a
Competitor or an Affiliate of a Competitor.
Section
11. Shareholder Rights
Plan.
(a)
No claim
will be made or enforced by the Company or, to the knowledge of the Company, or
any other Person that Investor is an “acquiring person” under any shareholder
right plan or similar plan or arrangement in effect or hereafter adopted
by
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the
Company, or that Investor could be deemed to trigger the provisions of any such
plan or arrangement, by virtue of receiving Convertible Preferred Stock or the
Warrant under this Agreement or under any other agreement between the Company
and the Investor. The Company shall conduct its business in a manner
so that it will not become subject to the Investment Company Act.
(b)
The
Company and its Board of Directors, and, if applicable, the security holders of
the Company have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or other similar
anti-takeover provision under the Articles of Incorporation or the laws of
Nevada that is or could become applicable to Investor or its Affiliates as a
result of the transactions contemplated by this Agreement, including, without
limitation, the Company’s issuance of Convertible Preferred Stock and the
Investor’s ownership of Convertible Preferred Stock, the issuance of the Warrant
and the Investor’s ownership of the Warrant and the right of first negotiation
set forth in Section
7(c).
Section
12. Registration
Rights.
(a)
Incidental Registration
Rights. If the Company at any time seeks to register under the
Securities Act for sale to the public in an underwritten offering any of its
equity securities (other than a registration on Form S-4 or Form S-8, or any
successor or other forms promulgated for similar purposes) and if the form of
registration statement proposed to be used may be used for the registration of
Registrable Securities, on each such occasion it will promptly furnish the
Investor with prior written notice thereof. At the written request of
the Investor, given within ten days after the receipt of such notice, to
register any of the Investor’s Registrable Securities, the Company will cause
such Registrable Securities, for which registration will have been requested, to
be included in such registration statement in an amount so as to permit the sale
or other disposition by the Investor as part of such underwritten public
offering of such Registrable Securities as are registered, provided, that if the
managing underwriter advises the Company in writing that, in its opinion, the
number of securities requested and otherwise proposed to be included in such
offering exceeds the number that can be sold without adversely affecting the
marketability of the offering, the Company will include in such registration to
the extent of the number which the Company is so advised can be sold in such
offering, first, the securities the Company proposes to sell in such
registration and second, the Registrable Securities of the Investor that the
Investor has requested to be included in such registration, which, in the
opinion of such managing underwriter, can be sold without having the adverse
effect referred to above. If the registration is an underwritten
offering and the managing underwriter advises the Company in writing that in its
opinion the number of Registrable Securities and, if permitted hereunder, other
securities requested to be included in such offering exceeds the number of
Registrable Securities and other securities, if any, which can be sold in an
orderly manner in such offering within a price range acceptable to the holders
of Registrable Securities initially requesting such registration, without
adversely affecting the marketability of the offering, the Company will include
in such registration prior to the inclusion of any securities that are not
Registrable Securities, the number of Registrable Securities requested to be
included by the holders of Registrable Securities pro rata among the respective
holders thereof on the basis of the number of Registrable Securities owned by
each such holder.
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(b)
Expenses. All
expenses incurred by the Company in complying with this Section 12,
including all registration and filing fees, printing expenses, fees and
disbursements of counsel and independent public accountants for the Company,
listing or quotation fees, and fees of transfer agents and registrars, will be
borne in full by the Company. The Investor will be responsible for
all underwriting commissions, transfer taxes, discounts and fees with respect to
Registrable Securities and the fees and expenses of accountants and legal
counsel for the Investor.
(c)
Listing. The
Company will cause all Registrable Securities registered as provided in this
Section 12
to be listed on each securities exchange on which similar securities issued by
the Company are then listed or, if no similar securities issued by the Company
are then listed on any securities exchange, use its reasonable best efforts to
cause all such Registrable Securities to be listed on the AMEX, the NYSE or the
NASDAQ stock market, as determined by the Company.
(d)
Indemnification. The
Company will enter into customary and reasonable indemnification and
contribution agreements with any underwriter and the Investor in the event of an
underwritten offering.
Section
13. Notices. All
notices, communications and deliveries required or permitted by this Agreement
will be made in writing signed by the party making the same, will specify the
Section of this Agreement pursuant to which it is given or being made and will
be deemed given or made (a) on the date delivered if delivered by telecopy
or in person, (b) on the third Business Day after it is mailed if mailed by
registered or certified mail (return receipt requested) (with postage and other
fees prepaid) or (c) on the day after it is delivered, prepaid, to an
overnight express delivery service that confirms to the sender delivery on such
day, as follows:
(i)
if to the
Company, at:
Las Vegas
Gaming, Inc.
0000 Xxxx
Xxx Xxxx Xxxx, Xxxxx X
Xxx
Xxxxx, Xxxxxx 00000
Attention:
Xxxxx
Xxxxxxx
(ii)
if to the
Investor, at:
IGT
0000
Xxxxxxxxx Xxxxx
Xxxx,
Xxxxxx 00000
Attention:
Xxxxxxx
Xxxxxxxxxx
J.
Xxxxxxx Xxxxxxxxx
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-
with a
copy (which will not constitute notice) to:
Fulbright &
Xxxxxxxx L.L.P.
0000 Xxxx
Xxxxxx
Xxxxxx,
Xxxxx 00000
Attention:
Xxxx Xxxxxxxxx
or to
such other representative or at such other address of a party as such party
hereto may furnish to the other parties in writing in accordance with this Section 13. If
notice is given pursuant to this Section 13 of
any assignment to a permitted successor or assign of a party hereto, the notice
will be given as set forth above to such successor or permitted assign of such
party.
Section
14. Assignment. This
Agreement will be binding upon, and will inure to the benefit of and be
enforceable by, the parties hereto and their respective successors and
assigns.
Section
15. Entire
Agreement. This Agreement and the Mutual Confidential
Disclosure Agreement between the Company and International Game Technology dated
as of May 20, 2008 (the “NDA”) embody the entire
agreement and understanding between the parties hereto in respect of the subject
matter contained herein. Except for the NDA, this Agreement
supersedes all prior written and prior or contemporaneous oral agreements and
understandings between the parties, including without limitation, the Advance
Agreement, with respect to the subject matter of this Agreement.
Section
16. Governing Law;
Jurisdiction. THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED
AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEVADA WITHOUT
REFERENCE TO PRINCIPLES OF CONFLICTS OF LAW THAT WOULD RESULT IN THE APPLICATION
OF THE LAWS OF ANOTHER JURISDICTION. ANY LEGAL ACTION OR PROCEEDING
BY OR AGAINST ANY PARTY HERETO OR WITH RESPECT TO OR ARISING OUT OF THIS
AGREEMENT MAY BE BROUGHT IN OR REMOVED TO THE COURTS OF THE STATE OF
NEVADA. BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH PARTY
ACCEPTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND
UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS (AND COURTS OF APPEALS
THEREFROM) FOR LEGAL PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS
AGREEMENT.
Section
17. Severability. If any provision of this
Agreement or the application thereof to any Person or circumstances is
determined by a court of competent jurisdiction to be invalid, void or
unenforceable, the remaining provisions hereof, or the application of such
provision to Persons or circumstances other than those as to which it has been
held invalid or unenforceable, will remain in full force and effect and will in
no way be affected, impaired or invalidated thereby, so long as the economic or
legal substance of the transactions contemplated hereby is not affected in any
manner adverse to any party. Upon such determination, the parties
will negotiate in good faith in an effort to agree upon a suitable and equitable
substitute provision to effect the original intent of the parties.
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-
Section
18. Expenses. Except
as set forth herein, each of the Company and the Investor will pay its
respective fees and expenses related to the transactions contemplated by this
Agreement.
Section
19. Miscellaneous.
(a)
Construction.
(i)
the word
“or” will not be exclusive;
(ii)
inclusion
of items in a list will not be deemed to exclude other terms of similar
import;
(iii)
all
parties will be considered to have drafted this Agreement together, with the
benefit of counsel, and no provision will be strictly construed against any
Person by reason of having drafted such provision;
(iv)
the word
“include” and its correlatives means to include without limitation;
(v)
terms
that imply gender will include all genders;
(vi)
defined
terms will have their meanings in the plural and singular case;
(vii)
references
to Sections, Articles, Annexes, Schedules and Exhibits are to the Sections,
Articles, Annexes, Schedules and Exhibits to this Agreement;
(viii)
financial
terms that are not otherwise defined have the meanings ascribed to them under
GAAP as of the date of this Agreement;
(ix)
the use
of “will” as an auxiliary will not be deemed to be a mere prediction of future
occurrences; and
(x)
the
headings in this Agreement are for purposes of reference only and will not limit
or otherwise affect the meaning of this Agreement.
(b)
Counterparts. This
Agreement may be executed in any number of counterparts, each of which will be
deemed to be an original, but all of which, when taken together, will constitute
one and the same instrument.
[Signature page
follows.]
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-
IN
WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and
delivered as of the date first above written.
LAS VEGAS
GAMING, INC.
By: /s/ Xxx X.
Xxxxxxx
Name:
Xxx X.
Xxxxxxx
Title:
President &
CEO
IGT
By: /s/ Xxxx
Xxxxxxxxxx
Name:
Xxxx
Xxxxxxxxxx
Title:
EVP Corp
Strategy
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Exhibit
A
Certificate of
Designations
A - 1
4,693,878
shares of the authorized and unissued Preferred Stock of the Corporation are
hereby designated “Series I
Preferred Stock” with the following rights, preferences, powers,
privileges and restrictions, qualifications and limitations.
1.
Dividends.
From and
after the date of the issuance of any shares of Series I Preferred Stock, the
holders of record on each Mandatory Dividend Record Date of each share of Series
I Preferred Stock will be entitled to receive, and the Board of Directors of the
Corporation must declare (subject only to the legal availability of funds for
payment thereof) cash dividends in an amount equal to the Dividend Rate times
the Series I Original Issue Price (subject to appropriate adjustment in the
event of any stock dividend, stock split, combination or other similar
recapitalization with respect to the Series I Preferred Stock) (the “Mandatory
Dividends”). “Dividend Rate” will mean a
rate equal to 6.5% annually (computed on the basis of a 360-day year accruing
from July 16, 2008; provided that such rate will increase to 18.0% annually in
the event that any Mandatory Dividend is not paid in cash within ten days after
any Mandatory Dividend Record Date. “Mandatory Dividend Record
Date” means each January 1 of each year beginning with January 1, 2010 so
long as any Series I Preferred Stock is outstanding. The “Series I Original Issue Price”
will mean $2.45 per share, subject to appropriate adjustment in the event of any
stock dividend, stock split, combination or other similar recapitalization with
respect to the Series I Preferred Stock. “Base Amount” means, as of any
date, an amount equal to the sum of the Series I Original Issue Price plus the
amount of all Mandatory Dividends with respect to a share of Series I Preferred
Stock that have accrued but not been paid in cash. Mandatory
Dividends will accrue from day to day, whether or not declared, and will be
cumulative. The Corporation will not declare, pay or set aside any
dividends on, or redeem or repurchase in any manner (including, without
limitation, pursuant to redemption, repurchase or put rights, or an election to
receive consideration in lieu of conversion), shares of any other class or
series of capital stock of the Corporation, including, without limitation, on
any Junior Securities (other than dividends on shares of the Company’s Common
Stock, par value $.001 per share, or the Company’s Common Stock Series A, par
value $.001 per share (such Common Stock and Common Stock Series A collectively
referred to hereinafter as “Common Stock”) payable in
shares of Common Stock), unless (in addition to the obtaining of any consents
required elsewhere in the Articles of Incorporation) the holders of the Series I
Preferred Stock then outstanding first receive, or simultaneously receive, a
dividend on each outstanding share of Series I Preferred Stock in an amount at
least equal to the amount of the aggregate Mandatory Dividends then accrued on
such share of Series I Preferred Stock and not previously paid; provided, that
the Corporation shall be allowed to pay the accrued but unpaid dividends as of
the date of first issuance of Series I Preferred Stock on the Corporation’s
Series F Convertible Preferred Stock and Series G Convertible Preferred Stock,
up to an amount not to exceed $100,000, and effect the Series B Repurchase (as
defined in Section 3.2(e)). “Junior Securities’” means all
classes or series of the Corporation’s common stock, the Corporation’s Series A
Convertible Preferred Stock, the Corporation’s Series B Convertible Preferred
Stock, the Corporation’s Series C Convertible Preferred Stock, the Corporation’s
Series D Convertible Preferred Stock,
A - 2
the
Corporation’s Series E Convertible Preferred Stock, the Corporation’s Series F
Convertible Preferred Stock (except to the extent otherwise provided in Sections 2.1), the
Corporation’s Series G Convertible Preferred Stock, the Corporation’s Series H
Convertible Preferred Stock, and any future capital stock of the Corporation the
terms of which, subject to compliance with the rights, privileges and
preferences of the Series I Preferred Stock, do not specifically provide that
they are senior to or on parity with the Series I Preferred
Stock. Any capital stock of the Corporation that purports to be
senior to any of the rights, preferences, powers, privileges and restrictions,
qualifications and limitations of the Series I Preferred Stock and that were not
approved by the holders of the Series I Preferred Stock in accordance with
Section 3.2 hereof shall be deemed to be Junior Securities.
2. Liquidation, Dissolution or
Winding Up; Certain Mergers, Consolidations and Asset Sales.
2.1
Preferential Payments to
Holders of Series I Preferred Stock. In the event of any
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, the holders of shares of Series I Preferred Stock then outstanding
will be entitled to be paid out of the assets of the Corporation available for
distribution to its stockholders before any payment will be made to the holders
of Common Stock or any other Junior Securities by reason of their ownership
thereof, an amount per share equal to the Base Amount; provided, that the
holders of the Corporation’s Series F Convertible Preferred Stock shall be
entitled to be paid out of the Jackpot Security Account, to the extent funds are
available in such account, an amount equal to $5.00 per share of Series F
Convertible Preferred Stock, plus any accrued but unpaid dividends, up to an
aggregate payment to the holders of such Series F Convertible Preferred Stock of
$1,000,000 out of such account, before any payment out of such account is made
to the holders of the shares of Series I Preferred Stock pursuant to this Section 2.1 (the
“Series F Jackpot Account
Preference”). If upon any such liquidation, dissolution or
winding up of the Corporation, the assets of the Corporation available for
distribution to its stockholders are insufficient to pay the holders of shares
of Series I Preferred Stock the full amount to which they are entitled under
this Section
2.1, the holders of shares of Series I Preferred Stock will share ratably
in any distribution of the assets available for distribution in proportion to
the respective amounts that would otherwise be payable in respect of the shares
held by them upon such distribution if all amounts payable on or with respect to
such shares were paid in full. The aggregate amount which a holder of
a share of Series I Preferred Stock is entitled to receive under this Section 2.1 is
referred to as the “Series I
Liquidation Amount.” “Jackpot Security Account”
means the Corporation’s separate bank account in which $1,000,000 is reserved
solely to satisfy the Corporation’s jackpot security requirements related to the
Gambler’s Bonus Million Dollar Ticket game operated by the Corporation in
Nevada.
