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): December 14, 1998
SIMS Communications, Inc.
(Exact name of registrant as specified in its charter)
Delaware 0-25474 65-0287558
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) File Number) Identification No.)
18001 Cowan, Suite C & D
Irvine, California 92614
(Address of principal executive offices)
(Zip Code)
(949) 261-6665
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
<PAGE>
Item 5. Other Events
On November 11, 1998, the Company completed a business transaction with
MedCard Management Systems, Inc. ("MedCard") whereby the Company acquired
certain assets of Medcard, including the exclusive rights to the MedCard name
and The MedCard System software and network. The MedCard System is an electronic
processing system that consolidates insurance eligibility verification and
processes medical claims and approval of credit card/debit card payments within
30 seconds. Consideration for the transaction included cash of $450,000, 100,000
shares of restricted common stock, options to purchase 350,000 shares of common
stock and royalties on future sales.
In November and December 1998, the Company sold 1,500 shares of its Series C
Preferred Stock (the "Preferred Stock") to a group of institutional investors
for $1,500,000. Each Preferred Shares is convertible into shares of the
Company's common stock equal in number to the amount determined by dividing
$1,000 by the lower of (i) $1.31 (or $1.11 in the case of 750 shares sold in
December), or (ii) the average price of the Company's common stock for any two
trading days during the twenty-two trading days preceding the conversion date.
For each Series C Preferred Stock held by a preferred stockholder on certain
dates, (the "Warrant Valuation Dates") the Company will issue 50 warrants to the
preferred shareholder.
The Warrant Valuation Dates are generally the following: (1)
May 30, 1999
June 30, 1999
July 30, 1999
August 30, 1999
September 30, 1999
October 30, 1999
November 30, 1999
(1) The Warrant Valuations Dates are determined in reference to the dates the
Series C Preferred Shares were issued. Since the Series C Preferred Shares
were issued on different dates, the actual Warrant Valuation Dates are
within seven days of the dates shown below.
Each warrant will entitle the holder to purchase one additional share of the
Company's common stock for $1.50 per share (or $1.27 per share in the case of
the 750 shares sold in December 1998) at any time during a period ending five
years after the Warrant Valuation Date. If none of the Series C Preferred Shares
are converted into shares of the Company's common stock prior to November 30,
1999 the Company would be required to issue warrants which would allow the
holders of the Series C Preferred Stock to purchase of up to 525,000 shares of
the Company's common stock.
<PAGE>
The Company has the right to redeem the Series C Preferred Shares at any
time. Depending upon the date of redemption, the Company is required to pay the
following amount for each Series C Preferred Share redeemed by the Company, plus
all accrued and unpaid dividends up to the Redemption Date.
If Redemption Date is after: (1) Redemption Price per Series C Preferred Share
November 30, 1998 $1,100
January 30, 1999 $1,150
March 1, 1999 $1,200
April 1, 1999 $1,250 (2)
(1) The dates below are determined in reference to the dates the Series C
Preferred Shares were issued. Since the Series C Preferred Shares were
issued on different dates, the relevant dates after which the Redemption
Price changes are within seven days of the dates shown below.
(2) If the Redemption Date is after April 1, 1999 the Redemption Price is the
greater of (a) $1,250 or (b) the full economic benefit the holder would
derive from converting the Series C Preferred Stock and selling the common
stock on the Redemption Date.
For each share of the Series C Preferred Stock redeemed by the Company the
Company has agreed to issue to the former holder of the redeemed shares warrants
which will entitle the former holder to purchase 200 shares of the Company's
common stock at a price equal to 120% of the closing bid price of the Company's
common stock on the date prior to the Redemption Date. The warrants are
exercisable during a period ending five years from the Redemption Date. If all
1,500 shares of the Series C Preferred Stock are redeemed by the Company the
Company would be required to issue warrants which would allow the former holders
to purchase up to 300,000 shares of the Company's common stock.
The following condensed pro forma balance sheet of the Company as of
September 30, 1998 reflects the issuance of the shares of common stock in the
MedCard transaction and the sale of the Company's Series C Preferred Stock:
September 30, 1998
September 30, 1998 Adjustments (as adjusted)
ASSETS:
Cash and cash equivalents $341,684 $1,440,000 (1) $1,781,684
Accounts receivables,
less allowance for
doubtful accounts 147,333 147,333
Inventories 440,905 440,905
<PAGE>
September 30, 1998
September 30, 1998 Adjustments (as adjusted)
ASSETS:
Prepaid expenses and
other current assets
196,512
Notes receivable,
current portion 150,000 150,000
Property and Equipment
net of accumulated
depreciation 2,668,337 120,000 (2) 2,668,337
Notes receivable 415,360 415,360
Patents, net of accumulated
amortization 382,665 382,665
Goodwill 935,939 935,939
Other 121,355 121,355
--------- --------- ---------
Total Assets $5,800,090 $1,560,000 $7,360,090
========== ========== ==========
LIABILITIES:
Accounts payable and
Accrued Expenses $1,085,686 1,085,686
Bank Line of credit 250,000 250,000
Current obligations
under capital lease 77,109 77,109
Current maturities
of long term debt 664,174 664,174
Franchise deposits
and deferred revenue 827,661 827,661
Long term debt 216,674 216,674
Obligations under
capital leases 392,010 392,010
------- -------
Total Liabilities 3,513,404 3,513,404
STOCKHOLDERS' EQUITY
Preferred Stock, Series A and B 125 125
Preferred Stock, Series C $150 (1) 150
Common Stock 917 10 (2) 927
Additional Paid in Capital 24,310,287 1,439,850 25,870,127
119,990 (2)
Accumulated Deficit (22,024,682) (22,024,682)
------------ ------------
Total Stockholders' Equity 2,286,686 3,846,686
--------- ---------
Total Liabilities and
Stockholders' Equity $5,800,090 $1,560,000 $7,360,090
========== ========== ==========
<PAGE>
(1) Reflects sale of 1,500 shares of Series C Preferred Stock for $1,500,000,
less related offering expenses.
(2) Reflects issuance of 100,000 shares of Company's common stock as partial
payment of software, assets and other technology from Medcard.
Item 7. Financial Statements and Exhibits
The following exhibits are filed with this report.
Exhibits Description
-------- -------------
4 Designation of Series C Preferred
Stock (as amended)
10 Series C Preferred Stock Purchase
Agreement, Escrow Agreement,
Registration Rights Agreement and
Form of Warrant
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: December 14, 1998
SIMS COMMUNICATIONS, INC.
By /s/ Mark Bennett
---------------------------------
Mark Bennett, President
<PAGE>
EXHIBIT 4
<PAGE>
EXHIBIT A
AMENDMENT TO THE
CERTIFICATE OF DESIGNATION
of
SERIES C CONVERTIBLE PREFERRED STOCK
of
SIMS COMMUNICATIONS, INC.
(Pursuant to Section 151 of the Delaware General Corporation Law)
SIMS COMMUNICATIONS, INC., a corporation organized and existing
under the General Corporation Law of the State of Delaware (the "Company"),
hereby certifies that the following resolutions were adopted by the Board of
Directors of the Company as required by Section 151 of the General Corporation
Law at a meeting of the Company's Board of Directors held on December , 1998:
RESOLVED, that pursuant to the authority granted to and vested in
the Board of Directors of the Company (the "Board") in accordance with the
provisions of the Certificate of Incorporation (the "Certificate of
Incorporation"), the Board hereby amends the Certificate of Designation (the
"Certificate of Designation") which created out of the 1,000,000 shares of
Preferred Stock, par value $0.001 per share, of the Company authorized in
Article Four of the Certificate of Incorporation (the "Preferred Stock"), a
series of the Preferred Stock of the Company, par value $0.001 per share,
designated as Series C Convertible Preferred Stock and hereby amends the
designation, relative rights, preferences, and limitations thereof as follows:
I. Designation and Amount. The shares of such series of Preferred Stock shall be
designated as "Series C Convertible Preferred Stock" (the "Series C Preferred
Stock") and the number of shares constituting the Series C Preferred Stock shall
be 2,060. The Series C Preferred Stock shall have a stated value (the "Stated
Value") of $1,000per share.
II. Dividends.
A. The holders of shares of Series C Preferred Stock shall be entitled to
receive dividends, out of any assets legally available therefore, prior to, and
in preference to, any declaration or payment of any dividend (payable other than
in Common Stock of this Company) on the Common Stock of this Company, at a per
share rate equal to six percent per annum of the amount of the Stated Value of
the Series C Preferred Stock, which is payable upon conversion (including Forced
Conversion) as set forth below. Dividends shall begin to accrue as of the
<PAGE>
Issuance Date and are based upon a 365 calendar day year. Any dividends payable
pursuant to the provisions of this paragraph shall, at the Company's option, be
payable in cash, or unrestricted shares of Common Stock of the Company within
five Business Days of when due. In the event the Company chooses to issue Common
Stock as payment of the dividends, but at such time such Common Stock has not
been included in an effective registration statement, the Company may delay
issuance of the Common Stock until such time as these shares of Common Stock are
subject to an effective registration statement. Dividends, as set forth above,
will continue to accrue until such time as such Common Stock (as payment
therefor) is issued, and the Company shall issue such additional number of
shares of Common Stock for such additional dividends. If the Company elects to
pay the dividends in shares of Common Stock and if these shares of Common Stock
are not subject to an effective registration statement within 180 calendar days
after the Issuance Date, the Company will pay to the holder, on or before the
183rd calendar day after the Issuance Date all accrued and unpaid dividends in
immediately available funds. The number of shares of Common Stock to be issued
by the Company in lieu of a cash payment for dividends due as set forth herein
shall be equal to the number of shares of Common Stock resulting from dividing
the dollar amount of dividends owed by the Conversion Price (as defined below)
on such date as the dividends are payable (if such date is not a Trading Day,
then the next Trading Day immediately thereafter).
B. Such dividends shall accrue on each share of Series C Preferred Stock
from the Issuance Date, and shall accrue from day to day whether or not earned
or declared. Such dividends shall be cumulative so that if such dividends in
respect of any previous or current annual dividend period, at the annual rate
specified above, shall not have been paid or declared and a sum sufficient for
the payment thereof set apart, for all Series C Preferred Stock at the time
outstanding, the deficiency shall first be fully paid before any dividend or
other distribution shall be paid on or declared or set apart for the Series C
Preferred Stock or Common Stock. Dividends on the Series C Preferred Stock shall
be non-participating and the holders of the Series C Preferred Stock shall not
be entitled to participate in any other dividends beyond the cumulative
dividends specified herein.
III. Liquidation, Dissolution or Winding Up.
A. In the event of any liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary, before any distribution may be made
with respect to the Company's Common Stock or any other series of capital stock,
holders of each share of Series C Preferred Stock shall be entitled to receive
out of the assets available for distribution to shareholders $1,000 plus six
percent per annum thereon from the Issuance Date (as defined below) to the
Trading Day (as defined below) immediately prior to such liquidation,
dissolution or winding up of the Company ( the "Liquidation Amount").
B. If the assets of the Company available for distribution to shareholders
shall be insufficient to pay the holders of shares of Series C Preferred Stock
the full Liquidation Amount to which they shall be entitled, then any such
distribution of assets of the Company shall be distributed ratably to the
holders of shares of Series C Preferred Stock
<PAGE>
C. After the payment of the Liquidation Amount shall have been made in
full to the holders of the Series C Preferred Stock or funds necessary for such
payment shall have been set aside by the Company in trust for the account of
holders of the Series C Preferred Stock so as to be available for such payments,
the holders of the Series C Preferred Stock shall be entitled to no further
participation in the distribution of the assets of the Company, and the
remaining assets of the Company legally available for distribution to
shareholders shall be distributed among the holders of Common Stock and any
other classes or series of Preferred Stock of the Company in accordance with
their respective terms.
IV. Voting. Holders of Series C Preferred Stock shall have no voting
rights except as expressly required by law or as expressly provided herein.
V. Conversion of Series C Preferred Stock. The holders of Series C
Preferred Stock shall have the right, at such holder's option, to convert the
Series C Preferred Stock into shares of Common Stock, on the following terms and
conditions:
A. Subject to the provisions of the Forced Conversion and Redemption
hereof, at any time or times, upon the earlier to occur of (i) the 90th calendar
day after the Issuance Date, or (ii) the Effective Date, any holder of the
Series C Preferred Stock shall be entitled to convert any whole number of shares
of Series C Preferred Stock into fully paid and nonassessable shares of Common
Stock, which is determined (per share of Series C Preferred Stock) by dividing
(x) $1,000, by (y) the Conversion Price (as defined below) (the "Conversion
Rate").
B. For purposes of this Certificate of Designation, the following terms
shall have the following meanings:
A "Business Day" shall be any day other than a Saturday, Sunday,
national holiday or a day on which the New York Stock Exchange is closed.
The "Closing Bid Price" shall mean, for any security as of any date,
the last closing bid price for such security on the Nasdaq Stock Market as
reported by Bloomberg L.P. ("Bloomberg"), or, if the Nasdaq Stock Market is not
the principal trading market for such security, the last closing bid price of
such security on the principal securities exchange or trading market where such
security is listed or traded as reported by Bloomberg, or if the foregoing do
not apply, the last closing bid price of such security in the over-the-counter
market on the OTC Electronic Bulletin board for such security as reported by
Bloomberg, or, the last closing trade price of such security as reported by
Bloomberg, or, if no last closing bid or trade price is reported for such
security by Bloomberg, the closing bid price shall be determined by reference to
the closing bid price as reported on the Principal Market, and if not so
reported shall be determined from the average of the bid prices of any market
makers for such security as reported in the "pink sheets" published by the
National Quotation Bureau, Inc. If the Closing Bid Price cannot be calculated
for such security on such date on any of the foregoing bases, the Closing Bid
Price of such security on such date shall be the fair market value as mutually
agreed by the Company and the holders of two thirds of the outstanding shares of
Series C Preferred Stock.
<PAGE>
The "Conversion Price" shall mean, as of any Conversion Date (as
defined below) the lesser of (i) 105% of the Issuance Price, or (ii) 80% of the
average of the two lowest Closing Bid Prices of the Common Stock during the 22
Trading Days (the "Lookback Period") immediately preceding the Conversion Date
(hereinafter referred to as the "Current Price"). Notwithstanding the foregoing,
in the event a Conversion Date occurs on or before the120th calendar day after
the Issuance Date, then the Conversion Price shall not be less than 50% of the
Closing Bid Price on the Trading Day immediately preceding the Issuance Date.
"Effective Date" shall mean the date on which the Securities and
Exchange Commission (the "SEC") first declares effective a Registration
Statement registering the resale of 200% percent of the number of shares of
Common Stock issuable (irrespective of any shareholder approval requirement)
upon conversion of all of the Series C Preferred Stock outstanding on the
Trading Day immediately preceding the day such Registration Statement is filed.
The "Issuance Date" shall mean, with respect to each share of Series
C Preferred Stock, the date of issuance of the applicable share of Series C
Preferred Stock.
The "Issuance Price" shall mean 100% of the average Closing Bid
Price of the Common Stock for the five consecutive Trading Day period ending on
the Trading Day immediately preceding the Issuance Date.
A "Trading Day" shall mean a day on which the New York Stock
Exchange is open.
The "Principal Market" shall mean the Nasdaq National Market, the
Nasdaq Small Cap Stock Market, the American Stock Exchange, the OTC Electronic
Bulletin Board operated by the National Association of Securities Dealers, Inc.,
or the New York Stock Exchange, whichever is at the time the principal trading
exchange or market for the Common Stock.
C. In the event the Current Price is greater than 150% of the Issuance
Price, then the number of shares of Common Stock to be issued upon the
conversion of each share of Series C Preferred Stock shall be reduced by the
number of shares of Common Stock derived from the following formula:
((1,000 x Current Price) / Issuance Price) - 1,000) / (Current Price x 2)
D. Holders of Series C Preferred Stock may exercise their right to convert
the Series C Preferred Stock by telecopying an executed and completed notice of
conversion (the "Notice of Conversion") to the Company and delivering to Company
the original Notice of Conversion and the certificate representing the Series C
Preferred Stock being converted by reputable overnight courier. Each Business
Day (between the hours of 7:00 a.m. and 5:00 p.m. Pacific Time) on which a
Notice of Conversion is telecopied to and received by the Company shall be
deemed a "Conversion Date". The Company will deliver, or instruct its transfer
agent to deliver, the certificates representing shares of Common Stock issuable
upon conversion of any share of Series C Preferred Stock (together with the
certificates representing the share or shares of Series C Preferred Stock not so
converted) to the holder thereof via reputable overnight courier, by electronic
transfer or otherwise within five Business Days after the Conversion Date,
<PAGE>
provided the Company has received the original Notice of Conversion and Series C
Preferred Stock certificate being so converted on or before the close of
business of the third Business Day after the Conversion Date. In addition to any
other remedies which may be available to the holders of shares of Series C
Preferred Stock, in the event that the Company fails to deliver, such shares of
Common Stock within such five Business Day period, the holder will be entitled
to revoke the relevant Notice of Conversion by delivering a notice to such
effect to the Company whereupon the Company and such holder shall each be
restored to their respective positions immediately prior to delivery of such
Notice of Conversion. The Notice of Conversion and Series C Preferred Stock
certificates representing the portion of the Series C Preferred Stock converted
shall be delivered as follows:
To the Company:
Sims Communications, Inc.
18001 Cowan, Suite C & D
Irvine, California 92614
Attention: President
Telephone: (800) 241-1227
Facsimile: (949) 261-0323
In the event that shares representing the Common Stock issuable upon
conversion of the Series C Preferred Stock (the "Conversion Shares") are not
delivered by the Company within five Business Days after the Conversion Date, in
addition to all other available remedies which such holder may be entitled, the
Company shall pay to the holders thereof, in immediately available funds, upon
demand, as liquidated damages for such failure and not as a penalty, on each
date after such fifth Business Day (or fourth Business Day if not delivered to
reputable overnight courier as set forth above) that conversion is not timely
effected, an amount equal to 0.5% of the product of (a) the sum of the shares of
Common Stock not issued to the holder on a timely basis, as set forth above, and
to which such holder is entitled and in the event the Company has failed to
deliver a Series C Preferred Stock certificate to the holder on a timely basis
as set forth above, the number of shares of Common Stock issuable upon
conversion of the shares of Series C Preferred Stock represented by such Series
C Preferred Stock certificate, and (B) the Closing Bid Price of the Common Stock
on the last possible Trading Day which the Company could have issued such Common
Stock and Series C Preferred Stock certificate, as the case may be, to such
holder without violating the delivery requirements set forth above. In the event
the Company fails to pay the liquidated damages as set forth above within five
Business Days of the date incurred, then such payment shall bear interest at the
rate of two percent per month (pro rated for partial months) until such payments
are made. Any and all payments required pursuant to this paragraph shall be
payable only in cash.
<PAGE>
E. If the Common Stock issuable upon the conversion of the Series C
Preferred Stock shall be changed into the same or different number of shares of
any class or classes of stock, whether by capital reorganization,
reclassification or otherwise, then and in each such event, the holders of
Series C Preferred Stock shall have the right thereafter to convert such shares
into the kind and amount of shares of stock and other securities and property
receivable upon such capital reorganization, reclassification or other change
which such holders would have received had their shares of Series C Preferred
Stock been converted immediately prior to such capital reorganization,
reclassification or other change.
F. If at any time or from time to time there shall be a capital
reorganization of the Common Stock (other than a subdivision, combination,
reclassification or exchange of shares provided for elsewhere in this Section)
or a merger or consolidation of the Company with or into another corporation, or
the sale of all or substantially all of the Company's properties and assets to
any other person (any of which events is herein referred to as a
"Reorganization"), then as a part of such Reorganization, provision shall be
made so that the holders of the Series C Preferred Stock shall thereafter be
entitled to receive upon conversion of the Series C Preferred Stock, the number
of shares of stock or other securities or property of the Company, or of the
successor corporation resulting from such Reorganization, to which such holder
would have been entitled if such holder had converted its shares of Series C
Preferred Stock immediately prior to such Reorganization. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section with respect to the rights of the holders of the Series C Preferred
Stock after the Reorganization, to the end that the provisions of this Section
(including adjustment of the number of shares issuable upon conversion of the
Series C Preferred Stock) shall be applicable after that event in as nearly
equivalent a manner as may be practicable.
G. Upon the occurrence of each adjustment or readjustment of the
Conversion Price of Series C Preferred Stock, the Company, at its expense, shall
promptly compute such adjustment or readjustment in accordance with the terms
hereof and prepare and furnish to each holder of such Series C Preferred Stock a
certificate executed by the president and chief financial officer (or in the
absence of a person designated as the chief financial officer, by the treasurer)
setting forth such adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment are based. The Company shall, upon
written request at any time of any holder of Series C Preferred Stock, furnish
or cause to be furnished to such holder a certificate setting forth (A) the
Conversion Price at the time in effect, and (B) the number or shares of Common
Stock and the amount, if any, of other property which at the time would be
received upon the conversion of a share of Series C Preferred Stock.
H. Upon receipt by the Company of evidence of the loss, theft, destruction
or mutilation of any Series C Preferred Stock certificate(s), and (in the case
of loss, theft or destruction) of indemnity or security reasonably satisfactory
to the Company, and upon the cancellation of the Series C Preferred Stock
certificate(s), if mutilated, the Company shall execute and deliver new
certificates for Series C Preferred Stock of like tenure and date. However, the
Company shall not be obligated to reissue such lost or stolen certificates for
shares of Series C Preferred Stock if the holder contemporaneously requests the
Company to convert such shares of Series C Preferred Stock into Common Stock.
<PAGE>
I. The Company shall not issue any fraction of a share of Common Stock
upon any conversion. The Company shall round such fraction of a share of Common
Stock up to the nearest whole share.
J. In the event some but not all of the shares of Series C Preferred Stock
represented by a certificate or certificates surrendered by a holder are
converted, the Company shall execute and deliver to or on the order of the
holder, at the expense of the Company, a new certificate representing the number
of shares of Series C Preferred Stock which were not converted.
K. Each share of Series C Preferred Stock outstanding two years from the
Issuance Date shall automatically be converted into Common Stock on such date at
the Conversion Price and such date shall be deemed the Conversion Date with
respect to such shares.
L. The Company shall pay any and all original issue and/or transfer taxes
which may be imposed upon it with respect to the issuance and delivery of Common
Stock upon conversion of the Series C Preferred Stock.
VI. No Reissuance of Series C Preferred Stock. No share or shares of Series C
Preferred Stock acquired by the Company by reason of purchase, conversion or
otherwise shall be reissued, and all such shares shall be canceled, retired and
eliminated from the shares which the Company shall be authorized to issue. The
Company may from time to time take such appropriate corporate action as may be
necessary to reduce the authorized number of shares of the Series C Preferred
Stock accordingly.
VII. Reservation of Shares. The Company shall, so long as any of the Series C
Preferred Stock are outstanding reserve and keep available out of its authorized
and unissued Common Stock, solely for the purpose of effecting the conversion of
the Series C Preferred Stock, such number of shares of Common Stock as shall
from time to time be sufficient to effect the conversion of all of the Series C
Preferred Stock then outstanding; provided that the number of shares of Common
Stock so reserved shall at no time be less than 200% of the number of shares of
Common Stock for which the Series C Preferred Stock are at any time convertible
and if at any time the number of authorized but unissued shares of Common Stock
shall not be sufficient to maintain such number of shares of Common Stock, the
Company shall take such corporate action as may be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as shall
be sufficient for such purpose.
VIII. Restrictions and Limitations.
A. Except as expressly provided herein or as required by law, so long as
any shares of Series C Preferred Stock remain outstanding, the Company shall
not, without the approval by vote or written consent by the holders of at least
two thirds of the then outstanding shares of Series C Preferred Stock, voting as
a separate class take any action that would adversely affect the rights,
preferences or privileges of the holders of Series C Preferred Stock.
<PAGE>
B. Without limiting the generality of the preceding paragraph, the Company
shall not so long as any shares of Series C Preferred Stock remain outstanding
amend its Articles of Incorporation without the approval by the holders of all
of the then outstanding shares of Series C Preferred Stock if such amendment
would:
1. create any other class or series of capital stock entitled to
seniority as to the payment of dividends in relation to the holders
of Series C Preferred Stock;
2. reduce the amount payable to the holders of Series C Preferred
Stock upon the voluntary or involuntary liquidation, dissolution or
winding up of the Company, or change the relative seniority of the
liquidation preferences of the holders of Series C Preferred Stock
to the rights upon liquidation of the holders of other capital stock
of the Company,
3. cancel or modify the conversion rights of the holders of Series C
Preferred Stock provided for in Section V herein;
4. cancel or modify the rights of the holders of the Series C
Preferred Stock provided for in this Section.
IX. No Dilution or Impairment. The Company shall not, by amendment of its
Articles of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms of this Certificate of Designation set forth herein, but shall at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such actions as may be necessary or appropriate in order to
protect the rights of the holders of the Series C Preferred Stock against
dilution or other impairment. Without limiting the generality of the foregoing,
the Company (a) shall not establish a par value of any shares of stock
receivable on the conversion of the Series C Preferred Stock above the amount
payable therefor on such conversion, (b) shall take all such action as may be
necessary or appropriate in order that the Company may validly and legally issue
fully paid and nonassessable shares of stock on the conversion of all Series C
Preferred Stock from time to time outstanding, and (c) shall not consolidate
with or merge into any other person or entity, or permit any such person or
entity to consolidate with or merge into the Company (if the Company is not the
surviving person), unless such other person or entity shall expressly assume in
writing and will be bound by all of the terms of the Series C Preferred Stock
set forth herein.
X. Notices of Record Date. In the event of:
1. any taking by the Company of a record of the holders of any
class of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, or
<PAGE>
2. any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company, any
merger of the Company, or any transfer of all or substantially all of the assets
of the Company to any other corporation, or any other entity or person, or
3. any voluntary or involuntary dissolution, liquidation or
winding up of the Company, then and in each such event the Company shall mail or
cause to be mailed to each holder of Series C Preferred Stock a notice
specifying (i) the date on which any such record is to be taken for the purpose
of such dividend, distribution or right and a description of such dividend,
distribution or right, (ii) the date on which any such reorganization,
reclassification, recapitalization, transfer, merger, dissolution, liquidation
or winding up is expected to become effective and (iii) the time, if any, that
is to be fixed, as to when the holders of record of Common Stock (or other
securities) shall be entitled to exchange their shares of Common Stock (or other
securities) for securities or other property deliverable upon such
reorganization, reclassification, recapitalization, transfer, merger,
dissolution, liquidation or winding up. Such notice shall be mailed at least ten
Business Days prior to the date specified in such notice on which such action is
to be taken.
XI. Forced Conversion.
A. Subject to the other provisions of this Section, from and after the
Effective Date, the Company shall have the right to force conversion by the
holders of the Preferred Stock of up to a cumulative aggregate of 75% of the
total number of shares of Preferred Stock issued by the Company by telecopying
written notice of its election to force conversion (the "Forced Conversion
Notice") containing the information set forth below to the holders under the
following circumstances:
1. In the event, at any time and from time to time, the
Closing Bid Price of the Common Stock is equal to or greater than
175% of the Issuance Price for ten consecutive Trading Days, the
Company may force conversion by the holder of up to a maximum of up
to 50% of the total number of shares of Preferred Stock issued by
the Company to the holders; provided that the Company may not
initiate a forced conversion pursuant to the provisions of this
Subsection more than once every 30 calendar days and no single
forced conversion shall exceed 15% of the total number of shares of
Preferred Stock issued by the Company.
2. In the event, at any time and from time to time, the
Closing Bid Price of the Common Stock is equal to or greater than
200% of the Issuance Price for ten consecutive Trading Days, the
Company may force conversion by the holder of up to a maximum of up
to 75% of the total number of shares of Preferred Stock issued by
the Company to the holders; provided that the Company may not
initiate a forced conversion pursuant to the provisions of this
Subsection
<PAGE>
more than once every 30 calendar days and no single forced
conversion shall exceed 15% of the total number of shares of
Preferred Stock issued by the Company.
3. In the event the Company causes a forced conversion as set
forth herein the Accrual Deduction shall not apply. A Forced
Conversion Notice shall not be deemed to affect or otherwise reduce
the holders conversion rights as set forth herein as to the shares
of Preferred Stock not subject to a Forced Conversion Notice.
B. The Company shall effect such forced conversions pro rata amongst the
holders according to the number of shares of Preferred Stock held by each holder
of Preferred Stock. The Forced Conversion Notice must be delivered by the
Company prior to 12:00 p.m. Eastern Time on the first Trading Day immediately
following the expiration of the ten Trading Day period referred to in Section
XI. A. I and 2 above. A Forced Conversion Notice shall be deemed delivered on
(i) the Trading Day it is faxed by the Company if such notice is faxed (with
confirmation that it was received by the holder) prior to 12:00 p.m. Eastern
Time, or (ii) the immediately succeeding Trading Day if it is faxed (with
confirmation that it was received by the holder) after 12:00 p.m. Eastern Time
on a Trading Day or at any time on a day which is not a Trading Day. No Forced
Conversion Notice may be deemed delivered, on a day that is not a Trading Day.
The Company must forward the original Forced Conversion Notice to the holder via
reputable overnight courier for delivery on the Trading Day immediately
following transmission of the Forced Conversion Notice via facsimile. In the
event the original Forced Conversion Notice is not sent to the holder of the
Preferred Stock as set forth above, the Forced Conversion Notice shall be deemed
revoked and ineffective. Once the Company has exercised its right to force
conversion of the Preferred Stock by giving a Forced Conversion Notice to the
holder as set forth above it shall be deemed irrevocable. Each Trading Day on
which the Forced Conversion Notice is telecopied to and received by the holder
as set forth above shall be deemed a Conversion Date for the purposes of
completing the forced conversion and calculating the number of shares of Common
Stock to be issued upon the forced conversion, and shall also be referred to as
the "Forced Conversion Date". The Company will deliver the certificates
representing shares of Common Stock issuable pursuant to the Forced Conversion
Notice (together with the certificates representing the remaining shares of
Preferred Stock not being forced to convert, if any) to the holder via reputable
overnight courier, by electronic transfer or otherwise within five Business Days
after the Forced Conversion Date. In the event the Company does not deliver the
shares of Common Stock upon the forced conversion within five Business Days
after the Forced Conversion Date, the holder shall be entitled to liquidated
damages determined as set forth in Section V. D. above. In the event the Company
fails to comply with the terms of the forced conversion in any manner on more
than two separate occasions, it shall have waived its right to serve a Forced
Conversion Notice upon that particular holder at any time in the future.
<PAGE>
C. The Forced Conversion Notice shall set forth (i) a calculation
referencing the conversion formula contained herein showing the number of shares
of Common Stock being issued pursuant to the applicable forced conversion, and
(ii) a statement identifying which subsection among XI A. 1 and 2, that the
Company is relying on to force conversion, and the Closing Bid Prices of the
Common Stock during the ten consecutive Trading Days relied upon for the forced
conversion.
D. Upon the Company's full compliance with the forced conversion
provisions set forth in above, the shares of Series C Preferred Stock that are
the subject of a forced conversion shall be automatically canceled and converted
into a right to receive shares of Common Stock, and all rights of the Series C
Preferred Stock which are the subject of the forced conversion, including the
right to conversion, shall cease without further action, provided the holder
receives the correct number of shares of Common Stock due upon the forced
conversion. Immediately following receipt of the Forced Conversion Notice, if
the holder concurs with the Company's conversion calculations in the Forced
Conversion Notice, the holder shall surrender their original shares of Series C
Preferred Stock which are the subject of the Forced Conversion Notice at the
office of the Company, and the Company shall send to the holder a new Series C
Preferred Stock certificate for that number of shares of Series C Preferred
Stock which remains outstanding, if any, within five Business Days after such
surrender by the holder. If the holder does not concur with the Company's
conversion calculations in the Forced Conversion Notice, the holder shall notify
the Company in writing within three Business Days after the Forced Conversion
Date of such fact. Notwithstanding the foregoing, the Company remains obligated
to send those shares of Common Stock which are undisputed.
E. The number of shares of Common Stock issuable upon the forced
conversion of the Series C Preferred Stock shall be adjusted in the manner and
under the circumstances as set forth herein.
F. The Company may not serve a Forced Conversion Notice upon any holder if
such notice would result in such holder holding, at such time, more than 4.99%
of the number of shares of Common Stock then outstanding.
XII. Redemption.
A. For so long as the Company has not received a notice of conversion for
such shares, the Company may, at its option, repay, in whole or in part, the
Series C Preferred Stock shares at the Redemption Price (as defined below). The
Series C Preferred Stock is redeemable as a series, in whole or in part, by the
Company by providing written notice (the "Redemption Notice") to the holder of
the Series C Preferred Stock via facsimile at his or her address as the same
shall appear on the books of the Company (the Business Day between the hours of
9:00 a.m. and 5:00 Eastern Time the Redemption Notice is received by the holders
of the Series C Preferred Stock via facsimile is defined to be the "Redemption
Notice Date"). Within three Business Days after the Redemption Notice Date the
Company shall arrange payment of the Redemption Price (as defined below) in
<PAGE>
immediately available funds to the holder for the shares of Series C Preferred
Stock which are the subject of the Redemption Notice (such date of payment
referred to as the "Redemption Date"). Partial redemptions shall be in an
aggregate principal amount of at least $100,000. If fewer than all of the
outstanding shares of Series C Preferred Stock are to be redeemed, the Company
will select those to be redeemed pro-rata amongst the then holders of the Series
C Preferred Stock.
B. The "Redemption Price" shall be determined as follows:
1. If the Redemption Notice Date falls on or prior to the 60th
calendar day after the Issuance Date, the Redemption Price per share
of Series C Preferred Stock being redeemed shall be equal to 110% of
the Stated Value, plus all accrued and unpaid dividends.
2. If the Redemption Notice Date falls between the 60th
calendar day and the 90th calendar day after the Issuance Date, the
Redemption Price per share of Series C Preferred Stock being
redeemed shall be equal to 115% of the Stated Value, plus all
accrued and unpaid dividends.
3. If the Redemption Notice Date falls between the 91st
calendar day and the 120th calendar day after the Issuance Date, the
Redemption Price per share of Series C Preferred Stock being
redeemed shall be equal to 120% of the Stated Value, plus all
accrued and unpaid dividends.
4. If the Redemption Notice Date occurs at any time after the
121st calendar day after the Issuance Date, the Redemption Price per
share of Series C Preferred Stock being redeemed shall be equal to
the greater of (a) 125% of the Stated Value, plus all accrued and
unpaid dividends, or (b) the full "economic benefit" the holder
would derive from converting the Series C Preferred Stock and
selling the Common Stock on the Redemption Notice Date.
C. The Notice of Redemption shall set forth (i) the Redemption Date and
the place fixed for redemption, (ii) the Redemption Price, and (iii) a statement
that dividends on the shares of Series C Preferred Stock to be redeemed will
cease to accrue on such Redemption Date, and (iv) a statement of or reference to
the conversion right set forth herein. If fewer than all the shares of the
Series C Preferred Stock owned by such holder are then to be redeemed, the
notice shall specify the number of shares thereof that are to be redeemed and,
if practicable, the numbers of the certificates representing such shares. Within
ten Trading Days of the Notice of Redemption Date, the Company shall wire
transfer the appropriate amount of funds to the holders of the Series C
Preferred Stock. If the Company fails to comply with the redemption provisions
in any manner whatsoever, it shall waive its rights in the future to serve a
Redemption Notice upon the holders of the Series C Preferred Stock at any time.
For the first five Trading Days after the Notice Redemption Date the holder of
the Series C Preferred Stock will retain his or her right to convert the Series
C Preferred Stock. In the event the aforementioned occurs and the Company has
<PAGE>
not complied with all of the redemption provisions set forth herein the Company
must comply with the delivery requirements upon conversion as set forth herein.
The holders shall send the shares of Series C Preferred Stock being redeemed
to the Company within three Business Days after they have received good funds
for the Redemption Price of such shares.
D. Subject to the occurrence of the wire transfer of the Redemption Price
as described in above, each share of Series C Preferred Stock to be redeemed
shall be automatically canceled and converted into a right to receive the
Redemption Price, and all rights of the Series C Preferred Stock, including the
right to conversion shall cease without further action.
E. The Redemption Price shall be adjusted proportionally upon any
adjustment of the Conversion Price as provided herein and in the event of any
stock dividend, stock split, combination of shares or similar event.
XIII. 4.99% Limitation. The number of shares of Common Stock which may be
acquired by any of holder upon conversion pursuant to the terms herein shall not
exceed the number of such shares which, when aggregated with all other shares of
Common Stock then owned by holder, inclusive of all other shares of Common Stock
or securities convertible into Common Stock, would result in any holder owning
more than 4.99% of the then issued and outstanding Common Stock. The preceding
shall not interfere with any holders right to convert Preferred Stock over time
which in the aggregate totals more than 4.99% of the then outstanding shares of
Common Stock so long as such Investor does not own more than 4.99% of the then
outstanding Common Stock at any given time. The foregoing limitation shall not
apply to the Automatic Conversion provision contained herein.
<PAGE>
RESOLVED, FURTHER, that the appropriate officers of the Company hereby are
authorized to execute and acknowledge a certificate setting forth these
resolutions and to cause such certificate to be filed and recorded, all in
accordance with the requirements of Section 151 of the General Corporation Law
of the State of Delaware.
IN WITNESS WHEREOF, Sims Communications, Inc., has caused this
Certificate to be signed by its President, and attested to by its Assistant
Secretary, this 7th day of December, 1998.
SIMS COMMUNICATIONS, INC.
By:______________________________
Attest: President
- ---------------------------
Assistant Secretary
<PAGE>
EXHIBIT 10
<PAGE>
SERIES C CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
between
Sims Communications, Inc.
and
HSBC James Capel Canada, Inc.
Gilston Corporation, Ltd.
Augustine Fund, LP
December 7, 1998
<PAGE>
SERIES C CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES C CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT, dated as of
December 7, 1998 (the "Agreement"), between the entities listed on Schedule A
attached hereto (collectively referred to as the "Investors"), SETTONDOWN
CAPITAL INTERNATIONAL LTD. (the "Placement Agent") located at Charlotte House,
Charlotte Street, P.O. Box N. 9204, Nassau, Bahamas, a corporation organized
under the laws of Bahamas, and SIMS COMMUNICATIONS, INC., a corporation
organized and existing under the laws of the State of Delaware (the "Company").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Investors,
and the Investors shall purchase up to (a) 2,000 shares of Preferred Stock (as
defined below), and (b) Warrants to purchase that number of Warrant Shares
determined on each of the Warrant Valuation Dates as set forth below; and
WHEREAS, the Company shall issue to the Placement Agent (in addition to
the fees set forth in Section 12.7 below), in return for services rendered, an
aggregate of 60 shares of Preferred Stock, and a Warrant to purchase an
aggregate of 50,000 Warrant Shares; and
WHEREAS, such investments will be made in reliance upon the provisions of
Section 4(2) ("Section 4(2)") and Regulation D ("Regulation D") of the United
States Securities Act of 1933, as amended, and the regulations promulgated
thereunder (the "Securities Act"), and/or upon such other exemption from the
registration requirements of the Securities Act as may be available with respect
to any or all of the investments in Common Stock to be made hereunder.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
Certain Definitions
Section 1.1 "Additional Shares" shall have that meaning set forth in
Section 2.5 below.
Section 1.2 "Bid Price" shall mean the closing bid price (as reported by
Bloomberg L.P.) of the Common Stock on the Principal Market.
Section 1.3 "Business Day" means any day except Saturday, Sunday and any
day which shall be a Federal legal holiday or a day on which banking
institutions in the State of New York are authorized or required by law or other
government actions to close.
<PAGE>
Section 1.4 "Capital Shares" shall mean the Common Stock and any shares of
any other class of common stock whether now or hereafter authorized, having the
right to participate in the distribution of earnings and assets of the Company.
Section 1.5 "Capital Shares Equivalents" shall mean any securities,
rights, or obligations that are convertible into or exchangeable for, or giving
any right to, subscribe for any Capital Shares of the Company or any warrants,
options or other rights to subscribe for or purchase Capital Shares or any such
convertible or exchangeable securities.
Section 1.6 "Certificate of Designation" shall mean the Company's
Certificate of Designation setting forth all of the rights, privileges and
preferences of the Preferred Stock, as annexed hereto as Exhibit A.
Section 1.7 "Closing" shall mean the closings of a purchase and sale of
the Preferred Stock and Warrants pursuant to Article II below.
Section 1.8 "Closing Date" shall mean the Subscription Date.
Section 1.9 "Common Stock" shall mean the Company's common stock, $0.001
par value per share.
Section 1.10 "Damages" shall mean any loss, claim, damage, liability,
costs and expenses which shall include, but not be limited to, reasonable
attorney's fees, disbursements, costs and expenses of expert witnesses and
investigation.
Section 1.11 "Effective Date" shall mean the date on which the SEC first
declares effective a Registration Statement registering the resale of (i) 200%
of the number of Underlying Shares that would be required if the Preferred Stock
(including such shares of the Placement Agent) were converted on the Trading Day
immediately preceding the filing of the Registration Statement, plus (ii) 100%
of the number of Warrant Shares (including such shares of the Placement Agent)
issuable assuming all of the Warrants had been issued pursuant to the Purchase
Agreement.
Section 1.12 "Escrow Agent" shall mean the law firm of Goldstein,
Goldstein & Reis, LLP, pursuant to the terms of the Escrow Agreement attached as
Exhibit B.
Section 1.13 "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder.
Section 1.14 "Forced Conversion Period" shall mean 10 consecutive
Trading Days.
Section 1.15 "Legend" shall have the meaning set forth in Article VIII
below.
<PAGE>
Section 1.16 "Material Adverse Effect" shall mean any effect on the
business, operations, properties, Bid Price, trading volume of the Common Stock,
prospects, or financial condition of the Company that is material and adverse to
the Company and its subsidiaries and affiliates, taken as a whole, and/or any
condition, circumstance, or situation that would prohibit or otherwise in any
material respect interfere with the ability of the Company to enter into and
perform any of its obligations under this Agreement, the Registration Rights
Agreement, the Escrow Agreement, the Certificate of Designation or the Warrants
in any material respect.
Section 1.17 "NASD" shall mean the National Association of Securities
Dealers, Inc.
Section 1.18 "Outstanding" when used with reference to shares of Common
Stock, Preferred Stock, or Capital Shares (collectively the "Shares"), shall
mean, at any date as of which the number of such Shares is to be determined, all
issued and outstanding Shares, and shall include all such Shares issuable in
respect of outstanding scrip or any certificates representing fractional
interests in such Shares; provided, however, that Outstanding shall not mean any
such Shares then directly or indirectly owned or held by or for the account of
the Company.
Section 1.19 "Person" shall mean an individual, a corporation, a
partnership, an association, a limited liability company, a trust or other
entity or organization, including a government or political subdivision or an
agency or instrumentality thereof.
Section 1.20 "Preferred Stock" shall mean the Company's Series C Preferred
Stock with the rights, privileges and preferences, as set forth in the
Certificate of Designation.
Section 1.21 "Principal Market" shall mean the Nasdaq National Market, the
Nasdaq Small Cap Stock Market, the American Stock Exchange, or the New York
Stock Exchange, whichever is at the time the principal trading exchange or
market for the Common Stock.
Section 1.22 "Purchase Price" shall mean $2,000,000.
Section 1.23 "Registrable Securities" shall mean the Underlying Shares,
the Additional Shares, the Warrant Shares, (i) in respect of which the
Registration Statement (covering these securities) has not been declared
effective by the SEC, (ii) which have not been sold under circumstances under
which all of the applicable conditions of Rule 144 (or any similar provision
then in force) under the Securities Act ("Rule 144") are met, (iii) which have
not been otherwise transferred to holders who may trade such shares without
restriction under the Securities Act, or (iv) the sales of which, in the opinion
of counsel to the Company, are subject to any time, volume or manner limitations
pursuant to Rule 144(k) (or any similar provision then in effect) under the
Securities Act.
Section 1.24 "Registration Rights Agreement" shall mean the agreement
regarding the filing of the Registration Statement for the resale of the
Registrable Securities, entered into between the Company, the Placement Agent,
and the Investors on the Subscription Date annexed hereto as Exhibit C.
Section 1.25 "Registration Statement" shall mean a registration statement
<PAGE>
on Form S-3 or Form SB-2, for the registration of the resale by the Investors
and the Placement Agent of the Registrable Securities under the Securities Act.
Section 1.26 "Regulation D" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.27 "SEC" shall mean the Securities and Exchange Commission.
Section 1.28 "Section 4(2)" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.29 "Securities" shall mean the Underlying Shares, the Additional
Shares, the Warrant Shares.
Section 1.30 "Securities Act" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.31 "SEC Documents" shall mean the Company's latest Form 10-K
(and all amendments thereto) or 10-KSB (and all amendments thereto) as of the
time in question, all Form 10-Qs or 10-QSBs and Form 8-Ks filed thereafter, the
Company's Form SB-2 registration statement filed on or about August 1998, and
the Proxy Statement for its latest fiscal year as of the time in question until
such time as the Company no longer has an obligation to maintain the
effectiveness of a Registration Statement as set forth in the Registration
Rights Agreement.
Section 1.32 "Subscription Date" shall mean the date on which this
Agreement and all Exhibits and attachments hereto, are executed and delivered by
the parties hereto and all of the conditions relating to the issuance of the
Preferred Stock shall have been fulfilled.
Section 1.33 "Trading Day" shall mean any day during which the New York
Stock Exchange shall be open for business.
Section 1.34 "Underlying Shares" shall mean all shares of Common Stock or
other securities issued or issuable pursuant to conversion of the Preferred
Stock.
Section 1.35 "Warrants" shall mean the Common Stock Purchase Warrant
annexed hereto as Exhibit D.
Section 1.36 "Warrant Shares" shall mean all shares of Common Stock or
other securities issued or issuable pursuant to the exercise of the Warrants.
Section 1.37 "Warrant Valuation Date" shall mean the Business Day in which
the Investors receive Warrants pursuant to Section 2.4 below.
ARTICLE II
Purchase and Sale of the Preferred Stock and Warrants
<PAGE>
Section 2.1 Closing. The Company will sell, and the Investors will buy, on
the Closing Date, an aggregate of up to 2,000 shares of Preferred Stock based on
U.S.$1,000 per share, and Warrants to purchase that number of Warrant Shares as
set forth in Section 2.4 below for the Purchase Price provided each of the
conditions set forth in Section 2.7 below have been satisfied or waived in
writing.
Section 2.2 Form of Payment. The Investors shall pay the Purchase Price by
delivering good funds in United States Dollars by wire transfer to Goldstein,
Goldstein & Reis, LLP, Escrow Agent, against delivery of the original
Securities. The parties have entered into an Escrow Agreement annexed hereto as
Exhibit B.
Section 2.3 Wire Instructions. Wire instructions for Goldstein,
Goldstein & Reis, LLP are as follows:
Chase Manhattan Bank, N.A.
ABA No. 021000021
For the Account of:
United States Trust Company of New York
Account No. 920-1-073195
In favor of:
Goldstein, Goldstein & Reis, LLP Attorney Escrow Account
Account No. 59-01383
Section 2.4 Warrants. The Company will issue to the Investors (pro rata)
on the Warrant Valuation Dates (as set forth below) Warrant's exercisable
beginning on the applicable Warrant Valuation Date and then exercisable any time
over the five year period there following, to purchase Warrant Shares. On each
Warrant Valuation Date (as defined below) the Investors shall receive (pro rata)
Warrants to purchase that number of Warrant Shares equal to five percent of the
product of the following formula: number of all of the unconverted shares of
Preferred Stock which the Investors are the legal holder of starting on the
180th calendar day after the Closing Date (or the next Business Day immediately
thereafter if such day is not a Business Day) and each successive 30th calendar
day thereafter (or the next Business Day immediately thereafter if such day is
not a Business Day) until the 360th calendar day after the Closing Date (or the
next Business Day immediately thereafter if such day is not a Business Day),
multiplied by the Stated Value (as defined in the Certificate of Designation)
per share of Preferred Stock. Each of the 180th calendar day after the Closing
Date, and each successive 30th calendar day period thereafter shall be referred
to as a "Warrant Valuation Date". On the Subscription Date the Company shall
issue to the Placement Agent a Warrant to purchase 50,000 Warrant Shares
exercisable beginning on the Closing Date and then exercisable any time over the
five year period there following. The Warrant's shall be delivered by the
Company to the Escrow Agent, and delivered to the Investors and Placement Agent
pursuant to the terms of this Agreement and the Escrow Agreement. All of the
aforementioned Warrant Shares shall be registered for resale pursuant to the
Registration Rights Agreement. On each Warrant Valuation Date the Company shall
issue to each Investor an Officer's certificate stating that the Company has
<PAGE>
full authority to issue the Warrants and that the Company is in full compliance
with the terms of this Agreement (including all Exhibits annexed hereto).
The Company also agrees to issue to the Investors upon the completion of
any Redemption (as provided in the Certificate of Designation) Warrants to
purchase that number of shares of Common Stock equal to twenty percent of the
sum of the following formula in the case of a Redemption: number of shares of
Preferred Stock which are subject to Redemption multiplied by the Stated Value
(as defined in the Certificate of Designation) per share of Preferred Stock. The
terms of the warrants issued by the Company in connection with Redemption shall
be identical to the Warrants but for the date of the warrant, the "Termination
Date" and the "Exercise Price" which shall be 120% of the Bid Price on the
Trading Day immediately preceding the Redemption Notice Date (as defined in the
Certificate of Secretary).
Section 2.5 Additional Shares. In the event that (a) within five Trading
Days after the date on which the Investors and/or the Placement Agent receive
any of the Securities issued hereunder (provided such Securities have been
included in a registration statement that has been declared effective), a
"blackout period" occurs which is defined as any period in which the
effectiveness of the Registration Statement is suspended for any reason
whatsoever, and (b) the Bid Price on the Trading Day immediately preceding such
"blackout period" (the "Old Bid Price") is greater than the Bid Price on the
first Trading Day following such "blackout period" (the "New Bid Price"), the
Company shall issue to the Investors and/or the Placement Agent the number of
additional shares equal to the difference between (y) the product of the number
of Securities held by the Investors and/or the Placement Agent during such
"blackout period" that are or were not otherwise freely tradeable and the Old
Bid Price, divided by the New Bid Price and (z) the number of Securities held by
the Investors and/or the Placement Agent during such "blackout period" that were
not otherwise freely tradeable during such Blackout Period.
Section 2.6 Liquidated Damages. In addition to any other provisions for
liquidated damages in this Agreement or any Exhibit annexed hereto, in the event
that the Company does not deliver unlegended Common Stock in connection with the
sale of such Common Stock by the Investor(s) and/or the Placement Agent as set
forth in Article VIII below within five (5) Business Days of surrender by the
Investor(s) of the Common Stock certificate in accordance with the terms and
conditions set forth in Article VIII below (such date of receipt is referred to
as the "Receipt Date"), the Company shall pay to the Investor(s), in immediately
available funds, upon demand, as liquidated damages for such failure and not as
a penalty, one percent of the Purchase Price of the Common Stock undelivered for
every day thereafter for the first ten days and two percent for every day
thereafter that the unlegended shares of Common Stock are not delivered, which
liquidated damages shall run from the sixth Business Day after the Receipt Date.
The parties hereto acknowledge and agree that the sum payable pursuant to the
Registration Rights Agreement and as set forth above, and the obligation to
issue Registrable Securities under Section 2.5 above, shall constitute
liquidated damages and not penalties. The parties further acknowledge that the
amount of loss or damages likely to be incurred is incapable or is difficult to
<PAGE>
precisely estimate, and the parties are sophisticated business parties and have
been represented by sophisticated and able legal and financial counsel and
negotiated this Agreement at arm's length. Notwithstanding the above, in the
event that the Company does not deliver unlegended Common Stock in connection
with the sale of such Common Stock by the Investor(s) and/or the Placement Agent
as set forth in Article VIII below within five Business Days of the Receipt
Date), the Company shall also pay to the Investor(s), in immediately available
funds, interest (at the then current prime rate), based upon the Bid Price of
the Common Stock on the Receipt Date, undelivered for every day thereafter that
the unlegended shares of Common Stock are not delivered. Any and all payments
required pursuant to this paragraph shall be payable only in cash, and any
payment hereunder shall not relieve the Company of its delivery obligations
under this Section.
Section 2.7 Preferred Stock. The right of the Company to receive the
Purchase Price from the Investors, and the right of the Investors to receive the
Preferred Stock and Warrants (as set forth in Section 2.4) is subject to the
satisfaction (or written waiver) on the Closing Date, of each of the following
conditions:
(i) acceptance by the Company, and by all of the Investors, of this
Agreement and all duly executed Exhibits thereto by an
authorized officer of the Company;
(ii) delivery into escrow by the Investors of clear funds for the
Purchase Price (as more fully set forth in the Escrow Agreement
attached hereto as Exhibit B);
(iii)all representations and warranties of the Investors and of the
Company contained herein shall remain true and correct in all
material respects as of the Subscription Date;
(iv) the Company shall have obtained all permits and qualifications
required by any state for the offer and sale of the Preferred
Stock and the Warrants, or shall have the availability of
exemptions therefrom;
(v) the sale and issuance of the Preferred Stock, and the proposed
issuance of the Underlying Shares, Warrants and Warrant Shares
shall be legally permitted by all laws and regulations to which
the Investors and the Company are subject; and all duly
executed Exhibits hereto for the sale of the Securities;
(vi) delivery of the original Preferred Stock as described herein;
(vii)receipt by the Investors of an opinion of counsel of the
Company as set forth in Exhibit E attached hereto and
instructions to the Transfer Agent as set forth in Exhibit F
annexed hereto;
(viii) written proof that the Certificate of Designation has been
filed with the Secretary of State of the State of Delaware; and
(ix) payment of all fees as set forth in Section 12.7 below and the
Escrow Agreement.
<PAGE>
ARTICLE III
Representations and Warranties of the Investors
Each of the Investors represents and warrants to the Company that:
Section 3.1 Intent. Each of the Investors is entering into this Agreement
for its own account and has no present arrangement (whether or not legally
binding) at any time to sell the Common Stock to or through any person or
entity; provided, however, that by making the representations herein, the
Investors do not agree to hold the Common Stock for any minimum or other
specific term and reserves the right to dispose of the Common Stock at any time
in accordance with federal and state securities laws applicable to such
disposition.
Section 3.2 Sophisticated Investors. Each of the Investors is a
sophisticated investor (as described in Rule 506(b)(2)(ii) of Regulation D) and
an accredited investor (as defined in Rule 501 of Regulation D), and each of the
Investors has such experience in business and financial matters that it is
capable of evaluating the merits and risks of an investment in the Securities.
Each of the Investors acknowledges that an investment in the Common Stock is
speculative and involves a high degree of risk.
Section 3.3 Authority. This Agreement has been duly authorized and validly
executed and delivered by each of the Investors and is a valid and binding
agreement of the Investors enforceable against each of them in accordance with
its terms, subject to applicable bankruptcy, insolvency, or similar laws
relating to, or affecting generally the enforcement of, creditors' rights and
remedies or by other equitable principles of general application.
Section 3.4 Not an Affiliate. None of the Investors is an officer,
director or "affiliate" (as that term is defined in Rule 405 of the Securities
Act) of the Company.
Section 3.5 Organization and Standing. Each of the Investors is duly
organized, validly existing, and in good standing under the laws of the
countries and/or states of their incorporation or organization.
Section 3.6 Absence of Conflicts. The execution and delivery of this
Agreement and any other document or instrument executed in connection herewith,
and the consummation of the transactions contemplated thereby, and compliance
with the requirements thereof, will not violate any law, rule, regulation,
order, writ, judgment, injunction, decree or award binding on Investors, or, to
the Investors knowledge, (a) violate any provision of any indenture, instrument
or agreement to which any of the Investors are a party or are subject, or by
which any of the Investors or any of their assets is bound; (b) conflict with or
constitute a material default thereunder; (c) result in the creation or
imposition of any lien pursuant to the terms of any such indenture, instrument
or agreement, or constitute a breach of any fiduciary duty owed by Investors to
any third party; or (d) require the approval of any third-party (which has not
been
<PAGE>
obtained) pursuant to any material contract, agreement, instrument,
relationship or legal obligation to which any of the Investors is subject or to
which any of their assets, operations or management may be subject.
Section 3.7 Disclosure; Access to Information. Each of the Investors has
received all documents, records, books and other information pertaining to each
Investor's investment in the Company that have been requested by Investors,
including the opportunity to ask questions and receive answers. The Company is
subject to the periodic reporting requirements of the Exchange Act, and each of
the Investors has reviewed or received copies of any such reports that have been
requested by it. Each of the Investors represents that it has reviewed the
Company's, Form 10-KSB for the year ended December 31, 1997, Form 10-QSB's, and
Form 8-K's filed for the twelve months prior to the Subscription Date, and the
Company's Form SB-2 registration statement filed on or about August 1998.
Section 3.8 Manner of Sale. At no time were any of the Investors presented
with or solicited by or through any leaflet, public promotional meeting,
television advertisement or any other form of general solicitation or
advertising.
Section 3.9 Registration or Exemption Requirements. Each of the Investors
further acknowledges and understands that the Securities may not be transferred,
resold or otherwise disposed of except in a transaction registered under the
Securities Act and any applicable state securities laws, or unless an exemption
from such registration is available. Each of the Investors understands that the
certificate(s) evidencing the Preferred Stock will be imprinted with a legend
that prohibits the transfer of these Securities unless (i) they are registered
or such registration is not required, and (ii) if the transfer is pursuant to an
exemption from registration.
Section 3.10 No Legal, Tax or Investment Advice. Each of the Investors
understands that nothing in this Agreement or any other materials presented to
the Investors in connection with the purchase and sale of the Securities
constitutes legal, tax or investment advice. The Investors have relied on, and
have consulted with, such legal, tax and investment advisors as they, in their
sole discretion, have deemed necessary or appropriate in connection with their
purchase of the Securities.
Section 3.11 No Manipulation. Each of the Investors agree that it will not
enter into any position in the Common Stock that in any manner would manipulate
the Bid Price of the Common Stock in violation of the Exchange Act of 1934, as
amended.
ARTICLE IV
Representations and Warranties of the Company
The Company represents and warrants to the Investors and the Placement
Agent that:
Section 4.1 Organization of the Company. The Company is a corporation duly
incorporated and existing in good standing under the laws of the State of
Delaware and has all requisite corporate authority to own its properties and to
carry on its business as now being conducted except as described in the SEC
Documents. The Company is duly qualified as a foreign corporation to do business
<PAGE>
and is in good standing in every jurisdiction in which the nature of the
business conducted or property owned by it makes such qualification necessary,
other than those in which the failure so to qualify would not reasonably be
expected to have a Material Adverse Effect.
Section 4.2 Authority. (i) The Company has the requisite corporate power
and authority to enter into and perform its obligations under this Agreement,
and all Exhibits annexed hereto, and to issue the Preferred Stock, Warrants,
Underlying Shares, Additional Shares, Preferred Stock, and the Warrant Shares,
(ii) the execution, issuance and delivery of this Agreement, and all Exhibits
annexed hereto, by the Company and the consummation by it of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
and no further consent or authorization of the Company or its Board of
Directors, and (iii) this Agreement, and all Exhibits annexed hereto, have been
duly executed and delivered by the Company and constitute valid and binding
obligations of the Company enforceable against the Company in accordance with
their terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, or similar laws relating to, or affecting generally the
enforcement of, creditors' rights and remedies or by other equitable principles
of general application. Upon their issuance and delivery pursuant to this
Agreement, the securities will be validly issued, fully paid and nonassessable
and will be free of any liens or encumbrances other than those created hereunder
or by the actions of the Investors; provided, however, that the securities are
subject to restrictions on transfer under state and/or federal securities laws.
The issuance and sale of the securities hereunder will not give rise to any
preemptive right or right of first refusal or right of participation on behalf
of any person.
Section 4.3 Capitalization. The authorized capital stock of the Company
consists of 40,000,000 shares of Common Stock, $0.001 par value per share, of
which 9,430,356 shares are issued and outstanding, and 1,000,000 shares of
Preferred Stock, $0.001 par value per share, of which 125,250 are issued and
outstanding. All of the outstanding shares of Common Stock and Preferred Stock
of the Company have been duly and validly authorized and issued and are fully
paid and nonassessable. No shares of Common Stock are entitled to preemptive or
similar rights. Except as specifically disclosed in the SEC Documents, there are
no outstanding options, warrants, rights to subscribe to, calls or commitments
of any character whatsoever relating to, or, except as a result of the purchase
and sale of the Preferred Stock and the Warrants, securities, rights or
obligations convertible into or exchangeable for, or giving any Person any right
to subscribe for or acquire, any shares of Common Stock, or contracts,
commitments, understandings, or arrangements by which the Company or any
subsidiary is or may become bound to issue additional shares of Common Stock or
securities or rights convertible or exchangeable into shares of Common Stock. To
the knowledge of the Company, no Person or group of Persons beneficially owns
(as determined pursuant to Rule 13d-3 promulgated under the Exchange Act) or has
the right to acquire by agreement with or by obligation binding upon the Company
beneficial ownership of in excess of five percent of the Common Stock.
<PAGE>
Section 4.4 Common Stock. The Company has registered its Common Stock
pursuant to Section 12(g) of the Exchange Act and is in full compliance with all
reporting requirements of the Exchange Act, and such Common Stock is currently
listed or quoted on the Nasdaq Small Cap Stock Market.
Section 4.5 SEC Documents. The Company has delivered or made available to
the Investors true and complete copies of the SEC Documents filed by the Company
with the SEC during the twelve (12) months immediately preceding the
Subscription Date (including, without limitation, proxy information and
solicitation materials). The Company has not provided to any of the Investors
any information that, according to applicable law, rule or regulation, should
have been disclosed publicly prior to the date hereof by the Company, but which
has not been so disclosed. The SEC Documents comply in all material respects
with the requirements of the Securities Act or the Exchange Act, as the case may
be, and rules and regulations of the SEC promulgated thereunder and none of the
SEC Documents contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. The financial statements of the Company included in the
SEC Documents comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC or
other applicable rules and regulations with respect thereto. Such financial
statements have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis during the periods involved (except (i)
as may be otherwise indicated in such financial statements or the notes thereto
or (ii) in the case of unaudited interim statements, to the extent they may not
include footnotes or may be condensed or summary statements) and fairly present
in all material respects the financial position of the Company as of the dates
thereof and the results of operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments).
Section 4.6 Valid Issuances. When issued and payment has been made
therefor (in the case of the Investors), the Common Stock, Preferred Stock,
Underlying Shares, Warrants, Warrant Shares, and the Additional Shares, sold to
the Investors will be duly and validly issued, fully paid, and nonassessable.
Neither the issuance of, Preferred Stock, Underlying Shares, Warrants, or
Warrant Shares, to the Placement Agent, nor the sale of the Additional Shares,
the Underlying Shares, the Warrants, or the Warrant Shares to the Investors,
pursuant to, nor the Company's performance of its obligations under this
Agreement, and all Exhibits annexed hereto will (i) result in the creation or
imposition by the Company of any liens, charges, claims or other encumbrances
upon the Common Stock, Preferred Stock, Warrant Shares, or Underlying Shares,
issued to the Placement Agent, the Additional Shares, the Preferred Stock, the
Underlying Shares, the Warrant Shares issued to the Investors, or any of the
assets of the Company, or (ii) entitle the holders of Outstanding Capital Shares
to preemptive or other rights to subscribe to or acquire the Capital Shares or
other securities of the Company.
<PAGE>
Section 4.7 No General Solicitation or Advertising in Regard to this
Transaction. Neither the Company nor any of its affiliates nor any distributor
or any person acting on its or their behalf (i) has conducted or will conduct
any general solicitation (as that term is used in Rule 502(c) of Regulation D)
or general advertising with respect to any of the Preferred Stock, the
Additional Shares, the Underlying Shares, the Warrants, or the Warrant Shares,
or (ii) made any offers or sales of any security or solicited any offers to buy
any security under any circumstances that would require registration of the
Preferred Stock, the Additional Shares, the Underlying Shares, the Warrants, or
the Warrant Shares under the Securities Act.
Section 4.8 Corporate Documents. The Company has furnished or made
available to each of the Investors true and correct copies of the Company's
Articles of Incorporation, as amended and in effect on the date hereof, and the
Company's by-laws, as amended and in effect on the date hereof (the "By-Laws").
Section 4.9 No Conflicts. The execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby, including without limitation the issuance of the Common
Stock, Preferred Stock, Underlying Shares, Warrants, and Warrant Shares, do not
and will not (i) result in a violation of the Company's Articles of
Incorporation or By-Laws or (ii) conflict with, or constitute a material default
(or an event that with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any material agreement, indenture, instrument or any "lock-up"
or similar provision of any underwriting or similar agreement to which the
Company is a party, or (iii) result in a violation of any federal, state or
local law, rule, regulation, order, judgment or decree (including federal and
state securities laws and regulations) applicable to the Company or by which any
property or asset of the Company is bound or affected, nor is the Company
otherwise in violation of, conflict with or in default under any of the
foregoing as would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect. The business of the Company is not being
conducted in violation of any law, ordinance or regulation of any governmental
entity, except for possible violations that either singly or in the aggregate
would not reasonably be expected to have a Material Adverse Effect. The Company
is not required under federal, state or local law, rule or regulation to obtain
any consent, authorization or order of, or make any filing or registration with,
any court or governmental agency in order for it to execute, deliver or perform
any of its obligations under this Agreement or issue and sell the Common Stock,
Preferred Stock, or Warrants, in accordance with the terms hereof; provided
that, for purposes of the representation made in this sentence, the Company is
assuming and relying upon the accuracy of the relevant representations and
agreements of the Investors herein.
Section 4.10 No Material Adverse Change. Since June 30, 1998, no Material
Adverse Effect has occurred or exists with respect to the Company, except as
disclosed in the SEC Documents, or as publicly announced.
<PAGE>
Section 4.11 No Undisclosed Liabilities. The Company has no liabilities or
obligations which are material, individually or in the aggregate, that are not
disclosed in the SEC Documents or otherwise publicly announced, other than those
set forth in the Company's financial statements or as incurred in the ordinary
course of the Company's businesses since June 30, 1998, and which, individually
or in the aggregate, would not reasonably be expected to have a Material Adverse
Effect.
Section 4.12 No Undisclosed Events or Circumstances. Since June 30, 1998,
no event or circumstance has occurred or exists with respect to the Company or
its businesses, properties, prospects, operations or financial condition, that,
under applicable law, rule or regulation, requires public disclosure or
announcement prior to the date hereof by the Company but which has not been so
publicly announced or disclosed in the SEC Documents.
Section 4.13 No Integrated Offering. To the Company's knowledge, neither
the Company, nor any of its affiliates, nor any person acting on its or their
behalf has, directly or indirectly, made any offers or sales of any security or
solicited any offers to buy any security, other than pursuant to this Agreement
or pursuant to the Company's existing employee benefit plan, under circumstances
that would require registration of the Common Stock under the Securities Act, or
cause the offering of the Securities pursuant to this Agreement to be integrated
with prior or future offerings by the Company for purposes of the Securities Act
or any applicable stockholder approval provisions, except as set forth in the
SEC Documents.
Section 4.14 Litigation and Other Proceedings. Except as may be set forth
in the SEC Documents, there are no lawsuits or proceedings pending or to the
knowledge of the Company threatened, against the Company, nor has the Company
received any written or oral notice of any such action, suit, proceeding or
investigation, which would reasonably be expected to have a Material Adverse
Effect. Except as set forth in the SEC Documents, no judgment, order, writ,
injunction or decree or award has been issued by or, so far as is known by the
Company, requested of any court, arbitrator or governmental agency which would
be reasonably expected to result in a Material Adverse Effect.
Section 4.15 Accuracy of Reports and Information. The Company is in
compliance, to the extent applicable, with all reporting obligations under
either Section 12(b), 12(g) or 15(d) of the 1934 Act. The Company has registered
its Common Stock pursuant to Section 12 of the 1934 Act and the Common Stock is
listed and trades on the Nasdaq Small Cap Stock Market. The Company has complied
in all material respects and to the extent applicable with all reporting
obligations, under either Section 13(a) or 15(d) of the 1934 Act for a period of
at least twelve (12) months immediately preceding the offer and sale of the
Securities (or for such shorter period that the Company has been required to
file such material).
Section 4.16 Acknowledgment of Dilution. The Company is aware and
acknowledges that issuance of Common Stock, upon the conversion of the Preferred
Stock and/or exercise of the Warrants, may result in may result in dilution of
the outstanding shares of Common Stock, which dilution may be substantial under
certain market conditions. The Company further acknowledges that its obligation
to issue Underlying Shares in accordance with the Certificate of Designation and
Warrant Shares in accordance
<PAGE>
with the Warrants is unconditional and absolute regardless of the effect of any
such dilution.
Section 4.17 Employee Relations. The Company is not involved in any labor
dispute, nor, to the knowledge of the Company, is any such dispute threatened
which could reasonably be expected to have a Material Adverse Effect. None of
the Company's employees is a member of a union and the Company believes that its
relations with its employees are good.
Section 4.18 Environmental Laws. The Company is (i) in compliance with any
and all foreign, federal, state and local laws and regulations relating to the
protection of human health and safety, the environment or hazardous or toxic
substances or wastes, pollutants or contaminants and which the Company know is
applicable to them ("Environmental Laws"), (ii) has received all permits,
licenses or other approvals required under applicable Environmental Laws to
conduct its business, and (iii) is in compliance with all terms and conditions
of any such permit, license or approval.
Section 4.19 Insurance. The Company is insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts as
management of the Company believes to be prudent and customary in the businesses
in which the Company is engaged. The Company has no notice to believe that it
will not be able to renew its existing insurance coverage as and when such
coverage expires, or obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not materially and
adversely affect the condition, financial or otherwise, or the earnings,
business or operation, of the Company.
Section 4.20 Board Approval. The board of directors of the Company has
concluded, in its good faith business judgment, that the issuances of the
securities of the Company in connection with this Agreement are in the best
interests of the Company.
Section 4.21 Integration. The Company shall not and shall use its best
efforts to ensure that no affiliate shall sell, offer for sale or solicit offers
to buy or otherwise negotiate in respect of any security of the Company that
would be integrated with the offer or sale of the Securities in a manner that
would require the registration under the Securities Act of the issue, offer or
sale of the Securities to the Investors. The Securities are being offered and
sold pursuant to the terms hereunder, are not being offered and sold as part of
a previously commenced private placement of securities.
Section 4.22 Patents and Trademarks. The Company has, or has rights to
use, all patents, patent applications, trademarks, trademark applications,
service marks, trade names, copyrights, licenses, trade secrets and other
intellectual property rights which are necessary for use in connection with its
business or which the failure to so have would have a Material Adverse Effect
(collectively, the "Intellectual Property Rights"). To the best knowledge of the
Company, none of the Intellectual Property Rights infringe on any rights of any
other Person, and the Company either owns or has duly licensed or otherwise
acquired all necessary rights with respect to the Intellectual Property Rights.
The Company has not received any notice from any third party of any claim of
infringement by the Company of any of the Intellectual Property Rights, and has
<PAGE>
no reason to believe there is any basis for any such claim. To the best
knowledge of the Company, there is no existing infringement by another Person on
any of the Intellectual Property Rights.
Section 4.23 Use of Proceeds. The Company represents that the net proceeds
from this offering will be used for working capital purposes.
Section 4.24 Subsidiaries. Except as disclosed in the Reports, the Company
does not presently own or control, directly or indirectly, any interest in any
other corporation, partnership, association or other business entity.
ARTICLE V
Covenants of the Investors
Section 5.1 4.99% Limitation. The number of shares of Common Stock which
may be acquired by any of the Investors pursuant to the terms of this Agreement
shall not exceed the number of such shares which, when aggregated with all other
shares of Common Stock then owned by any of the Investors, beneficially or
deemed beneficially owned by any of the Investors, inclusive of Warrant Shares,
would result in any of the Investors owning more than 4.99% of the then issued
and outstanding Common Stock.
The preceding paragraph shall not interfere with any Investor's right to
convert Preferred Stock over time which in the aggregate totals more than 4.99%
of the then outstanding shares of Common Stock so long as such Investor does not
own more than 4.99% of the then outstanding Common Stock at any given time. The
foregoing limitation shall not apply to the Automatic Conversion provision
contained in the Certificate of Designation.
ARTICLE VI
Covenants of the Company
Section 6.1 Registration Rights. The Company shall cause the Registration
Rights Agreement to remain in full force and effect so long as any Registrable
Securities remain outstanding and the Company shall comply in all material
respects with the terms thereof.
Section 6.2 Reservation of Common Stock. As of the date hereof, the
Company has authorized and reserved and the Company shall continue to reserve
and keep available at all times, free of preemptive rights, shares of Common
Stock for the purpose of enabling the Company to satisfy any obligation to issue
the Additional Shares, Underlying Shares, and Warrant Shares; such amount of
shares of Common Stock to be reserved shall be calculated based upon the
Purchase Price therefor under the terms of this Agreement, the Certificate of
Designation, and Warrants. The number of shares so reserved shall be increased
or decreased to reflect potential increases or decreases in the Common Stock
that the Company may thereafter be so obligated to issue by reason of
adjustments to the Preferred Stock and the Warrants.
<PAGE>
Section 6.3 Listing of Common Stock. The Company shall (a) not later
than the fifth Business Day following the Closing Date prepare and file with the
Nasdaq Small Cap Stock Market (as well as any other national securities
exchange, market or trading facility on which the Common Stock is then listed)
an additional shares listing application covering at least the sum of (i) two
times the number of Underlying Shares as would be issuable upon a conversion in
full of (and as payment of dividends in respect of) the shares of Preferred
Stock, assuming such conversion occurred on the Closing Date (whichever yields a
lower Conversion Price), and (ii) the Warrant Shares issuable upon exercise in
full of the Warrants, (b) take all steps necessary to cause the such shares to
be approved for listing on the Nasdaq Small Cap Stock Market (as well as on any
other national securities exchange, market or trading facility on which the
Common Stock is then listed) as soon as possible thereafter, and (c) provide to
the Investors evidence of such listing, and the Company shall maintain the
listing of its Common Stock on such exchange or market. In addition, if at any
time the number of shares of Common Stock issuable on conversion of all then
outstanding shares of Preferred Stock, on account of accrued and unpaid
dividends thereon and upon exercise in full of the Warrants is greater than the
number of shares of Common Stock theretofore listed with the Nasdaq Small Cap
Stock Market (and any such other national securities exchange, market or trading
facility), the Company shall promptly take such action (including the actions
described in the preceding sentence) to file an additional shares listing
application with the Nasdaq Small Cap Stock Market (and any such other national
securities exchange, market or trading facility) covering at least a number of
shares equal to the sum of (x) 200% of (A) the number of Underlying Shares as
would then be issuable upon a conversion in full of the shares of Preferred
Stock, and (B) the number of Underlying Shares as would be issuable as payment
of dividends on the Shares and (y) the number of Warrant Shares as would be
issuable upon exercise in full of the Warrants. Except for the notice attached
hereto as Annex I (which the Company represents it has responded to and been
notified by the Nasdaq Small Cap Stock Market that the Company is now in full
compliance with the requirements for such continued listing), the Company (i)
has not received any notice, oral or written, affecting its continued listing on
the Nasdaq Small Cap Stock Market, and (ii) is in full compliance with the
requirements for continued listing on the Nasdaq Small Cap Stock Market. The
Company will take no action which would impact its continued listing or
eligibility of the Company for such listing (except as set forth in Section 6.11
below). The Company will comply with the listing and trading requirements of its
Common Stock on a Principal Market (including, without limitation, maintaining
sufficient net tangible assets) and will comply in all respects with the
Company's reporting, filing and other obligations under the bylaws or rules of
the Principal Market. In the event the Company receives notification from Nasdaq
or any other controlling entity stating that the Company is not in compliance
with the listing qualifications of such Principal Market, the Company will take
all action necessary to bring the Company within compliance with all applicable
listing standards of the Principal Market. Notwithstanding the foregoing, the
Company shall only be required to include that number of shares of Common Stock
in the aforementioned listing application as is allowable under the rules and
regulations of the Principal Market.
Section 6.4 Exchange Act Registration. The Company will maintain the
registration of its Common Stock under Section 12 of the Exchange Act, will
comply in all respects with its reporting and filing obligations under the
Exchange Act, and will not take any action or file any document (whether or not
<PAGE>
permitted by Exchange Act or the rules thereunder) to terminate or suspend such
registration or to terminate or suspend its reporting and filing obligations
under said Act.
Section 6.5 Legends. The Securities to be sold by the Company pursuant to
this Agreement shall be free of legends, except as set forth in Article VIII.
Section 6.6 Corporate Existence. The Company will take all steps
necessary to preserve and continue the corporate existence of the Company.
Section 6.7 Notice of Certain Events Affecting Registration. The Company
will immediately notify each of the Investors and the Placement Agent upon the
occurrence of any of the following events in respect of a registration statement
or related prospectus in respect of an offering of Registrable Securities: (i)
receipt of any request for additional information by the SEC or any other
federal or state governmental authority during the period of effectiveness of
the Registration Statement for amendments or supplements to the Registration
Statement or related prospectus; (ii) the issuance by the SEC or any other
federal or state governmental authority of any stop order suspending the
effectiveness of the Registration Statement or the initiation of any proceedings
for that purpose; (iii) receipt of any notification with respect to the
suspension of the qualification or exemption from qualification of any of the
Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; (iv) the happening of any event
that makes any statement made in the Registration Statement or related
prospectus or any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or that requires the making of any
changes in the Registration Statement, related prospectus or documents so that,
in the case of the Registration Statement, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, and
that in the case of the related prospectus, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and (v) the Company's
reasonable determination that a post-effective amendment to the Registration
Statement would be appropriate. The Company will promptly make available to the
Investors any such supplement or amendment to the related prospectus.
Section 6.8 Consolidation; Merger. The Company shall not, at any time
after the date hereof, effect any merger or consolidation of the Company with or
into, or a transfer of all or substantially all of the assets of the Company to,
another entity (a "Consolidation Event") unless the resulting successor or
acquiring entity (if not the Company) assumes by written instrument the
obligation to deliver to the Investors and the Placement Agent such shares of
stock and/or securities as the Investors and the Placement Agent are entitled to
receive pursuant to this Agreement.
Section 6.9 Issuance of Underlying Shares and Warrant Shares. The issuance
of the Underlying Shares and the Warrant Shares pursuant to exercise of the
Warrants, and the conversion of the Preferred Stock, shall be made in accordance
with the provisions and requirements of Section 4(2) of the Securities Act, or
Regulation D and any applicable state securities law.
<PAGE>
Section 6.10 Legal Opinion. The Company's independent counsel shall
deliver to the Investors upon execution of this Agreement, and upon the issuance
of the Warrants as set forth in Section 2.4 above, an opinion in the form of
Exhibit E annexed hereto (as conformed for the issuance of the Warrants, as
applicable). The Company will obtain for the Investors and the Placement Agent,
at the Company's expense, any and all opinions of counsel which may be
reasonably required in order to convert the Preferred Stock and/or exercise the
Warrants, including, but not limited to, obtaining for the Investors and the
Placement Agent an opinion of counsel, subject only to receipt of a notice of
conversion (the "Notice of Conversion") in the form of Exhibit G, and/or subject
only to a receipt of a notice of exercise in the form annexed to the Warrant,
directing the Transfer Agent to remove the legend from the certificate.
Section 6.11 20% Rule Limitation. If required by The Nasdaq Stock Market
or otherwise on the market or exchange on which the Company's Common Stock is
then listed, the Company shall call a meeting of its shareholders, to be held no
later than 60 calendar days after the Subscription Date, seeking shareholder
approval of the below market issuances of shares of Common Stock (and securities
convertible into and exercisable for Common Stock) to the Investors and the
Placement Agent of 20% or more of the number of shares of Common Stock
outstanding as of Subscription Date. In the event that the aforementioned
proposal is not so approved with such 60 calendar day period, the Company shall
seek a waiver from The Nasdaq Stock Market (or such other Principal Market) for
such below market issuances. In the event the Company does not receive such
waiver within the earlier of ten calendar days after the aforementioned
shareholders meeting, or 70 calendar days after the Subscription Date, the
Company shall either delist the Common Stock from The Nasdaq Stock Market and
immediately (within two Trading Days thereafter) list the Common Stock on the
OTC Bulletin Board, or the Company agrees that it will pay to the Investors the
Redemption Price (as defined and pursuant to the redemption provisions contained
in the Certificate of Designation, with payment due as if such date was a
Redemption Date) for that number of shares of Preferred Stock which would result
in the Company issuing, in the aggregate, of 20%or more of the outstanding
Common Stock as of the Subscription Date.
Section 6.12 Restrictions on Future Financings. Except for offerings by
the Company of which all of the proceeds are used to redeem the Preferred Stock
pursuant to the terms of the Certificate of Designation, the Company agrees that
it will not, without the prior written consent of all of the Investors, which
consent shall not be unreasonably withheld, enter into any subsequent or further
offer or sale of Common Stock, or any securities or other instruments
convertible into shares of Common Stock, until the Registration Statement has
been effective for 60 calendar days. This restriction shall not apply to: (a)
the issuance of securities (other than for cash) in connection with a merger,
consolidation, sale of assets, or other disposition, (b) the exchange of Capital
Shares for assets, stock, or joint venture interest, (c) an offering of any of
the Company's securities at then current market prices with no repricing, no
reset provisions, no attached warrants, or no securities convertible into shares
of Common Stock, or (d) any employee benefit plan; provided, however, that any
action contemplated under this Section is subject to the condition that
registration rights, if any, in connection with such action shall not require
the filing by the Company of a registration statement of such shares prior to 60
calendar days after the Effective Date.
<PAGE>
Section 6.13 Conversion of Preferred Stock. The Company will permit the
Investors and the Placement Agent to exercise their right to convert the
Preferred Stock by telecopying an executed and completed Notice of Conversion to
the Company as is set forth in the Certificate of Designation.
Section 6.14 Restriction on Future Issuances of Preferred Stock. The
Company agrees that except as provided for in this Agreement, it will not issue
any additional share or shares of the Preferred Stock.
Section 6.15 Increase in Authorized Shares. At such time as the Company
would be, if a notice of conversion or exercise (as the case may be) were to be
delivered on such date, precluded from (a) converting in full all of the shares
of Preferred Stock that remain unconverted at such date (and paying any accrued
but unpaid dividends in respect thereof in shares of Common Stock), or (b)
honoring the exercise in full of the Warrants, due to the unavailability of a
sufficient number of shares of authorized but unissued or re-acquired Common
Stock, the Board of Directors of the Company shall promptly (and in any case
within 60 calendar days from such date) hold a shareholders meeting in which the
shareholders would vote for authorization to amend the Company's certificate of
incorporation to increase the number of shares of Common Stock which the Company
is authorized to issue to at least a number of shares equal to the sum of (i)
all shares of Common Stock then outstanding, (ii) the number of shares of Common
Stock issuable on account of all outstanding warrants, options and convertible
securities (other than the Preferred Stock and the Warrants) and on account of
all shares reserved under any stock option, stock purchase, warrant or similar
plan, (iii) 200% of the number of Underlying Shares as would then be issuable
upon a conversion in full of the then outstanding shares of Preferred Stock and
as payment of all future dividends thereon in shares of Common Stock in
accordance with the terms of this Agreement and the Certificate of Designation,
and (iv) such number of Warrant Shares as would then be issuable upon the
exercise in full of the Warrants. In connection therewith, the Board of
Directors shall (x) adopt proper resolutions authorizing such increase, (y)
recommend to and otherwise use its best efforts to promptly and duly obtain
shareholder approval to carry out such resolutions and (z) within five Business
Days of obtaining such shareholder authorization, file an appropriate amendment
to the Company's certificate of incorporation to evidence such increase.
Section 6.16 Notice of Breaches. Each of the Company on the one hand, and
the Investors on the other, shall give prompt written notice to the other of any
breach by it of any representation, covenant, warranty or other agreement
contained in this Agreement or any Exhibit annexed hereto, as well as any events
or occurrences arising after the date hereof, which would reasonably be likely
to cause any representation, covenant, or warranty or other agreement of such
party, as the case may be, contained in this Agreement or any Exhibit annexed
hereto, to be incorrect or breached as of such Closing Date. However, no
disclosure by either party pursuant to this Section shall be deemed to cure any
breach of any representation, warranty or other agreement contained in this
Agreement or any Exhibit annexed hereto. Notwithstanding the generality of the
foregoing, the Company shall promptly notify each Investor of any notice or
claim (written or oral) that it receives from any lender of the Company to the
effect that the consummation of the transactions contemplated by this Agreement
<PAGE>
or any Exhibit annexed hereto, violates or would violate any written agreement
or understanding between such lender and the Company, and the Company shall
promptly furnish by facsimile to each Investor a copy of any written statement
in support of or relating to such claim or notice.
