REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of November
11, 1999, by and among INTERACTIVE MAGIC, INC., a corporation organized under
the laws of the State of North Carolina (the "COMPANY"), and RGC International
Investors, LDC ("RGC"), Xxxxx X. Xxxxxxx ("XXXXXXX"), Value Management &
Research AG ("Value") and Vertical Financial Holdings ("VERTICAL" and, together
with RGC, Value and Xxxxxxx and their respective affiliates and any assignee or
transferee of all of their respective rights hereunder, the "INITIAL
INVESTORS").
WHEREAS:
A. In connection with the Securities Purchase and Exchange Agreement,
dated as of November 8, 1999, between the Company and RGC (the "SECURITIES
PURCHASE AND EXCHANGE AGREEMENT"), the Company has agreed, upon the terms and
subject to the conditions contained therein, (i) to issue to RGC in exchange for
the Note (as defined in the Securities Purchase and Exchange Agreement) shares
of its Series D Convertible Preferred Stock (the "PREFERRED STOCK") that are
convertible into shares of the Company's common stock, par value $.10 per share
(the "COMMON STOCK"), upon the terms and subject to the limitations and
conditions set forth in the Articles of Amendment to the Company's Articles of
Incorporation with respect to the Preferred Stock (the "ARTICLES OF AMENDMENT")
and (ii) to issue and sell to RGC additional shares of Preferred Stock for cash.
B. In connection with the Subscription Agreements (the "SUBSCRIPTION
AGREEMENTS"), dated as of November 3, 4 and 9, 1999, the Company has agreed,
upon the terms and subject to the conditions contained therein, to issue and
sell to Xxxxxxx, Value and Vertical 1,000,000 shares, 400,000 shares and 700,000
shares, respectively, of the Company's Common Stock (the "COMMON SHARES").
C. To induce the Initial Investors to execute and deliver the
Securities Purchase and Exchange Agreement and the Subscription Agreements, as
applicable, the Company has agreed to provide certain registration rights under
the Securities Act of 1933, as amended, and the rules and regulations
thereunder, or any similar successor statute (collectively, the "SECURITIES
ACT"), and applicable state securities laws;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and each
of the Initial Investors hereby agree as follows:
1. DEFINITIONS.
a. As used in this Agreement, the following terms shall have
the following meanings:
(i) "INVESTORS" means the Initial Investors and any
transferee or assignee who agrees to become bound by the provisions of this
Agreement in accordance with Section 9 hereof.
(ii) "REGISTER," "REGISTERED," and "REGISTRATION"
refer to a registration effected by preparing and filing a Registration
Statement or Statements in compliance with the Securities Act and, pursuant to
Rule 415 under the Securities Act or any successor rule providing for offering
securities on a continuous basis ("RULE 415"), and the declaration or ordering
of effectiveness of such Registration Statement by the United States Securities
and Exchange Commission (the "SEC").
(iii) "REGISTRABLE SECURITIES" means (A) the
Conversion Shares issued and issuable upon conversion of or otherwise pursuant
to the terms of the Preferred Stock (notwithstanding any limitations on
conversion applicable to the Preferred Stock), (B) the Common Shares and (C) any
shares of capital stock issued or issuable, from time to time (with any
adjustments), as a distribution on or in exchange for or otherwise with respect
to any of the foregoing (including, without limitation, any shares issued or
issuable pursuant to Section 2(c) hereof).
(iv) "REGISTRATION STATEMENTS" means any registration
statements of the Company under the Securities Act.
b. Capitalized terms used herein and not otherwise defined
herein shall have the respective meanings set forth in the Securities Purchase
and Exchange Agreement.
2. REGISTRATION.
a. Mandatory Registration. The Company shall prepare and file
with the SEC on or prior to the date which is 60 days after the Closing Date a
Registration Statement on Form S-3 (or, if Form S-3 is not then available, on
such form of Registration Statement as is then available to effect a
registration of the Registrable Securities, subject to the consent of the
Initial Investors, which consent will not be unreasonably withheld) covering the
resale of the Registrable Securities, which Registration Statement, to the
extent allowable under the Securities Act and the rules and regulations
promulgated thereunder (including Rule 416), shall state that such Registration
Statement also covers such indeterminate number of additional shares of Common
Stock as may become issuable upon conversion of or otherwise pursuant to the
Preferred Stock to prevent dilution resulting from stock
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splits, stock dividends or similar transactions. The number of shares of Common
Stock initially included in such Registration Statement shall be no less than
the aggregate number of (i) Common Shares, plus (ii) Conversion Shares that
would be issuable upon conversion of the Preferred Stock (based on the
Conversion Price (as defined in the Articles of Amendment)) without regard to
any limitation on the Investors' ability to convert the Preferred Stock. The
Company acknowledges that the number of shares initially included in the
Registration Statement represents a good faith estimate of the maximum number of
shares issuable upon the conversion of or otherwise pursuant to the Preferred
Stock. The Registrable Securities included in the Registration Statement shall
be allocated to the Investors as set forth in Section 11(k) hereof. The
Registration Statement (and each amendment or supplement thereto, and each
request for acceleration of effectiveness thereof) shall be provided to (and
subject to the approval of) the Initial Investors and their respective counsel
prior to its filing or other submission, which approval shall not be
unreasonably withheld, provided that all information included in the
Registration Statement regarding the Initial Investors, their ownership of
securities of the Company and the plan of distribution of the Common Shares and
the Conversion Shares shall conform to the information supplied by the Initial
Investors for inclusion therein.
b. Underwritten Offering. If any offering pursuant to a
Registration Statement pursuant to Section 2(a) hereof involves an underwritten
offering, the Investors who hold a majority in interest of the Registrable
Securities subject to such underwritten offering (treating the Preferred Stock
as fully converted for purposes of such calculation (notwithstanding any
limitations on conversion applicable to the Preferred Stock)) shall have the
right to select one legal counsel to represent the Investors and an investment
banker or bankers and manager or managers to administer the offering, which
investment banker or bankers or manager or managers shall be reasonably
satisfactory to the Company. In the event that any Investors elect not to
participate in such underwritten offering, the Registration Statement covering
all of the Registrable Securities shall contain appropriate plans of
distribution reasonably satisfactory to the Investors participating in such
underwritten offering and the Investors electing not to participate in such
underwritten offering (including, without limitation, the ability of
nonparticipating Investors to sell from time to time and at any time during the
effectiveness of such Registration Statement).
c. Payments by the Company. The Company shall use its best
efforts to cause the Registration Statement required to be filed pursuant to
Section 2(a) hereof to become effective as soon as practicable, but in no event
later than the 120th day after the Closing Date (the "REGISTRATION DEADLINE").
If (i) the Registration Statement(s) covering the Registrable Securities
required to be filed by the Company pursuant to Section 2(a) hereof is not
declared effective by the SEC on or before the Registration Deadline, (ii) after
the Registration Statement has been declared effective by the SEC and prior to
the expiration of the Registration Period, sales of all the Registrable
Securities cannot be made pursuant to the Registration Statement or (iii) the
Common Stock is not listed or included for quotation on the Nasdaq National
Market (the "NNM"), the Nasdaq SmallCap Market ("NASDAQ SMALLCAP"), the New York
Stock Exchange (the "NYSE"), the American Stock Exchange (the "AMEX"), the OTC
Bulletin Board, or such other exchange or market as the Company may designate
and qualify under as its principal exchange at any time during the Registration
Period, then the Company will make payments to the Investors in such amounts and
at
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such times as shall be determined pursuant to this Section 2(c) as partial
relief for the damages to the Investors by reason of any such delay in or
reduction of their ability to sell the Registrable Securities (which remedy
shall not be exclusive of any other remedies available at law or in equity). The
Company shall pay to each holder of the Preferred Stock or Registrable
Securities an amount equal to the stated value of the Preferred Stock then held
by such holder (and, in the case of holders of Conversion Shares, the stated
value of Preferred Stock from which such Conversion Shares were converted) or,
in the case of Common Shares then held by such holder, the purchase price paid
for such Common Shares pursuant to the applicable Subscription Agreement (in
each case, the "AGGREGATE SHARE PRICE"), multiplied by (ii) one percent,
multiplied by (iii) the sum of (x) the number of months (pro rated for partial
months) after the Registration Deadline and prior to the date the Registration
Statement filed pursuant to Section 2(a) is declared effective by the SEC, plus
(y) the number of months (prorated for partial months) prior to the expiration
of the Registration Period that sales of all of the Registrable Securities
cannot be made pursuant to the Registration Statement after the Registration
Statement has been declared effective (including, without limitation, when sales
cannot be made by reason of the Company's failure to properly supplement or
amend the prospectus included therein in accordance with the terms of this
Agreement (including Section 3(b) hereof) or otherwise), plus (z) the number of
months (prorated for partial months) prior to the expiration of the Registration
Period that the Common Stock is not listed or included for quotation on the NNM,
the Nasdaq SmallCap, the NYSE, the AMEX, the OTC Bulletin Board, or such other
exchange or market as the Company may designate and qualify under as its
principal exchange or that trading thereon is halted; PROVIDED, HOWEVER, that
there shall be excluded from each such period any delays which are solely
attributable to (i) the Investors' failure to review any Registration Statement
(or any amendment or supplement thereto, or any request for acceleration of
effectiveness thereof) and provide comments to the Company within three business
days of receipt thereof pursuant to Section 2(a) hereof, (ii) the Investors'
failure to timely provide information to the Company in accordance with Section
4(a) hereof, or (iii) changes (other than corrections of Company mistakes with
respect to information previously provided by the Investors) required by the
Investors in the Registration Statement with respect to information relating to
the Investors, including, without limitation, changes to the plan of
distribution. For example, if the Registration Statement is not effective by the
Registration Deadline, the Company would pay $10,000 for each $1,000,000 of
Aggregate Share Price for each month after the Registration Deadline until the
Registration Statement becomes effective (prorated for partial months). Such
amounts shall be paid in cash. Payments of cash pursuant hereto shall be made
within five days after the end of each period that gives rise to such
obligation, provided that, if any such period extends for more than 30 days,
interim payments shall be made for each such 30-day period. If any such payments
of cash are not timely made, each Investor holding Preferred Stock can elect to
add the amount of such payments to the stated value of the Preferred Stock then
held by such Investor and such amounts shall thereafter be convertible into
Common Stock at the "CONVERSION PRICE" (as defined in the Articles of
Amendment). Any shares of Common Stock issued upon conversion of such amounts
shall be Registrable Securities. If any Investor holding Preferred Stock desires
to convert the amounts due hereunder into Registrable Securities, it shall so
notify the Company in writing at any time after the date on which such amounts
become payable in cash and such amounts shall be so convertible (pursuant to the
mechanics set forth under Section 6 of the Articles of Amendment), beginning on
the last day upon which the cash amount would otherwise be due.
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d. Piggy-Back Registrations. Subject to the last sentence of
this Section 2(d), if at any time prior to the expiration of the Registration
Period (as hereinafter defined) the Company shall file with the SEC a
Registration Statement relating to an offering for its own account or the
account of others under the Securities Act of any of its equity securities
(other than on Form S-4 or Form S-8 or their then equivalents relating to equity
securities to be issued solely in connection with any acquisition of any entity
or business or equity securities issuable in connection with stock option or
other employee benefit plans), the Company shall send to each Investor who is
entitled to registration rights under this Section 2(d) written notice of such
determination and, if within 15 days after the effective date of such notice,
such Investor shall so request in writing, the Company shall include in such
Registration Statement all or any part of the Registrable Securities such
Investor requests to be registered, except that if, in connection with any
underwritten public offering for the account of the Company the managing
underwriter(s) thereof shall impose a limitation on the number of shares of
Common Stock which may be included in the Registration Statement because, in
such underwriter(s)' judgment, marketing or other factors dictate such
limitation is necessary to facilitate public distribution, then the Company
shall be obligated to include in such Registration Statement only such limited
portion of the Registrable Securities with respect to which such Investor has
requested inclusion hereunder as the underwriter shall permit. Any exclusion of
Registrable Securities shall be made pro rata among the Investors seeking to
include Registrable Securities, in proportion to the number of Registrable
Securities sought to be included by such Investors; PROVIDED, HOWEVER, that the
Company shall not exclude any Registrable Securities unless the Company has
first excluded all outstanding securities, the holders of which are not entitled
to inclusion of such securities in such Registration Statement or are not
entitled to pro rata inclusion with the Registrable Securities; and PROVIDED
FURTHER that, after giving effect to the immediately preceding proviso, any
exclusion of Registrable Securities shall be made pro rata with holders of other
securities having the right to include such securities in the Registration
Statement other than holders of securities entitled to inclusion of their
securities in such Registration Statement by reason of demand registration
rights. No right to registration of Registrable Securities under this Section
2(d) shall be construed to limit any registration required under Section 2(a)
hereof. If an offering in connection with which an Investor is entitled to
registration under this Section 2(d) is an underwritten offering, then each
Investor whose Registrable Securities are included in such Registration
Statement shall, unless otherwise agreed by the Company, offer and sell such
Registrable Securities in an underwritten offering using the same underwriter or
underwriters and, subject to the provisions of this Agreement, on the same terms
and conditions as other shares of Common Stock included in such underwritten
offering. Notwithstanding anything to the contrary set forth herein, the
registration rights of the Investors pursuant to this Section 2(d) shall only be
available in the event the Company fails to obtain effectiveness or maintain
effectiveness of any Registration Statement to be filed pursuant to Section 2(a)
in accordance with the terms of this Agreement.
e. Eligibility for Form S-3. The Company represents and
warrants that it meets the registrant eligibility and transaction requirements
for the use of Form S-3 for registration of the offer and sale by the Initial
Investors and any other Investors of the Registrable Securities and the Company
shall file all reports required to be filed by the Company with the SEC in a
timely manner so as to maintain such eligibility for the use of Form S-3.
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3. OBLIGATIONS OF THE COMPANY.
In connection with the registration of the Registrable Securities, the
Company shall have the following obligations:
a. The Company shall prepare promptly and use its best efforts
to file with the SEC the Registration Statement required by Section 2(a) as soon
as practicable after the Closing Date, and use its best efforts to (i) cause
such Registration Statement relating to Registrable Securities to become
effective as soon as practicable after such filing (but in no event later than
the Registration Deadline), and (ii) keep the Registration Statement effective
pursuant to Rule 415 at all times until such date as is the earlier of (A) the
date on which all of the Registrable Securities have been sold and (B) the date
on which all of the Registrable Securities (in the opinion of counsel to the
Initial Investors) may be immediately sold to the public without registration or
restriction (including, without limitation, as to volume by each holder thereof)
under the Securities Act (the "REGISTRATION PERIOD"), which Registration
Statement (including any amendments or supplements thereto and prospectuses
contained therein and all documents incorporated by reference therein) shall not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein, or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
b. The Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to the
Registration Statements and the prospectus used in connection with the
Registration Statements as may be necessary to keep the Registration Statement
effective at all times during the Registration Period, and, during such period,
comply with the provisions of the Securities Act with respect to the disposition
of all Registrable Securities of the Company covered by the Registration
Statements. In the event the number of shares available under a Registration
Statement filed pursuant to this Agreement is, on any trading day (such trading
day being the "REGISTRATION TRIGGER DATE"), insufficient to cover 100% of the
Registrable Securities issued or issuable upon conversion of or otherwise
pursuant to the Preferred Stock (without giving effect to any limitations on
conversion contained in the Articles of Amendment) and 100% of the Common
Shares, the Company shall amend the Registration Statement, or file a new
Registration Statement (on the short form available therefor, if applicable), or
both, so as to cover 125% of the Registrable Securities so issued or issuable
(without giving effect to any limitations on conversion contained in the
Articles of Amendment) as of the Registration Trigger Date, in each case, as
soon as practicable, but in any event within 15 days after the Registration
Trigger Date. The Company shall use its best efforts to cause such amendment
and/or new Registration Statement to become effective as soon as practicable
following the filing thereof, but in any event within 90 days after the
Registration Trigger Date. The provisions of Section 2(c) above shall be
applicable with respect to the Company's obligations under this Section 3(b).
c. The Company shall furnish to each Investor whose
Registrable Securities are included in a Registration Statement (and its legal
counsel) (i) promptly after the same is prepared and publicly distributed, filed
with the SEC, or received by the Company, one copy of each Registration
Statement and any amendment thereto, each preliminary prospectus and prospectus
and
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each amendment or supplement thereto, and, in the case of the Registration
Statement referred to in Section 2(a), each letter written by or on behalf of
the Company to the SEC or the staff of the SEC and each item of correspondence
from the SEC or the staff of the SEC, in each case relating to such Registration
Statement (other than the portion, if any, thereof which contains information
for which the Company has sought confidential treatment), and (ii) such number
of copies of a prospectus, including a preliminary prospectus, and all
amendments and supplements thereto and such other documents as such Investor may
reasonably request in order to facilitate the disposition of the Registrable
Securities owned by such Investor. The Company will immediately notify each
Investor by facsimile of the effectiveness of each Registration Statement or any
post-effective amendment. The Company will promptly respond to any and all
comments received from the SEC, with a view towards causing each Registration
Statement or any amendment thereto to be declared effective by the SEC as soon
as practicable and shall file an acceleration request as soon as practicable
following the resolution or clearance of all SEC comments or, if applicable,
following notification by the SEC that any such Registration Statement or any
amendment thereto will not be subject to review.
d. The Company shall use its best efforts to (i) register and
qualify the Registrable Securities covered by the Registration Statements under
such other securities or "blue sky" laws of such jurisdictions in the United
States as each Investor who holds Registrable Securities being offered
reasonably requests in writing, (ii) prepare and file in those jurisdictions
such amendments (including post-effective amendments) and supplements to such
registrations and qualifications as may be necessary to maintain the
effectiveness thereof during the Registration Period, (iii) take such other
actions as may be necessary to maintain such registrations and qualifications in
effect at all times during the Registration Period, and (iv) take all other
actions reasonably necessary or advisable to qualify the Registrable Securities
for sale in such jurisdictions; PROVIDED, HOWEVER, that the Company shall not be
required in connection therewith or as a condition thereto to (a) qualify to do
business in any jurisdiction where it would not otherwise be required to qualify
but for this Section 3(d), (b) subject itself to general taxation in any such
jurisdiction, (c) file a general consent to service of process in any such
jurisdiction, (d) provide any undertakings that cause the Company undue expense
or burden, or (e) make any change in its charter or bylaws, which in each case
the Board of Directors of the Company determines to be contrary to the best
interests of the Company and its stockholders.