2.2
Distribution of Remaining
Assets. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation, after the payment of
all preferential amounts required to be paid to the holders of shares of Series
I Preferred Stock as provided in Section 2.1, the
remaining assets of the Corporation available for
A - 3
distribution
to its stockholders will be distributed among the holders of Junior Securities,
in accordance with their respective terms (subject to the Series F Jackpot
Account Preference, if any, if not already distributed as provided in Section
2.1). After the payment of all preferential amounts required
to be paid to the holders of shares of Series I Preferred Stock as provided in
Section 2.1,
the holders of shares of Series I Preferred Stock shall not participate in the
distribution of the remaining assets pursuant to this Section
2.2.
2.3
Deemed Liquidation
Events.
2.3.1
Definition. Each
of the following events will be considered a “Deemed Liquidation Event”
unless the holders of at least a majority of the outstanding shares of Series I
Preferred Stock elects otherwise by written notice sent to the Corporation at
least ten days prior to the effective date of any such event:
(a)
a merger
or consolidation in which
(i)
the
Corporation is a constituent party or
(ii)
a
subsidiary of the Corporation is a constituent party and the Corporation issues
shares of its capital stock pursuant to such merger or
consolidation,
except
any such merger or consolidation involving the Corporation or a subsidiary in
which the shares of capital stock of the Corporation outstanding immediately
prior to such merger or consolidation continue to represent, or are converted
into or exchanged for shares of capital stock that represent, immediately
following such merger or consolidation, at least a majority, by voting power, of
the capital stock or other equity interests of (1) the surviving or resulting
corporation or entity or (2) if the surviving or resulting corporation or entity
is a wholly owned subsidiary of another corporation or entity immediately
following such merger or consolidation, the parent corporation or entity of such
surviving or resulting corporation or entity (provided that, for
the purpose of this Section 2.3.1, all
shares of Common Stock issuable upon exercise of Options (as defined in Section 4.4.1)
outstanding immediately prior to such merger or consolidation or upon conversion
of Convertible Securities (as defined in Section 4.4.1)
outstanding immediately prior to such merger or consolidation will be deemed to
be outstanding immediately prior to such merger or consolidation and, if
applicable, converted or exchanged in such merger or consolidation on the same
terms as the actual outstanding shares of Common Stock are converted or
exchanged);
(b)
the sale,
lease, transfer, exclusive license or other disposition, in a single transaction
or series of related transactions, by the Corporation or any subsidiary of the
Corporation of all or a majority of the assets or revenue or earnings generating
capacity of the Corporation and its subsidiaries taken as a whole (including,
without limitation, any of its
A - 4
patents),
or the sale or disposition (whether by merger or otherwise) of one or more
subsidiaries of the Corporation if a majority of the assets or revenue or
earnings generating capacity of the Corporation and its subsidiaries taken as a
whole are held by such subsidiary or subsidiaries, except where such sale,
lease, transfer, exclusive license or other disposition is to a wholly owned
subsidiary of the Corporation; or
(c)
any
person, entity or “group” within the meaning of §13(d)(3) of the Securities
Exchange Act of 1934, as amended, and the rules thereof (the “Exchange Act”); individuals
who, as of July 16, 2008, constitute the Board of Directors of the Corporation
(the “Continuing
Directors”) cease for any reason to constitute at least a majority of
such Board; provided, however, that any individual becoming a director after
July 16, 2008 whose election or nomination for election by the Corporation’s
shareholders, was approved by a vote of at least a majority of the Continuing
Directors will be deemed to be a Continuing Director, but excluding for this
purpose any such individual whose initial assumption of office occurs as a
result of either an actual or threatened election contest (as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act or
other actual or threatened solicitation of proxies or consents by or on behalf
of a person, entity or group other than the Board); or there occurs any other
event of circumstance that would require reporting under Item 5.01 of Form 8-K
under the Exchange Act (or any successor item).
2.3.2
Effecting a Deemed
Liquidation Event.
(a)
The
Corporation will not have the power to effect a Deemed Liquidation Event
referred to in Section
2.3.1(a)(i) unless the agreement or plan of merger or consolidation for
such transaction (the “Merger
Agreement”) provides that the consideration payable to the stockholders
of the Corporation will be allocated among the holders of capital stock of the
Corporation in accordance with Sections 2.1 and
2.2. In
the event of a Deemed Liquidation Event referred to in Section 2.3.1(a)(ii),
2.3.1(b) or
2.3.1(c), if
the Corporation does not effect a dissolution of the Corporation under the
Nevada Revised Statutes within 90 days after such Deemed Liquidation Event, then
(i) the Corporation will send a written notice to each holder of Series I
Preferred Stock no later than the 90th day after the Deemed Liquidation Event
advising such holders of their right (and the requirements to be met to secure
such right) pursuant to the terms of the following clause (ii) to
require the redemption of such shares of Series I Preferred Stock, and (ii) if
the holders of at least a majority of the then outstanding shares of Series I
Preferred Stock so request in a written instrument delivered to the Corporation
not later than 120 days after such Deemed Liquidation Event, the Corporation
will use the consideration received by the Corporation, if any, for such
Deemed
A - 5
Liquidation
Event (net of any retained liabilities associated with the assets sold or
technology licensed, as determined in good faith by the Board of Directors of
the Corporation), together with any other assets of the Corporation available
for distribution to its stockholders (the “Available Proceeds”), to the
extent legally available therefor, on the 150th day after such Deemed
Liquidation Event, to redeem all outstanding shares of Series I Preferred Stock
at a price per share equal to the Series I Liquidation Amount (referred to in
this Section
2.4 as the “Redemption
Price”). Notwithstanding the foregoing, in the event of a
redemption pursuant to the preceding sentence, if the Available Proceeds are not
sufficient to redeem all outstanding shares of Series I Preferred Stock, the
Corporation will redeem a pro rata portion of each holder’s shares of Series I
Preferred Stock to the fullest extent of such Available Proceeds, based on the
respective amounts that would otherwise be payable in respect of the shares to
be redeemed if the Available Proceeds were sufficient to redeem all such shares,
and will redeem the remaining shares to have been redeemed as soon as
practicable after the Corporation has funds legally available
therefor. The Corporation will send written notice of the mandatory
redemption (the “Redemption
Notice”) to each holder of record of Series I Preferred Stock not less
than 40 days prior to each Deemed Liquidation Event. Each Redemption
Notice will state:
(i)
the
number of shares of Series I Preferred Stock held by the holder that the
Corporation will redeem on the date of the Deemed Liquidation Event specified in
the Redemption Notice;
(ii)
the date
of the Deemed Liquidation Event and the Redemption Price;
(iii)
the date
upon which the holder’s right to convert such shares terminates (as determined
in accordance with Section 4.1);
and
(iv)
that the
holder is to surrender to the Corporation, in the manner and at the place
designated, his, her or its certificate or certificates representing the shares
of Series I Preferred Stock to be redeemed.
2.3.3
Opt Out; Tender of
Certificates. If the Corporation receives, on or prior to the
20th day after the date of delivery of the Redemption Notice to a holder of
Series I Preferred Stock, written notice from such holder that such holder
elects to be excluded from the redemption provided in this Section 2.3, then the
shares of Series I Preferred Stock registered on the books of the Corporation in
the name of such holder at the time of the Corporation’s receipt of such notice
will thereafter be “Excluded
Shares.” Excluded Shares will not be
A - 6
redeemed
or redeemable pursuant to this Section 2.3, whether
in such Deemed Liquidation Event or thereafter. On or before the date
of the Deemed Liquidation Event, each holder of shares of Series I Preferred
Stock to be redeemed on such date, unless such holder has exercised his, her or
its right to convert such shares as provided in Section 4, must
surrender the certificate or certificates representing such shares (or, if such
registered holder alleges that such certificate has been lost, stolen or
destroyed, a lost certificate affidavit and agreement reasonably acceptable to
the Corporation to indemnify the Corporation against any claim that may be made
against the Corporation on account of the alleged loss, theft or destruction of
such certificate) to the Corporation, in the manner and at the place designated
in the Redemption Notice, and thereupon the Redemption Price for such shares
will be payable to the order of the person whose name appears on such
certificate or certificates as the owner thereof. In the event less
than all of the shares of Series I Preferred Stock represented by a certificate
are redeemed, a new certificate representing the unredeemed shares of Series I
Preferred Stock will promptly be issued to such holder. If the
Redemption Notice has been duly given, and if on the date of the Deemed
Liquidation Event the Redemption Price payable upon redemption of the shares of
Series I Preferred Stock to be redeemed in such Deemed Liquidation Event is paid
or tendered for payment or deposited with an independent payment agent so as to
be available therefor in a timely manner, then notwithstanding that the
certificates evidencing any of the shares of Series I Preferred Stock so called
for redemption have not been surrendered, dividends with respect to such shares
of Series I Preferred Stock will cease to accrue after date of the Deemed
Liquidation Event and all rights with respect to such shares will forthwith
after the date of the Deemed Liquidation Event terminate, except only the right
of the holders to receive the Redemption Price without interest upon surrender
of their certificate or certificates therefor.
Prior to
the distribution or redemption provided for in this Section 2.3, the
Corporation will not expend or dissipate the consideration received for such
Deemed Liquidation Event, except to discharge expenses incurred in connection
with such Deemed Liquidation Event.
2.3.4
Amount Deemed Paid or
Distributed. If the amount deemed paid or distributed under
this Section
2.3 is made in property other than in cash, the value of such
distribution will be the fair market value of such property, determined as
follows:
(a)
For
securities not subject to investment letters or other similar restrictions on
free marketability,
(i)
if traded
on a securities exchange or the NASDAQ Stock Market, the value will be deemed to
be the average of the closing prices of the securities on such exchange or
market over the 30-period ending three days prior to the closing of such
transaction;
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(ii)
if
actively traded over-the-counter, the value will be deemed to be the average of
the closing bid prices over the 30-day period ending three days prior to the
closing of such transaction; or
(iii)
if there
is no active public market, the value will be the fair market value thereof, as
determined in good faith by the Board of Directors of the
Corporation.
(b)
The
method of valuation of securities subject to investment letters or other similar
restrictions on free marketability (other than restrictions arising solely by
virtue of a stockholder’s status as an affiliate or former affiliate) will take
into account an appropriate discount (as determined in good faith by the Board
of Directors of the Corporation) from the market value as determined pursuant to
clause (a) above so as to reflect the approximate fair market value
thereof.
2.3.5
Allocation of
Escrow. In the event of a
Deemed Liquidation Event pursuant to Section 2.3.1(a)(i),
if any portion of the consideration payable to the stockholders of the
Corporation is placed into escrow or is payable to the stockholders of the
Corporation subject to contingencies, the Merger Agreement will provide that (a)
the portion of such consideration that is not placed in escrow and not subject
to any contingencies (the “Initial Consideration”) will
be allocated among the holders of capital stock of the Corporation in accordance
with Sections
2.1 and 2.2 as if the Initial
Consideration were the only consideration payable in connection with such Deemed
Liquidation Event and (b) any additional consideration that becomes payable to
the stockholders of the Corporation upon release from escrow or satisfaction of
contingencies will be allocated among the holders of capital stock of the
Corporation in accordance with Sections 2.1 and
2.2 after
taking into account the previous payment of the Initial Consideration as part of
the same transaction.
3. Voting.
3.1
General. On
any matter presented to the stockholders of the Corporation for their action or
consideration at any meeting of stockholders of the Corporation (or by written
consent of stockholders in lieu of meeting), each holder of outstanding shares
of Series I Preferred Stock will be entitled to cast the number of votes equal
to the number of whole shares of Common Stock into which the shares of Series I
Preferred Stock held by such holder are convertible as of the record date for
determining stockholders entitled to vote on such matter. Except as
provided by law or by the other provisions of the Articles of Incorporation or
Certificate or Designation, holders of Series I Preferred Stock will vote
together with the holders of Common Stock as a single class.
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3.2
Series I Preferred Stock
Protective Provisions. At any time when any shares of Series I
Preferred Stock are outstanding, the Corporation will not, either directly or
indirectly by amendment, merger, consolidation or otherwise, do any of the
following without (in addition to any other vote required by law or the Articles
of Incorporation) the written consent or affirmative vote of the holders of at
least a majority of the then outstanding shares of Series I Preferred Stock,
given in writing or by vote at a meeting, consenting or voting (as the case may
be) separately as a class:
(a) liquidate,
dissolve or wind-up the business and affairs of the Corporation, effect any
Deemed Liquidation Event, or consent to any of the foregoing;
(b)
amend,
alter or repeal any provision of the Articles of Incorporation or Bylaws of the
Corporation;
(c)
create,
or authorize the creation of, or issue or obligate itself to issue shares of,
any class or series of capital stock (whether now existing or any additional
class or series of capital stock) unless the same ranks junior to the Series I
Preferred Stock with respect to the distribution of assets on the liquidation,
dissolution or winding up of the Corporation, the payment of dividends and
rights of redemption, or increase the authorized number of shares of Series I
Preferred Stock or increase the authorized number of shares of any class or
series of capital stock (whether now existing or any additional class or series
of capital stock) unless the same ranks junior to the Series I Preferred Stock
with respect to the distribution of assets on the liquidation, dissolution or
winding up of the Corporation, the payment of dividends and rights of
redemption;
(d) (i)
reclassify, alter or amend any existing security of the Corporation that
is pari passu with the Series I Preferred Stock in respect of the distribution
of assets on the liquidation, dissolution or winding up of the Corporation, the
payment of dividends or rights of redemption, if such reclassification,
alteration or amendment would render such other security senior to the Series I
Preferred Stock in respect of any such right, preference or privilege, or (ii)
reclassify, alter or amend any existing security of the Corporation that is
junior to the Series I Preferred Stock in respect of the distribution of assets
on the liquidation, dissolution or winding up of the Corporation, the payment of
dividends or rights of redemption, if such reclassification, alteration or
amendment would render such other security senior to or pari passu with the
Series I Preferred Stock in respect of any such right, preference or
privilege;
(e)
purchase
or redeem (or permit any subsidiary to purchase or redeem) or pay or declare any
dividend or make any distribution on, any shares of capital stock of the
Corporation other than (i) redemptions of or dividends or distributions on the
Series I Preferred Stock as expressly authorized herein, (ii) dividends or other
distributions payable on the Common Stock solely in the form of additional
shares of Common Stock, (iii) repurchases of stock from former
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employees,
officers, directors, consultants or other persons who performed services for the
Corporation or any subsidiary in connection with the cessation of such
employment or service at the lower of the original purchase price or the
then-current fair market value thereof, (iv) repurchases of shares of the
Corporation’s Series B Convertible Preferred Stock, to the extent any holder
thereof validly elects to exercise its right set forth in the certificate of
designation therefore to require the Corporation to repurchase the holder’s
shares of Series B Convertible Preferred Stock (which right expires October 31,
2008), up to a maximum repurchase pursuant thereto of an aggregate of 76,750
shares of Series B Convertible Preferred Stock (the “Series B Repurchase”), and (v)
accrued but unpaid dividends as of the date of first issuance of Series I
Preferred Stock on the Company’s Series F Convertible Preferred Stock and Series
G Convertible Preferred Stock, up to an amount not to exceed
$100,000;
(f)
incur (or
agree to incur) indebtedness for borrowed money (including, without limitation,
pursuant to capital leases) or create, or authorize the creation of, or issue,
or authorize the issuance of any debt security, or permit any subsidiary to take
any such action with respect to any debt security; provided, that the
Corporation shall be permitted to incur indebtedness for borrowed money in order
to lease or purchase materials that are used to produce and that become a part
or component of the Corporation’s products (such permitted indebtedness not to
exceed $5,000,000 in the aggregate);
(g)
create,
or hold capital stock in, any subsidiary that is not wholly owned (either
directly or through one or more other subsidiaries) by the Corporation, or sell,
transfer or otherwise dispose of any capital stock of any direct or indirect
subsidiary of the Corporation, or permit any direct or indirect subsidiary to
sell, lease, transfer, exclusively license or otherwise dispose (in a single
transaction or series of related transactions) of all or substantially all of
the assets of such subsidiary;
(h)
engage
in, or directly or indirectly enter into an agreement to engage in, any
acquisition of any assets or a business in which any shares of any class or
series of capital stock of the Corporation are issued, sold or otherwise
conveyed as part of the consideration paid in such acquisition; provided, the
Corporation shall be permitted to issue up to 750,000 shares of its Common Stock
as consideration for the repurchase and termination of all of its intellectual
property licenses previously granted to Ad-Line; or
(i)
issue or
grant, or agree to issue or grant, options to employees or directors of the
Corporation or any other person or entity; provided, that during the eighteen
(18) month period following the date of issuance of the first share of Series I
Preferred Stock (the “Initial
Issuance Date”), the Corporation shall be permitted (a) to issue Options
for the purchase of an aggregate of 1,000,000 shares of Common Stock to
employees or directors of
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the
Corporation or, (b) if the Corporation cancels or otherwise terminates all
out-of-the money options existing on the Initial Issuance Date, to issue Options
for the purchase of an aggregate of 1,500,000 shares of Common Stock to
employees or directors of the Corporation; and, provided further, that following
such eighteen (18) month period, the Corporation shall be permitted to issue to
employees or directors of the Corporation, on an annual basis, Options for the
purchase of shares of Common Stock in an aggregate amount up to the lesser of
(i) 3% of the number of shares of Common Stock outstanding on a fully-diluted
basis and (ii) 1,000,000 shares.
4.
Optional
Conversion.
The
holders of the Series I Preferred Stock will have conversion rights as follows
(the “Conversion
Rights”):
4.1
Right to
Convert.
4.1.1
Conversion
Ratio. Each share of Series I Preferred Stock will be
convertible, at the option of the holder thereof, at any time and from time to
time, and without the payment of additional consideration by the holder thereof,
into such number of fully paid and nonassessable shares of Common Stock as is
determined by dividing the Base Amount by $2.45 (the denominator in the
foregoing formula, as adjusted pursuant to the terms set forth herein, the “Series I Conversion
Price”). The Series I Conversion Price, and therefore the rate
at which shares of Series I Preferred Stock may be converted into shares of
Common Stock, will be subject to adjustment as provided below. For
the avoidance of doubt, any adjustments to the Series I Conversion Price, and
therefore the rate at which shares of Series I Preferred Stock may be converted
into shares of Common Stock, will be given effect with respect to any shares of
Series I Preferred Stock that may be issued after the event giving rise to such
adjustment.
4.1.2
Termination of Conversion
Rights. In the event of a liquidation, dissolution or winding
up of the Corporation or a Deemed Liquidation Event, the Conversion Rights will
terminate at the close of business on the last full day preceding the date fixed
for the payment of any such amounts distributable on such event to the holders
of Series I Preferred Stock.
4.2
Fractional
Shares. No fractional shares of Common Stock will be issued
upon conversion of the Series I Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation will pay cash equal to such fraction multiplied by the fair market
value of a share of Common Stock as determined in good faith by the Board of
Directors of the Corporation. Whether or not fractional shares would
be issuable upon such conversion will be determined on the basis of the total
number of shares of Series I Preferred Stock the holder is at the time
converting into Common Stock and the aggregate number of shares of Common Stock
issuable upon such conversion.
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4.3
Mechanics of
Conversion.
4.3.1
Notice of
Conversion. In order for a holder of Series I Preferred Stock
to voluntarily convert shares of Series I Preferred Stock into shares of Common
Stock, such holder will surrender the certificate or certificates for such
shares of Series I Preferred Stock (or, if such registered holder alleges that
such certificate has been lost, stolen or destroyed, a lost certificate
affidavit and agreement reasonably acceptable to the Corporation to indemnify
the Corporation against any claim that may be made against the Corporation on
account of the alleged loss, theft or destruction of such certificate), at the
office of the transfer agent for the Series I Preferred Stock (or at the
principal office of the Corporation if the Corporation serves as its own
transfer agent), together with written notice that such holder elects to convert
all or any number of the shares of the Series I Preferred Stock represented by
such certificate or certificates and, if applicable, any event on which such
conversion is contingent. Such notice will state such holder’s name
or the names of the nominees in which such holder wishes the certificate or
certificates for shares of Common Stock to be issued. If required by
the Corporation, certificates surrendered for conversion will be endorsed or
accompanied by a written instrument or instruments of transfer, in form
reasonably satisfactory to the Corporation, duly executed by the registered
holder or his, her or its attorney duly authorized in writing. The
close of business on the date of receipt by the transfer agent (or by the
Corporation if the Corporation serves as its own transfer agent) of such
certificates (or lost certificate affidavit and agreement) and notice will be
the time of conversion (the “Conversion Time”), and the
shares of Common Stock issuable upon conversion of the shares represented by
such certificate will be deemed to be outstanding of record as of such
date. The Corporation will, as soon as practicable after the
Conversion Time, (i) issue and deliver to such holder of Series I Preferred
Stock, or to his, her or its nominees, a certificate or certificates for the
number of full shares of Common Stock issuable upon such conversion in
accordance with the provisions hereof and a certificate for the number (if any)
of the shares of Series I Preferred Stock represented by the surrendered
certificate that were not converted into Common Stock, (ii) pay in cash such
amount as provided in Section 4.2 in lieu
of any fraction of a share of Common Stock otherwise issuable upon such
conversion.
4.3.2
Reservation of
Shares. The Corporation will at all times when the Series I
Preferred Stock will be outstanding, reserve and keep available out of its
authorized but unissued capital stock, for the purpose of effecting the
conversion of the Series I Preferred Stock, such number of its duly authorized
shares of Common Stock as will from time to time be sufficient to effect the
conversion of all outstanding Series I Preferred Stock; and if at any time the
number of authorized but unissued shares of Common Stock will not be sufficient
to effect the conversion of all then outstanding shares of the Series I
Preferred
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Stock,
the Corporation will take such corporate action as may be necessary to increase
its authorized but unissued shares of Common Stock to such number of shares as
will be sufficient for such purposes, including, without limitation, engaging in
best efforts to obtain the requisite stockholder approval of any necessary
amendment to the Articles of Incorporation. Before taking any action
which would cause an adjustment reducing the Series I Conversion Price below the
then par value of the shares of Common Stock issuable upon conversion of the
Series I Preferred Stock, the Corporation will take any corporate action which
may, in the opinion of its counsel, be necessary in order that the Corporation
may validly and legally issue fully paid and nonassessable shares of Common
Stock at such adjusted Series I Conversion Price.
4.3.3
Effect of
Conversion. All shares of Series I Preferred Stock that have
been surrendered for conversion as herein provided will no longer be deemed to
be outstanding and all rights with respect to such shares will immediately cease
and terminate at the Conversion Time, except only the right of the holders
thereof to receive shares of Common Stock in exchange therefor, to receive
payment in lieu of any fraction of a share otherwise issuable upon such
conversion as provided in Section 4.2 and
to receive payment of any dividends declared but unpaid thereon. Any
shares of Series I Preferred Stock so converted will be retired and cancelled
and may not be reissued as shares of such series, and the Corporation may
thereafter take such appropriate action (without the need for stockholder
action) as may be necessary to reduce the authorized number of shares of Series
I Preferred Stock accordingly.
4.3.4
Taxes. The
Corporation will pay any and all issue and other similar taxes that may be
payable in respect of any issuance or delivery of shares of Common Stock upon
conversion of shares of Series I Preferred Stock pursuant to this Section
4. The Corporation will not, however, be required to pay any
tax that may be payable in respect of any transfer involved in the issuance and
delivery of shares of Common Stock in a name other than that in which the shares
of Series I Preferred Stock so converted were registered, and no such issuance
or delivery will be made unless and until the person or entity requesting such
issuance has paid to the Corporation the amount of any such tax or has
established, to the satisfaction of the Corporation, that such tax has been
paid.
4.4
Adjustments to Series I
Conversion Price for Diluting Issues.
4.4.1
Special
Definitions. For purposes of this Article Fourth, the
following definitions will apply:
(a)
“Option” will mean rights,
options or warrants to subscribe for, purchase or otherwise acquire Common Stock
or Convertible Securities.
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(b)
“Series I Original Issue Date”
will mean the date on which the first share of Series I Preferred Stock was
issued.
(c)
“Convertible Securities” will
mean any evidences of indebtedness, shares or other securities directly or
indirectly convertible into or exchangeable for Common Stock, but excluding
Options.
(d)
“Additional Shares of Common
Stock” will mean all shares of Common Stock issued (or, pursuant to Section 4.4.3 below,
deemed to be issued) by the Corporation after the Series I Original Issue Date,
other than (1) the following shares of Common Stock and (2) shares of Common
Stock deemed issued pursuant to the following Options and Convertible Securities
(clauses (1) and (2), collectively, “Exempted
Securities”):
(i)
shares of
Common Stock, Options or Convertible Securities issued as a dividend or
distribution on Series I Preferred Stock;
(ii) shares of
Common Stock, Options or Convertible Securities issued by reason of a dividend,
stock split, split-up or other distribution on shares of Common Stock that is
covered by Section
4.5, 4.6, 4.7 or 4.8;
(iii)
shares of
Common Stock or Convertible Securities actually issued upon the exercise of
Options or shares of Common Stock actually issued upon the conversion or
exchange of Convertible Securities, in each case provided such issuance is
pursuant to the terms of such Option or Convertible Security.
4.4.2
No Adjustment of Series I
Conversion Price. No adjustment in the Series I Conversion
Price will be made as the result of the issuance or deemed issuance of
Additional Shares of Common Stock if the Corporation receives written notice
from the holders of at least a majority of the then outstanding shares of Series
I Preferred Stock agreeing that no such adjustment will be made as the result of
the issuance or deemed issuance of such Additional Shares of Common
Stock.
4.4.3
Deemed Issue of Additional
Shares of Common Stock.
(a)
If the
Corporation at any time or from time to time after the Series I Original Issue
Date issues any Options or Convertible Securities (excluding Options or
Convertible Securities which are themselves Exempted Securities) or fixes a
record date for the determination of holders of any class of securities entitled
to receive any
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such
Options or Convertible Securities, then the maximum number of shares of Common
Stock (as set forth in the instrument relating thereto, assuming the
satisfaction of any conditions to exercisability, convertibility or
exchangeability but without regard to any provision contained therein for a
subsequent adjustment of such number) issuable upon the exercise of such Options
or, in the case of Convertible Securities and Options therefor, the conversion
or exchange of such Convertible Securities, will be deemed to be Additional
Shares of Common Stock issued as of the time of such issue or, in case such a
record date will have been fixed, as of the close of business on such record
date.
(b)
If the
terms of any Option or Convertible Security, the issuance of which resulted in
an adjustment to the Series I Conversion Price pursuant to the terms of Section 4.4.4, are
revised as a result of an amendment to such terms or any other adjustment
pursuant to the provisions of such Option or Convertible Security (but excluding
automatic adjustments to such terms pursuant to anti-dilution or similar
provisions of such Option or Convertible Security) to provide for either (1) any
increase or decrease in the number of shares of Common Stock issuable upon the
exercise, conversion or exchange of any such Option or Convertible Security or
(2) any increase or decrease in the consideration payable to the Corporation
upon such exercise, conversion or exchange, then, effective upon such increase
or decrease becoming effective, the Series I Conversion Price computed upon the
original issue of such Option or Convertible Security (or upon the occurrence of
a record date with respect thereto) will be readjusted to such Series I
Conversion Price as would have obtained had such revised terms been in effect
upon the original date of issuance of such Option or Convertible
Security. Notwithstanding the foregoing, no readjustment pursuant to
this clause
(b) will have the effect of increasing the Series I Conversion Price to
an amount which exceeds the lower of (i) the Series I Conversion Price in effect
immediately prior to the original adjustment made as a result of the issuance of
such Option or Convertible Security, or (ii) the Series I Conversion Price that
would have resulted from any issuances of Additional Shares of Common Stock
(other than deemed issuances of Additional Shares of Common Stock as a result of
the issuance of such Option or Convertible Security) between the original
adjustment date and such readjustment date.
(c) If the
terms of any Option or Convertible Security (excluding Options or Convertible
Securities which are themselves Exempted Securities), the issuance of which did
not result in an adjustment to the Series I Conversion Price pursuant to the
terms of Section
4.4.4 (either because the consideration per share (determined pursuant to
Section 4.4.5)
of the Additional Shares of Common Stock subject thereto was equal to or greater
than the Series I Conversion Price
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then in
effect, or because such Option or Convertible Security was issued before the
Series I Original Issue Date), are revised after the Series I Original Issue
Date as a result of an amendment to such terms or any other adjustment pursuant
to the provisions of such Option or Convertible Security (but excluding
automatic adjustments to such terms pursuant to anti-dilution or similar
provisions of such Option or Convertible Security) to provide for either (1) any
increase in the number of shares of Common Stock issuable upon the exercise,
conversion or exchange of any such Option or Convertible Security or (2) any
decrease in the consideration payable to the Corporation upon such exercise,
conversion or exchange, then such Option or Convertible Security, as so amended
or adjusted, and the Additional Shares of Common Stock subject thereto
(determined in the manner provided in Section 4.4.3(a))
will be deemed to have been issued effective upon such increase or decrease
becoming effective.
(d)
Upon the
expiration or termination of any unexercised Option or unconverted or
unexchanged Convertible Security (or portion thereof) that resulted (either upon
its original issuance or upon a revision of its terms) in an adjustment to the
Series I Conversion Price pursuant to the terms of Subsection 4.4.4, the
Series I Conversion Price will be readjusted to such Series I Conversion Price
as would have obtained had such Option or Convertible Security (or portion
thereof) never been issued.
(e)
If the
number of shares of Common Stock issuable upon the exercise, conversion or
exchange of any Option or Convertible Security, or the consideration payable to
the Corporation upon such exercise, conversion or exchange, is calculable at the
time such Option or Convertible Security is issued or amended but is subject to
adjustment based upon subsequent events, any adjustment to the Series I
Conversion Price provided for in this Subsection 4.4.3 will
be effected at the time of such issuance or amendment based on such number of
shares or amount of consideration without regard to any provisions for
subsequent adjustments (and any subsequent adjustments will be treated as
provided in clauses
(b) and (c) of this Section
4.4.3). If the number of shares of Common Stock issuable upon
the exercise, conversion or exchange of any Option or Convertible Security, or
the consideration payable to the Corporation upon such exercise, conversion
and/or exchange, cannot be calculated at all at the time such Option or
Convertible Security is issued or amended, any adjustment to the Series I
Conversion Price that would result under the terms of this Section 4.4.3 at the
time of such issuance or amendment will instead be effected at the time such
number of shares or amount of consideration is first calculable (even if subject
to subsequent adjustments), assuming for purposes of calculating such adjustment
to the Series I Conversion Price that such issuance or amendment took place at
the time such calculation can first be made.
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4.4.4
Adjustment of Series I
Conversion Price Upon Issuance of Additional Shares of Common
Stock. In the event the Corporation at any time after the
Series I Original Issue Date issues Additional Shares of Common Stock (including
Additional Shares of Common Stock deemed to be issued pursuant to Section 4.4.3),
without consideration or for a consideration per share less than the applicable
Series I Conversion Price in effect immediately prior to such issue, then the
Series I Conversion Price will be reduced, concurrently with such issue, to the
consideration per share received by the Corporation for such issue or deemed
issue of the Additional Shares of Common Stock; provided that if such
issuance or deemed issuance was without consideration, then the Corporation will
be deemed to have received an aggregate of $.001 of consideration for all such
Additional Shares of Common Stock issued or deemed to be issued.
4.4.5
Determination of
Consideration. For purposes of this Section 4.4, the
consideration received by the Corporation for the issue of any Additional Shares
of Common Stock will be computed as follows:
(a)
Cash and
Property: Such consideration will:
(i)
insofar
as it consists of cash, be computed at the aggregate amount of cash received by
the Corporation, excluding amounts paid or payable for accrued
interest;
(ii) insofar as
it consists of property other than cash, be computed at the fair market value
thereof at the time of such issue, as determined in good faith by the Board of
Directors of the Corporation; and
(iii)
in the
event Additional Shares of Common Stock are issued together with other shares or
securities or other assets of the Corporation for consideration which covers
both, be the proportion of such consideration so received, computed as provided
in clauses (i)
and (ii) above,
as determined in good faith by the Board of Directors of the
Corporation.
(b)
Options and Convertible
Securities. The consideration per share received by the
Corporation for Additional Shares of Common Stock deemed to have been issued
pursuant to Section
4.4.3, relating to Options and Convertible Securities, will be determined
by dividing:
(i)
the total
amount, if any, received or receivable by the Corporation as consideration for
the issue of such Options or Convertible Securities, plus the minimum aggregate
amount of additional consideration (as set forth in the instruments
relating
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thereto,
without regard to any provision contained therein for a subsequent adjustment of
such consideration) payable to the Corporation upon the exercise of such Options
or the conversion or exchange of such Convertible Securities, or in the case of
Options for Convertible Securities, the exercise of such Options for Convertible
Securities and the conversion or exchange of such Convertible Securities,
by
(ii)
the
maximum number of shares of Common Stock (as set forth in the instruments
relating thereto, without regard to any provision contained therein for a
subsequent adjustment of such number) issuable upon the exercise of such Options
or the conversion or exchange of such Convertible Securities, or in the case of
Options for Convertible Securities, the exercise of such Options for Convertible
Securities and the conversion or exchange of such Convertible
Securities.
4.4.6
Multiple Closing
Dates. In the event the Corporation issues on more than one
date Additional Shares of Common Stock that are a part of one transaction or a
series of related transactions and that would result in an adjustment to the
Series I Conversion Price pursuant to the terms of Section 4.4.4, and
such issuance dates occur within a period of no more than 90 days from the first
such issuance to the final such issuance, then, upon the final such issuance,
the Series I Conversion Price will be readjusted to give effect to all such
issuances as if they occurred on the date of the first such issuance (and
without giving effect to any additional adjustments as a result of any such
subsequent issuances within such period).
4.5
Adjustment for Stock Splits
and Combinations. If the Corporation at any time or from time
to time after the Series I Original Issue Date effects a subdivision of the
outstanding Common Stock, the Series I Conversion Price in effect immediately
before that subdivision will be proportionately decreased so that the number of
shares of Common Stock issuable on conversion of each share of such series will
be increased in proportion to such increase in the aggregate number of shares of
Common Stock outstanding. If the Corporation at any time or from time
to time after the Series I Original Issue Date combines the outstanding shares
of Common Stock, the Series I Conversion Price in effect immediately before the
combination will be proportionately increased so that the number of shares of
Common Stock issuable on conversion of each share of such series will be
decreased in proportion to such decrease in the aggregate number of shares of
Common Stock outstanding. Any adjustment under this Section will
become effective at the close of business on the date the subdivision or
combination becomes effective.
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4.6
Adjustment for Certain
Dividends and Distributions. In the event the Corporation at
any time or from time to time after the Series I Original Issue Date makes or
issues, or fixes a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable on the Common
Stock in additional shares of Common Stock, then and in each such event the
Series I Conversion Price in effect immediately before such event will be
decreased as of the time of such issuance or, in the event such a record date
will have been fixed, as of the close of business on such record date, by
multiplying the Series I Conversion Price then in effect by a
fraction:
(1)
the numerator of which will be the total number of shares of Common Stock issued
and outstanding immediately prior to the time of such issuance or the close of
business on such record date, and
(2)
the denominator of which will be the total number of shares of Common Stock
issued and outstanding immediately prior to the time of such issuance or the
close of business on such record date plus the number of shares of Common Stock
issuable in payment of such dividend or distribution.
Notwithstanding
the foregoing, (a) if such record date has been fixed and such dividend is not
fully paid or if such distribution is not fully made on the date fixed therefor,
the Series I Conversion Price will be recomputed accordingly as of the close of
business on such record date and thereafter the Series I Conversion Price will
be adjusted pursuant to this subsection as of the time of actual payment of such
dividends or distributions; and (b) that no such adjustment will be made if the
holders of Series I Preferred Stock simultaneously receive a dividend or other
distribution of shares of Common Stock in a number equal to the number of shares
of Common Stock as they would have received if all outstanding shares of Series
I Preferred Stock had been converted into Common Stock on the date of such
event.
4.7
Adjustments for Other
Dividends and Distributions. In the event the Corporation at
any time or from time to time after the Series I Original Issue Date makes or
issues, or fixes a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in securities of
the Corporation (other than a distribution of shares of Common Stock in respect
of outstanding shares of Common Stock) or in other property and the provisions
of Section 1 do
not apply to such dividend or distribution, then and in each such event the
holders of Series I Preferred Stock will receive, simultaneously with the
distribution to the holders of Common Stock, a dividend or other distribution of
such securities or other property in an amount equal to the amount of such
securities or other property as they would have received if all outstanding
shares of Series I Preferred Stock had been converted into Common Stock on the
date of such event.
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4.8
Adjustment for Merger or
Reorganization, etc. Subject to the provisions of Section 2.3, if there
occurs any reorganization, recapitalization, reclassification, consolidation or
merger involving the Corporation in which the Common Stock (but not the Series I
Preferred Stock) is converted into or exchanged for securities, cash or other
property (other than a transaction covered by Sections 4.4, 4.6 or 4.7), then, following
any such reorganization, recapitalization, reclassification, consolidation or
merger, each share of Series I Preferred Stock will thereafter be convertible in
lieu of the Common Stock into which it was convertible prior to such event into
the kind and amount of securities, cash or other property which a holder of the
number of shares of Common Stock of the Corporation issuable upon conversion of
one share of Series I Preferred Stock immediately prior to such reorganization,
recapitalization, reclassification, consolidation or merger would have been
entitled to receive pursuant to such transaction; and, in such case, appropriate
adjustment (as determined in good faith by the Board of Directors of the
Corporation) will be made in the application of the provisions in this Section 4 with
respect to the rights and interests thereafter of the holders of the Series I
Preferred Stock, to the end that the provisions set forth in this Section 4 (including
provisions with respect to changes in and other adjustments of the Series I
Conversion Price) will thereafter be applicable, as nearly as reasonably may be,
in relation to any securities or other property thereafter deliverable upon the
conversion of the Series I Preferred Stock.
4.9
Certificate as to
Adjustments. Upon the occurrence of each adjustment or
readjustment of the Series I Conversion Price pursuant to this Section 4, the
Corporation at its expense will, as promptly as reasonably practicable but in
any event not later than ten days thereafter, compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
Series I Preferred Stock a certificate setting forth such adjustment or
readjustment (including the kind and amount of securities, cash or other
property into which the Series I Preferred Stock is convertible) and showing in
detail the facts upon which such adjustment or readjustment is
based. The Corporation will, as promptly as reasonably practicable
after the written request at any time of any holder of Series I Preferred Stock
(but in any event not later than ten days thereafter), furnish or cause to be
furnished to such holder a certificate setting forth (i) the Series I Conversion
Price then in effect, and (ii) the number of shares of Common Stock and the
amount, if any, of other securities, cash or property which then would be
received upon the conversion of Series I Preferred Stock.
4.10 Notice of Record
Date. In the event:
(a)
the
Corporation takes a record of the holders of its Common Stock (or other capital
stock or securities at the time issuable upon conversion of the Series I
Preferred Stock) for the purpose of entitling or enabling them to receive any
dividend or other distribution, or to receive any right to subscribe for or
purchase any shares of capital stock of any class or any other securities, or to
receive any other security; or
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(b)
of any
capital reorganization of the Corporation, any reclassification of the Common
Stock of the Corporation, or any Deemed Liquidation Event; or
(c)
of the
voluntary or involuntary dissolution, liquidation or winding-up of the
Corporation,
then, and
in each such case, the Corporation will send or cause to be sent to the holders
of the Series I Preferred Stock a notice specifying, as the case may be, (i) the
record date for such dividend, distribution or right, and the amount and
character of such dividend, distribution or right, or (ii) the effective date on
which such reorganization, reclassification, consolidation, merger, transfer,
dissolution, liquidation or winding-up is proposed to take place, and the time,
if any is to be fixed, as of which the holders of record of Common Stock (or
such other capital stock or securities at the time issuable upon the conversion
of the Series I Preferred Stock) will be entitled to exchange their shares of
Common Stock (or such other capital stock or securities) for securities or other
property deliverable upon such reorganization, reclassification, consolidation,
merger, transfer, dissolution, liquidation or winding-up, and the amount per
share and character of such exchange applicable to the Series I Preferred Stock
and the Common Stock. Such notice will be sent at least ten days
prior to the record date or effective date for the event specified in such
notice.
5.
Redeemed or Otherwise
Acquired Shares. Any shares of Series I Preferred Stock that
are redeemed or otherwise acquired by the Corporation or any of its subsidiaries
will be automatically and immediately cancelled and retired and will not be
reissued, sold or transferred. Neither the Corporation nor any of its
subsidiaries may exercise any voting or other rights granted to the holders of
Series I Preferred Stock following redemption.
6.
Waiver. Any
of the rights, powers, preferences and other terms of the Series I Preferred
Stock set forth herein may be waived on behalf of all holders of Series I
Preferred Stock by the affirmative written consent or vote of the holders of at
least a majority of the shares of Series I Preferred Stock then
outstanding.
7.
Notices. Any
notice required or permitted by the provisions of this Article Fourth to be
given to a holder of shares of Series I Preferred Stock will be mailed, postage
prepaid, to the post office address last shown on the records of the
Corporation, or given by electronic communication in compliance with the
provisions of the General Corporation Law, and will be deemed sent upon such
mailing or electronic transmission.
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Exhibit
B
Warrant
B -
1
Exhibit
C
Intellectual Property Access
Agreement
C -
1
Exhibit
D
License and Application
Support Agreement
D -
1
Exhibit
E
Retrofit License
Agreement
E -
1
