SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT is made as of May 10, 1999, between THE
NETWORK CONNECTION, INC., a Georgia corporation with principal executive offices
located at 0000 Xxxxx Xxxx Xxxx, Xxxxxxxxxx, Xxxxxxx 00000, (the "Company"), and
INTERACTIVE FLIGHT TECHNOLOGIES, INC., a Delaware corporation ("Buyer").
W I T N E S S E T H:
WHEREAS, the Company and the Shaar Fund, Ltd. ("Shaar') are parties to that
certain Securities Purchase Agreement (the "Shaar Purchase Agreement") dated
October 23, 1998 pursuant to which Shaar purchased from the Company 1,500 shares
of the Company's Series B 8% Convertible Preferred Stock, $1,000 Stated Value
per share (the "Series B Shares");
WHEREAS, in connection with Shaar's purchase of the Series B Shares, the
Company and Shaar also entered into a Registration Rights Agreement dated
October 23, 1998 (the "Registration Rights Agreement") pursuant to which the
Company agreed to register certain shares of its capital stock for the benefit
of Shaar;
WHEREAS, the Company has failed to pay any dividends on the Series B Shares
since the date of issuance and is therefore in arrears with respect to its
dividend obligations;
WHEREAS, the Company has defaulted with respect to its obligations under
the Registration Rights Agreement and pursuant to the terms thereof is liable
for certain damages stated therein on account of such default;
WHEREAS, the Company purported to redeem the Series B Shares from Shaar by
notice dated December 14, 1998, but such notice was defective and in any event,
the Company failed to tender the redemption price of such Series B Shares to
Shaar thereafter;
WHEREAS, Shaar and Buyer have entered into a Securities Purchase Agreement
(the "Series B Securities Purchase Agreement") pursuant to which Buyer will
acquire the Series B Shares;
WHEREAS, Shaar will transfer to Buyer Shaar's rights under the Registration
Rights Agreement, Shaar's rights under the Shaar Purchase Agreement, and certain
other rights Shaar obtained in connection with the purchase by Shaar of the
Series B Shares;
WHEREAS, it is a condition to the closing of the transactions between Buyer
and Shaar that the Company execute this Agreement;
WHEREAS, Buyer has agreed to waive all prior dividend arrearages on the
Series B Shares to and including the date hereof, and to waive any and all prior
defaults arising in connection with the Series B Shares, whether arising under
the Registration Rights Agreement,
the Shaar Purchase Agreement, any ancillary agreements with respect thereto
(whether oral or written), or otherwise;
WHEREAS, the Company has agreed to issue to Buyer 800 shares of the
Company's Series C 8% Convertible Preferred Stock, $1,000 Stated Value per share
(the "Series C Shares") having the designations rights, preferences,
limitations, and privileges set forth in the Articles of Amendment to the
Articles of Incorporation of the Company dated the date hereof (the
"Amendment"), in consideration for such waivers;
WHEREAS, Buyer is the holder of that certain Secured Promissory Note dated
January 26, 1999, as amended by the Allonge to Secured Promissory Note dated
January 29, 1999, the Second Allonge to Secured Promissory Note dated March 19,
1999, and the Third Allonge to Secured Promissory Note dated March 24, 1999
(collectively, the "Note"), made by the Company and payable to the order of
Buyer in the current principal amount of $750,000;
WHEREAS, Buyer and the Company have agreed to amend the Note by the
issuance on the date hereof of that certain Fourth Allonge to Secured Promissory
Note and Buyer has agreed to waive any alleged defaults through the date hereof
under the Note; and
WHEREAS, the parties wish to confirm that the Series B Shares issued and
outstanding after the transfer thereof from Shaar to Buyer will be in full force
and effect in accordance with their terms as they existed on the original date
of issuance of such shares.
NOW THEREFORE, for and in consideration of the premises and the mutual
covenants contained herein, the parties hereto, intending to be legally bound,
hereby agree as follows:
I. PURCHASE AND SALE OF SERIES C SHARES
A. Transaction. Buyer hereby agrees to purchase from the Company, and the
Company hereby agrees to issue and sell to the Buyer in a transaction exempt
from the registration and prospectus delivery requirements of the Securities Act
of 1933, as amended (the "Securities Act"), 800 Series C Shares.
B. Purchase Price; Form of Payment. In exchange for receipt of the Series C
Shares, and the additional consents and assurances given by the Company pursuant
to Article III herein, Buyer hereby agrees to waive, to the fullest extent
permitted by law, all prior Company defaults and arrearages arising out of or
related to the Series B Shares, including but not limited to, the Company's
failure to file a registration statement with respect to the Common Stock as
provided in the Registration Rights Agreement, the failure to have such
registration statement declared effective by the Commission (as hereafter
defined) the failure to pay Liquidated Damages as provided in the Registration
Rights Agreement, the failure to declare or pay dividends on or with respect to
the Series B Shares to and including the date hereof, and any and all defaults,
events of default, and asserted failures and breaches by the Company under the
Shaar Purchase Agreement and ancillary agreements related thereto (whether oral
or written) with respect to redemption of Series B Shares or otherwise.
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II. BUYER'S REPRESENTATIONS AND WARRANTIES
Buyer represents and warrants to and covenants and agrees with the Company
as follows:
A. Buyer is purchasing the Series C Shares and the shares of Common Stock
issuable upon conversion of the Series C Shares (the "Conversion Shares" and,
collectively with the Series C Shares, the "Securities") for its own account,
for investment purposes only and not with a view towards or in connection with
the public sale or distribution thereof in violation of the Securities Act.
B. Buyer is (i) experienced in making investments of the kind contemplated
by this Agreement, (ii) capable, by reason of its business and financial
experience, of evaluating the relative merits and risks of an investment in the
Securities, and (iii) able to afford the loss of its investment in the
Securities.
C. Buyer understands that the Securities are being offered and sold by the
Company in reliance on an exemption from the registration requirements of the
Securities Act and equivalent state securities and "blue sky" laws, and that the
Company is relying upon the accuracy of, and Buyer's compliance with, Buyer's
representations, warranties and covenants set forth in this Agreement to
determine the availability of such exemption and the eligibility of Buyer to
purchase the Securities;
D. Buyer has been furnished with or provided access to all materials
relating to the business, financial position and results of operations of the
Company, and all other materials requested by Buyer to enable it to make an
informed investment decision with respect to the Securities.
E. Buyer acknowledges that it has been furnished with copies of the
Company's Annual Report on Form 10-KSB for the fiscal year ended December 31,
1998 and all other reports and documents heretofore filed by the Company with
the Securities and Exchange Commission (the "Commission") pursuant to the
Securities Act and the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), since December 31, 1998 (collectively the "Commission
Filings").
F. Buyer acknowledges that in making its decision to purchase the
Securities it has been given an opportunity to ask questions of and to receive
answers from the Company's executive officers, directors and management
personnel concerning the terms and conditions of the private placement of the
Securities by the Company.
G. Buyer understands that the Securities have not been approved or
disapproved by the Commission or any state securities commission and that the
foregoing authorities have not reviewed any documents or instruments in
connection with the offer and sale to it of the Securities and have not
confirmed or determined the adequacy or accuracy of any such documents or
instruments.
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H. This Agreement has been duly and validly authorized, executed and
delivered by Buyer and is a valid and binding agreement of Buyer 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.
I. Neither Buyer nor its affiliates nor any person acting on its or their
behalf has the intention of entering, or will enter into, prior to the closing,
any put option, short position or other similar instrument or position with
respect to the Common Stock and neither Buyer nor any of its affiliates nor any
person acting on its or their behalf will use at any time shares of Common Stock
acquired pursuant to this Agreement to settle any put option, short position or
other similar instrument or position that may have been entered into prior to
the execution of this Agreement.
III. COMPANY'S REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to and covenants and agrees with the
Buyer as follows:
A. Capitalization. 1. The authorized capital stock of the Company consists
of 10,000,000 shares of Common Stock, of which 5,278,737 shares are outstanding
on the date hereof and 2,500,000 shares of Preferred Stock, of which only 1,500
shares of Series B 8% Convertible Preferred Stock are outstanding on the date
hereof. All of the issued and outstanding shares of Common Stock and Preferred
Stock have been duly authorized and validly issued and are fully paid and
non-assessable. As of the date hereof, the Company has outstanding stock options
and warrants to purchase 1,863,096 shares of Common Stock. The Conversion Shares
have been duly and validly authorized and reserved for issuance by the Company,
and when issued by the Company upon conversion of, or in lieu of accrued
dividends on, the Series C Shares, will be duly and validly issued, fully paid
and non-assessable and will not subject the holder thereof to personal liability
by reason of being such holder. There are no preemptive, subscription, "call" or
other similar rights to acquire the Common Stock (including the Conversion
Shares) that have been issued or granted to any person.
2. The Company does not own or control, directly or indirectly, any
interest in any other corporation, partnership, limited liability company,
unincorporated business organization, association, trust or other business
entity.
B. Organization; Reporting Company Status. 1. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Georgia and is duly qualified as a foreign corporation in all
jurisdictions in which the failure to so qualify would have a material adverse
effect on the business, properties, prospects, condition (financial or
otherwise) or results of operations of the Company or on the consummation of any
of the transactions contemplated by this Agreement (a "Material Adverse
Effect").
2. The Company has registered its Common Stock pursuant to Section 12 of
the Exchange Act and has timely filed with the Commission all reports and
information required to be filed by it pursuant to all reporting obligations
under Section 13(a) or 15(d), as applicable, of the Exchange Act for the
12-month period immediately preceding the date hereof. The Common
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Stock is listed and traded on the NASDAQ Stock Market ("NASDAQ") and the Company
has not received any notice regarding, and to its knowledge there is no threat,
of the termination or discontinuance of the eligibility of the Common Stock for
such listing.
