EXHIBIT 99
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SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of December 17,
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1997, by and among Interactive Entertainment Limited, a Bermuda exempted company
(the "Company"), and each of the entities whose names appear on the signature
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pages hereof. Such entities are each referred to herein as a "Purchaser" and,
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collectively, as the "Purchasers".
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The Company wishes to sell to each Purchaser, and each Purchaser wishes to
buy, on the terms and subject to the conditions set forth in this Agreement, (i)
shares (the "Preferred Shares") of the Company's Series A Convertible Preferred
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Stock of the Company's Class B Preferred Stock (the "Preferred Stock") in the
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amount set forth below such Purchaser's name on the signature pages hereof and
(ii) a Warrant in the form of Exhibit A hereto (a "Warrant" and, when taken
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together with all of the warrants issued hereunder, the "Warrants") entitling
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the holder thereof to purchase the number of shares (the "Warrant Shares") of
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Common Stock (as defined below) set forth next to such Purchaser's name on the
signature pages hereof. The Preferred Shares are convertible into shares (the
"Conversion Shares") of the Company's Common Shares (the "Common Stock")
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pursuant to the terms approved by the board of directors of the Company and
attached hereto as Exhibit B (the "Authorized Terms"). The Preferred Shares,
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the Warrants, the Conversion Shares, the Warrant Shares and the Dividend Payment
Shares (as defined in the Authorized Terms) are collectively referred to herein
as the "Securities".
The Company has agreed to effect the registration of the Conversion Shares,
the Warrant Shares and the Dividend Payment Shares under the Securities Act of
1933, as amended (the "Securities Act"), pursuant to a Registration Rights
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Agreement of even date herewith by and among the Company and the Purchasers (the
"Registration Rights Agreement"). The sale of the Preferred Shares and the
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Warrants by the Company to the Purchasers will be effected in reliance upon the
exemption from securities registration afforded by the provisions of Regulation
D ("Regulation D"), as promulgated by the Securities and Exchange Commission
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(the "Commission") under the Securities Act.
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The Company and the Purchasers hereby agree as follows:
12. PURCHASE AND SALE OF PREFERRED SHARES.
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12.1 Agreement to Purchase and Sell. Upon the terms and subject to the
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satisfaction or waiver of the conditions set forth herein, the Company agrees to
sell, and each Purchaser agrees to purchase (i) the number of Preferred Shares
set forth below such Purchaser's name on the signature pages hereof and (ii) a
Warrant entitling the holder thereof to purchase the number of Warrant Shares
set forth below such Purchaser's name on the signature pages hereof, at a
purchase price for such Preferred Shares and Warrant equal to one thousand
dollars ($1,000) times the number of Preferred Shares purchased by such
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Purchaser (the "Purchase Price") in a tranche with an aggregate Purchase Price
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of one million dollars ($1,000,000) ("Tranche A"). A second tranche of Preferred
Shares and Warrants (which Warrants shall be for the purchase of an aggregate of
123,433 Warrant Shares) with an aggregate Purchase Price of two million dollars
($2,000,000) ("Tranche B") may be sold by the Company and shall be purchased by
the Purchasers, upon the terms and subject to the satisfaction or waiver of the
conditions set forth herein, at the option of the Company, which option shall be
exercised by means of delivery of a written notice from the Company to each
Purchaser electing that the Tranche B Closing (as defined below) occur within
not less than one (1) business day (as defined below) nor more than two (2)
business days following receipt of such notice by each of the Purchasers (a
"Purchase Option Notice"). In the event that the Purchasers receive such
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written notice electing that the Tranche B transaction be consummated, each
Purchaser shall be obligated to purchase, and the Company shall be obligated to
sell upon the terms and subject to the satisfaction or waiver of the conditions
set forth herein, its pro rata share of Preferred Shares and Warrants (based on
the number of shares of Preferred Stock purchased by such Purchaser hereunder
with respect to the Tranche A Closing (as defined below) relative to the number
of shares of Preferred Stock purchased by all the Purchasers hereunder with
respect to such Closing) within the time period designated in the written
notice. Unless it has delivered a Purchase Option Notice, the Company shall
have no obligation (i) to sell Securities pursuant to or (ii) to
permit a Purchaser to purchase Securities pursuant to Tranche B. The Company's
option with respect to Tranche B shall not be exercisable until the Company's
gaming software has been installed and is available to paying passengers in the
entire cabin of one B-747-400, B-777 or A-340 on Singapore Airlines (and the
Company has delivered to each Purchaser written confirmation of the same from
Singapore Airlines) and shall expire if not exercised within six (6) months of
the date hereof.
12.2 Closing. Subject to the satisfaction or waiver of the conditions set
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forth herein, the closing of the purchase and sale of the Preferred Shares and
the Warrants pursuant to each of Tranche A (the "Tranche A Closing") and Tranche
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B (the "Tranche B Closing"), as the case may be, (each, a "Closing") will be
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deemed to occur when this Agreement and the other Transaction Documents (as
defined below) have been executed and delivered by the Company and each
Purchaser, and full payment of the Purchase Price for each of Tranche A or
Tranche B, as the case may be, has been made by each Purchaser by wire transfer
of immediately available funds against delivery by the Company of duly executed
certificates representing the Preferred Shares and the Warrants purchased by
such Purchaser hereunder. The date on which the Tranche A Closing occurs is
hereinafter referred to as the "Tranche A Closing Date" and the date on which
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the Tranche B Closing occurs is hereinafter referred to as the "Tranche B
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Closing Date". The Tranche A Closing Date and the Tranche B Closing Date are
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each sometimes referred to herein as a "Closing Date". For the avoidance of
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doubt, the parties acknowledge that the terms "Preferred Shares" and "Warrants"
shall include all Securities issued at the Tranche A Closing, and upon the
occurrence thereof, any Securities issued at the Tranche B Closing.
12.3 Certain Definitions. When used herein, (A) "business day" shall mean
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any day on which the New York Stock Exchange and commercial banks in the city of
New York and the city of Vancouver, British Columbia are open for business, (B)
an "affiliate" of a party shall mean any person or entity controlling,
controlled by or under common control with that party and (C) "control" shall
mean, with respect to an entity, the ability to direct the business, operations
or management of such entity, whether through an equity interest therein or
otherwise.
13. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.
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Each Purchaser, solely with respect to it, hereby makes the following
representations and warranties to the Company and agrees with the Company that,
as of the date of this Agreement and as of, with respect to the Tranche A
Closing, the Tranche A Closing Date and, with respect to the Tranche B Closing,
the Tranche B Closing Date:
13.1 Authorization; Enforceability. Such Purchaser is duly and validly
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organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization with full power and authority
to purchase the Preferred Shares and the Warrants and to execute and deliver
this Agreement. This Agreement constitutes such Purchaser's valid and legally
binding obligation, enforceable in accordance with its terms, except as such
enforcement may be limited by (i) applicable bankruptcy, insolvency,
reorganization or other laws of general application relating to or affecting the
enforcement of creditors' rights generally and (ii) general principles of
equity.
13.2 Accredited Investor; Investment Intent. Such Purchaser is an
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accredited investor as that term is defined in Rule 501 of Regulation D, and is
acquiring the Preferred Shares and the Warrants solely for its own account for
investment purposes as a principal and not with a view to the public resale or
distribution of all or any part thereof, except pursuant to sales that are
exempt from the registration requirements of the
Securities Act and/or sales registered under the Securities Act. Such Purchaser
understands that such Purchaser must bear the economic risk of this investment
indefinitely, unless the securities are registered pursuant to the Securities
Act and any applicable state securities laws or an exemption from such
registration is available, and that the Company has no present intention of
registering such securities other than as contemplated by the Registration
Rights Agreement; provided, however that in making such representation, such
Purchaser does not agree to hold the Securities for any minimum or specific term
and reserves the right to sell, transfer or otherwise dispose of the Securities
at any time in accordance with the provisions of this Agreement and with Federal
and state securities laws applicable to such sale, transfer or disposition.
13.3 Reliance on Exemptions. Such Purchaser understands that the Preferred
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Stock and Warrants are being offered and sold to such Purchaser in reliance upon
specific exemptions from the registration requirements of Federal and state
securities laws and that the Company is relying upon the truth and accuracy of,
and such Purchaser's compliance with, the representations, warranties,
agreements, acknowledgments and understandings of such Purchaser set forth
herein in order to determine the availability of such exemptions and the
eligibility of such Purchaser to acquire the Preferred Stock and Warrants.
13.4 Information. The Company has provided such Purchaser with all
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information regarding the business, operations and financial condition of the
Company which has been specifically requested by such Purchaser, and has granted
to such Purchaser the opportunity to ask questions of and receive answers which
it believes to be complete and satisfactory from representatives of the Company,
its officers, directors, employees and agents concerning the Company and
materials relating to the terms and conditions of the purchase and sale of the
Preferred Shares and the Warrants hereunder. Neither such information nor any
other investigation conducted by such Purchaser or any of its representatives
shall modify, amend or otherwise alter such Purchaser's right to rely on the
Company's representations and warranties contained in this Agreement. Such
Purchaser has no actual knowledge that any of the Company's representations or
warranties contained in this Agreement are untrue.
13.5 Governmental Review. Such Purchaser understands that no Federal or
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state agency has passed upon or made any recommendations or endorsement of the
Securities.
13.6 Limitations on Disposition. Such Purchaser acknowledges that, (i)
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except as provided in the Registration Rights Agreement, the Securities have not
been and are not being registered under the Securities Act and may not be
transferred or resold without registration under the Securities Act or unless
pursuant to an exemption therefrom; (ii) any sale of such Securities made in
reliance on Rule 144 under the Securities Act (or a successor rule) ("Rule 144")
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may be made only in accordance with the terms of Rule 144 and further, if Rule
144 is not applicable, any resale of such Securities without registration under
the Securities Act under circumstances in which the seller may be deemed to be
an underwriter (as the term is defined in the Securities Act) may require
compliance with some other exemption under the Securities Act or the rules and
regulations of the Commission thereunder; and (iii) neither the Company nor any
other person is under any obligation to register such Securities under the
Securities Act or any state securities laws or to comply with the terms and
conditions of any exemption thereunder (in each case, other than pursuant to
this Agreement or the Registration Rights Agreement).
13.7 Legend. Such Purchaser understands that the certificates representing
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the Securities will bear at issuance a restrictive legend in substantially the
following form:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"Securities Act"), or the securities laws of any state of the United
States, and may not be offered, sold or transferred unless a
registration statement under the Securities Act and applicable state
securities laws shall have become effective with regard thereto, or an
exemption from registration under the Securities Act and applicable
state securities laws is available in connection with such offer, sale
or transfer. Such securities are issued subject to the provisions of
(i) the Authorized Terms adopted by the Board of Directors of
Interactive Entertainment Limited (the "Company"), as amended, (ii) a
Securities Purchase Agreement, dated December ___, 1997, by and among
the Company and the purchasers named therein, and (iii) a Registration
Rights Agreement, dated December___, 1997, by and among the Company
and such purchasers."
Notwithstanding the foregoing, it is agreed that, as long as the
resale of the Conversion Shares, the Warrant Shares or the Dividend Payment
Shares, as the case may be, is registered pursuant to an effective registration
statement or such shares are eligible for resale under Rule 144(k) under the
Securities Act, such shares shall be issued without any legend or other
restrictive language. The legend set forth above shall be removed and the
Company shall issue a new certificate without such legend to the holder of any
Security upon which it is stamped if (i) the resale of such Security is
registered under the Securities Act, (ii) such holder provides the Company with
an opinion of counsel, in form, substance and scope customary for opinions of
counsel in comparable transactions (the cost of which shall be borne by such
holder) to the effect that such Security can be sold publicly without
registration under the Securities Act, (iii) such holder provides the Company
with an opinion of counsel reasonably satisfactory to the Company that such
Security can be sold pursuant to Rule 144 without any restriction as to the
number of shares of or represented by such Security that can then be immediately
resold or (iv) such Security has been sold pursuant to Rule 144.
13.8 Residency. Such Purchaser is a resident of the jurisdiction set
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forth under such Purchaser's name on the signature page hereto executed by
Purchaser.
14. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
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The Company hereby makes the following representations and warranties to
each Purchaser and agrees with such Purchaser that, as of the date of this
Agreement and as of, with respect to the Tranche A Closing, the Tranche A
Closing Date and, with respect to the Tranche B Closing, the Tranche B Closing
Date:
14.1 Organization Good Standing and Qualification. Each of the Company and
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its subsidiaries is duly organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation or organization and has all
requisite corporate power and authority to carry on its business as now
conducted. Each of the Company and its subsidiaries is duly qualified to
transact business and is in good standing in each jurisdiction in which the
failure so to qualify would have a material adverse effect on the consolidated
business or financial condition of the Company and its subsidiaries taken as a
whole. The term "subsidiaries" shall mean entities in which the Company has an
equity interest of 50% or greater.
14.2 Authorization; Consents. The Company has the requisite corporate
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power and authority to enter into and perform its obligations under (i) this
Agreement, (ii) the Registration Rights Agreement and (iii) all other
agreements, documents, certificates or other instruments delivered by the
Company at the Closing (the instruments described in (i), (ii) and (iii) being
collectively referred to herein as the "Transaction Documents"), to execute and
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perform its obligations under Authorized Terms, to execute and perform its
obligations under the Warrants, to issue and sell the Preferred Shares and the
Warrants to such Purchaser in
accordance with the terms hereof, to issue the Conversion Shares upon conversion
of the Preferred Shares in accordance with the Authorized Terms, to issue the
Warrant Shares upon exercise of the Warrant and to issue the Dividend Payment
Shares in accordance with the Authorized Terms. All corporate action on the part
of the Company by its officers, directors and shareholders necessary for (A) the
authorization, execution and delivery of, and the performance by the Company of
its obligations under, the Transaction Documents, (B) the authorization,
execution and filing of, and the performance by the Company of its obligations
under the Authorized Terms, and (C) the authorization and execution, and the
performance by the Company of its obligations under, the Warrants have been
taken, and no further consent or authorization of the Company, its Board of
Directors, its shareholders, any governmental agency or organization, or any
other person or entity is required.
14.3 Enforcement. The Transaction Documents, the Authorized Terms and the
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Warrants constitute valid and legally binding obligations of the Company,
enforceable in accordance with their respective terms, except as such
enforcement may be limited by (i) applicable bankruptcy, insolvency,
reorganization or other laws of general application relating to or affecting the
enforcement of creditors' rights generally; (ii) general principles of equity;
and (iii) Federal or state securities laws as to rights to indemnity and
contribution under this Agreement or the Registration Rights Agreement.
14.4 Disclosure Documents; Material Agreements; Other Information. The
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Company has filed with the Commission: (i) the Company's Annual Report on Form
20-F for the year ended February 28, 1997, (ii) a Transition Report on Form 10-Q
for the four months ended June 30, 1997, (iii) a Quarterly Report on Form 10-Q
for the three months ended September 30, 1997, (iv) all Current Reports on Form
8-K required to be filed with the Commission since June 17, 1997 and (v) the
Company's definitive Proxy Statement for its 1997 Annual General Meeting of
Shareholders (the "Disclosure Documents"). The Company is not aware of any
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event occurring on or prior to the applicable Closing Date (other than the
transactions effected hereby, and the announced acquisition of Inflight
Interactive Limited or developments regarding Sky Games/TM/ software) that would
require the filing of, or with respect to which the Company intends to file, a
Form 8-K after the applicable Closing Date. Each Disclosure Document, as of the
date of the filing thereof with the Commission, conformed in all material
respects to the requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act "), and the rules and regulations thereunder and, as of the
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date of such filing, such Disclosure Document did not contain an untrue
statement of 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. Except as described
on Schedule 3.4 hereto, all material agreements required to be filed as exhibits
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to the Disclosure Documents have been filed as required; neither the Company nor
any of its subsidiaries is in breach of any agreement where such breach is
reasonably likely to have a material adverse effect on the consolidated business
or financial condition of the Company and its subsidiaries taken as a whole.
The information described in paragraph 2.4 above does not contain an untrue
statement of 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 and does not include
any material, non-public information. Except as set forth in the Disclosure
Documents or any schedule or exhibit attached hereto, the Company has no
liabilities, contingent or otherwise, other than liabilities incurred in the
ordinary course of business which, under generally accepted accounting
principles, are not required to be reflected in such financial statements and
which, individually or in the aggregate, are not material to the consolidated
business or financial condition of the Company and its subsidiaries taken as a
whole. As of their respective dates, the financial statements of the Company
included in the Disclosure Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the Commission with respect thereto. Such financial statements
have been
prepared in accordance with generally accepted accounting principles
consistently applied at the times and during the periods involved (except (i) as
may be otherwise indicated in such financial statements or the notes thereto, or
(ii) in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end adjustments
and final review by the Company's independent auditors); provided, however, that
the Company's Annual Report on Form 20-F for the year ended February 28, 1997,
is intended to be amended on or about December 31, 1997 by the filing of a Form
20-F/A to reflect a change in the reconciliation of Canadian GAAP to U.S. GAAP
relating to (i) the reclassification of the preference shares held by B/E
Aerospace, Inc. in the amount of $2.6 million as debt as of February 28, 1997,
and (ii) an incremental expense of $703,000 related to the issuance of options
to non-related parties; provided, further, that the Company's Transition Report
on Form 10-Q for the four months ended June 30, 1997 has been amended by the
filing of a Form 10-Q/A to reflect changes in the accounting treatment of
certain transactions reflected in the financial statements contained therein.
14.5 Capitalization. The capitalization of the Company as of the date
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hereof, including the authorized capital stock, the number of shares issued and
outstanding, the number of shares issuable and reserved for issuance pursuant to
the Company's stock option plans, the number of shares issuable and reserved for
issuance pursuant to securities (other than the Preferred Stock and the
Warrants) exercisable for, or convertible into or exchangeable for any shares of
Common Stock and the number of shares initially to be reserved for issuance upon
conversion of the Preferred Shares and exercise of the Warrants in full is set
forth on Schedule 3.5 hereto. All of such outstanding shares of capital stock
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have been, or upon issuance will be, validly issued, fully paid and non-
assessable. No shares of the capital stock of the Company are subject to
preemptive rights or any other similar rights of the shareholders of the Company
or any liens or encumbrances created by or through the Company, other than those
preemptive rights created in favor of Xxxxxx'x Interactive Investment Company
("HIIC") and its affiliates, pursuant to that certain Registration and
Preemptive Rights Agreement dated June 17, 1997, between the Company and HIIC
("Xxxxxx'x Preemptive Rights"), and subject to the provisions of the Company's
Bye-laws. Except as disclosed on Schedule 3.5., or as contemplated herein, as
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of the date of this Agreement and as of the applicable Closing Date, there are
no outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into or exercisable or exchangeable for, any shares of capital stock
of the Company or any of its subsidiaries, or arrangements by which the Company
or any of its subsidiaries is or may become bound to issue additional shares of
capital stock of the Company or any of its subsidiaries.
14.6 Valid Issuance.
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14.6.1 The Preferred Shares are duly authorized and, when issued,
sold and delivered in accordance with the terms hereof, (i) will be duly and
validly issued, fully paid and nonassessable, free and clear of any taxes,
liens, claims, preemptive or similar rights (except as set forth herein) or
encumbrances imposed by or through the Company, (ii) based in part upon the
representations of such Purchaser in this Agreement, will be issued, sold and
delivered in compliance with all applicable Federal and state securities laws,
and (iii) will be entitled to all of the rights, preferences and privileges set
forth in the Authorized Terms. The Conversion Shares are duly authorized and
reserved for issuance and, upon conversion of the Preferred Shares in accordance
with the terms of the Authorized Terms, will be duly and validly issued, fully
paid and nonassessable, free and clear of any taxes, liens, claims, preemptive
or similar rights or encumbrances imposed by or through the Company. The
Dividend Payment Shares are duly authorized and will be, upon
the issuance thereof, duly and validly issued, fully paid and nonassessable,
free and clear of any taxes, liens, claims, preemptive or similar rights or
encumbrances imposed by or through the Company, subject to the provisions of the
Company's Bye-laws.
14.6.2 The Warrants are duly authorized and, when issued, sold and
delivered in accordance with the terms hereof, (i) will be duly and validly
issued, fully paid and nonassessable, free and clear of any taxes, liens,
claims, preemptive or similar rights or encumbrances imposed by or through the
Company, and (ii) based in part upon the representations of such Purchaser in
this Agreement, will be issued, sold and delivered in compliance with all
applicable Federal and state securities laws. The Warrant Shares are duly
authorized and reserved for issuance and, upon exercise of the Warrants in
accordance with the terms thereof, will be duly and validly issued, fully paid
and nonassessable, free and clear of any taxes, liens, claims, preemptive or
similar rights or encumbrances imposed by or through the Company subject to the
provisions of the Company's Bye-laws.
14.7 No Conflict with Other Instruments. Neither the Company nor
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any of its subsidiaries is in violation of any provisions of its charter, bye-
laws or other organizational documents or any other governing document as
amended and in effect on and as of the date hereof or in default (and no event
has occurred which, with notice or lapse of time or both, would constitute a
default) under any provision of any instrument or contract to which it is a
party or by which it is bound which would reasonably be expected to have a
material adverse effect on the consolidated business or financial condition of
the Company and its subsidiaries taken as a whole, or of any provision of any
Federal or state judgment, writ, decree, order, statute, rule or governmental
regulation applicable to the Company, which would have a material adverse effect
on the consolidated business or financial condition of the Company and its
subsidiaries taken as a whole. The (i) execution, delivery and performance of
this Agreement, the Warrant and the other Transaction Documents, (ii) approval
of the Approved Terms by the Board of Directors and (iii) consummation of the
transactions contemplated hereby and thereby (including without limitation, the
issuance of the Preferred Shares and the issuance and reservation for issuance
of the Conversion Shares and the Dividend Payment Shares) will not result in any
such violation or be in conflict with or constitute, with or without the passage
of time and giving of notice, either a default under any such provision,
instrument or contract or an event which results in the creation of any lien,
charge or encumbrance upon any assets of the Company or of any of its
subsidiaries, or the triggering of any anti-dilution rights on the part of
holders of the Company's securities.
14.8 Financial Condition; Taxes; Litigation.
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14.8.1 The Company's financial condition is, in all material
respects, as described in the Disclosure Documents, except for changes in the
ordinary course of business and normal year-end adjustments that are not, in the
aggregate, materially adverse to the consolidated business or financial
condition of the Company and its subsidiaries taken as a whole. Except as
otherwise described in the Disclosure Documents, as of the date hereof and as of
the applicable Closing Date, there has been no material adverse change to the
Company's business, operations, properties, financial condition or results of
operations since the date of the Company's most recent audited financial
statements contained in the Disclosure Documents.
14.8.2 The Company has filed all tax returns required to be filed
by it and paid all taxes which are due, except for taxes which it reasonably
disputes or which could not reasonably be expected to have a material adverse
effect on the consolidated business or financial condition of the Company and
its subsidiaries taken as a whole.
14.8.3 Except as set forth in Schedule 3.8.3, each of the Company
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and its subsidiaries is not the subject of any pending or, to the Company's
knowledge, threatened inquiry, investigation or administrative or legal
proceeding by the Internal Revenue Service, the taxing authorities of any state
or local jurisdiction, the Commission or any state securities commission or
other governmental or regulatory entity which would reasonably be expected to
have a material adverse effect on the consolidated business or financial
condition of the Company and its subsidiaries taken as a whole.
14.8.4 Except as set forth in Schedule 3.8.4, there is no material
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claim, litigation or administrative proceeding pending, or, to the Company's
knowledge, threatened, against the Company or any of its subsidiaries, or
against any officer, director or employee of the Company or any such subsidiary
in connection with such person's employment therewith. Neither the Company nor
any of its subsidiaries is a party to or subject to the provisions of, any
order, writ, injunction, judgment or decree of any court or government agency or
instrumentality which would reasonably be expected to have a material adverse
effect on the consolidated business or financial condition of the Company and
its subsidiaries taken as a whole.
14.9 Reporting Company; Form S-3. The Company is subject to the
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reporting requirements of the Exchange Act, has a class of securities registered
under Section 12 of the Exchange Act, and has filed all reports required
thereby. The Company is eligible to register for resale shares of its Common
Stock on a registration statement on Form S-3 under the Securities Act.
14.10 Acknowledgment of Dilution. The Company acknowledges that
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the issuance of (i) the Conversion Shares upon conversion of the Preferred
Shares in accordance with the terms of the Authorized Terms, (ii) the Warrant
Shares upon exercise of the Warrants, and (iii) the Dividend Payment Shares in
accordance with the terms of the Authorized Terms may result in dilution of the
outstanding shares of Common Stock, which dilution may be substantial under
certain market conditions. The Company further acknowledges that its obligation
(x) to issue Conversion Shares upon conversion of the Preferred Shares in
accordance with the terms of the Authorized Terms, (y) to issue Warrant Shares
upon exercise of the Warrants and (z) to issue Dividend Payment Shares in
accordance with the terms of the Authorized Terms is unconditional and absolute
regardless of the effect of any such dilution.
14.11 Intellectual Property. The Company and its subsidiaries own,
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possess or can acquire on reasonable terms adequate trademarks, trade names and
other rights to inventions, know-how, patents, copyrights, confidential
information and other intellectual property rights necessary to conduct the
business now operated by them, or presently employed by them, and have not
received any notice of infringement of or conflict with asserted rights of
others with respect to any such rights that, if determined adversely to the
Company or any of its subsidiaries, would individually or in the aggregate have
a material adverse effect on the consolidated business or financial condition of
the Company and its subsidiaries taken as a whole.
14.12 Registration Rights; Rights of Participation. Except as
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described on Schedule 3.12 hereto, (A) the Company has not granted or agreed to
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grant to any person or entity any rights (including "piggy-back" registration
rights) to have any securities of the Company registered with the Commission or
any other governmental authority which has not been satisfied and (B) no person
or entity, including, but not limited to, current or former shareholders of the
Company, underwriters, brokers, agents or other third parties, has any right of
first refusal, preemptive right, right of participation, or any similar right to
participate in the transactions contemplated by this Agreement or any other
Transaction Document which has not been waived.
14.13 Trading on Nasdaq. The Common Stock is authorized for
-----------------
quotation on the Nasdaq SmallCap Market, and trading in the Common Stock on
Nasdaq is not suspended as of the date hereof. The Company is not in violation
of any designation criteria of the Nasdaq SmallCap Market, and does not
reasonably anticipate that the Common Stock will be delisted by the Nasdaq
SmallCap market for the foreseeable future.
14.14 Fees. Except as described on Schedule 3.14 hereto, the Company is
---- -------------
not obligated to pay any brokerage commissions, finder's fees or similar
payment, cost or related expenditure to any underwriter, broker, agent or
similar representative in connection with the transactions contemplated hereby.
14.15 Foreign Corrupt Practices. To the knowledge of the Company,
-------------------------
neither the Company, nor any of its subsidiaries nor any director, officer,
agent, employee or other person acting on behalf of the Company or any
subsidiary, has (i) used any corporate funds for any unlawful contribution,
gift, entertainment or other unlawful expenses relating to political activity,
(ii) made any direct or indirect unlawful payment to any foreign or domestic
government official or employee, or (iii) violated in a material aspect any
provision of the Foreign Corrupt Practices Act of 1977, as amended, or made any
unlawful bribe, rebate, payoff, influence payment, kickback or other payment to
any foreign or domestic government official or employee.
14.16 Other Issuances of Securities. Except as set forth on Schedule
----------------------------- --------
3.16 hereto, the Company has not issued (and will not issue) any shares of
----
Common Stock or shares of any series of preferred stock or other securities or
instruments convertible into, exchangeable for or otherwise entitling the holder
thereof to acquire shares of Common Stock which would be integrated with the
sale of the Preferred Shares to such Purchaser, or the issuance of the
Conversion Shares upon conversion thereof, for purposes of determining whether
shareholder approval is required under the designation criteria of the Nasdaq
SmallCap Market.
14.17 Regulatory Permits. The Company and its subsidiaries possess all
------------------
certificates, authorizations and permits issued by the appropriate Federal,
state or foreign regulatory authorities necessary to conduct their respective
businesses, and neither the Company nor any such subsidiary has received any
notice of proceedings relating to the revocation or modification of any such
certificate, authorization or permit.
15. COVENANTS OF THE COMPANY.
------------------------
15.1 Corporate Existence. The Company shall, so long as any Purchaser
-------------------
or any affiliate of such Purchaser beneficially owns any Securities (but in no
event shall such obligation continue for longer than three (3) years from the
Tranche A Closing Date or until Purchasers no longer own any Securities
purchased hereunder), maintain its corporate existence in good standing and
shall pay all taxes owed by it when due except for taxes which the Company
reasonably disputes or as to which the failure to pay could not reasonably be
expected to have a material adverse effect on the consolidated business or
financial condition of the Company.
15.2 Provision of Information. The Company shall upon written request
------------------------
provide each Purchaser with copies of its annual reports on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K and proxy statements and other
materials sent to shareholders, in each such case promptly after the filing
thereof with the Commission, until the conversion or redemption of all of the
Preferred Shares and exercise of all of the Warrants held by such Purchaser.
15.3 Reporting Status. As long as any Purchaser or any affiliate of
----------------
such Purchaser beneficially owns any Securities and until the date on which any
of the foregoing may be sold to the public pursuant to Rule 144(k) (or any
successor rule or regulation), (i) the Company shall file with the Commission
all reports required to be so filed pursuant to the Exchange Act and (ii) the
Company shall not terminate its status as an issuer required by the Exchange Act
to file reports thereunder even if the Exchange Act or the rules or regulations
thereunder would permit such termination (other than a termination resulting
from the sale, conveyance or disposition of all or substantially all of the
assets of the Company, the effectuation of a transaction or series of
transactions, in which more than 50% of the voting power of the Company is
disposed of, or the consolidation, merger or other business combination of the
Company with or into any other entity, immediately following which the prior
shareholders of the Company fail to own, directly or indirectly, at least fifty
percent (50%) of the surviving entity). The Company agrees to file with the
Commission a Form 8-K describing the terms of the transactions contemplated by
this Agreement and the other Transaction Documents, on or before the tenth
(10th) day following the applicable Closing Date in the form required by the
Exchange Act and attaching the Transaction Documents as exhibits.
15.4 Authorization of Common Stock. The Company shall at all times
-----------------------------
have authorized for issuance, free from any preemptive rights, solely for the
purpose of effecting conversions of the Preferred Shares hereunder and the
exercise of the Warrants, such number of its shares of Common Stock as shall
from time to time be sufficient to effect the conversion of all of the Preferred
Shares and the exercise of the Warrants in full (the "Reserved Amount"). As of
each Closing Date, the Reserved Amount shall be equal to no less than 200 % of
the number of shares of Common Stock issuable upon conversion of all of the
Preferred Shares to be issued at, or which are otherwise outstanding on, the
applicable Closing Date and exercise of the Warrants in full. If at any time the
Reserved Amount is less than 150% of the number of shares of Common Stock
issuable upon conversion of all of the Preferred Shares then outstanding and
exercise of the Warrants in full, the Company shall take action as soon as
practicable thereafter (including seeking shareholder authorization for
additional shares of Common Stock) to increase the Reserved Amount to no less
than 200% of the number of shares of Common Stock into which such outstanding
Preferred Shares are then convertible and such Warrants are exercisable. The
Company shall not reduce the number of shares reserved for issuance hereunder
without the written consent of the holders of two-thirds of the Preferred Shares
then outstanding.
15.5 Use of Proceeds. The Company shall use the proceeds from the sale
---------------
of the Preferred Shares and the Warrants for general corporate purposes and
shall not use such proceeds to make a loan to or an investment in any other
corporation, partnership or other entity, including a loan, other than in
connection with an employee benefit plan or a de minimus payroll advance, to any
employee, officer or director of the Company, and such proceeds shall not be
used by any such employee, officer or director for any purpose that is not
directly related to the business or operations of the Company.
15.6 Quotation on Nasdaq. The Company shall (i) promptly following the
-------------------
Tranche A Closing, secure the designation and quotation of the Conversion Shares
and the Warrant Shares on the Nasdaq SmallCap Market, (ii) prior to the issuance
thereof, secure the designation and quotation of the Dividend Payment Shares on
the Nasdaq SmallCap Market and (iii) use its reasonable best efforts to maintain
the designation and quotation, or listing, of the Common Stock on the Nasdaq
SmallCap Market, Nasdaq National Market, the New York Stock Exchange or the
American Stock Exchange; provided, however, that any failure to maintain such
designation, quotation or listing which is cured within five (5) business days
shall not be deemed a breach of this Agreement.
15.7 Use of Purchaser Name. The Company shall not use, directly or
---------------------
indirectly, any Purchaser's name in any advertisement, announcement, press
release or other similar communication unless it has received the prior consent
of such Purchaser for the specific use contemplated or as otherwise required by
applicable law or regulation.
15.8 Company's Instructions to Transfer Agent. On or prior to the Tranche
----------------------------------------
A Closing, the Company shall execute and deliver irrevocable instructions to its
transfer agent (the "Transfer Agent") (i) to issue certificates representing
--------------
Conversion Shares upon conversion of the Preferred Shares in accordance with the
terms of the Authorized Terms and receipt of a valid Conversion Notice (as
defined in the Authorized Terms) from a Purchaser, in the amount specified in
such Conversion Notice in the name of such Purchaser or its nominee, (ii) to
issue certificates representing Warrant Shares upon exercise of the Warrants in
accordance with its terms upon receipt of a valid Exercise Notice (as defined in
the Warrants) from a Purchaser, in the amount specified in such Exercise Notice
in the name of such Purchaser or its nominee, (iii) to issue certificates
representing the Dividend Payment Shares upon the issuance thereof in accordance
with the Authorized Terms and (iv) to deliver such certificates to such
Purchaser no later than the close of business on the later to occur of (A) the
third (3rd) business day following the related Conversion Date or the Dividend
Payment Date (each as defined in the Authorized Terms) or Exercise Date (as
defined in the Warrants), as the case may be and (B) in the case of conversion
of Preferred Shares or exercise of the Warrants, the first business day
following the date of delivery to the Company or the Transfer Agent of the
original certificates, duly endorsed, representing the shares of Preferred Stock
being converted or the Warrant being exercised, as the case may be. The Company
represents to and agrees with each Purchaser that it will not give any
instruction to the Transfer Agent that will conflict with the foregoing
instruction or otherwise restrict such Purchaser's right to convert the
Preferred Shares or exercise the Warrants or issuance of the Dividend Payment
Shares, and as long as the Transfer Agent is a participant in the Depository
Trust Company ("DTC") Fast Automated Securities Transfer program, and such
Purchaser has not informed the Company that it wishes to receive physical
certificates, the transfer agent may effect delivery of Conversion Shares,
Warrant Shares or Dividend Payment Shares, as the case may be, by crediting the
account of such Purchaser or its nominee at DTC for the number of shares for
which delivery is required hereunder within the time frame specified above for
delivery of certificates. The Company represents to and agrees with each
Purchaser that it will not give any instruction to the Transfer Agent that will
conflict with the foregoing instruction or otherwise restrict such Purchaser's
rights to convert the Preferred Shares or exercise the Warrants or to receive
Conversion Shares or Dividend Payment Shares in accordance with the terms of the
Authorized Terms or to receive Warrant Shares in accordance with the terms of
the Warrant. In the event that the Company's relationship with the Transfer
Agent should be terminated for any reason, the Transfer Agent shall continue
acting as transfer agent pursuant to the terms hereof until such time that a
successor transfer agent is appointed by the Company and agrees to be bound by
the terms hereof.
15.9 Capital Raising Limitations. The Company will not, during the six (6)
---------------------------
month period following the Tranche A Closing Date (the "Limitation Period"),
-----------------
offer for sale or sell (i) Common Stock (A) at an issuance price of greater than
a fifteen percent (15%) discount to the market price of the Common Stock at the
time of such issuance or with warrants exercisable for more than twenty percent
(20%) of the Common Stock purchased or (B) for an aggregate purchase price in
excess of five million dollars ($5,000,000) or (ii) any security convertible
into, or exercisable or exchangeable for, Common Stock (other than the sale of
Preferred Stock to a Purchaser hereunder for an aggregate purchase price of up
to two million dollars ($2,000,000)) (collectively, the "Capital Raising
---------------
Limitations"). The Capital Raising Limitations shall not apply to any
-----------
transaction involving issuances of securities as consideration in a merger,
consolidation, acquisition or sale of assets (in each case, the primary purpose
of which is not to raise equity capital) or
pursuant to a strategic partnership or joint venture which is formed for a bona
fide commercial purpose, or as consideration for the acquisition of a business,
product or license by the Company or in connection with the exercise of options
by employees, directors or consultants. The Capital Raising Limitations also
shall not apply to (i) the issuance of Common Stock in a transaction pursuant to
a public offering (other than an offering conducted pursuant to Rule 415 under
the Securities Act); (ii) issuances of securities to the Company's or its
affiliates' employees, directors or consultants (or pursuant to options or
rights granted to persons who were employees, directors or consultants of the
Company or its affiliates as of the date of the grant) pursuant to a stock
purchase or option plan adopted by the Company; (iii) issuances of securities in
connection with an acquisition by the Company or its affiliates of the assets or
capital stock of a third party; (iv) issuances of securities pursuant to a stock
split, dividend, etc.; (v) issuances of securities upon the conversion of any
preference shares into Common Stock; or (vi) issuances of securities to any
lender in connection with the extension, renewal, modification or renegotiation
of any credit or indebtedness to the Company or its affiliates.
15.10 Right of First Offer. Prior to any offer or sale by the Company
--------------------
of Common Stock (or any securities convertible into or exchangeable for Common
Stock) during the one hundred eighty (180) day period following the Limitation
Period, the Company must first deliver to each Purchaser written notice
describing the proposed issuance, including the terms and conditions thereof,
and provide such Purchaser with an option during the five (5) business day
period following delivery of such notice to each Purchaser to purchase up to its
proportionate share (based on the number of shares of Preferred Stock purchased
by such Purchaser hereunder relative to the number of shares of Preferred Stock
purchased by all the Purchasers hereunder) of the securities being offered on
the same terms as contemplated by such issuance. The foregoing right of first
offer shall not apply to (i) the issuance of Common Stock in a transaction
pursuant to a public offering (other than an offering conducted pursuant to Rule
415 under the Securities Act); (ii) issuances of securities to the Company's or
its affiliates' employees, directors or consultants (or pursuant to options or
rights granted to persons who were employees, directors or consultants of the
Company or its affiliates as of the date of the grant) pursuant to a stock
purchase or option plan adopted by the Company; (iii) issuances of securities in
connection with an acquisition by Company or its affiliates of the assets or
capital stock of a third party; (iv) issuances of securities pursuant to a stock
split, dividend, etc.; (v) issuances of securities upon the conversion of any
preference shares into Common Stock; or (vi) issuances of securities to any
lender in connection with the extension, renewal, modification or renegotiation
of any credit or indebtedness to the Company or its affiliates.
15.11 Debt Covenant. The Company shall refrain during the period ending
-------------
on the later of the six (6) month anniversary of the Tranche A Closing Date or
the forty-fifth (45th) day following the Effective Date (as such term is defined
in the Registration Rights Agreement), from incurring, assuming or guaranteeing
any indebtedness. Following such period and until the first (1st) anniversary
of the Tranche A Closing Date, in the event that the Company incurs, assumes or
guarantees any indebtedness in excess of one million five hundred thousand
dollars ($1,500,000), individually or in the aggregate, without the prior
written consent of the holders of two-thirds (2/3) of the Preferred Shares then
outstanding the Conversion Percentage (as defined in the Authorized Terms) of
the Preferred Shares shall be eighty-five percent (85%). In the event the
Company exceeds the foregoing limitations without the requisite approval, the
Company shall give each Purchaser written notice of such event within five (5)
business days of date the limitation was exceeded.
16. COVENANTS OF THE PURCHASER
--------------------------
Prohibition of Short Position. Each Purchaser acknowledges and agrees that
-----------------------------
it (i) will not make any short sales prior to the Effective Date ( as defined in
the Registration Rights Agreement) and (ii) does not intend to and that it shall
not, so long as such Purchaser or any affiliate of such Purchaser beneficially
owns any shares of the Preferred Stock, establish an aggregate short position
with respect to the Common Stock exceeding twenty percent (20%) of the number of
shares of Common Stock into which the shares of Preferred Stock then held by
such Purchaser are convertible at the Fixed Conversion Price (as defined in the
Authorized Terms); provided, however, that the foregoing shall not apply to the
extent that the average Closing Bid Price (as defined in the Authorized Terms)
in the immediately preceding five (5) Trading Days (as defined in the Authorized
Terms) exceeds the Fixed Conversion Price and provided further that
notwithstanding the foregoing, in no event shall a Purchaser be required to
close out or reduce any portion of a short position established in compliance
with the terms of this Section 5. For purposes of this Section 5, a short sale
shall not include any sale of Common Stock made within three (3) business days
prior to the delivery of a Conversion Notice (in the case of Preferred Shares)
or an Exercise Notice (in the case of a Warrant) to the Company in accordance
with the Authorized Terms.
17. CONDITIONS TO CLOSING.
---------------------
17.1 Conditions to Purchaser's Obligation at Closing. Each Purchaser's
-----------------------------------------------
obligation at each Closing, including without limitation its obligation to
purchase the Preferred Shares and the Warrant, are conditioned upon the
fulfillment of each of the following events:
17.1.1 the representations and warranties of the Company set forth
in this Agreement shall be true and correct in all material
respects as of the applicable Closing Date as if made on such
date;
17.1.2 the Company shall have complied with or performed all of the
agreements, obligations and conditions set forth in this
Agreement that are required to be complied with or performed
by the Company on or before such Closing;
17.1.3 the Company shall have delivered to such Purchaser a
certificate, signed by an officer of the Company, certifying
that the conditions specified in paragraphs 6.1.1 and 6.1.2
above have been fulfilled as of such Closing;
17.1.4 the directors of the Company shall have passed a resolution
designating the rights attaching to the Preferred Shares and
shall have furnished such Purchaser with a certified copy
thereof;
17.1.5 each of the executive officers of the Company who own shares
of Common Stock shall have executed and delivered the letter
agreement attached hereto as Exhibit 6.1.5 regarding such
-------------
person's agreement to refrain for one (1) year from the date
of this Agreement from selling more than fifteen percent
(15%) of such person's holdings of Common Stock until the
Registration Statement (as defined in the Registration Rights
Agreement) is declared effective; provided, however, that
Xxxxxxxx Xxxxxx may sell up to two hundred thousand (200,000)
shares of Common Stock within such one (1) year period;
17.1.6 the Company shall have delivered to such Purchaser an opinion
of counsel for the Company, dated as of the applicable
Closing Date, in form and substance reasonably acceptable to
such Purchaser;
17.1.7 the Company shall have executed and delivered the Registration
Rights Agreement;
17.1.8 the Common Stock shall on the applicable Closing Date be
designated for quotation and actively traded on the Nasdaq
SmallCap Market;
17.1.9 there shall have been no material adverse changes in the
Company's consolidated business or financial condition since
the date of the Company's most recent audited financial
statements contained in the Disclosure Documents;
17.1.10 the Company shall have authorized for issuance 200% of the
aggregate number of shares of Common Stock issuable upon (i)
conversion of all of the Preferred Shares to be issued at such
Closing, (ii) exercise of the Warrants in full, and (iii) the
conversion of such Preferred Shares and exercise of all of the
Warrants then outstanding, such number, in the case of a
conversion, to be determined using the Conversion Price in
effect on the applicable Closing Date; and
17.1.11 the Company shall have delivered to such Purchaser a copy of
HIIC's written waiver of Xxxxxx'x Preemptive Rights with
respect to the Securities; and
17.1.12 the Company shall have made available for inspection by such
Purchaser the certificates representing the Preferred Shares
and Warrants being purchased by such Purchaser hereunder.
17.2 Conditions to Company's Obligations at Closing. The Company's
----------------------------------------------
obligations at each Closing are conditioned upon the fulfillment of each of the
following events:
17.2.1 the representations and warranties of each Purchaser shall be
true and correct in all material respects as of the applicable
Closing Date as if made on such date;
17.2.2 each Purchaser shall have complied with and performed all of
the agreements, obligations and conditions set forth in this
Agreement that are required to be complied with or performed
by such Purchaser on or before such Closing;
17.2.3 Purchaser shall have executed the signature page to this
Agreement and the Registration Rights Agreement and delivered
the same to the Company;
17.2.4 Purchaser shall have wired to an escrow agent mutually agreed
upon by Purchaser and the Company the applicable Purchase
Price of the Preferred Stock and the Warrant; and
17.2.5 no statute, rule, regulation, executive order, decree, ruling
or injunction shall have been enacted, promulgated or endorsed
by any court or governmental authority of competent
jurisdiction or any self-regulatory organization having
authority over the
matters contemplated hereby which restricts or prohibits the
consummation of any of the transactions contemplated by this
Agreement.
18. INDEMNIFICATION.
---------------
The Company agrees to indemnify and hold harmless each Purchaser and its
officers, directors, employees and agents, and each person who controls such
Purchaser within the meaning of the Securities Act or the Exchange Act (each, a
"Purchaser Indemnified Party") against any losses, claims, damages, liabilities
---------------------------
or reasonable out-of-pocket expenses (including the reasonable fees and
disbursements of counsel) as incurred, joint or several, to which it, they or
any of them, may become subject and not otherwise reimbursed, arising out of
the breach by the Company of any of its representations, warranties or covenants
made herein.
Each Purchaser agrees, severally and not jointly, to indemnify and hold
harmless the Company and its officers, directors, employees and agents, and each
person who controls the Company within the meaning of the Securities Act or the
Exchange Act (each, a "Company Indemnified Party") (a Purchaser Indemnified
-------------------------
Party and a Company Indemnified Party are each hereinafter referred to as an
"Indemnified Party") against any losses, claims, damages, liabilities or
------------------
expenses (including the fees and disbursements of counsel) as incurred, joint or
several, to which it, they or any of them, may become subject and not otherwise
reimbursed, arising out of the breach by such Purchaser of any of its
representations, warranties or covenants made herein.
Promptly after receipt by an Indemnified Party of notice of the
commencement of any action by a third party pursuant to which indemnification
may be sought hereunder, such Indemnified Party will, if a claim in respect
thereof is to be made against the other party (the "Indemnifying Party"),
------------------
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 assume
the defense thereof with counsel reasonably selected by the Indemnifying Party;
provided, however, that an Indemnified Party shall have the right to retain its
own counsel, with the reasonably incurred fees and expenses of such counsel to
be paid by the Indemnifying Party, if representation of such Indemnified Party
by the counsel retained by the Indemnifying Party would be inappropriate due to
actual or potential conflicts of interest under applicable standards of
professional conduct between such Indemnified Party and any other party
represented by such counsel in such proceeding. The failure to deliver written
notice to the Indemnifying Party within a reasonable time of the commencement of
any such action will not relieve the Indemnifying Party of any of its
obligations hereunder with respect to such action except to the extent such
failure is prejudicial to the Indemnifying Party's ability to defend any such
action.
No Indemnifying Party shall, without the prior written consent of the
Indemnified Party, effect any settlement of pending or threatened action in
respect of which an Indemnified Party is or could have been a party and
indemnity could have been sought hereunder by such Indemnified Party unless such
settlement includes an unconditional release of such Indemnified Party from all
liability on any claims that are the subject matter of such action. An
Indemnifying Party will not be liable for any settlement of any action or claim
effected without its written consent.
Any implication herein to the contrary notwithstanding, (i) any Indemnified
Party shall not be entitled to recover under Section 7 hereof until the total
amount for which such Indemnified Party would recover under Section 7 hereof
exceeds $30,000, and then only for the excess over $30,000; and (ii) the
maximum aggregate amount that any Indemnified Party shall be entitled to recover
under Section 7 hereof shall not exceed $3,000,000.
19. MISCELLANEOUS.
-------------
19.1 Survival; Severability. The representations, warranties, covenants
----------------------
and indemnities made by the parties herein shall survive each Closing
notwithstanding any due diligence investigation made by or on behalf of the
party seeking to rely thereon. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in full force and
effect without said provision; provided that in such case the parties shall
negotiate in good faith to replace such provision with a new provision which is
not illegal, unenforceable or void, as long as such new provision does not
materially change the economic benefits of this Agreement to the parties.
19.2 Successors and Assigns. The terms and conditions of this Agreement
----------------------
shall inure to the benefit of and be binding upon the respective successors and
permitted assigns of the parties. Nothing in this Agreement, express or implied,
is intended to confer upon any party other than the parties hereto or their
respective successors and permitted assigns any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement. The Purchaser may assign its rights hereunder, in connection
with any private sale or transfer of the Preferred Shares or the Warrant in
accordance with the terms hereof, as long as, as a condition precedent to such
transfer, the transferee executes an acknowledgment agreeing to be bound by the
applicable provisions of this Agreement, in which case the term "Purchaser"
shall be deemed to refer to such transferee as though such transferee were an
original signatory hereto; provided that no such transfer or assignment shall
--------
relieve any Purchaser of its obligations hereunder.
19.3 Independent Nature of Purchasers' Obligations and Rights. The
--------------------------------------------------------
obligations of each Purchaser hereunder are several and not joint with the
obligations of the other Purchasers hereunder, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser hereunder. Nothing contained herein or in any other agreement or
document delivered at each Closing, and no action taken by any Purchaser
pursuant hereto or thereto, shall be deemed to constitute the Purchasers as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Purchasers are in any way acting in concert with
respect to such obligations or the transactions contemplated by this Agreement.
Each Purchaser shall be entitled to protect and enforce its rights, including
without limitation the rights arising out of this Agreement or out of the other
Transaction Documents, and it shall not be necessary for any other Purchaser to
be joined as an additional party in any proceeding for such purpose.
19.4 No Reliance; Representations by Purchasers. Each party acknowledges
------------------------------------------
that (i) it has such knowledge in business and financial matters as to be fully
capable of evaluating this Agreement, the other Transaction Documents and the
transactions contemplated hereby and thereby, (ii) it is not relying on any
advice or representation of the other party in connection with entering into
this Agreement, the other Transaction Documents or such transactions (other than
the representations made in this Agreement or the other Transaction Documents),
(iii) it has not received from such party any assurance or guarantee as to the
merits (whether legal, regulatory, tax, financial or otherwise) of entering into
this Agreement or the other Transaction Documents or the performance of its
obligations hereunder and thereunder, and (iv) it has consulted with its own
legal, regulatory, tax, business, investment, financial and accounting advisors
to the
extent that it has deemed necessary, and has entered into this Agreement and the
other Transaction Documents based on its own independent judgment and on the
advice of its advisors as it has deemed necessary, and not on any view (whether
written or oral) expressed by such party.
19.5 Injunctive Relief. The Company acknowledges that a breach by it of
-----------------
its obligations hereunder may cause irreparable harm to each Purchaser and that
the remedy or remedies at law for any such breach may be inadequate and agrees,
in the event of any such breach, in addition to all other available remedies, to
such Purchaser's ability to seek an injunction restraining any breach and
requiring immediate and specific performance of such obligations.
19.6 Governing Law; Jurisdiction. This Agreement shall be governed by and
---------------------------
construed under the laws of the State of New York without regard to the conflict
of laws provisions thereof. Each party hereby irrevocably submits to the non-
exclusive jurisdiction of the state and federal courts sitting in the City of
New York, borough of Manhattan, for the adjudication of any dispute hereunder or
in connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address in effect for notices to it
under this Agreement and agrees that such service shall constitute good and
sufficient service of process and notice thereof. Nothing contained herein
shall be deemed to limit in any way any right to serve process in any manner
permitted by law.
19.7 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
19.8 Headings. The headings used in this Agreement are used for
--------
convenience only and are not to be considered in construing or interpreting this
Agreement.
19.9 Notices. Any notice, demand or request required or permitted to be
-------
given by any party to any other party pursuant to the terms of this Agreement
shall be in writing and shall be deemed given (i) when delivered personally or
by verifiable facsimile transmission (with an original to follow) on or before
5:00 p.m., eastern time, on a business day or, if such day is not a business
day, on the next succeeding business day, (ii) on the next business day after
timely delivery to a nationally-recognized overnight courier and (iii) on the
third business day after deposit in the U.S. mail (certified or registered mail,
return receipt requested, postage prepaid), addressed to the parties as follows:
If to the Company:
Interactive Entertainment Limited
000 Xxxxxxxxx Xxxx
Xxxxx X-000
Xxxxxxx, Xxxxxxxxx 00000
Attn.: Xxxxx X. Xxxx
Fax: (000) 000-0000
With a copy to:
Altheimer & Xxxx
00 Xxxxx Xxxxxx Xxxxx
Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000
Attn: Xxxxxx X. XxXxxx
Fax: (000) 000-0000
and if to any Purchaser, to such address for such Purchaser as shall appear on
the signature page hereof executed by such Purchaser, or as shall be designated
by such Purchaser in writing to the Company.
19.10 Expenses. Except as otherwise specified herein, the Company and
--------
each Purchaser shall pay all costs and expenses that it incurs in connection
with the negotiation, execution, delivery and performance of this Agreement;
provided that the Company shall reimburse the Purchasers for their reasonable
out-of-pocket expenses, including legal expenses, not to exceed eight thousand
dollars ($8,000), in the aggregate, at Closing.
19.11 Entire Agreement; Amendments. This Agreement and the other
----------------------------
Transaction Documents constitute the entire agreement between the parties with
regard to the subject matter hereof and thereof, superseding all prior
agreements or understandings, whether written or oral, between or among the
parties. Except as expressly provided herein, neither this Agreement nor any
term hereof may be amended except pursuant to a written instrument executed by
the Company and the holders of at least two-thirds (2/3) of the Preferred Shares
then outstanding, and no provision hereof may be waived other than by a written
instrument signed by the party against whom enforcement of any such waiver is
sought.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first-above written.
INTERACTIVE ENTERTAINMENT LIMITED
By: /s/ Xxxxx X. Xxxx
---------------------------------
Name: Xxxxx X. Xxxx
Title: Chief Financial Officer and Treasurer
PURCHASER NAME:Convertible Proprietary Investment Group, Inc.
----------------------------------------------
By: /s/ Xxxxx Xxxxx
---------------------------------
Name: Xxxxx Xxxxx
Title: Vice President
ADDRESS:
c/o Credit Suisse First Boston
---------------------------------
00 Xxxxxxx Xxxxxx, 0xx Xxxxx, Xxx Xxxx, Xxx Xxxx, 00000
-------------------------------------------------------
Tel: 000-000-0000
----------------------------
Fax: 000-000-0000
----------------------------
Number of Shares of Series A Convertible Preferred Stock to be Purchased: 500
---
Number of Shares of Common Stock to be
Represented by the Warrant to be Purchased: 30,859
------
S1
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first-above written.
INTERACTIVE ENTERTAINMENT LIMITED
By: /s/ Xxxxx X. Xxxx
----------------------------------
Name: Xxxxx X. Xxxx
Title: Chief Financial Officer and Treasurer
PURCHASER NAME:CC Investments, LDC
------------------------
By: /s/ Xxxx Xxxxxxxxx
----------------------------------
Name: Xxxx Xxxxxxxxx
Title: Director
ADDRESS:
c/o Castle Creek Partners, LLC
----------------------------------
000 Xxxx Xxxxxx Xxxxx, Xxxxx 0000, Xxxxxxx, Xxxxxxxx, 00000
-----------------------------------------------------------
Tel: 000-000-0000
-----------------------------
Fax: 000-000-0000
-----------------------------
Number of Shares of Series A Convertible Preferred Stock to be Purchased: 500
---
Number of Shares of Common Stock to be
Represented by the Warrant to be Purchased: 30,859
------
S1
SCHEDULE 3.4
DISCLOSURE DOCUMENTS; MATERIAL AGREEMENTS; OTHER INFORMATION
None
S1
SCHEDULE 3.5
CAPITALIZATION
Common Stock, par value $.01,50,000,000 shares authorized
---------------------------------------------------------
Shares issued as of 12-10-97 22,842,598
Less: Performance Shares (3,525,000)
Shares Outstanding 19,317,598
Shares reserved under the 1996 Stock Plan 1,130,000 1
Shares reserved under the MIP 4,070,105 2
Shares reserved under the Directors' Option Plan 500,000 3
Shares reserved for outstanding warrants 180,000
Shares reserved for conversion of outstanding debentures 284,732
Shares reserved for private placement commitment 462,873
Shares reserved for warrants associated with private placement 197,493
Reserved for options contingent on financing 100,000
Shares reserved for conversion of Class A Preference Shares 1,078,621 4
Shares issuable upon closing of purchase of Inflight Interactive Ltd. 500,000
Shares contingently issuable upon signing IIL "Designated Airline" 250,000
----------
Total common shares issued and reserved for issuance 28,071,422
Class A Preference Shares, $.01 par value, 3,000 shares authorized
------------------------------------------------------------------
Shares outstanding as of December 10, 1997 2,737
Class B Preference Shares, $.01 par value, 5,000,000 shares authorized
----------------------------------------------------------------------
Shares outstanding as of December 10, 1997 0
Convertible Debentures
----------------------
Principal Initial 1 - All options are outstanding
Amount of Conversion Equivalent 2 - 2,537,950 options are outstanding
Debentures Price Shares 3 - 150,000 options are outstanding
---------- ----- ------
440,000 2.31600 189,983 4 - Shares are convertible at a 30% discount to market
300,000 3.16625 94,749
------- -------
740,000 284,732
Common Shares to be reserved for issuance upon conversion of Preferred Shares*
752,351
Common Shares to be reserved for issuance of warrants
*Assumes conversion at $3.9875
S1
SCHEDULE 3.8.3
None.
S1
SCHEDULE 3.8.4
None.
S1
SCHEDULE 3.12
REGISTRATION RIGHTS; RIGHTS OF PARTICIPATION
1. Xxxxxx'x Interactive Investment Company has two demand registration rights
with respect to 6,886,915 shares. Prior to June 30, 1998, no demand for
registration may be brought for more than 1,000,000 shares unless IEL
receives an opinion that the trading price of its Common Stock would not
fall by more than 25% for more than 15 consecutive trading days as a result
of such sale. Any offering must be underwritten by an underwriter chosen
by the Company. As long as HIIC owns at least 5% of the outstanding voting
shares, it also has customary piggy-back rights to include its shares in
registered offerings by the Company.
2. B/E Aerospace Inc. has registration rights with respect to Common Stock
issuable upon conversion of 2,737 Class A Preference Shares. Any such
offering must be for at least $2 million unless the shares proposed to be
sold constitute all such shares owned and the offering is expected to be at
least $1 million. The Company is also obligated to use its best efforts to
include Common Stock owned by BEA to be covered by any registration
statement filed by the Company.
3. Xxxxxxxxx International Investments Ltd. has been granted piggy-back
registration rights with respect to 925,747 shares of Common Stock and
185,150 shares of Common Stock issuable upon the exercise of warrants.
Registration rights apply only to a registration in conjunction with shares
issuable upon conversion of Class B, Series A Preference Shares.
4. Banque Xxxxxx X.X. has registration rights with respect to shares issuable
upon conversion of a $300,000 debenture due September 30, 1999. Shares are
registrable only if a change in regulations prevent the holder from being
able to sell securities under existing exemptions available under
Regulation S.
SCHEDULE 3.14
FEES
1. A fee of 8.0% of the purchase price is payable to European Venture Finance.
The Company is allowed to offset its direct costs associated with the
offering against this fee.
2. The Company has an understanding with a director of the Company to receive
options covering 100,000 shares of Common Stock upon consummation of the
contemplated financing.
SCHEDULE 3.16
OTHER ISSUANCES OF SECURITIES
The sale of the Preference Shares hereunder is part of a financing on behalf of
the Company of up to $8,000,000.