e. In the event the Investors who hold a majority in interest
of the Registrable Securities being offered in the offering (with the approval
of the Initial Investors holding a majority in interest of the Registrable
Securities then held by all Initial Investors) (treating the Preferred Stock as
fully converted for purposes of each such calculation (notwithstanding any
limitations on conversion applicable to the Preferred Stock)) select
underwriters for the offering, the Company shall enter into and perform its
obligations under an underwriting agreement, in usual and customary form,
including, without limitation, customary indemnification and contribution
obligations, with the underwriters of such offering.
f. As promptly as practicable after becoming aware of such
event, the Company shall notify each Investor of the happening of any event, of
which the Company has knowledge, as a result of which the prospectus included in
any Registration Statement, as then in effect, includes an
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untrue statement of a material fact or omission to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, and use
its best efforts promptly to prepare a supplement or amendment to any
Registration Statement to correct such untrue statement or omission, and deliver
such number of copies of such supplement or amendment to each Investor as such
Investor may reasonably request.
g. The Company shall use its best efforts to prevent the
issuance of any stop order or other suspension of effectiveness of any
Registration Statement, and, if such an order is issued, use its best efforts to
obtain the withdrawal of such order at the earliest possible moment and to
notify each Investor who holds Registrable Securities being sold (or, in the
event of an underwritten offering, the managing underwriters) of the issuance of
such order and the resolution thereof.
h. The Company shall permit legal counsel designated by each
Initial Investor to review such Registration Statement and all amendments and
supplements thereto (as well as all requests for acceleration or effectiveness
thereof) a reasonable period of time prior to their filing with the SEC, and not
file any document in a form to which such counsel reasonably objects and will
not request acceleration of such Registration Statement without prior notice to
such counsel. The sections of such Registration Statement covering information
with respect to the Investors, the Investors' beneficial ownership of securities
of the Company or the Investors' intended method of disposition of Registrable
Securities shall conform to the information provided to the Company in writing
by each of the Investors.
i. The Company shall make generally available to its security
holders as soon as practicable, but not later than 90 days after the close of
the period covered thereby, an earnings statement (in form complying with the
provisions of Rule 158 under the Securities Act) covering a twelve-month period
beginning not later than the first day of the Company's fiscal quarter next
following the effective date of the Registration Statement.
j. At the request of any Investor, the Company shall, on the
date that Registrable Securities are delivered to an underwriter for sale in
connection with any Registration Statement (i) furnish an opinion, dated as of
such date, from counsel representing the Company for purposes of such
Registration Statement in form, scope and substance as is customarily given in
an underwritten public offering, addressed to the underwriters and the Investors
and (ii) use its best efforts to furnish a letter, dated such date, from the
Company's independent certified public accountants in form and substance as is
customarily given by independent certified public accountants to underwriters in
an underwritten public offering, addressed to the underwriters and the
Investors.
k. The Company shall make available for inspection on
reasonable notice and at reasonable times by (i) any Investor, (ii) any
underwriter participating in any disposition pursuant to a Registration
Statement, (iii) one firm of attorneys and one firm of accountants or other
agents retained by each Initial Investor and (iv) one firm of attorneys retained
by all such underwriters (collectively, the "INSPECTORS") all pertinent
financial and other records, and pertinent corporate documents and properties of
the Company (collectively, the "RECORDS"), as shall be reasonably deemed
necessary by each Inspector to enable each Inspector to exercise its due
diligence
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responsibility, and cause the Company's officers, directors and employees to
supply all information which any Inspector may reasonably request for purposes
of such due diligence; PROVIDED, HOWEVER, that each Inspector shall hold in
confidence and shall not make any disclosure (except to an Investor) of any
Record or other information which the Company determines in good faith to be
confidential, and of which determination the Inspectors are so notified, unless
(a) the disclosure of such Records is necessary to avoid or correct a
misstatement or omission in any Registration Statement, (b) the release of such
Records is ordered pursuant to a subpoena or other order from a court or
government body of competent jurisdiction, or (c) the information in such
Records has been made generally available to the public other than by disclosure
in violation of this or any other agreement. The Company shall not be required
to disclose any confidential information in such Records to any Inspector until
and unless such Inspector shall have entered into confidentiality agreements (in
form and substance satisfactory to the Company) with the Company with respect
thereto, substantially in the form of this Section 3(k). Each Investor agrees
that it shall, upon learning that disclosure of such Records is sought in or by
a court or governmental body of competent jurisdiction or through other means,
give prompt notice to the Company and allow the Company, at its expense, to
undertake appropriate action to prevent disclosure of, or to obtain a protective
order for, the Records deemed confidential. Nothing herein (or in any other
confidentiality agreement between the Company and any Investor) shall be deemed
to limit the Investors' ability to sell Registrable Securities in a manner which
is otherwise consistent with applicable laws and regulations.
l. The Company shall hold in confidence and not make any
disclosure of information concerning an Investor provided to the Company unless
(i) disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is necessary to avoid
or correct a misstatement or omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a subpoena or other order
from a court or governmental body of competent jurisdiction, or (iv) such
information has been made generally available to the public other than by
disclosure in violation of this or any other agreement. Subject to the foregoing
limitation, the Company agrees that it shall, upon learning that disclosure of
such information concerning an Investor is sought in or by a court or
governmental body of competent jurisdiction or through other means, give prompt
notice to such Investor prior to making such disclosure, and allow the Investor,
at its expense, to undertake appropriate action to prevent disclosure of, or to
obtain a protective order for, such information.
m. The Company shall use its best efforts to (i) cause all the
Registrable Securities covered by the Registration Statement to be quoted on the
NNM or listed on the NYSE or the AMEX or another national securities exchange
and on each additional national securities exchange on which securities of the
same class or series issued by the Company are then listed, if any, if the
listing of such Registrable Securities is then permitted under the rules of such
exchange, or (ii) to the extent the securities of the same class or series are
not then quoted on the NNM or listed on a national securities exchange, secure
the designation and quotation, of all the Registrable Securities covered by the
Registration Statement on the Nasdaq SmallCap and, without limiting the
generality of the foregoing, to arrange for or maintain at least two market
makers to register with the National Association of Securities Dealers, Inc.
("NASD") as such with respect to such Registrable Securities.
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n. The Company shall provide a transfer agent and registrar,
which may be a single entity, for the Registrable Securities not later than the
effective date of the Registration Statement.
o. The Company shall cooperate with the Investors who hold
Registrable Securities being offered and the managing underwriter or
underwriters, if any, to facilitate the timely preparation and delivery of
certificates (not bearing any restrictive legends) representing Registrable
Securities to be offered pursuant to any Registration Statement and enable such
certificates to be in such denominations or amounts, as the case may be, as the
managing underwriter or underwriters, if any, or the Investors may reasonably
request and registered in such names as the managing underwriter or
underwriters, if any, or the Investors may request, and, within three business
days after a Registration Statement which includes Registrable Securities is
ordered effective by the SEC, the Company shall cause legal counsel selected by
the Company to deliver to the transfer agent for the Registrable Securities
(with copies to the Investors whose Registrable Securities are included in such
Registration Statement) an opinion of such counsel in the form attached hereto
as EXHIBIT 1.
p. At the request of any Investor, the Company shall prepare
and file with the SEC such amendments (including post-effective amendments) and
supplements to a Registration Statement and any prospectus used in connection
with the Registration Statement as may be necessary in order to change the plan
of distribution (solely with respect to such Investor's Registrable Securities)
set forth in such Registration Statement.
q. The Company shall comply in all material respects with all
applicable laws related to a Registration Statement and offering and sale of
securities and all applicable rules and regulations of governmental authorities
in connection therewith (including without limitation the Securities Act and the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated by the SEC).
r. The Company shall not, and shall not agree to, allow the
holders of any securities of the Company (other than those holders who, as of
the date hereof, have a contractual right to require the Company to include
their securities in any Registration Statement under Section 2(a) hereof and who
have not, prior to the filing date of the Registration Statement, waived such
right) to include any of their securities in any Registration Statement under
Section 2(a) hereof or any amendment or supplement thereto under Section 3(b)
hereof without the consent of the holders of a majority in interest of the
Registrable Securities.
s. The Company shall take all other reasonable actions
necessary to effect the registration of Registrable Securities pursuant to a
Registration Statement in accordance with the plan of distribution therein and
applicable law.
4. OBLIGATIONS OF THE INVESTORS.
In connection with the registration of the Registrable Securities, the
Investors shall have the following obligations:
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a. It shall be a condition precedent to the obligations of the
Company to complete the registration pursuant to this Agreement with respect to
the Registrable Securities of a particular Investor that such Investor shall
furnish to the Company in writing such information regarding itself, the
Registrable Securities held by it and the intended method of disposition of the
Registrable Securities held by it as shall be reasonably required to effect the
registration of such Registrable Securities and shall execute such documents in
connection with such registration as the Company may reasonably request. At
least five business days prior to the first anticipated filing date of the
Registration Statement, the Company shall notify each Investor of the
information the Company requires from each such Investor and each Investor shall
respond within three business days after the date of receipt of such notice.
b. Each Investor, by such Investor's acceptance of the
Registrable Securities, agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing of the
Registration Statements hereunder, unless such Investor has notified the Company
in writing of such Investor's election to exclude all of such Investor's
Registrable Securities from the Registration Statements.
c. In the event Investors holding a majority in interest of
the Registrable Securities being registered (treating the Preferred Stock as
fully converted for purposes of such calculation (notwithstanding any
limitations on conversion applicable to the Preferred Stock)) determine to
engage the services of an underwriter, each Investor agrees to enter into and
perform such Investor's obligations under an underwriting agreement, in usual
and customary form, including, without limitation, customary indemnification and
contribution obligations, with the managing underwriter of such offering and
take such other actions as are reasonably required in order to expedite or
facilitate the disposition of the Registrable Securities, unless such Investor
has notified the Company in writing of such Investor's election to exclude all
of such Investor's Registrable Securities from such Registration Statements
(provided that the Company's obligations hereunder with respect to any such
Investor shall not be affected by any such election).
d. Each Investor agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section 3(f)
or 3(g), such Investor will immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Investor's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3(f) or 3(g) and, if so directed by
the Company, such Investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in such Investor's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice.
e. No Investor may participate in any underwritten
registration hereunder unless such Investor (i) agrees to sell such Investor's
Registrable Securities on the basis provided in any underwriting arrangements in
usual and customary form entered into by the Company, (ii) completes and
executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements, and (iii) agrees
-11-
to pay its pro rata share of all underwriting discounts and commissions and any
expenses in excess of those payable by the Company pursuant to Section 5 below.
5. EXPENSES OF REGISTRATION.
All reasonable expenses, other than underwriting discounts and
commissions, incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation, all
registration, listing and qualification fees, printers and accounting fees, the
fees and disbursements of counsel for the Company, and the reasonable fees and
disbursements of counsel selected by each of the Initial Investors pursuant
hereto (in an amount not to exceed $15,000 in the aggregate, or $5,000 for each
of three counsels if the Initial Investors cannot agree on one counsel), shall
be borne by the Company. In addition, the Company shall pay all of the
Investors' costs and expenses (including reasonable legal fees) incurred in
connection with the enforcement of the rights of the Investors hereunder.
6. INDEMNIFICATION.
In the event any Registrable Securities are included in a Registration
Statement under this Agreement:
a. To the extent permitted by law, the Company will indemnify,
hold harmless and defend (i) each Investor who holds such Registrable
Securities, and (ii) the directors, officers, partners, members, employees and
agents of such Investor and each person who controls any Investor within the
meaning of the Securities Act or the Securities Exchange Act of 1934, as amended
(the "EXCHANGE ACT"), if any, (iii) any underwriter (as defined in the
Securities Act) for the Investors, and (iv) the directors, officers, partners,
employees and each person who controls any such underwriter within the meaning
of the Securities Act or the Exchange Act, if any (each, an "INDEMNIFIED
PERSON"), against any joint or several losses, claims, damages, liabilities or
expenses (collectively, together with actions, proceedings or inquiries by any
regulatory or self-regulatory organization, whether commenced or threatened, in
respect thereof, "CLAIMS") to which any of them may become subject insofar as
such Claims arise out of or are based upon: (i) any untrue statement or alleged
untrue statement of a material fact in a Registration Statement or the omission
or alleged omission to state therein a material fact required to be stated or
necessary to make the statements therein not misleading, (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary prospectus if used prior to the effective date of such Registration
Statement, or contained in the final prospectus (as amended or supplemented, if
the Company files any amendment thereof or supplement thereto with the SEC) or
the omission or alleged omission to state therein any material fact necessary to
make the statements made therein, in light of the circumstances under which the
statements therein were made, not misleading, or (iii) any violation or alleged
violation by the Company of the Securities Act, the Exchange Act, any other law,
including, without limitation, any state securities law, or any rule or
regulation thereunder relating to the offer or sale of the Registrable
Securities (the matters in the foregoing clauses (i) through (iii) being,
collectively, "VIOLATIONS"). Subject to the restrictions set forth in Section
6(c) with respect to the number of legal counsel, the Company shall reimburse
the Indemnified Person, promptly as such expenses are incurred and are due
-12-
and payable, for any reasonable legal fees or other reasonable expenses incurred
by them in connection with investigating or defending any such Claim.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(a): (i) shall not apply to a Claim arising
out of or based upon a Violation which occurs in reliance upon and in conformity
with information furnished in writing to the Company by or on behalf of such
Indemnified Person or underwriter for such Indemnified Person expressly for use
in connection with the preparation of such Registration Statement or any such
amendment thereof or supplement thereto; (ii) shall not apply to amounts paid in
settlement of any Claim if such settlement is effected without the prior written
consent of the Company, which consent shall not be unreasonably withheld; and
(iii) with respect to any preliminary prospectus, shall not inure to the benefit
of any Indemnified Person if the untrue statement or omission of material fact
contained in the preliminary prospectus was corrected on a timely basis in the
prospectus, as then amended or supplemented, if such corrected prospectus was
timely made available by the Company pursuant to Section 3(c) hereof, and the
Indemnified Person was promptly advised in writing not to use the incorrect
prospectus prior to the use giving rise to a Violation and such Indemnified
Person, notwithstanding such advice, used it. Such indemnity shall remain in
full force and effect regardless of any investigation made by or on behalf of
the Indemnified Person and shall survive the transfer of the Registrable
Securities by the Investors pursuant to Section 9.
-13-
b. In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees, severally and not jointly,
to indemnify, hold harmless and defend, to the same extent and in the same
manner set forth in Section 6(a), the Company, each of its directors, each of
its officers who signs the Registration Statement, each person, if any, who
controls the Company within the meaning of the Securities Act or the Exchange
Act, and any other stockholder selling securities pursuant to the Registration
Statement or any of its directors or officers or any person who controls such
stockholder or underwriter within the meaning of the Securities Act or the
Exchange Act (collectively and together with an Indemnified Person, an
"INDEMNIFIED PARTY"), against any Claim to which any of them may become subject,
under the Securities Act, the Exchange Act or otherwise, insofar as such Claim
arises out of or is based upon any Violation by such Investor, in each case to
the extent (and only to the extent) that such Violation occurs in reliance upon
and in conformity with written information furnished to the Company by or on
behalf of such Investor expressly for use in connection with such Registration
Statement; and subject to Section 6(c) such Investor will reimburse any legal or
other expenses (promptly as such expenses are incurred and are due and payable)
reasonably incurred by an Indemnified Party under this Section 6(b) in
connection with investigating or defending any such Claim; PROVIDED, HOWEVER,
that the indemnity agreement contained in this Section 6(b) shall not apply to
amounts paid in settlement of any Claim if such settlement is effected without
the prior written consent of such Investor, which consent shall not be
unreasonably withheld; PROVIDED, FURTHER, HOWEVER, that the Investor shall be
liable under this Agreement (including this Section 6(b) and Section 7) for only
that amount as does not exceed the net proceeds to such Investor as a result of
the sale of Registrable Securities pursuant to such Registration Statement. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of such Indemnified Party and shall survive the transfer of
the Registrable Securities by the Investors pursuant to Section 9.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(b) with respect to any preliminary
prospectus shall not inure to the benefit of any Indemnified Party if the untrue
statement or omission of material fact contained in the preliminary prospectus
was corrected on a timely basis in the prospectus, as then amended or
supplemented.
c. Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the commencement of any
action (including any governmental action), such Indemnified Person or
Indemnified Party shall, if a Claim in respect thereof is to be made against any
indemnifying party under this Section 6, deliver to the indemnifying party a
written notice of the commencement thereof, and the indemnifying party shall
have the right to participate in and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel mutually satisfactory to the
indemnifying party and the Indemnified Person or the Indemnified Party, as the
case may be; PROVIDED, HOWEVER, that, if the defendants include both the
Indemnified Person or Indemnified Party, as the case may be, and the
indemnifying party, an Indemnified Person or Indemnified Party shall have the
right to retain its own counsel with the fees and expenses to be paid by the
indemnifying party, if, in the reasonable opinion of counsel retained by the
indemnifying party, the representation by such counsel of the Indemnified Person
or Indemnified Party and the indemnifying party would be inappropriate due to
actual or potential differing interests between such Indemnified Person or
Indemnified Party and any other party represented by such counsel in such
proceeding. The indemnifying party shall pay for only
-14-
one separate legal counsel for the Indemnified Persons or the Indemnified
Parties, as applicable, and such legal counsel shall be selected by Investors
holding a majority in interest of the Registrable Securities included in the
Registration Statement to which the Claim relates (with the approval of a
majority in interest of the Initial Investors, if the Investors are entitled to
indemnification hereunder, or by the Company, if the Company is entitled to
indemnification hereunder, as applicable. The failure to deliver written notice
to the indemnifying party within a reasonable time of the commencement of any
such action shall not relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Section 6, except to the
extent that the indemnifying party is actually prejudiced in its ability to
defend such action. The indemnification required by this Section 6 shall be made
by periodic payments of the amount thereof during the course of the
investigation or defense, as such expense, loss, damage or liability is incurred
and is due and payable.
7. CONTRIBUTION.
To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; PROVIDED, HOWEVER, that
(i) no contribution shall be made under circumstances where the maker would not
have been liable for indemnification under the fault standards set forth in
Section 6, (ii) no seller of Registrable Securities guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any seller of Registrable Securities who
was not guilty of such fraudulent misrepresentation, and (iii) contribution
(together with any indemnification or other obligations under this Agreement) by
any seller of Registrable Securities shall be limited in amount to the net
amount of proceeds received by such seller from the sale of such Registrable
Securities.
8. REPORTS UNDER THE EXCHANGE ACT.
With a view to making available to the Investors the benefits of Rule
144 promulgated under the Securities Act or any other similar rule or regulation
of the SEC that may at any time permit the Investors to sell securities of the
Company to the public without registration ("RULE 144"), the Company agrees to:
a. make and keep public information available, as those terms
are understood and defined in Rule 144;
b. file with the SEC in a timely manner and make and keep
available 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 (it being understood that nothing herein shall limit the
Company's obligations under Section 4(c) of the Securities Purchase and Exchange
Agreement) and the filing of such reports and other documents is required for
the applicable provisions of Rule 144; and
-15-
c. furnish to each Investor so long as such Investor owns the
Preferred Stock or Registrable Securities, promptly upon request, (i) a written
statement by the Company that it has complied with the reporting requirements of
Rule 144, the Securities Act and the Exchange Act, (ii) 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 (iii) such other information as may be
reasonably requested to permit the Investors to sell such securities pursuant to
Rule 144 without registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights of the Investors hereunder, including the right to have the
Company register Registrable Securities pursuant to this Agreement, shall be
automatically assignable by each Investor to any permitted transferee of all or
any portion of the shares of Preferred Stock or the Registrable Securities if:
(i) the Investor agrees in writing with the transferee or assignee to assign
such rights, and a copy of such agreement is furnished to the Company within a
reasonable time after such assignment, (ii) the Company is, within a reasonable
time after such transfer or assignment, furnished with written notice of (a) the
name and address of such transferee or assignee and (b) the securities with
respect to which such registration rights are being transferred or assigned,
(iii) following such transfer or assignment, the further disposition of such
securities by the transferee or assignee is restricted under the Securities Act
and applicable state securities laws, (iv) at or before the time the Company
receives the written notice contemplated by clause (ii) of this sentence, the
transferee or assignee agrees in writing with the Company to be bound by all of
the provisions contained herein, (v) such transfer shall have been made in
accordance with the applicable requirements of the Securities Purchase and
Exchange Agreement or the Subscription Agreements, as applicable, and (vi) such
transferee shall be an "ACCREDITED INVESTOR" as that term defined in Rule 501 of
Regulation D promulgated under the Securities Act.
10. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of this Agreement may be amended and the observance thereof
may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with written consent of the Company, a
majority in interest of the Initial Investors, based on the number of
Registrable Securities then held by them (treating the Preferred Stock as fully
converted for purposes of such calculation (notwithstanding any limitations on
conversion applicable to the Preferred Stock)), and Investors who hold a
majority in interest of the Registrable Securities (treating the Preferred Stock
as fully converted for purposes of such calculation (notwithstanding any
limitations on conversion applicable to the Preferred Stock)) or, in the case of
a waiver, with the written consent of the party charged with the enforcement of
any such provision. Any amendment or waiver effected in accordance with this
Section 10 shall be binding upon each Investor and the Company.
-16-
11. MISCELLANEOUS.
a. A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
b. Any notices required or permitted to be given under the
terms hereof shall be sent by certified or registered mail (return receipt
requested) or delivered personally or by courier (including a recognized
overnight delivery service) or by facsimile, and shall be effective five days
after being placed in the mail, if mailed, or upon receipt or refusal of
receipt, if delivered personally or by courier (including a recognized overnight
delivery service) or by facsimile, in each case addressed to a party. The
addresses for such communications shall be:
If to the Company:
Interactive Magic, Inc.
000 Xxxxxxxxx Xxxxx
Xxxxx 0000
Xxxxxxxxxxx, XX 00000
Facsimile: (000) 000-0000
Attention: Chief Executive Officer
If to an Investor, at such address as such Investor shall have provided in
writing to the Company or such other address as such Investor furnishes by
notice given in accordance with this Section 11(b).
c. Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
d. This Agreement shall be enforced, governed by and construed
in accordance with the laws of the State of New York applicable to agreements
made and to be performed entirely within such state (without regard to
principles of conflict of laws). In the event that any provision of this
Agreement is invalid or unenforceable under any applicable statute or rule of
law, then such provision shall be deemed inoperative to the extent that it may
conflict therewith and shall be deemed modified to conform with such statute or
rule of law. Any provision hereof which may prove invalid or unenforceable under
any law shall not affect the validity or enforceability of any other provision
hereof. The parties hereto hereby submit to the exclusive jurisdiction of the
United States federal courts and the state courts located in New York County,
New York with respect to any dispute arising under this Agreement, the
agreements entered into in connection herewith or the transactions contemplated
hereby or thereby. The Company irrevocably waives the defense of an inconvenient
forum to the maintenance of such suit or proceeding. The Company further agrees
that service of process upon the Company mailed by first class mail shall be
deemed in every respect effective service
-17-
of process upon the Company in any such suit or proceeding. Nothing herein shall
affect an Investor's right to serve process in any other manner permitted by
law. The Company agrees that a final non-appealable judgment in any such suit or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on such judgment or in any other lawful manner.
e. Except as otherwise provided in the Securities Purchase and
Exchange Agreement or the Subscription Agreements, as applicable, this
Agreement, the Securities Purchase and Exchange Agreement, the Subscription
Agreements and the Articles of Amendment (including all schedules and exhibits
thereto), as applicable with respect to any Investor, collectively constitute
the entire agreement among the parties hereto with respect to the subject matter
hereof and thereof. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein and therein.
Except as otherwise provided in the Securities Purchase and Exchange Agreement
or the Subscription Agreements, as applicable, this Agreement, the Securities
Purchase and Exchange Agreement, the Subscription Agreements and the Articles of
Amendment, as applicable with respect to any Investor, supersede all prior
agreements and understandings among the parties hereto and thereto with respect
to the subject matter hereof and thereof.
f. Subject to the requirements of Section 9 hereof, this
Agreement shall inure to the benefit of and be binding upon the successors and
assigns of each of the parties hereto.
g. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
h. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original but all of which shall constitute one
and the same agreement. This Agreement, once executed by a party, may be
delivered to the other party hereto by facsimile transmission of a copy of this
Agreement bearing the signature of the party so delivering this Agreement.
i. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
j. Except as otherwise provided herein, all consents,
approvals and other determinations to be made by the Investors pursuant to this
Agreement shall be made by the Investors holding a majority in interest of the
Registrable Securities (determined as if all of the Preferred Stock then
outstanding had been fully converted into Registrable Securities
(notwithstanding any limitations on conversion applicable to the Preferred
Stock)) then held by all Investors.
k. The initial number of Registrable Securities included on
any Registration Statement and each increase to the number of Registrable
Securities included thereon shall be allocated pro rata among the Investors
based on the number of Registrable Securities held by each
-18-
Investor at the time of such establishment or increase, as the case may be. In
the event an Investor shall sell or otherwise transfer any of such holder's
Registrable Securities, each transferee shall be allocated a pro rata portion of
the number of Registrable Securities included on a Registration Statement for
such transferor. Any shares of Common Stock included on a Registration Statement
and which remain allocated to any person or entity which does not hold any
Registrable Securities shall be allocated to the remaining Investors, pro rata
based on the number of shares of Registrable Securities then held by such
Investors. For the avoidance of doubt, the number of Registrable Securities held
by an Investor shall be determined as if all of the Preferred Stock then
outstanding and held by an Investor were converted into or exercised for
Registrable Securities (notwithstanding any limitations on conversion applicable
to the Preferred Stock).
l. For purposes of this Agreement, the term "business day"
means any day other than a Saturday or Sunday or a day on which banking
institutions in the State of New York are authorized or obligated by law,
regulation or executive order to close.
m. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to each Investor by vitiating
the intent and purpose of the transactions contemplated hereby. Accordingly, the
Company acknowledges that the remedy at law for breach of its obligations
hereunder will be inadequate and agrees, in the event of a breach or threatened
breach by the Company of any of the provisions hereunder, that each Investor
shall be entitled, in addition to all other available remedies in law or in
equity, to an injunction or injunctions to prevent or cure breaches of the
provisions of this Agreement and to enforce specifically the terms and
provisions hereof.
n. The language used in this Agreement will be deemed to be
the language chosen by the parties to express their mutual intent, and no rules
of strict construction will be applied against any party.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-19-
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
INTERACTIVE MAGIC, INC.
By:
---------------------------------
Name:
-------------------------------
Its:
--------------------------------
Initial Investors:
RGC INTERNATIONAL INVESTORS, LDC
By: Xxxx Xxxx Capital Management, L.P.,
Investment Manager
By: RGC General Partner Corp.,
as General Partner
By:
---------------------------------
Name:
-------------------------
Managing Director
------------------------------------
X. X. XXXXXXX
VALUE MANAGEMENT & RESEARCH AG
By:
---------------------------------
Name:
-------------------------
Title:
------------------------
VERTICAL FINANCIAL HOLDINGS
By:
---------------------------------
Name:
-------------------------
Title:
------------------------
EXHIBIT 1
TO REGISTRATION
RIGHTS AGREEMENT
[Date]
[Name and address
of transfer agent]
RE: INTERACTIVE MAGIC, INC.
Ladies and Gentlemen:
We are counsel to INTERACTIVE MAGIC, INC., a corporation organized
under the laws of the State of North Carolina (the "COMPANY"). We understand
that (i) RGC International Investors LDC ("RGC") has been issued by the Company
shares of the Company's Series D Convertible Preferred Stock (the "PREFERRED
STOCK"), which are convertible into shares of the Company's common stock, $.10
par value per share (the "COMMON STOCK") and (ii) each of Xxxxx X. Xxxxxxx
("XXXXXXX"), Value Management & Research AG ("VALUE") and Vertical Financial
Holdings ("VERTICAL") has been issued shares of Common Stock (collectively, the
"COMMON SHARES"). The Preferred Stock was issued by the Company pursuant to a
Securities Purchase and Exchange Agreement, dated as of November 8, 1999,
between the Company and RGC and the Common Shares were issued to each of
Xxxxxxx, Value and Vertical pursuant to their respective Subscription Agreements
with the Company. Under certain circumstances, the Company is obligated to issue
shares of Common Stock in connection with the conversion of the Preferred Stock.
Pursuant to a Registration Rights Agreement dated as of November 11, 1999
between the Company and RGC, Xxxxxxx, Value and Vertical (the "REGISTRATION
RIGHTS AGREEMENT"), the Company agreed, among other things, to register the
resale of the Registrable Securities (as that term is defined in the
Registration Rights Agreement) under the Securities Act of 1933, as amended (the
"SECURITIES ACT"), upon the terms provided in the Registration Rights Agreement.
The shares of Common Stock issuable upon conversion of the Preferred Stock and
the Common Shares are included in the Registrable Securities. In connection with
the Company's obligations under the Registration Rights Agreement, on
[_______________], the Company filed a Registration Statement on Form S-3 (File
No. 333- [____________]) (the "REGISTRATION STATEMENT") with the Securities and
Exchange Commission (the "SEC") relating to the Registrable Securities, which
names each of RGC, Xxxxxxx, Value and Vertical as a selling stockholder
thereunder, which Registration Statement has been declared effective by the SEC.
[Other customary introductory and scope of examination language to be
inserted]
Based on the foregoing, we are of the opinion that the Registrable
Securities have been registered under the Securities Act.
[Other customary language to be included.]
Very truly yours,
cc: [The Investors]