C. Authorized Shares. The Company has duly and validly authorized and
reserved for issuance shares of Common Stock sufficient in number for the
conversion, of the Series C Shares (assuming for purposes of this Section III.C.
a Conversion Price (as defined in the Amendment) of $1.50 per share. The Company
understands and acknowledges the potentially dilutive effect to the Common Stock
of the issuance of the Series C Shares and the potential conversion of the
Series C Shares the Common Stock. The Company further acknowledges that its
obligation to issue Conversion Shares upon conversion of the Series C Shares in
accordance with this Agreement and the Series C Shares is absolute and
unconditional regardless of the dilutive effect that such issuance may have on
the ownership interests of other stockholders of the Company.
D. Authority; Validity and Enforceability. The Company has the requisite
corporate power and authority to enter into this Agreement, the Amendment, the
Fourth Allonge to Secured Promissory Note, and Amendment No. 1 to Registration
Rights Agreement dated the date hereof (collectively, the "Transaction
Documents"), and to perform all of its obligations hereunder and thereunder
(including the issuance, sale and delivery to Buyer of the Securities). The
execution, delivery and performance by the Company of this Agreement, the
Transaction Documents, and the consummation by the Company of the transactions
contemplated hereby and thereby, has been duly authorized by all necessary
corporate action on the part of the Company. Each Transaction Document
constitutes a valid and 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. The Securities have been duly and
validly authorized for issuance by the Company and, when executed and delivered
by the Company, will be valid and binding obligations of the Company enforceable
against it in accordance with their terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally.
E. Non-contravention. The execution and delivery by the Company of the
Transaction Documents, the issuance of the Securities, and the consummation by
the Company of the other transactions contemplated hereby and thereby, do not
and will not conflict with or result in a breach by the Company of any of the
terms or provisions of, or constitute a default (or an event which, with notice,
passage of time or both, would constitute a default) under (i) the Articles of
Incorporation or By-laws of the Company or (ii) except for such conflict, breach
or default which would not have a Material Adverse Effect, any indenture,
mortgage, deed of trust or other material agreement or instrument to which the
Company is a party or by which its properties or assets are bound, or any law,
rule, regulation, decree, judgment or order of any court or public or
governmental authority having jurisdiction over the Company or any of the
Company's properties or assets.
F. Approvals. No authorization, approval or consent of any court or public
or governmental authority is required to be obtained by the Company for the
issuance and sale of
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the Series C Shares (or the Conversion Shares) to Buyer as contemplated by this
Agreement, except such authorizations, approvals and consents that have been
obtained by the Company prior to the date hereof.
G. Commission Filings. None of the Commission Filings contained at the time
they were filed any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the statements
made therein, in light of the circumstances under which they were made, not
misleading.
H. Absence of Certain Changes. Except as disclosed in the Commission
Filings, since the Balance Sheet Date (as defined in Section III.L.), there has
not occurred any change, event or development in the business, financial
condition, or results of operations of the Company, and there has not existed
any condition having or reasonably likely to have, a Material Adverse Effect.
I. Full Disclosure. There is no fact known to the Company (other than
general economic or industry conditions known to the public generally) that has
not been fully disclosed in writing to the Buyer that (i) reasonably would be
expected to have a Material Adverse Effect or (ii) reasonably would be expected
to materially and adversely affect the ability of the Company to perform its
obligations pursuant to this Agreement, the Amendment or the Registration Rights
Agreement.
J. Absence of Litigation. There is no action, suit, claim, proceeding,
inquiry or investigation pending or, to the Company's knowledge, threatened, by
or before any court or public or governmental authority which, if determined
adversely to the Company, would have a Material Adverse Effect.
K. Absence of Events of Default. No "Event of Default" (as defined in any
agreement or instrument to which the Company is a party) and no event which,
with notice, lapse of time or both, would constitute an Event of Default (as so
defined), has occurred and is continuing, which could have a Material Adverse
Effect.
L. Financial Statements; No Undisclosed Liabilities. The Company has
delivered to Buyer true and complete copies of its audited balance sheet as at
December 31, 1998 and the related audited statements of operations and cash
flows for the fiscal year ended December 31, 1998 including the related notes
and schedules thereto (the "Financial Statements"). The Financial Statements are
complete and correct in all material respects, has been prepared in accordance
with United States General Accepted Accounting Principles ("GAAP") and in
conformity with the practices consistently applied by the Company without
modification of the accounting principles used in the preparation thereof, and
fairly presents the financial position, results of operations and cash flows of
the Company as at the dates and for the periods indicated. For purposes hereof,
the audited balance sheet of the Company as at December 31, 1998 is hereinafter
referred to as the "Balance Sheet" and December 31, 1998 is hereinafter referred
to as the "Balance Sheet Date." The Company has no indebtedness, obligations or
liabilities of any kind (whether accrued, absolute, contingent or otherwise, and
whether due or to become due) that would have been required to be reflected in,
reserved against or otherwise described in the Balance Sheet or in the notes
thereto in accordance with GAAP, which was not fully reflected in, reserved
against
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or otherwise described in the Balance Sheet or the notes thereto or was not
incurred in the ordinary course of business consistent with the Company's past
practices since the Balance Sheet Date.
M. Compliance with Laws; Permits. The Company is in compliance with all
laws, rules, regulations, codes, ordinances and statutes (collectively "Laws")
applicable to it or to the conduct of its business, except for such
non-compliance which would not have a Material Adverse Effect. The Company
possesses all permits, approvals, authorizations, licenses, certificates and
consents from all public and governmental authorities which are necessary to
conduct its business, except for those the absence of which would not have a
Material Adverse Effect.
N. Securities Law Matters. Based, in part on the representations and
warranties of Buyer set forth in Article II hereof, the offer and sale by the
Company of the Securities is exempt from (i) the registration and prospectus
delivery requirements of the Securities Act and the rules and regulations of the
Commission thereunder and (ii) the registration and/or qualification provisions
of all applicable United States state securities and "blue sky" laws. The
Company shall not directly or indirectly take, and shall not permit any of its
directors, officers or Affiliates directly or indirectly to take, any action
(including, without limitation, any offering or sale to any person or entity of
Series C Shares or shares of Common Stock), so as to make unavailable the
exemption from Securities Act registration being relied upon by the Company for
the offer and sale to Buyer of the Series C Shares (and the Conversion Shares)
as contemplated by this Agreement. No form of general solicitation or
advertising has been used or authorized by the Company or any of its officers,
directors or Affiliates in connection with the offer or sale of the Series C
Shares (and the Conversion Shares) as contemplated by this Agreement or any
other agreement to which the Company is a party.
O. Internal Controls and Procedures. The Company maintains accurate books
and records and internal accounting controls which provide reasonable assurance
that (i) all transactions to which the Company is a party or by which its
properties are bound are executed with management's authorization; (ii) the
reported accountability of the Company's assets is compared with existing assets
at regular intervals; (iii) access to the Company's assets is permitted only in
accordance with management's authorization; and (iv) all transactions to which
the Company is a party or by which its properties are bound are recorded as
necessary to permit preparation of the financial statements of the Company in
accordance with U.S. generally accepted accounting principles.
P. Right of First Refusal. Other than a right of first refusal which
expires on July 23, 1999, granted to Shaar under the terms of the Shaar Purchase
Agreement (which right has been duly and properly assigned to Buyer and is in
full force and effect), the Company does not have in effect any right of first
refusal with any person with respect to the issuance or sale of Common Stock,
securities convertible into Common Stock, or debt of the Company.
Q. Environmental Matters. The operations of the Company are in material
compliance with all applicable environmental laws and all permits issued
pursuant to
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environmental laws or otherwise. The Company has not received since the Balance
Sheet Date, any written communications alleging that it may be in violation of
any environmental law or any permit issued pursuant to any environmental law, or
may have any liability under any environmental law.
R. Labor Matters. The Company is not a party to any labor or collective
bargaining agreement and there are no labor or collective bargaining agreements
which pertain to employees of the Company.
S. Tax Matters. The Company has filed all tax returns which it is required
to file under applicable laws except for such tax returns in respect of which
the failure to so file does not and could not have a Material Adverse Effect.
All such tax returns as filed are true and correct in all material respects and
have been prepared in accordance with all applicable laws. The Company is in
compliance in all material respects with all provisions of the Employee
Retirement Income Security Act of 1974 and the regulations promulgated
thereunder which are applicable to it.
T. Property. The Company has good and marketable title to all real and
personal property (tangible and intangible, and including all technology rights
and assets) owned by it, free and clear of all liens, encumbrances and defects
except such as do not materially affect the value of such property and do not
materially interfere with the use made and proposed to be made of such property
by the Company, and except for the lien securing the obligation represented by
the Note. The Company owns or possesses adequate and enforceable rights to all
patents, patent applications, trademarks, trademark applications, trade names,
service marks, copyrights, copyright applications, licenses, know-how (including
trade secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures) and other similar rights and
proprietary knowledge necessary for the conduct of its business as now being
conducted. To the best of the Company's knowledge, the Company is not infringing
upon or in conflict with any right of any other person with respect to any of
the foregoing intellectual property. No claims have been asserted by any person
to the ownership or use of such intellectual property and has no knowledge of
any basis for such a claim.
U. No Misrepresentation. To the Company's knowledge, no representation or
warranty of the Company contained in this Agreement, any schedule, annex or
exhibit hereto or any agreement, instrument or certificate furnished by the
Company to Buyer pursuant to this Agreement, contains any untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein, not misleading.
V. Adequacy of Consideration. The Board of Directors of the Company has
determined that the consideration to be received for the Series C Shares to be
issued pursuant to the terms of this Agreement is adequate in accordance with
Section 14-2-621 of the Georgia Business Corporation Code.
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IV. COVENANTS AND ACKNOWLEDGMENTS.
A. Restrictive Legend. Buyer acknowledges and agrees that, upon issuance
pursuant to this Agreement, the Securities shall have endorsed thereon a legend
in substantially the following form (and a stop-transfer order may be placed
against transfer of Securities):
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY
STATE, AND ARE BEING OFFERED AND SOLD PURSUANT TO AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS. THESE
SECURITIES MAY NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR SUCH
OTHER LAWS."
B. Filings. The Company shall make all necessary SEC and "blue sky" filings
required to be made by the Company in connection with the sale of the Securities
to the Buyer as required by all applicable Laws, and shall provide a copy
thereof to the Buyer promptly after such filing.
C. Reporting Status. So long as the Buyer beneficially owns any of the
Securities, the Company shall use its best efforts to file all reports required
to be filed by it with the Commission pursuant to Section 13 or 15(d) of the
Exchange Act.
D. Listing. Except to the extent the Company lists its Common Stock on The
New York Stock Exchange or the Nasdaq National Market System, the Company shall
use its best efforts to maintain its listing of the Common Stock on the NASDAQ.
E. Reserved Conversion Shares. Subject to Article 6 of the Amendment, the
Company at all times from and after the date hereof shall have a sufficient
number of shares of Common Stock duly and validly authorized and reserved for
issuance to satisfy the conversion, in full, of the Series C Shares (assuming
for purposes of this Section IV.E., a Conversion Price of $1.50 per share. In
the event the Current Market Price (as defined in the Amendment) declines to
$1.25, the Company shall, within 10 days of the occurrence of such event,
authorize and reserve for issuance such additional shares of Common Stock
sufficient in number for the conversion, in full, of the Series C Shares,
assuming for purposes of this Section IV.E. a Conversion Price of not greater
than $ 1.00 per share, subject to Article 6 of the Amendment.
F. The Series B Shares. 1. Consent to Transfer and Assignment. The Company
hereby consents to the transfer of the Series B Shares from Shaar to Buyer, and
further consents to the assignment referred to in Paragraph B of Article VIII of
the Series B Securities Purchase Agreement, providing for the assignment by
Shaar to Buyer of all of its rights under the Series B Stock.
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2. Series B Dividends. The Company confirms, represents and warrants that
no dividends have been paid on or with respect to the Series B Shares since the
date of issuance nor have funds been set aside for such purpose. After giving
effect to the waiver referred to in Section I.B, dividends on the Series B Stock
shall begin to accrue as of the date hereof.
3. Redemption. The Company hereby withdraws the December 14, 1998 notice of
redemption of the Series B Shares, and the Company and the Buyer hereby confirm,
represent, warrant and acknowledge to one another that such notice of
redemption, and any other agreement with respect to a redemption of Series B
Shares (whether oral or written), is withdrawn or rescinded, and in either event
is of no force or effect, and is void ab initio. The Company hereby acknowledges
that the Series B Shares are issued and outstanding and have the designations,
rights, preferences, limitations, and privileges set forth in the Company's
Articles of Incorporation as in effect on the date such shares were originally
issued. Neither the sending of the redemption notice referred to above nor the
putative redemption resulting therefrom, nor any other act or failure to act has
had the effect of terminating or limiting any dividend, conversion,
registration, transfer, or other right of any such Series B Share, except and
only to the extent specifically set forth in this Agreement
V. TRANSFER AGENT INSTRUCTIONS.
A. The Company undertakes and agrees that no instruction other than the
instructions referred to in this Article V and customary stop transfer
instructions prior to the registration and sale of the Common Stock pursuant to
an effective Securities Act registration statement will be given to its transfer
agent for the Common Stock and that the Common Stock issuable upon conversion of
the Series C Shares otherwise shall be freely transferable on the books and
records of the Company as and to the extent provided in this Agreement, the
Registration Rights Agreement and applicable law. Nothing contained in this
Section V.A. shall affect in any way Buyer's obligations and agreement to comply
with all applicable securities laws upon resale of such Common Stock. If, at any
time, Buyer provides the Company with an opinion of counsel reasonably
satisfactory to the Company that registration of the resale by Buyer of such
Common Stock is not required under the Securities Act and that the removal of
restrictive legends is permitted under applicable law, the Company shall permit
the transfer of such Common Stock and, promptly instruct the Company's transfer
agent to issue one or more certificates for Common Stock without any restrictive
legends endorsed thereon.
B. The Company shall permit Buyer to exercise its right to convert the
Series C Shares by telecopying an executed and completed Notice of Conversion to
the Company. Each date on which a Notice of Conversion is telecopied to and
received by the Company in accordance with the provisions hereof shall be deemed
a Conversion Date. Promptly after Buyer delivers the Notice of Conversion to the
Company, Buyer shall deliver to the Company the Series C Shares being converted.
The Company shall transmit the certificates evidencing the shares of Common
Stock issuable upon conversion of any Series C Shares (together with
certificates evidencing any Series C Shares not being so converted) to Buyer via
express courier, by electronic transfer or otherwise, within ten business days
after receipt by the Company of the Notice of Conversion (the "Delivery Date").
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C. The Company understands that a delay in the issuance of the shares of
Common Stock issuable in lieu of cash dividends on the Series C Shares or upon
the conversion of the Series C Shares beyond the applicable Delivery Date could
result in economic loss to Buyer. As compensation to Buyer for such loss (and
not as a penalty), the Company agrees to pay to Buyer for late issuance of
Common Stock issuable in lieu of cash dividends on the Series C Shares or upon
conversion of the Series C Shares in accordance with the following schedule
(where "No. Business Days" is defined as the number of business days beyond ten
(10) business days from the Delivery Date referred to in Section V.B.):
Compensation For Each
500 Shares of Series C
Shares Not Converted
Timely or 500 Shares of
Common Stock Issuable
In Lieu of Cash
Dividends or
Compensation For Each
500 Shares of Series C
Shares Not Converted
Timely or 500 Shares of
Common Stock Issuable
In Lieu of Cash
No. Business Days Dividends
----------------- -----------------------
1 $25
2 $50
3 $75
4 $100
5 $125
6 $150
7 $175
8 $200
9 $225
10 $250
more than 10 $250 + 100 for each
Business Day Late
beyond 10 days
The Company shall pay to Buyer the compensation described above by the transfer
of immediately available funds upon Buyer's demand. Nothing herein shall limit
Buyer's right to pursue actual damages for the Company's failure to issue and
deliver Common Stock to Buyer (which actual damages shall be reduced by the
amount of any compensation paid by the Company as described above in this
Section V.D.), and in addition to any other remedies which
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may be available to Buyer, in the event the Company fails for any reason to
effect delivery of such shares of Common Stock within five business days after
the relevant Interest Payment Due Date, or the Delivery Date, as applicable,
Buyer shall be entitled to rescind the relevant Notice of Conversion by
delivering a notice to such effect to the Company whereupon the Company and
Buyer shall each be restored to their respective original positions immediately
prior to delivery of such Notice of Conversion on delivery.
VI. CLOSING.
The date and time of the issuance and sale of the Series C Shares (the
"Closing Date") shall be the date hereof at 10:00 a.m. local time or such other
as shall be mutually agreed upon in writing. The issuance and sale of the
Securities shall occur on the Closing Date at the offices of Weil, Gotshal &
Manages LLP, 000 Xxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx.
VII. CONDITIONS TO THE COMPANY'S OBLIGATIONS.
The Buyer understands that the Company's obligation to sell the Securities
on the Closing Date to Buyer pursuant to this Agreement is conditioned upon:
A. The accuracy in all material respects on the Closing Date of the
representations and warranties of Buyer contained in this Agreement as if made
on the Closing Date (except for representations and warranties which, by their
express terms, speak as of and relate to a specified date, in which case such
accuracy shall be measured as of such specified date) and the performance by
Buyer in all material respects on or before the Closing Date of all covenants
and agreements of Buyer required to be performed by it pursuant to this
Agreement on or before the Closing Date;
B. There shall not be in effect any Law or order, ruling, judgment or writ
of any court or public or governmental authority restraining, enjoining or
otherwise prohibiting any of the transactions contemplated by this Agreement.
VIII. CONDITIONS TO BUYER'S OBLIGATIONS.
The Company understands that Buyer's obligation to purchase the Securities
on the Closing Date pursuant to this Agreement is conditioned upon:
A. Delivery by the Company of one or more certificates (I/N/O Buyer)
evidencing the Securities to be purchased by Buyer pursuant to this Agreement;
B. The accuracy in all material respects on the Closing Date of the
representations and warranties made by the Company in this Agreement as if made
on the Closing Date (except for representations and warranties which, by their
express terms, speak as of and relate to a specified date, in which case such
accuracy shall be measured as of such specified date) and the performance by the
Company in all material respects on or before the Closing Date of all covenants
and agreements of the Company required to be performed by it pursuant to this
Agreement on or before the Closing Date;
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C. Buyer's having received an opinion of counsel for the Company, dated the
Closing Date, substantially in the form of Annex I attached hereto.
D. There not having occurred (i) any general suspension of trading in, or
limitation on prices listed for, the Common Stock on NASDAQ, (ii) the
declaration of a banking moratorium or any suspension of payments in respect of
banks in the United States, or (iii) in the case of the foregoing existing at
the date of this Agreement, a material acceleration or worsening thereof.
E. There not having occurred any event or development, and there being in
existence no condition, having or which reasonably and forseeably would have a
Material Adverse Effect.
F. The Company shall have delivered to Buyer reimbursement of Buyer's
out-of-pocket costs and expenses incurred in connection with the transactions
contemplated by the Note and this Agreement (including the fees and
disbursements of Buyer's legal counsel in an amount not to exceed $50,000).
G. There shall not be in effect any Law or order, ruling, judgment or writ
of any court or public or governmental authority restraining, enjoining or
otherwise prohibiting any of the transactions contemplated by this Agreement.
H. Buyer's receipt of a duly executed Amendment No. 1 to Registration
Rights Agreement in form and substance satisfactory to Buyer.
IX. SURVIVAL; INDEMNIFICATION.
A. The representations, warranties and covenants made by each of the
Company and Buyer in this Agreement, the annexes, schedules and exhibits hereto
and in each instrument, agreement and certificate entered into and delivered by
them pursuant to this Agreement, shall survive the Closing and the consummation
of the transactions contemplated hereby for a period of one year. In the event
of a breach or violation of any of such representations, warranties or
covenants, the party to whom such representations, warranties or covenants have
been made shall have all rights and remedies for such breach or violation
available to it under the provisions of this Agreement or otherwise, whether at
law or in equity, irrespective of any investigation made by or on behalf of such
party on or prior to the Closing Date.
B. The Company hereby agrees to indemnify and hold harmless the Buyer, its
Affiliates and their respective officers, directors, partners and members
(collectively, the "Buyer Indemnitees"), from and against any and all losses,
claims, damages, judgments, penalties, liabilities and deficiencies
(collectively, "Losses"), and agrees to reimburse the Buyer Indemnitees for all
out-of-pocket expenses (including the reasonable fees and expenses of legal
counsel), in each case promptly as incurred by the Buyer Indemnitees and to the
extent arising out of or in connection with:
1. any misrepresentation, omission of fact or breach of any of the
Company's representations or warranties contained in this Agreement, the
annexes, schedules or exhibits
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hereto or any instrument, agreement or certificate entered into or delivered by
the Company pursuant to this Agreement; or
2. any failure by the Company to perform in any material respect any of its
covenants, agreements, undertakings or obligations set forth in this Agreement,
the annexes, schedules or exhibits hereto or any instrument, agreement or
certificate entered into or delivered by the Company pursuant to this Agreement.
C. Buyer hereby agrees to indemnify and hold harmless the Company, its
Affiliates and their respective officers, directors, partners and members
(collectively, the "Company Indemnitees"), from and against any and all Losses,
and agrees to reimburse the Company Indemnitees for all out-of-pocket expenses
(including the reasonable fees and expenses of legal counsel), in each case
promptly as incurred by the Company Indemnitees and to the extent arising out of
or in connection with:
1. any misrepresentation, omission of fact, or breach of any of Buyer's
representations or warranties contained in this Agreement, the annexes,
schedules or exhibits hereto or any instrument, agreement or certificate entered
into or delivered by Buyer pursuant to this Agreement; or
2. any failure by Buyer to perform in any material respect any of its
covenants, agreements, undertakings or obligations set forth in this Agreement
or any instrument, certificate or agreement entered into or delivered by Buyer
pursuant to this Agreement.
D. Promptly after receipt by either party hereto seeking indemnification
pursuant to this Section IX (an "Indemnified Party") of written notice of any
investigation, claim, proceeding or other action in respect of which
indemnification is being sought (each, a "Claim"), the Indemnified Party
promptly shall notify the party against whom indemnification pursuant to this
Section IX is being sought (the "Indemnifying Party") of the commencement
thereof; but the omission to so notify the Indemnifying Party shall not relieve
it from any liability that it otherwise may have to the Indemnified Party,
except to the extent that the Indemnifying Party is materially prejudiced and
forfeits substantive rights and defenses by reason of such failure. In
connection with any Claim, the Indemnifying Party shall be entitled to assume
the defense thereof. Notwithstanding the assumption of the defense of any Claim
by the Indemnifying Party, the Indemnified Party shall have the right to employ
separate legal counsel (together with appropriate local counsel) and to
participate in the defense of such Claim, and the Indemnifying Party shall bear
the reasonable fees, out-of-pocket costs and expenses of such separate legal
counsel to the Indemnified Party if (and only if): (x) the Indemnifying Party
shall have agreed to pay such fees, out-of-pocket costs and expenses, (y) the
Indemnified Party and the Indemnifying Party reasonably shall have concluded
that representation of the Indemnified Party and the Indemnifying Party by the
same legal counsel would not be appropriate due to actual or, as reasonably
determined by legal counsel to the Indemnified Party, (i) potentially differing
interests between such parties in the conduct of the defense of such Claim, or
(ii) if there may be legal defenses available to the Indemnified Party that are
in addition to or disparate from those available to the Indemnifying Party and
which can not be presented by counsel to the Indemnifying Party, or (z) the
Indemnifying Party shall have failed to employ legal counsel
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reasonably satisfactory to the Indemnified Party within a reasonable period of
time after notice of the commencement of such Claim. If the Indemnified Party
employs separate legal counsel in circumstances other than as described in
clauses (x), (y) or (z) above, the fees, costs and expenses of such legal
counsel shall be borne exclusively by the Indemnified Party. Except as provided
above, the Indemnifying Party shall not, in connection with any Claim in the
same jurisdiction, be liable for the fees and expenses of more than one firm of
legal counsel for the Indemnified Party (together with appropriate local
counsel). The Indemnifying Party shall not, without the prior written consent of
the Indemnified Party (which consent shall not unreasonably be withheld), settle
or compromise any Claim or consent to the entry of any judgment that does not
include an unconditional release of the Indemnified Party from all liabilities
with respect to such Claim or judgment.
E. In the event one party hereunder should have a claim for indemnification
that does not involve a claim or demand being asserted by a third party, the
Indemnified Party promptly shall deliver notice of such claim to the
Indemnifying Party. If the Indemnified Party disputes the claim, such dispute
shall be resolved by mutual agreement of the Indemnified Party and the
Indemnifying Party or by binding arbitration conducted in accordance with the
procedures and rules of the American Arbitration Association. Judgment upon any
award rendered by any arbitrators may be entered in any court having competent
jurisdiction thereof.
X. GOVERNING LAW: MISCELLANEOUS.
This Agreement shall be governed by and interpreted in accordance with the
laws of the State of New York, without regard to the conflicts of law principles
of such state. Each of the parties consents to the jurisdiction of the federal
courts whose districts encompass any part of the City of New York or the state
courts of the State of New York sitting in the City of New York in connection
with any dispute arising under this Agreement and hereby waives, to the maximum
extent permitted by law, any objection, including any objection based on forum
non conveniens, to the bringing of any such proceeding in such jurisdictions. A
facsimile transmission of this signed Agreement shall be legal and binding on
all parties hereto. This Agreement may be signed in one or more counterparts,
each of which shall be deemed an original. The headings of this Agreement are
for convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this Agreement
in any other jurisdiction. This Agreement may be amended only by an instrument
in writing signed by the party to be charged with enforcement. This Agreement
supersedes all prior agreements and understandings among the parties hereto with
respect to the subject matter hereof.
XI. NOTICES. Except as may be otherwise provided herein, any notice or
other communication or delivery required or permitted hereunder shall be in
writing and shall be delivered personally or sent by certified mail, postage
prepaid, or by a nationally recognized overnight courier service, by facsimile
with confirmation back if followed promptly by first class mail, and shall be
deemed given when so delivered personally or by overnight courier service, or,
if mailed, three (3) days after the date of deposit in the United States mails,
as follows:
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(1) if to the Company, to:
The Network Connection, Inc.
0000 Xxxxx Xxxx Xxxx
Xxxxxxxxxx, Xxxxxxx 00000
Attention: Xxxxxx Xxxxx
With a copy to:
Nixon, Hargrave, Devans & Xxxxx LLP
000 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
Attention: Xxxxx X. Xxxxxxxx, Esquire
(2) if to Buyer, to
Interactive Flight Technologies, Inc.
0000 Xxxxx Xxxxxxx Xxxxxx
Xxxxx X 000
Xxxxxxx, XX 00000
Attention: Xxxxx X. Xxxxx
with a copy to:
Mesirov Xxxxxx Xxxxx Xxxxxx Xxxxxxxx, LLP
0000 Xxxxxx Xxxxxx
Xxxxx 0000
Xxxxxxxxxxxx, XX 00000-0000
Attn: Xxxxxxx X. Xxxxx, Esquire
The Company or Buyer may change the foregoing address by notice given pursuant
to this Section XI.
XII. CONFIDENTIALITY. Each of the Company and Buyer agrees to keep
confidential and not to disclose to or use for the benefit of any third party
the terms of this Agreement or any other information which at any time is
communicated by the other party as being confidential without the prior written
approval of the other party; provided, however, that this provision shall not
apply to information which, at the time of disclosure, is already part of the
public domain (except by breach of this Agreement) and information which is
required to be disclosed by law (including, without limitation, pursuant to Item
10 of Rule 601 of Regulation S-K under the Securities Act and the Exchange Act).
XIII. ASSIGNMENT. This Agreement shall not be assignable by either of the
parties hereto prior to the Closing without the prior written consent of the
other party, and any attempted assignment contrary to the provisions hereby
shall be null and void; provided,
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however, that Buyer may assign its rights and obligations hereunder, in whole or
in part, to any affiliate of Buyer who furnishes to the Company the
representations and warranties set forth in Section II hereof and otherwise
agrees to be bound by the terms of this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement on the date first above written.
THE NETWORK CONNECTION, INC.
By:
---------------------------------
Name:
Title:
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
By:
---------------------------------
Name:
Title:
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