Section 6.17 Transfer of Intellectual Property Rights. Except in the
ordinary course of the Company's business consistent with past practice or in
connection with the sale of all or substantially all of the assets of the
Company, the Company shall not transfer, sell or otherwise dispose of, any
Intellectual Property Rights, or allow the Intellectual Property Rights to
become subject to any Liens, or fail to renew such Intellectual Property Rights
(if renewable and would otherwise expire).
ARTICLE VII
Due Diligence Review; Non-Disclosure of Non-Public Information
Section 7.1 Due Diligence Review. The Company shall make available for
inspection and review by the Investors, advisors to and representatives of the
Investors (who may or may not be affiliated with the Investors), any underwriter
participating in any disposition of the Registrable Securities on behalf of the
Investors pursuant to the Registration Statement, any such registration
statement or amendment or supplement thereto or any blue sky, NASD or other
filing, all financial and other records, all SEC Documents and other filings
with the SEC, and all other corporate documents and properties of the Company as
may be reasonably necessary for the purpose of such review, and cause the
Company's officers, directors and employees to supply all such information
reasonably requested by any of the Investors or any such representative, advisor
or underwriter in connection with such Registration Statement (including,
without limitation, in response to all questions and other inquiries reasonably
made or submitted by any of them), prior to and from time to time after the
filing and effectiveness of the Registration Statement for the sole purpose of
enabling the Investors and such representatives, advisors and underwriters and
their respective accountants and attorneys to conduct initial and ongoing due
diligence with respect to the Company and the accuracy of the Registration
Statement.
Section 7.2 Non-Disclosure of Non-Public Information
(a) The Company shall not disclose non-public information to the
Investors, advisors to, or representatives of, the Investors unless prior to
disclosure of such information the Company identifies such information as being
non-public information and provides each Investor, and its advisors and
representatives with the opportunity to accept or refuse to accept such
non-public information for review. The Company may, as a condition to disclosing
any non-public information hereunder, require each of the Investors advisors and
representatives to enter into a confidentiality agreement in form reasonably
satisfactory to the Company and the Investors.
(b) Nothing herein shall require the Company to disclose non-public
information to any of the Investors or their advisors or representatives, and
the Company represents that it does not disseminate non-public information to
any investors who purchase stock in the Company in a public offering, to money
<PAGE>
managers or to securities analysts, provided, however, that notwithstanding
anything herein to the contrary, the Company will, as hereinabove provided,
immediately notify the advisors and representatives of the Investors and, if
any, underwriters, of any event or the existence of any circumstance (without
any obligation to disclose the specific event or circumstance) of which it
becomes aware, constituting non-public information (whether or not requested of
the Company specifically or generally during the course of due diligence by such
persons or entities), which, if not disclosed in the prospectus included in the
Registration Statement would cause such prospectus to include a material
misstatement or to omit a material fact required to be stated therein in order
to make the statements, therein, in light of the circumstances in which they
were made, not misleading. Nothing contained in this Section shall be construed
to mean that such persons or entities other than the Investors (without the
written consent of the Investors prior to disclosure of such information) may
not obtain non-public information in the course of conducting due diligence in
accordance with the terms of this Agreement and nothing herein shall prevent any
such persons or entities from notifying the Company of their opinion that based
on such due diligence by such persons or entities, that the Registration
Statement contains an untrue statement of a material fact or omits a material
fact required to be stated in the Registration Statement or necessary to make
the statements contained therein, in light of the circumstances in which they
were made, not misleading.
ARTICLE VIII
Legends
Section 8.1 Legends. The Investors agree to the imprinting, so long
as is required by this Section, of the following legend (or such substantially
similar legend as is acceptable to the Investors and their counsel, the parties
agreeing that any unacceptable legended Securities shall be replaced promptly by
and at the Company's cost) on the Securities:
[FOR SHARES PREFERRED STOCK AND WARRANTS] NEITHER THESE SECURITIES NOR THE
SECURITIES INTO WHICH THESE SECURITIES ARE [CONVERTIBLE] [EXERCISABLE] HAVE
BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS.
[ONLY FOR UNDERLYING SHARES AND WARRANT SHARES TO THE EXTENT THE RESALE
THEREOF IS NOT COVERED BY AN EFFECTIVE REGISTRATION STATEMENT AT THE TIME OF
CONVERSION, ISSUANCE OR EXERCISE] THE SHARES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
<PAGE>
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS.
The Underlying Shares and/or Warrant Shares shall not contain the legend
set forth above or any other restrictive legend if the conversion of the
Preferred Stock, exercise of Warrants or other issuances of Underlying Shares
and/or Warrant Shares, as the case may be, occurs at any time while a
Registration Statement is effective under the Securities Act and in connection
with the resale of the shares of Common Stock or, in the event there is not an
effective Registration Statement at such time, if in the opinion of counsel to
the Company such legend is not required under applicable requirements of the
Securities Act (including judicial interpretations and pronouncements issued by
the staff of the Commission). The Company agrees that it will provide the
Investors, upon request, with a certificate or certificates representing
Underlying Shares and/or Warrant Shares, free from such legend at such time as
such legend is no longer required hereunder. The Company may not make any
notation on its records or give instructions to any transfer agent of the
Company which enlarge the restrictions of transfer set forth in this Section.
Upon the execution and delivery hereof, the Company is issuing to the
transfer agent for its Common Stock (and to any substitute or replacement
transfer agent for its Common Stock upon the Company's appointment of any such
substitute or replacement transfer agent) instructions in substantially the form
of Exhibit F hereto. Such instructions shall be irrevocable by the Company from
and after the date hereof or from and after the issuance thereof to any such
substitute or replacement transfer agent, as the case may be, except as
otherwise expressly provided in the Registration Rights Agreement. It is the
intent and purpose of such instructions, as provided therein, to require the
transfer agent for the Common Stock from time to time upon transfer of
Registrable Securities by the Investors or the Placement Agent to issue
certificates evidencing such Registrable Securities free of the Legend during
the following periods and under the following circumstances and except as
provided below, without consultation by the transfer agent with the Company or
its counsel and without the need for any further advice or instruction or
documentation to the transfer agent by or from the Company or its counsel or the
Investors:
(a) at any time after the Effective Date, upon surrender of one or
more certificates evidencing the Warrants, Preferred Stock, Underlying Shares or
Warrant Shares that bear the aforementioned Legend, to the extent accompanied by
a notice requesting the issuance of new certificates free of the aforementioned
legend to replace those surrendered; provided that (i) the Registration
Statement shall then be effective; (ii) the Investor(s) and/or the Placement
Agent confirm to the transfer agent that it has sold, pledged or otherwise
transferred or agreed to sell, pledge or otherwise transfer such Common Stock in
a bona fide transaction to a third party that is not an affiliate of the
Company; and (iii) the Investor(s) and/or Placement Agent confirm to the
transfer agent that the Investor(s) and/or Placement Agent have complied with
the prospectus delivery requirement.
<PAGE>
(b) at any time upon any surrender of one or more certificates
evidencing Registrable Securities, that bear the aforementioned legend, to the
extent accompanied by a notice requesting the issuance of new certificates free
of such legend to replace those surrendered and containing representations that
(i) the Investor(s) and/or the Placement Agent is permitted to dispose of such
Registrable Securities, without limitation as to amount or manner of sale
pursuant to Rule 144(k) under the Securities Act or (ii) the Investor(s) and/or
Placement Agent has sold, pledged or otherwise transferred or agreed to sell,
pledge or otherwise transfer such Registrable Securities, in a manner other than
pursuant to an effective registration statement, to a transferee who will upon
such transfer be entitled to freely tradeable securities. The Company shall have
counsel provide any and all opinions necessary for the sale under Rule 144.
Any of the notices referred to above in this Section may be sent by
facsimile to the Company's transfer agent.
Section 8.2 No Other Legend or Stock Transfer Restrictions. No legend
other than the one specified in this Article has been or shall be placed on the
share certificates representing the Common Stock, and no instructions or "stop
transfer orders," so called, "stock transfer restrictions," or other
restrictions have been or shall be given to the Company's transfer agent with
respect thereto other than as expressly set forth in this Article.
Section 8.3 Investor's Compliance. Nothing in this Article shall affect in
any way any of the Investors obligations under any agreement to comply with all
applicable securities laws upon resale of the Common Stock.
ARTICLE IX
Choice of Law
Section 9.1 Choice of Law; Venue; Jurisdiction. This Agreement will be
construed and enforced in accordance with and governed by the laws of the State
of New York, except for matters arising under the Securities Act, without
reference to principles of conflicts of law. Each of the parties consents to the
exclusive jurisdiction of the U.S. District Court sitting in the Southern
District of the State of New York sitting in Manhattan in connection with any
dispute arising under this Agreement and hereby waives, to the maximum extent
permitted by law, any objection, including any objection based on forum non
conveniens, to the bringing of any such proceeding in such jurisdictions. Each
party hereby agrees that if another party to this Agreement obtains a judgment
against it in such a proceeding, the party which obtained such judgment may
enforce same by summary judgment in the courts of any country having
jurisdiction over the party against whom such judgment was obtained, and each
party hereby waives any defenses available to it under local law and agrees to
the enforcement of such a judgment. Each party to this Agreement irrevocably
consents to the service of process in any such proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, to such party
at its address set forth herein. Nothing herein shall affect the right of any
party to serve process in any other manner permitted by law. Each party waives
its right to a trial by jury.
<PAGE>
ARTICLE X
Assignment; Entire Agreement, Amendment; Termination
Section 10.1 Assignment. Subject to Section 3.9the Investor's interest in
this Agreement and its ownership of Preferred Stock and Warrants may be assigned
or transferred at any time, in whole or in part, to any other person or entity
(including any affiliate of the Investors) who agrees to, and truthfully can,
make the representations and warranties contained in Article III, and who agrees
to be bound by the covenants of Article V. The provisions of this Agreement
shall inure to the benefit of, and be enforceable by, any transferee of any of
the shares of Preferred Stock and/or Warrants purchased or acquired by the
Investors hereunder with respect to the Common Stock held by such person.
Section 10.2 Termination. This Agreement shall terminate upon the earliest
of (i) the date that all the Registrable Securities have been sold by the
Investors pursuant to the Registration Statement; (ii) the date the Investors
receive an opinion from counsel to the Company that all of the Registrable
Securities may be sold under the provisions of Rule 144, without volume
limitation; or (iii) three years after the Closing Date; provided, however, that
the provisions of Articles III, IV, V, VI, VII, VIII, IX, X, XI, and XII herein,
and the registration rights provisions for the Registrable Securities held by
the Investors and the Placement Agent set forth in this Agreement, and the
Registration Rights Agreement, shall survive the termination of this Agreement.
ARTICLE XI
Notices
Section 11.1 Notices. All notices, demands, requests, consents, approvals,
and other communications required or permitted hereunder shall be in writing
and, unless otherwise specified herein, shall be (i) personally served, (ii)
deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a Business Day during normal business hours where such notice is to
be received), or the first Business Day following such delivery (if delivered
other than on a Business Day during normal business hours where such notice is
to be received) or (b) on the second Business Day following the date of mailing
by reputable courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be:
If to the Company:
Sims Communications, Inc.
18001 Cowan, Suite C & D
Irvine, CA 92614
Attention: President
Facsimile: (949) 261-0323
Telephone: (800) 241-1227
<PAGE>
With a copy to:
Hart & Trinen, L.L.P.
1624 Washington Street
Denver, Colorado 80203
Attention: William Hart
Facsimile: (303) 839-0061
Telephone: (303) 839-5414
If to the Investors, at the addresses listed on Schedule A.
If to the Placement Agent, at the address listed on the first page of this
Agreement.
with a copy to:
Goldstein, Goldstein & Reis, LLP
65 Broadway, 10th Floor
New York, NY 10006
Attention: Scott H. Goldstein, Esq.
Telephone: (212) 809-4220
Facsimile: (212) 809-4228
Either party hereto may from time to time change its address or facsimile
number for notices under this Section 11.1 by giving at least ten calendar days'
prior written notice of such changed address or facsimile number to the other
party hereto.
Section 11.2 Indemnification. The Company agrees to indemnify and hold
harmless each of the Investors and each officer, director of the Investors or
person, if any, who controls the Investors within the meaning of the Securities
Act against any losses, claims, damages or liabilities, joint or several (which
shall, for all purposes of this Agreement, include, but not be limited to, all
costs of defense and investigation and all attorneys' fees), to which the
Investors may become subject, under the Securities Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon the breach of any term of this Agreement. This
indemnity agreement will be in addition to any liability which the Company may
otherwise have.
Each Investor agrees that it will indemnify and hold harmless the Company,
and each officer, director of the Company or person, if any, who controls the
Company within the meaning of the Securities Act, against any losses, claims,
damages or liabilities (which shall, for all purposes of this Agreement,
include, but not be limited to, all costs of defense and investigation and all
attorneys' fees) to which the Company or any such officer, director or
<PAGE>
controlling person may become subject under the Securities Act or otherwise,
insofar as such losses claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon the breach of any term of this
Agreement. This indemnity agreement will be in addition to any liability which
the Investors or any subsequent assignee may otherwise have.
Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section, notify the indemnifying party of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve the indemnifying
party from any liability which it may have to any indemnified party otherwise
than as to the particular item as to which indemnification is then being sought
solely pursuant to this Section. In case any such action is brought against any
indemnified party, and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate in, and, to the
extent that it may wish, jointly with any other indemnifying party similarly
notified, assume the defense thereof, subject to the provisions herein stated
and after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party under this Section for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation, unless the
indemnifying party shall not pursue the action to its final conclusion. The
indemnified party shall have the right to employ separate counsel in any such
action and to participate in the defense thereof, but the fees and expenses of
such counsel shall not be at the expense of the indemnifying party if the
indemnifying party has assumed the defense of the action with counsel reasonably
satisfactory to the indemnified party; provided that if the indemnified party is
one of the Investors, the fees and expenses of such counsel shall be at the
expense of the indemnifying party if (i) the employment of such counsel has been
specifically authorized in writing by the indemnifying party, or (ii) the named
parties to any such action (including any impleaded parties) include both the
Investors and the indemnifying party and the Investors shall have been advised
by such counsel that there may be one or more legal defenses available to the
indemnifying party different from or in conflict with any legal defenses which
may be available to the Investors (in which case the indemnifying party shall
not have the right to assume the defense of such action on behalf of the
Investors, it being understood, however, that the indemnifying party shall, in
connection with any one such action or separate but substantially similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances, be liable only for the reasonable fees and
expenses of one separate firm of attorneys for the Investor(s), which firm shall
be designated in writing by the Investor(s)). No settlement of any action
against an indemnified party shall be made without the prior written consent of
the indemnified party, which consent shall not be unreasonably withheld.
Section 11.3 Contribution. In order to provide for just and equitable
contribution under the Securities Act in any case in which (i) the indemnified
party makes a claim for indemnification pursuant to Section 11.2 hereof but 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
<PAGE>
notwithstanding the fact that the express provisions of Section 11.2 hereof
provide for indemnification in such case, or (ii) contribution under the
Securities Act may be required on the part of any indemnified party, then the
Company and the applicable Investor shall contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (which shall, for
all purposes of this Agreement, include, but not be limited to, all costs of
defense and investigation and all attorneys' fees), in either such case (after
contribution from others) on the basis of relative fault as well as any other
relevant equitable considerations. The amount paid or payable by an indemnified
party as a result of the losses, claims, damages or liabilities (or actions in
respect thereof) referred to above in Section 11.2 shall be deemed to include
any legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contributions from any person who was
not guilty of such fraudulent misrepresentation.
ARTICLE XII
Miscellaneous
Section 12.1 Counterparts; Facsimile; Amendments. This Agreement may be
executed in multiple counterparts, each of which may be executed by less than
all of the parties and shall be deemed to be an original instrument which shall
be enforceable against the parties actually executing such counterparts and all
of which together shall constitute one and the same instrument. Except as
otherwise stated herein, in lieu of the original documents, a facsimile
transmission or copy of the original documents shall be as effective and
enforceable as the original. This Agreement may be amended only by a writing
executed by the Company on the one hand, and all of the Investors, and the
Placement Agent, on the other hand.
Section 12.2 Entire Agreement. This Agreement, the Exhibits or Attachments
hereto, which include, but are not limited to the Certificate of Designation,
the Warrant, the Escrow Agreement, and the Registration Rights Agreement, set
forth the entire agreement and understanding of the parties relating to the
subject matter hereof and supersedes all prior and contemporaneous agreements,
negotiations and understandings between the parties, both oral and written
relating to the subject matter hereof. The terms and conditions of all Exhibits
and Attachments to this Agreement are incorporated herein by this reference and
shall constitute part of this Agreement as is fully set forth herein.
Section 12.3 Survival; Severability. The representations, warranties,
covenants and agreements of the parties hereto shall survive each Closing
hereunder. In the event that any provision of this Agreement becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision; provided that such severability shall be ineffective if it materially
changes the economic benefit of this Agreement to any party.
Section 12.4 Title and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
<PAGE>
Section 12.5 Reporting Entity for the Common Stock. The reporting entity
relied upon for the determination of the trading price or trading volume of the
Common Stock on any given Trading Day for the purposes of this Agreement and all
Exhibits shall be Bloomberg, L.P. or any successor thereto. The written mutual
consent of the Investors and the Company shall be required to employ any other
reporting entity.
Section 12.6 Replacement of Certificates. Upon (i) receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of a certificate representing the Preferred Stock, Warrants,
Underlying Shares or Warrant Shares, and (ii) in the case of any such loss,
theft or destruction of such certificate, upon delivery of an indemnity
agreement or security reasonably satisfactory in form and amount to the Company
or (iii) in the case of any such mutilation, on surrender and cancellation of
such certificate, the Company at its expense will execute and deliver, in lieu
thereof, a new certificate of like tenor.
Section 12.7 Fees and Expenses. Each of the parties shall pay its own fees
and expenses (including the fees of any attorneys, accountants, appraisers or
others engaged by such party) in connection with this Agreement and the
transactions contemplated hereby, except that the Company shall pay on the
Subscription Date (i) the sum of one percent of the Purchase Price, in cash, out
of escrow, to Goldstein, Goldstein & Reis, LLP for legal, administrative, and
escrow fees, and (ii) to the Placement Agent (A) the sum equal to three percent
of the Purchase Price payable in cash out of escrow, (B) 60 shares of Preferred
Stock, and (C) Warrants to purchase 50,000 Warrant Shares, for Placement Agent
fees.
Section 12.8 Noncircumvention. The Company and the Investors agree that
they shall not circumvent this Agreement and the Company's obligation to pay
fees to the Placement Agent, and the Company, the Investors and the Placement
Agent agree that they will not circumvent the provisions of this Agreement or
the Escrow Agreement and the Company's obligation for the payment of fees to the
Escrow Agent.
Section 12.9 Publicity. The Company and the Investors shall consult with
each other in issuing any press releases or otherwise making public statements
with respect to the transactions contemplated hereby and no party shall issue
any such press release or otherwise make any such public statement without the
prior written consent of the other parties, which consent shall not be
unreasonably withheld or delayed, except that no prior consent shall be required
if such disclosure is required by law, in which such case the disclosing party
shall provide the other parties with prior notice of such public statement.
Notwithstanding the foregoing, the Company shall not publicly disclose the name
of the Investors without the prior written consent of the Investors, except to
the extent required by law, in which case the Company shall provide the
Investors with prior written notice of such public disclosure.
<PAGE>
[Remainder of page intentionally left blank]
[Signature page follows]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Series C
Convertible Preferred Stock Purchase Agreement to be executed by the
undersigned, thereunto duly authorized, as of the date first set forth above.
SIMS COMMUNICATIONS, INC.
By ____________________________
Mark Bennett, President
SETTONDOWN CAPITAL INTER-
NATIONAL LTD., Placement Agent
By_____________________________
AUGUSTINE FUND, LP, Investor
By_____________________________
HSBC JAMES CAPEL CANADA, INC., Investor
By_____________________________
GILSTON CORPORATION, LTD., Investor
By_____________________________
<PAGE>
SCHEDULE A
INVESTORS:
1. AUGUSTINE FUND, LP
141 West Jackson Boulevard, Suite 2182
Chicago, Illinois 60604
Telephone: (312) 427-5457
Facismile: (312) 427-5396
Initial Investment Amount: $250,000
No. of Shares of Preferred Stock: 250
2. HSBC James Capel Canada, Inc.*
105 Adelaide Street, Suite 1200
Toronto, ON MSH 1P9
Telephone: (416) 947-2700
Facsimile: (416) 947-9450
Initial Investment Amount: $250,000
No. of Shares of Preferred Stock: 250
* HSBC James Capel Canada, Inc. is not a party to the Escrow Agreement
annexed hereto.
3. Gilston Corporation, Ltd.
Charlotte House, Charlotte Street
P.O. Box N 9204
Nassau, Bahamas
Telephone: (242) 325-1033
Facsimile: (242) 323-7918
Initial Investment Amount: $250,000
No. of Shares of Preferred Stock: 250
<PAGE>
EXHIBIT B
ESCROW AGREEMENT
THIS ESCROW AGREEMENT is made as of the 7th day of December, 1998 by and
among SIMS COMMUNICATIONS, INC., with its principal office at 18001 Cowan, Suite
C & D, Irvine, CA 92614 (hereinafter the "Company"), the "Investors" specified
on Schedule A attached hereto (excluding HSBC James Capel Canada, Inc.), with
their respective principal offices at the addresses set forth in Schedule A,
SETTONDOWN CAPITAL INTERNATIONAL LTD., (the "Placement Agent") located at
Charlotte House, Charlotte Street, P.O. Box N. 9204, Nassau, Bahamas, and
GOLDSTEIN, GOLDSTEIN & REIS, LLP, 65 Broadway, 10th Fl., New York, NY 10006
(hereinafter the "Escrow Agent").
W I T N E S S E T H:
WHEREAS, the Investors will be purchasing Preferred Stock and
Warrants, from time to time from the Company at a purchase price as set forth in
the Series C Convertible Preferred Stock Purchase Agreement (the "Purchase
Agreement") dated as of December 7, 1998, which will be issued as per the terms
contained herein and in the Agreement executed by the Company and Investors; and
WHEREAS, the Company will be issuing Preferred Stock, and
Warrants to the Placement Agent pursuant to the Agreement; and
WHEREAS, it is intended that the purchase of the Preferred Stock and
Warrants be consummated in accordance with the requirements set forth by
Regulation D promulgated under the Securities Act of 1933, as amended; and
WHEREAS, the Company has requested that the Escrow Agent hold the
Purchase Price, in escrow until the Escrow Agent has received the original
Preferred Stock. The Escrow Agent will then immediately wire transfer or
otherwise deliver at the Company's discretion immediately available funds to the
Company's account and arrange for delivery of the Preferred Stock to the
Investors, and Preferred Stock and Warrants to the Placement Agent as per the
terms and conditions in the Agreement.
<PAGE>
ESCROW AGREEMENT
THIS ESCROW AGREEMENT is made as of the 7th day of December, 1998 by and
among SIMS COMMUNICATIONS, INC., with its principal office at 18001 Cowan, Suite
C & D, Irvine, CA 92614 (hereinafter the "Company"), the "Investors" specified
on Schedule A attached hereto(excluding HSBC James Capel Canada, Inc.), with
their respective principal offices at the addresses set forth in Schedule A,
SETTONDOWN CAPITAL INTERNATIONAL LTD., (the "Placement Agent") located at
Charlotte House, Charlotte Street, P.O. Box N. 9204, Nassau, Bahamas, and
GOLDSTEIN, GOLDSTEIN & REIS, LLP, 65 Broadway, 10th Fl., New York, NY 10006
(hereinafter the "Escrow Agent").
W I T N E S S E T H:
WHEREAS, the Investors will be purchasing Preferred Stock and
Warrants, from time to time from the Company at a purchase price as set forth in
the Series C Convertible Preferred Stock Purchase Agreement (the "Purchase
Agreement") dated as of December 7, 1998, which will be issued as per the terms
contained herein and in the Agreement executed by the Company and Investors; and
WHEREAS, the Company will be issuing Preferred Stock, and
Warrants to the Placement Agent pursuant to the Agreement; and
WHEREAS, it is intended that the purchase of the Preferred Stock and
Warrants be consummated in accordance with the requirements set forth by
Regulation D promulgated under the Securities Act of 1933, as amended; and
WHEREAS, the Company has requested that the Escrow Agent hold the
Purchase Price, in escrow until the Escrow Agent has received the original
Preferred Stock. The Escrow Agent will then immediately wire transfer or
otherwise deliver at the Company's discretion immediately available funds to the
Company's account and arrange for delivery of the Preferred Stock to the
Investors, and Preferred Stock and Warrants to the Placement Agent as per the
terms and conditions in the Agreement.
<PAGE>
NOW, THEREFORE, in consideration of the covenants and mutual
promises contained herein and other good and valuable consideration, the receipt
and legal sufficiency of which are hereby acknowledged and intending to be
legally bound hereby, the parties agree as follows:
ARTICLE 1
TERMS OF THE ESCROW FOR THE SECURITIES
1.1 The parties hereby agree to establish an escrow account with the
Escrow Agent whereby the Escrow Agent shall hold the funds for the purchase of
the Preferred Stock.
1.2 Upon Escrow Agent's receipt of the Purchase Price into its
attorney trustee account, it shall notify the Company, or the Company's
designated attorney or agent, of the amount of funds it has received into its
account.
1.3 The Company, upon receipt of said notice and acceptance of the
Agreement by all parties, as evidenced by the Company's and the Investors and
Placement Agent's execution thereof, shall deliver to the Escrow Agent the
Preferred Stock issued to the Investors, and the Preferred Stock and Warrants
issued to the Placement Agent. The Escrow Agent shall then communicate with the
Company to confirm the validity of such issuances.
1.4 Once Escrow Agent confirms the validity of the issuance of the
Preferred Stock as set forth in Section 1.3 above, the Escrow Agent shall
immediately wire that amount of funds necessary to purchase such shares of
Preferred Stock per the written instructions of the Company. The Company will
furnish the Escrow Agent with a "Net Letter" directing payment of Placement
Agent fees, and administrative, legal and escrow fees as per the terms of the
Purchase Agreement, such fees are to be remitted to in accordance with wire
instructions that will be sent to Escrow Agent from the Company, with the net
balance payable to the Company. Once the funds (as set forth above) have been
received per the Company's instructions, the Escrow Agent shall then arrange to
have the Preferred Stock and Warrants delivered as per instructions from the
Investors and the Placement Agent.
ARTICLE 2
MISCELLANEOUS
2.1 No waiver or any breach of any covenant or provision herein
contained shall be deemed a waiver of any preceding or succeeding breach
thereof, or of any other covenant or provision herein contained. No extension of
time for performance of any obligation or act shall be deemed any extension of
the time for performance of any other obligation or act.
<PAGE>
2.2 All notices or other communications required or permitted
hereunder shall be in writing, and shall be sent by fax, overnight courier,
registered or certified mail, postage prepaid, return receipt requested, and
shall be deemed received upon receipt thereof, as follows:
(a) Sims Communications, Inc.
18001 Cowan, Suite C & D
Irvine, CA 92614
Attention: President
Facsimile: (949) 261-0323
Telephone: (800) 241-1227
With a copy to:
Hart & Trinen, L.L.P.
1624 Washington Street
Denver, Colorado 80203
Attention: William Hart
Facsimile: (303) 839-0061
Telephone: (303) 839-5414
(b) If to the Investors, at the addresses set forth on Schedule A
hereto.
(c) Settondown Capital International Ltd.
Charlotte House, Charlotte Street
P.O. Box N. 9204
Nassau, Bahamas
Attention: Anthony L. M. Inder Riden
Telephone: (242) 325-1033
Facsimile: (242) 323-7918
(d) Goldstein, Goldstein & Reis, LLP
65 Broadway, 10th Fl.
New York, NY 10006
Attn: Scott H. Goldstein, Esq.
Telephone: (212) 809-4220
Facsimile: (212) 809-4228
or to such other person at such other place as shall designated in
writing;
2.3 This Agreement shall be binding upon and shall inure to the
benefit of the permitted successors and assigns of the parties hereto.
<PAGE>
2.4 This Agreement is the final expression of, and contains the
entire Agreement between, the parties with respect to the subject matter hereof
and supersedes all prior understandings with respect thereto.
2.5 Whenever required by the context of this Agreement, the singular
shall include the plural and masculine shall include the feminine. This
Agreement shall not be construed as if it had been prepared by one of the
parties, but rather as if both parties had prepared the same. Unless otherwise
indicated, all references to Articles are to this Agreement.
2.6 The Company acknowledges and confirms that it is not being
represented in a legal capacity by Goldstein, Goldstein & Reis, LLP and it has
had the opportunity to consult with its own legal advisors prior to the signing
of this Agreement.
2.7 This Agreement will be construed and enforced in accordance with
and governed by the laws of the State of New York, except for matters arising
under the Act, without reference to principles of conflicts of law. Each of the
parties consents to the exclusive jurisdiction of the U.S. District Court
sitting in the Southern District of the State of New York in connection with any
dispute arising under this Agreement and hereby waives, to the maximum extent
permitted by law, any objection, including any objection based on forum non
conveniens, to the bringing of any such proceeding in such jurisdictions. Each
party hereby agrees that if another party to this Agreement obtains a judgment
against it in such a proceeding, the party which obtained such judgment may
enforce same by summary judgment in the courts of any country having
jurisdiction over the party against whom such judgment was obtained, and each
party hereby waives any defenses available to it under local law and agrees to
the enforcement of such a judgment. Each party to this Agreement irrevocably
consents to the service of process in any such proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, to such party
at its address set forth herein. Nothing herein shall affect the right of any
party to serve process in any other manner permitted by law. Each party waives
its right to a trial by jury.
2.8 This Agreement may be altered or amended only with the consent
of all of the parties hereto. Should the Company, any of the Investors or the
Placement Agent attempt to change this Agreement in a manner which, in the
Escrow Agent's discretion, shall be undesirable, the Escrow Agent may resign as
Escrow Agent by notifying the Company and the Investors in writing. The Company,
the Investors and the Placement agent may remove the Escrow Agent as Escrow
Agent in writing signed by each of the foregoing, which writing must be
delivered to the Escrow Agent via reputable overnight courier and shall be
effective upon receipt by the Escrow Agent. In the case of the Escrow Agent's
resignation or removal pursuant to the foregoing, its only duty, until receipt
of notice from the Company and the Investors or their agent that a successor
escrow agent shall have been appointed, shall be to hold and preserve the funds.
Upon receipt by the Escrow Agent of said notice from the Company and the
Investors of the appointment of a successor escrow agent, the name of a
successor escrow account and a direction to transfer the funds, the Escrow Agent
shall promptly thereafter transfer all of the funds held in escrow and all
Securities and/or documents to said successor escrow agent. Immediately after
said transfer, the Escrow Agent shall furnish the Company and the Investors with
<PAGE>
proof of such transfer. The Escrow Agent is authorized to disregard any notices,
requests, instructions or demands received by it from the Company or the
Investors after notice of resignation or removal shall have been given, unless
the same shall be the aforementioned notice from the Company and the Investors
to transfer the funds to a successor escrow agent or to return same to the
respective parties.
2.9 The Escrow Agent shall be reimbursed by the Company and the
Investors for any reasonable expenses incurred in the event there is a conflict
between the parties and the Escrow Agent shall deem it necessary to retain
counsel.
2.10 The Escrow Agent shall not be liable for any action taken or
omitted by it in good faith in accordance with the advice of the Escrow Agent's
counsel; and in no event shall the Escrow Agent be liable or responsible except
for the Escrow Agent's own gross negligence or willful misconduct.
2.11 The Company and the Investors warrant to and agree with the
Escrow Agent that, unless otherwise expressly set forth in this Agreement:
(i) there is no security interest in the Securities or
any part thereof;
(ii) no financing statement under the Uniform Commercial Code
is on file in any jurisdiction claiming a security interest or
in describing (whether specifically or generally) the
Securities or any part thereof; and
(iii) the Escrow Agent shall have no responsibility at any
time to ascertain whether or not any security interest exists
in the Securities or any part thereof or to file any financing
statement under the Uniform Commercial Code with respect to
the Securities or any part thereof.
2.12 The Escrow Agent in its capacity as such has no liability
hereunder to either party other than to hold the funds and the Securities and to
deliver them under the terms hereof. Each party hereto agrees to indemnify and
hold harmless the Escrow Agent in its capacity as such from and with respect to
any suits, claims, actions or liabilities arising in any way out of this
transaction including the obligation to defend any legal action brought which in
any way arises out of or is related to this Escrow.
[Remainder of page intentionally blank]
[Signature page follows]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have cause this Escrow Agreement to
be executed as of the date first written on the first page of this Agreement.
SIMS COMMUNICATIONS, INC.
By ____________________________
Mark Bennett, President
SETTONDOWN CAPITAL INTER-
NATIONAL LTD., Placement Agent
By_____________________________
GOLDSTEIN, GOLDSTEIN & REIS, LLP,
Escrow Agent
By______________________________
Scott H. Goldstein
AUGUSTINE FUND, LP, Investor
By_____________________________
GILSTON CORPORATION, LTD., Investor
By_____________________________
<PAGE>
EXHIBIT C
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated the 7th day of December,
1998, between the entities listed on Schedule A attached hereto (referred to as
a the "Investors"), SETTONDOWN CAPITAL INTERNATIONAL LTD. (the "Placement
Agent", and together with the Investors is also hereinafter referred to as the
"Holder" or "Holders") located at Charlotte House, Charlotte Street, P.O. Box N.
9204, Nassau, Bahamas, a corporation organized under the laws of Bahamas, and
SIMS COMMUNICATIONS, INC., a corporation incorporated under the laws of the
State of Delaware, and having its principle place of business at 18001 Cowan,
Suite C & D, Irvine, CA 92614 (the "Company").
WHEREAS, simultaneously with the execution and delivery of this
Agreement, the Investors are purchasing from the Company, pursuant to the Series
C Convertible Preferred Stock Purchase Agreement dated the date hereof (the
"Purchase Agreement"), shares of Preferred Stock and Warrants (hereinafter
collectively referred to as the "Securities" of the Company); All capitalized
terms not hereinafter defined shall have that meaning assigned to them in the
Purchase Agreement; and
WHEREAS, simultaneously with the execution and delivery of this
Agreement, the Company shall issue Securities to the Placement Agent, in return
for services rendered, from time to time as provided in the Purchase Agreement;
and
WHEREAS, the Company desires to grant to the Holders the
registration rights set forth herein with respect to the securities set forth in
the Purchase Agreement.
NOW, THEREFORE, the parties hereto mutually agree as follows:
Section 1. Registrable Securities. As used herein the term
"Registrable Security" means the Underlying Shares, the Additional Shares, and
the Warrant Shares; provided, however, that with respect to any particular
Registrable Security, such security shall cease to be a Registrable Security
when, as of the date of determination, (i) it has been effectively registered
under the Securities Act of 1933, as amended (the "1933 Act") and disposed of
pursuant thereto, (ii) registration under the 1933 Act is no longer required for
the immediate public distribution of such security as a result of the provisions
of Rule 144 promulgated under the 1933 Act, or (iii) it has ceased to be
outstanding. The term "Registrable Securities" means any and/or all of the
securities falling within the foregoing definition of a Registrable Security. In
the event of any merger, reorganization, consolidation, recapitalization or
other change in corporate structure affecting the Common Stock, such adjustment
shall be made in the definition of Registrable Security as is appropriate in
order to prevent any dilution or enlargement of the rights granted pursuant to
this Section.
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated the 7th day of December,
1998, between the entities listed on Schedule A attached hereto (referred to as
a the "Investors"), SETTONDOWN CAPITAL INTERNATIONAL LTD. (the "Placement
Agent", and together with the Investors is also hereinafter referred to as the
"Holder" or "Holders") located at Charlotte House, Charlotte Street, P.O. Box N.
9204, Nassau, Bahamas, a corporation organized under the laws of Bahamas, and
SIMS COMMUNICATIONS, INC., a corporation incorporated under the laws of the
State of Delaware, and having its principle place of business at 18001 Cowan,
Suite C & D, Irvine, CA 92614 (the "Company").
WHEREAS, simultaneously with the execution and delivery of this
Agreement, the Investors are purchasing from the Company, pursuant to the Series
C Convertible Preferred Stock Purchase Agreement dated the date hereof (the
"Purchase Agreement"), shares of Preferred Stock and Warrants (hereinafter
collectively referred to as the "Securities" of the Company); All capitalized
terms not hereinafter defined shall have that meaning assigned to them in the
Purchase Agreement; and
WHEREAS, simultaneously with the execution and delivery of this
Agreement, the Company shall issue Securities to the Placement Agent, in return
for services rendered, from time to time as provided in the Purchase Agreement;
and
WHEREAS, the Company desires to grant to the Holders the
registration rights set forth herein with respect to the securities set forth in
the Purchase Agreement.
NOW, THEREFORE, the parties hereto mutually agree as follows:
Section 1. Registrable Securities. As used herein the term
"Registrable Security" means the Underlying Shares, the Additional Shares, and
the Warrant Shares; provided, however, that with respect to any particular
Registrable Security, such security shall cease to be a Registrable Security
when, as of the date of determination, (i) it has been effectively registered
under the Securities Act of 1933, as amended (the "1933 Act") and disposed of
pursuant thereto, (ii) registration under the 1933 Act is no longer required for
the immediate public distribution of such security as a result of the provisions
of Rule 144 promulgated under the 1933 Act, or (iii) it has ceased to be
outstanding. The term "Registrable Securities" means any and/or all of the
securities falling within the foregoing definition of a Registrable Security. In
the event of any merger, reorganization, consolidation, recapitalization or
other change in corporate structure affecting the Common Stock, such adjustment
shall be made in the definition of Registrable Security as is appropriate in
order to prevent any dilution or enlargement of the rights granted pursuant to
this Section.
<PAGE>
Section 2. Restrictions on Transfer. The Holders acknowledge and
understand that prior to the registration of the Registrable Securities as
provided herein, the Registrable Securities and the Securities are "restricted
securities" as defined in Rule 144 promulgated under the Act. The Holders
understand that no disposition or transfer of the Registrable Securities or the
Securities may be made by the Holders in the absence of (i) an opinion of
counsel to the Holders that such transfer may be made without registration under
the 1933 Act or (ii) such registration.
Section 3. Registration Rights.
(a) The Company agrees that it will prepare and file with the
Securities and Exchange Commission ("SEC"), within 60 calendar days after the
Closing Date, a registration statement (on Form SB-2, or other appropriate
registration statement) under the 1933 Act (the "Registration Statement"), at
the sole expense of the Company (except as provided in Section 3(c) hereof), in
respect of all holders of Registrable Securities, so as to permit a public
offering and sale of the Registrable Securities under the Act. The Company shall
use its best efforts to cause the Registration Statement to become effective
within 90 calendar days from the Closing Date. The number of shares of Common
Stock designated in the Registration Statement to be registered shall be (i)
200% of the number of Underlying Shares that would be required if the Preferred
Stock (including such shares of the Placement Agent) were converted on the
Trading Day immediately preceding the filing of the Registration Statement, plus
(ii) 100% of the number of Warrant Shares (including such shares of the
Placement Agent) issuable assuming all of the Warrants had been issued pursuant
to the Purchase Agreement.
(b) The Company will maintain the Registration Statement, or
post-effective amendment filed under this Section 3 hereof current under the
1933 Act until the earlier of (i) the date that all of the Registrable
Securities have been sold pursuant to the applicable Registration Statement,
(ii) the date the holders thereof receive an opinion of counsel that the
Registrable Securities may be sold under the provisions of Rule 144 or (iii)
five years after the Subscription Date for the Registration Statement.
(c) All fees, disbursements and out-of-pocket expenses and
costs incurred by the Company in connection with the preparation and filing of
the Registration Statement under subparagraph 3(a) and in complying with
applicable securities and blue sky laws (including, without limitation, all
attorneys' fees) shall be borne by the Company. The Holders shall bear the cost,
pro rata, of underwriting discounts and commissions, if any, applicable to the
Registrable Securities being registered and the fees and expenses of its
counsel. The Company shall qualify any of the securities for sale in such states
as such Holder reasonably designates and shall furnish indemnification in the
manner provided in Section 6 hereof. However, the Company shall not be required
to qualify in any state which will require an escrow or other restriction
relating to the Company and/or the sellers. The Company at its expense will
supply the Holders with copies of the Registration Statement and the prospectus
or offering circular included therein and other related documents in such
quantities as may be reasonably requested by the Holders.
<PAGE>
(d) The Company shall not be required by this Section 3 to
include a Holder's Registrable Securities in any Registration Statement which is
to be filed if, in the opinion of counsel for both the Holder and the Company
(or, should they not agree, in the opinion of another counsel experienced in
securities law matters acceptable to counsel for the Holder and the Company) the
proposed offering or other transfer as to which such registration is requested
is exempt from applicable federal and state securities laws and would result in
all purchasers or transferees obtaining securities which are not "restricted
securities", as defined in Rule 144 under the 1933 Act.
(e) In the event the Registration Statement to be filed by the
Company pursuant to Section 3(a) above is not filed with the SEC on or before
the 60th calendar day after the Closing Date and/or the Registration Statement
is not declared effective by the SEC within 120 calendar days from the Closing
Date, then the Company will pay the Holders (pro rated on a daily basis), as
liquidated damages for such failure and not as a penalty, two percent of the
purchase price of the then outstanding Securities for every 30 calendar day
period until the Registration Statement has been filed and/or declared
effective. Such payment of the liquidated damages shall be made to the Holders
in cash, immediately upon demand, provided, however, that the payment of such
liquidated damages shall not relieve the Company from its obligations to
register the Underlying Shares and Warrant Shares pursuant to this Section. If
the Company does not remit the damages to the Holder as set forth above, the
Company will pay the Holders reasonable costs of collection, including attorneys
fees, in addition to the liquidated damages. The registration of the Securities
pursuant to this provision shall not affect or limit Holder's other rights or
remedies as set forth in this Agreement.
(f) No provision contained herein shall preclude the Company
from selling securities pursuant to any registration statement in which it is
required to include Registrable Securities pursuant to this Section 3.
(g) The Company agrees that it shall declare the Registration
Statement effective within three Business Days after being informed by the SEC
that it may do so. The Company also agrees that it shall respond to any
questions and/or comments from the SEC which relate to the Registration
Statement within ten Business Days of receipt of such question or comment.
Section 4. Cooperation with Company. Each of the Holders will
cooperate with the Company in all respects in connection with this Agreement,
including timely supplying all information reasonably requested by the Company
and executing and returning all documents reasonably requested in connection
with the registration and sale of the Registrable Securities.
<PAGE>
Section 5. Registration Procedures. If and whenever the Company is
required by any of the provisions of this Agreement to effect the registration
of any of the Registrable Securities under the Act, the Company shall (except as
otherwise provided in this Agreement), as expeditiously as possible:
(a) prepare and file with the SEC such amendments and
supplements to the registration statements and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective and
to comply with the provisions of the Act with respect to the sale or other
disposition of all securities covered by such registration statement whenever
the Holder of such securities shall desire to sell or otherwise dispose of the
same (including prospectus supplements with respect to the sales of securities
from time to time in connection with a registration statement pursuant to Rule
415 promulgated under the Act);
(b) furnish to each Holder such numbers of copies of a summary
prospectus or other prospectus, including a preliminary prospectus or any
amendment or supplement to any prospectus, in conformity with the requirements
of the Act, and such other documents, as such Holder may reasonably request in
order to facilitate the public sale or other disposition of the securities owned
by such Holder;
(c) register and qualify the securities covered by the
Registration Statement under such other securities or blue sky laws of such
jurisdictions as the Holders shall reasonably request, and do any and all other
acts and things which may be necessary or advisable to enable each Holder to
consummate the public sale or other disposition in such jurisdiction of the
securities owned by such Holder, except that the Company shall not for any such
purpose be required to qualify to do business as a foreign corporation in any
jurisdiction wherein it is not so qualified or to file therein any general
consent to service of process;
(d) list such securities on the NASDAQ Small Cap Stock Market
or other national securities exchange on which any securities of the Company are
then listed, if the listing of such securities is then permitted under the rules
of such exchange or NASDAQ;
(e) enter into and perform its obligations under an
underwriting agreement, if the offering is an underwritten offering, in usual
and customary form, with the managing underwriter or underwriters of such
underwritten offering;
(f) notify each Holder of Registrable Securities covered by
the Registration Statement any time when a prospectus relating thereto covered
by the Registration Statement is required to be delivered under the Act, of the
happening of any event of which it has knowledge as a result of which the
prospectus included in the 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 the light of the circumstances then existing.
<PAGE>
Section 6. Information by Holder. Each Holder of Registrable
Securities included in any registration statement shall furnish to the Company
such information regarding such Holder and the distribution proposed by such
Holder as the Company may request in writing and as shall be required in
connection with any registration, qualification or compliance referred to in
this Section.
Section 7. Assignment. The rights granted the Holders under this
Agreement shall not be assigned without the written consent of the Company,
which consent shall not be unreasonably withheld. This Agreement is binding upon
and inures to the benefit of the parties hereto and their respective heirs,
successors and permitted assigns.
Section 8. Termination of Registration Rights. The rights granted
pursuant to this Agreement shall terminate as to each Investor (and permitted
transferee under Section 7 above) upon the occurrence of any of the following:
(a) all such Holder's securities subject to this
Agreement have been registered;
(b) all of such Holder's securities subject to this Agreement
may be sold without such registration pursuant to Rule 144 promulgated by the
SEC pursuant to the Securities Act;
(c) all of such Holder's securities subject to this Agreement
can be sold pursuant to Rule 144(k) without volume limitation; or
(d) five years from the issuance of the
Registrable Securities.
Section 9. Indemnification.
(a) In the event of the filing of any Registration Statement
with respect to Registrable Securities pursuant to Section 3 hereof, the Company
agrees to indemnify and hold harmless the Holders and each person, if any, who
controls the Holders within the meaning of the Securities Act ("Distributing
Holders") against any losses, claims, damages or liabilities, joint or several
(which shall, for all purposes of this Agreement, include, but not be limited
to, all costs of defense and investigation and all attorneys' fees), to which
the Distributing Holders may become subject, under the Securities 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 such Registration
Statement or any related preliminary prospectus, final prospectus, offering
circular, notification or amendment or supplement thereto, 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; provided, however, that the Company will not be liable in any such
case 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 such Registration Statement, preliminary prospectus,
<PAGE>
final prospectus, offering circular, notification or amendment or supplement
thereto in reliance upon, and in conformity with, written information furnished
to the Company by the Distributing Holders, specifically for use in the
preparation thereof. This indemnity agreement will be in addition to any
liability which the Company may otherwise have.
(b) Each Distributing Holder agrees that it will indemnify and
hold harmless the Company, and each officer, director of the Company or person,
if any, who controls the Company within the meaning of the Securities Act,
against any losses, claims, damages or liabilities (which shall, for all
purposes of this Agreement, include, but not be limited to, all costs of defense
and investigation and all attorneys' fees) to which the Company or any such
officer, director or controlling person may become subject under the Securities
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 a Registration
Statement, requested by such Distributing Holder, or any related preliminary
prospectus, final prospectus, offering circular, notification or amendment or
supplement thereto, or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, but in each case
only to the extent that such untrue statement or alleged untrue statement or
omission or alleged omission was made in such Registration Statement,
preliminary prospectus, final prospectus, offering circular, notification or
amendment or supplement thereto in reliance upon, and in conformity with,
written information furnished to the Company by such Distributing Holder,
specifically for use in the preparation thereof. This indemnity agreement will
be in addition to any liability which the Distributing Holders may otherwise
have.
(c) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section, notify the indemnifying party of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve the
indemnifying party from any liability which it may have to any indemnified party
otherwise than as to the particular item as to which indemnification is then
being sought solely pursuant to this Section. In case any such action is brought
against any indemnified party, and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate in,
and, to the extent that it may wish, jointly with any other indemnifying party
similarly notified, assume the defense thereof, subject to the provisions herein
stated and after notice from the indemnifying party to such indemnified party of
its election so to assume the defense thereof, the indemnifying party will not
be liable to such indemnified party under this Section for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation, unless the
indemnifying party shall not pursue the action to its final conclusion. The
indemnified party shall have the right to employ separate counsel in any such
action and to participate in the defense thereof, but the fees and expenses of
such counsel shall not be at the expense of the indemnifying party if the
indemnifying party has assumed the defense of the action with counsel reasonably
satisfactory to the indemnified party; provided that if the indemnified party is
the Distributing Holder, the fees and expenses of such counsel shall be at the
expense of the indemnifying party if (i) the employment of such counsel has been
specifically authorized in writing by the indemnifying party, or (ii) the named
parties to any such action (including any impleaded parties) include both the
Distributing Holder and the indemnifying party and the Distributing Holder shall
have been advised by such counsel that there may be one or more legal defenses
<PAGE>
available to the indemnifying party different from or in conflict with any legal
defenses which may be available to the Distributing Holder (in which case the
indemnifying party shall not have the right to assume the defense of such action
on behalf of the Distributing Holder, it being understood, however, that the
indemnifying party shall, in connection with any one such action or separate but
substantially similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances, be liable only for the reasonable
fees and expenses of one separate firm of attorneys for the Distributing Holder,
which firm shall be designated in writing by the Distributing Holder). No
settlement of any action against an indemnified party shall be made without the
prior written consent of the indemnified party, which consent shall not be
unreasonably withheld.
Section 10. Contribution. In order to provide for just and equitable
contribution under the Securities Act in any case in which (i) the Distributing
Holder makes a claim for indemnification pursuant to Section 9 hereof but 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 the express provisions of Section 9 hereof provide
for indemnification in such case, or (ii) contribution under the Securities Act
may be required on the part of any Distributing Holder, then the Company and the
applicable Distributing Holder shall contribute to the aggregate losses, claims,
damages or liabilities to which they may be subject (which shall, for all
purposes of this Agreement, include, but not be limited to, all costs of defense
and investigation and all attorneys' fees), in either such case (after
contribution from others) on the basis of relative fault as well as any other
relevant equitable considerations. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company on the one hand or the applicable
Distributing Holder, on the other hand, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company and the Distributing Holder agree that it
would not be just and equitable if contribution pursuant to this Section were
determined by pro rata allocation or by any other method of allocation which
does not take account of the equitable considerations referred to in this
Section. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages or liabilities (or actions in respect thereof) referred
to above in this Section shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
<PAGE>
Section 11. Notices. Any notice pursuant to this Agreement by the
Company or by the Holder shall be in writing and shall be deemed to have been
duly given if delivered by (i) hand, (ii) by facsimile and followed by mail
delivery or (iii) if mailed by certified mail, return receipt requested, postage
prepaid, addressed as follows:
(a) If to the Company:
Sims Communications, Inc.
18001 Cowan, Suite C & D
Irvine, CA 92614
Attention: President
Facsimile: (949) 261-0323
Telephone: (800) 241-1227
With a copy to:
Hart & Trinen, L.L.P.
1624 Washington Street
Denver, Colorado 80203
Attention: William Hart
Facsimile: (303) 839-0061
Telephone: (303) 839-5414
(b) If to the Placement Agent:
Settondown Capital International Ltd.
Charlotte House, Charlotte Street
P.O. Box N. 9204
Nassau, Bahamas
Attention: Anthony L. M. Inder Riden
Telephone: (242) 325-1033
Facsimile: (242) 323-7918
(c) If to the Investors, to their address set forth on Schedule A
annexed to the Purchase Agreement.
Notices shall be deemed given at the time they are delivered personally or
five calendar days after they are mailed in the manner set forth above. If
notice is delivered by facsimile to the Company and followed by mail, delivery
shall be deemed given two calendar days after such facsimile is sent.
Section 12. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
<PAGE>
Section 13. Headings. The headings in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 14. Choice of Law; Venue; Jurisdiction. This Agreement will
be construed and enforced in accordance with and governed by the laws of the
State of New York, except for matters arising under the Securities Act, without
reference to principles of conflicts of law. Each of the parties consents to the
exclusive jurisdiction of the U.S. District Court sitting in the Southern
District of the State of New York sitting in Manhattan in connection with any
dispute arising under this Agreement and hereby waives, to the maximum extent
permitted by law, any objection, including any objection based on forum non
conveniens, to the bringing of any such proceeding in such jurisdictions. Each
party hereby agrees that if another party to this Agreement obtains a judgment
against it in such a proceeding, the party which obtained such judgment may
enforce same by summary judgment in the courts of any country having
jurisdiction over the party against whom such judgment was obtained, and each
party hereby waives any defenses available to it under local law and agrees to
the enforcement of such a judgment. Each party to this Agreement irrevocably
consents to the service of process in any such proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, to such party
at its address set forth herein. Nothing herein shall affect the right of any
party to serve process in any other manner permitted by law. Each party waives
its right to a trial by jury.
Section 15. Severability. If any provision of this Agreement shall
for any reason be held invalid or unenforceable, such invalidity or
unenforceability shall not affect any other provision hereof and this Agreement
shall be construed as if such invalid or unenforceable provision had never been
contained herein.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Registration
Rights Agreement to be duly executed, on the day and year first above written.
Attest: SIMS COMMUNICATIONS, INC.
By:_________________________ By:____________________________
Name: Name: Mark Bennett
Title: Title: President
SETTONDOWN CAPITAL INTER-
NATIONAL LTD., Placement Agent
By_____________________________
AUGUSTINE FUND, LP, Investor
By_____________________________
HSBC JAMES CAPEL CANADA, INC., Investor
By_____________________________
GILSTON CORPORATION, LTD., Investor
By_____________________________
<PAGE>
EXHIBIT D
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER REGULATION D PROMULGATED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"). THIS WARRANT SHALL NOT CONSTITUTE AN OFFER
TO SELL NOR A SOLICITATION OF AN OFFER TO BUY THE SECURITIES IN ANY JURISDICTION
IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. THE SECURITIES ARE
"RESTRICTED" AND MAY NOT BE RESOLD OR TRANSFERRED EXCEPT AS PERMITTED UNDER THE
ACT PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
COMMON STOCK PURCHASE WARRANT
No. __
To Purchase ______ Shares of Common Stock of
SIMS COMMUNICATIONS, INC.
THIS CERTIFIES that, for value received, ___________________ (the
"Investor"), is entitled, upon the terms and subject to the conditions
hereinafter set forth, at any time on or after the date hereof and on or prior
to ____________ (the "Termination Date") but not thereafter, to subscribe for
and purchase from SIMS COMMUNICATIONS, INC., a Delaware corporation (the
"Company"), ( ) shares of Common Stock (the "Warrant Shares"). The purchase
price of one share of Common Stock (the "Exercise Price") under this Warrant
shall be _____ (which shall be equal to 120% of the closing bid price of the
Common Stock on the Principal Market, on the Trading Day immediately preceding
the Subscription Date, as defined in the Series C Convertible Preferred Stock
Purchase Agreement). The Exercise Price and the number of shares for which the
Warrant is exercisable shall be subject to adjustment as provided herein. This
Warrant is being issued in connection with the Series C Convertible Preferred
Stock Purchase Agreement dated December 7, 1998 (the "Agreement") entered into
between the Company, the Investor and other entities not a party to this
Warrant. In the event of any conflict between the terms of this Warrant and the
Agreement, the Agreement shall control.
1. Title of Warrant. Prior to the expiration hereof and subject to
compliance with applicable laws, this Warrant and all rights hereunder are
transferable, in whole or in part, at the office or agency of the Company by the
holder hereof in person or by duly authorized attorney, upon surrender of this
Warrant together with the Assignment Form annexed hereto properly endorsed.
<PAGE>
2. Authorization of Shares. The Company covenants that all shares of
Common Stock which may be issued upon the exercise of rights represented by this
Warrant will, upon exercise of the rights represented by this Warrant, be duly
authorized, validly issued, fully paid and nonassessable and free from all
taxes, liens and charges in respect of the issue thereof (other than taxes in
respect of any transfer occurring contemporaneously with such issue).
3. Exercise of Warrant. The Holder may not exercise its purchase
rights granted hereunder until one of the following two events has occurred: (i)
the Company has obtained shareholder approval for the below market issuance of
more than 20% of the outstanding shares of Common Stock as set forth in the
Agreement, or (ii) the Common Stock is no longer traded on a Principal Market.
In the event the Common Stock is traded on a Principal Market that does not
mandate such shareholder approval, then the aforementioned exercise restrictions
shall not apply. In the event the Company fails to obtain shareholder approval
as set forth in (i) above, the Company agrees to immediately list the Common
Stock on the OTC Bulletin Board (pursuant to the terms of the Agreement) and in
such case the aforementioned restrictions shall not apply. Exercise of the
purchase rights represented by this Warrant may be made at any time or times, in
whole or in part, before the close of business on the Termination Date, or such
earlier date on which this Warrant may terminate as provided in paragraph 11
below, assuming one of the aforementioned events has occurred, by the surrender
of this Warrant and the Subscription Form annexed hereto duly executed, at the
office of the Company (or such other office or agency of the Company as it may
designate by notice in writing to the registered holder hereof at the address of
such holder appearing on the books of the Company) and upon payment of the
Exercise Price of the shares thereby purchased; whereupon the holder of this
Warrant shall be entitled to receive a certificate for the number of shares of
Common Stock so purchased. Certificates for shares purchased hereunder shall be
delivered to the holder hereof within five Business Days after the date on which
this Warrant shall have been exercised as aforesaid. Payment of the Exercise
Price of the shares may be by certified check or cashier's check or by wire
transfer (of same day funds) to an account designated by the Company in an
amount equal to the Exercise Price multiplied by the number of shares being
purchased.
4. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant.
5. Charges, Taxes and Expenses. Issuance of certificates for shares
of Common Stock upon the exercise of this Warrant shall be made without charge
to the holder hereof for any issue or transfer tax or other incidental expense
in respect of the issuance of such certificate, all of which taxes and expenses
shall be paid by the Company, and such certificates shall be issued in the name
of the holder of this Warrant or in such name or names as may be directed by the
holder of this Warrant; provided, however, that in the event certificates for
shares of Common Stock are to be issued in a name other than the name of the
holder of this Warrant, this Warrant when surrendered for exercise shall be
accompanied by the Assignment Form attached hereto duly executed by the holder
hereof; and provided further, that upon any transfer involved in the issuance or
delivery of any certificates for shares of Common Stock, the Company may
require, as a condition thereto, the payment of a sum sufficient to reimburse it
for any transfer tax incidental thereto.
<PAGE>
6. Closing of Books. The Company will at no time close its
shareholder books or records in any manner which interferes with the timely
exercise of this Warrant.
7. No Rights as Shareholder until Exercise. This Warrant does not
entitle the holder hereof to any voting rights or other rights as a shareholder
of the Company prior to the exercise thereof. If, however, at the time of the
surrender of this Warrant and purchase the holder hereof shall be entitled to
exercise this Warrant, the shares so purchased shall be and be deemed to be
issued to such holder as the record owner of such shares as of the close of
business on the date on which this Warrant shall have been exercised.
8. Assignment and Transfer of Warrant. This Warrant may be assigned
by the surrender of this Warrant and the Assignment Form annexed hereto duly
executed at the office of the Company (or such other office or agency of the
Company as it may designate by notice in writing to the registered holder hereof
at the address of such holder appearing on the books of the Company); provided,
however, that this Warrant may not be resold or otherwise transferred except (i)
in a transaction registered under the Securities Act, or (ii) in a transaction
pursuant to an exemption, if available, from such registration and whereby, if
requested by the Company, an opinion of counsel reasonably satisfactory to the
Company is obtained by the holder of this Warrant to the effect that the
transaction is so exempt.
9. Loss, Theft, Destruction or Mutilation of Warrant. The Company
represents and warrants that upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of any Warrant
or stock certificate, and in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it, and upon reimbursement to the Company of
all reasonable expenses incidental thereto, and upon surrender and cancellation
of such Warrant or stock certificate, if mutilated, the Company will make and
deliver a new Warrant or stock certificate of like tenor and dated as of such
cancellation, in lieu of this Warrant or stock certificate.
10. Saturdays, Sundays, Holidays, etc. If the last or appointed day
for the taking of any action or the expiration of any right required or granted
herein shall be a Saturday, Sunday or a legal holiday, then such action may be
taken or such right may be exercised on the next succeeding day not a legal
holiday.
11. Effect of Certain Events. If at any time the Company proposes
(i) to sell or otherwise convey all or substantially all of its assets or (ii)
to effect a transaction (by merger or otherwise) in which more than 50% of the
voting power of the Company is disposed of (collectively, a "Sale or Merger
Transaction"), in which the consideration to be received by the Company or its
shareholders consists solely of cash, and in case the Company shall at any time
effect a Sale or Merger Transaction in which the consideration to be received by
the Company or its shareholders consists in part of consideration other than
cash, the holder of this Warrant shall have the right thereafter to purchase, by
exercise of this Warrant and payment of the aggregate Exercise Price in effect
immediately prior to such action, the kind and amount of shares and other
securities and property which it would have owned or have been entitled to
receive after the happening of such transaction had this Warrant been exercised
immediately prior thereto.
<PAGE>
12. Adjustments of Exercise Price and Number of Warrant Shares. The
number and kind of securities purchasable upon the exercise of this Warrant and
the Exercise Price shall be subject to adjustment from time to time upon the
happening of any of the following.
In case the Company shall (i) declare or pay a dividend in shares of
Common Stock or make a distribution in shares of Common Stock to holders of its
outstanding Common Stock, (ii) subdivide its outstanding shares of Common Stock,
(iii) combine its outstanding shares of Common Stock into a smaller number of
shares of Common Stock or (iv) issue any shares of its capital stock in a
reclassification of the Common Stock, the number of Warrant Shares purchasable
upon exercise of this Warrant immediately prior thereto shall be adjusted so
that the holder of this Warrant shall be entitled to receive the kind and number
of Warrant Shares or other securities of the Company which he would have owned
or have been entitled to receive had such Warrant been exercised in advance
thereof. An adjustment made pursuant to this paragraph shall become effective
immediately after the effective date of such event retroactive to the record
date, if any, for such event.
13. Voluntary Adjustment by the Company. The Company may at its
option, at any time during the term of this Warrant, reduce the then current
Exercise Price to any amount and for any period of time deemed appropriate by
the Board of Directors of the Company.
14. Notice of Adjustment. Whenever the number of Warrant shares or
number or kind of securities or other property purchasable upon the exercise of
this Warrant or the Exercise Price is adjusted, as herein provided, the Company
shall promptly mail by registered or certified mail, return receipt requested,
to the holder of this Warrant notice of such adjustment or adjustments setting
forth the number of Warrant Shares (and other securities or property)
purchasable upon the exercise of this Warrant and the Exercise Price of such
Warrant Shares after such adjustment, setting forth a brief statement of the
facts requiring such adjustment and setting forth computation by which such
adjustment was made. Such notice, in absence of manifest error, shall be
conclusive evidence of the correctness of such adjustment.
15. Authorized Shares. The Company covenants that during the period
the Warrant is outstanding, it will reserve from its authorized and unissued
Common Stock a sufficient number of shares to provide for the issuance of Common
Stock upon the exercise of any purchase rights under this Warrant. The Company
further covenants that its issuance of this Warrant shall constitute full
authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for shares of the
Company's Common Stock upon the exercise of the purchase rights under this
Warrant. The Company will take all such reasonable action as may be necessary to
assure that such shares of Common Stock may be issued as provided herein without
violation of any applicable law or regulation, or of any requirements of the
NASDAQ Small Cap Stock Market or any domestic securities exchange upon which the
Common Stock may be listed.
<PAGE>
16. Miscellaneous.
(a) Issue Date; Choice of Law; Venue; Jurisdiction. The
provisions of this Warrant shall be construed and shall be given effect in all
respects as if it had been issued and delivered by the Company on the date
hereof. This Warrant shall be binding upon any successors or assigns of the
Company. This Warrant will be construed and enforced in accordance with and
governed by the laws of the State of New York, except for matters arising under
the Securities Act, without reference to principles of conflicts of law. The
parties consent to the exclusive jurisdiction of the U.S. District Court sitting
in the Southern District of the State of New York in connection with any dispute
arising under this Warrant and hereby waives, to the maximum extent permitted by
law, any objection, including any objection based on forum non conveniens, to
the bringing of any such proceeding in such jurisdictions. Each party hereby
agrees that if the other party to this Warrant obtains a judgment against it in
such a proceeding, the party which obtained such judgment may enforce same by
summary judgment in the courts of any country having jurisdiction over the party
against whom such judgment was obtained, and each party hereby waives any
defenses available to it under local law and agrees to the enforcement of such a
judgment. Each party to this Warrant irrevocably consents to the service of
process in any such proceeding by the mailing of copies thereof by registered or
certified mail, postage prepaid, to such party at its address set forth herein.
Nothing herein shall affect the right of any party to serve process in any other
manner permitted by law. Each party waives its right to a trial by jury.
(b) Restrictions. The holder hereof acknowledges that the
Warrant Shares acquired upon the exercise of this Warrant, if not registered (or
if no exemption from registration exists), will have restrictions upon resale
imposed by state and federal securities laws. Each certificate representing the
Warrant Shares issued to the Holder upon exercise (if not registered or if no
exemption from registration exists) will bear the following legend:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY OTHER APPLICABLE SECURITIES LAWS AND HAVE BEEN
ISSUED IN RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT AND SUCH OTHER SECURITIES LAWS. NEITHER THIS SECURITY
NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED,
TRANSFERRED, PLEDGED, ENCUMBERED, HYPOTHECATED OR OTHERWISE DISPOSED OF,
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR PURSUANT TO A TRANSACTION THAT IS EXEMPT FROM, OR NOT
SUBJECT TO, SUCH REGISTRATION".
<PAGE>
(c) Modification and Waiver. This Warrant and any provisions
hereof may be changed, waived, discharged or terminated only by an instrument in
writing signed by the party against which enforcement of the same is sought.
(d) Notices. Any notice, request or other document required or
permitted to be given or delivered to the holders hereof of the Company shall be
delivered or shall be sent by certified or registered mail, postage prepaid, to
each such holder at its address as shown on the books of the Company or to the
Company at the address set forth in the Agreement.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed by its officers thereunto duly authorized.
Dated:
SIMS COMMUNICATIONS, INC.
By ______________________________
Name:
Title:
<PAGE>
NOTICE OF EXERCISE
To: SIMS COMMUNICATIONS, INC.
(1) The undersigned hereby elects to purchase ________ shares of Common Stock of
SIMS COMMUNICATIONS, INC. pursuant to the terms of the attached Warrant, and
tenders herewith payment of the purchase price in full, together with all
applicable transfer taxes, if any.
(2) Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as is
specified below:
-------------------------------
(Name)
-------------------------------
(Address)
-------------------------------
Dated:
- ------------------------------
Signature
<PAGE>
1
ASSIGNMENT FORM
(To assign the foregoing warrant,
execute this form and
supply required information.
Do not use this form to exercise the warrant.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights
evidenced thereby are hereby assigned to
_______________________________________________ whose address is
- ---------------------------------------------------------------.
- ---------------------------------------------------------------
Dated: ______________,
Holder's Signature: _____________________________
Holder's Address: _____________________________
-----------------------------
Signature Guaranteed: ___________________________________________
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in an fiduciary or other representative
capacity should file proper evidence of authority to assign the foregoing
Warrant.
<PAGE>
EXHIBIT E
FORM OF OPINION OF THE COMPANY'S INDEPENDENT COUNSEL
<PAGE>
[Date]
Address
Re: Series C Convertible Preferred Stock Purchase Agreement dated December
7, 1998
Ladies and Gentlemen:
This opinion is furnished to you pursuant to the Series C Convertible
Preferred Stock Purchase Agreement by and between Settondown Capital
International, Ltd. (the "Placement Agent"), the entities (the "Investors")
listed on Schedule A, and Sims Communications, Inc. (the "Company"), dated
December 7, 1998 (the "Purchase Agreement"), which provides for the issuance of
Preferred Stock, and, certain additional shares upon the occurrence of certain
events as set forth thereof (the "Blackout Shares"), and a warrant to purchase
shares of Common Stock of the Company (the "Warrant", and the shares of Common
Stock issued or issuable pursuant to exercise of the Warrant, the "Warrant
Shares"). All terms used herein have the meanings defined for them in the
Purchase Agreement unless otherwise defined herein.
We have acted as counsel for the Company in connection with the
negotiation of the Purchase Agreement, the Warrant, the Certificate of
Designation, the Escrow Agent, and the Registration Rights Agreement (the
"Registration Rights Agreement") between the Investors, the Placement Agent, and
the Company, dated December 7, 1998, and the Escrow Agreement between the
Investors (excluding HSBC James Capel Canada, Inc.), the Placement Agent, the
Company and the Escrow Agent, dated December 7, 1998 (the "Escrow Agreement",
and together with the Purchase Agreement and the Registration Rights Agreement,
the "Agreements"). As counsel, we have made such legal and factual examinations
and inquires as we have deemed advisable or necessary for the purpose of
rendering this opinion. In addition, we have examined, among other things,
originals or copies of such corporate records of the Company, certificates of
public officials and such other documents and questions of law that we consider
necessary or advisable for the purpose of rendering this opinion. In such
examination we have assumed the genuineness of all signatures on original
documents, the authenticity and completeness of all documents submitted to us as
originals, the conformity to original documents of all copies submitted to us as
copies thereof, the legal capacity of natural persons, and the due execution and
delivery of all documents (except as to due execution and delivery by the
Company) where due execution and delivery are a prerequisite to the
effectiveness thereof.
As used in this opinion, the expression "to our knowledge" refers to the
current actual knowledge of the attorneys of this firm who have worked on
matters for the Company solely in connection with the Agreements and the Warrant
and the transactions contemplated thereby.
For purposes of this opinion, we have assumed that you have all requisite
power and authority, and have taken any and all necessary corporate action, to
execute and deliver the Agreements, and we are assuming that the representations
and warranties made by the Investor in the Agreements and pursuant thereto are
true and correct.
<PAGE>
The opinions hereinafter expressed are subject to the following
qualifications:
Based upon and subject to the foregoing, we are of the opinion that:
1. The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and has all requisite
power and authority (corporate and other) to carry on its business and to own,
lease and operate its properties and assets as described in the Company's SEC
Documents. To our knowledge, the Company does not own or control any other
business entity. The Company is duly qualified as a foreign corporation to do
business and is in good standing in every jurisdiction in which the Company owns
or leases property, other than those in which the failure so to qualify would
not have a Material Adverse Effect.
2. The Company has the requisite corporate power and authority to enter
into and perform its obligations under the Agreements, the Certificate of
Designation, and the Warrants and to issue the Preferred Stock, the Additional
Shares, the Warrants, the Warrant Shares, the Underlying Shares and the Blackout
Shares. The execution and delivery of the Agreements, and the execution,
issuance and delivery of the Preferred Stock, and the Warrants, by the Company
and the consummation by it of the transactions contemplated thereby have been
duly authorized by all necessary corporate action and no further consent or
authorization of the Company or its Board of Directors or stockholders is
required. Each of the Agreements has been duly executed and delivered, and the
Warrants, and Preferred Stock has been duly executed, issued and delivered, by
the Company and each of the Agreements, the Preferred Stock, and the Warrants
constitutes valid and binding obligations of the Company enforceable against the
Company in accordance with their respective terms, except as such enforceability
may be limited by applicable bankruptcy, insolvency, or similar laws relating
to, or affecting generally the enforcement of, creditors' rights and remedies or
by other equitable principles of general application.
3. The execution, delivery and performance of the Agreements, the
Preferred Stock, and the Warrants by the Company and the consummation by the
Company of the transactions contemplated thereby, including, without limitation,
the issuance of the Additional Shares, the Warrants, the Warrant Shares, the
Preferred Stock, the Underlying Shares, and the Blackout Shares, do not and will
not (i) result in a violation of the Company's Articles or By-Laws; (ii) to our
knowledge, conflict with, or constitute a material default (or an event that
with notice or lapse of time or both would become a default) under, or give to
others any rights of termination, amendment, acceleration or cancellation of,
any material agreement, indenture, instrument or any "lock-up" or similar
provision of any underwriting or similar agreement to which the Company is a
party, except for such conflicts, defaults, terminations, amendments,
accelerations and cancellations as would not, individually or in the aggregate,
have a Material Adverse Effect; or (iii) result in a violation of any federal or
state law, rule or regulation applicable to the Company or by which any property
or asset of the Company is bound or affected, except for such violations as
would not, individually or in the aggregate, have a Material Adverse Effect. To
our knowledge, the Company is not in violation of any terms of its Articles or
Bylaws.
<PAGE>
4. The issuance of the Additional Shares, the Warrants, the Warrant
Shares, the Preferred Stock, the Underlying Shares, and the Blackout Shares in
accordance with the Purchase Agreement will be exempt from registration under
the Securities Act of 1933 and will be in compliance with Delaware state
securities laws. When so issued, subject to sufficient reserved authorized
shares of Common Stock, the Additional Shares, the Blackout Shares, the
Warrants, the Warrant Shares, the Preferred Stock, and the Underlying Stock,
will be duly and validly issued, fully paid and nonassessable, and free of any
liens, encumbrances and preemptive or similar rights contained in the Company's
Articles of Incorporation (the "Articles") or Bylaws or, to our knowledge, in
any agreement to which the Company is party.
5. To our knowledge, except as disclosed in the SEC Documents, there are
no claims, actions, suits, proceedings or investigations that are pending
against the Company or its properties, or against any officer or director of the
Company in his or her capacity as such, nor has the Company received any written
threat of any such claims, actions, suits, proceedings, or investigations which
are required to be and have not been disclosed in the SEC Documents.
6. To our knowledge, there are no outstanding options, warrants, calls or
commitments of any character whatsoever relating to, or securities, rights or
obligations convertible into or exchangeable for, or giving any right to
subscribe for or acquire any shares of Common Stock or contracts, commitments,
understanding, or arrangements by which the Company is or may become bound to
issue additional shares of Common Stock, or securities or rights convertible or
exchangeable into shares of Common Stock, except as described in the SEC
Documents. To our knowledge, the Company is not a party to or subject to the
provisions of any order, writ, injunction, judgment or decree of any court or
government agency or instrumentality.
7. The issuance of the Securities will not violate the applicable listing
agreement between the Company and any securities exchange or market on which the
Company's securities are listed, subject to the NASD 20% Rule.
8. As more specifically described in the SEC Documents, the authorized
capital stock of the Company consists of shares of Common Stock, $___ par value
per share, and shares of Preferred Stock, par value $___ per shares.
This opinion is furnished to the Investors solely for their benefit in
connection with the transactions described above and may not be relied upon by
any other person or for any other purpose without our prior written consent.
Very truly yours,
<PAGE>
EXHIBIT F
INSTRUCTIONS TO TRANSFER AGENT
Sims Communications, Inc.
_______________, 1998
[Name and address of Transfer Agent]
Dear Sirs:
Reference is made to the Series C Convertible Preferred Stock Purchase Agreement
and all Exhibits and Attachments thereto (the "Agreement") dated as of December
7, 1998, between the entities referred to on Schedule A annexed hereto (the
"Investors"), Settondown Capital International Ltd. (the "Placement Agent") and
Sims Communications, Inc. (the "Company"). Pursuant to the Agreement, and
subject to the terms and conditions set forth in the Agreement, the Investors
have agreed to purchase from the Company and the Company has agreed to sell to
the Investors from time to time during the term of the Agreement shares of
Series C Preferred Stock of the Company, ___ par value per share (the "Preferred
Stock"), to issue to the Placement Agent shares of Preferred Stock, and (ii) the
Company has agreed to issue to the Investors, and to the Placement Agent
warrants to purchase Common Stock (the "Warrant"). As a condition to the
effectiveness of the Agreement, the Company has agreed to issue to you, as the
transfer agent for the Common Stock (the "Transfer Agent"), these instructions
relating to the Preferred Stock, and Warrants to be issued to the Investors and
the Placement Agent (or a permitted assignee) pursuant to the Agreement, upon
conversion of the Preferred Stock, or upon exercise of the Warrants. All terms
used herein and not otherwise defined shall have the meaning set forth in the
Agreement.
1. ISSUANCE OF COMMON STOCK
Pursuant to the Agreement, the Company is required to prepare and file
with the Commission, and maintain the effectiveness of, a registration statement
or registration statements registering the resale of the Common Stock to be
acquired by the Investors and the Placement Agent (i) under the Agreement and
(ii) upon exercise of the Warrants. The Company will advise the Transfer Agent
in writing of the effectiveness of any such registration statement promptly upon
its being declared effective. The Transfer Agent shall be entitled to rely on
such advice and shall assume that the effectiveness of such registration
statement remains in effect unless the Transfer Agent is otherwise advised in
writing by the Company and shall not be required to independently confirm the
continued effectiveness of such registration statement. In the circumstances set
forth in the following paragraph, the Transfer Agent shall deliver to the
Investors and the Placement Agent certificates representing Common Stock not
bearing the Legend without requiring further advice or instruction or additional
documentation from the Company or its counsel or the Investors or its counsel or
any other party (other than as described in such paragraphs).
<PAGE>
At any time after the effective date of the applicable registration
statement (provided that the Company has not informed the Transfer Agent in
writing that such registration statement is not effective) upon any surrender of
one or more certificates which bear the Legend, to the extent accompanied by (i)
a notice requesting the issuance of new certificates free of the Legend to
replace those surrendered, (ii) a confirmation in writing to the Transfer Agent
that the Investors and/or Placement Agent has sold, pledged or otherwise
transferred or agreed to sell, pledge or otherwise transfer such Common Stock in
a bona fide transaction to a third party that is not an affiliate of the
Company; and (iii) the Investors and/or Placement Agent confirms to the Transfer
Agent that it has complied with the prospectus delivery requirement the Transfer
Agent shall deliver to the Investors the certificates representing the Common
Stock not bearing the Legend, in such names and denominations as the Investors,
and/or Placement Agent shall request. In the event a registration statement is
not filed by the Company, or for any reason the registration statement which is
filed by the Company is not declared effective by the Securities and Exchange
Commission the Investors and/or Placement Agent, or its permitted assignee, or
either of their brokers confirms to the Transfer Agent that (i) the Investors
and/or Placement Agent has held the shares of Common Stock for at least one
year, (ii) counting the shares surrendered as being sold upon the date the
unlegended Certificates would be delivered to the Investors and/or Placement
Agent (or the Trading Day immediately following if such date is not a Trading
Day), the Investors and/or Placement Agent will not have sold more than the
greater of (a) one percent of the total number of outstanding shares of Common
Stock, or (b) the average weekly trading volume of the Common Stock for the
preceding four weeks during the three months ending upon such delivery date (or
the Trading Day immediately following if such date is not a Trading Day), and
(iii) the Investors and/or Placement Agent has complied with the manner of sale
and notice requirements of Rule 144 under the Securities Act, and the Company
shall have furnished an opinion from its independent counsel to the extent
available, authorizing the removal of the Legend.
At any time prior to the effective date of the applicable registration
statement, and provided no exemption from registration exists, upon the
conversion of any Preferred Stock certificate by the Investors and/or the
Placement Agent, and upon receipt of authorization from the Company to the
Transfer Agent, the Transfer Agent shall deliver to the Investors and/or the
Placement Agent certificates representing Common Stock bearing the Legend
without requiring further advice or instruction or additional documentation from
the Company or its counsel or the Investors or its counsel or any other party
(other than as described in such paragraphs).
Any advice, notice, or instructions to the Transfer Agent required or
permitted to be given hereunder may be transmitted via facsimile to the Transfer
Agent's facsimile number of ( ) ___-____.
<PAGE>
2. MECHANICS OF DELIVERY OF CERTIFICATES REPRESENTING COMMON STOCK
In connection with any issuance of Common Stock by the Transfer provided
that all of the conditions set forth in Section 1 above have been satisfied,
pursuant to which the Investors acquires Common Stock under the Agreement, the
Transfer Agent shall deliver to the Investors and/or the Placement Agent as
defined in the Agreement, certificates representing Common Stock (with or
without the Legend, as appropriate) as soon as possible.
3. FEES OF TRANSFER AGENT; INDEMNIFICATION
The Company agrees to pay the Transfer Agent for all fees incurred in
connection with these Irrevocable Instructions. The Company agrees to indemnify
the Transfer Agent and its officers, employees and agents, against any losses,
claims, damages or liabilities, joint or several, to which it or they become
subject based upon the performance by the Transfer Agent of its duties in
accordance with the Irrevocable Instructions.
4. THIRD PARTY BENEFICIARY
The Company and the Transfer Agent acknowledge and agree that the
Investors is an express third party beneficiary of these Irrevocable
Instructions and shall be entitled to rely upon, and enforce, the provisions
thereof.
SIMS COMMUNICATIONS, INC.
By__________________________
AGREED:
By:__________________________
Name:
Title:
<PAGE>
EXHIBIT G
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to
Convert the Series C Preferred Stock)
The undersigned hereby irrevocably elects to convert Series C Preferred Stock
Certificate No. ___ into shares of Common Stock of SIMS COMMUNICATIONS, INC.
(the "Company") according to the conditions hereof, as of the date written
below.
The undersigned represents and warrants that:
(i) that all offers and sales by the undersigned of the shares of
Common Stock issuable to the undersigned upon conversion of the
Series C Preferred Stock shall be made pursuant to an exemption
from registration under the Securities Act of 1933, as amended
(the "Act"), or pursuant to registration of the Common Stock
under the Act, subject to any restrictions on sale or transfer
set forth in the Series C Preferred Stock Purchase Agreement
between the Company and the original holder of the Series C
Preferred Stock submitted herewith for conversion;
(ii) the undersigned has not engaged in any transaction or series of
transaction that is a part of or a plan or scheme to evade the
registration requirements of the Act; and
(iii) upon conversion pursuant to this Notice of Conversion, the
undersigned will not own or deemed to beneficially own (within the
meaning of the 1934 Act) 4.99% or more of the then issued and
outstanding shares of Common Stock of the Company.
---------------------------------- ---------------------------------
Date of Conversion Applicable Conversion Price
---------------------------------- ---------------------------------
Number of Common Shares upon Conversion Shares of Preferred Stock Converted
---------------------------------- ---------------------------------
Signature Name
Address: Delivery of Shares to:
<PAGE>
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to
Convert the Series C Preferred Stock)
The undersigned hereby irrevocably elects to convert Series C Preferred Stock
Certificate No. ___ into shares of Common Stock of SIMS COMMUNICATIONS, INC.
(the "Company") according to the conditions hereof, as of the date written
below.
The undersigned represents and warrants that:
(i) that all offers and sales by the undersigned of the shares of
Common Stock issuable to the undersigned upon conversion of the
Series C Preferred Stock shall be made pursuant to an exemption
from registration under the Securities Act of 1933, as amended
(the "Act"), or pursuant to registration of the Common Stock
under the Act, subject to any restrictions on sale or transfer
set forth in the Series C Preferred Stock Purchase Agreement
between the Company and the original holder of the Series C
Preferred Stock submitted herewith for conversion;
(ii) the undersigned has not engaged in any transaction or series of
transaction that is a part of or a plan or scheme to evade the
registration requirements of the Act; and
(iii) upon conversion pursuant to this Notice of Conversion, the
undersigned will not own or deemed to beneficially own (within the
meaning of the 1934 Act) 4.99% or more of the then issued and
outstanding shares of Common Stock of the Company.
---------------------------------- ---------------------------------
Date of Conversion Applicable Conversion Price
---------------------------------- ---------------------------------
Number of Common Shares upon Conversion Shares of Preferred Stock Converted
---------------------------------- ---------------------------------
Signature Name
Address: Delivery of Shares to:
<PAGE>
SIDE ESCROW LETTER
[Company Letterhead]
To:________
This letter shall confirm our understanding regarding the escrow
provisions contained in the Series C Convertible Purchase Agreement dated
December 7, 1998 (the "Agreement"). All securities issuable by the Company to
_____ pursuant to the Agreement shall be delivered directly to _____ at
_________, upon receipt of the original securities _____ shall immediately
thereafter wire the appropriate purchase price therefore to the Company, net of
all fees payable by the Company which the Company agrees that it shall provide
____ with a net letter providing for the payment of fees simultaneously with the
delivery of the securities.
Very truly yours,
Acknowledged and Agreed
this ___ day of December, 1998
- --------------------------
