SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 22, 1997
SIMS Communications, Inc.
(Exact name of registrant as specified in its charter)
Delaware 0-25474 65-0-287558
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3333 S. Congress Avenue, Suite 401
Delray Beach, Florida 33445
(Address of principal executive offices)
(Zip Code)
(561) 265-3601
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Page 1 of __ Pages
Exhibit Index is on Page __
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Item 7. Financial Statements and Exhibits
(c) Exhibits:
Exhibit No.
4.1 Subscription Agreements
4.2 Convertible Notes
4.3 Escrow Agreements
Item 9. Sales of Equity Securities Pursuant to Regulation S.
On October 22, 1997 the Company sold $1,000,000 in convertible notes
to two foreign investment funds. The notes bear interest at 8% per year and
are due and payable on October 15, 1999. The Company received net proceeds of
approximately $9l0,000 from the sale of these notes after deduction for
offering expenses and transaction fees. At any time after December 3, l997
all or any part of the notes, plus accrued interest, are convertible into
shares of the Company's stock. The number of shares issuable upon the
conversion of the notes is to be determined by dividing the principal amount
of the note to be converted by an amount equal to 72% of the average closing
bid price of the Company's common stock on the five trading days preceeding
the conversion date. The sale of these securities was made in reliance upon
Regulation S of the Securities and Exchange Commission.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
DATE: November 4, 1997 SIMS COMMUNICATION
By /s/ Melvin Leiner
Melvin Leiner, President
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
SIMS COMMUNICATION
DATE OF REPORT: OCTOBER 22, 1997
EXHIBITS
SUBSCRIPTION AGREEMENT
THE SECURITIES, INCLUDING THE UNDERLYING SECURITIES, WHICH
ARE THE SUBJECT OF THIS SUBSCRIPTION AGREEMENT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1993, AS
AMENDED, (THE "ACT") OR UNDER THE LAWS OF ANY STATE OR
OTHER JURISDICTION. THEY MAY NOT BE OFFERED OR SOLD IN
THE UNITED STATES OR TO U.S. PERSONS (AS THAT TERM IS
DEFINED IN REGULATION S UNDER THE ACT), UNLESS THEY ARE
REGISTERED UNDER THE ACT AND UNDER THE LAWS OF THE STATES
WHERE EACH SALE IS MADE, OR AN EXEMPTION FROM SUCH
REGISTRATION REQUIREMENTS IS AVAILABLE IN THE OPINION OF
COUNSEL TO THE HOLDER THEREOF SATISFACTORY TO THE COMPANY
AND ITS COUNSEL.
BALMORE FUNDS S.A.
Francois Morax
P.O. Box 4603
Zurich, Switzerland 8022
Fax No.: 011-411-201-6262
You (the "Subscriber") hereby agree to purchase, and Sims
Communications, Inc., a Delaware corporation (the "Company") hereby agrees to
issue and to sell to the Subscriber, a convertible subordinated note of the
Company in the principal amount of $500,000.00 and in the form annexed as
Exhibit A (the "Note"), convertible in accordance with the terms thereof into
shares of the Company's common stock (the "Company Shares"). (The Company
Shares are sometimes referred to herein as the "Shares"). (The Note and the
Company Shares are collectively referred to herein as, the "Securities").
Upon acceptance of this Agreement by the Subscriber, the Company shall issue
and deliver to the Subscriber the Note against payment, by federal funds
(U.S.) Wire transfer of the principal amount of the Note.
The following terms and conditions shall apply to this
subscription
1. Subscriber's Representations and Warranties. The
Subscriber hereby represents and warrants to and agrees with the Company that:
(a) Information on Company. The Subscriber has been
furnished with and has read the Company's registration statement on Form SB-2
as filed with the U.S. Securities and Exchange Commission (the "Commission")
on July 23, 1997, and all of its Forms l0-KSB, l0-QSB and 8-K reports filed
subsequent thereto, (collectively, with exhibits thereto, hereinafter
referred to as the "Reports"). In addition, the Subscriber has received from
the Company such other information concerning its operations, financial
condition and other matters as the Subscriber has requested, and considered
all factors the Subscriber deems material in deciding on the advisability of
investing in the Securities (such information in writing is collectively, the
"Other Written Information").
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(b) Information on Subscriber. The Subscriber is an
"accredited investor", as such term is defined in Regulation D promulgated by
the Commission under the Act, is experienced in investments and business
matters, has made investments of a speculative nature and has purchased
securities of United States publicly-owned companies in the past and, with
its representatives, has such knowledge and experience in financial, tax and
other business matters as to enable the Subscriber to utilize the information
made available by the Company to evaluate the merits and risks of and to make
an informed investment decision with respect to the proposed purchase, which
represents a speculative investment. The Subscriber has the authority and is
duly and legally qualified to purchase and own the Securities.
(c) Site and Condition of Sale. The Subscriber is not a
U.S. Person (as that term is defined in Exhibit B attached hereto). At the
time of the buy order and execution of this Agreement by the Subscriber,
Subscriber was outside the U.S. The Subscriber acknowledges that neither the
Subscriber, its affiliates or persons acting on its behalf nor the Company
solicited this offer to purchase the Securities within the United States and
that the sale of the Note and Company Shares will not take place within the
United States (for this purpose, the "United States" means the Unites States
of America, its territories and possessions, and any state of the United
States and the District of Columbia). The Subscriber also acknowledges that
the Securities have not been registered under the laws of any other country
or jurisdiction and that the Company takes no responsibility for complying
with any such laws, the Subscriber agrees to comply with all applicable
securities laws in connection with any subsequent disposition of such
Securities.
(d) Investment Intent. The Subscriber is subscribing
for the Securities for its own account and benefit and not as a nominee or
for the account of any other person or entity or any U.S. Person. To the
best knowledge of the Subscriber, there are no distributors Participating in
this offering. The Subscriber has no present intention of selling or
distributing the Securities or any part thereof. The Subscriber has
sufficient financial resources to hold the Securities for an indefinite
period of time.
(e) No Market Manipulation; Short Sales. The Subscriber
has not taken, and will not take, directly or indirectly, any action
designed to, or that might reasonably be expected to, cause or result in a
manipulation of the price of the Company Shares, including making, or causing
to be made, any short sales of the Company's common stock during the
Restricted Period, as defined in Section 4 hereof, or thereafter more than
two (2) business days prior to a conversion.
(f) No Offer in United States. No offer to buy the
Securities was made to the Company by the Subscriber in the United States.
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(g) No Pre-Arranged Transaction. The transactions
contemplated by this Agreement:
(i) Have not been pre-arranged with a purchaser who
is in the United States or is a U.S. Person; and
(ii)are not part of a plan or scheme to evade the
registration provisions of the Act.
(h) No Directed Selling Efforts in Regard to this
Transaction. Neither the Subscriber, nor to the best knowledge of the
Subscriber, the Company nor any person acting for the Subscriber, the
Company or any distributor has conducted any "directed selling efforts" as
that term is defined in Regulation S. Such activity includes, without
limitation, but is not limited to the mailing of printed material to
investors residing in the United States, the holding of promotional seminars
in the United States, the placement of advertisements with radio or
television stations broadcasting in the United States or in publications with
a general circulation in the United States, which discuss the offering of
Securities.
(i) Correctness of Representations. The Subscriber
represents that the foregoing representations and warranties are true and
correct as of the date hereof and, unless the Subscriber otherwise notifies
the Company prior to the Closing Date, shall be true and correct as of the
Closing Date. The foregoing representations and warranties shall survive the
Closing Date.
2. Company Representations and Warranties. The Company
represents and warrants to and agrees with the Subscriber that:
(a) Due Incorporation. The Company and each of its
subsidiaries has been duly incorporated and is validly existing as a
corporation in good standing under the laws of Delaware.
(b) Outstanding Stock. All issued and outstanding
shares of capital stock of the Company and each of its subsidiaries has been
duly authorized and validly issued and are fully paid and non-assessable.
(c) Authority; Enforceability. This Agreement has been
duly authorized, executed and delivered by the Company and is a valid and
binding agreement enforceable in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors'
rights generally and to general principles of equity; and the Company has
full corporate power and authority necessary to enter into this Agreement and
to perform its obligations hereunder.
(d) Additional Issuances. There are no outstanding
agreements or preemptive or similar rights affecting the Company's common
stock and no outstanding rights, warrants or options to acquire, or
instruments convertible into or exchangeable for, or agreements or
understandings with respect to the sale or issuance of, any shares of common
stock or equity of the Company or other equity interest in any of the
subsidiaries of the Company, except as described in the Reports or Other
Written Information.
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(e) Consents. No consent, approval, authorization or
order of any court, governmental agency or body or arbitrator having
jurisdiction over the Company, or any of its affiliates is required for
execution of this Agreement, including, without limitation, issuance and sale
of the Note and the issuance of the Shares upon any conversion of the Note or
the performance of obligations hereunder.
(f) No Violation or Conflict. Assuming the
representations and warranties of the Subscriber in Paragraph 1 are true and
correct and the Subscriber complies with its obligations under this
Agreement, neither the sale of the Note nor any conversion of the Note, nor
the issuance of the Company Shares upon any conversion of the Note nor the
performance of its obligations under this Agreement by the Company will:
(i) violate, conflict with, result in a breach of,
or constitute a default (or an event which with the giving of notice of the
lapse of time or both would be reasonably likely to constitute a default)
under (A) the articles of incorporation, charter or bylaws of the Company, or
any of its affiliates, (B) any decree, judgment, order, law, treaty, rule,
regulation or determination applicable to the Company, or any of its
affiliates of any court, governmental agency or body, or arbitrator having
jurisdiction over the Company, or any of its affiliates or over the
properties or assets of the Company, or any of its affiliates, (C) the terms
of any bond, debenture, note or any other evidence of indebtedness, or any
agreement, stock option or other similar plan, indenture, lease, mortgage,
deed of trust or other instrument to which the Company, or any of its
affiliates is a party, by which the Company, or any of its affiliates is
bound, or to which any of the properties of the Company, or any of its
affiliates is subject, or (D) the terms of any "lock-up" or similar provision
of any underwriting or similar agreement to which the Company, or any of its
affiliates is a party; or
(ii)result in the creation or imposition of any
lien, charge or encumbrance upon the Securities or any of the assets of the
Company, or any of its affiliates.
(g) The Securities. The Securities upon issuance:
(i) are, or will be, free and clear of any security
interests, liens, claims or other encumbrances;
(ii)have been, or will be, duly and validly
authorized and on the date of issuance and on the date payment for the Note
is transmitted to the Company (hereinafter the "Closing Date") or the
Conversion Date as such term is defined in the Note (hereinafter the
"Conversion Date"), as the case may be, the Note and Shares issuable upon
conversion of the Note, will be duly and validly issued, fully paid and
nonassessable;
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(iii) will not have been issued or sold in
violation of any preemptive or other similar rights of the holders of any
securities of the Company;
(iv) will not subject the holders thereof to
personal liability by reason of being such holders; and
(v) the Company Shares, are quoted on, and to the
best knowledge of Company will be, at the completion of the Restricted
Period, eligible for trading on, the National Association of Securities
Dealers Automated Quotations Systems ("NASDAQ") SmallCap Market.
(h) Litigation. There is no pending or, to the best
knowledge of the Company, threatened action, suit, proceeding or
investigation before any court, governmental agency or body, or arbitrator
having jurisdiction over the Company, or any of its affiliates that would
materially affect the execution by the Company or the performance by the
Company of its obligations under this Agreement.
(i) No Directed Selling Efforts in Regard to this
Transaction. Neither the Company nor any distributor, if any, participating
in the offering of the Securities nor any person acting for the Company or
any such distributor has conducted any "directed selling efforts" as that
term is defined in Regulation S. Such activity includes, without limitation,
the mailing of printed material to investors residing in the United States,
the holding of promotional seminars in the United States, the placement of
advertisements with radio or television stations broadcasting in the United
States or in publications with a general circulation in the United States,
which discuss the offering of the Securities.
(j) No Market Manipulation. The Company has not taken,
and will not take, directly or indirectly, any action designed to, or that
might reasonably be expected to, cause or result in stabilization or
manipulation of the price of the common stock of the Company to facilitate
the sale or resale of the Company Shares or affect the price at which the
Company Shares are purchasable upon conversion of the Note.
(k) Reporting Company. The Company is a publicly held
company whose common stock is (and has been for the past 90 days) registered
pursuant to Section 12(g) of the Securities Exchange Act of 1934 (the "1934
Act") and is duly listed for trading on The NASDAQ SmallCap Market. Pursuant
to the provisions of the 1934 Act, the Company has filed all reports and
other materials required to be filed thereunder with the Securities and
Exchange Commission during the preceding twelve months.
(1) Information Concerning Company. The Reports and
Other Written Information contain all material information relating to the
Company and its operations and financial condition as of their respective
dates which information is required to be disclosed therein. Since the date
of the financial statements set forth in the Reports, there has been no
material adverse change in the Company's business, financial condition or
affairs not disclosed in the Reports. The Reports and Other Written
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Information do not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading.
(m) Offer to Buy. No offer to buy the Note was made to
the Company by any person in the United States.
(n) Pre-Arranged Transaction. The transactions
contemplated by this Agreement:
(i) have not been pre-arranged with a purchaser who
is in the United States or is a U.S. Person; and
(ii) are not part of a plan or scheme to evade the
registration provisions of the Act.
(o) Stop Transfer. The Company has not issued, and will
not issue any stop transfer order or other order impeding the sale and
delivery of the Securities, or any underlying shares except as may be
required by Regulation S, as same may be amended. No restrictive legend will
be imprinted on the Company Shares except as may be required by Regulation S,
as amended. Such legend will be a self-liquidating legend printed on a
separate sheet of paper and stapled to the Company Shares but not imprinted
directly on the share certificates. The Company's transfer agent will be
instructed by the Company to deem the legend removed from the Company Shares
on the 41st day after the Closing Date. The self-liquidating legend shall be
as follows:
"The Securities represented hereby have not been
registered under the United States Securities Act of
1933, as amended (the "Act"), and until December 2,
1997 (41 days from the issue date of the Convertible
Note, which such securities underlie) may not be
offered or sold in the United States (as defined in
Regulation S under the Act) or to, or for the
account or benefit of U.S. Persons (as defined in
Regulation S under the Act), and only then pursuant
to registration under the Act or an exemption from
the registration requirements of the Act and
applicable state securities laws."
(p) Use of Funds. The proceeds of this subscription
and an additional subscription accepted by the Company on or about the date
hereof in the aggregate principal amount of $1,000,000 will be employed by
the Company approximately as follows: calling card machine parts -$24,000;
Debitlink Terminals - $472,500; EBT Development -$25,000; Taxes -$100,000;
Payables -$137,000; Working Capital and Miscellaneous - $241,500.
(q) Correctness of Representations. The Company
represents that the foregoing representations and warranties are true and
correct as of the date hereof and, unless the Company otherwise notifies the
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Subscriber prior to the Closing Date, shall be true and correct as of the
Closing Date. The foregoing representations and warranties shall survive the
Closing Date.
3. Regulation S Offering. The sale of Securities hereby is
being made pursuant to Rule 903(c)(2) of Regulation S, and is intended to
comply with the provisions of Regulation S. The Securities have not been and
will not be registered under the Act or under the securities laws of any
state or jurisdiction of the United States ("State Laws"). On the Closing
Date, the Company will provide an opinion acceptable to Subscriber from the
Company's legal counsel opining on the availability of the Regulation S
exemption as it relates to the offer and issuance of the Note, and conversion
of the Note. A form of the legal opinion is annexed hereto as Exhibit C.
Upon conversion of the Note, the Company Shares will be freely transferable
on the books and records of the Company, except as may be required by
Regulation S as same may be amended.
4. Conversion of Note; Transfer of Securities. The Note will
not be converted by Subscriber until at least the 41st day from the date the
Subscriber purchases the Note. Neither the Note nor the Shares may be
transferred or resold to any U.S. Person until the 41st day from the date the
Subscriber purchases the Note (the "Restriction Period") and then only in
accordance with the Act and applicable State Laws in the opinion of counsel
of the holder thereof satisfactory to the Company and its counsel which will
not be unreasonably withheld. The Subscriber agrees that it is solely
responsible for compliance therewith with respect to any such transfer or
resale. On the Closing Date, the Company will provide the opinion of its
counsel described in Section 3 above, which opinion is acceptable to Company
and its counsel.
5. Reverse Split. The Company shall give the
Subscriber not less than twenty (20) days' prior written notice of any
proposed combination of shares or other reclassification or recapitalization
of the common stock resulting in a reduction of the number of Shares issuable
upon conversion of the Note, and the Subscriber shall have the right to
consult with the Company with respect to such proposed combination or
recapitalization.
6. Legal Fees. The Subscriber shall be responsible for its
own legal fees in connection with the review of this Subscription Agreement
and Exhibits.
7. Covenants of the Company. The Company covenants and agrees
with the Subscriber to:
(a) use its best efforts to continue to comply with all
applicable reporting requirements of the Exchange Act;
(b) refrain form engaging, and insure that none of its
affiliates will engage, in any Directed Selling Efforts, as defined in
Regulation S, with respect to the Securities;
(c) advise the Subscriber, promptly after it
receives notice of issuance by the Commission, any state securities
commission or any other regulatory authority of any stop order or of any
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order preventing or suspending the use of any offering of any securities of
the Company, or of the suspension of the qualification of the common stock
of the Company for offering or sale in any jurisdiction, or the initiation of
any proceeding for any such purpose.
8. Covenants of the Company and Subscriber Regarding
Indemnifications.
(i) The Company agrees to indemnify, hold
harmless, reimburse and defend Subscriber against any claim, costs, expense,
liability, obligation, loss or damage (including reasonable legal fees) of
any nature, incurred by or imposed upon Subscriber which results, arises out
of or is based upon (a) any misrepresentation by Company or breach of any
warranty by Company in this Agreement or in any Exhibits or Schedules
attached hereto, or Reports or other Written Information; or (b) any
breach or default in performance by Company of any covenant or undertaking to
be performed by Company hereunder.
(ii) Subscriber agrees to indemnify, hold harmless,
reimburse and defend the Company at all times against any claim, costs,
expense, liability, obligation, loss or damage (including reasonable legal
fees) of any nature, incurred by or imposed upon the Company which results,
arises out of or is based upon (a) any misrepresentation by Subscriber in
this Agreement or in any Exhibits or Schedules attached hereto; or (b) any
breach or default in performance by Subscriber of any covenant or undertaking
to be performed by Subscriber hereunder.
9. Escrow of Shares. In order to fulfill the Company's
obligation to deliver the Company Shares upon conversion of the Note, the
Company shall, deliver to Grushko & Mittman (the "Escrow Agent"), prior to
the Closing Date 1,150,000 shares of Common Stock of the Company (the
"Escrowed Shares") as described in Section 2(o) of this Subscription
Agreement to be held in escrow, While held in escrow, the Escrowed Shares and
any additional shares of Common Stock which may be later deliver by the
Company to be held in escrow as set forth below shall not be deemed
issued and outstanding for any purpose nor shall any holder of the Note have
any voting or dispositive rights thereto. The certificate representing the
Escrowed Shares shall not bear a restrictive legend or have a stop transfer
order placed against it on the books of the Company's transfer agent except
as may be required by Regulation S, as same may be amended. The terms and
conditions of escrow shall be set forth in an escrow agreement in the form
annexed as Exhibit D hereto (the "Escrow Agreement"). The Company shall
deliver to the Escrow Agent, from time to time, at the request of the
Subscriber within three (3) business days after notice to the Company of such
request, such additional Company Shares in the form described in Section 2(o)
of this Subscription Agreement, as would be necessary to allow conversion of
the entire principal and interest of the Note at the then applicable
Conversion Price, as defined in Section 2 of the Convertible Note, and
further subject to the terms of Section 2.1(b) of the Convertible Note.
10. Registration Rights: Procedure; Indemnification.
10.1. Registration Rights.
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(a) If available under the securities laws in effect on
the date of conversion, the shares of Common Stock issuable upon full or
partial conversion of the Note shall be issued pursuant to Regulation S of
the Act and shall be transferable and assignable pursuant to Regulation S.
Provided the shares issued upon the conversion of the Note so then qualify,
the Company acknowledges its obligation to issue the shares without any
restrictive or other legend. The Company acknowledges that it is the
Company's obligation to issue the Company Shares upon conversion of the Note,
without any restrictive legend, as freely transferable shares on the books
and records of the Company except as may be required by Regulation S, as same
may be amended. Notwithstanding the foregoing, if in the reasonable judgment
of the holder of the Note the Company Shares that may be acquired upon
conversion of the Note cannot upon issuance, be resold in the United States
without any holding period, restrictive legend or unless registered under the
Act:
(i) On one occasion, for a period commencing 41
days after the date hereof, but not later than two years from the date
hereof, the Company, upon a written request therefor from any record holder
or holders of more than 50% of the aggregate of the Company's shares issuable
or issued on the conversion of the Notes which are still held by the
Subscribers on the day the Shares are no longer transferable without any
restrictive legend (the common stock of the Company issued and issuable on
conversion of the Note being, the "Registrable Securities"), shall prepare
and file with the SEC a registration statement under the Act covering the
Registrable Securities which are the subject of such request. In addition,
upon the receipt of such request, the Company shall promptly give written
notice to all other record holders of the Registrable Securities that such
registration statement is to be filed and shall include in such registration
statement Registrable Securities for which it has received written requests
within 20 days after the Company gives such written notice. Such other
requesting record holders shall be deemed to have exercised their demand
registration right under this Section 10.1. As a condition precedent to the
inclusion of Registrable Securities, the holder thereof shall provide the
Company with such information as the Company reasonably requests and the
Holder shall enter into an appropriate underwriting agreement with the
underwriter(s), if any, of the Registrable Securities. The obligation of the
Company under this Section 10.1(a) (i) shall be limited to one registration
statement.
(ii) If the Company at any time proposes to register
any of its securities under the Act for sale to the public, whether for its
own account or for the account of other security holders or both, except with
respect to registration statements on Forms S-4, S-8 or another form not
available for registering the Registrable Securities that may be acquired
upon exercise of the Note for sale to the public, provided the Registrable
Securities are not otherwise registered for resale by the Subscriber pursuant
to an effective registration statement, each such time it will give at least
30 days' prior written notice to the record holder of the Registrable
Securities of its intention so to do. Upon the written request of the holder,
received by the Company within 30 days after the giving of any such notice by
the Company, to register any of the Registrable Securities, the Company will
cause such Registrable Securities as to which registration shall have been so
requested to be included in the securities to be covered by the registration
statement proposed to be filed by the Company, all to the extent required to
permit the sale or other disposition of the Registrable Securities so
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registered by the holder of such Registrable Securities (the "Seller"). In
the event that any registration pursuant to this Section 10.1 shall be, in
whole or in part, an underwritten public offering of common stock of the
Company, the number of shares of Registrable Securities to be included in
such an underwriting may be reduced by the managing underwriter if and to the
extent that the Company and the underwriter shall be of the opinion that such
inclusion would adversely affect the marketing of the securities to be sold
by the Company therein; provided, however, that the Company shall notify the
Seller in writing of any such reduction. Notwithstanding the forgoing
provisions, the Company may withdraw any registration statement referred to
in this Section 10.1 without thereby incurring any liability to the Seller.
(iii) If, at the time any written request for
registration is received by the Company pursuant to Section 10.l(a)(i), the
Company has determined to proceed with the actual preparation and filing of a
registration statement under the Act in connection with the proposed offer
and sale for cash of any of its securities for the Company's own account,
such written request shall be deemed to have been given pursuant to Section
10.1(a) (ii) rather than Section 10.1(a)(i), and the rights of the holders of
Registrable Securities covered by such written request shall be governed by
Section 10.l(a)(ii).
(iv) The Company will include for registration all
of the Registrable Securities in the Company's pending registration statement
filed with the Commission on Form SB-2. The Company will use its best efforts
to keep such registration statement current until the later of the
Convertible Note being fully paid or sale by the Subscriber of the
Registrable Securities without restriction on further resale.
10.2. Registration Procedures. If and whenever the Company is
required by the provisions hereof to effect the registration of any shares of
Registrable Securities under the Act, the Company will, as expeditiously as
possible:
(a) prepare and file with the Commission a
registration statement with respect to such securities and use its best
efforts to cause such registration statement to become and remain effective
for the period of the distribution contemplated thereby (determined as
hereinafter provided):
(b) prepare and file with the Commission such amendments
and supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective for the period specified in paragraph (a) above and comply with the
provisions of the Act with respect to the disposition of all of the
Registrable Securities covered by such registration statement in accordance
with the Seller's intended method of disposition set forth in such
registration statement for such period;
(c) furnish to the Seller, and to each underwriter if
any, such number of copies of the registration statement and the prospectus
included therein (including each preliminary prospectus) as such persons
reasonably may request in order to facilitate the public sale or their
disposition of the securities covered by such registration statement;
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(d) use its best efforts to register or qualify the
Seller's Registrable Securities covered by such registration statement under
the securities or "blue sky" laws of such jurisdictions as the Seller or, in
the case of an underwritten public offering, the managing underwriter shall
reasonably request, provided, however, that the Company shall not for any
such purpose be required to qualify generally to transact business as a
foreign corporation in any jurisdiction where it is not so qualified or to
consent to general service of process in any such jurisdiction;
(e) list the Registrable Securities covered by such
registration statement with any securities exchange on which the Registrable
Securities of the Company is then listed;
(f) immediately notify the Seller and each
underwriter under such registration statement, at any time when a prospectus
relating thereto is required to be delivered under the Act, of the happening
of any event of which the Company has knowledge as a result of which the
prospectus contained in such registration statement, as then in effect,
includes an 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 in light of the circumstances then existing;
(g) make available for inspection by the Seller, any
underwriter participating in any distribution pursuant to such registration
statement, and any attorney, accountant or other agent retained by the Seller
or underwriter, all financial and other records, pertinent corporate
documents and properties of the Company, and cause the Company's officers,
directors and employees to supply all information reasonably requested by the
seller, underwriter, attorney, accountant or agent in connection with such
registration statement.
(h) at the request of the Holder, provided a demand for
registration has been made pursuant to Section 10.1(a) (i) or a request for
registration has been made pursuant to Section 10.1(a) (ii), the shares
issuable upon the conversion of the unpaid note will be included in a
registration statement filed pursuant to this Section 10.
In the event of a firm commitment underwritten public offering in
which the Registrable Securities are so included, the Company will use its
best efforts to insure that any lockup, if any, requested by the managing
underwriter of such Registrable Securities, not exceed 120 days after the
effective date thereof.
In connection with each registration hereunder, the Seller will
furnish to the Company in writing such information with respect to itself and
the proposed distribution by it as reasonably shall be necessary in order to
assure compliance with federal and applicable state securities laws. In
connection with each registration pursuant to this Section 10 covering an
underwritten public offering, the Company and the Seller agree to enter into
a written agreement with the managing underwriter in such form and containing
such provisions as are customary in the securities business for such an
arrangement between such underwriter and companies of the Company's size and
investment stature.
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10.3. Expenses. All expense's incurred by the Company in
complying with Section 10, including, without limitation, all registration
and filing fees, printing expenses, fees and disbursements of counsel
and independent public accountants for the Company, fees and expenses
(including counsel fees) incurred in connection with complying with state
securities or "blue sky" laws, fees of the National Association of Securities
Dealers, Inc., transfer taxes, fees of transfer agents and registrars and
costs of insurance are called "Registration Expenses". All underwriting
discounts and selling commissions applicable to the sale of Registrable
Securities, including any fees and disbursements of any special counsel to
the Seller, are called "Selling Expenses". The Seller shall pay the fees of
its own counsel, if any.
The Company will pay all Registration Expenses in connection with
each registration statement under Section 10. All Selling Expenses in
connection with each registration statement under Section 10 shall be borne
by the Seller in proportion to the number of shares sold by the Seller
relative to the number of shares sold under such registration statement or as
all sellers thereunder may agree.
10.4. Indemnification and Contribution.
(a) In the event of a registration of any Registrable
Securities under the Act pursuant to Section 10, the Company will indemnify
and hold harmless the Seller, each officer of the Seller, each director of
the Seller, each underwriter of such Registrable Securities thereunder and
each other person, if any, who controls such Seller or underwriter within the
meaning of the Act, against any losses, claims, damages or liabilities, joint
or several, to which the Seller, or such underwriter or controlling person
may become subject under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of
or are based upon any untrue statement or alleged untrue statement of any
material fact contained in any registration statement under which such
Registrable Securities was registered under the Act pursuant to Section 10,
any preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereof, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
and will reimburse the Seller, each such underwriter and each such
controlling person for any legal or other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the Company will not be
liable in any such case if and to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission so made in
conformity with information furnished by any such Seller, the underwriter or
any such controlling person in writing specifically for use in such
registration statement or prospectus.
(b) In the event of a registration of any of the
Registrable Securities under the Act pursuant to Section 10, the Seller will
indemnify and hold harmless the Company, each person, if any, who controls
the Company within the meaning of the Act, each officer of the Company who
signs the registration statement, each director of the Company, each
underwriter and each person who controls any underwriter within the meaning
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<PAGE>
of the Act, against all losses, claims, damages or liabilities, joint or
several, to which the Company or such officer, director, underwriter or
controlling person may become subject under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement under
which such Registrable Securities were registered under the Act pursuant to
Section 10, any preliminary prospectus or final prospectus contained therein,
or any amendment or supplement thereof, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
and will reimburse the Company and each such officer, director, underwriter
and controlling person for any legal or other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim,
damage, liability or action, provided, however, that the Seller will be
liable hereunder in any such case if and only to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
reliance upon and in conformity with information pertaining to such Seller,
as such, furnished in writing to the Company by such Seller specifically for
use in such registration statement or prospectus, and provided, further,
however, that the liability of the Seller hereunder shall be limited to the
proportion of any such loss, claim, damage, liability or expense which is
equal to the proportion that the public offering price of the Registrable
Securities sold by the Seller under such registration statement bears to the
total public offering price of all securities sold thereunder, but not in any
event to exceed the gross proceeds received by the Seller from the sale of
Registrable Securities covered by such registration statement.
(c) Promptly after receipt by an indemnified party
hereunder of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the
indemnifying party hereunder, notify the indemnifying party in writing
thereof, but the omission so to notify the indemnifying party shall not
relieve it from any liability which it may have to such indemnified party
other than under this Section 10.4(c) and shall only relieve it from any
liability which it may have to such indemnified party under this Section
10.4(c) if and to the extent the indemnifying party is prejudiced by such
omission. In case any such action shall be brought against any indemnified
party and it shall notify the indemnifying party of the commencement thereof,
the indemnifying party shall be entitled to participate in and, to the extent
it shall wish, to assume and undertake the defense thereof with counsel
satisfactory to such indemnified party, and, after notice from the
indemnifying party to such indemnified party of its election so to assume and
undertake the defense thereof, the indemnifying party shall not be liable to
such indemnified party under this Section 10.4(c) for any legal expenses
subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation and of liaison
with counsel so selected, provided, however, that, if the defendants
in any such action include both the indemnified party and the indemnifying
party and the indemnified party shall have reasonably concluded that there
may be reasonable defenses available to it which are different from or
additional to those available to the indemnifying party or if the interests
of the indemnified party reasonably may be deemed to conflict with the
interests of the indemnifying party, the indemnified parties shall have the
right to select one separate counsel and to assume such legal defenses and
13
<PAGE>
otherwise to participate in the defense of such action, with the reasonable
expenses and fees of such separate counsel and other expenses related to such
participation to be reimbursed by the indemnifying party as incurred.
(d) In order to provide for just and equitable
contribution in the event of joint liability under the Act in any case in
which either (i) the Seller, or any controlling person of the Seller, makes a
claim for indemnification pursuant to this Section 10.4 but it is judicially
determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial of
the last right of appeal) that such indemnification may not be enforced in
such case notwithstanding the fact that this Section 10.4 provides for
indemnification in such case, or (ii) contribution under the Act may be
required on the part of the Seller or controlling person of the Seller in
circumstances for which indemnification is provided under this Section 10.4;
then, and in each such case, the Company and the Seller will contribute to
the aggregate losses, claims, damages or liabilities to which they may be
subject (after contribution from others) in such proportion so that the
Seller is responsible only for the portion represented by the percentage that
the public offering price of its securities offered by the registration
statement bears to the public offering price of all securities offered by
such registration statement, provided, however, that, in any such case, (A)
the Seller will not be required to contribute any amount in excess of the
public offering price of all such securities offered by it pursuant to such
registration statement; and (B) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 10(f) of the Act) will be
entitled to contribution from any person or entity who was not guilty of such
fraudulent misrepresentation.
11. (a) For a period of 120 days from the Closing Date, the
Company will not issue any equity, or convertible debt or other securities or
conduct any public or private offering (other than to proceed with the
current Form SB-2 registration statement) without the consent of the
Subscriber, which shall not be unreasonably withheld.
(b) Right of First Refusal. Subject to the provisions
of Section 11(a) hereof, and in any event, until six months from the Closing
Date and for so long as any principal or interest of the Note are
outstanding, the Subscriber shall be given not less than ten (10) business
days prior written notice of any proposed sale by the Company of its common
stock or other securities in offerings made pursuant to the provisions of
Regulation D or Regulation S under the Act, or any other exemption from
registration, whether state or federal. The Subscriber shall have the right
during the ten (10) business days following the notice to purchase an amount
of securities in the same proportion as being purchased in the aggregate
offering to which this Subscription Agreement relates, of those securities
proposed to be issued and sold, in accordance with the terms and conditions
set forth in the notice of sale, provided that, in the case of securities
offered pursuant to Regulation D, the Subscriber may purchase such securities
pursuant to Regulation S if it is then not a U.S. Person, and such regulation
is then available to the Company. In the event such terms and conditions
are modified during the notice period, the Subscriber shall be given prompt
notice of such modification and shall have the right during the original
notice period or for a period of ten (10) business days following the notice
of modification, whichever is longer, to exercise such right.
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<PAGE>
(c) Right of Participation. The Subscriber shall be
given not less than thirty (30) days' prior written notice of any proposed
public offering by the Company of its common stock. The Subscriber shall have
the right during such thirty (30) day period to irrevocably subscribe for up
to that percentage of the total number of Shares being offered by the Company
in such public offering as equals the percentage obtained by dividing by the
number of the Company Shares owned by the Subscriber immediately prior to
such public offering together with such Common Shares issuable upon
conversion of the Note, by the number of shares of the Company's outstanding
common stock immediately prior to such public offering. This right of
participation shall expire six months from the Closing Date, with respect to
any public offering by the Company that has not commenced prior to such date.
12. Miscellaneous.
(a) Notices. All notices or other communications given
or made hereunder shall be in writing and shall be personally delivered or
deemed delivered the day telecopied (with copy mailed by regular, certified
or registered mail, or overnight courier) to the party to receive the same at
its address set forth below or to such other address as either party shall
hereafter give to the other by notice duly made under this Section: (i) if
to the Company, to Sims Communications, Inc., 3333 South Congress Avenue,
Suite 401, Delray Beach, Florida 33445, Attn: Melvin Leiner, President,
telecopier number (561) 265-3601; and (ii) if to the Subscriber, to the name,
address and telecopy number set forth on the first page hereof.
(b) Entire Agreement; Assignment. This Agreement
represents the entire agreement between the parties hereto with respect to
the subject matter hereof and may be amended only by a writing executed by
both parties. No right or obligation of either party shall be assigned by
that party without prior notice to and the written consent of the other party.
(c) Execution. This Agreement may be executed by
facsimile transmission, followed by delivery of an executed original copy.
(d) Law Governing this Agreement. This Agreement shall
be governed by and construed in accordance with the laws of the United States
of America and the State of Delaware. Any action brought by either party
against the other concerning the transactions contemplated by this
Agreement shall be brought only in the state courts of Delaware or in the
federal courts located in the state of Delaware. Both parties agree to
submit to the jurisdiction of such courts. The prevailing party shall be
entitled to recover from the other party its reasonable attorney's fees and
costs.
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<PAGE>
Please acknowledge your acceptance of the foregoing Subscription
Agreement by signing and returning a copy to the undersigned whereupon it
shall become a binding agreement between us.
Very truly yours,
SIMS COMMUNICATIONS, INC.
By: /s/ Melvin Leiner, President & CEO
Dated: October 22, 1997
Accepted:
BALMORE FUNDS S.A.
By: /s/ .
Dated as of October 22, 1997
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EXHIBIT B
U.S. PERSON
1. "U.S. Person" means:
(i) Any natural person resident in the United States;
(ii) Any partnership or corporation organized or incorporated
under the laws of the United States;
(iii) Any estate of which any executor or administrator is a U.S.
person;
(iv) Any trust of which any trustee is a U.S. person;
(v) Any agency or branch of a foreign entity located in the United
States;
(vi) Any non-discretionary account or similar account (other than an
estate or trust) held by a dealer or other fiduciary for the benefit or
account of a U.S. person;
(vii) Any discretionary account or similar account (other than an
estate or trust) held by a dealer or other fiduciary organized, incorporated,
or (if an individual) resident in the United States; and
(viii) Any partnership or corporation if: (A) organized or
incorporated under the laws of any foreign jurisdiction; and (B) formed by a
U.S. person principally for the purpose of investing in securities not
registered under the Act, unless it is organized or incorporated, and owned,
by accredited investors (as defined in Rule 501(a)) who are not natural
persons, estates or trusts.
2. Notwithstanding paragraph 1 of this rule, any discretionary account or
similar account (other than an estate or trust) held for the benefit or
account of a non-U.S. person by a dealer or other professional fiduciary
organized, incorporated, or (if an individual) resident in the United
States shall not be deemed a "U.S. person."
3. Notwithstanding paragraph 1, any estate of which any
professional fiduciary acting as executor or administrator is a U.S. person
shall not be deemed a U.S. person if:
(i) An executor or administrator of the estate who is not a U.S.
person has sole or shared investment discretion with respect to the assets of
the estate; and
(ii) The estate is governed by a foreign law.
4. Notwithstanding paragraph 1, any trust of which any professional
fiduciary acting as trustee is a U.S. person shall not be deemed a U.S.
17
<PAGE>
person if a trustee who is not a U.S. person has sole or shared investment
discretion with respect to the trust assets, and no beneficiary of the trust
(and no settlor if the trust is revocable) is a U.S. person.
5. Notwithstanding paragraph 1, an employee benefit plan established
and administered in accordance with the law of a country other than the
United States and customary practices and documentation of such country shall
not be deemed a U.S. person.
6. Notwithstanding paragraph 1, any agency or branch of a U.S. person
located outside the United States shall not be deemed a "U.S. person" if:
(i) The agency or branch operates for valid business reasons; and
(ii) The agency or branch is engaged in the business of insurance or
banking and is subject to substantive insurance or banking regulation,
respectively, in the jurisdiction where located.
7. The International Monetary Fund, the International Bank for
Reconstruction and Development, the Inter-American Development Bank, the
Asian Development Bank, the African Development Bank, the United Nations, and
their agencies, affiliates and pension plans, and any other similar
international organizations, their agencies, affiliates and pension plans
shall not be deemed "U.S. persons."
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<PAGE>
SUBSCRIPTION AGREEMENT
THE SECURITIES, INCLUDING THE UNDERLYING SECURITIES, WHICH
ARE THE SUBJECT OF THIS SUBSCRIPTION AGREEMENT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1993, AS
AMENDED, (THE "ACT") OR UNDER THE LAWS OF ANY STATE OR
OTHER JURISDICTION. THEY MAY NOT BE OFFERED OR SOLD IN THE
UNITED STATES OR TO U.S. PERSONS (AS THAT TERM IS DEFINED
IN REGULATION S UNDER THE ACT), UNLESS THEY ARE REGISTERED
UNDER THE ACT AND UNDER THE LAWS OF THE STATES WHERE EACH
SALE IS MADE, OR AN EXEMPTION FROM SUCH REGISTRATION
REQUIREMENTS IS AVAILABLE IN THE OPINION OF COUNSEL TO THE
HOLDER THEREOF SATISFACTORY TO THE COMPANY AND ITS COUNSEL.
AUSTOST ANSTALT SCHAAN
7440 Fuerstentum
Lichenstein Landstrasse 163
Fax No.: 011-431-534532895
You (the "Subscriber") hereby agree to purchase, and Sims
Communications, Inc., a Delaware corporation (the "Company") hereby agrees to
issue and to sell to the Subscriber, a convertible subordinated note of the
Company in the principal amount of $500,000.00 and in the form annexed as
Exhibit A (the "Note"), convertible in accordance with the terms thereof into
shares of the Company's common stock (the "Company Shares"). (The Company
Shares are sometimes referred to herein as the "Shares"). (The Note and the
Company Shares are collectively referred to herein as, the "Securities").
Upon acceptance of this Agreement by the Subscriber, the Company shall issue
and deliver to the Subscriber the Note against payment, by federal funds
(U.S.) wire transfer of the principal amount of the Note.
The following terms and conditions shall apply to this
subscription.
1. Subscriber's Representations and Warranties. The
Subscriber hereby represents and warrants to and agrees with the Company that:
(a) Information on Company. The Subscriber has been
furnished with and has read the Company's registration statement on Form SB-2
as filed with the U.S. Securities and Exchange Commission (the "Commission")
on July 23, 1997, and all of its Forms l0-KSB, 10-QSB and 8-K reports filed
subsequent thereto, (collectively, with exhibits thereto, hereinafter
referred to as the "Reports"). In addition, the Subscriber has received from
the Company such other information concerning its operations, financial
<PAGE>
condition and other matters as the Subscriber has requested, and considered
all factors the Subscriber deems material in deciding on the advisability of
investing in the Securities (such information in writing is collectively, the
"Other Written Information").
(b) Information on Subscriber. The Subscriber is an
"accredited investor", as such term is defined in Regulation D promulgated by
the Commission under the Act, is experienced in investments and business
matters, has made investments of a speculative nature and has purchased
securities of United States publicly-owned companies in the past and, with
its representatives, has such knowledge and experience in financial, tax and
other business matters as to enable the Subscriber to utilize the information
made available by the Company to evaluate the merits and risks of and to make
an informed investment decision with respect to the proposed purchase, which
represents a speculative investment. The Subscriber has the authority and
is duly and legally qualified to purchase and own the Securities.
(c) Site and Condition of Sale. The Subscriber is not a
U.S. Person (as that term is defined in Exhibit B attached hereto). At the
time of the buy order and execution of this Agreement by the Subscriber,
Subscriber was outside the U.S. The Subscriber acknowledges that neither the
Subscriber, its affiliates or persons acting on its behalf nor the Company
solicited this offer to purchase the Securities within the United States and
that the sale of the Note and Company Shares will not take place within the
United States (for this purpose, the "United States" means the Unites States
of America, its territories and possessions, and any state of the United
States and the District of Columbia). The Subscriber also acknowledges that
the Securities have not been registered under the laws of any other country
or jurisdiction and that the Company takes no responsibility for complying
with any such laws, the Subscriber agrees to comply with all applicable
securities laws in connection with any subsequent disposition of such
Securities.
(d) Investment Intent. The Subscriber is subscribing
for the Securities for its own account and benefit and not as a nominee or
for the account of any other person or entity or any U.S. Person. To the
best knowledge of the Subscriber, there are no distributors participating in
this offering. The Subscriber has no present intention of selling or
distributing the Securities or any part thereof. The Subscriber has
sufficient financial resources to hold the Securities for an indefinite
period of time.
(e) No Market Manipulation; Short Sales. The Subscriber
has not taken, and will not take, directly or indirectly, any action designed
to, or that might reasonably be expected to, cause or result in a
manipulation of the price of the Company Shares, including making, or causing
to be made, any short sales of the Company's common stock during the
Restricted Period, as defined in Section 4 hereof, or thereafter more than
two (2) business days prior to a conversion.
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(f) No Offer in United States. No offer to buy the
Securities was made to the Company by the Subscriber in the United States.
(g) No Pre-Arranged Transaction. The transactions
contemplated by this Agreement:
(i) Have not been pre-arranged with a purchaser
who is in the United States or is a U.S. Person; and
(ii) are not part of a plan or scheme to evade the
registration provisions of the Act.
(h) No Directed Selling Efforts in Regard to this
Transaction. Neither the Subscriber, nor to the best knowledge of the
Subscriber, the Company nor any person acting for the Subscriber, the
Company or any distributor has conducted any "directed selling efforts" as
that term is defined in Regulation S. Such activity includes, without
limitation, but is not limited to the mailing of printed material to
investors residing in the United States, the holding of promotional seminars
in the United States, the placement of advertisements with radio or
television stations broadcasting in the United States or in publications with
a general circulation in the United States, which discuss the offering of
Securities.
(i) Correctness of Representations. The Subscriber
represents that the foregoing representations and warranties are true and
correct as of the date hereof and, unless the Subscriber otherwise notifies
the Company prior to the Closing Date, shall be true and correct as of the
Closing Date. The foregoing representations and warranties shall survive the
Closing Date.
2. Company Representations and Warranties. The Company
represents and warrants to and agrees with the Subscriber that:
(a) Due Incorporation. The Company and each of its
subsidiaries has been duly incorporated and is validly existing as a
corporation in good standing under the laws of Delaware.
(b) Outstanding Stock. All issued and outstanding shares
of capital stock of the Company and each of its subsidiaries has been duly
authorized and validly issued and are fully paid and non-assessable.
(c) Authority; Enforceability. This Agreement has been
duly authorized, executed and delivered by the Company and is a valid and
binding agreement enforceable in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors'
rights generally and to general principles of equity; and the Company has
full corporate
3
<PAGE>
power and authority necessary to enter into this Agreement and to perform its
obligations hereunder.
(d) Additional Issuances. There are no outstanding
agreements or preemptive or similar rights affecting the Company's common
stock and no outstanding rights, warrants or options to acquire, or
instruments convertible into or exchangeable for, or agreements or
understandings with respect to the sale or issuance of, any shares of common
stock or equity of the Company or other equity interest in any of the
subsidiaries of the Company, except as described in the Reports or Other
Written Information.
(e) Consents. No consent, approval, authorization or
order of any court, governmental agency or body or arbitrator having
jurisdiction over the Company, or any of its affiliates is required for
execution of this Agreement, including, without limitation, issuance and
sale of the Note and the issuance of the Shares upon any conversion of the
Note or the performance of obligations hereunder.
(f) No Violation or Conflict. Assuming the
representations and warranties of the Subscriber in Paragraph 1 are true and
correct and the Subscriber complies with its obligations under this
Agreement, neither the sale of the Note nor any conversion of the Note, nor
the issuance of the Company Shares upon any conversion of the Note nor the
performance of its obligations under this Agreement by the Company will:
(i) violate, conflict with, result in a breach of,
or constitute a default (or an event which with the giving of notice of the
lapse of time or both would be reasonably likely to constitute a default)
under (A) the articles of incorporation, charter or bylaws of the Company, or
any of its affiliates, (B) any decree, judgment, order, law, treaty,
rule, regulation or determination applicable to the Company, or any of its
affiliates of any court, governmental agency or body, or arbitrator having
jurisdiction over the Company, or any of its affiliates or over the
properties or assets of the Company, or any of its affiliates, (C) the terms
of any bond, debenture, note or any other evidence of indebtedness, or any
agreement, stock option or other similar plan, indenture, lease, mortgage,
deed of trust or other instrument to which the Company, or any of its
affiliates is a party, by which the Company, or any of its affiliates is
bound, or to which any of the properties of the Company, or any of its
affiliates is subject, or (D) the terms of any "lock-up" or similar provision
of any underwriting or similar agreement to which the Company, or any of its
affiliates is a party; or
(ii) result in the creation or imposition of any
lien, charge or encumbrance upon the Securities or any of the assets of the
Company, or any of its affiliates.
(g) The Securities. The Securities upon issuance:
4
<PAGE>
(i) are, or will be, free and clear of any
security interests, liens, claims or other encumbrances;
(ii) have been, or will be, duly and validly
authorized and on the date of issuance and on the date payment for the Note
is transmitted to the Company (hereinafter the "Closing Date") or the
Conversion Date as such term is defined in the Note (hereinafter the
"Conversion Date"), as the case may be, the Note and Shares issuable upon
conversion of the Note, will be duly and validly issued, fully paid and
nonassessable;
(iii) will not have been issued or sold in
violation of any preemptive or other similar rights of the holders of any
securities of the Company;
(iv) will not subject the holders thereof to
personal liability by reason of being such holders; and
(v) the Company Shares, are quoted on, and to the
best knowledge of Company will be, at the completion of the Restricted
Period, eligible for trading on, the National Association of Securities
Dealers Automated Quotations Systems ("NASDAQ") SmallCap Market.
(h) Litigation. There is no pending or, to the best
knowledge of the Company, threatened action, suit, proceeding or
investigation before any court, governmental agency or body, or arbitrator
having jurisdiction over the Company, or any of its affiliates that would
materially affect the execution by the Company or the performance by the
Company of its obligations under this Agreement.
(i) No Directed Selling Efforts in Regard to this
Transaction. Neither the Company nor any distributor, if any, participating
in the offering of the Securities nor any person acting for the Company or
any such distributor has conducted any "directed selling efforts" as that
term is defined in Regulation S. Such activity includes, without limitation,
the mailing of printed material to investors residing in the United States,
the holding of promotional seminars in the United States, the placement of
advertisements with radio or television stations broadcasting in the United
States or in publications with a general circulation in the United States,
which discuss the offering of the Securities.
(j) No Market Manipulation. The Company has not taken,
and will not take, directly or indirectly, any action designed to, or that
might reasonably be expected to, cause or result in stabilization or
manipulation of the price of the common stock of the Company to facilitate
the sale or resale of the Company Shares or affect the price at which the
Company Shares are purchasable upon conversion of the Note.
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<PAGE>
(k) Reporting Company. The Company is a publicly-held
company whose common stock is (and has been for the past 90 days) registered
pursuant to Section 12(g) of the Securities Exchange Act of 1934 (the "1934
Act") and is duly listed for trading on The NASDAQ SmallCap Market. Pursuant
to the provisions of the 1934 Act, the Company has filed all reports and
other materials required to be filed thereunder with the Securities and
Exchange Commission during the preceding twelve months.
(1) Information Concerning Company. The Reports and
Other Written Information contain all material information relating to the
Company and its operations and financial condition as of their respective
dates which information is required to be disclosed therein. Since the date
of the financial statements set forth in the Reports, there has been no
material adverse change in the Company's business, financial condition or
affairs not disclosed in the Reports. The Reports and Other Written
Information do not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading.
(m) Offer to Buy. No offer to buy the Note was made to
the Company by any person in the United States.
(n) Pre-Arranged Transaction. The transactions
contemplated by this Agreement:
(i) have not been pre-arranged with a purchaser who
is in the United States or is a U.S. Person; and
(ii)are not part of a plan or scheme to evade the
registration provisions of the Act.
(o) Stop Transfer. The Company has not issued, and will
not issue any stop transfer order or other order impeding the sale and
delivery of the Securities, or any underlying shares except as may be
required by Regulation S, as same may be amended. No restrictive legend will
be imprinted on the Company Shares except as may be required by Regulation S,
as amended. Such legend will be a self-liquidating legend printed on a
separate sheet of paper and stapled to the Company Shares but not imprinted
directly on the share certificates. The Company's transfer agent will be
instructed by the Company to deem the legend removed from the Company Shares
on the 41st day after the Closing Date. The self-liquidating legend shall be
as follows:
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"The Securities represented hereby have not been registered
under the United States Securities Act of 1933, as
amended (the "Act"), and until December 2, 1997 (41 days from
the issue date of the Convertible Note, which such securities
underlie) may not be offered or sold in the United States (as
defined in Regulation S under the Act) or to, or for the account
or benefit of U.S. Persons (as defined in Regulation S under the
Act), and only then pursuant to registration under the Act or an
exemption from the registration requirements of the Act and
applicable state securities laws."
(p) Use of Funds. The proceeds of this subscription and
an additional subscription accepted by the Company on or about the date
hereof in the aggregate principal amount of $1,000,000 will be employed by
the Company approximately as follows: calling card machine parts - $24,000;
Debitlink Terminals - $472,500; EBT Development - $25,000; Taxes - $100,000;
Payables -$137,000; Working Capital and Miscellaneous - $241,500.
(q) Correctness of Representations. The Company
represents that the foregoing representations and warranties are true and
correct as of the date hereof and, unless the Company otherwise notifies the
Subscriber prior to the Closing Date, shall be true and correct as of the
Closing Date. The foregoing representations and warranties shall survive
the Closing Date.
3. Regulation S Offering. The sale of Securities hereby is
being made pursuant to Rule 903(c)(2) of Regulation S, and is intended to
comply with the provisions of Regulation S. The Securities have not been and
will not be registered under the Act or under the securities laws of any
state or jurisdiction of the United States ("State Laws"). On the Closing
Date, the Company will provide an opinion acceptable to Subscriber from the
Company's legal counsel opining on the availability of the Regulation S
exemption as it relates to the offer and issuance of the Note, and conversion
of the Note. A form of the legal opinion is annexed hereto as Exhibit C.
Upon conversion of the Note, the Company Shares will be freely transferable
on the books and records of the Company, except as may be required by
Regulation S as same may be amended.
4. Conversion of Note; Transfer of Securities. The Note will
not be converted by Subscriber until at least the 41st day from the date the
Subscriber purchases the Note. Neither the Note nor the Shares may be
transferred or resold to any U.S. Person until the 41st day from the date the
Subscriber purchases the Note (the "Restriction Period") and then only in
accordance with the Act and applicable State Laws in the opinion of counsel
of the holder thereof satisfactory to the Company and its counsel which will
not be unreasonably withheld. The Subscriber agrees that it is solely
responsible for compliance therewith with respect to any such transfer or
resale. On the Closing Date, the Company will provide the opinion of its
counsel described in Section 3 above, which opinion is acceptable to Company
and its counsel.
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5. Reverse Split. The Company shall give the Subscriber not
less than twenty (20) days' prior written notice of any proposed combination
of shares or other reclassification or recapitalization of the common stock
resulting in a reduction of the number of Shares issuable upon conversion of
the Note, and the Subscriber shall have the right to consult with the Company
with respect to such proposed combination or recapitalization.
6. Legal Fees. The Subscriber shall be responsible for its
own legal fees in connection with the review of this Subscription
Agreement and Exhibits.
7. Covenants of the Company. The Company covenants and agrees
with the Subscriber to:
(a) use its best efforts to continue to comply with all
applicable reporting requirements of the Exchange Act;
(b) refrain form engaging, and insure that none of its
affiliates will engage, in any Directed Selling Efforts, as defined in
Regulation S, with respect to the Securities;
(c) advise the Subscriber, promptly after it receives
notice of issuance by the Commission, any state securities commission or any
other regulatory authority of any stop order or of any order preventing or
suspending the use of any offering of any securities of the Company, or of
the suspension of the qualification of the common stock of the Company for
offering or sale in any jurisdiction, or the initiation of any proceeding for
any such purpose.
8. Covenants of the Company and Subscriber Regarding
Indemnifications.
(i) The Company agrees to indemnify, hold harmless,
reimburse and defend Subscriber against any claim, costs, expense, liability,
obligation, loss or damage (including reasonable legal fees) of any nature,
incurred by or imposed upon Subscriber which results, arises out of or is
based upon (a) any misrepresentation by Company or breach of any warranty by
Company in this Agreement or in any Exhibits or Schedules attached hereto, or
Reports or other Written Information; or (b) any breach or default in
performance by Company of any covenant or undertaking to be performed by
Company hereunder.
(ii) Subscriber agrees to indemnify, hold harmless,
reimburse and defend the Company at all times against any claim, costs,
expense, liability, obligation, loss or damage (including reasonable legal
fees) of any nature, incurred by or imposed upon the Company which results,
arises out of or is based upon (a) any misrepresentation by Subscriber in
this Agreement or in any Exhibits or Schedules attached hereto; or (b) any
breach or default in performance by Subscriber of any covenant or undertaking
to be performed by Subscriber hereunder.
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9. Escrow of Shares. In order to fulfill the Company's
obligation to deliver the Company Shares upon conversion of the Note, the
Company shall, deliver to Grushko & Mittman (the "Escrow Agent"), prior to
the Closing Date 1,150,000 shares of Common Stock of the Company (the
"Escrowed Shares") as described in Section 2(0) of this Subscription
Agreement to be held in escrow. While held in escrow, the Escrowed Shares and
any additional shares of Common Stock which may be later deliver by the
Company to be held in escrow as set forth below shall not be deemed issued
and outstanding for any purpose nor shall any holder of the Note have any
voting or dispositive rights thereto. The certificate representing the
Escrowed Shares shall not bear a restrictive legend or have a stop transfer
order placed against it on the books of the Company's transfer agent except
as may be required by Regulation S, as same may be amended. The terms and
conditions of escrow shall be set forth in an escrow agreement in the form
annexed as Exhibit D hereto (the "Escrow Agreement"). The Company shall
deliver to the Escrow Agent, from time to time, at the request of the
Subscriber within three (3) business days after notice to the Company of such
request, such additional Company Shares in the form described in Section 2(0)
of this Subscription Agreement, as would be necessary to allow conversion of
the entire principal and interest of the Note at the then applicable
Conversion Price, as defined in Section 2 of the Convertible Note, and
further subject to the terms of Section 2.1(b) of the Convertible Note.
10. Registration Rights; Procedure; Indemnification.
10.1. Registration Rights.
(a) If available under the securities laws in effect on
the date of conversion, the shares of Common Stock issuable upon full or
partial conversion of the Note shall be issued pursuant to Regulation S of
the Act and shall be transferable and assignable pursuant to Regulation S.
Provided the shares issued upon the conversion of the Note so then qualify,
the Company acknowledges its obligation to issue the shares without any
restrictive or other legend. The Company acknowledges that it is the
Company's obligation to issue the Company Shares upon conversion of the Note,
without any restrictive legend, as freely transferable shares on the books
and records of the Company except as may be required by Regulation S, as same
may be amended, Notwithstanding the foregoing, if in the reasonable judgment
of the holder of the Note the Company Shares that may be acquired upon
conversion of the Note cannot upon issuance, be resold in the United States
without any holding period, restrictive legend or unless registered under the
Act:
(i) On one occasion, for a period commencing 41
days after the date hereof, but not later than two years from the date
hereof, the Company, upon a written request therefor from any record holder
or holders of more than 50% of the aggregate of the Company's shares issuable
or issued on the conversion of the Notes which are still held by the
Subscribers on the day the Shares are no longer transferable without any
restrictive legend (the common stock of the Company issued and issuable on
conversion of the Note being, the "Registrable Securities"), shall prepare
and file with the SEC a registration statement under the
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ct covering the Registrable Securities which are the subject of such
request. In addition, upon the receipt of such request, the Company shall
promptly give written notice to all other record holders of the Registrable
Securities that such registration statement is to be filed and shall include
in such registration statement Registrable Securities for which it has
received written requests within 20 days after the Company gives such written
notice. Such other requesting record holders shall be deemed to have
exercised their demand registration right under this Section 10.1. As a
condition precedent to the inclusion of Registrable Securities, the holder
thereof shall provide the Company with such information as the Company
reasonably requests and the Holder shall enter into an appropriate
underwriting agreement with the underwriter(s), if any, of the Registrable
Securities. The obligation of the Company under this Section 10.1(a)(i) shall
be limited to one registration statement.
(ii)If the Company at any time proposes to register
any of its securities under the Act for sale to the public, whether for its
own account or for the account of other security holders or both, except with
respect to registration statements on Forms S-4, S-8 or another form not
available for registering the Registrable Securities that may be acquired
upon exercise of the Note for sale to the public, provided the Registrable
Securities are not otherwise registered for resale by the Subscriber pursuant
to an effective registration statement, each such time it will give at least
30 days' prior written notice to the record holder of the Registrable
Securities of its intention so to do. Upon the written request of the holder,
received by the Company within 30 days after the giving of any such notice by
the Company, to register any of the Registrable Securities, the Company will
cause such Registrable Securities as to which registration shall have been so
requested to be included in the securities to be covered by the registration
statement proposed to be filed by the Company, all to the extent required to
permit the sale or other disposition of the Registrable Securities so
registered by the holder of such Registrable Securities (the "Seller"). In
the event that any registration pursuant to this Section 10.1 shall be, in
whole or in part, an underwritten public offering of common stock of the
Company, the number of shares of Registrable Securities to be included in
such an underwriting may be reduced by the managing underwriter if and to the
extent that the Company and the underwriter shall be of the opinion that such
inclusion would adversely affect the marketing of the securities to be sold
by the Company therein; provided, however, that the Company shall notify the
Seller in writing of any such reduction. Notwithstanding the forgoing
provisions, the Company may withdraw any registration statement referred to
in this Section 10.1 without thereby incurring any liability to the Seller.
(iii) If, at the time any written request for
registration is received by the Company pursuant to Section 10.1(a)(i), the
Company has determined to proceed with the actual preparation and filing of a
registration statement under the Act in connection with the proposed offer
and sale for cash of any of its securities for the Company's own account,
such written request shall be deemed to have been given pursuant to Section
10.1(a) (ii) rather than Section 10.1(a)(i), and the rights of the holders of
Registrable Securities covered by such written request shall be governed by
Section 10.1(a)(ii).
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(iv) The Company will include for registration all
of the Registrable Securities in the Company's pending registration statement
filed with the Commission on Form SB-2. The Company will use its best efforts
to keep such registration statement current until the later of the
Convertible Note being fully paid or sale by the Subscriber of the
Registrable Securities without restriction on further resale.
10.2. Registration Procedures. If and whenever the Company is
required by the provisions hereof to effect the registration of any shares of
Registrable Securities under the Act, the Company will, as expeditiously as
possible:
(a) prepare and file with the Commission a registration
statement with respect to such securities and use its best efforts to cause
such registration statement to become and remain effective for the period of
the distribution contemplated thereby (determined as hereinafter provided):
(b) prepare and file with the Commission such amendments
and supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective for the period specified in paragraph (a) above and comply with the
provisions of the Act with respect to the disposition of all of the
Registrable Securities covered by such registration statement in accordance
with the Seller's intended method of disposition set forth in such
registration statement for such period;
(c) furnish to the Seller, and to each underwriter if
any, such number of copies of the registration statement and the prospectus
included therein (including each preliminary prospectus) as such persons
reasonably may request in order to facilitate the public sale or their
disposition of the securities covered by such registration statement;
(d) use its best efforts to register or qualify the
Seller's Registrable Securities covered by such registration statement under
the securities or "blue sky" laws of such jurisdictions as the Seller or, in
the case of an underwritten public offering, the managing underwriter shall
reasonably request, provided, however, that the Company shall not for any
such purpose be required to qualify generally to transact business as a
foreign corporation in any jurisdiction where it is not so qualified or to
consent to general service of process in any such jurisdiction;
(e) list the Registrable Securities covered by such
registration statement with any securities exchange on which the Registrable
Securities of the Company is then listed;
(f) immediately notify the Seller and each underwriter
under such registration statement, at any time when a prospectus relating
thereto is required to be delivered under the Act, of the happening of any
event of which the Company has knowledge as a result of which the prospectus
contained in such registration statement, as then in effect, includes an
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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 in light of the circumstances then existing;
(g) make available for inspection by the Seller, any
underwriter participating in any distribution pursuant to such registration
statement, and any attorney, accountant or other agent retained by the Seller
or underwriter, all financial and other records, pertinent corporate
documents and properties of the Company, and cause the Company's officers,
directors and employees to supply all information reasonably requested by the
seller, underwriter, attorney, accountant or agent in connection with such
registration statement.
(h) at the request of the Holder, provided a demand for
registration has been made pursuant to Section 10.1(a) (i) or a request for
registration has been made pursuant to Section 10.1(a) (ii), the shares
issuable upon the conversion of the unpaid note will be included in a
registration statement filed pursuant to this Section 10.
In the event of a firm commitment underwritten public
offering in which the Registrable Securities are so included, the Company
will use its best efforts to insure that any lockup, if any, requested by the
managing underwriter of such Registrable Securities, not exceed 120 days
after the effective date thereof.
In connection with each registration hereunder, the
Seller will furnish to the Company in writing such information with respect
to itself and the proposed distribution by it as reasonably shall be
necessary in order to assure compliance with federal and applicable state
securities laws. In connection with each registration pursuant to this
Section 10 covering an underwritten public offering, the Company and the
Seller agree to enter into a written agreement with the managing underwriter
in such form and containing such provisions as are customary in the
securities business for such an arrangement between such underwriter and
companies of the Company's size and investment stature.
10.3. Expenses. All expense's incurred by the Company in
complying with Section 10, including, without limitation, all registration
and filing fees, printing expenses, fees and disbursements of counsel and
independent public accountants for the Company, fees and expenses (including
counsel fees) incurred in connection with complying with state securities or
"blue sky" laws, fees of the National Association of Securities Dealers,
Inc., transfer taxes, fees of transfer agents and registrars and costs of
insurance are called "Registration Expenses". All underwriting discounts and
selling commissions applicable to the sale of Registrable Securities,
including any fees and disbursements of any special counsel to the Seller,
are called "Selling Expenses". The Seller shall pay the fees of its own
counsel, if any.
The Company will pay all Registration Expenses in connection with
each registration statement under Section 10. All Selling Expenses in
connection with each registration statement under Section 10 shall be borne
by the Seller in proportion to the number
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of shares sold by the Seller relative to the number of shares sold under such
registration statement or as all sellers thereunder may agree.
10.4. Indemnification and Contribution.
(a) In the event of a registration of any Registrable
Securities under the Act pursuant to Section 10, the Company will indemnify
and hold harmless the Seller, each officer of the Seller, each director of
the Seller, each underwriter of such Registrable Securities thereunder and
each other person, if any, who controls such Seller or underwriter within the
meaning of the Act, against any losses, claims, damages or liabilities, joint
or several, to which the Seller, or such underwriter or controlling person
may become subject under the Act or otherwise, insofar as such losses claims,
damages or liabilities (or actions in respect thereof arise out of or are
based upon any untrue statement or alleged untrue statement of any material
fact contained in any registration statement under which such Registrable
Securities was registered under the Act pursuant to Section 10, any
preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereof, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
and will reimburse the Seller, each such underwriter and each such
controlling person for any legal or other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the Company will not be
liable in any such case if and to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission so made in
conformity with information furnished by any such Seller, the underwriter or
any such controlling person in writing specifically for use in such
registration statement or prospectus.
(b) In the event of a registration of any of the
Registrable Securities under the Act pursuant to Section 10, the Seller will
indemnify and hold harmless the Company, each person, if any, who controls
the Company within the meaning of the Act, each officer of the Company who
signs the registration statement, each director of the Company, each
underwriter and each person who controls any underwriter within the meaning
of the Act, against all losses, claims, damages or liabilities, joint or
several, to which the Company or such officer, director, underwriter or
controlling person may become subject under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement under
which such Registrable Securities were registered under the Act pursuant to
Section 10, any preliminary prospectus or final prospectus contained therein,
or any amendment or supplement thereof, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
and will reimburse the Company and each such officer, director, underwriter
and controlling person for any legal or other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim,
damage, liability or action, provided, however, that the Seller will be
liable hereunder in any such case if and only to the extent that
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any such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in reliance upon and in conformity with information pertaining to such
Seller, as such, furnished in writing to the Company by such Seller
specifically for use in such registration statement or prospectus, and
provided, further, however, that the liability of the Seller hereunder shall
be limited to the proportion of any such loss, claim, damage, liability or
expense which is equal to the proportion that the public offering price of
the Registrable Securities sold by the Seller under such registration
statement bears to the total public offering price of all securities sold
thereunder, but not in any event to exceed the gross proceeds received by the
Seller from the sale of Registrable Securities covered by such registration
statement.
(c) Promptly after receipt by an indemnified party
hereunder of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party hereunder, notify the indemnifying party in writing
thereof, but the omission so to notify the indemnifying party shall not
relieve it from any liability which it may have to such indemnified party
other than under this Section 10.4(c) and shall only relieve it from any
liability which it may have to such indemnified party under this Section
10.4(c) if and to the extent the indemnifying party is prejudiced by such
omission. In case any such action shall be brought against any indemnified
party and it shall notify the indemnifying party of the commencement thereof,
the indemnifying party shall be entitled to participate in and, to the extent
it shall wish, to assume and undertake the defense thereof with counsel
satisfactory to such indemnified party, and, after notice from the
indemnifying party to such indemnified party of its election so to assume and
undertake the defense thereof, the indemnifying party shall not be liable to
such indemnified party under this Section 10.4(c) for any legal expenses
subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation and of liaison
with counsel so selected, provided, however, that, if the defendants in
any such action include both the indemnified party and the indemnifying party
and the indemnified party shall have reasonably concluded that there may be
reasonable defenses available to it which are different from or additional to
those available to the indemnifying party or if the interests of the
indemnified party reasonably may be deemed to conflict with the interests of
the indemnifying party, the indemnified parties shall have the right to
select one separate counsel and to assume such legal defenses and otherwise
to participate in the defense of such action, with the reasonable expenses
and fees of such separate counsel and other expenses related to such
participation to be reimbursed by the indemnifying party as incurred.
(d) In order to provide for just and equitable
contribution in the event of joint liability under the Act in any case in
which either (i) the Seller, or any controlling person of the Seller, makes a
claim for indemnification pursuant to this Section 10.4 but it is judicially
determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial of
the last right of appeal) that such indemnification may not be enforced in
such case notwithstanding the fact that this Section 10.4 provides for
indemnification in such case, or (ii) contribution under the Act may be
required on the part of the
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Seller or controlling person of the Seller in circumstances for which
indemnification is provided under this Section 10.4; then, and in each such
case, the Company and the Seller will contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (after
contribution from others) in such proportion so that the Seller is
responsible only for the portion represented by the percentage that the
public offering price of its securities offered by the registration statement
bears to the public offering price of all securities offered by such
registration statement, provided, however, that, in any such case, (A) the
Seller will not be required to contribute any amount in excess of the public
offering price of all such securities offered by it pursuant to such
registration statement; and (B) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 10(f) of the Act) will be
entitled to contribution from any person or entity who was not guilty of such
fraudulent misrepresentation.
11. (a) For a period of 120 days from the Closing Date, the
Company will not issue any equity, or convertible debt or other securities or
conduct any public or private offering (other than to proceed with the
current Form SB-2 registration statement) without the consent of the
Subscriber, which shall not be unreasonably withheld.
(b) Right of First Refusal. Subject to the provisions
of Section 11(a) hereof, and in any event, until six months from the Closing
Date and for so long as any principal or interest of the Note are
outstanding, the Subscriber shall be given not less than ten (10) business
days prior written notice of any proposed sale by the Company of its common
stock or other securities in offerings made pursuant to the provisions of
Regulation D or Regulation S under the Act, or any other exemption from
registration, whether state or federal. The Subscriber shall have the right
during the ten (10) business days following the notice to purchase an amount
of securities in the same proportion as being purchased in the aggregate
offering to which this Subscription Agreement relates, of those securities
proposed to be issued and sold, in accordance with the terms and conditions
set forth in the notice of sale, provided that, in the case of securities
offered pursuant to Regulation D, the Subscriber may purchase such securities
pursuant to Regulation S if it is then not a U.S. Person, and such regulation
is then available to the Company. In the event such terms and conditions
are modified during the notice period, the Subscriber shall be given prompt
notice of such modification and shall have the right during the original
notice period or for a period of ten (10) business days following the notice
of modification, whichever is longer, to exercise such right.
(c) Right of Participation. The Subscriber shall be
given not less than thirty (30) days' prior written notice of any proposed
public offering by the Company of its common stock. The Subscriber shall have
the right during such thirty (30) day period to irrevocably subscribe for up
to that percentage of the total number of Shares being offered by the Company
in such public offering as equals the percentage obtained by dividing by the
number of the Company Shares owned by the Subscriber immediately prior to
such public offering together with such Common Shares issuable upon
conversion of the Note, by the number of shares of the Company's outstanding
common stock immediately prior to such public offering. This right of
participation shall expire six months from the Closing Date, with respect to
any public offering
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by the Company that has not commenced prior to such date.
12. Miscellaneous.
(a) Notices. All notices or other communications given
or made hereunder shall be in writing and shall be personally delivered or
deemed delivered the day telecopied (with copy mailed by regular, certified
or registered mail, or overnight courier) to the party to receive the same at
its address set forth below or to such other address as either party shall
hereafter give to the other by notice duly made under this Section: (i) if
to the Company, to Sims Communications, Inc., 3333 South Congress Avenue,
Suite 401, Delray Beach, Florida 33445, Attn: Melvin Leiner, President,
telecopier number (561) 265-3601; and (ii) if to the Subscriber, to the name,
address and telecopy number set forth on the first page hereof.
(b) Entire Agreement; Assignment. This Agreement
represents the entire agreement between the parties hereto with respect to
the subject matter hereof and may be amended only by a writing executed by
both parties. No right or obligation of either party shall be assigned by
that party without prior notice to and the written consent of the other party.
(c) Execution. This Agreement may be executed by
facsimile transmission, followed by delivery of an executed original copy.
(d) Law Governing this Agreement. This Agreement shall
be governed by and construed in accordance with the laws of the United States
of America and the State of Delaware. Any action brought by either party
against the other concerning the transactions contemplated by this
Agreement shall be brought only in the state courts of Delaware or in the
federal courts located in the state of Delaware. Both parties agree to
submit to the jurisdiction of such courts. The prevailing party shall be
entitled to recover from the other party its reasonable attorney's fees and
costs.
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Please acknowledge your acceptance of the foregoing Subscription
Agreement by signing and returning a copy to the undersigned whereupon it
shall become a binding agreement between us.
Very truly yours,
SIMS COMMUNICATIONS, INC.
By: /s/ Melvin Leiner, President and CEO
Dated: October 22, 1997
Accepted:
AUSTOST ANSTALT SCHAAN
By: /s/
Dated as of October 22, 1997
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EXHIBIT B
U.S. PERSON
1. "U.S. Person" means:
(i) Any natural person resident in the United States;
(ii) Any partnership or corporation organized or
incorporated under the laws of the United States;
(iii) Any estate of which any executor or administrator is a
U.S. person;
(iv) Any trust of which any trustee is a U.S. person;
(v) Any agency or branch of a foreign entity located in the
United States;
(vi) Any non-discretionary account or similar account (other
than an estate or trust) held by a dealer or other fiduciary for the benefit
or account of a U.S. person;
(vii) Any discretionary account or similar account (other than an
estate or trust) held by a dealer or other fiduciary organized, incorporated,
or (if an individual) resident in the United States; and
(viii) Any partnership or corporation if: (A) organized or
incorporated under the laws of any foreign jurisdiction; and (B) formed by a
U.S. person principally for the purpose of investing in securities not
registered under the Act, unless it is organized or incorporated, and owned,
by accredited investors (as defined in Rule 501(a)) who are not natural
persons, estates or trusts.
2. Notwithstanding paragraph 1 of this rule, any discretionary account or
similar account (other than an estate or trust) held for the benefit or
account of a non-U.S. person by a dealer or other professional fiduciary
organized, incorporated, or (if an individual) resident in the United
States shall not be deemed a "U.S. person."
3. Notwithstanding paragraph 1, any estate of which any
professional fiduciary acting as executor or administrator is a U.S. person
shall not be deemed a U.S. person if:
(i) An executor or administrator of the estate who is not a
U.S. person has sole or shared investment discretion with respect to the
assets of the estate; and
(ii) The estate is governed by a foreign law.
18
<PAGE>
4. Notwithstanding paragraph 1, any trust of which any professional
fiduciary acting as trustee is a U.S. person shall not be deemed a U.S.
person if a trustee who is not a U.S. person has sole or shared investment
discretion with respect to the trust assets, and no beneficiary of the trust
(and no settlor if the trust is revocable) is a U.S. person.
5. Notwithstanding paragraph 1, an employee benefit plan established
and administered in accordance with the law of a country other than the
United States and customary practices and documentation of such country shall
not be deemed a U.S. person.
6. Notwithstanding paragraph 1, any agency or branch of a U.S. person
located outside the United States shall not be deemed a "U.S. person" if:
(i) The agency or branch operates for valid business reasons;
and
(ii) The agency or branch is engaged in the business of
insurance or banking and is subject to substantive insurance or banking
regulation, respectively, in the jurisdiction where located.
7. The International Monetary Fund, the International Bank for
Reconstruction and Development, the Inter-American Development Bank, the
Asian Development Bank, the African Development Bank, the United Nations, and
their agencies, affiliates and pension plans, and any other similar
international organizations, their agencies, affiliates and pension plans
shall not be deemed "U.S. persons."
19
CONVERTIBLE NOTE
THIS NOTE AND THE COMMON STOCK INTO WHICH IT IS CONVERTIBLE
(COLLECTIVELY, THE "SECURITIES") HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR UNDER THE
LAWS OF ANY STATE OR OTHER JURISDICTION. THE SECURITIES NAY NOT
BE OFFERED OR SOLD IN THE UNITED STATES OR TO U.S. PERSONS (AS
THAT TERM IS DEFINED IN REGULATION S UNDER THE ACT), UNLESS THEY
ARE REGISTERED UNDER THE ACT AND UNDER THE LAWS OF THE STATES
WHERE EACH SALE IS MADE, OR AN EXEMPTION OR SAFE HARBOR FROM SUCH
REGISTRATION REQUIREMENTS IS AVAILABLE IN THE OPINION OF COUNSEL
TO THE HOLDER THEREOF SATISFACTORY TO THE COMPANY AND ITS COUNSEL.
FOR VALUE RECEIVED, SIMS COMMUNICATIONS, INC., a Delaware
corporation (hereinafter called "Borrower"), hereby promises to pay to
BALMORE FUNDS S.A., Francois Morax, P.O. Box 4603, Zurich, Switzerland, Fax
No.: 011-411-201-6262 (the "Holder") or order, without demand, the sum of
$500,000.00, with simple interest accruing at the annual rate of 8%, on
October 15, 1999 (the "Maturity Date"), as such date may be extended by
agreement of the parties hereto.
The following terms shall apply to this Note:
ARTICLE I
DEFAULT RELATED PROVISIONS
1.1 Payment Grace Period. The Borrower shall have a ten (10)
day grace period to pay any monetary amounts due under this Note, after which
grace period a default interest rate of 16% per annum shall apply to the
amounts owed hereunder.
1.2 Conversion Privileges. The Conversion Privileges set forth
in Article II shall remain in full force and effect from the 41st day after
the date hereof until the Note principal and interest are paid in full.
1.3 Interest Rate. At the Maturity Date, accelerated or
otherwise, the Borrower shall pay interest at the annual rate of 8% per annum
together with such principal payment.
ARTICLE II
CONVERSION RIGHTS
The Holder shall have the right to convert the principal amount
and interest due under this Note into Shares of the Borrower's Common Stock
as set forth below.
1
<PAGE>
2.1. Conversion into the Borrower's Common Stock.
(a) The Holder shall have the right from and after the
date 41 days following issuance of this Note and then at any time on or prior
to the Maturity Date, as it may be extended by agreement of the parties
hereto, or until this Note is fully paid, to convert any outstanding and
unpaid principal portion of this Note and accrued interest of $25,000 or
greater amount (or any lesser amount representing the full remaining
outstanding and unpaid principal portion and at the Holder's election, the
accrued interest on the Note (the date of giving of such notice of conversion
being a "Conversion Date") into fully paid and nonassessable shares of
Common Stock of Borrower as such stock exists on the date of issuance of this
Note, or any shares of capital stock of Borrower into which such stock shall
hereafter be changed or reclassified (the "Common Stock") at the conversion
price as defined in Section 2.1(b) hereof (the "Conversion Price"),
determined as provided herein. Upon the delivery of this Note to the escrow
agent ("Escrow Agent") identified in Section 9 of the subscription agreement
entered into between the Company and Holder (the "Subscription Agreement")
and in the escrow agreement ("Escrow Agreement") referred to therein,
accompanied, preceded or followed by notice from the Holder to the Company or
Escrow Agent of the Holder's written request for conversion, subject further
to the terms of the Escrow Agreement, as defined below, Borrower shall issue
and deliver to the Holder within three business days from the Conversion Date
that number of shares of Common Stock for the portion of the Note and/or
interest converted in accordance with the foregoing and a new Note in the
form hereof for the balance of the principal amount hereof, and/or interest
if any. The number of shares of Common Stock to be issued upon each
conversion of this Note shall be determined by dividing that portion of the
principal and/or interest on the Note to be converted, by the Conversion
Price.
(b) Subject to adjustment as provided in Section 2.1(c)
hereof, the Conversion Price shall be seventy-two percent (72%) of the
average closing bid price for the Common Stock on the NASDAQ SmallCap Market,
or on any securities exchange or other securities market on which the Common
Stock is then being traded, for the five (5) trading days immediately
preceding the Conversion Date, or the date of this Note, whichever is lesser.
(c) The Conversion Price and number and kind of shares of
other securities to be issued upon conversion determined pursuant to Section
2.1(a) and 2.l(b), shall be subject to adjustment from time to time upon the
happening of certain events while this conversion right remains outstanding,
as follows:
A. Merger, Sale of Assets, etc. If the Borrower at
any time shall consolidate with or merge into or sell or convey all or
substantially all its assets to any other corporation, this Note, as to the
unpaid principal portion thereof and accrued interest thereon, shall
thereafter be deemed to evidence the right to purchase such number and kind
of shares or other securities and property as would have been issuable or
distributable on account of such consolidation, merger, sale or conveyance,
upon or with respect to the securities subject to the conversion or purchase
right immediately prior to such consolidation, merger, sale or conveyance.
The foregoing provision shall similarly apply to successive transactions of a
similar
2
<PAGE>
nature by any such successor or purchaser. Without limiting the generality of
the foregoing, the anti-dilution provisions of this Section shall apply to
such securities of such successor or purchaser after any such consolidation,
merger, sale or conveyance.
B. Reclassification, etc. If the Borrower at any
time shall, by reclassification or otherwise, change the Common Stock into
the same or a different number of securities of any class or classes, this
Note, as to the unpaid principal portion thereof and accrued interest
thereon, shall thereafter be deemed to evidence the right to purchase such
number and kind of securities as would have been issuable as the result of
such change with respect to the Common Stock immediately prior to such
reclassification or other change.
C. Stock Splits, Combinations and Dividends. If
the shares of Common Stock are subdivided or combined into a greater or
smaller number of shares of Common Stock, or if a dividend is paid on the
Common Stock in shares of Common Stock, the Conversion Price shall be
proportionately reduced in case of subdivision of shares or stock dividend or
proportionately increased in the case of combination of shares, in each such
case by the ratio which the total number of shares of Common Stock
outstanding immediately after such event bears to the total number of shares
of Common Stock outstanding immediately prior to such event
D. Share Issuance. Subject to the provisions of
this Section, if the Borrower at any time shall issue any shares of Common
Stock prior to the conversion of the entire principal amount of the Note
(otherwise than as: (i) provided in Sections 2.1 (c)A, 2.l(c)B or 2.l(c)C or
this subparagraph D; (ii) pursuant to options, warrants, Series A Preferred
Stock, Series B Preferred Stock, or other obligations to issue shares,
outstanding on the date hereof as described in the Reports and Other Written
Information, as such terms are defined in the Subscription Agreement; [(i)
and (ii) above, are hereinafter referred to as the "Existing Option
Obligations"] for a consideration less than the Conversion Price that would
be in effect at the time of such issue, then, and thereafter successively
upon each such issue, the Conversion Price shall be reduced as follows: (i)
the number of shares of Common Stock outstanding immediately prior to such
issue shall be multiplied by the Conversion Price in effect at the time of
such issue and the product shall be added to the aggregate consideration, if
any, received by the Borrower upon such issue of additional shares of Common
Stock; and (ii) the sum so obtained shall be divided by the number of shares
of Common Stock outstanding immediately after such issue. The resulting
quotient shall be the adjusted conversion price. Except for the Existing
Option Obligations and options that may be issued under any employee
incentive stock option and/or any nonqualified stock option plan adopted by
the Company, for purposes of this adjustment, the issuance of any security of
the Borrower carrying the right to convert such security into shares of
Common Stock or of any warrant, right or option to purchase Common Stock
shall result in an adjustment to the Conversion Price upon the issuance of
shares of Common Stock upon exercise of such conversion or purchase rights.
(d) During the period the conversion right exists,
Borrower will reserve from its authorized and unissued Common Stock a
sufficient number of shares to provide for the issuance of Common Stock upon
the full conversion of this Note. Borrower represents
3
<PAGE>
that upon issuance, such shares will be duly and validly issued, fully paid
and non-assessable. Borrower agrees that its issuance of this Note shall
constitute full authority to its officers and agents who are charged with the
duty of executing stock certificates to execute and issue the necessary
certificates for shares of Common Stock upon the conversion of this Note.
(e) The holder shall not be entitled to convert a portion
of the Note into that number of shares of Common Stock which upon conversion
would be in excess of the sum of (i) the number of shares of Common Stock
beneficially owed by the Holder and its affiliates (other than shares of
Common Stock which may be deemed beneficially owned through the ownership of
the unconverted portion of the Note), and (ii) the number of shares of Common
Stock issuable upon the conversion of the Note with respect to which the
determination of this proviso is being made, would result in beneficial
ownership by the Holder or its affiliates of more than 4.99% of the
outstanding shares of Common Stock of the Borrower. For the purposes of the
proviso to the immediately preceding sentence, beneficial ownership shall be
determined in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended, and Regulation 1 3d-3 thereunder, except as otherwise
provided in clause (i) of such proviso.
2.2 Method of Conversion. This Note may be converted by the
Holder in whole or in part as described in Section 2.1(a). Subject further to
the terms of the Escrow Agreement, upon partial exercise hereof 1 a new Note
containing the same date and provisions of this Note shall be issued by the
Borrower to the Holder for the principal balance of this Note which shall
riot have been converted.
ARTICLE III
EVENT OF DEFAULT
The occurrence of any of the following events of default ("Event
of Default") including a Material Adverse Event, as defined in Section 3.7,
shall, at the option of the Holder hereof, make all sums or principal and
interest then remaining unpaid hereon and all other amounts payable hereunder
immediately due and payable, all without demand, presentment or notice, or
grace period, all of which hereby are expressly waived, except as set forth
below:
3.1 Failure to Pay Principal or Interest. The Borrower fails to
pay any installment of principal or interest hereon when due and such failure
continues for a period of ten (10) days after written notice to the Borrower
from the Holder.
3.2 Breach of Covenant. The Borrower breaches any covenant or
other term or condition of this Note and such breach continues for a period
of seven (7) days after written notice to the Borrower from the Holder.
3.3 Breach of Representations and Warranties. Any
representation or warranty of the Borrower made herein, in the Subscription
Agreement entered into by the Holder and Borrower in connection with this
Note, or in any agreement, statement or certificate given in writing pursuant
hereto or in connection herewith shall be false or misleading.
4
<PAGE>
3.4 Receiver or Trustee. The Borrower shall make an assignment
for the benefit of creditors, or apply for or consent to the appointment of a
receiver or trustee for it or for a substantial part of its property or
business; or such a receiver or trustee shall otherwise be appointed.
3.5 Judgments. Any money judgment, writ or similar process
shall be entered or filed against Borrower or any of its property or other
assets for more than $100,000, and shall remain unvacated, unbonded or
unstayed for a period of sixty (60) days.
3.6 Bankruptcy. Bankruptcy, insolvency, reorganization or
liquidation proceedings ~ other proceedings or relief under any bankruptcy
law or any law for the relief of debtors shall be instituted by or against
the Borrower.
3.7 Material Adverse Event. The occurrence of a Material
Adverse Event involving the Company, shall mean (i) delisting of the Common
Stock from the NASDAQ SmallCap Market; (ii) a concession by the Company of a
default under any one or more obligations in an aggregate monetary amount in
excess of $100,000; and (iii) an SEC stop trade order or NASDAQ trading
suspension, if either applies for a period of ten days or longer.
3.8 Failure to Deliver Common Stock. The failure to timely
deliver Common Stock to the Escrow Agent pursuant to Section 2.1 of the
Escrow Agreement and Sections 2.(o) and 9 of the Subscription Agreement and
the failure to timely deliver such Common Stock to the Holder within three
business days from the Conversion Date in the form of unlegended shares of
Common Stock freely transferable on the books and records of the Company, and
with such opinions and approvals so that the Common Stock will be immediately
transferable by Borrower's transfer agent, subject to Regulation S, as same
may be amended, may result in economic loss to the Holder if a conversion
occurs and the requisite shares are not delivered to the Holder. As
compensation to the Holder for any loss which may occur in connection with
the foregoing, not otherwise the fault of the Escrow Agent, the Borrower
agrees to pay late payments to the Holder in accordance with the following
schedule (where "No. of Business Days Late" is defined as the number of
business days beyond the date the Holder is entitled to delivery of Common
Stock on conversion in the required form described above):
Late Payment For Each $10,000
of Convertible Note Principal
No. Business Days Late Amount Being Converted
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
5
<PAGE>
10 $1000
>10 $1000 + $1000 for each Business
Day Late beyond 10 Days
ARTICLE IV
MISCELLANEOUS
4.1 Failure or Indulgency Not Waiver. No failure or delay on
the part of Holder hereof in the exercise of any power, right or privilege
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privilege. All rights and
remedies existing hereunder are cumulative to, and not exclusive of; any
rights or remedies otherwise available.
4.2 Notices. Any notice herein required or permitted to be
given shall be in writing and may be personally served or sent by fax
transmission (with copy sent by regular, certified or registered mail or by
overnight courier). For the purposes hereof; the address and fax number of
the Holder is as set forth on the first page hereof. The address and fax
number of the Borrower shall be Sims Communications, Inc., 3333 South
Congress Avenue, Suite 401, Delray Beach, Florida 33445, Attn: Melvin Leiner,
President, fax number (561) 265-3601. Both Holder and Borrower may change the
address and fax number for service by service of notice to the other as
herein provided. Notice of Conversion shall be deemed given when made to the
Escrow Agent pursuant to the Escrow Agreement.
4.3 Amendment Provision. The term "Note" and all reference
thereto, as used throughout this instrument, shall mean this instrument as
originally executed, or if later amended or supplemented, then as so amended
or supplemented.
4.4 Assignability. This Note shall be binding upon the Borrower
and its successors arid assigns, and shall inure to the benefit of the Holder
and its successors and assignees, and may be assigned after the 40th day
after the date of this Note.
4.5 Cost of Collection. If default is made in the payment of
this Note, Borrower shall pay the Holder hereof costs of collection,
including reasonable attorneys' fees.
4.6 Governing Law. This Note shall be deemed to have been
executed in and shall be governed by the internal laws of the State of
Delaware, without regard to the principles of conflict of laws.
4.7 Maximum Payments. Nothing contained herein shall be deemed
to establish or require the i)payment of a rate of interest or other charges
in excess of the maximum permitted by applicable law. In the event that the
rate of interest required to be paid or other charges hereunder exceed the
maximum permitted by such law any payments in excess of such maximum shall be
credited against amounts owed by the Borrower to the Holder and thus refunded
to the Borrower.
6
<PAGE>
IN WITNESS WHEREOF, Borrower has caused this Note to be signed in
its name by its Chief Executive Officer on this 22nd day of October, 1997.
SIMS COMMUNICATIONS, INC.
By: /s/ Melvin Leiner President & CEO
7
<PAGE>
CONVERTIBLE NOTE
THIS NOTE AND THE COMMON STOCK INTO WHICH IT IS CONVERTIBLE
(COLLECTIVELY, THE "SECURITIES") HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR UNDER THE
LAWS OF ANY STATE OR OTHER JURISDICTION. THE SECURITIES NAY NOT
BE OFFERED OR SOLD IN THE UNITED STATES OR TO U.S. PERSONS (AS
THAT TERM IS DEFINED IN REGULATION S UNDER THE ACT), UNLESS THEY
ARE REGISTERED UNDER THE ACT AND UNDER THE LAWS OF THE STATES
WHERE EACH SALE IS MADE, OR AN EXEMPTION OR SAFE HARBOR FROM SUCH
REGISTRATION REQUIREMENTS IS AVAILABLE IN THE OPINION OF COUNSEL
TO THE HOLDER THEREOF SATISFACTORY TO THE COMPANY AND ITS COUNSEL.
FOR VALUE RECEIVED, SIMS COMMUNICATIONS, INC., a Delaware
corporation (hereinafter called "Borrower"), hereby promises to pay to
AUSTOST ANSTALT SCHAAN, 7440 Fuerstentum, Lichenstein Landstrasse 163, Fax
No.: 011-431-534532895 (the "Holder") or order, without demand, the sum of
$500,000.00, with simple interest accruing at the annual rate of 8%, on
October 15, 1999 (the "Maturity Date"), as such date may be extended by
agreement of the parties hereto.
The following terms shall apply to this Note:
ARTICLE I
DEFAULT RELATED PROVISIONS
1.1 Payment Grace Period. The Borrower shall have a ten (10)
day grace period to pay any monetary amounts due under this Note, after which
grace period a default interest rate of 16% per annum shall apply to the
amounts owed hereunder.
1.2 Conversion Privileges. The Conversion Privileges set forth
in Article II shall remain in full force and effect from the 41st day after
the date hereof until the Note principal and interest are paid in full.
1.3 Interest Rate. At the Maturity Date, accelerated or
otherwise, the Borrower shall pay interest at the annual rate of 8% per annum
together with such principal payment.
ARTICLE II
CONVERSION RIGHTS
The Holder shall have the right to convert the principal amount
and interest due under this Note into Shares of the Borrower's Common Stock
as set forth below.
1
<PAGE>
2.1. Conversion into the Borrower's Common Stock.
(a) The Holder shall have the right from and after the
date 41 days following issuance of this Note and then at any time on or prior
to the Maturity Date, as it may be extended by agreement of the parties
hereto, or until this Note is fully paid, to convert any outstanding and
unpaid principal portion of this Note and accrued interest of $25,000 or
greater amount (or any lesser amount representing the full remaining
outstanding and unpaid principal portion and at the Holder's election, the
accrued interest on the Note (the date of giving of such notice of conversion
being a "Conversion Date'1) into fully paid and nonassessable shares of
Common Stock of Borrower as such stock exists on the date of issuance of this
Note, or any shares of capital stock of Borrower into which such stock shall
hereafter be changed or reclassified (the "Common Stock") at the conversion
price as defined in Section 2.1(b) hereof (the "Conversion Price"),
determined as provided herein. Upon the delivery of this Note to the escrow
agent ("Escrow Agent") identified in Section 9 of the subscription agreement
entered into between the Company and Holder (the "Subscription Agreement")
and in the escrow agreement (t'Escrow Agreement") referred to therein,
accompanied, preceded or followed by notice from the Holder to the Company or
Escrow Agent of the Holder's written request for conversion, subject further
to the terms of the Escrow Agreement, as defined below, Borrower shall issue
and deliver to the Holder within three business days from the Conversion Date
that number of shares of Common Stock for the portion of the Note and/or
interest converted in accordance with the foregoing and a new Note in the
form hereof for the balance of the principal amount hereof, and/or interest
if any. The number of shares of Common Stock to be issued upon each
conversion of this Note shall be determined by dividing that portion of the
principal and/or interest on the Note to be converted, by the Conversion
Price.
(b) Subject to adjustment as provided in Section 2.1(c)
hereof, the Conversion Price shall be seventy-two percent (72%) of the
average closing bid price for the Common Stock on the NASDAQ SmallCap Market,
or on any securities exchange or other securities market on which the Common
Stock is then being traded, for the five (5) trading days immediately
preceding the Conversion Date, or the date of this Note, whichever is lesser.
(c) The Conversion Price and number and kind of shares of
other securities to be issued upon conversion determined pursuant to Section
2.1(a) and 2.l(b), shall be subject to adjustment from time to time upon the
happening of certain events while this conversion right remains outstanding,
as follows:
A. Merger, Sale of Assets, etc. If the Borrower at
any time shall consolidate with or merge into or sell or convey all or
substantially all its assets to any other corporation, this Note, as to the
unpaid principal portion thereof and accrued interest thereon, shall
thereafter be deemed to evidence the right to purchase such number and kind
of shares or other securities and property as would have been issuable or
distributable on account of such consolidation, merger, sale or conveyance,
upon or with respect to the securities subject to the conversion or purchase
right immediately prior to such consolidation, merger, sale or conveyance.
The foregoing provision shall similarly apply to successive transactions of a
similar
2
<PAGE>
nature by any such successor or purchaser. Without limiting the generality of
the foregoing, the anti-dilution provisions of this Section shall apply to
such securities of such successor or purchaser after any such consolidation,
merger, sale or conveyance.
B. Reclassification, etc. If the Borrower at any
time shall, by reclassification or otherwise, change the Common Stock into
the same or a different number of securities of any class or classes, this
Note, as to the unpaid principal portion thereof and accrued interest
thereon, shall thereafter be deemed to evidence the right to purchase such
number and kind of securities as would have been issuable as the result of
such change with respect to the Common Stock immediately prior to such
reclassification or other change.
C. Stock Splits, Combinations and Dividends. If
the shares of Common Stock are subdivided or combined into a greater or
smaller number of shares of Common Stock, or if a dividend is paid on the
Common Stock in shares of Common Stock, the Conversion Price shall be
proportionately reduced in case of subdivision of shares or stock dividend or
proportionately increased in the case of combination of shares, in each such
case by the ratio which the total number of shares of Common Stock
outstanding immediately after such event bears to the total number of shares
of Common Stock outstanding immediately prior to such event
D. Share Issuance. Subject to the provisions of
this Section, if the Borrower at any time shall issue any shares of Common
Stock prior to the conversion of the entire principal amount of the Note
(otherwise than as: (i) provided in Sections 2.1 (c)A, 2.l(c)B or 2.l(c)C or
this subparagraph D; (ii) pursuant to options, warrants, Series A Preferred
Stock, Series B Preferred Stock, or other obligations to issue shares,
outstanding on the date hereof as described in the Reports and Other Written
Information, as such terms are defined in the Subscription Agreement; [(i)
and (ii) above, are hereinafter referred to as the "Existing Option
Obligations"] for a consideration less than the Conversion Price that would
be in effect at the time of such issue, then, and thereafter successively
upon each such issue, the Conversion Price shall be reduced as follows: (i)
the number of shares of Common Stock outstanding immediately prior to such
issue shall be multiplied by the Conversion Price in effect at the time of
such issue and the product shall be added to the aggregate consideration, if
any, received by the Borrower upon such issue of additional shares of Common
Stock; and (ii) the sum so obtained shall be divided by the number of shares
of Common Stock outstanding immediately after such issue. The resulting
quotient shall be the adjusted conversion price. Except for the Existing
Option Obligations and options that may be issued under any employee
incentive stock option and/or any nonqualified stock option plan adopted by
the Company, for purposes of this adjustment, the issuance of any security of
the Borrower carrying the right to convert such security into shares of
Common Stock or of any warrant, right or option to purchase Common Stock
shall result in an adjustment to the Conversion Price upon the issuance of
shares of Common Stock upon exercise of such conversion or purchase rights.
(d) During the period the conversion right exists,
Borrower will reserve from its authorized and unissued Common Stock a
sufficient number of shares to provide for the issuance of Common Stock upon
the full conversion of this Note. Borrower represents
3
<PAGE>
that upon issuance, such shares will be duly and validly issued, fully paid
and non-assessable. Borrower agrees that its issuance of this Note shall
constitute full authority to its officers and agents who are charged with the
duty of executing stock certificates to execute and issue the necessary
certificates for shares of Common Stock upon the conversion of this Note.
(e) The holder shall not be entitled to convert a portion
of the Note into that number of shares of Common Stock which upon conversion
would be in excess of the sum of (i) the number of shares of Common Stock
beneficially owed by the Holder and its affiliates (other than shares of
Common Stock which may be deemed beneficially owned through the ownership of
the unconverted portion of the Note), and (ii) the number of shares of Common
Stock issuable upon the conversion of the Note with respect to which the
determination of this proviso is being made, would result in beneficial
ownership by the Holder or its affiliates of more than 4.99% of the
outstanding shares of Common Stock of the Borrower. For the purposes of the
proviso to the immediately preceding sentence, beneficial ownership shall be
determined in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended, and Regulation 1 3d-3 thereunder, except as otherwise
provided in clause (i) of such proviso.
2.2 Method of Conversion. This Note may be converted by the
Holder in whole or in part as described in Section 2.1(a). Subject further to
the terms of the Escrow Agreement, upon partial exercise hereof 1 a new Note
containing the same date and provisions of this Note shall be issued by the
Borrower to the Holder for the principal balance of this Note which shall
riot have been converted.
ARTICLE III
EVENT OF DEFAULT
The occurrence of any of the following events of default ("Event
of Default") including a Material Adverse Event, as defined in Section 3.7,
shall, at the option of the Holder hereof, make all sums or principal and
interest then remaining unpaid hereon and all other amounts payable hereunder
immediately due and payable, all without demand, presentment or notice, or
grace period, all of which hereby are expressly waived, except as set forth
below:
3.1 Failure to Pay Principal or Interest. The Borrower fails to
pay any installment of principal or interest hereon when due and such failure
continues for a period of ten (10) days after written notice to the Borrower
from the Holder.
3.2 Breach of Covenant. The Borrower breaches any covenant or
other term or condition of this Note and such breach continues for a period
of seven (7) days after written notice to the Borrower from the Holder.
3.3 Breach of Representations and Warranties. Any
representation or warranty of the Borrower made herein, in the Subscription
Agreement entered into by the Holder and Borrower in connection with this
Note, or in any agreement, statement or certificate given in writing pursuant
hereto or in connection herewith shall be false or misleading.
4
<PAGE>
3.4 Receiver or Trustee. The Borrower shall make an assignment
for the benefit of creditors, or apply for or consent to the appointment of a
receiver or trustee for it or for a substantial part of its property or
business; or such a receiver or trustee shall otherwise be appointed.
3.5 Judgments. Any money judgment, writ or similar process
shall be entered or filed against Borrower or any of its property or other
assets for more than $100,000, and shall remain unvacated, unbonded or
unstayed for a period of sixty (60) days.
3.6 Bankruptcy. Bankruptcy, insolvency, reorganization or
liquidation proceedings ~ other proceedings or relief under any bankruptcy
law or any law for the relief of debtors shall be instituted by or against
the Borrower.
3.7 Material Adverse Event. The occurrence of a Material
Adverse Event involving the Company, shall mean (i) delisting of the Common
Stock from the NASDAQ SmallCap Market; (ii) a concession by the Company of a
default under any one or more obligations in an aggregate monetary amount in
excess of $100,000; and (iii) an SEC stop trade order or NASDAQ trading
suspension, if either applies for a period of ten days or longer.
3.8 Failure to Deliver Common Stock. The failure to timely
deliver Common Stock to the Escrow Agent pursuant to Section 2.1 of the
Escrow Agreement and Sections 2.(o) and 9 of the Subscription Agreement and
the failure to timely deliver such Common Stock to the Holder within three
business days from the Conversion Date in the form of unlegended shares of
Common Stock freely transferable on the books and records of the Company, and
with such opinions and approvals so that the Common Stock will be immediately
transferable by Borrower's transfer agent, subject to Regulation S, as same
may be amended, may result in economic loss to the Holder if a conversion
occurs and the requisite shares are not delivered to the Holder. As
compensation to the Holder for any loss which may occur in connection with
the foregoing, not otherwise the fault of the Escrow Agent, the Borrower
agrees to pay late payments to the Holder in accordance with the following
schedule (where "No. of Business Days Late" is defined as the number of
business days beyond the date the Holder is entitled to delivery of Common
Stock on conversion in the required form described above):
Late Payment For Each $10,000
of Convertible Note Principal
No. Business Days Late Amount Being Converted
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
5
<PAGE>
10 $1000
>10 $1000 + $1000 for each Business
Day Late beyond 10 Days
ARTICLE IV
MISCELLANEOUS
4.1 Failure or Indulgency Not Waiver. No failure or delay on
the part of Holder hereof in the exercise of any power, right or privilege
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privilege. All rights and
remedies existing hereunder are cumulative to, and not exclusive of; any
rights or remedies otherwise available.
4.2 Notices. Any notice herein required or permitted to be
given shall be in writing and may be personally served or sent by fax
transmission (with copy sent by regular, certified or registered mail or by
overnight courier). For the purposes hereof; the address and fax number of
the Holder is as set forth on the first page hereof. The address and fax
number of the Borrower shall be Sims Communications, Inc., 3333 South
Congress Avenue, Suite 401, Delray Beach, Florida 33445, Attn: Melvin Leiner,
President, fax number (561) 265-3601. Both Holder and Borrower may change the
address and fax number for service by service of notice to the other as
herein provided. Notice of Conversion shall be deemed given when made to the
Escrow Agent pursuant to the Escrow Agreement.
4.3 Amendment Provision. The term "Note" and all reference
thereto, as used throughout this instrument, shall mean this instrument as
originally executed, or if later amended or supplemented, then as so amended
or supplemented.
4.4 Assignability. This Note shall be binding upon the Borrower
and its successors arid assigns, and shall inure to the benefit of the Holder
and its successors and assignees, and may be assigned after the 40th day
after the date of this Note.
4.5 Cost of Collection. If default is made in the payment of
this Note, Borrower shall pay the Holder hereof costs of collection,
including reasonable attorneys' fees.
4.6 Governing Law. This Note shall be deemed to have been
executed in and shall be governed by the internal laws of the State of
Delaware, without regard to the principles of conflict of laws.
4.7 Maximum Payments. Nothing contained herein shall be deemed
to establish or require the i)payment of a rate of interest or other charges
in excess of the maximum permitted by applicable law. In the event that the
rate of interest required to be paid or other charges hereunder exceed the
maximum permitted by such law any payments in excess of such maximum shall be
credited against amounts owed by the Borrower to the Holder and thus refunded
to the Borrower.
6
<PAGE>
IN WITNESS WHEREOF, Borrower has caused this Note to be signed in
its name by its Chief Executive Officer on this 22nd day of October, 1997.
SIMS COMMUNICATIONS, INC.
By: /s/ Melvin Leiner President & CEO
7
ESCROW AGREEMENT
THIS AGREEMENT dated the 22nd day of October, 1997, between Sims
Communications, Inc., a Delaware corporation (the "Company"), Austost Anstalt
Schaan, Balmore Funds S.A., (the "Holders") and Grushko & Mittman (the
"Escrow Agent"):
W I T N E S S E T H:
WHEREAS, the Company and the Holders have entered into a
Subscription Agreement dated the date hereof (together with all exhibits
thereto, the "Subscription Agreement") calling for the issuance and sale to
the Holders of the Company's Convertible Note; and
WHEREAS, Section 9 of the Subscription Agreement requires the
Company to deposit the Escrowed Stock (as hereinafter defined) with the
Escrow Agent to be held in escrow and released by the Escrow Agent in
accordance with the terms and conditions of this Agreement; and
WHEREAS, the Escrow Agent is willing to serve as escrow agent
pursuant to the terms and conditions of this Agreement;
NOW THEREFORE, the parties agree as follows:
ARTICLE I
INTERPRETATION
1.1 Definitions. Whenever used in this Agreement, the following
terms shall have the following respective meanings:
(a) "Agreement" means this Agreement and all amendments
made hereto and thereto by written agreement between the parties;
(b) "Escrowed Stock" means the 2,300,000 shares of Common
Stock of the Company, $.000l par value, represented by certificates
registered in the name of the Holders, to be delivered on the Closing Date,
as the term is defined in the Subscription Agreement, to the Escrow Agent in
the names and denominations as set forth in Schedule A attached hereto, and
to be held in escrow by the Escrow Agent.
1.2 Entire Agreement. This Agreement together with the
Subscription Agreement and Convertible Note constitute the entire agreement
between the parties hereto pertaining to the Escrowed Stock and supersedes
all prior agreements, understandings, negotiations and discussions, whether
oral or written of the parties. There are no warranties, representations and
other agreements made by the parties in connection with the subject matter
hereof except as specifically set forth in this Agreement.
<PAGE>
1.3 Extended Meanings. In this Agreement words importing the
singular number include the plural and vice versa; words importing the
masculine gender include the feminine and neuter genders. The word "person"
includes an individual, body corporate, partnership, trustee or trust or
unincorporated association, executor, administrator or legal representative.
1.4 Waivers and Amendments. This Agreement may be amended,
modified, superseded, cancelled, renewed or extended, and the terms and
conditions hereof may be waived, only by a written instrument signed by all
parties or, in the case of a waiver, by the party waiving compliance. Except
as expressly stated herein, no delay on the part of any party in exercising
any right, power or privilege hereunder shall operate as a waiver thereof,
nor shall any waiver on the part of any party of any right, power or
privilege hereunder preclude any other or future exercise of any other right,
power or privilege hereunder.
1.5 Headings. The division of this Agreement into articles,
sections, subsections and paragraphs and the insertion of headings are for
convenience of reference only and shall not affect the construction or
interpretation of this Agreement.
1.6 Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York
without regard to principles of conflict of laws.
1.7 Consents to Service of Process. The Company and the Holder
each hereby irrevocably consent to the exclusive jurisdiction of the courts
of the State of New York and of any federal court located in the State of New
York, each as may have competent jurisdiction, in connection with any action,
submit or other proceeding arising out of or relating to this Agreement or
any action taken or omitted hereunder, and waive personal service of any
summons, complaint or other process and agree that the service hereto may be
made by certified or registered mail directed to such person at such person's
address for purpose of notice hereunder.
ARTICLE II
STOCK TO BE DELIVERED TO THE ESCROW AGENT
2.1 Delivery of Company's Stock to Escrow Agent. As required
under Section 9 of the Subscription Agreement, the Company shall deliver to
the Escrow Agent the Escrowed Stock prior to the Closing Date. Such
additional common stock of the Company as is required to be delivered to the
Escrow Agent pursuant to Sections 2(0) and 9 of the Subscription Agreement
shall be delivered to the Escrow Agent and shall be Escrowed Stock.
2.2 Intention to Create Escrow Over Escrowed Stock. The
Holders and Company intend that the Escrowed Stock shall be held in escrow by
the Escrow Agent pursuant to this Agreement for their respective benefits as
set forth herein.
2
<PAGE>
2.3 Escrow Agent to Hold Escrowed Stock. The Escrow Agent
shall hold and release the Escrowed Stock only in accordance with the terms
and conditions of this Agreement.
ARTICLE III
RELEASE OF ESCROWED STOCK
3.1 Subject to the provisions of Section 4.2, the Escrow Agent
shall release the Escrowed Stock as follows:
(a) Upon receipt by the Escrow Agent of a notice ("Notice
of Conversion") signed by a Holder, reciting that a Holder is converting the
Note principal and interest or part thereof and stating the terms of said
conversion in accordance with the terms of the Subscription Agreement, the
Escrow Agent shall promptly deliver a copy of such Notice of Conversion to
the Company. If the Escrow Agent does not receive from the Company within
three (3) business days after notice is given to the Company by the Escrow
Agent, a written notice of objection stating the reasons for the objection
in accordance with the terms of the Subscription Agreement ("Notice of
Objection") signed by the Company, or if the Escrow Agent shall within such
period receive a written consent signed by the Company to such conversion,
then the Escrow Agent shall deliver to the Holders that number of shares of
Escrowed Stock as is called for in the Notice of Conversion together with a
self-liquidating legend attached to each share certificate. If the Escrow
Agent receives Notice of Objection from the Company within such three (3)
business day period, the Escrow Agent shall continue to hold the Escrowed
Stock until otherwise authorized and directed to distribute the same pursuant
to the provisions of Sections 3.1(c) or 3.1(d). As a precondition to the
release of any Escrowed Shares to Holder, the Escrow Agent must receive the
original Convertible Note no later than the third business day after its
receipt of the Notice of Conversion. Upon its receipt of the original
Convertible Note (or any reissued originally executed Convertible Note), the
Escrow Agent will immediately request to the Company in writing that the
Company issue a new Convertible Note for the unconverted portion of the
Convertible Note. Within three business days after receipt by the Escrow
Agent of such reissued Convertible Note, the reissued Convertible Note will
be transmitted to the Holder and the original Convertible Note will be
transmitted to the Company by the Escrow Agent. If such reissued Convertible
Note is not received by the Escrow Agent within three (3) business days of
request by the Escrow Agent, then the Escrow Agent will, in consultation with
the Company and pursuant to the Company's written instructions, indicate on
the signature page of the original Convertible Note, the amount of principal
and interest, if applicable, of the Note converted and the Conversion Date,
and return the original Convertible Note to the Holder.
(b) Upon receipt by the Escrow Agent of a notice ("Notice
of Return") signed by the Company stating that the Company is entitled to
receipt of the Escrowed Stock or any portion thereof, in accordance with the
provisions of the Subscription Agreement, and stating the reasons therefor,
the Escrow Agent shall promptly send a copy of such Notice of Return to the
affected Holders. If the Escrow Agent does not receive from the affected
Holders within three (3) business days after notice is given to the affected
Holders by the Escrow Agent, a writ-
3
<PAGE>
ten Notice of Objection stating the reasons for the objection in accordance
with the terms of the Subscription Agreement signed by the affected Holders,
or if the Escrow Agent shall within such period receive a written consent
signed by the affected Holders, then the Escrow Agent shall deliver the
Escrowed Stock or such portion thereof to the Company in accordance with the
Notice of Return. If the Escrow Agent receives a Notice of Objection from
the affected Holders within such three (3) day period, then the Escrow Agent
shall continue to hold the Escrowed Stock until otherwise authorized and
directed to distribute the same pursuant to the provision of Sections 3.1(c)
or 3.1(d).
(c) Upon receipt by the Escrow Agent of a joint written
instruction (a "Joint Instruction") signed by the Company and the Holders, it
shall deliver the Escrowed Stock in accordance with the terms of the Joint
Instruction.
(d) Upon receipt by the Escrow Agent of a final and
non-appealable judgment, order, decree or award of a court of competent
jurisdiction (a "Court Order"), the Escrow Agent shall deliver the Escrowed
Stock in accordance with the Court Order. Any Court Order shall be
accompanied by an opinion of counsel for the party presenting the Court Order
to the Escrow Agent (which opinion shall be satisfactory to the Escrow Agent)
to the effect that the court issuing the Court Order has competent
jurisdiction and that the Court Order is final and non-appealable.
3.2 Acknowledgment of Company and Holders Disputes. The
Company and the Holders acknowledge that the only terms and conditions upon
which the Escrowed Stock are to be released are set forth in Section 3 and 4
of this Agreement. The Company and the Holders reaffirm their agreement to
abide by the terms and conditions of this Agreement with respect to the
release of the Escrowed Stock. Any dispute with respect to the release of
the Escrowed Stock shall be resolved pursuant to Section 4.2 or by agreement
between the Company and Holders.
ARTICLE IV
CONCERNING THE ESCROW AGENT
4.1 Duties and Responsibilities of the Escrow Agent. The
Escrow Agent's duties and responsibilities shall be subject to the following
terms and conditions:
(a) The Holders and Company acknowledge and agree that
the Escrow Agent (i) shall not be responsible for or bound by, and shall not
be required to inquire into whether either the Holders or Company is entitled
to receipt of the Escrowed Stock pursuant to, the Subscription Agreement or
otherwise; (ii) shall be obligated only for the performance of such duties as
are specifically assumed by the Escrow Agent pursuant to this Agreement;
(iii) may rely on and shall be protected in acting or refraining from acting
upon any written notice, instruction, instrument, statement, request or
document furnished to it hereunder and believed by it in good faith to be
genuine and to have been signed or presented by the proper person or party,
without being required to determine the authenticity or correctness of any
fact stated therein or the pro-
4
<PAGE>
priety or validity or the service thereof; (iv) may assume that any person
purporting to give notice or make any statement or execute any document in
connection with the provisions hereof has been duly authorized to do so; (v)
shall not be under any duty to give the property held by Escrow Agent
hereunder any greater degree of care than Escrow Agent gives its own similar
property; and (vi) may consult counsel satisfactory to Escrow Agent, the
opinion of such counsel to be full and complete authorization and protection
in respect of any action taken, suffered or omitted by Escrow Agent hereunder
in good faith and in accordance with the opinion of such counsel.
(b) The Holders and Company acknowledge that the Escrow
Agent is acting solely as a stakeholder at their request and that the Escrow
Agent shall not be liable for any action taken by Escrow Agent in good faith
and believed by Escrow Agent to be authorized or within the right or powers
conferred upon Escrow Agent by this Agreement. The Holders and Company,
jointly and severally, agree to indemnity and hold harmless the Escrow Agent
and any of Escrow Agent's partners, employees, agents and representatives for
any action taken or omitted to be taken by Escrow Agent or any of them
hereunder, including the reasonable fees and costs of outside counsel in
defending itself against any claim or liability under this Agreement, except
in the case of gross negligence or willful misconduct on Escrow Agent's part
committed in its capacity as Escrow Agent under this Agreement. The Escrow
Agent shall owe a duty only to the Holders and Company under this Agreement
and to no other person.
(c) The holders and Company jointly and severally agree
to reimburse the Escrow Agent for its reasonable out-of-pocket expenses
(including reasonable counsel fees) incurred in connection with the
performance of its duties and responsibilities hereunder.
(d) The Escrow Agent may at any time resign as Escrow
Agent hereunder by giving thirty (30) days' prior written notice of
resignation to the Holders and the Company Prior to the effective date of the
resignation as specified in such notice, the Holders and Company will issue
to the Escrow Agent a Joint Instruction authorizing delivery of the Escrowed
Stock to a substitute Escrow Agent selected by the Holders and Company. If
no successor Escrow Agent is named by the Holders and Company, the Escrow
Agent may apply to a court of competent jurisdiction in the state of New York
or any federal court located in the state of New York for appointment of a
successor Escrow Agent.
(e) The Escrow Agent does not have and will not have any
interest in the Escrowed Stock, but is serving only as escrow holder, having
only possession thereof. The Escrow Agent shall not be liable for any loss
resulting from the making or retention of any investment in accordance with
this Escrow Agreement.
(f) This Agreement sets forth exclusively the duties of
the Escrow Agent with respect to any and all matters pertinent thereto and no
implied duties or obligations shall be read into this Agreement.
(g) The Escrow Agent shall be permitted to act as counsel
for the Holders or the Company, as the case may be, in any dispute as to the
disbursement of the Escrowed Stock or
5
<PAGE>
in any other dispute between the Holders and Company, whether or not the
Escrow Agent is then holding the Escrowed Stock and continues to act as the
Escrow Agent hereunder.
(h) The provisions of this Section 4.1 shall survive the
resignation of the Escrow Agent or the termination of this Agreement.
4.2 Dispute Resolution: Judgments. Resolution of disputes
arising under this Agreement shall be subject to the following terms and
conditions:
(a) If any dispute shall arise with respect to the
delivery, ownership, right of possession or disposition of the Escrowed
Stock, or if the Escrow Agent shall in good faith be uncertain as to its
duties or rights hereunder, the Escrow Agent shall be authorized, without
liability to anyone, to (i) refrain from taking any action other than to
continue to hold the Escrowed Stock pending receipt of a Joint Instruction
from the Holders and Company, or (ii) deposit the Escrowed Stock with any
court of competent jurisdiction in the state of New York, in which event the
Escrow Agent shall give written notice thereof to the Holders and the Company
and shall thereupon be relieved and discharged from all further obligations
pursuant to this Agreement. The Escrow Agent may, but shall be under no duty
to, institute or defend any legal proceedings which relate to the Escrowed
Stock. The Escrow Agent shall have the right to retain counsel if she
becomes involved in any disagreement, dispute or litigation on account of
this Agreement or otherwise determines that it is necessary to consult
counsel.
(b) The Escrow Agent is hereby expressly authorized to
comply with and obey any Court Order. In case the Escrow Agent obeys or
complies with a Court Order, the Escrow Agent shall not be liable to the
Holders and Company or to any other person, firm, corporation or entity by
reason of such compliance.
ARTICLE V
GENERAL MATTERS
5.1 Termination. This escrow shall terminate upon the release
of all of the Escrowed Stock or at any time upon the agreement in writing of
the Holders and Company.
5.2 Notices. Any notice herein required or permitted to be
given shall be in writing and may be personally delivered or sent by fax
transmission (with copy sent by regular, certified or registered mail or by
overnight courier).
(a) If to the Company, to:
Sims Communications, Inc.
3333 South Congress Avenue, Suite 401
Delray Beach, Florida 33445
Fax: (561)265-3601
Attn: Melvin Leiner, President
6
<PAGE>
(b) If to the Holders to:
Austost Anstalt Schaan
7440 Fuerstentum
Lichenstein Landstrasse 163
Fax: 011-431-534532895
Balmore Funds S.A.
Francois Morax
P.O. Box 4603
Zurich, Switzerland 8022
Fax: 011-411-201-6262
(c) If to the Escrow Agent, to:
Grushko & Mittman
Attorneys at Law
277 Broadway, Suite 801
New York, New York 10007
Fax: (212)227-5865
or to such other address as any of them shall give to the others by notice
made pursuant to this Section 5.2.
5.3 Assignment: Binding Agreement. Neither this Agreement nor
any right or obligation hereunder shall be assignable by any party without
the prior written consent of the other parties hereto. This Agreement shall
enure to the benefit of and be binding upon the parties hereto and their
respective legal representatives, successors and assigns.
5.4 Counterparts/Execution. This Agreement maybe executed in
any number of counterparts and by the different signatories hereto on
separate counterparts, each of which, when so executed, shall be deemed an
original, but all such counterparts shall constitute but one and the same
instrument. This Agreement may be executed by facsimile transmission.
5.5 Invalidity. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance,
is held invalid, illegal, or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions contained herein shall not be in any
way impaired thereby, it being intended that all of the rights and privileges
of the parties hereto shall be enforceable to the fullest extent permitted by
law.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
SIMS COMMUNICATIONS, INC.
BY: /s/ Melvin Leiner President and CEO
AUSTOST ANSTALT SCHAAN
BY: /s/Austost Anstalt Schaan
BALMORE FUNDS S.A.
BY:/s/
ESCROW AGENT
/s/ Grushko & Mittman
GRUSHKO & MITTMAN
8
<PAGE>
SCHEDULE A
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------
HOLDERS NOTE (PRINCIPAL AMOUNT) NUMBER OF SHARES TO BE
ESCROWED
- --------------------------------------------------------------------------------
Austost Anstalt $500,000.00 1,150,000
Schaan
- --------------------------------------------------------------------------------
Balmore Funds S.A. $500,000.00 1,150,000
- --------------------------------------------------------------------------------
TOTALS 1,000,000.00 2,300,000.00
- --------------------------------------------------------------------------------
</TABLE>
