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.
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.
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
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 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 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
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.
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.
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").
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
No. Business Days Compensation
For Each 500 Shares of
Series C Shares
Not Converted Timely or 500
Shares of
Common Stock Issuable In
Lieu of Cash
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 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;
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 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 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:
(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, 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:
