Exhibit 4.8
LOAN AGREEMENT
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BETWEEN
MCGLEN INTERNET GROUP, INC.
AND
THE LENDERS SIGNATORY HERETO
LOAN AGREEMENT dated as of April 10, 2000 (the "Agreement"), between
the Lenders signatory hereto (each an "Lender" and together the "Lenders"), and
McGlen Internet Group, 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 borrow from the Lenders, and the
Lenders shall lend to the Company in the aggregate, (i) $1,500,000 in exchange
for the Company's 10% Convertible Debentures (as defined below) and (ii)
Warrants (as defined below) to purchase shares of the Common Stock (as defined
below) as described herein.
WHEREAS, such investments will be made in reliance upon the provisions
of Section 4(2) ("Section 4(2)") and/or 4(6) of the United States Securities Act
and/or Regulation D ("Regulation D") and the other rules and 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 securities to be made
hereunder.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
1.1. "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.
1.2. "CAPITAL SHARES EQUIVALENTS" shall mean any securities, rights, or
obligations that are convertible into or exchangeable for or give 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.
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1.3. "CLOSING" shall mean the closing of the purchase and sale of the
Convertible Debentures and Warrants pursuant to Section 2.1.
1.4. "CLOSING DATE" shall mean the date on which all conditions to the Closing
have been satisfied (as defined in Section 2.1 (b) hereto) and the Closing shall
have occurred.
1.5. "COMMON STOCK" shall mean the Company's common stock, $0.03 par value per
share.
1.6. "CONVERSION SHARES" shall mean the shares of Common Stock issuable upon
conversion of the Convertible Debentures.
1.7. "CONVERTIBLE DEBENTURES" shall mean the Company's 10% Convertible
Debentures in the form of EXHIBIT A hereto.
1.8. "DAMAGES" shall mean any loss, claim, damage, judgment, penalty,
deficiency, liability, costs and expenses (including, without limitation,
reasonable attorney's fees and disbursements and reasonable costs and expenses
of expert witnesses and investigation).
1.9. "EFFECTIVE DATE" shall mean the date on which the SEC first declares
effective a Registration Statement registering the resale of the Registrable
Securities as set forth in the Registration Rights Agreement.
1.10. "ESCROW AGENT" shall have the meaning set forth in the Escrow Agreement.
1.11. "ESCROW AGREEMENT" shall mean the Escrow Agreement in substantially the
form of EXHIBIT D hereto executed and delivered contemporaneously with this
Agreement.
1.12. "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
1.13. "LEGEND" shall mean the legend set forth in Section 9.1.
1.14. "MARKET PRICE" on any given date shall mean the average of the five (5)
lowest VWAPs during the twenty-two Trading Day period ending on the Trading Day
immediately prior to the date for which the Market Price is to be determined.
1.15. "MATERIAL ADVERSE EFFECT" shall mean any effect on the business,
operations, properties, prospects, stock price 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 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 Convertible Debentures
or the Warrants in any material respect.
1.16. "OUTSTANDING" when used with reference to shares of Common 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.
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1.17. "PERSON" shall mean an individual, a corporation, a partnership, a limited
liability company, an association, a trust or other entity or organization,
including a government or political subdivision or an agency or instrumentality
thereof.
1.18. "PRINCIPAL MARKET" shall mean the American Stock Exchange, the New York
Stock Exchange, the NASDAQ National Market, or the NASDAQ Small-Cap Market or
the OTC Bulletin Board, whichever is at the time the principal trading exchange
or market for the Common Stock, based upon share volume.
1.19. "PURCHASE PRICE" shall mean the principal amount of the Convertible
Debentures.
1.20. "REGISTRABLE SECURITIES" shall mean the Conversion Shares and the Warrant
Shares until (i) the Registration Statement has been declared effective by the
SEC, and all Conversion Shares and Warrant Shares have been disposed of pursuant
to the Registration Statement, (ii) all Conversion Shares and Warrant Shares
have 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) all Conversion Shares and Warrant Shares have been
otherwise transferred to holders who may trade such shares without restriction
under the Securities Act, and the Company has delivered a new certificate or
other evidence of ownership for such securities not bearing a restrictive legend
or (iv) such time as, in the opinion of counsel to the Company, all Conversion
Shares and Warrant Shares may be sold without any time, volume or manner
limitations pursuant to Rule 144(k) (or any similar provision then in effect)
under the Securities Act.
1.21. "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 and the Lenders as of the Closing
Date in the form annexed hereto as EXHIBIT C.
1.22. "REGISTRATION STATEMENT" shall mean a registration statement on Form S-3
(if use of such form is then available to the Company pursuant to the rules of
the SEC and, if not, on such other form promulgated by the SEC for which the
Company then qualifies and which counsel for the Company shall deem appropriate,
and which form shall be available for the resale by the Lenders of the
Registrable Securities to be registered thereunder in accordance with the
provisions of this Agreement, the Registration Rights Agreement and in
accordance with the intended method of distribution of such securities), for the
registration of the resale by the Lender of the Registrable Securities under the
Securities Act.
1.23. "REGULATION D" shall have the meaning set forth in the recitals of this
Agreement.
1.24. "SEC" shall mean the Securities and Exchange Commission.
1.25. "SECTION 4(2)" AND "SECTION 4(6)" shall have the meanings set forth in the
recitals of this Agreement.
1.26. "SECURITIES ACT" shall have the meaning set forth in the recitals of this
Agreement.
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1.27. "SEC DOCUMENTS" shall mean the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1998 and each report, proxy statement or
registration statement filed by the Company with the SEC pursuant to the
Exchange Act or the Securities Act since the filing of such Annual Report
through the date hereof.
1.28. "SHARES" shall have the meaning set forth in Section 1.16.
1.29. "TRADING DAY" shall mean any day during which the Principal Market shall
be open for business.
1.30. "VWAP" shall mean the daily volume weighted average price of the Company's
Common Stock on the Nasdaq SmallCap Market or on any Principal Market as
reported by Bloomberg Financial using the AQR function.
1.31. "WARRANTS" shall mean the Warrants substantially in the form of EXHIBIT B
to be issued to the Lenders hereunder.
1.32. "WARRANT SHARES" shall mean all shares of Common Stock or other securities
issued or issuable pursuant to exercise of the Warrants.
ARTICLE II
PURCHASE AND SALE OF CONVERTIBLE DEBENTURES AND WARRANTS
2.1. INVESTMENT.
(a) Upon the terms and subject to the conditions set forth herein, the
Company agrees to sell, and the Lenders agree to purchase the Convertible
Debentures together with the Warrants at the Purchase Price on the Closing Date
as follows:
(i) Upon execution and delivery of this Agreement, each Lender
shall deliver to the Escrow Agent immediately available funds
in their proportionate amount of the Purchase Price as set
forth on the signature pages hereto, and the Company shall
deliver the Convertible Debentures and the Warrants to the
Escrow Agent, in each case to be held by the Escrow Agent
pursuant to the Escrow Agreement.
(ii) Upon satisfaction of the conditions set forth in Section
2.1(b), the Closing ("Closing") shall occur at the offices of
the Escrow Agent at which the Escrow Agent (x) shall release
the Convertible Debentures and the Warrants to the Lenders and
(y) shall release the Purchase Price (after all fees have been
paid as set forth in the Escrow Agreement), pursuant to the
terms of the Escrow Agreement.
(b) The Closing is subject to the satisfaction or waiver by the party
sought to be benefited thereby of the following conditions:
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(i) acceptance and execution by the Company and by the Lenders, of
this Agreement and all Exhibits hereto;
(ii) delivery into escrow by each Lender of immediately available
funds in the amount of the Purchase Price of the Convertible
Debentures and the Warrants, as more fully set forth in the
Escrow Agreement;
(iii) all representations and warranties of the Lenders contained
herein shall remain true and correct as of the Closing Date
(as a condition to the Company's obligations);
(iv) all representations and warranties of the Company contained
herein shall remain true and correct as of the Closing Date
(as a condition to the Lenders' obligations);
(v) the Company shall have obtained all permits and qualifications
required by any state for the offer and sale of the
Convertible Debentures and Warrants, or shall have the
availability of exemptions therefrom;
(vi) the sale and issuance of the Convertible Debentures and the
Warrants hereunder, and the proposed issuance by the Company
to the Lenders of the Common Stock underlying the Convertible
Debentures and the Warrants upon the conversion or exercise
thereof shall be legally permitted by all laws and regulations
to which the Lenders and the Company are subject and there
shall be no ruling, judgment or writ of any court prohibiting
the transactions contemplated by this Agreement;
(vii) delivery of the original fully executed Convertible Debentures
and Warrants certificates to the Escrow Agent;
(viii) delivery to the Escrow Agent of an opinion of Boyd & Chang,
counsel to the Company, in the form of EXHIBIT E hereto;
(ix) delivery to the Escrow Agent of the Irrevocable Instructions
to Transfer Agent in the form attached hereto as EXHIBIT F;
and
(x) delivery to the Escrow Agent of the Registration Rights
Agreement.
2.2. THE WARRANTS. The number of Warrants to be issued shall equal one-half of
(i) the principal amount of the Convertible Debentures issued at Closing divided
by (ii) the VWAP on the Trading Day immediately prior to the Closing Date. The
exercise price of such Warrants shall be 115% of the VWAP for the Common Stock
on the Principal Market on the Trading Day immediately prior to the Closing
Date. Two-thirds of the Warrants shall be immediately exercisable upon issuance.
The remaining one-third of each Lender's Warrants shall only become exercisable
if the Convertible Debentures have not been redeemed in accordance with their
terms on or before the 100th day after the Closing Date.
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2.3. LIQUIDATED DAMAGES. The parties hereto acknowledge and agree that the sums
payable pursuant to the Registration Rights Agreement shall constitute
liquidated damages and not penalties. The parties further acknowledge that (a)
the amount of loss or damages likely to be incurred is incapable or is difficult
to precisely estimate, (b) the amounts specified in such Sections bear a
reasonable proportion and are not plainly or grossly disproportionate to the
probable loss likely to be incurred by the Lenders in connection with the
failure by the Company to timely cause the registration of the Registrable
Securities and (c) 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.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF LENDERS
Each Lender, severally and not jointly, represents and warrants to the Company
that:
3.1. INTENT. The Lender is entering into this Agreement for its own account and
not with a view to or for sale in connection with any distribution of the
Convertible Debentures, the Warrants or the Conversion Shares. The Lender has no
present arrangement (whether or not legally binding) at any time to sell the
Convertible Debentures, the Warrants, any Conversion Shares or Warrant Shares to
or through any person or entity; provided, however, that by making the
representations herein, the Lender does not agree to hold such securities for
any minimum or other specific term and reserves the right to dispose of the
Conversion Shares and Warrant Shares at any time in accordance with federal and
state securities laws applicable to such disposition.
3.2. SOPHISTICATED LENDER. The Lender 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 Lender has such experience in business and
financial matters that it has the capacity to protect its own interests in
connection with this transaction and is capable of evaluating the merits and
risks of an investment in the Convertible Debentures, the Warrants and the
underlying Common Stock. The Lender acknowledges that an investment in the
Convertible Debentures, the Warrants and the underlying Common Stock is
speculative and involves a high degree of risk.
3.3. AUTHORITY. This Agreement and each agreement attached as an Exhibit hereto
which is required to be executed by Lender has been duly authorized and validly
executed and delivered by the Lender and is a valid and binding agreement of the
Lender enforceable against it 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.
3.4. NOT AN AFFILIATE. The Lender is not an officer, director or "affiliate" (as
that term is defined in Rule 405 of the Securities Act) of the Company.
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3.5. ABSENCE OF CONFLICTS. The execution and delivery of this Agreement and each
agreement which is attached as an Exhibit hereto and executed by the Lender in
connection herewith, and the consummation of the transactions contemplated
hereby and thereby, and compliance with the requirements hereof and thereof by
the Lender, will not violate any law, rule, regulation, order, writ, judgment,
injunction, decree or award binding on Lender or (a) violate any provision of
any indenture, instrument or agreement to which Lender is a party or is subject,
or by which Lender or any of its 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 Lender to any
third party; or (d) require the approval of any third-party (which has not been
obtained) pursuant to any material contract, agreement, instrument, relationship
or legal obligation to which Lender is subject or to which any of its assets,
operations or management may be subject.
3.6. DISCLOSURE; ACCESS TO INFORMATION. The Lender has received all documents,
records, books and other publicly available information pertaining to Lender's
investment in the Company that have been requested by the Lender. The Company is
subject to the periodic reporting requirements of the Exchange Act, and the
Lender has reviewed copies of all SEC Documents deemed relevant by Lender.
3.7. MANNER OF SALE. At no time was Lender presented with or solicited by or
through any leaflet, public promotional meeting, television advertisement or any
other form of general solicitation or advertising.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and Warrants to the Lenders that, except as set forth on
the Disclosure Schedule prepared by the Company and attached hereto:
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. The Company does not have any subsidiaries and
does not own more that fifty percent (50%) of or control any other business
entity except as set forth in the SEC Documents. The Company is duly qualified
and is in good standing as a foreign corporation to do business 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 have a Material Adverse Effect.
4.2. AUTHORITY. (i) The Company has the requisite corporate power and corporate
authority to enter into and perform its obligations under this Agreement, the
Registration Rights Agreement, the Escrow Agreement, and the Warrants and to
issue the Convertible Debentures, the Conversion Shares, the Warrants and the
Warrant Shares pursuant to their respective terms, (ii) the execution, issuance
and delivery of this Agreement, the Registration Rights Agreement, the Escrow
Agreement, the Convertible Debentures, the Convertible Debentures and the
Warrants 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
or stockholders is required, and (iii) this Agreement, the Registration Rights
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Agreement, the Escrow Agreement, the Convertible Debentures and the Warrants
have been duly executed and delivered by the Company and at the Closing shall
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. The Company has duly and
validly authorized and reserved for issuance shares of Common Stock sufficient
in number for the conversion of the Convertible Debentures and for the exercise
of the Warrants. The Company understands and acknowledges the potentially
dilutive effect to the Common Stock of the issuance of the Conversion Shares.
The Company further acknowledges that its obligation to issue Conversion Shares
upon conversion of the Convertible Debentures and Warrant Shares upon exercise
of the Warrants in accordance with this Agreement and the Convertible Debentures
is absolute and unconditional regardless of the dilutive effect that such
issuance may have on the ownership interests of other stockholders of the
Company and notwithstanding the commencement of any case under 11 U.S.C. ss. 101
et seq. (the "Bankruptcy Code"). The Company shall not seek judicial relief from
its obligations hereunder except pursuant to the Bankruptcy Code. In the event
the Company is a debtor under the Bankruptcy Code, the Company hereby waives to
the fullest extent permitted any rights to relief it may have under 11 U.S.C.
ss. 362 in respect of the conversion of the Convertible Debentures and the
exercise of the Warrants. The Company agrees, without cost or expense to the
Lenders, to take or consent to any and all action necessary to effectuate relief
under 11 U.S.C. ss. 362.
4.3. CAPITALIZATION. The authorized capital stock of the Company consists of
50,000,000 shares of Common Stock, $0.03 par value per share, of which
approximately 33,000,000 shares are issued and outstanding as of March 31, 2000
and 100,000 shares of preferred stock, $0.01 par value per share, none of which
shares are issued and outstanding as of March 31, 2000. Except as set forth in
the SEC Documents and as set forth in the Disclosure Schedule, there are no
outstanding Capital Shares Equivalents nor any agreements or understandings
pursuant to which any Capital Shares Equivalents may become outstanding. The
Company is not a party to any agreement granting registration or anti-dilution
rights to any person with respect to any of its equity or debt securities. All
of the outstanding shares of Common Stock of the Company have been duly and
validly authorized and issued and are fully paid and non-assessable.
4.4. COMMON STOCK. The Company has registered its Common Stock pursuant to
Section 12(b) or (g) of the Exchange Act and is in full compliance with all
reporting requirements of the Exchange Act, and the Company is in compliance
with all requirements for the continued listing or quotation of its Common
Stock, and such Common Stock is currently listed or quoted on, the Principal
Market. As of the date hereof, the Principal Market is the NASDAQ Small-Cap
Market and the Company has not received any notice regarding, and to its
knowledge there is no threat, of the termination or discontinuance of the
eligibility of the Common Stock for such listing.
4.5. SEC DOCUMENTS. The Company has made available to the Lenders true and
complete copies of the SEC Documents. The Company has not provided to the
Lenders 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. As of their respective dates, the SEC Documents
complied in all material respects with the requirements of the Exchange Act, and
rules and regulations of the SEC promulgated thereunder and the SEC Documents
did not contain any untrue statement of a material fact or omit 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 complied in all material respects with applicable accounting
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requirements and the published rules and regulations of the SEC or other
applicable rules and regulations with respect thereto at the time of such
inclusion. 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 exclude footnotes or may be condensed or summary
statements) and fairly present in all material respects the financial position
of the Company as of the dates thereof and the results of operations and cash
flows for the periods then ended (subject, in the case of unaudited interim
statements, to normal year-end audit adjustments). Neither the Company nor any
of its subsidiaries has any material indebtedness, obligations or liabilities of
any kind (whether accrued, absolute, contingent or otherwise, and whether due or
to become due) that would have been required to be reflected in, reserved
against or otherwise described in the financial statements or in the notes
thereto in accordance with GAAP, which was not fully reflected in, reserved
against or otherwise described in the financial statements or the notes thereto
included in the SEC Documents or was not incurred in the ordinary course of
business consistent with the Company's past practices since the last date of
such financial statements.
4.6. EXEMPTION FROM REGISTRATION; VALID ISSUANCES. Subject to the accuracy of
the Lenders' representations in Article III, the sale of the Convertible
Debentures, the Conversion Shares, the Warrants and the Warrant Shares will not
require registration under the Securities Act and/or any applicable state
securities law. When issued and paid for in accordance with the Warrants and
validly converted in accordance with the terms of the Convertible Debentures,
the Conversion Shares and the Warrant Shares will be duly and validly issued,
fully paid, and non-assessable. Neither the sales of the Convertible Debentures,
the Conversion Shares, the Warrants or the Warrant Shares pursuant to, nor the
Company's performance of its obligations under, this Agreement, the Registration
Rights Agreement, the Escrow Agreement, the Convertible Debentures or the
Warrants will (i) result in the creation or imposition by the Company of any
liens, charges, claims or other encumbrances upon the Convertible Debentures,
the Conversion Shares, the Warrants or the Warrant Shares or, except as
contemplated herein, any of the assets of the Company, or (ii) entitle the
holders of Outstanding Capital Shares to preemptive or other rights to subscribe
for or acquire the Capital Shares or other securities of the Company. The
Convertible Debentures, the Conversion Shares, the Warrants and the Warrant
Shares shall not subject the Lenders to personal liability to the Company or its
creditors by reason of the possession thereof.
4.7. NO GENERAL SOLICITATION OR ADVERTISING IN REGARD TO THIS TRANSACTION.
Neither the Company nor any of its affiliates nor, to the knowledge of the
Company, 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 the sale of the Convertible
Debentures or the Warrants, 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 Convertible Debentures, the Conversion Shares, the
Warrants or the Warrant Shares under the Securities Act.
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4.8. 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 and payment of interest
upon the Convertible Debentures, the Conversion Shares, the Warrants and the
Warrant Shares, do not and will not (i) result in a violation of the Company's
Certificate 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 or
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 material property or asset of the Company is bound or
affected, nor is the Company otherwise in violation of, conflict with or default
under any of the foregoing (except in each case for such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations as would
not 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 have a Material
Adverse Effect. The Company is not required under any 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 Convertible Debentures or the Warrants in
accordance with the terms hereof (other than any SEC, Principal Market or state
securities filings that may be required to be made by the Company subsequent to
Closing, any registration statement that may be filed pursuant hereto, and any
shareholder approval required by the rules applicable to companies whose common
stock trades on the Principal Market); 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 Lenders
herein.
4.9. NO MATERIAL ADVERSE CHANGE. Since December 31, 1999, no Material Adverse
Effect has occurred or exists with respect to the Company, except as disclosed
in the SEC Documents.
4.10. NO UNDISCLOSED EVENTS OR CIRCUMSTANCES. Since December 31, 1999, 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.
4.11. NO INTEGRATED OFFERING. Other than pursuant to an effective registration
statement under the Securities Act, or pursuant to the issuance or exercise of
employee stock options, or pursuant to its discussion with the Lenders in
connection with the transactions contemplated hereby, the Company has not
issued, offered or sold the Convertible Debentures, the Warrants or any shares
of Common Stock (including for this purpose any securities of the same or a
similar class as the Convertible Debentures, the Warrants or Common Stock, or
any securities convertible into a exchangeable or exercisable for the
Convertible Debentures or Common Stock or any such other securities) within the
six-month period next preceding the date hereof, and the Company shall not
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permit any of its directors, officers or affiliates directly or indirectly to
take, any action (including, without limitation, any offering or sale to any
Person of the Convertible Debentures, Warrants or shares of Common Stock), so as
to make unavailable the exemption from Securities Act registration being relied
upon by the Company for the offer and sale to Lenders of the Convertible
Debentures (and the Conversion Shares) or the Warrants (and the Warrant Shares)
as contemplated by this Agreement.
4.12. LITIGATION AND OTHER PROCEEDINGS. Except as disclosed in the SEC
Documents, there are no lawsuits or proceedings pending or, to the knowledge of
the Company, threatened, against the Company or any subsidiary, nor has the
Company received any written or oral notice of any such action, suit, proceeding
or investigation, which could 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, to the knowledge of the
Company, requested of any court, arbitrator or governmental agency which could
result in a Material Adverse Effect.
4.13. NO MISLEADING OR UNTRUE COMMUNICATION. The Company and, to the knowledge
of the Company, any person representing the Company, or any other person selling
or offering to sell the Convertible Debentures or the Warrants in connection
with the transaction contemplated by this Agreement, have not made, at any time,
any oral communication in connection with the offer or sale of the same which
contained any untrue statement of a material fact or omitted to state any
material fact necessary in order to make the statements, in the light of the
circumstances under which they were made, not misleading.
4.14. MATERIAL NON-PUBLIC INFORMATION. The Company has not disclosed to the
Lenders any material non-public information that (i) if disclosed, would
reasonably be expected to have a material effect on the price of the Common
Stock or (ii) according to applicable law, rule or regulation, should have been
disclosed publicly by the Company prior to the date hereof but which has not
been so disclosed.
4.15. INSURANCE. The Company and each subsidiary maintains property and
casualty, general liability, workers' compensation, environmental hazard,
personal injury and other similar types of insurance with financially sound and
reputable insurers that is adequate, consistent with industry standards and the
Company's historical claims experience. The Company has not received notice
from, and has no knowledge of any threat by, any insurer (that has issued any
insurance policy to the Company) that such insurer intends to deny coverage
under or cancel, discontinue or not renew any insurance policy presently in
force.
4.16. TAX MATTERS.
(a) Since December 3, 1999, and to the best of the Company's knowledge
prior to December 3, 1999, to such extent as may be material, the Company and
each subsidiary has filed all Tax Returns which it is required to file under
applicable laws; all such Tax Returns are true and accurate and has been
prepared in compliance with all applicable laws; the Company has paid all Taxes
due and owing by it or any subsidiary (whether or not such Taxes are required to
be shown on a Tax Return) and have withheld and paid over to the appropriate
taxing authorities all Taxes which it is required to withhold from amounts paid
or owing to any employee, stockholder, creditor or other third parties; and
since December 31, 1998, the charges, accruals and reserves for Taxes with
<PAGE>
respect to the Company (including any provisions for deferred income taxes)
reflected on the books of the Company are adequate to cover any Tax liabilities
of the Company if its current tax year were treated as ending on the date
hereof.
(b) No claim has been made to the Company by a taxing authority in a
jurisdiction where the Company does not file tax returns that the Company or any
subsidiary is or may be subject to taxation by that jurisdiction. There are no
foreign, federal, state or local tax audits or administrative or judicial
proceedings pending or being conducted with respect to the Company or any
subsidiary; no information related to Tax matters has been requested by any
foreign, federal, state or local taxing authority; and, except as disclosed
above, no written notice indicating an intent to open an audit or other review
has been received by the Company or any subsidiary from any foreign, federal,
state or local taxing authority. There are no material unresolved questions or
claims concerning the Company's Tax liability. The Company (A) has not executed
or entered into a closing agreement pursuant to ss. 7121 of the Internal Revenue
Code or any predecessor provision thereof or any similar provision of state,
local or foreign law; and (B) has not agreed to or is required to make any
adjustments pursuant to ss. 481 (a) of the Internal Revenue Code or any similar
provision of state, local or foreign law by reason of a change in accounting
method initiated by the Company or any of its subsidiaries or has any knowledge
that the IRS has proposed any such adjustment or change in accounting method, or
has any application pending with any taxing authority requesting permission for
any changes in accounting methods that relate to the business or operations of
the Company. The Company has not been a United States real property holding
corporation within the meaning of ss. 897(c)(2) of the Internal Revenue Code
during the applicable period specified in ss. 897(c)(1)(A)(ii) of the Internal
Revenue Code.
(c) The Company has not made an election under ss. 341(f) of the
Internal Revenue Code. The Company is not liable for the Taxes of another person
that is not a subsidiary of the Company under (A) Treas. Reg. ss. 1.1502-6 (or
comparable provisions of state, local or foreign law), (B) as a transferee or
successor, (C) by contract or indemnity or (D) otherwise. The Company is not a
party to any tax sharing agreement. The Company has not made any payments, is
obligated to make payments or is a party to an agreement that could obligate it
to make any payments that would not be deductible under ss. 280G of the Internal
Revenue Code.
(d) For purposes of this Section 4.16:
"IRS" means the United States Internal Revenue Service.
"TAX" or "TAXES" means federal, state, county, local, foreign,
or other income, gross receipts, ad valorem, franchise,
profits, sales or use, transfer, registration, excise,
utility, environmental, communications, real or personal
property, capital stock, license, payroll, wage or other
withholding, employment, social security, severance, stamp,
occupation, alternative or add-on minimum, estimated and other
taxes of any kind whatsoever (including, without limitation,
deficiencies, penalties, additions to tax, and interest
attributable thereto) whether disputed or not.
"TAX RETURN" means any return, information report or filing
with respect to Taxes, including any schedules attached
thereto and including any amendment thereof.
<PAGE>
4.17. PROPERTY. Neither the Company nor any of its subsidiaries owns any real
property. Each of the Company and its subsidiaries has good and marketable title
to all personal property owned by it, free and clear of all liens, encumbrances
and defects except such as do not materially affect the value of such property
and do not materially interfere with the use made and proposed to be made of
such property by the Company; and to the Company's knowledge any real property,
mineral or water rights, and buildings held under lease by the Company as tenant
are held by it under valid, subsisting and enforceable leases with such
exceptions as are not material and do not interfere with the use made and
intended to be made of such property, mineral or water rights, and buildings by
the Company.
4.18. INTELLECTUAL PROPERTY. Each of the Company and its subsidiaries owns or
possesses adequate and enforceable rights to use all patents, patent
applications, trademarks, trademark applications, trade names, service marks,
copyrights, copyright applications, licenses, know-how (including trade secrets
and other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures) and other similar rights and proprietary
knowledge (collectively, "Intangibles") necessary for the conduct of its
business as now being conducted. To the Company's knowledge, except as disclosed
in the SEC Documents neither the Company nor any of its subsidiaries is
infringing upon or in conflict with any right of any other person with respect
to any Intangibles. Except as disclosed in the SEC Documents, no adverse claims
have been asserted by any person to the ownership or use of any Intangibles and
the Company has no knowledge of any basis for such claim.
4.19. INTERNAL CONTROLS AND PROCEDURES. The Company maintains books and records
and internal accounting controls which provide reasonable assurance that (i) all
transactions to which the Company or any subsidiary is a party or by which its
properties are bound are executed with management's authorization; (ii) the
recorded accounting of the Company's consolidated assets is compared with
existing assets at regular intervals; (iii) access to the Company's consolidated
assets is permitted only in accordance with management's authorization; and (iv)
all transactions to which the Company or any subsidiary is a party or by which
its properties are bound are recorded as necessary to permit preparation of the
financial statements of the Company in accordance with U.S. generally accepted
accounting principles.
4.20. PAYMENTS AND CONTRIBUTIONS. Neither the Company, any subsidiary, nor any
of its directors, officers or, to its knowledge, other employees has (i) used
any Company funds for any unlawful contribution, endorsement, gift,
entertainment or other unlawful expense relating to political activity; (ii)
made any direct or indirect unlawful payment of Company funds to any foreign or
domestic government official or employee; (iii) violated or is in violation of
any provision of the Foreign Corrupt Practices Act of 1977, as amended; or (iv)
made any bribe, rebate, payoff, influence payment, kickback or other similar
payment to any person with respect to Company matters.
4.21. NO MISREPRESENTATION. The representations and warranties of the Company
contained in this Agreement, any schedule, annex or exhibit hereto and any
agreement, instrument or certificate furnished by the Company to the Lenders
pursuant to this Agreement, do not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading.
<PAGE>
ARTICLE V
COVENANTS OF THE LENDERS
Each Lender, severally and not jointly, covenants with the Company
that:
5.1. COMPLIANCE WITH LAW. The Lender's trading activities with respect to shares
of the Company's Common Stock will be in compliance with all applicable state
and federal securities laws, rules and regulations and rules and regulations of
the Principal Market on which the Company's Common Stock is listed.
5.2. NO SHORT SALES. The Lender and its affiliates shall not engage in short
sales of the Company's Common Stock (as defined in applicable SEC and NASD
rules) so long as the Lender holds any part of the Convertible Debenture or the
Warrant unconverted or unexercised.
ARTICLE VI
COVENANTS OF THE COMPANY
6.1. REGISTRATION RIGHTS. The Company shall cause the Registration Rights
Agreement to remain in full force and effect and the Company shall comply in all
material respects with the terms thereof.
6.2. RESERVATION OF COMMON STOCK. As of the date hereof, the Company has
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 issue the Conversion Shares and the Warrant Shares
pursuant to any conversion of the Convertible Debentures or exercise of the
Warrants. The number of shares so reserved from time to time, as theretofore
increased or reduced as hereinafter provided, may be reduced by the number of
shares actually delivered pursuant to any conversion of the Convertible
Debentures or exercise of the Warrants and 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 obligated to issue by reason
of adjustments to the Warrants.
6.3. LISTING OF COMMON STOCK. The Company hereby agrees to maintain the listing
of the Common Stock on a Principal Market, and as soon as reasonably practicable
following the Closing to list the Conversion Shares and the Warrant Shares on
the Principal Market, if required. The Company further agrees, if the Company
applies to have the Common Stock traded on any other Principal Market, it will
include in such application the Conversion Shares and the Warrant Shares, and
will take such other action as is necessary or desirable in the opinion of the
Lenders to cause the Conversion Shares and Warrant Shares to be listed on such
other Principal Market as promptly as possible. The Company will take all action
to continue the listing and trading of its Common Stock on a Principal Market
and will comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the Principal Market and shall provide
Lenders with copies of any correspondence to or from such Principal Market which
questions or threatens delisting of the Common Stock, within three (3) Trading
Days of the Company's receipt thereof, until the Lenders have disposed of all of
their Registrable Securities.
<PAGE>
6.4. EXCHANGE ACT REGISTRATION. The Company will cause its Common Stock to
continue to be registered under Section 12(b) or (g) of the Exchange Act, will
use its best efforts to 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 permitted by the 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 until the Lenders have disposed
of all of their Registrable Securities.
6.5. LEGENDS. The certificates evidencing the Registrable Securities shall be
free of legends, except as set forth in Article IX.
6.6. CORPORATE EXISTENCE; CONFLICTING AGREEMENTS. The Company will take all
steps necessary to preserve and continue the corporate existence of the Company.
The Company shall not enter into any agreement, the terms of which agreement
would restrict or impair the right or ability of the Company to perform any of
its obligations under this Agreement or any of the other agreements attached as
exhibits hereto or under the Convertible Debentures.
6.7. 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 or by operation of law
the obligations of the Company to the Lenders pursuant to this Agreement and the
Convertible Debentures.
6.8. ISSUANCE OF CONVERTIBLE DEBENTURES AND WARRANT SHARES. The sale of the
Convertible Debentures and the Warrants and the issuance of the Warrant Shares
pursuant to exercise of the Warrants and the Conversion Shares upon conversion
of the Convertible Debentures shall be made in accordance with the provisions
and requirements of Section 4(2), 4(6) or Regulation D and any applicable state
securities law. The Company shall make any necessary SEC and "blue sky" filings
required to be made by the Company in connection with the sale of the Securities
to the Lenders as required by all applicable laws, and shall provide a copy
thereof to the Lenders promptly after such filing.
6.9. LIMITATION ON FUTURE FINANCING. The Company agrees that it will not enter
into any sale of its securities for cash at a discount to the then-current bid
price until the earlier of repayment in full of all of the Convertible
Debentures, or 120 days after the effective date of the Registration Statement
except for any sales (i) pursuant to any presently existing employee benefit
plan which plan has been approved by the Company's stockholders, (ii) pursuant
to any compensatory plan for a full-time employee or key consultant, (iii)
pursuant to any transaction arranged through Ladenburg Thalmann & Co., Inc. or
(iv) with the prior approval of a majority in interest of the Lenders, which
will not be unreasonably withheld, in connection with a strategic partnership or
other business transaction, the principal purpose of which is not simply to
raise money.
<PAGE>
6.10. PRO-RATA REDEMPTION. The Company agrees that if it shall redeem any of the
Convertible Debentures, that it shall make such redemption pro-rata among all
Lenders in proportion their respective initial purchases of such securities
pursuant to this Agreement.
ARTICLE VII
SURVIVAL; INDEMNIFICATION
7.1. SURVIVAL. The representations, warranties and covenants made by each of the
Company and each Lender in this Agreement, the annexes, schedules and exhibits
hereto and in each instrument, agreement and certificate entered into and
delivered by them pursuant to this Agreement, shall survive the Closing and the
consummation of the transactions contemplated hereby. In the event of a breach
or violation of any of such representations, warranties or covenants, the party
to whom such representations, warranties or covenants have been made shall have
all rights and remedies for such breach or violation available to it under the
provisions of this Agreement, irrespective of any investigation made by or on
behalf of such party on or prior to the Closing Date.
7.2. INDEMNITY. (a) The Company hereby agrees to indemnify and hold harmless the
Lenders, their respective Affiliates and their respective officers, directors,
partners and members (collectively, the "Lender Indemnitees"), from and against
any and all Damages, and agrees to reimburse the Lender Indemnitees for all
reasonable out-of-pocket expenses (including the reasonable fees and expenses of
legal counsel), in each case promptly as incurred by the Lender Indemnitees and
to the extent arising out of or in connection with:
(i) any misrepresentation, omission of fact or breach of any
of the Company's representations or warranties contained in this
Agreement, the annexes, schedules or exhibits hereto or any instrument,
agreement or certificate entered into or delivered by the Company
pursuant to this Agreement; or
(ii) any failure by the Company to perform in any material
respect any of its covenants, agreements, undertakings or obligations
set forth in this Agreement, the annexes, schedules or exhibits hereto
or any instrument, agreement or certificate entered into or delivered
by the Company pursuant to this Agreement; or
(iii) any action instituted against the Lenders, or any of
them, by any stockholder of the Company who is not an Affiliate of an
Lender, with respect to any of the transactions contemplated by this
Agreement.
(b) Each Lender, severally and not jointly, hereby agrees to indemnify
and hold harmless the Company, its Affiliates and their respective officers,
directors, partners and members (collectively, the "Company Indemnitees"), from
and against any and all Damages, and agrees to reimburse the Company Indemnitees
for reasonable all out-of-pocket expenses (including the reasonable fees and
expenses of legal counsel), in each case promptly as incurred by the Company
<PAGE>
Indemnitees and to the extent arising out of or in connection with any
misrepresentation, omission of fact, or breach of any of the Lender's
representations or warranties contained in this Agreement, the annexes,
schedules or exhibits hereto or any instrument, agreement or certificate entered
into or delivered by the Lender pursuant to this Agreement. Notwithstanding
anything to the contrary herein, the Lender shall be liable under this Section
7.2(b) for only that amount as does not exceed the net proceeds to such Lender
as a result of the sale of Registrable Securities pursuant to the Registration
Statement.
7.3. NOTICE. Promptly after receipt by either party hereto seeking
indemnification pursuant to Section 7.2 (an "Indemnified Party") of written
notice of any investigation, claim, proceeding or other action in respect of
which indemnification is being sought (each, a "Claim"), the Indemnified Party
promptly shall notify the party from whom indemnification pursuant to Section
7.2 is being sought (the "Indemnifying Party") of the commencement thereof; but
the omission to so notify the Indemnifying Party shall not relieve it from any
liability that it otherwise may have to the Indemnified Party, except to the
extent that the Indemnifying Party is actually prejudiced by such omission or
delay. In connection with any Claim as to which both the Indemnifying Party and
the Indemnified Party are parties, the Indemnifying Party shall be entitled to
assume the defense thereof. Notwithstanding the assumption of the defense of any
Claim by the Indemnifying Party, the Indemnified Party shall have the right to
employ separate legal counsel and to participate in the defense of such Claim,
and the Indemnifying Party shall bear the reasonable fees, out-of-pocket costs
and expenses of such separate legal counsel to the Indemnified Party if (and
only if): (x) the Indemnifying Party shall have agreed to pay such fees,
out-of-pocket costs and expenses, (y) the Indemnified Party reasonably shall
have concluded that representation of the Indemnified Party and the Indemnifying
Party by the same legal counsel would not be appropriate due to actual or, as
reasonably determined by legal counsel to the Indemnified Party, potentially
differing interests between such parties in the conduct of the defense of such
Claim, or if there may be legal defenses available to the Indemnified Party that
are in addition to or disparate from those available to the Indemnifying Party,
or (z) the Indemnifying Party shall have failed to employ legal counsel
reasonably satisfactory to the Indemnified Party within a reasonable period of
time after notice of the commencement of such Claim. If the Indemnified Party
employs separate legal counsel in circumstances other than as described in
clauses (x), (y) or (z) above, the fees, costs and expenses of such legal
counsel shall be borne exclusively by the Indemnified Party. Except as provided
above, the Indemnifying Party shall not, in connection with any Claim in the
same jurisdiction, be liable for the fees and expenses of more than one firm of
legal counsel for the Indemnified Party (together with appropriate local
counsel). The Indemnifying Party shall not, without the prior written consent of
the Indemnified Party (which consent shall not unreasonably be withheld), settle
or compromise any Claim or consent to the entry of any judgment that does not
include an unconditional release of the Indemnified Party from all liabilities
with respect to such Claim or judgment.
All fees and expenses of the Indemnified Party (including
reasonable costs of defense and investigation in a manner not inconsistent with
this Section and all reasonable attorneys' fees and expenses) shall be paid to
the Indemnified Party, as incurred, within ten (10) Trading Days of written
notice thereof to the Indemnifying Party (regardless of whether it is ultimately
determined that an indemnified party is not entitled to indemnification
<PAGE>
hereunder; provided, that the Indemnifying Party may require such Indemnified
Party to undertake to reimburse all such fees and expenses to the extent it is
finally judicially determined that such Indemnified Party is not entitled to
indemnification hereunder).
7.4. DIRECT CLAIMS. In the event one party hereunder should have a claim for
indemnification that does not involve a claim or demand being asserted by a
third party, the Indemnified Party promptly shall deliver notice of such claim
to the Indemnifying Party. If the Indemnified Party disputes the claim, such
dispute shall be resolved by mutual agreement of the Indemnified Party and the
Indemnifying Party or by binding arbitration conducted in accordance with the
procedures and rules of the American Arbitration Association as set forth in
Article X. Judgment upon any award rendered by any arbitrators may be entered in
any court having competent jurisdiction thereof.
ARTICLE VIII
DUE DILIGENCE REVIEW; NON-DISCLOSURE OF NON-PUBLIC INFORMATION.
8.1. DUE DILIGENCE REVIEW. Subject to Section 8.2, the Company shall make
available for inspection and review by the Lenders, advisors to and
representatives of the Lenders (who may or may not be affiliated with the
Lenders and who are reasonably acceptable to the Company), any underwriter
participating in any disposition of the Registrable Securities on behalf of the
Lenders pursuant to the Registration Statement, any such registration statement
or amendment or supplement thereto or any blue sky, Nasdaq or other filing, all
SEC Documents and other filings with the SEC, and all other publicly available
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 publicly available information reasonably requested
by the Lenders 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 Lenders 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.
8.2. NON-DISCLOSURE OF NON-PUBLIC INFORMATION.
(a) The Company shall not disclose material non-public information to
the Lenders, advisors to or representatives of the Lenders unless prior to
disclosure of such information the Company identifies such information as being
non-public information and provides the Lenders, such advisors and
representatives with the opportunity to accept or refuse to accept such
non-public information for review. Other than disclosure of any comment letters
received from the SEC staff with respect to the Registration Statement, the
Company may, as a condition to disclosing any non-public information hereunder,
require the Lenders' advisors and representatives to enter into a
confidentiality agreement in form and content reasonably satisfactory to the
Company and the Lenders.
<PAGE>
(b) Nothing herein shall require the Company to disclose material
non-public information to the Lenders or their advisors or representatives, and
the Company represents that it does not disseminate material non-public
information to any Lenders who purchase stock in the Company in a public
offering, to money managers or to securities analysts, provided, however, that
notwithstanding anything herein to the contrary, the Company will, as
hereinabove provided, promptly notify the advisors and representatives of the
Lenders 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 material 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 8.2 shall be construed to mean that such persons or entities
other than the Lenders (without the written consent of the Lenders prior to
disclosure of such information as set forth in Section 8.2(a)) 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 IX
LEGENDS; TRANSFER AGENT INSTRUCTIONS
9.1. LEGENDS. Unless otherwise provided below, each certificate representing
Registrable Securities will bear the following legend or equivalent (the
"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 SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, OR OTHERWISE DISPOSED
OF, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OR PURSUANT TO A TRANSACTION THAT IS EXEMPT FROM SUCH REGISTRATION.
9.2. TRANSFER AGENT INSTRUCTIONS. 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
substantially in 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.
<PAGE>
9.3. NO OTHER LEGEND OR STOCK TRANSFER RESTRICTIONS. No legend other than the
one specified in Section 9.1 has been or shall be placed on the share
certificates representing the Registrable Securities and no instructions or
"stop transfer orders," "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 IX.
9.4. LENDERS' COMPLIANCE. Nothing in this Article shall affect in any way each
Lender's obligations to comply with all applicable securities laws upon resale
of the Common Stock.
ARTICLE X
CHOICE OF LAW; ARBITRATION
10.1. GOVERNING LAW/ARBITRATION. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts made in New York by persons domiciled in New York City and without
regard to its principles of conflicts of laws. Any dispute under this Agreement
shall be submitted to arbitration under the American Arbitration Association
(the "AAA") in New York City, New York, and shall be finally and conclusively
determined by the decision of a board of arbitration consisting of three (3)
members (hereinafter referred to as the "Board of Arbitration") selected
according to the rules governing the AAA. The Board of Arbitration shall meet on
consecutive business days in New York City, New York, and shall reach and render
a decision in writing (concurred in by a majority of the members of the Board of
Arbitration) with respect to the amount, if any, which the losing party is
required to pay to the other party in respect of a claim filed. In connection
with rendering its decisions, the Board of Arbitration shall adopt and follow
the laws of the State of New York unless the matter at issue is the corporation
law of the company's state of incorporation, in which event the corporation law
of such jurisdiction shall govern such issue. To the extent practical, decisions
of the Board of Arbitration shall be rendered no more than thirty (30) calendar
days following commencement of proceedings with respect thereto. The Board of
Arbitration shall cause its written decision to be delivered to all parties
involved in the dispute. Any decision made by the Board of Arbitration (either
prior to or after the expiration of such thirty (30) calendar day period) shall
be final, binding and conclusive on the parties to the dispute, and entitled to
be enforced to the fullest extent permitted by law and entered in any court of
competent jurisdiction. The Board of Arbitration shall be authorized and is
hereby directed to enter a default judgment against any party failing to
participate in any proceeding hereunder within the time periods set forth in the
AAA rules. The non-prevailing party to any arbitration (as determined by the
Board of Arbitration) shall pay the expenses of the prevailing party, including
reasonable attorney's fees, in connection with such arbitration. Any party shall
be entitled to obtain injunctive relief from a court in any case where such
relief is available, and the non-prevailing party to any such injunctive
proceeding shall pay the expenses of the prevailing party, including reasonable
attorney's fees, in connection with such proceeding.
<PAGE>
ARTICLE XI
ASSIGNMENT
11.1. ASSIGNMENT. Neither this Agreement nor any rights of the Lenders or the
Company hereunder may be assigned by either party to any other person.
Notwithstanding the foregoing, (a) the provisions of this Agreement shall inure
to the benefit of, and be enforceable by, any permitted transferee of any of the
Convertible Debentures or Warrants purchased or acquired by any Lender hereunder
with respect to the Convertible Debentures or Warrants held by such person, and
(b) upon the prior written consent of the Company, which consent shall not
unreasonably be withheld or delayed, each Lender's interest in this Agreement
may be assigned at any time, in whole or in part, to any other person or entity
(including any Affiliate of the Lender) who agrees to make the representations
and warranties contained in Article III and who agrees to be bound by the terms
of this Agreement.
ARTICLE XII
NOTICES
12.1. 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) hand delivered, (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 facsimile, addressed as set forth in the Escrow Agreement 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 first business day following the date of sending by reputable
courier service, fully prepaid, addressed to such address, or (c) upon actual
receipt of such mailing, if mailed. The addresses for such communications shall
be as set forth in the Escrow Agreement. Either party hereto may from time to
time change its address or facsimile number for notices under this Section 12.1
by giving written notice of such changed address or facsimile number to the
other party hereto as provided in this Section 12.1.
ARTICLE XIII
MISCELLANEOUS
13.1. 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 all
parties.
<PAGE>
13.2. ENTIRE AGREEMENT. This Agreement, the agreements attached as Exhibits
hereto, which include, but are not limited to the Convertible Debentures, the
Warrants, 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
to this Agreement are incorporated herein by this reference and shall constitute
part of this Agreement as is fully set forth herein.
13.3. SEVERABILITY. 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.
13.4. HEADINGS. The headings used in this Agreement are used for convenience
only and are not to be considered in construing or interpreting this Agreement.
13.5. NUMBER AND GENDER. There may be one or more Lenders parties to this
Agreement, which Lenders may be natural persons or entities. All references to
plural Lenders shall apply equally to a single Lender if there is only one
Lender, and all references to an Lender as "it" shall apply equally to a natural
person.
13.6. 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 shall be Bloomberg,
L.P. or any successor thereto. The written mutual consent of the Lenders and the
Company shall be required to employ any other reporting entity.
13.7. 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 Convertible Debentures or any Conversion Shares or
Warrants or any 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 to the Company (which shall not include
the posting of any bond) 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.
13.8. FEES AND EXPENSES. Each of the Company and the Lenders agrees to pay its
own expenses incident to the performance of its obligations hereunder, except
that the Company shall pay the fees, expenses and disbursements of counsel to
the Lenders, in an amount equal to $15,000, all as set forth in the Escrow
Agreement.
<PAGE>
13.9. FINDER'S AND BROKER'S FEES. Each of the parties hereto represents that it
has had no dealings in connection with this transaction with any finder or
broker who will demand payment of any fee or commission from the other party
except for Ladenburg Thalmann & Co. Inc., and the finders Rhino Advisors and
Barclay Consulting, whose fees shall be paid by the Company. The Company on the
one hand, and the Lenders, on the other hand, agree to indemnify the other
against and hold the other harmless from any and all liabilities to any person
claiming brokerage commissions or finder's fees on account of services purported
to have been rendered on behalf of the indemnifying party in connection with
this Agreement or the transactions contemplated hereby.
13.10. PUBLICITY. The Company agrees that it will not issue any press release or
other public announcement of the transactions contemplated by this Agreement
without the prior consent of the Lenders, which shall not be unreasonably
withheld nor delayed by more than two (2) Trading Days from their receipt of
such proposed release. No release shall name the Lenders without their express
consent.
IN WITNESS WHEREOF, the parties hereto have caused this Loan Agreement
to be executed by the undersigned, thereunto duly authorized, as of the date
first set forth above.
MCGLEN INTERNET GROUP, INC.
By: /S/ MIKE CHEN
---------------------------------
Mike Chen, President
LENDER:
Address: c/o Ultrafinanz AG AMRO International, S.A.
Grossmuensterplatz 26
Zurich CH-8022 Switzerland
Fax: 011-411-262-5515 By: /S/ H. U. BACHOFEN
---------------------------------
H. U. Bachofen, Director
<PAGE>
SCHEDULES & EXHIBITS
TO
LOAN AGREEMENT
<PAGE>
SCHEDULE 4.3
------------
1. The Company and Institutional Equity Holdings Corporation (IEHC)
entered into a Convertible Loan Agreement whereby IEHC is to lend
$500,000 to the Company. IEHC has the right to convert into the
Company's Common Stock 6 months after closing at 90% of the low 5 day
VWAP in a 22 consecutive trading day period. IEHC is also issued a
Warrant to Purchase 33% of the convertible shares.
2. The Company is currently negotiating the acquisition of a division of
C-Enterprises for approximately 250,000 shares of the Company's Common
Stock.
<PAGE>
SCHEDULE 4.11
-------------
1. The Company and Institutional Equity Holdings Corporation (IEHC)
entered into a Convertible Loan Agreement whereby IEHC is to lend
$500,000 to the Company. IEHC has the right to convert into the
Company's Common Stock 6 months after closing at 90% of the low 5 day
VWAP in a 22 consecutive trading day period. IEHC is also issued a
Warrant to Purchase 33% of the convertible shares.
2. RedStone Securities conducted a private placement of approximately
$1,400,000 for the Company an offering concluded in December of 1999.
<PAGE>
SCHEDULE 4.12
-------------
1. The Company is currently in discussion with Robert Brown, the Company's
former Chief Marketing Officer, regarding settlement of a dispute over
his recent termination by the Company. Mr. Brown was terminated March
2000.
<PAGE>
SECTION 4.15
------------
1. On April 10, 2000, the Company was notified that its workers'
compensation insurance has been placed in suspense due to lack of
payment and non-reporting of payroll for the prior policy year. The
Company is currently reviewing bids for new insurance and believes it
can secure such insurance at more competitive rates than those provided
by its former carrier. To that extent, the Company has contacted the
workers' compensation carrier for Adrenalin Interactive and is looking
to transfer that policy to cover McGlen's employees. Adrenalin has a
credit for funds advanced against their policy for the year ended April
30, 2000.
<PAGE>
SECTION 4.16
------------
1. The Company is currently being examined under a sales tax audit for the
period from inception of McGlen Micro, Inc. through December 31, 1999. As of
April 10, 2000, the Company cannot determine the ultimate outcome of this
examination. However, in any event, the amount of potential liability does not
exceed $250,000.
2. The Company was also notified by the Internal Revenue Service concerning an
examination of its federal taxes for the period ended June 30, 1997. This
examination relates to the operations of Adrenalin Interactive, Inc. and its
predecessor Wanderlust Interactive, Inc. As of April 10, 2000, the Company
cannot determine the ultimate outcome of this examination. However, in any
event, the worst case would be for the net operating loss carryforwards of the
Company to be reduced.
<PAGE>
EXHIBIT A
10% CONVERTIBLE DEBENTURE
NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON CONVERSION
HEREOF HAVE BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE OR UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE SECURITIES ARE
RESTRICTED AND MAY NOT BE OFFERED, RESOLD, PLEDGED OR TRANSFERRED
EXCEPT AS PERMITTED UNDER THE ACT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT OR AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS.
NO. 1 US $1,500,000
10% CONVERTIBLE DEBENTURE DUE SEPTEMBER 30, 2001
THIS DEBENTURE is issued by McGlen Internet Group, Inc., a
corporation organized and existing under the laws of the State of Delaware (the
"Company") and is designated as its 10% Convertible Debenture Due September 30,
2001.
FOR VALUE RECEIVED, the Company promises to pay to AMRO
International, S.A. or permitted assigns (the "Holder"), the principal sum of
One Million Five Hundred Dollars and 00/100 (US $1,500,000) on September 30,
2001 (the "Maturity Date") and to pay interest on the principal sum outstanding
from time to time quarterly in arrears at the rate of 10% per annum accruing
from the date of initial issuance. Accrual of interest shall commence on the
first business day to occur after the date of initial issuance and continue
until payment in full of the principal sum has been made or duly provided for.
Quarterly interest payments shall be due and payable on March 1, June 1,
September 1 and December 1 of each year, commencing with June 1, 2000. Accrued
but unpaid interest shall also be due and payable on any Conversion Date (as
defined herein). If any interest payment date or the Maturity Date is not a
business day in the State of New York, then such payment shall be made on the
next succeeding business day.
The Company will pay the principal of and any accrued but
unpaid interest due upon this Debenture on the Maturity Date, by check or wire
transfer to the person who is the registered holder of this Debenture as of the
tenth day prior to the Maturity Date and addressed to such holder at the last
address appearing on the Debenture Register. The forwarding of such check, or
completion of such wire transfer, shall constitute a payment of principal and
interest hereunder and shall satisfy and discharge the liability for principal
and interest on this Debenture to the extent of the sum represented by such
check or wire transfer.
<PAGE>
This Debenture is subject to the following additional
provisions:
1. The Company shall be entitled to withhold from all payments
of interest on this Debenture any amounts required to be withheld under the
applicable provisions of the United States income tax laws or other applicable
laws at the time of such payments, and Holder shall execute and deliver all
required documentation in connection therewith.
2. This Debenture has been issued subject to investment
representations of the original purchaser hereof and may be transferred or
exchanged only in compliance with the Securities Act of 1933, as amended (the
"Act"), and other applicable state and foreign securities laws. The Holder shall
deliver written notice to the Company of any proposed transfer of this
Debenture. In the event of any proposed transfer of this Debenture, the Company
may require, prior to issuance of a new Debenture in the name of such other
person, that it receive reasonable transfer documentation including legal
opinions that the issuance of the Debenture in such other name does not and will
not cause a violation of the Act or any applicable state or foreign securities
laws. Prior to due presentment for transfer of this Debenture, the Company and
any agent of the Company may treat the person in whose name this Debenture is
duly registered on the Company's Debenture Register as the owner hereof for the
purpose of receiving payment as herein provided and for all other purposes,
whether or not this Debenture be overdue, and neither the Company nor any such
agent shall be affected by notice to the contrary. This Debenture has been
executed and delivered pursuant to the Loan Agreement dated as of April 10, 2000
between the Company and the original Holder (the "Loan Agreement"), and is
subject to the terms and conditions of the Loan Agreement, which are, by this
reference, incorporated herein and made a part hereof. Capitalized terms used
and not otherwise defined herein shall have the meanings set forth for such
terms in the Loan Agreement.
3. The rate of interest on this Debenture shall be reduced to
eight percent (8%), retroactive to the Closing Date, if this Debenture is
redeemed in full pursuant to Section 5 hereof on or before one hundred twenty
(120) days from the Closing Date.
4. The Holder of this Debenture is entitled, at its option, to
convert at any time commencing one hundred fifty (150) days after the date
hereof, the principal amount of this Debenture or any portion thereof, and at
the Holder's election, any accrued but unpaid interest, into shares of Common
Stock of the Company ("Conversion Shares") at a conversion price for each share
of Common Stock ("Conversion Price") equal to 90% of the Market Price on the
Conversion Date (as defined in Section 6 hereof). The term "Market Price" shall
have the meaning set forth in the Loan Agreement. If, upon any conversion of
this Debenture, the Company's issuance of Conversion Shares would cause it to
violate any listing requirement of the Principal Market, then in lieu of such
stock issuance, the Company shall pay the Holder cash in an amount equal to the
closing price of the Common Stock on the Conversion Date multiplied by the
number of shares which would otherwise have been issuable upon such conversion.
<PAGE>
5. The Company shall have the right at any time to deliver to
the Holder a written notice of the Company's intent to redeem the entire
outstanding amount of this Debenture, plus all accrued but unpaid interest. The
Company shall make the redemption payment to the Holder within five (5) Trading
Days of the redemption date set forth in the Company notice of redemption, or
else the redemption notice shall be void, and the Company shall thereafter not
have any further right to redeem this Debenture. The Holder shall have the right
to convert this Debenture as set forth in Section 4 until the Trading Day prior
to the Trading Day set for payment of the redemption price, if this Debenture is
otherwise convertible at that time.
6. (a) Conversion shall be effectuated by surrendering this
Debenture to the Company (if such Conversion will convert all outstanding
principal) together with the form of conversion notice attached hereto as
EXHIBIT A (the "Notice of Conversion"), executed by the Holder of this Debenture
evidencing such Holder's intention to convert this Debenture or a specified
portion (as above provided) hereof, and accompanied, if required by the Company,
by proper assignment hereof in blank. Interest accrued or accruing from the date
of issuance to the date of conversion shall, at the option of the Holder, be
paid in cash as set forth above or in Common Stock upon conversion at the
Conversion Price on the Conversion Date. No fraction of a share or scrip
representing a fraction of a share will be issued on conversion, but the number
of shares issuable shall be rounded to the nearest whole share. The date on
which Notice of Conversion is given (the "Conversion Date") shall be deemed to
be the date on which the Holder faxes the Notice of Conversion duly executed to
the Company. Facsimile delivery of the Notice of Conversion shall be accepted by
the Company before noon Pacific Time at facsimile number (714) 918-1947 Attn:
Grant Trexler, Chief Financial Officer. Certificates representing Common Stock
upon conversion will be delivered to the Holder within three (3) Trading Days
from the date the Notice of Conversion is delivered to the Company. Delivery of
shares upon conversion shall be made to the address specified by the Holder in
the Notice of Conversion.
(b) The Company understands that a delay in the issuance of
shares of Common Stock upon a conversion beyond the three (3) Trading Day period
described in Section 6(a) could result in economic loss to the Holder. As
compensation to the Holder for such loss, the Company agrees to pay late
payments to the Holder for late issuance of shares of Common Stock upon
conversion in accordance with the following schedule (where "No. Trading Days
Late" is defined as the number of Trading Days beyond four (4) Trading Days from
the date the Notice of Conversion is delivered to the Company).
------------------------------------- ------------------------------------------
No. Trading Days Late Late Payment for Each
$5,000 of Principal Amount
Being Converted
------------------------------------- ------------------------------------------
1 $100
------------------------------------- ------------------------------------------
2 $200
------------------------------------- ------------------------------------------
3 $300
------------------------------------- ------------------------------------------
4 $400
------------------------------------- ------------------------------------------
5 $500
------------------------------------- ------------------------------------------
6 $600
------------------------------------- ------------------------------------------
7 $700
------------------------------------- ------------------------------------------
8 $800
------------------------------------- ------------------------------------------
9 $900
------------------------------------- ------------------------------------------
10 $1,000
------------------------------------- ------------------------------------------
More than 10 $1,000 +$200 for each Trading Day
Late beyond 10 Trading Days
------------------------------------- ------------------------------------------
<PAGE>
The Company shall pay any payments incurred under this Section 6(b) in
immediately available funds upon demand. Nothing herein shall limit Holder's
right to pursue injunctive relief and/or actual damages for the Company's
failure to issue and deliver Common Stock to the holder, including, without
limitation, the Holder's actual losses occasioned by any "buy-in" of Common
Stock necessitated by such late delivery. Furthermore, in addition to any other
remedies which may be available to the Holder, in the event that the Company
fails for any reason to effect delivery of such shares of Common Stock within
four (4) Trading Days from the date the Notice of Conversion is delivered to the
Company, 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
the Holder shall each be restored to their respective positions immediately
prior to delivery of such Notice of Conversion, and in such event no late
payments shall be due in connection with such withdrawn conversion.
(c) If at any time (a) the Company challenges, disputes or
denies the right of the Holder to effect the conversion of this Debenture into
Common Stock or otherwise dishonors or rejects any Notice of Conversion
delivered in accordance with this Section 6 or (b) any Company stockholder who
is not and has never been an Affiliate (as defined in Rule 405 under the
Securities Act of 1933, as amended) of the Holder obtains a judgment or any
injunctive relief from any court or public or governmental authority which
denies, enjoins, limits, modifies, delays or disputes the right of the holder
hereof to effect the conversion of this Debenture into Common Stock, then the
Holder shall have the right, by written notice, to require the Company to
promptly redeem this Debenture for cash at a redemption price equal to one
hundred ten percent (110%) of the outstanding principal amount hereof and all
accrued and unpaid interest hereon. Under any of the circumstances set forth
above, the Company shall be responsible for the payment of all costs and
expenses of the Holder, including reasonable legal fees and expenses, as and
when incurred in disputing any such action or pursuing its rights hereunder (in
addition to any other rights of the Holder), subject in the case of clause (b)
to the Company's right to control and assume the defense of any such action. In
the absence of an injunction precluding the same, the Company shall issue shares
upon a properly noticed conversion.
The Holder shall be entitled to exercise its conversion privilege
notwithstanding the commencement of any case under 11 U.S.C.ss. 101 ET SEQ. (the
"Bankruptcy Code"). In the event the Company is a debtor under the Bankruptcy
Code, the Company hereby waives to the fullest extent permitted any rights to
relief it may have under 11 U.S.C.ss.362 in respect of the Holder's conversion
privilege.
7. No provision of this Debenture shall alter or impair the
obligation of the Company, which is absolute and unconditional, to pay the
principal of, and interest on, this Debenture at the time, place, and rate, and
in the coin or currency or shares of Common Stock, herein prescribed. This
Debenture is a direct obligation of the Company.
<PAGE>
8. If the Company merges or consolidates with another
corporation or sells or transfers all or substantially all of its assets to
another person and the holders of the Common Stock are entitled to receive
stock, securities or property in respect of or in exchange for Common Stock,
then as a condition of such merger, consolidation, sale or transfer, the Company
and any such successor, purchaser or transferee agree that the Debenture may
thereafter be converted on the terms and subject to the conditions set forth
above into the kind and amount of stock, securities or property receivable upon
such merger, consolidation, sale or transfer by a holder of the number of shares
of Common Stock into which this Debenture might have been converted immediately
before such merger, consolidation, sale or transfer, subject to adjustments
which shall be as nearly equivalent as may be practicable. In the event of any
proposed merger, consolidation or sale or transfer of all or substantially all
of the assets of the Company (a "Sale"), the Holder hereof shall have the right
to convert by delivering a Notice of Conversion to the Company within fifteen
(15) days of receipt of notice of such Sale from the Company. In the event the
Holder hereof shall elect not to convert, the Company may prepay all outstanding
principal and accrued interest on this Debenture as provided in Section 5, less
all amounts required by law to be deducted, upon which tender of payment
following such notice, the right of conversion shall terminate.
9. This Debenture shall be governed by and construed in
accordance with the laws of the State of New York. Each of the parties consents
to the jurisdiction of the federal courts whose districts encompass any part of
the City of New York or the state courts of the State of New York sitting in the
City of New York in connection with any dispute arising under this Agreement and
hereby waives, to the maximum extent permitted by law, any objection, including
any objection based on forum non conveniens, to the bringing of any such
proceeding in such jurisdictions.
10. The following shall constitute an "Event of Default":
a. The Company shall default in the payment of principal
or interest on this Debenture and same shall continue
for a period of three (3) Trading Days after written
notice from the Holder to Company; or
b. Any of the material representations or warranties
made by the Company herein, in the Loan Agreement,
the Registration Rights Agreement, or in any
agreement, certificate or financial or other written
statements heretofore or hereafter furnished by the
Company in connection with the execution and delivery
of this Debenture or the Loan Agreement are
determined be false or misleading in any material
respect at the time made; or
c. The Company fails to issue shares of Common Stock to
the Holder or to cause its Transfer Agent to issue
shares of Common Stock upon exercise by the Holder of
the conversion rights of the Holder in accordance
with the terms of this Debenture, fails to transfer
<PAGE>
or to cause its Transfer Agent to transfer any
certificate for shares of Common Stock issued to the
Holder upon conversion of this Debenture as and when
required by this Debenture or the Registration Rights
Agreement, and such transfer is otherwise lawful, or
fails to remove any restrictive legend or to cause
its Transfer Agent to transfer any certificate or any
shares of Common Stock issued to the Holder upon
conversion of this Debenture as and when required by
this Debenture, the Loan Agreement or the
Registration Rights Agreement and such legend removal
is otherwise lawful, and any such failure shall
continue uncured for five (5) Trading Days after
written notice from the Holder to the Company; or
d. The Company shall fail to perform or observe, in any
material respect, any other covenant, term,
provision, condition, agreement or obligation of the
Company under the Loan Agreement, the Registration
Rights Agreement or this Debenture and such failure
shall continue uncured for a period of thirty (30)
days after written notice from the Holder of such
failure; or
e. The Company shall (1) admit in writing its inability
to pay its debts generally as they mature; (2) make
an assignment for the benefit of creditors or
commence proceedings for its dissolution; or (3)
apply for or consent to the appointment of a trustee,
liquidator or receiver for its or for a substantial
part of its property or business; or
f. A trustee, liquidator or receiver shall be appointed
for the Company or for a substantial part of its
property or business without its consent and shall
not be discharged within sixty (60) days after such
appointment; or
g. Any governmental agency or any court of competent
jurisdiction at the instance of any governmental
agency shall assume custody or control of the whole
or any substantial portion of the properties or
assets of the Company and shall not be dismissed
within sixty (60) days thereafter; or
h. Any money judgment, writ or warrant of attachment, or
similar process in excess of Two Hundred Fifty
Thousand ($250,000) Dollars in the aggregate shall be
entered or filed against the Company or any of its
properties or other assets and shall remain unpaid,
unvacated, unbonded or unstayed for a period of sixty
(60) days or in any event later than five (5) days
prior to the date of any proposed sale thereunder; or
<PAGE>
i. Bankruptcy, reorganization, insolvency or liquidation
proceedings or other proceedings for relief under any
bankruptcy law or any law for the relief of debtors
shall be instituted by or against the Company and, if
instituted against the Company, shall not be
dismissed within sixty (60) days after such
institution or the Company shall by any action or
answer approve of, consent to, or acquiesce in any
such proceedings or admit the material allegations
of, or default in answering a petition filed in any
such proceeding; or
j. The Company shall have its Common Stock suspended or
delisted from trading on a Principal Market for in
excess of two (2) Trading Days;
Then, or at any time thereafter, and in each and every such case, unless such
Event of Default shall have been waived in writing by the Holder (which waiver
shall not be deemed to be a waiver of any subsequent default) at the option of
the Holder and in the Holder's sole discretion, the Holder may consider this
Debenture immediately due and payable, without presentment, demand, protest or
notice of any kind, all of which are hereby expressly waived, anything herein or
in any note or other instruments contained to the contrary notwithstanding, and
the Holder may immediately enforce any and all of the Holder's rights and
remedies provided herein or any other rights or remedies afforded by law.
11. Nothing contained in this Debenture shall be construed as
conferring upon the Holder the right to vote or to receive dividends or to
consent or receive notice as a shareholder in respect of any meeting of
shareholders or any rights whatsoever as a shareholder of the Company, unless
and to the extent converted in accordance with the terms hereof.
12. In no event shall the Holder be permitted to convert this
Debenture for shares of Common Stock in excess of the amount of this Debenture
upon the conversion of which, (x) the number of shares of Common Stock owned by
such Holder (other than shares of Common Stock issuable upon conversion of this
Debenture) plus (y) the number of shares of Common Stock issuable upon
conversion of this Debenture, would be equal to or exceed 9.9% of the number of
shares of Common Stock then issued and outstanding, including shares issuable
upon conversion of this Debenture held by such Holder after application of this
Section 12. As used herein, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder. To the extent that the
limitation contained in this Section 12 applies, the determination of whether
this Debenture is convertible (in relation to other securities owned by the
Holder) and of which a portion of this Debenture is convertible shall be in the
<PAGE>
sole discretion of such Holder, and the submission of a Notice of Conversion
shall be deemed to be such Holder's determination of whether this Debenture is
convertible (in relation to other securities owned by such holder) and of which
portion of this Debenture is convertible, in each case subject to such aggregate
percentage limitation, and the Company shall have no obligation to verify or
confirm the accuracy of such determination. Nothing contained herein shall be
deemed to restrict the right of a holder to convert this Debenture into shares
of Common Stock at such time as such conversion will not violate the provisions
of this Section 12. The provisions of this Section 12 may be waived by the
Holder of this Debenture upon not less than 75 days' prior notice to the
Company, and the provisions of this Section 12 shall continue to apply until
such 75th day (or such later date as may be specified in such notice of waiver).
No conversion of this Debenture in violation of this Section 12 but otherwise in
accordance with this Debenture shall affect the status of the Common Stock
issued upon such conversion as validly issued, fully-paid and nonassessable.
IN WITNESS WHEREOF, the Company has caused this Debenture to
be duly executed by an officer thereunto duly authorized.
Dated: March 17, 2000
MCGLEN INTERNET GROUP, INC.
By: /S/ MIKE CHEN
--------------------------------------
Mike Chen, President
Attest:
-----------------------
<PAGE>
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the Debenture)
The undersigned hereby irrevocably elects to convert $ ________________
of the principal amount of the above Debenture No. 1 into Shares of Common Stock
of McGlen Internet Group, Inc.. (the "Company") according to the conditions
hereof, as of the date written below.
Date of Conversion* ____________________________________________________________
Applicable Conversion Price * __________________________________________________
Accrued Interest________________________________________________________________
Signature_______________________________________________________________________
[Name]
Address:________________________________________________________________________
________________________________________________________________________
<PAGE>
EXHIBIT B
NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT")
OR ANY OTHER APPLICABLE SECURITIES LAWS IN RELIANCE UPON AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER SECURITIES LAWS.
NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE HEREOF MAY BE SOLD,
PLEDGED, TRANSFERRED, ENCUMBERED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR IN A TRANSACTION
WHICH IS EXEMPT FROM REGISTRATION UNDER THE PROVISIONS OF THE SECURITIES ACT.
STOCK PURCHASE WARRANT
To Purchase 372,449 Shares of the Common Stock of
MCGLEN INTERNET GROUP, INC.
THIS CERTIFIES that, for value received, AMRO International, S.A. (the
"Holder"), is entitled, upon the terms and subject to the conditions hereinafter
set forth, at any time on or after the date hereof (the "Initial Exercise Date")
and on or prior to the close of business on April 17, 2002 (the "Termination
Date") but not thereafter, to subscribe for and purchase from McGlen Internet
Group, Inc., a corporation incorporated in Delaware (the "Company"), up to three
hundred seventy-two thousand four hundred forty-nine (372,449) shares (the
"Warrant Shares") of Common Stock, $0.03 par value, of the Company (the "Common
Stock"). The purchase price of one share of Common Stock (the "Exercise Price")
under this Warrant shall be $2.316 (115% of the VWAP of the Company's Common
Stock on the Trading Day immediately prior to the Closing Date). The Exercise
Price and the number of shares for which the Warrant is exercisable shall be
subject to adjustment as provided herein. In the event of any conflict between
the terms of this Warrant and the Loan Agreement between the Company and the
Holder dated as of April 10, 2000 pursuant to which this Warrant has been
issued, the Loan Agreement shall control. Capitalized terms used and not
otherwise defined herein shall have the meanings set forth for such terms in the
Loan Agreement.
<PAGE>
1. TITLE TO WARRANT. Prior to the Termination Date and subject to
compliance with applicable laws and the terms of this Warrant, 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.
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. Except as provided in Section 4 herein,
exercise of the purchase rights represented by this Warrant may be made at any
time or times on or after the Initial Exercise Date (i) as to two-thirds of the
number of Warrants and (ii) if and only if the Convertible Debenture issued in
conjunction with this Warrant has not been redeemed in full by the Company in
accordance with its terms on or before the one-hundredth (100th) day after the
Initial Exercise Date, as to the remaining one-third of the Warrants, which
remaining third shall otherwise be void, and in either case before the close of
business on the Termination Date by the surrender of this Warrant and the Notice
of Exercise 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 by wire transfer or cashier's check drawn on a United
States bank, 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 (5) Trading Days after the date on which this Warrant shall have been
exercised as aforesaid. This Warrant shall be deemed to have been exercised and
such certificate or certificates shall be deemed to have been issued, and Holder
or any other person so designated to be named therein shall be deemed to have
become a holder of record of such shares for all purposes, as of the date the
Holder faxes a Notice of Exercise to the Company, provided that such fax notice
is followed by delivery of the original notice and payment to the Company of the
Exercise Price and all taxes required to be paid by Holder, if any, pursuant to
Section 5 prior to the issuance of such shares, have been paid within three (3)
Trading Days of such fax notice. If this Warrant shall have been exercised in
part, the Company shall, at the time of delivery of the certificate or
certificates representing Warrant Shares, deliver to Holder a new Warrant
evidencing the rights of Holder to purchase the unpurchased shares of Common
Stock called for by this Warrant, which new Warrant shall in all other respects
be identical with this Warrant. If there is no registration in effect permitting
the resale by the Holder of the Warrant Shares at any time from and after one
year from the issuance date of this Warrant, then the Holder shall have the
right to a "cashless exercise" in which the Holder shall be entitled to receive
a certificate for the number of shares equal to the quotient obtained by
dividing [(A-B) (X)] by (A), where:
(A) = the average of the high and low trading prices per share of Common Stock
on the Trading Day preceding the date of such election; (B) = the Exercise Price
of the Warrant; and
<PAGE>
(X) = the number of shares issuable upon exercise of the Warrant in accordance
with the terms of this Warrant.
4. NO FRACTIONAL SHARES OR SCRIP. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. As to any fraction of a share which Holder would otherwise be entitled
to purchase upon such exercise, the Company shall pay a cash adjustment in
respect of such final fraction in an amount equal to the Exercise Price.
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 federal or state 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 the Company may require, as a condition
thereto, the payment of a sum sufficient to reimburse it for any transfer tax
incidental thereto.
6. CLOSING OF BOOKS. The Company will not close its shareholder books
or records in any manner which prevents the timely exercise of this Warrant.
7. TRANSFER, DIVISION AND COMBINATION. (a) the Holder (and its
transferees and assigns), by acceptance of this Warrant, covenants and agrees
that it is acquiring the Warrants evidenced hereby, and, upon exercise hereof,
the Warrant Shares, for its own account as an investment and not with a view to
distribution thereof. The Warrant Shares have not been registered under the
Securities Act or any state securities laws and no transfer of any Warrant
Shares shall be permitted unless the Company has received notice of such
transfer, at the address of its principal office set forth in the Loan
Agreement, in the form of assignment attached hereto, accompanied by an opinion
of counsel reasonably satisfactory to the Company that an exemption from
registration of such Warrants or Warrant Shares under the Securities Act is
available for such transfer, except that no such opinion shall be required after
the registration for resale by the Holder of the Warrant Shares, as contemplated
by the Registration Rights Agreement. Upon any exercise of the Warrants,
certificates representing the Warrant Shares shall bear a restrictive legend
substantially identical to that set forth on the face of this Warrant
certificate. Any purported transfer of any Warrant or Warrant Shares not in
compliance with the provisions of this section shall be null and void.
(b) This Warrant may be divided or combined with other
Warrants upon presentation hereof at the aforesaid office of the Company,
together with a written notice specifying the names and denominations in which
new Warrants are to be issued, signed by Holder or its agent or attorney.
Subject to compliance with Section 7(a), as to any transfer which may be
involved in such division or combination, the Company shall execute and deliver
a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided
or combined in accordance with such notice.
<PAGE>
(c) The Company shall prepare, issue and deliver at its own
expense (other than transfer taxes) the new Warrant or Warrants under this
Section 7.
(d) The Company agrees to maintain, at its aforesaid office,
books for the registration and the registration of transfer of the Warrants.
8. 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 hereof. Upon the surrender of this Warrant
and the payment of the aggregate Exercise Price, the Warrant 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 later of the date of such surrender or
payment.
9. LOSS, THEFT, DESTRUCTION OR MUTILATION OF WARRANT. The Company
covenants that upon receipt by the Company of evidence reasonably satisfactory
to it of the loss, theft, destruction or mutilation of this Warrant certificate
or any stock certificate relating to the Warrant Shares, and in case of loss,
theft or destruction, of indemnity or security reasonably satisfactory to it
(which shall not exceed that customarily charged by the Company's transfer
agent), 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
such 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 Saturday,
Sunday or legal holiday.
11. ADJUSTMENTS OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. (a)
STOCK SPLITS, ETC. 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) 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 into a greater
number of 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, then 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 been entitled to receive had such Warrant been
exercised in advance thereof. Upon each such adjustment of the kind and number
of Warrant Shares or other securities of the Company which are purchasable
hereunder, the holder of this Warrant shall thereafter be entitled to purchase
the number of Warrant Shares or other securities resulting from such adjustment
at an Exercise Price per Warrant Share or other security obtained by multiplying
the Exercise Price in effect immediately prior to such adjustment by the number
of Warrant Shares purchasable pursuant hereto immediately prior to such
adjustment and dividing by the number of Warrant Shares or other securities of
the Company resulting from such adjustment. 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.
<PAGE>
(b) REORGANIZATION, RECLASSIFICATION, MERGER, CONSOLIDATION OR
DISPOSITION OF ASSETS. In case the Company shall reorganize its capital,
reclassify its capital stock, consolidate or merge with or into another
corporation (where the Company is not the surviving corporation or where there
is a change in or distribution with respect to the Common Stock of the Company),
or sell, transfer or otherwise dispose of all or substantially all its property,
assets or business to another corporation and, pursuant to the terms of such
reorganization, reclassification, merger, consolidation or disposition of
assets, shares of common stock of the successor or acquiring corporation, or any
cash, shares of stock or other securities or property of any nature whatsoever
(including warrants or other subscription or purchase rights) in addition to or
in lieu of common stock of the successor or acquiring corporation ("Other
Property"), are to be received by or distributed to the holders of Common Stock
of the Company, then Holder shall have the right thereafter to receive, upon
exercise of this Warrant, the number of shares of common stock of the successor
or acquiring corporation or of the Company, if it is the surviving corporation,
and Other Property receivable upon or as a result of such reorganization,
reclassification, merger, consolidation or disposition of assets by a holder of
the number of shares of Common Stock for which this Warrant is exercisable
immediately prior to such event. In case of any such reorganization,
reclassification, merger, consolidation or disposition of assets, the successor
or acquiring corporation (if other than the Company) shall expressly assume the
due and punctual observance and performance of each and every covenant and
condition of this Warrant to be performed and observed by the Company and all
the obligations and liabilities hereunder, subject to such modifications as may
be deemed appropriate (as determined in good faith by resolution of the Board of
Directors of the Company) in order to provide for adjustments of shares of
Common Stock for which this Warrant is exercisable which shall be as nearly
equivalent as practicable to the adjustments provided for in this Section 11.
For purposes of this Section 11, "common stock of the successor or acquiring
corporation" shall include stock of such corporation of any class which is not
preferred as to dividends or assets over any other class of stock of such
corporation and which is not subject to redemption and shall also include any
evidences of indebtedness, shares of stock or other securities which are
convertible into or exchangeable for any such stock, either immediately or upon
the arrival of a specified date or the happening of a specified event and any
warrants or other rights to subscribe for or purchase any such stock. The
foregoing provisions of this Section 11 shall similarly apply to successive
reorganizations, reclassifications, mergers, consolidations or disposition of
assets.
12. VOLUNTARY ADJUSTMENT BY THE COMPANY. The Company may 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.
<PAGE>
13. 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 (and other securities or property) after such adjustment, setting
forth a brief statement of the facts requiring such adjustment and setting forth
the computation by which such adjustment was made. Such notice, in the absence
of manifest error, shall be conclusive evidence of the correctness of such
adjustment.
14. Notice of Corporate Action. If at any time:
(a) the Company shall take a record of the holders of its
Common Stock for the purpose of entitling them to receive a dividend or other
distribution, or any right to subscribe for or purchase any evidences of its
indebtedness, any shares of stock of any class or any other securities or
property, or to receive any other right, or
(b) there shall be any capital reorganization of the Company,
any reclassification or recapitalization of the capital stock of the Company or
any consolidation or merger of the Company with, or any sale, transfer or other
disposition of all or substantially all the property, assets or business of the
Company to, another corporation or,
(c) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more of such cases, the Company shall give to Holder (i) at
least 10 days' prior written notice of the record date for such dividend,
distribution or right or for determining rights to vote in respect of any such
reorganization, reclassification, merger, consolidation, sale, transfer,
disposition, liquidation or winding up, and (ii) in the case of any such
reorganization, reclassification, merger, consolidation, sale, transfer,
disposition, dissolution, liquidation or winding up, at least 10 days' prior
written notice of the date when the same shall take place. Such notice in
accordance with the foregoing clause also shall specify (i) the date on which
any such record is to be taken for the purpose of such dividend, distribution or
right, the date on which the holders of Common Stock shall be entitled to any
such dividend, distribution or right, and the amount and character thereof, and
(ii) the date on which any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up is to take place and the time, if any such time is to be fixed, as of which
the holders of Common Stock shall be entitled to exchange their shares of Common
Stock for securities or other property deliverable upon such disposition,
dissolution, liquidation or winding up. Each such written notice shall be
sufficiently given if addressed to Holder at the last address of Holder
appearing on the books of the Company and delivered in accordance with Section
16(d).
<PAGE>
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 the Warrant
Shares 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 the Warrant
Shares 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
Warrant Shares may be issued as provided herein without violation of any
applicable law or regulation, or of any requirements of the Principal Market
upon which the Common Stock may be listed.
The Company shall not by any action, including, without
limitation, amending its certificate 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 Warrant, but will 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 to protect the
rights of Holder against impairment. Without limiting the generality of the
foregoing, the Company will (a) not increase the par value of any shares of
Common Stock receivable upon the exercise of this Warrant above the amount
payable therefor upon such exercise immediately prior to such increase in par
value, (b) 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
Common Stock upon the exercise of this Warrant, and (c) use its best efforts to
obtain all such authorizations, exemptions or consents from any public
regulatory body having jurisdiction thereof as may be necessary to enable the
Company to perform its obligations under this Warrant.
Before taking any action which would result in an adjustment
in the number of shares of Common Stock for which this Warrant is exercisable or
in the Exercise Price, the Company shall obtain all such authorizations or
exemptions thereof, or consents thereto, as may be necessary from any public
regulatory body or bodies having jurisdiction thereof.
16. MISCELLANEOUS.
(a) JURISDICTION. This Warrant shall be binding upon any
successors or assigns of the Company. This Warrant shall constitute a contract
under the laws of Delaware without regard to its conflict of law, principles or
rules, and be subject to arbitration pursuant to the terms set forth in the Loan
Agreement.
(b) RESTRICTIONS. The holder hereof acknowledges that the
Warrant Shares acquired upon the exercise of this Warrant, if not registered,
will have restrictions upon resale imposed by state and federal securities laws.
(c) NONWAIVER AND EXPENSES. No course of dealing or any delay
or failure to exercise any right hereunder on the part of Holder shall operate
as a waiver of such right or otherwise prejudice Holder's rights, powers or
remedies, notwithstanding all rights hereunder terminate on the Termination
Date. If the Company fails to comply with any provision of this Warrant, the
Company shall pay to Holder such amounts as shall be sufficient to cover any
costs and expenses including, but not limited to, reasonable attorneys' fees,
including those of appellate proceedings, incurred by Holder in collecting any
amounts due pursuant hereto or in otherwise enforcing any of its rights, powers
or remedies hereunder.
<PAGE>
(d) NOTICES. Any notice, request or other document required or
permitted to be given or delivered to the holder hereof by the Company shall be
delivered in accordance with the notice provisions of the Loan Agreement.
(e) LIMITATION OF LIABILITY. No provision hereof, in the
absence of affirmative action by Holder to purchase shares of Common Stock, and
no enumeration herein of the rights or privileges of Holder hereof, shall give
rise to any liability of Holder for the purchase price of any Common Stock or as
a stockholder of the Company, whether such liability is asserted by the Company
or by creditors of the Company.
(f) REMEDIES. Holder, in addition to being entitled to
exercise all rights granted by law, including recovery of damages, will be
entitled to specific performance of its rights under this Warrant. The Company
agrees that monetary damages would not be adequate compensation for any loss
incurred by reason of a breach by it of the provisions of this Warrant and
hereby agrees to waive the defense in any action for specific performance that a
remedy at law would be adequate.
(g) SUCCESSORS AND ASSIGNS. Subject to applicable securities
laws, this Warrant and the rights and obligations evidenced hereby shall inure
to the benefit of and be binding upon the successors of the Company and the
successors and permitted assigns of Holder. The provisions of this Warrant are
intended to be for the benefit of all Holders from time to time of this Warrant
and shall be enforceable by any such Holder or holder of Warrant Shares.
(h) INDEMNIFICATION. The Company agrees to indemnify and hold
harmless Holder from and against any liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, claims, costs, attorneys' fees, expenses
and disbursements of any kind which may be imposed upon, incurred by or asserted
against Holder in any manner relating to or arising out of any failure by the
Company to perform or observe in any material respect any of its covenants,
agreements, undertakings or obligations set forth in this Warrant; PROVIDED,
HOWEVER, that the Company will not be liable hereunder to the extent that any
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
claims, costs, attorneys' fees, expenses or disbursements are found in a final
non-appealable judgment by a court to have resulted from Holder's negligence,
bad faith or willful misconduct.
(i) AMENDMENT. This Warrant may be modified or amended or the
provisions hereof waived with the written consent of the Company and the Holder.
<PAGE>
(j) SEVERABILITY. Wherever possible, each provision of this
Warrant shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provisions or the remaining provisions of this Warrant.
(k) HEADINGS. The headings used in this Warrant are for the
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant.
IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed by its officer thereunto duly authorized.
Dated: April 12, 2000
MCGLEN INTERNET GROUP, INC.
By: /S/ MIKE CHEN
----------------------------------------
Mike Chen, President
<PAGE>
NOTICE OF EXERCISE
To: McGlen Internet Group, Inc.
(1) The undersigned hereby elects to purchase ________ shares of Common
Stock (the "Common Stock"), of McGlen Internet Group, Inc. pursuant to the terms
of the attached Warrant, and tenders herewith payment of the exercise 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>
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 C
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of April 10, 2000 between
the investor or investors signatory hereto (each a "Lender" and together the
"Lenders"), and McGlen Internet Group, Inc., a Delaware corporation (the
"Company").
WHEREAS, simultaneously with the execution and delivery of this
Agreement, the Lender is lending the Company, pursuant to a Loan Agreement dated
the date hereof (the "Loan Agreement"), $1,500,000 principal amount of 10%
Convertible Debentures and Warrants to purchase shares of the Company's Common
Stock (terms not defined herein shall have the meanings ascribed to them in the
Loan Agreement); and
WHEREAS, the Company desires to grant to the Lenders the registration
rights set forth herein with respect to the Conversion Shares of Common Stock
issuable upon conversion of the Convertible Debentures purchased pursuant to the
Loan Agreement and shares of Common Stock issuable upon exercise of the Warrants
(hereinafter referred to as the "Stock" or "Securities" of the Company).
NOW, THEREFORE, the parties hereto mutually agree as follows:
Section 1. REGISTRABLE SECURITIES. As used herein the term "Registrable
Security" means the Securities until (i) the Registration Statement has been
declared effective by the Commission, and all Securities have been disposed of
pursuant to the Registration Statement, (ii) all Securities have 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) all Securities have been otherwise transferred to holders who may trade
such Securities without restriction under the Securities Act, and the Company
has delivered a new certificate or other evidence of ownership for such
Securities not bearing a restrictive legend or (iv) such time as, in the opinion
of counsel to the Company, all Securities may be sold without any time, volume
or manner limitations pursuant to Rule 144(k) (or any similar provision then in
effect) under the Securities Act. 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 deemed to 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 Agreement.
Section 2. RESTRICTIONS ON TRANSFER. Each Lender acknowledges and
understands that prior to the registration of the Securities as provided herein,
the Securities are "restricted securities" as defined in Rule 144 promulgated
under the Act. Each Lender understands that no disposition or transfer of the
Securities may be made by Lender in the absence of (i) an opinion of counsel to
the Lender, in form and substance reasonably satisfactory to the Company, that
such transfer may be made without registration under the Securities Act or (ii)
such registration.
<PAGE>
With a view to making available to the Lenders the benefits of Rule 144
under the Securities Act or any other similar rule or regulation of the
Commission that may at any time permit the Lenders to sell securities of the
Company to the public without registration ("Rule 144"), the Company agrees to:
(a) comply with the provisions of paragraph (c)(1) of Rule
144; and
(b) file with the Commission in a timely manner all reports
and other documents required to be filed with the Commission pursuant to Section
13 or 15(d) under the Exchange Act by companies subject to either of such
sections, irrespective of whether the Company is then subject to such reporting
requirements.
Section 3. DEMAND REGISTRATION RIGHTS WITH RESPECT TO THE SECURITIES.
(a) The Company agrees that if it has not redeemed all of the
Convertible Debentures in full in accordance with their terms no later than one
hundred (100) days after the Closing Date, then, upon the written request of any
Lender, it will prepare and file with the Securities and Exchange Commission
("Commission"), within fifteen (15) days after the date of such request (the
"Required Filing Date"), a registration statement (on Form S-3, S-1 or SB-2 or
other appropriate registration statement form) under the Securities Act (the
"Registration Statement"), at the sole expense of the Company (except as
provided in Section 3(c) hereof), in respect of the Lenders, so as to permit a
public offering and resale of the Securities under the Act by the Lenders as
selling stockholders and not as underwriters.
The Company shall use its best efforts to cause such Registration
Statement to become effective within sixty (60) days from the Required Filing
Date, or, if earlier, within five (5) days of SEC clearance to request
acceleration of effectiveness. The number of shares designated in the
Registration Statement to be registered shall include all the Warrant Shares and
at least 200% of the number of shares issuable upon conversion of the
Convertible Debentures on the Required Filing Date, and such number of shares as
the Company deems prudent for the purpose of issuing shares of Common Stock as
interest on the Convertible Debentures, and shall include appropriate language
regarding reliance upon Rule 416 to the extent permitted by the Commission. The
Company will notify the Lenders of the effectiveness of the Registration
Statement within one Trading Day of such event. In the event that the number of
shares so registered shall prove to be insufficient to register the resale of
all of the Securities, then the Company shall be obligated to file, within
thirty (30) days of notice from any Lender, a further Registration Statement
registering such remaining shares and shall use diligent best efforts to
prosecute such additional Registration Statement to effectiveness within sixty
(60) days of the date of such notice.
<PAGE>
(b) The Company will maintain the Registration Statement or
post-effective amendment filed under this Section 3 effective under the
Securities Act until the earlier of (i) the date that none of the Securities
covered by such Registration Statement are or may become issued and outstanding,
(ii) the date that all of the Securities have been sold pursuant to such
Registration Statement, (iii) the date the Lenders receive an opinion of counsel
to the Company, which counsel shall be reasonably acceptable to the Lenders,
that the Securities may be sold under the provisions of Rule 144 without
limitation as to volume, (iv) all Securities have been otherwise transferred to
persons who may trade such shares without restriction under the Securities Act,
and the Company has delivered a new certificate or other evidence of ownership
for such securities not bearing a restrictive legend, or (v) all Securities may
be sold without any time, volume or manner limitations pursuant to Rule 144(k)
or any similar provision then in effect under the Securities Act in the opinion
of counsel to the Company, which counsel shall be reasonably acceptable to the
Lender (the "Effectiveness Period").
(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 of the Company) shall be borne by the Company. The Lenders shall
bear the cost of underwriting and/or brokerage discounts, fees and commissions,
if any, applicable to the Securities being registered and the fees and expenses
of their counsel. The Lenders and their counsel shall have a reasonable period,
not to exceed five (5) Trading Days, to review the proposed Registration
Statement or any amendment thereto, prior to filing with the Commission, and the
Company shall provide each Lender with copies of any comment letters received
from the Commission with respect thereto within two (2) Trading Days of receipt
thereof. The Company shall qualify any of the securities for sale in such states
as any Lender 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, or which will require the Company to
qualify to do business in such state or require the Company to file therein any
general consent to service of process. The Company at its expense will supply
the Lenders with copies of the applicable Registration Statement and the
prospectus included therein and other related documents in such quantities as
may be reasonably requested by the Lenders.
(d) The Company shall not be required by this Section 3 to
include an Lender's Securities in any Registration Statement which is to be
filed if, in the opinion of counsel for both the Lender and the Company (or,
should they not agree, in the opinion of another counsel experienced in
securities law matters acceptable to counsel for the Lender 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 Securities Act.
<PAGE>
(e) In the event that (i) the Registration Statement to be
filed by the Company pursuant to Section 3(a) above is not filed with the
Commission by the Required Filing Date, (ii) such Registration Statement is not
declared effective by the Commission within the earlier of sixty (60) days from
the Required Filing Date or five (5) days of clearance by the Commission to
request effectiveness, (iii) such Registration Statement is not maintained as
effective by the Company for the period set forth in Section 3(b) above or (iv)
the additional Registration Statement referred to in Section 3(a) is not filed
within thirty (30) days or declared effective within sixty (60) days as set
forth therein (each a "Registration Default") then the Company will pay Lender
(pro rated on a daily basis), as liquidated damages for such failure and not as
a penalty two percent (2%) of the aggregate principal amount of the Convertible
Debentures purchased from the Company (including any portion of the Convertible
Debentures that were converted into Common Stock before any date of
determination and are still held by the Lender) and held by the Lender for every
month until such Registration Statement has been filed, and in the event of late
effectiveness (in case of clause (ii) above) or lapsed effectiveness (in the
case of clause (iii) above), two percent (2%) of the aggregate principal amount
of the Convertible Debentures purchased from the Company (including any portion
of the Convertible Debentures that were converted into Common Stock before any
date of determination and are still held by the Lender) for every month
(regardless of whether one or more such Registration Defaults are then in
existence, but without duplication of liquidated damages) until such
Registration Statement has been declared effective. Such payment of the
liquidated damages shall be made to the Lenders in cash, within five (5)
calendar days of demand, provided, however, that the payment of such liquidated
damages shall not relieve the Company from its obligations to register the
Securities pursuant to this Section. The market value of the Common Stock for
this purpose shall be the closing price (or last trade, if so reported) on the
Principal Market for each day during such Registration Default. Notwithstanding
anything to the contrary contained herein, a failure to maintain the
effectiveness of an filed Registration Statement or the ability of an Lender to
use an otherwise effective Registration Statement to effect resales of
Securities during the period after 45 days and within 90 days from the end of
the Company's fiscal year resulting solely from the need to update the Company's
financial statements contained or incorporated by reference in such Registration
Statement shall not constitute a Registration Default and shall not trigger the
accrual of liquidated damages hereunder.
If the Company does not remit the payment to the Lenders as set forth
above, the Company will pay the Lenders 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 the Lenders' 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 Securities pursuant to this Section 3.
<PAGE>
(g) If at any time or from time to time after the effective
date of any Registration Statement, the Company notifies the Lenders in writing
of the existence of a Potential Material Event (as defined in Section 3(h)
below), the Lenders shall not offer or sell any Securities or engage in any
other transaction involving or relating to Securities, from the time of the
giving of notice with respect to a Potential Material Event until the Lenders
receive written notice from the Company that such Potential Material Event
either has been disclosed to the public or no longer constitutes a Potential
Material Event; provided, however, that the Company may not so suspend the right
to such holders of Securities for more than twenty (20) days in the aggregate
during any twelve month period, during the period the Registration Statement is
required to be in effect, and if such period is exceeded, such event shall be a
Registration Default. If a Potential Material Event shall occur prior to the
date a Registration Statement is required to be filed, then the Company's
obligation to file such Registration Statement shall be delayed without penalty
for not more than twenty (20) days, and such delay or delays shall not
constitute a Registration Default. The Company must, if lawful, give the Lenders
notice in writing at least two (2) Trading Days prior to the first day of the
blackout period.
(h) "Potential Material Event" means any of the following: (a)
the possession by the Company of material information not ripe for disclosure in
a registration statement, as determined in good faith by the Chief Executive
Officer or the Board of Directors of the Company that disclosure of such
information in a Registration Statement would be detrimental to the business and
affairs of the Company; or (b) any material engagement or activity by the
Company which would, in the good faith determination of the Chief Executive
Officer or the Board of Directors of the Company, be adversely affected by
disclosure in a registration statement at such time, which determination shall
be accompanied by a good faith determination by the Chief Executive Officer or
the Board of Directors of the Company that the applicable Registration Statement
would be materially misleading absent the inclusion of such information.
Section 4. COOPERATION WITH COMPANY. The Lenders will cooperate with
the Company in all respects in connection with this Agreement, including timely
supplying all information reasonably requested by the Company (which shall
include all information regarding the Lenders and proposed manner of sale of the
Registrable Securities required to be disclosed in any Registration Statement)
and executing and returning all documents reasonably requested in connection
with the registration and sale of the Registrable Securities and entering into
and performing their obligations under any underwriting agreement, if the
offering is an underwritten offering, in usual and customary form, with the
managing underwriter or underwriters of such underwritten offering. Nothing in
this Agreement shall obligate any Lender to consent to be named as an
underwriter in any Registration Statement. The obligation of the Company to
register the Registrable Securities shall be absolute and unconditional as to
those Securities which the Commission will permit to be registered without
naming the Lenders as underwriters. Any delay or delays caused by the Lenders by
failure to cooperate as required hereunder shall not constitute a Registration
Default.
<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, subject to
the Lenders' assistance and cooperation as reasonably required with respect to
each Registration Statement:
(a) (i) prepare and file with the Commission such amendments
and supplements to the Registration Statement 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 Lenders 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) and (ii) take all lawful action such that each of (A)
the Registration Statement and any amendment thereto does not, when it becomes
effective, contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading and (B) the prospectus forming part of the Registration Statement,
and any amendment or supplement thereto, does not at any time during the
Registration Period include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading;
(b) (i) prior to the filing with the Commission of any
Registration Statement (including any amendments thereto) and the distribution
or delivery of any prospectus (including any supplements thereto), provide draft
copies thereof to the Lenders as required by Section 3(c) and reflect in such
documents all such comments as the Lenders (and their counsel) reasonably may
propose respecting the Selling Shareholders and Plan of Distribution sections
(or equivalents) and (ii) furnish to each Lender such numbers of copies of a
prospectus including a preliminary prospectus or any amendment or supplement to
any prospectus, as applicable, in conformity with the requirements of the Act,
and such other documents, as such Lender may reasonably request in order to
facilitate the public sale or other disposition of the securities owned by such
Lender;
(c) register and qualify the Registrable Securities covered by
the Registration Statement under such other securities or blue sky laws of such
jurisdictions as the Lenders shall reasonably request (subject to the
limitations set forth in Section 3(c) above), and do any and all other acts and
things which may be necessary or advisable to enable each Lender to consummate
the public sale or other disposition in such jurisdiction of the securities
owned by such Lender;
(d) list such Registrable Securities on the Principal Market,
if the listing of such Registrable Securities is then permitted under the rules
of such Principal Market;
<PAGE>
(e) notify each Lender at 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, and the Company
shall prepare and file a curative amendment under Section 5(a) as quickly as
commercially possible;
(f) as promptly as practicable after becoming aware of such
event, notify each Lender who holds Registrable Securities being sold (or, in
the event of an underwritten offering, the managing underwriters) of the
issuance by the Commission of any stop order or other suspension of the
effectiveness of the Registration Statement at the earliest possible time and
take all lawful action to effect the withdrawal, recession or removal of such
stop order or other suspension;
(g) cooperate with the Lenders to facilitate the timely
preparation and delivery of certificates for the Registrable Securities to be
offered pursuant to the Registration Statement and enable such certificates for
the Registrable Securities to be in such denominations or amounts, as the case
may be, as the Lenders reasonably may request and registered in such names as
the Lenders may request; and, within three (3) Trading Days after a Registration
Statement which includes Registrable Securities is declared effective by the
Commission, deliver and cause legal counsel selected by the Company to deliver
to the transfer agent for the Registrable Securities (with copies to the
Lenders) an appropriate instruction and, to the extent necessary, an opinion of
such counsel;
(h) take all such other lawful actions reasonably necessary to
expedite and facilitate the disposition by the Lenders of their Registrable
Securities in accordance with the intended methods therefor provided in the
prospectus which are customary for issuers to perform under the circumstances;
(i) in the event of an underwritten offering, promptly include
or incorporate in a prospectus supplement or post-effective amendment to the
Registration Statement such information as the managers reasonably agree should
be included therein and to which the Company does not reasonably object and make
all required filings of such prospectus supplement or post-effective amendment
as soon as practicable after it is notified of the matters to be included or
incorporated in such Prospectus supplement or post-effective amendment; and
(j) maintain a transfer agent and registrar for its Common
Stock.
<PAGE>
Section 6. INDEMNIFICATION.
(a) To the maximum extent permitted by law, the Company agrees
to indemnify and hold harmless the Lenders and each person, if any, who controls
an Lender within the meaning of the Securities Act (each a "Distributing
Lender") 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 reasonable costs of defense and investigation and all reasonable
attorneys' fees and expenses), to which the Distributing Lender 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 Registration Statement, or any related final prospectus 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, and
only to the extent, that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in such Registration Statement, preliminary prospectus,
final prospectus or amendment or supplement thereto in reliance upon, and in
conformity with, written information furnished to the Company by the
Distributing Lender, its counsel, affiliates or any underwriter, specifically
for use in the preparation thereof. This indemnity agreement will be in addition
to any liability which the Company may otherwise have.
(b) To the maximum extent permitted by law, each Distributing
Lender agrees that it will indemnify and hold harmless the Company, and each
officer and 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 reasonable costs of defense and investigation and all
reasonable attorneys' fees and expenses) 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 any Registration
Statement, or any related final prospectus 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, final prospectus or amendment or supplement
thereto in reliance upon, and in conformity with, written information furnished
to the Company by such Distributing Lender, its counsel, affiliates or any
underwriter, specifically for use in the preparation thereof. This indemnity
agreement will be in addition to any liability which the Distributing Lender may
otherwise have. Notwithstanding anything to the contrary herein, the
Distributing Lender shall be liable under this Section 6(b) for only that amount
as does not exceed the net proceeds to such Distributing Lender as a result of
the sale of Registrable Securities pursuant to the Registration Statement.
<PAGE>
(c) Promptly after receipt by an indemnified party under this
Section 6 of notice of the commencement of any action against such indemnified
party, such indemnified party will, if a claim in respect thereof is to be made
against the indemnifying party under this Section 6, notify the indemnifying
party in writing 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 except to the extent the failure of
the indemnified party to provide such written notification actually prejudices
the ability of the indemnifying party to defend such action. 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 6 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 parties as a group
shall have the right to employ one 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 unless (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
indemnified party and the indemnifying party and the indemnified party shall
have been advised by its 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 indemnified party or any other
indemnified party (in which case the indemnifying party shall not have the right
to assume the defense of such action on behalf of such indemnified party, 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 indemnified party, which firm shall be
designated in writing by the indemnified party). 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 so long
as such settlement includes a full release of claims against the indemnified
party.
<PAGE>
All fees and expenses of the indemnified party (including reasonable
costs of defense and investigation in a manner not inconsistent with this
Section and all reasonable attorneys' fees and expenses) shall be paid to the
indemnified party, as incurred, within ten (10) Trading Days of written notice
thereof to the indemnifying party (regardless of whether it is ultimately
determined that an indemnified party is not entitled to indemnification
hereunder; provided, that the indemnifying party may require such indemnified
party to undertake to reimburse all such fees and expenses to the extent it is
finally judicially determined that such indemnified party is not entitled to
indemnification hereunder).
Section 7. 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 6 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 6 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 Distributing Lender 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 reasonable costs
of defense and investigation and all reasonable attorneys' fees and expenses),
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 Lender 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
Lender agree that it would not be just and equitable if contribution pursuant to
this Section 7 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 7. 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 7 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.
Notwithstanding any other provision of this Section 7, in no event shall any (i)
Lender be required to undertake liability to any person under this Section 7 for
any amounts in excess of the dollar amount of the proceeds received by such
Lender from the sale of such Lender's Registrable Securities (after deducting
any fees, discounts and commissions applicable thereto) pursuant to any
Registration Statement under which such Registrable Securities are registered
under the Securities Act and (ii) underwriter be required to undertake liability
to any person hereunder for any amounts in excess of the aggregate discount,
commission or other compensation payable to such underwriter with respect to the
Registrable Securities underwritten by it and distributed pursuant to such
Registration Statement.
<PAGE>
Section 8. NOTICES. All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder shall be in
writing and shall be delivered as set forth in the Loan Agreement.
Section 9. ASSIGNMENT. This Agreement is binding upon and inures to the
benefit of the parties hereto and their respective heirs, successors and
permitted assigns. The rights granted the Lenders under this Agreement may be
assigned to any purchaser of substantially all of the Registrable Securities (or
the rights thereto) from an Lender, as otherwise permitted by the Loan
Agreement.
Section 10. ADDITIONAL COVENANTS OF THE COMPANY. The Company agrees
that at such time as it otherwise meets the requirements for the use of
Securities Act Registration Statement on Form S-3 for the purpose of registering
the Registrable Securities, it shall file all reports and information required
to be filed by it with the Commission in a timely manner and take all such other
action so as to maintain such eligibility for the use of such form.
Section 11. COUNTERPARTS/FACSIMILE. This Agreement may be executed in
two or more counterparts, each of which shall constitute an original, but all of
which, when together shall constitute but one and the same instrument, and shall
become effective when one or more counterparts have been signed by each party
hereto and delivered to the other parties. In lieu of the original, a facsimile
transmission or copy of the original shall be as effective and enforceable as
the original.
Section 12. REMEDIES. The remedies provided in this Agreement are
cumulative and not exclusive of any remedies provided by law. If any term,
provision, covenant or restriction of this Agreement is held by a court of
competent jurisdiction to be invalid, illegal, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions set forth herein
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated, and the parties hereto shall use their best efforts to find and
employ an alternative means to achieve the same or substantially the same result
as that contemplated by such term, provision, covenant or restriction.
Section 13. CONFLICTING AGREEMENTS. The Company shall not enter into
any agreement with respect to its securities that is inconsistent with the
rights granted to the holders of Registrable Securities in this Agreement or
otherwise prevents the Company from complying with all of its obligations
hereunder.
Section 14. 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 15. GOVERNING LAW, ARBITRATION. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York
applicable to contracts made in New York by persons domiciled in New York City
and without regard to its principles of conflicts of laws. Any dispute under
this Agreement shall be submitted to arbitration under the American Arbitration
Association (the "AAA") in New York City, New York, and shall be finally and
conclusively determined by the decision of a board of arbitration consisting of
<PAGE>
three (3) members (hereinafter referred to as the "Board of Arbitration")
selected as according to the rules governing the AAA. The Board of Arbitration
shall meet on consecutive business days in New York City, New York, and shall
reach and render a decision in writing (concurred in by a majority of the
members of the Board of Arbitration) with respect to the amount, if any, which
the losing party is required to pay to the other party in respect of a claim
filed. In connection with rendering its decisions, the Board of Arbitration
shall adopt and follow the laws of the State of New York. To the extent
practical, decisions of the Board of Arbitration shall be rendered no more than
thirty (30) calendar days following commencement of proceedings with respect
thereto. The Board of Arbitration shall cause its written decision to be
delivered to all parties involved in the dispute. Any decision made by the Board
of Arbitration (either prior to or after the expiration of such thirty (30)
calendar day period) shall be final, binding and conclusive on the parties to
the dispute, and entitled to be enforced to the fullest extent permitted by law
and entered in any court of competent jurisdiction. The Board of Arbitration
shall be authorized and is hereby directed to enter a default judgment against
any party failing to participate in any proceeding hereunder within the time
periods set forth in the AAA rules. The non-prevailing party to any arbitration
(as determined by the Board of Arbitration) shall pay the expenses of the
prevailing party, including reasonable attorneys' fees, in connection with such
arbitration. Any party shall be entitled to obtain injunctive relief from a
court in any case where such relief is available, and the non-prevailing party
in any such injunctive proceeding shall pay the expenses of the prevailing
party, including reasonable attorneys' fees, in connection with such injunctive
proceeding.
<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.
MCGLEN INTERNET GROUP, INC.
By: /S/ MIKE CHEN
-----------------------------------
Mike Chen, President
LENDER:
AMRO International, S.A.
By: /S/ H. U. BACHOFEN
-----------------------------------
H. U. Bachofen, Director
<PAGE>
EXHIBIT D
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (this "Agreement") is made as of April 10, 2000,
by and among McGlen Internet Group, Inc. (the "Company"), the lenders signatory
hereto (each a "Lender" and together the "Lenders"), and Epstein Becker & Green,
P.C., (the "Escrow Agent"). Capitalized terms used but not defined herein shall
have the meanings set forth in the Loan Agreement referred to in the first
recital.
W I T N E S S E T H:
WHEREAS, the Lenders will be lending the Company $1,500,000 for the
Convertible Debentures and the Lenders will receive Warrants to purchase shares
of Common Stock, at the purchase price set forth in the Loan Agreement (the
"Loan Agreement") dated the date hereof between the Lenders and the Company,
which will be issued as per the terms contained herein and in the Loan
Agreement; and
WHEREAS, the Company and the Lenders have requested that the Escrow
Agent hold the Purchase Price with respect to the Convertible Debentures in
escrow until the Escrow Agent has received the Convertible Debentures, the
Warrants and certain other closing documents specified herein;
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 I
TERMS OF THE ESCROW
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
$1,500,000 principal amount of Convertible Debentures and the Warrants at the
Closing as contemplated by the Loan Agreement.
1.2. (a) At the Closing, upon Escrow Agent's receipt of $1,500,000 Purchase
Price for the Convertible Debentures into its attorney trustee account from the
Lenders, together with executed counterparts of this Agreement, the Loan
Agreement and the Registration Rights Agreement, it shall telephonically advise
the Company, or the Company's designated attorney or agent, of the amount of
funds it has received into its account.
<PAGE>
(b) Wire transfers to the Escrow Agent shall be made as follows:
Epstein Becker & Green, P.C.
Master Escrow Account
Chase Manhattan Bank
1411 Broadway - Fifth Floor
New York, New York 10018
ABA No. 021000021
Account No. 035-1-346036
Attention: L. Borneo
1.3. The Company, upon receipt of said notice, shall deliver to the Escrow Agent
the Convertible Debentures and the Warrants to be issued to each Lender together
with:
(i) the original executed Registration Rights Agreement
in the form of EXHIBIT C to the Loan Agreement;
(ii) an original counterpart of this Escrow Agreement;
(iii) the original opinion of Boyd & Chang, LLP, in the
form of EXHIBIT E to the Loan Agreement;
(iv) the original executed instructions to transfer agent
in the form of EXHIBIT F to the Loan Agreement; and
(v) a warrant certificate for an amount of the Company's
Common Stock equal to One Hundred Thousand Dollars
($100,000) divided by the VWAP on the Trading Day
prior to the Closing Date, at an exercise price equal
to 100% of the VWAP on the Trading Day prior to the
Closing Date, issued to Ladenburg Thalmann & Co. Inc.
(the "LT Warrant").
In the event that the foregoing items are not in the Escrow Agent's
possession within three (3) Trading Days of the Escrow Agent notifying the
Company that the Escrow Agent has custody of the Purchase Price, then each
Lender shall have the right to demand the return of said sum.
1.4. At the Closing, Escrow Agent shall insert the Closing Date and the maturity
date on the face of the certificates representing the Convertible Debentures,
calculate the number of Warrants to be issued and the exercise price of the
Warrants, and place the same on the face of each Warrant, and then, upon receipt
of a Release Notice in the form of EXHIBIT X hereto from the Company and each
Lender wire that amount of funds necessary to purchase the Convertible
Debentures and the Warrants per the written instructions of the Company net of
the Lenders' legal and escrow administrative costs of fifteen thousand dollars
($15,000) and the commissions of Ladenburg Thalmann & Co., Inc. by the Company
of five percent (5%) which shall be paid as directed by Ladenburg Thalmann & Co.
Inc.
<PAGE>
Once the funds (as set forth above) have been sent per the Company's
instructions, the Escrow Agent shall then arrange to have the Convertible
Debentures, the Warrants, the LT Warrant and the Registration Rights Agreement
delivered as per instructions from the Lenders and the Escrow Agent shall
deliver the instructions to the transfer agent to the transfer agent.
ARTICLE II
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.
2.2. All notices or other communications required or permitted hereunder shall
be in writing, and shall be sent as set forth in the Loan Agreement. The
addresses for such notices shall be:
If to the Company: McGlen Internet Group, Inc.
3002 Dow Avenue, Suite 212
Tustin, CA 92780
Attention: Mike Chen
Telephone: (714) 915-5088
Facsimile: (714) 918-1947
with a copy to (shall not Boyd & Chang, LLP
constitute notice): Newport Gateway, Tower II
19900 MacArthur Boulevard, Suite 660
Newport Beach, CA 92612
Attention: Paul Lin
Telephone: (949) 851-9800
Facsimile: (949) 851-0159
if to the Lenders: As set forth on the signature pages
hereto
with a copy to: Joseph A. Smith, Esq.
(shall not constitute notice) Epstein Becker & Green, P.C.
250 Park Avenue
New York, New York
Telephone: (212) 351-4500
Facsimile: (212) 661-0989
2.3.
2.4. This Escrow Agreement shall be binding upon and shall inure to the benefit
of the permitted successors and permitted assigns of the parties hereto.
<PAGE>
2.5. This Escrow 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. This Escrow Agreement
may not be modified, changed, supplemented or terminated, nor may any
obligations hereunder be waived, except by written instrument signed by the
parties to be charged or by its agent duly authorized in writing or as otherwise
expressly permitted herein.
2.6. Whenever required by the context of this Escrow Agreement, the singular
shall include the plural and masculine shall include the feminine. This Escrow
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 Escrow Agreement.
2.7. The parties hereto expressly agree that this Escrow Agreement shall be
governed by, interpreted under and construed and enforced in accordance with the
laws of the State of New York. Any action to enforce, arising out of, or
relating in any way to, any provisions of this Escrow Agreement shall only be
brought in a state or Federal court sitting in New York City.
2.8. The Escrow Agent's duties hereunder may be altered, amended, modified or
revoked only by a writing signed by the Company, each Lender and the Escrow
Agent.
2.9. The Escrow Agent shall be obligated only for the performance of such duties
as are specifically set forth herein and may rely and shall be protected in
relying or refraining from acting on any instrument reasonably believed by the
Escrow Agent to be genuine and to have been signed or presented by the proper
party or parties. The Escrow Agent shall not be personally liable for any act
the Escrow Agent may do or omit to do hereunder as the Escrow Agent while acting
in good faith, and any act done or omitted by the Escrow Agent pursuant to the
advice of the Escrow Agent's attorneys-at-law shall be conclusive evidence of
such good faith.
2.10. The Escrow Agent is hereby expressly authorized to disregard any and all
warnings given by any of the parties hereto or by any other person or
corporation, excepting only orders or process of courts of law and is hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In case the Escrow Agent obeys or complies with any such order, judgment
or decree, the Escrow Agent shall not be liable to any of the parties hereto or
to any other person, firm or corporation by reason of such decree being
subsequently reversed, modified, annulled, set aside, vacated or found to have
been entered without jurisdiction.
2.11. The Escrow Agent shall not be liable in any respect on account of the
identity, authorization or rights of the parties executing or delivering or
purporting to execute or deliver the Loan Agreement or any documents or papers
deposited or called for thereunder.
2.12. The Escrow Agent shall be entitled to employ such legal counsel and other
experts as the Escrow Agent may deem necessary properly to advise the Escrow
Agent in connection with the Escrow Agent's duties hereunder, may rely upon the
advice of such counsel, and may pay such counsel reasonable compensation
therefor. THE ESCROW AGENT HAS ACTED AS LEGAL COUNSEL FOR THE LENDERS, AND MAY
CONTINUE TO ACT AS LEGAL COUNSEL FOR THE LENDERS, FROM TIME TO TIME,
NOTWITHSTANDING ITS DUTIES AS THE ESCROW AGENT HEREUNDER. THE COMPANY CONSENTS
TO THE ESCROW AGENT IN SUCH CAPACITY AS LEGAL COUNSEL FOR THE LENDERS AND WAIVES
ANY CLAIM THAT SUCH REPRESENTATION REPRESENTS A CONFLICT OF INTEREST ON THE PART
OF THE ESCROW AGENT. THE COMPANY UNDERSTANDS THAT THE LENDERS AND THE ESCROW
AGENT ARE RELYING EXPLICITLY ON THE FOREGOING PROVISION IN ENTERING INTO THIS
ESCROW AGREEMENT.
<PAGE>
2.13. The Escrow Agent's responsibilities as escrow agent hereunder shall
terminate if the Escrow Agent shall resign by written notice to the Company and
the Lenders. In the event of any such resignation, the Lenders and the Company
shall appoint a successor Escrow Agent.
2.14. If the Escrow Agent reasonably requires other or further instruments in
connection with this Escrow Agreement or obligations in respect hereto, the
necessary parties hereto shall join in furnishing such instruments.
2.15. It is understood and agreed that should any dispute arise with respect to
the delivery and/or ownership or right of possession of the documents or the
escrow funds held by the Escrow Agent hereunder, the Escrow Agent is authorized
and directed in the Escrow Agent's sole discretion (1) to retain in the Escrow
Agent's possession without liability to anyone all or any part of said documents
or the escrow funds until such disputes shall have been settled either by mutual
written agreement of the parties concerned by a final order, decree or judgment
or a court of competent jurisdiction after the time for appeal has expired and
no appeal has been perfected, but the Escrow Agent shall be under no duty
whatsoever to institute or defend any such proceedings or (2) to deliver the
escrow funds and any other property and documents held by the Escrow Agent
hereunder to a state or Federal court having competent subject matter
jurisdiction and located in the City of New York in accordance with the
applicable procedure therefor.
2.16. The Company and each Lender agree jointly and severally to indemnify and
hold harmless the Escrow Agent and its partners, employees, agents and
representatives from any and all claims, liabilities, costs or expenses in any
way arising from or relating to the duties or performance of the Escrow Agent
hereunder or the transactions contemplated hereby or by the Loan Agreement other
than any such claim, liability, cost or expense to the extent the same shall
have been determined by final, unappealable judgment of a court of competent
jurisdiction to have resulted from the gross negligence or willful misconduct of
the Escrow Agent.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Escrow Agreement as of
the date set forth above.
MCGLEN INTERNET GROUP, INC.
By: /S/ MIKE CHEN
--------------------------------
Mike Chen, President
LENDER:
AMRO International, S.A.
By: /S/ H. U. BACHOFEN
--------------------------------
H. U. Bachofen, Director
c/o Ultra Finanz AG
Grossmuensterplatz 6
CH-8022 Zurich, Switzerland
Fax: 011-411-262-5515
ESCROW AGENT:
EPSTEIN BECKER & GREEN, P.C.
By: /S/ ROBERT F. CHARRON
---------------------------------
Authorized Signatory
<PAGE>
EXHIBIT X TO
ESCROW AGREEMENT
RELEASE NOTICE
The UNDERSIGNED, pursuant to the Escrow Agreement, dated as of April
12, 2000 among McGlen Internet Group, Inc., the Lenders signatory thereto and
Epstein Becker & Green, P.C., as Escrow Agent (the "Escrow Agreement";
capitalized terms used herein and not defined shall have the meaning ascribed to
such terms in the Escrow Agreement), hereby notify the Escrow Agent that each of
the conditions precedent to the purchase and sale of the Convertible Debentures
and Warrants set forth in the Loan Agreement have been satisfied. The Company
and the undersigned Lender hereby confirm that all of their respective
representations and warranties contained in the Loan Agreement remain true and
correct and authorize the release by the Escrow Agent of the funds and documents
to be released at the Closing as described in the Escrow Agreement. This Release
Notice shall not be effective until executed by the Company and the Lender.
This Release Notice may be signed in one or more counterparts, each of
which shall be deemed an original.
IN WITNESS WHEREOF, the undersigned have caused this Release Notice to
be duly executed and delivered as of this 12 day of April, 2000.
MCGLEN INTERNET GROUP, INC.
By: /S/ MIKE CHEN
---------------------------------
Mike Chen, President
LENDER:
AMRO International, S.A.
By: /S/ H. U. BACHOFEN
---------------------------------
H. U. Bachofen, Director
<PAGE>
LAW OFFICES OF
BOYD & CHANG, LLP
NEWPORT GATEWAY - TOWER II
19900 MACARTHUR BOULEVARD
SUITE 660
IRVINE, CALIFORNIA 92612
TELEPHONE: (949) 851-9800
FACSIMILE: (949) 851-0159
E-MAIL: [email protected]
April 14, 2000
AMRO International, S.A.
c/o Ultrafinanz AG
Grossmuensterplatz 26
Zurich CH-8022 Switzerland
Re: LOAN AGREEMENT BETWEEN THE AMRO INTERNATIONAL, S.A. AND
MCGLEN INTERNET GROUP, INC.
Ladies and Gentlemen:
This opinion is furnished to you pursuant to the Loan Agreement by and
between the AMRO International, S.A. (the "Lenders") and McGlen Internet Group,
Inc., a Delaware corporation (the "Company"), dated as of April 10, 2000 (the
"Loan Agreement"), which provides for the issuance and sale by the Company of
(i) $1,500,000 principal amount of 10% Convertible Debentures and (ii) warrants
to purchase shares of Common Stock of the Company (the "Warrants"). All terms
used herein have the meanings defined for them in the Loan Agreement unless
otherwise defined herein.
We have acted as counsel for the Company in connection with the
negotiation of the Loan Agreement, the Convertible Debentures, the Warrants, and
the Registration Rights Agreement between the Lenders and the Company, dated as
of April 10, 2000 (the "Registration Rights Agreement"), and the Escrow
Agreement between the Lenders, the Company and Epstein Becker & Green, P.C.,
dated as of April 10, 2000 (the "Escrow Agreement", and together with the Loan
Agreement, the Convertible Debentures, the Warrants and the Registration Rights
Agreement, are referred to collectively as the "Agreements"). As counsel, we
have made such legal and factual examinations and inquiries 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.
<PAGE>
LAW OFFICES OF
BOYD & CHANG, LLP
AMRO International, S.A.
April 14, 2000
Page 2
As used in this opinion, tile expression "to our knowledge" refers to
the current actual knowledge of the attorneys of this firm who have worked on in
matters for the Company solely in connection with the Agreements and the
Warrants and the transactions contemplated thereby, and without any independent
investigation of any underlying facts or situations.
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 each Lender in the Agreements and
pursuant thereto are true and correct.
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
corporate power and authority 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 have any subsidiaries and does not own
more than fifty percent (50%) of the outstanding capital stock of or control any
other business entity other than as disclosed in the SEC Documents.
2. The Company has the requisite corporate power and authority to enter
into and perform its obligations under the Agreements and the Warrants and to
issue the Convertible Debentures, the Conversion Shares, the Warrants and the
Warrant Shares. The execution and delivery of the Agreements 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 have each been duly executed, issued and delivered by the Company and
each of the Agreements 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 by the
Company and the consummation by the Company of the transactions contemplated
thereby, including, without limitation, the issuance of the Convertible
Debentures, the Conversion Shares, the Warrants and the Warrant Shares, do not
and will not (i) result in a violation of the Company's Certificate of
Incorporation or By-Laws, (ii) to our knowledge, conflict with, or constitute
<PAGE>
LAW OFFICES OF
BOYD & CHANG, LLP
AMRO International, S.A.
April 14, 2000
Page 3
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", first refusal 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 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 Certificate of Incorporation or Bylaws.
4. The issuance of the Convertible Debentures and the Warrants in
accordance with the Loan Agreement, and the issuance of the Conversion Shares
and the Warrant Shares in accordance with the Convertible Debentures and the
Warrants, respectively, will be exempt from registration under the Securities
Act of 1933, as amended, and will be in compliance with the state securities
laws of the Company's principal place of business. When so issued, the
Conversion Shares and the Warrant Shares 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 Certificate of Incorporation or Bylaws
or, to our knowledge, in any agreement to which the Company is party.
5. We have not been engaged to devote substantive attention to any
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. To our knowledge, the Company is not a party to
or subject to the provisions of any order, writt, injunction, judgment or decree
of any court or government agency or instrumentality.
6. The authorized capital stock of the Company consists of 50,000,000
shares of common stock, $0.03 par value per share, and 100,000 shares of
preferred stock, $0.01 par value per share.
This opinion is furnished to the Lenders 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.
In rendering the opinion expressed above, with your consent we have
assumed and relied upon without independent investigation, inquiry, or
verification of accuracy, that except in each case if and to the extent contrary
to our knowledge: (a) there was no misrepresentation, omission or deceit by the
officers or directors or any other person or entity in connection with the
negotiations, execution, delivery or performance of the Agreements, in
connection with the delivery of the Certificates of the officers, directors and
the Company, in connection with the negotiation, execution, delivery or
performance of any other document relating to the Agreements or any other
<PAGE>
LAW OFFICES OF
BOYD & CHANG, LLP
AMRO International, S.A.
April 14, 2000
Page 4
agreement entered into by the Company by the officers of the Company on behalf
of the Company or in connection with the negotiation or performance of any other
written or oral agreement relating to the foregoing; (b) the recitals,
representations, warranties, covenants, both affirmative and negative, and
agreements of the Company contained in the Agreements, the officers and
directors certificates presented to us or any other document supplied by them to
you or to us at your or their request in connection with the transactions
contemplated by the Agreements, and any such, documents or any such oral
agreement (including, in each case, certificates of officers, directors.
employees or agents on which representations, warranties, covenants and
agreements we have relied, without independent investigation), are accurate,
complete and fair on the day made and are accurate, complete and fair as of the
date of this opinion as though made on the date hereof-, and (c) that neither
the Lenders nor any party representing the Lenders or an)- broker or finder has
taken or permitted an), action that would effect or limit tile Company's
reliance on exemptions from registration available under Regulation D.
We have, with your consent. assumed without independent investigation,
the authenticity of any document submitted to us as a facsimile or an original,
the conformity to originals of any document submitted to us `as a copy or
facsimile, the authenticity of the originals of such later documents, the
genuineness of all signatures and legal capacity of natural persons, whether
such information was provided by facsimile, electronic transfer or other means.
With your consent, our opinion is based only upon the documents that we have
reviewed, and we have not reviewed all of the documents, agreements, notices,
litigation or correspondence related to the Company.
In rendering the foregoing opinion, we have assumed without independent
investigation, where reasonable, that any certificate, opinion from another
attorney, representation, letter, fax or other document on which we relied that
was given or dated earlier than the date of this letter, continues to remain
accurate, insofar as relevant to such opinions, provided that in the case of
officer and director certificates and certificates of good standing, that such
certificates were issued contemporaneously with the date of the Agreements. We
have also relied upon telephonic confirmations and statements from clerks and
state employees, without written certification or confirmation.
Whenever a statement herein is qualified by "known to us," "to our
knowledge," "to our current actual knowledge," "to the best of our knowledge,"
or other similar phrase, it is intended to indicate our present actual knowledge
based solely, except as and to the extent otherwise set forth above, upon the
certificates we have received from the officers and directors of the Company,
our review of the documents described earlier in this letter and other instances
where we have been engaged by the Company or otherwise advised in writing that
the Company has received specific notice of an event of default or a threat of
litigation, in connection with which we have acted as counsel to the Company in
the form of legal consultation and, where appropriate, legal representation,
which knowledge we have recognized as being pertinent to the matters set forth
herein. No inference of constructive knowledge concerning any matters bearing on
the accuracy of such statements upon which we have relied should be drawn from
the fact of our representation of the Company in connection with this opinion or
other matters.
<PAGE>
LAW OFFICES OF
BOYD & CHANG, LLP
AMRO International, S.A.
April 14, 2000
Page 5
This opinion is prepared as an opinion on law and should not be
interpreted as a comfort opinion or as an opinion on factual matters or except
to the extent otherwise provided herein. the effect that any other document,
order or agreement may have on the Agreements. Where the context of this opinion
permits distinguishing between factual matters and legal matters, this opinion
shall only address and may only be relied upon for interpretation of legal
matters and not those matters which require factual interpretation.
We direct your attention to the fact that we are members only of the
State Bar of California and are licensed to practice law only in the State of
California. Accordingly, the foregoing opinion applies only with respect to the
laws of the State of California or of the United States of America and we
express no opinion with respect to the laws of any other jurisdiction.
As stated above, the opinions expressed herein are based upon our
review of the documents provided to us in connection with this transaction or as
otherwise set forth herein and an analysis of existing laws. regulations,
rulings and court decisions and numerous matters not covered directly by such
authorities. Such opinions may be affected by actions taken or events occurring
after the date hereof. We have not undertaken to determine or to inform any
person, whether any such actions or events are taken or do occur in the future.
Unless if and to the extent contrary to our knowledge, we assume compliance with
all terms, conditions, covenants (both affirmative and negative),
representations and warranties set forth in the Agreements and other agreements
entered into by the Company or affecting the Company, as stated above, without
independent investigation. We call your attention to the fact that the rights
and obligations of the Company under the Agreements and other agreements entered
into by the Company are subject to bankruptcy, insolvency, reorganization
arrangement, moratorium and other similar laws affecting creditors' rights, to
the application of equitable principles, state usury laws, the anti-fraud
provisions of any state blue sky laws and federal securities laws, to the
exercise of judicial discretion in appropriate cases, and to the limitations on
legal remedies in the State of California.
Very truly yours,
/s/ Boyd & Chang, LLP
BOYD & CHANG, LLP
<PAGE>
EXHIBIT F
INSTRUCTIONS TO TRANSFER AGENT
MCGLEN INTERNET GROUP, INC.
April 13, 2000
American Stock Transfer
40 Wall Street
New York, NY 10005
Dear Sirs:
Reference is made to the Loan Agreement and all Exhibits thereto (the
"Loan Agreement") dated as of April 10, 2000, between the investors signatory
thereto (the "Investors") and McGlen Internet Group, Inc. (the "Company").
Pursuant to the Agreement, and subject to the terms and conditions set forth in
the Agreement, the Company has issued to the Investors (i) $1,500,000 principal
amount of 10% Convertible Debentures and (ii) Warrants to purchase shares of
Common Stock (the "Warrants"). As a condition to the effectiveness of the Loan
Agreement, the Company has agreed to issue to you, as the transfer agent for the
Company's Common Stock (the "Transfer Agent"), these instructions relating to
the Common Stock ("Common Stock") to be issued to the Lenders (or a permitted
assignee) pursuant to the Loan Agreement upon conversion of the Convertible
Debentures or upon exercise of the Warrants. All capitalized terms used herein
and not otherwise defined shall have the meaning set forth in the Loan
Agreement.
1. ISSUANCE OF COMMON STOCK WITHOUT THE LEGEND
Pursuant to the Loan Agreement and the Registration Rights
Agreement, the Company is required to prepare and file with the SEC, and
maintain the effectiveness of, a registration statement or registration
statements registering the resale of the Common Stock to be acquired by the
Lenders (i) upon exercise of the Warrants and (ii) upon conversion of, or as
payment of interest on, the Convertible Debentures, all as provided in the
Registration Rights Agreement. The Company will advise the Transfer Agent in
writing of the effectiveness of any such registration statement promptly upon
its being declared effective, and shall deliver an opinion of its counsel to
that effect. The Transfer Agent shall be entitled to rely on such advice and
such opinion and shall assume that such registration statement remains in effect
unless the Transfer Agent is otherwise advised in writing by the Company or such
counsel, and the Transfer Agent shall not be required to independently confirm
the continued effectiveness of such registration statement. In the circumstances
set forth in the following three paragraphs, the Transfer Agent shall deliver to
the appropriate Lender 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 Lender or its counsel or
any other party (other than as described in such paragraphs).
<PAGE>
(a) At any time after the effective date of the 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 evidencing Common Stock which bear the Legend, to the
extent accompanied by a notice requesting the issuance of new certificates free
of the Legend to replace those surrendered, in such names and in such
denominations as the Lender may request, provided that in connection with any
such event, the Lender (or its permitted assignee) shall confirm in writing to
the Transfer Agent that (i) the Lender 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 (ii) the Lender confirms to the transfer agent that the Lender has
complied with the prospectus delivery requirement.
(b) 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 SEC, the Lender, or its permitted
assignee, or its broker confirms to the Transfer Agent that (i) the Lender has
beneficially owned 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 Lender (or the Trading Day immediately
following if such date is not a Trading Day), the Lender will not have sold more
than the greater of (a) one percent (1%) 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 Lender has complied with the manner of sale and
notice requirements of Rule 144 under the Securities Act; or
(c) The Lender (or its permitted assignee) shall represent
that it is permitted to dispose of such shares of Common Stock without
limitation as to amount or manner of sale pursuant to Rule 144(k) under the
Securities Act.
In the case of subparagraphs (b) or (c), the Transfer Agent shall be
entitled to require an opinion of counsel to the Company or from counsel to the
Lender (which opinion shall be from an attorney or law firm reasonably
acceptable to the Transfer Agent and be in form and substance reasonably
acceptable to the Transfer Agent). 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 [______________].
2. MECHANICS OF DELIVERY OF CERTIFICATES REPRESENTING COMMON STOCK
In connection with any exchange of the Convertible Debentures
or exercise of Warrants pursuant to which the Lender acquires Common Stock under
the Agreement, the Transfer Agent is hereby instructed to deliver to the Lender,
certificates representing Common Stock (with or without the Legend, as
appropriate) within two (2) Trading Days of receipt by the Transfer Agent of a
copy of the Notice of Conversion (in the case of the Preferred Stock) or Notice
of Exercise (in the case of the Warrant) from the Lender, and to deliver such
certificates to the Lender, in the case of original issuance, and in the case of
subsequent transfer, if the Transfer Agent is able to deliver such Common Stock
to the Lender's account pursuant to the DWAC system of the Depository Trust
Company, the Transfer Agent shall make delivery pursuant to such system and
provide the Lender with confirmation thereof in lieu of such Common Stock
certificates.
<PAGE>
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, other than as a result
of the Transfer Agent's gross negligence or willful misconduct.
4. THIRD PARTY BENEFICIARY
The Company and the Transfer Agent acknowledge and agree that
the Investors are each an express third party beneficiary of these Irrevocable
Instructions and shall be entitled to rely upon, and enforce, the provisions
thereof.
MCGLEN INTERNET GROUP, INC.
By: /S/ MIKE CHEN
----------------------------------------
Mike Chen, President
AGREED:
By:__________________________
Name:
Title:
