Exhibit 4.12
COMMON STOCK PURCHASE AGREEMENT
This COMMON STOCK PURCHASE AGREEMENT (this "Agreement') is dated as of
April 12, 2000 by and between McGlen Internet Group, Inc., a Delaware
corporation (the "Company"), and Plumrose Holdings Inc. (the "Purchaser").
The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 CERTAIN DEFINITIONS.
(a) "AVERAGE DAILY PRICE" shall be the price based on the VWAP of the
Company on the Nasdaq SmallCap Market or, if the Nasdaq SmallCap Market is not
the Principal Market, on the Principal Market.
(b) "DRAW DOWN" shall have the meaning assigned to such term in Section
6.1(a) hereof.
(c) "DRAW DOWN EXERCISE DATE" shall have the meaning assigned to such
term in Section 6.1(b) hereof.
(d) "DRAW DOWN PRICING PERIOD" shall mean a period of twenty-two (22)
consecutive Trading Days preceding a Draw Down Exercise Date.
(e) "EFFECTIVE DATE" shall mean the date the Registration Statement of
the Company covering the Shares being subscribed for hereby is declared
effective.
(f) "MATERIAL ADVERSE EFFECT" shall mean any adverse effect on the
business, operations, properties or financial condition of the Company that
materially impairs the ability of the Company and its subsidiaries and
affiliates, taken as a whole, to perform any of its material obligations under
this Agreement or the Registration Rights Agreement or to perform its material
obligations under any other material agreement.
(g) "PRINCIPAL MARKET" shall mean initially the Nasdaq SmallCap Market,
and shall include the Nasdaq National Market, the American Stock Exchange or the
New York Stock Exchange if the Company is listed and trades on such market or
exchange, but shall not include the OTC Bulletin Board without the express
consent of the Purchaser.
(h) "REGISTRATION STATEMENT" shall mean the registration statement
under the Securities Act of 1933, as amended, to be filed with the Securities
and Exchange Commission for the registration of the Shares pursuant to the
Registration Rights Agreement attached hereto as EXHIBIT A.
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(i) "SEC DOCUMENTS" shall mean the Company's latest Form 10-K or 10-KSB
as of the time in question, all Forms 10-Q or 10-QSB and 8-K filed thereafter,
and the Proxy Statement for its latest fiscal year as of the time in question
until such time as the Company no longer has an obligation to maintain the
effectiveness of a Registration Statement as set forth in the Registration
Rights Agreement.
(j) "SHARES" shall mean, collectively, the shares of Common Stock of
the Company being subscribed for hereunder.
(k) "THRESHOLD PRICE" is the lowest Average Daily Price at which the
Company will sell its Common Stock with respect to this Agreement.
(l) "TRADING DAY" shall mean any day on which the Principal Market is
open for business.
(m) "VWAP" shall mean the daily volume weighted average price of the
Company' Common Stock on the Nasdaq SmallCap Market or on any Principal Market
as reported by Bloomberg Financial using the AQR function.
ARTICLE II
PURCHASE AND SALE OF COMMON STOCK
Section 2.1 PURCHASE AND SALE OF STOCK. Subject to the terms and
conditions of this Agreement, the Company may issue and sell to the Purchaser
and the Purchaser shall purchase from the Company up to Twenty-Four Million
Dollars ($24,000,000) of the Company's Common Stock, $0.03 par value per share
(the "Common Stock"), based on up to twelve (12) Draw Downs of up to Two Million
Dollars ($2,000,000) per Draw Down.
Section 2.2 THE SHARES. The Company has authorized and has reserved and
covenants to continue to reserve, free of preemptive rights and other similar
contractual rights of stockholders, a sufficient number of its authorized but
unissued shares of its Common Stock to cover the Shares to be issued in
connection with all Draw Downs requested under this Agreement. Anything in this
Agreement to the contrary notwithstanding, (i) at no time will the Company
request a Draw Down which would result in the issuance of a number of shares of
Common Stock pursuant to this Agreement which exceeds 19.9% of the number of
shares of Common Stock issued and outstanding on the Closing Date without
obtaining stockholder approval of such excess issuance, and (ii) the Company may
not make a Draw Down to the extent that, after such purchase by the Purchaser,
the sum of the number of shares of Common Stock beneficially owned by the
Purchaser and its affiliates would result in beneficial ownership by the
Purchaser and its affiliates of more than 9.9% of the then outstanding shares of
Common Stock. For purposes of the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of the Securities
and Exchange Act of 1934, as amended.
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Section 2.3 PURCHASE PRICE AND CLOSING. The Company agrees to issue and
sell to the Purchaser and, in consideration of and in express reliance upon the
representation, warranties, covenants, terms and conditions of this Agreement,
the Purchaser agrees to purchase that number of the Shares to be issued in
connection with each Draw Down. The closing under this Agreement shall take
place at the offices of Epstein Becker & Green, P.C., 250 Park Avenue, New York,
New York 10177 (the "Closing") at 10:00 a.m. E.S.T. on (i) April 12, 2000, or
(ii) such other time and place or on such date as the Purchaser and the Company
may agree upon (the "Closing Date"). Each party shall deliver all documents,
instruments and writings required to be delivered by such party pursuant to this
Agreement at or prior to the Closing.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1 REPRESENTATION AND WARRANTIES OF THE COMPANY. The Company
hereby makes the following representations and warranties to the Purchaser:
(a) ORGANIZATION, GOOD STANDING AND POWER. The Company is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of Delaware and has all requisite corporate authority to own, lease and
operate its properties and assets 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 on the Company's financial condition.
(b) AUTHORIZATION, ENFORCEMENT.(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, the Warrant and to issue the Draw Down Shares and the Warrant Shares
pursuant to their respective terms, (ii) the execution, issuance and delivery of
this Agreement, the Registration Rights Agreement, the Warrant and the Escrow
Agreement 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
Agreement, the Warrant and the Escrow Agreement have been duly executed and
delivered by the Company and at the initial 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, reorganization, moratorium, liquidation,
conservatorship, receivership 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 issuance of the Draw Down Shares.
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(c) 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, of which
none are issued and outstanding. All of the outstanding shares of the Company's
Common Stock have been duly and validly authorized and are fully-paid and
non-assessable. Except as set forth in this Agreement and the Registration
Rights Agreement and as set forth in the SEC Documents, or on Schedule 3.1(c)
hereto, no shares of Common Stock are entitled to preemptive rights or
registration rights and there are no outstanding options, warrants, scrip,
rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, any shares of capital
stock of the Company. Furthermore, except as set forth in this Agreement and as
set forth in the SEC Documents or on SCHEDULE 3.1(c), there are no contracts,
commitments, understandings, or arrangements by which the Company is or may
become bound to issue additional shares of the capital stock of the Company or
options, securities or rights convertible into shares of capital stock of the
Company. The Company is not a party to any agreement granting registration
rights to any person with respect to any of its equity or debt securities. The
Company is not a party to, and it has no knowledge of, any agreement restricting
the voting or transfer of any shares of the capital stock of the Company. Except
as set forth in the SEC Documents or on SCHEDULE 3.1(c) hereto, the offer and
sale of all capital stock, convertible securities, rights, warrants, or options
of the Company issued prior to the Closing complied with all applicable federal
and state securities laws, and no stockholder has a right of rescission or
damages with respect thereto which would have a Material Adverse Effect on the
Company's financial condition or operating results. The Company has made
available to the Purchaser true and correct copies of the Company's Certificate
of Incorporation as in effect on the date hereof (the "Certificate"), and the
Company's Bylaws as in effect on the date hereof (the "Bylaws"). The Principal
Market for the Common Stock in the United States is the Nasdaq SmallCap Market,
and the Company has not received any unresolved notice from such market
questioning or threatening the continued inclusion of the Common Stock on such
market.
(d) ISSUANCE OF SHARES. The Shares and Warrant Shares to be issued
under this Agreement have been duly authorized by all necessary corporate action
and, when paid for or issued in accordance with the terms hereof or of the
Warrant, as applicable, the Shares and the Warrant Shares shall be validly
issued and outstanding, fully paid and non-assessable, and the Purchaser shall
be entitled to all rights accorded to a holder of Common Stock.
(e) NO CONFLICTS. The execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated herein do not and will not (i) violate any provision of the
Company's Certificate or Bylaws, (ii) conflict with, or constitute a default (or
an event which 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 agreement, mortgage, deed of trust, indenture, note, bond,
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license, lease agreement, instrument or obligation to which the Company is a
party, (iii) create or impose a lien, charge or encumbrance on any property of
the Company under any agreement or any commitment to which the Company is a
party or by which the Company is bound or by which any of its respective
properties or assets are bound, except as intended by this Agreement, or (iv)
result in a violation of any federal, state, local or other foreign statute,
rule, regulation, order, judgment or decree (including any federal and state or
securities laws and regulations) applicable to the Company or any of its
subsidiaries or by which any property or asset of the Company or any of its
subsidiaries are bound or affected, except, in all cases, for such conflicts,
defaults, termination, amendments, accelerations, cancellations and violations
as would not, individually or in the aggregate, have a Material Adverse Effect.
The business of the Company and its subsidiaries is not being conducted in
violation of any laws, ordinances or regulations of any governmental entity,
except for possible violations which singularly or in the aggregate do not and
will 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 Shares in accordance
with the terms hereof (other than any filings which may be required to be made
by the Company with Nasdaq, the Securities and Exchange Commission (the
"Commission") or state securities administrators subsequent to the Closing and
any registration statement which may be filed pursuant hereto); provided that,
for purpose of the representation made in this sentence, the Company is assuming
and relying upon the accuracy of the relevant representations and agreements of
the Purchaser herein.
(f) COMMISSION DOCUMENTS, FINANCIAL STATEMENTS. The Common Stock of the
Company is registered pursuant to Section 12(g) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and, except as disclosed in the SEC
Documents or on SCHEDULE 3.1(f) hereto, the Company has timely filed all
reports, schedules, forms, statements and other documents required to be filed
by it with the Commission pursuant to the reporting requirements of the Exchange
Act, including material filed pursuant to Section 13(a) or 15(d) of the Exchange
Act (all of the foregoing including filings incorporated by reference therein
being referred to herein as the "Commission Documents"). The Company has
delivered or made available to the Purchaser true and complete copies of the
Commission Documents filed with the Commission since December 31, 1998. The
Company has not provided to the Purchaser any information which, according to
applicable law, rule or regulation, should have been disclosed publicly by the
Company but which has not been so disclosed, other than with respect to the
transactions contemplated by this Agreement. As of their respective dates, the
SEC Documents complied in all material respects with the requirements of the
Exchange Act and the rules and regulations of the Commission promulgated
thereunder applicable to such documents, and, as of their respective dates, none
of the SEC Documents contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The financial statements of the Company included
in the Commission Documents comply as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the Commission or other applicable rules and regulations with respect thereto.
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Such financial statements have been prepared in accordance with generally
accepted accounting principles ("GAAP") applied on a consistent basis during the
periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto or (ii) in the case of unaudited interim
statements, to the extent they may not include footnotes or may be condensed or
summary statements), and fairly present in all material respects the financial
position of the Company and its subsidiaries as of the dates thereof and the
results of operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit adjustments).
(g) SUBSIDIARIES. The SEC Documents or Schedule 3.1(g) hereto sets
forth each subsidiary of the Company, showing the jurisdiction of its
incorporation or organization and showing the percentage of each person's
ownership of the outstanding stock or other interests of such subsidiary. For
the purposes of this Agreement, "subsidiary" shall mean any corporation or other
entity of which at least a majority of the securities or other ownership
interests having ordinary voting power (absolutely or contingently) for the
election of directors or other persons performing similar functions are at the
time owned directly or indirectly by the Company and/or any of its other
subsidiaries. All of the outstanding shares of capital stock of each subsidiary
have been duly authorized and validly issued, and are fully paid and
non-assessable. There are no outstanding preemptive, conversion or other rights,
options, warrants or agreements granted or issued by or binding upon any
subsidiary for the purchase or acquisition of any shares of capital stock of any
subsidiary or any other securities convertible into, exchangeable for or
evidencing the rights to subscribe for any shares of such capital stock. Neither
the Company nor any subsidiary is subject to any obligation (contingent or
otherwise) to repurchase or otherwise acquire or retire any shares of the
capital stock of any subsidiary or any convertible securities, rights, warrants
or options of the type described in the preceding sentence. Neither the Company
nor any subsidiary is a party to, nor has any knowledge of, any agreement
restricting the voting or transfer of any shares of the capital stock of any
subsidiary.
(h) NO MATERIAL ADVERSE EFFECT. Since December 31, 1999, no Material
Adverse Effect has occurred or exists with respect to the Company, except as
disclosed in the SEC Documents or on SCHEDULE 3.1(h) hereof.
(i) NO UNDISCLOSED LIABILITIES. Except as disclosed in the SEC
Documents or on SCHEDULE 3.1(i) hereto, neither the Company nor any of its
subsidiaries has any liabilities, obligations, claims or losses (whether
liquidated or unliquidated, secured or unsecured, absolute, accrued, contingent
or otherwise) that would be required to be disclosed on a balance sheet of the
Company or any subsidiary (including the notes thereto) in conformity with GAAP
which are not disclosed in the Commission Documents, other than those incurred
in the ordinary course of the Company's or its subsidiaries respective
businesses since such date and which, individually or in the aggregate, do not
or would not have a Material Adverse Effect on the Company or its subsidiaries.
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(j) 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.
(k) INDEBTEDNESS. The SEC Documents or SCHEDULE 3.1(k) hereto sets
forth as of the date hereof all outstanding secured and unsecured Indebtedness
of the Company or any subsidiary, or for which the Company or any subsidiary has
commitments. For the purposes of this Agreement, "Indebtedness" shall mean (a)
any liabilities for borrowed money or amounts owed in excess of $250,000 (other
than trade accounts payable incurred in the ordinary course of business), (b)
all guaranties, endorsements and contingent obligations in respect of
Indebtedness of others, whether or not the same are or should be reflected in
the Company's balance sheet (or the notes thereto), except guaranties by
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business; and (c) the present value of
any lease payments in excess of $250,000 due under leases required to be
capitalized in accordance with GAAP. Neither the Company nor any subsidiary is
in default with respect to any Indebtedness.
(l) TITLE TO ASSETS. Each of the Company and the subsidiaries has good
and marketable title to all of its real and personal property reflected in the
Commission Documents, free of any mortgages, pledges, charges, liens, security
interests or other encumbrances, except for those indicated in the SEC Documents
or on SCHEDULE 3.1(l) hereto or such that do not cause a Material Adverse Effect
on the Company's financial condition or operating results. All said leases of
the Company and each of its subsidiaries are valid and subsisting and in full
force and effect.
(m) ACTIONS PENDING. There is no action, suit, claim, investigation or
proceeding pending or, to the knowledge of the Company, threatened against the
Company or any subsidiary which questions the validity of this Agreement or the
transactions contemplated hereby or any action taken or to be taken pursuant
hereto or thereto. Except as set forth in the SEC Documents or on SCHEDULE
3.1(m) hereto, there is no action, suit, claim, investigation or proceeding
pending or, to the knowledge of the Company, threatened, against or involving
the Company, any subsidiary or any of their respective properties or assets.
There are no outstanding orders, judgments, injunctions, awards or decrees of
any court, arbitrator or governmental or regulatory body against the Company or
any subsidiary.
(n) COMPLIANCE WITH LAW. The business of the Company and the
subsidiaries has been and is presently being conducted in accordance with all
applicable federal, state and local governmental laws, rules, regulations and
ordinances, except as set forth in the SEC Documents or on SCHEDULE 3.1(n)
hereto or such that do not cause a Material Adverse Effect. The Company and each
of its subsidiaries have all franchises, permits, licenses, consents and other
governmental or regulatory authorizations and approvals necessary for the
conduct of their respective businesses as now being conducted by them unless the
failure to possess such franchises, permits, licenses, consents and other
governmental or regulatory authorizations and approvals, individually or in the
aggregate, could not reasonably be expected to have a Material Adverse Effect.
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(o) TAXES. Since December 3, 1999, and to the best knowledege of the
Company prior to December 3, 1999, the 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 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.
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.
The Company has not made an election underss. 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.
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For purposes of this Section 3.1(o):
"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.
(p) CERTAIN FEES. Except as set forth on SCHEDULE 3.1(p) hereto, no
brokers, finders or financial advisory fees or commissions will be payable by
the Company or any subsidiary with respect to the transactions contemplated by
this Agreement.
(q) DISCLOSURE. To the best of the Company's knowledge, neither this
Agreement or the Schedules hereto nor any other documents, certificates or
instruments furnished to the Purchaser by or on behalf of the Company or any
subsidiary in connection with the transactions contemplated by this Agreement
contain any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements made herein or therein, in the
light of the circumstances under which they were made herein or therein, not
misleading.
(r) OPERATION OF BUSINESS. The Company and each of the subsidiaries
owns or possesses all patents, trademarks, service marks, trade names,
copyrights, licenses and authorizations as set forth in the SEC Documents and on
SCHEDULE 3.1(r) hereto, and all rights with respect to the foregoing, which are
necessary for the conduct of its business as now conducted without any conflict
with the rights of others.
(s) REGULATORY COMPLIANCE. THE COMPANY HAS ALL NECESSARY LICENSES,
REGISTRATIONS AND PERMITS TO CONDUCT ITS BUSINESS AS NOW BEING CONDUCTED IN ALL
STATES WHERE THE COMPANY CONDUCTS ITS BUSINESS.
(t) BOOKS AND RECORDS. The records and documents of the Company and its
subsidiaries accurately reflect in all material respects the information
relating to the business of the Company and the subsidiaries, the location and
collection of their assets, and the nature of all transactions giving rise to
the obligations or accounts receivable of the Company or any subsidiary.
(u) MATERIAL AGREEMENTS. Except as set forth in the SEC Documents, or
on SCHEDULE 3.1(u) hereto, neither the Company nor any subsidiary is a party to
any written or oral contract, instrument, agreement, commitment, obligation,
plan or arrangement, a copy of which would be required to be filed with the
Commission as an exhibit to an Annual Report on Form 10-K (collectively,
"Material Agreements") if the Company or any subsidiary were registering
securities under the Securities Act of 1933, as amended (the "Securities Act").
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The Company and each of its subsidiaries has in all material respects performed
all the obligations required to be performed by them to date under the foregoing
agreements, have received no notice of default and, to the best of the Company's
knowledge are not in default under any Material Agreement now in effect, the
result of which could cause a Material Adverse Effect. No written or oral
contract, instruments, agreement, commitment, obligation, plan or arrangement of
the Company or of any subsidiary limits or shall limit the payment of dividends
on the Company's Common Stock.
(v) TRANSACTIONS WITH AFFILIATES. Except as set forth in the SEC
Documents or on SCHEDULE 3.1(v) hereto, there are no loans, leases, agreements,
contracts, royalty agreements, management contracts or arrangements or other
continuing transactions exceeding $100,000 between (a) the Company, any
subsidiary or any of their respective customers or suppliers on the one hand,
and (b) on the other hand, any officer, employee, consultant or director of the
Company, or any of its subsidiaries, or any person owning any capital stock of
the Company or any subsidiary or any member of the immediately family of such
officer, employee, consultant, director or stockholder or any corporation or
other entity controlled by such officer, employee, consultant, director or
stockholder, or a member of the immediate family of such officer, employee,
consultant, director or stockholder.
(w) SECURITIES ACT OF 1933. The Company has complied and will comply
with all applicable federal and state securities laws in connection with the
offer, issuance and sale of the Shares hereunder. Neither the Company nor anyone
acting on its behalf, directly or indirectly, has or will sell, offer to sell or
solicit offers to buy the Shares or similar securities to, or solicit offers
with respect thereto from, or enter into any preliminary conversations or
negotiations relating thereto with, any person (other than the Purchaser), so as
to bring the issuance and sale of the Shares under the registration provisions
of the Securities Act and applicable state securities laws. Neither the Company
nor any of its affiliates, nor any person acting on its or their behalf, has
engaged in any form of general solicitation or general advertising (within the
meaning of Regulation D under the Securities Act) in connection with the offer
or sale of the Shares.
(x) GOVERNMENTAL APPROVALS. Except as set forth in the SEC Documents or
on SCHEDULE 3.1(x) hereto, and except for the filing of any notice prior or
subsequent to the Closing that may be required under applicable federal or state
securities laws (which if required, shall be filed on a timely basis), including
the filing of a registration statement or statements pursuant to this Agreement,
no authorization, consent, approval, license, exemption of, filing or
registration with any court or governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, is or will be necessary
for, or in connection with, the execution or delivery of the Shares, or for the
performance by the Company of its obligations under this Agreement.
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(y) EMPLOYEES. Neither the Company nor any subsidiary has any
collective bargaining arrangements or agreements covering any of its employees,
except as set forth in the SEC Documents or on SCHEDULE 3(y) hereto. Except as
set forth in the SEC Documents or on SCHEDULE 3(y) hereto, neither the Company
nor any subsidiary is in breach of any employment contract, agreement regarding
proprietary information, noncompetition agreement, nonsolicitation agreement,
confidentiality agreement, or any other similar contract or restrictive
covenant, relating to the right of any officer, employee or consultant to be
employed or engaged by the Company or such subsidiary. Since the date of the
December 31, 1999, Form 10-K, no officer, consultant or key employee of the
Company or any subsidiary whose termination, either individually or in the
aggregate, could have a Material Adverse Effect, has terminated or, to the
knowledge of the Company, has any present intention of terminating his or her
employment or engagement with the Company or any subsidiary.
(z) ABSENCE OF CERTAIN DEVELOPMENTS. Except as provided in SEC
Documents or in SCHEDULE 3.1(z) hereto, since December 31, 1999 neither the
Company nor any subsidiary has:
(i) issued any stock, bonds or other corporate securities or any
rights, options or warrants with respect thereto;
(ii) borrowed any amount or incurred or become subject to any
liabilities (absolute or contingent) except current liabilities incurred in the
ordinary course of business which are comparable in nature and amount to the
current liabilities incurred in the ordinary course of business during the
comparable portion of its prior fiscal year, as adjusted to reflect the current
nature and volume of the Company's or such subsidiary's business;
(iii) discharged or satisfied any lien or encumbrance or paid any
obligation or liability (absolute or contingent), other than current liabilities
paid in the ordinary course of business;
(iv) declared or made any payment or distribution of cash or other
property to stockholders with respect to its stock, or purchased or redeemed, or
made any agreements so to purchase or redeem, any shares of its capital stock;
(v) sold, assigned or transferred any other tangible assets, or
canceled any debts or claims, except in the ordinary course of business;
(vi) sold, assigned or transferred any patent rights, trademarks, trade
names, copyrights, trade secrets or other intangible assets or intellectual
property rights, or disclosed any proprietary confidential information to any
person except to customers in the ordinary course of business or to the
Purchaser or its representatives;
(vii) suffered any substantial losses or waived any rights of material
value, whether or not in the ordinary course of business, or suffered the loss
of any material amount of prospective business;
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(viii) made any changes in employee compensation except in the ordinary
course of business and consistent with past practices;
(ix) made capital expenditures or commitments therefor that aggregate
in excess of $ 500,000;
(x) entered into any other material transaction, whether or not in the
ordinary course of business;
(xi) suffered any material damage, destruction or casualty loss,
whether or not covered by insurance;
(xii) experienced any material problems with labor or management in
connection with the terms and conditions of their employment; or
(xiii) effected any two or more events of the foregoing kind which in
the aggregate would be material to the Company or its subsidiaries.
(aa) USE OF PROCEEDS. The proceeds from the sale of the Shares will be
used by the Company and its subsidiaries for general corporate purposes.
(bb) ACKNOWLEDGMENT REGARDING PURCHASER'S PURCHASE OF SHARES. Company
acknowledges and agrees that Purchaser is acting solely in the capacity of arm's
length purchaser with respect to this Agreement and the transactions
contemplated hereunder. The Company further acknowledges that the Purchaser is
not acting as a financial advisor or fiduciary of the Company (or in any similar
capacity) with respect to this Agreement and the transactions contemplated
hereunder and any advice given by the Purchaser or any of its representatives or
agents in connection with this Agreement and the transactions contemplated
hereunder is merely incidental to the Purchaser's purchase of the Shares. The
Company further represents to the Purchaser that the Company's decision to enter
into this Agreement has been based solely on the independent evaluation by the
Company and its own representatives and counsel.
Section 3.2 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The
Purchaser hereby makes the following representations and warranties to the
Company:
(a) ORGANIZATION AND STANDING OF THE PURCHASER. The Purchaser is a
corporation duly incorporated, validly existing and in good standing under the
laws of the British Virgin Islands.
(b) AUTHORIZATION AND POWER. The Purchaser has the requisite power and
authority to enter into and perform this Agreement and to purchase the Shares
being sold to it hereunder. The execution, delivery and performance of this
Agreement by Purchaser and the consummation by it of the transactions
contemplated hereby have been duly authorized by all necessary corporate action.
(c) NO CONFLICTS. The execution, delivery and performance of this
Agreement and the consummation by the Purchaser of the transactions contemplated
hereby or relating hereto do not and will not (i) result in a violation of such
Purchaser's charter documents or bylaws or (ii) conflict with, or constitute a
default (or an event which 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 agreement, indenture or instrument to which
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the Purchaser is a party, or result in a violation of any law, rule, or
regulation, or any order, judgment or decree of any court or governmental agency
applicable to the Purchaser or its properties (except for such conflicts,
defaults and violations as would not, individually or in the aggregate, have a
Material Adverse Effect on Purchaser). The Purchaser is not required 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 to purchase the Shares in
accordance with the terms hereof, provided that for purposes of the
representation made in this sentence, the Purchaser is assuming and relying upon
the accuracy of the relevant representations and agreements of the Company
herein.
(d) FINANCIAL RISKS. The Purchaser acknowledges that it is able to bear
the financial risks associated with an investment in the Shares and that it has
been given full access to such records of the Company and the subsidiaries and
to the officers of the Company and the subsidiaries as it has deemed necessary
or appropriate to conduct its due diligence investigation. The Purchaser is
capable of evaluating the risks and merits of an investment in the Shares by
virtue of its experience as an investor and its knowledge, experience, and
sophistication in financial and business matters and the Purchaser is capable of
bearing the entire loss of its investment in the Shares.
(e) ACCREDITED INVESTOR The Purchaser is an "accredited investor" as
defined in Regulation D promulgated under the Securities Act.
(f) COMPLIANCE WITH LAW. The Purchaser's trading and distribution
activities with respect to the Shares will be in compliance with all applicable
state and federal securities laws, rules and regulations and the rules and
regulations of the Principal Market. (g) GENERAL. The Purchaser understands that
the Company is relying upon the truth and accuracy of the representations,
warranties, agreements, acknowledgments and understandings of the Purchaser set
forth herein in order to determine the suitability of the Purchaser to acquire
the Shares.
ARTICLE IV
COVENANTS
The Company covenants with the Purchaser as follows:
Section 4.1 SECURITIES COMPLIANCE.
The Company shall notify The Nasdaq Stock Market, Inc., in accordance
with their rules and regulations, of the transactions contemplated by this
Agreement, and shall take all other necessary action and proceedings as may be
required and permitted by applicable law, rule and regulation, for the legal and
valid issuance of the Shares to the Purchaser or subsequent holders.
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Section 4.2 REGISTRATION AND LISTING. The Company will cause its Common
Stock to continue to be registered under Sections 12(b) or 12(g) of the Exchange
Act, will comply in all respects with its reporting and filing obligations under
the Exchange Act, will comply with all requirements related to any registration
statement filed pursuant to this Agreement, and will not take any action or file
any document (whether or not permitted by the Securities Act or the rules
promulgated thereunder) to terminate or suspend such registration or to
terminate or suspend its reporting and filing obligations under the Exchange Act
or Securities Act, except as permitted herein. The Company will take all action
necessary to continue the listing or trading of its Common Stock on the Nasdaq
SmallCap Market or another Principal Market and will comply in all respects with
the Company's reporting, filing and other obligations under the bylaws or rules
of the NASD and The Nasdaq Stock Market.
Section 4.3 REGISTRATION STATEMENT. The Company shall cause to be filed
the Registration Statement, which Registration Statement shall provide for the
sale of the Shares to the Purchaser and resale by the Purchaser to the public in
accordance with this Agreement. The Company shall cause such Registration
Statement to be declared effective by the Commission as expeditiously as
practicable. Before the Purchaser shall be obligated to accept a Draw Down
request from the Company, the Company shall have caused a sufficient number of
shares of Common Stock to be registered to cover the Shares to be issued in
connection with such Draw Down.
Section 4.4 ESCROW ARRANGEMENT. The Company and the Purchaser shall
enter into an escrow arrangement with Epstein Becker & Green, P.C. (the "Escrow
Agent") in the Form of EXHIBIT B hereto respecting payment against delivery of
the Shares.
Section 4.5 COMPLIANCE WITH LAWS. The Company shall comply, and cause
each subsidiary to comply, with all applicable laws, rules, regulations and
orders, noncompliance with which could have a Material Adverse Effect.
Section 4.6 KEEPING OF RECORDS AND BOOKS OF ACCOUNT. The Company shall
keep and cause each subsidiary to keep adequate records and books of account, in
which complete entries will be made in accordance with GAAP consistently
applied, reflecting all financial transactions of the Company and its
subsidiaries, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other
purposes in connection with its business shall be made.
Section 4.7 AMENDMENTS. The Company shall not amend or waive any
provision the Certificate of Incorporation, Bylaws of the Company in any way
that would adversely affect the dividend rights or voting rights of the holders
of the Shares.
Section 4.8 OTHER AGREEMENTS. The Company shall not enter into any
agreement the terms of which such agreement would restrict or impair the right
to perform of the Company or any subsidiary under this Agreement or the
Certificate of Incorporation of the Company.
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Section 4.9 NOTICE OF CERTAIN EVENTS AFFECTING REGISTRATION; SUSPENSION
OF RIGHT TO REQUEST A DRAW DOWN. The Company will immediately notify the
Purchaser upon the occurrence of any of the following events in respect of the
Registration Statement or related prospectus in respect of the Shares: (i)
receipt of any request for additional information from the Commission or any
other federal or state governmental authority during the period of effectiveness
of the Registration Statement the response to which would require any amendments
or supplements to the Registration Statement or related prospectus; (ii) the
issuance by the Commission or any other federal or state governmental authority
of any stop order suspending the effectiveness of the Registration Statement or
the initiation of any proceedings for that purpose; (iii) receipt of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Shares for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose; (iv) the happening
of any event that makes any statement made in the Registration Statement or
related prospectus or any document incorporated or deemed to be incorporated
therein by reference untrue in any material respect or that requires the making
of any changes in the Registration Statement, related prospectus or documents so
that, in the case of the Registration Statement, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, and
that in the case of the related prospectus, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and (v) the Company's
reasonable determination that a post-effective amendment to the Registration
Statement would be appropriate; and the Company will promptly make available to
the Purchaser any such supplement or amendment to the related prospectus. The
Company shall not deliver to the Purchaser any Draw Down Notice during the
continuation of any of the foregoing events.
Section 4.10 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 obligation to deliver to the Purchaser such shares of stock
and/or securities as the Purchaser is entitled to receive pursuant to this
Agreement.
Section 4.11 LIMITATION ON FUTURE FINANCING. The Company agrees that,
except as set forth below, it will not enter into any sale of its securities for
cash at a discount to the current market price until the earlier of (i) twelve
(12) months from the effective date of the Registration Statement, or (ii) sixty
(60) days after the entire $24,000,000 of Shares has been purchased by
Purchaser. The foregoing shall not prevent or limit the Company from engaging in
any sale of securities (i) in a registered public offering by the Company which
is underwritten by one or more established investment banks, (ii) in one or more
private placements where the purchasers do not have registration rights, (iii)
pursuant to any presently existing or future employee benefit plan which plan
has been or is approved by the Company's stockholders, (iv) pursuant to any
compensatory plan for a full-time employee or key consultant, (v) in connection
with a strategic partnership or other business transaction, the principal
purpose of which is not simply to raise money, or (vi) to which Purchaser gives
its written approval.
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ARTICLE V
CONDITIONS TO CLOSING AND DRAW DOWNS
Section 5.1 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE COMPANY TO
SELL THE SHARES. The obligation hereunder of the Company to issue and sell the
Shares to the Purchaser is subject to the satisfaction or waiver, at or before
the Closing, of each of the conditions set forth below. These conditions are for
the Company's sole benefit and may be waived by the Company at any time in its
sole discretion.
(a) ACCURACY OF THE PURCHASER'S REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Purchaser shall be true and correct in all
material respects as of the date when made and as of the Closing and as of each
Draw Down Exercise Date as though made at that time, except for representations
and warranties that speak as of a particular date.
(b) PERFORMANCE BY THE PURCHASER. The Purchaser shall have performed,
satisfied and complied in all material respects with all material covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Purchaser at or prior to the Closing and as of each Draw
Down Exercise Date.
(c) NO INJUNCTION. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
Section 5.2 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE PURCHASER TO
CLOSE. The obligation hereunder of the Purchaser to enter this Agreement is
subject to the satisfaction or waiver, at or before the Closing, of each of the
conditions set forth below. These conditions are for the Purchaser's sole
benefit and may be waived by the Purchaser at any time in its sole discretion.
(a) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND WARRANTIES. Each of
the representations and warranties of the Company shall be true and correct in
all material respects as of the date when made and as of the Closing as though
made at that time (except for representations and warranties that speak as of a
particular date).
(b) PERFORMANCE BY THE COMPANY. The Company shall have performed,
satisfied and complied in all respects with all covenants, agreements and
conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to the Closing.
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(c) NO INJUNCTION. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
(d) NO PROCEEDINGS OR LITIGATION. No action, suit or proceeding before
any arbitrator or any governmental authority shall have been commenced, and no
investigation by any governmental authority shall have been threatened, against
the Purchaser or the Company or any subsidiary, or any of the officers,
directors or affiliates of the Company or any subsidiary seeking to restrain,
prevent or change the transactions contemplated by this Agreement, or seeking
damages in connection with such transactions.
(e) OPINION OF COUNSEL, ETC. At the Closing, the Purchaser shall have
received an opinion of counsel to the Company, dated the date of Closing, in the
form of EXHIBIT C hereto, and such other certificates and documents as the
Purchaser or its counsel shall reasonably require incident to the Closing.
(f) WARRANTS. In lieu of a minimum Draw Down commitment by the Company,
the Company shall deliver to the Purchaser at the Closing a warrant certificate
to purchase 100,000 shares of the Company's Common Stock at an exercise price
equal to the closing bid price of the Company's Common Stock on the Trading Day
prior to the Closing Date. Such Warrant shall otherwise be in form and substance
identical to that delivered to the placement agent.
Section 5.3 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE PURCHASER TO
ACCEPT A DRAW DOWN AND PURCHASE THE SHARES. The obligation hereunder of the
Purchaser to accept a Draw Down request and to acquire and pay for the Shares is
subject to the satisfaction or waiver, at or before each Draw Down Exercise
Date, of each of the conditions set forth below. The conditions are for the
Purchaser's sole benefit and may be waived by the Purchaser at any time in its
sole discretion.
(a) SATISFACTION OF CONDITIONS TO CLOSING. The Company shall have
satisfied, or the Purchaser shall have waived, the conditions set forth in
Section 5.2 hereof
(b) EFFECTIVE REGISTRATION STATEMENT. The Registration Statement
registering the Shares shall have been declared effective by the Commission and
shall remain effective on each Draw Down Exercise Date.
(c) NO SUSPENSION. Trading in the Company's Common Stock shall not have
been suspended by the Commission or The Nasdaq Stock Market, Inc. (except for
any suspension of trading of limited duration agreed to by the Company, which
suspension shall be terminated prior to each Draw Down request), and, at any
time prior to such request, trading in securities generally as reported by
Nasdaq shall not have been suspended or limited, or minimum prices shall not
have been established on securities whose trades are reported by Nasdaq.
(d) MATERIAL ADVERSE EFFECT. No Material Adverse Effect and no
Consolidation Event shall have occurred.
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(e) OPINION OF COUNSEL The Purchaser shall have received a
"down-to-date" letter from the Company's counsel, confirming that there is no
change from the counsel's previously delivered opinion, or else specifying with
particularity the reason for any change.
ARTICLE VI
DRAW DOWN TERMS
Section 6.1 DRAW DOWN TERMS. Subject to the satisfaction of the
conditions set forth in this Agreement, the parties agree as follows:
(a) The Company, may, in its sole discretion, issue and exercise a draw
down (a "Draw Down") during each Draw Down Pricing Period, which Draw Down the
Purchaser will be obligated to accept.
(b) Only one Draw Down shall be allowed in each Draw Down Pricing
Period. The price per share paid by the Purchaser shall be based on the Average
Daily Price on each separate Trading Day during the Draw Down Pricing Period.
The number of shares of Common Stock purchased by the Purchaser with respect to
each Draw Down shall be determined on a daily basis during each Draw Down
Pricing Period and settled at the election of the Purchaser on a weekly basis or
on the Draw Down Exercise Date, which shall be the first Trading Day following
the end of the Draw Down Pricing Period. In connection with each Draw Down
Pricing Period, the Company may set an Average Daily Price below which the
Company will not sell any Shares (the "Threshold Price"). If the Average Daily
Price on any day within the Draw Down Pricing Period is less than the Threshold
Price, the Company shall not sell and the Purchaser shall not be obligated to
purchase the Shares otherwise to be purchased for such day.
(c) There shall be a maximum of twelve (12) Draw Downs during the term
of this Agreement. The Company shall have the right to issue and exercise a Draw
Down of up to $2,000,000 of the Company's Common Stock per Draw Down, subject to
the limitations set forth immediately below. The minimum Draw Down shall be
$250,000 unless otherwise agreed by Purchaser.
(d) The maximum dollar amount of each Draw Down during any Draw Down
Pricing Period shall be limited pursuant to the following formula: Average Stock
Price: Average of the Average Daily Prices for the 22 Trading Days prior to the
Draw Down Notice date. Average Trading Volume: Average daily trading volume for
the 45 Trading Days prior to the Draw Down Notice date. Maximum dollar amount of
each Draw Down: 20% of (Average Stock Price x (Average Trading Volume x 22)) the
number of Shares of Common Stock to be issued in connection with each Draw Down
shall be equal to the sum of the quotients (for each trading day within the Draw
Down Pricing Period) of (x) 1/22nd of the Draw Down amount and (y) 87% of the
Average Daily Price of the Common Stock on each Trading Day within the Draw Down
Pricing Period. If the Average Daily Price on a given Trading Day is less than
the Threshold Price, then the Purchaser's Draw Down payment will be reduced by
1/22nd and that day shall be withdrawn from the Draw Down Pricing Period.
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(e) The Company must inform the Purchaser by delivering a Draw Down
Notice, in the form of EXHIBIT D hereto, via facsimile transmission as to the
amount of the Draw Down the Company wishes to exercise before the first day of
the Draw Down Pricing Period (the "Draw Down Notice"). The Company may set the
Threshold Price, if any, prior to each Draw Down request. At no time shall the
Purchaser be required to purchase more than the scheduled Draw Down amount for a
given Draw Down Pricing Period so that if the Company chooses not to exercise
the maximum permitted Draw Down in a given Draw Down Pricing Period the
Purchaser is not obligated to purchase more than the scheduled maximum amount in
a subsequent Draw Down Pricing Period.
(f) On or before three Trading Days after each Draw Down Exercise Date,
the Shares purchased by the Purchaser shall be delivered to The Depository Trust
Company ("DTC") on the Purchaser's behalf. The Shares shall be credited by the
Company to the DTC account designated by the Purchaser upon receipt by the
Escrow Agent of payment for the Draw Down into the Escrow Agent's trust account
as provided in the Escrow Agreement. The Escrow Agent shall be directed to pay
95% of the purchase price to the Company, net of One Thousand Five Hundred
Dollars ($1,500) as escrow expenses to the Escrow Agent, and 5% to the placement
agent. The delivery of the Shares into the Purchaser's DTC account in exchange
for payment therefor shall be referred to herein as "Settlement".
ARTICLE VII
TERMINATION
Section 7.1 TERMINATION BY MUTUAL CONSENT. The term of this Agreement
shall be twelve (12) months from the Effective Date. This Agreement may be
terminated at any time by mutual consent of the parties.
Section 7.2 OTHER TERMINATION.(a) The Purchaser may terminate this
Agreement upon one (1) Trading Day's notice if (i) an event resulting in a
Material Adverse Effect has occurred, (ii) the Common Stock is de-listed from
the Nasdaq SmallCap Market unless such de-listing is in connection with the
listing of the Common Stock on the Nasdaq National Market, the New York or
American Stock Exchanges, (iii) the Company files for protection from creditors
under any applicable law, (iv) the Company completes any financing prohibited by
Section 4.11, (v) the Registration Statement is not effective by August 31, 2000
or (vi) in the event that the officers and directors of the Company shall own
less than thirty-five percent 35% of the outstanding Common Stock of the
Company.
(b) The Company may terminate this Agreement upon one (1) Trading Day's
notice if the Purchaser shall fail to fund more than one properly noticed Draw
Down within three (3) Trading Days of the date payment for such Draw Down is
due.
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Section 7.3 EFFECT OF TERMINATION. In the event of termination by the
company or the Purchaser, written notice thereof shall forthwith be given to the
other party and the transactions contemplated by this Agreement shall be
terminated without further action by either party. If this Agreement is
terminated as provided in Section 7.1 or 7.2 herein, this Agreement shall become
void and of no further force and effect, except for Sections 9.1 and 9.2, and
Article VIII herein. Nothing in this Section 7.3 shall be deemed to release the
Company or the Purchaser from any liability for any breach under this Agreement,
or to impair the rights to the Company and the Purchaser to compel specific
performance by the other party of its obligations under this Agreement.
ARTICLE VIII
INDEMNIFICATION
Section 8.1 GENERAL INDEMNITY. The Company agrees to indemnify and hold
harmless the Purchaser (and its directors, officers, affiliates, agents,
successors and assigns) from and against any and all losses, liabilities,
deficiencies, costs, damages and expenses (including, without limitation,
reasonable attorney's fees, charges and disbursements) incurred by the Purchaser
as a result of any inaccuracy in or breach of the representations, warranties or
covenants made by the Company herein. The Purchaser agrees to indemnify and hold
harmless the Company and its directors, officers, affiliates, agents, successors
and assigns from and against any and all losses, liabilities, deficiencies,
costs, damages and expenses (including, without limitation, reasonable attorneys
fees, charges and disbursements) incurred by the Company as result of any
inaccuracy in or breach of the representations, warranties or covenants made by
the Purchaser herein. Notwithstanding anything to the contrary herein, the
Purchaser shall be liable under this Section 8.1 for only that amount as does
not exceed the net proceeds to such Purchaser as a result of the sale of Shares
pursuant to the Registration Statement.
Section 8.2 INDEMNIFICATION PROCEDURE. Any party entitled to
indemnification under this Article VIII (an "indemnified party") will give
written notice to the indemnifying party of any matters giving rise to a claim
for indemnification; provided, that the failure of any party entitled to
indemnification hereunder to give notice as provided herein shall not relieve
the indemnifying party of its obligations under this Article VIII except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any action, proceeding or claim is brought against an
indemnified party in respect of which indemnification is sought hereunder, the
indemnifying party shall be entitled to participate in and, unless in the
reasonable judgment of counsel to the indemnified party a conflict of interest
between it and the indemnifying party may exist with respect of such action,
proceeding or claim, to assume the defense thereof with counsel reasonably
satisfactory to the indemnified party. In the event that the indemnifying party
advises an indemnified party that it will contest such a claim for
indemnification hereunder, or fails, within thirty (30) days of receipt of any
indemnification notice to notify, in writing, such person of its election to
defend, settle or compromise, at its sole cost and expense, any action,
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proceeding or claim (or discontinues its defense at any time after it commences
such defense), then the indemnified party may, at its option, defend, settle or
otherwise compromise or pay such action or claim. In any event, unless and until
the indemnifying party elects in writing to assume and does so assume the
defense of any such claim, proceeding or action, the indemnified party's costs
and expenses arising out of the defense, settlement or compromise of any such
action, claim or proceeding shall be losses subject to indemnification
hereunder. The indemnified party shall cooperate fully with the indemnifying
party in connection with any settlement negotiations or defense of any such
action or claim by the indemnifying party and shall furnish to the indemnifying
party all information reasonably available to the indemnified party which
relates to such action or claim. The indemnifying party shall keep the
indemnified party fully apprised at all times as to the status of the defense or
any settlement negotiations with respect thereto. If the indemnifying party
elects to defend any such action or claim, then the indemnified party shall be
entitled to participate in such defense with counsel of its choice at its sole
cost and expense. The indemnifying party shall not be liable for any settlement
of any action, claim or proceeding effected without its prior written consent.
Notwithstanding anything in this Article VIII to the contrary, the indemnifying
party shall not, without the indemnified party's prior written consent, settle
or compromise any claim or consent to entry of any judgment in respect thereof
which imposes any future obligation on the indemnified party or which does not
include, as an unconditional term thereof, the giving by the claimant or the
plaintiff to the indemnified party of a release from all liability in respect of
such claim. The indemnification required by this Article VIII shall be made by
periodic payments of the amount thereof during the course of investigation or
defense, as and when bills are received or expense, loss, damage or liability is
incurred, within ten (10) Trading Days of written notice thereof to the
indemnifying party so long as the indemnified party irrevocably agrees to refund
such moneys if it is ultimately determined by a court of competent jurisdiction
that such party was not entitled to indemnification. The indemnity agreements
contained herein shall be in addition to (a) any cause of action or similar
rights of the indemnified party against the indemnifying party or others, and
(b) any liabilities the indemnifying party may be subject to.
ARTICLE IX
MISCELLANEOUS
Section 9.1 FEES AND EXPENSES. The Company shall pay all fees and
expenses related to the transactions contemplated by this Agreement; provided,
that the Company shall pay, at the Closing, all attorneys and escrow fees and
expenses (exclusive of disbursements and out-of-pocket expenses) incurred by the
Purchaser of up to $35,000 in connection with the preparation, negotiation,
execution and delivery of this Agreement and the transactions contemplated
hereunder. In addition, the Company shall pay all reasonable fees and expenses
incurred by the Purchaser in connection with any amendments, modifications or
waivers of this Agreement or the Registration Rights Agreement or incurred in
connection with the enforcement of this Agreement and the Registration Rights
Agreement, including, without limitation, all reasonable attorneys fees and
expenses. The Company shall pay all stamp or other similar taxes and duties
levied in connection with issuance of the Shares pursuant hereto.
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Section 9.2 SPECIFIC ENFORCEMENT. The Company and the Purchaser
acknowledge and agree that irreparable damage would occur in the event that any
of the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent or cure
breaches of the provisions of this Agreement and to enforce specifically the
terms and provisions hereof or thereof, this being in addition to any other
remedy to which any of them may be entitled by law or equity.
Section 9.3 ENTIRE AGREEMENT; AMENDMENT. This Agreement, together with
the Registration Rights Agreement and the Escrow Agreement contains the entire
understanding of the parties with respect to the matters covered hereby and,
except as specifically set forth herein, neither the Company nor the Purchaser
makes any representations, warranty, covenant or undertaking with respect to
such matters. No provision of this Agreement may be waived or amended other than
by a written instrument signed by the party against whom enforcement of any such
amendment or waiver is sought.
Section 9.4 NOTICES. Any notice, demand, request, waiver or other
communication required or permitted to be given hereunder shall be in writing
and shall be effective (a) upon hand delivery or facsimile at the address or
number designated below (if delivered on a business day during normal business
hours where such notice is to be received), or the first business day following
such delivery (if delivered other than on a business day during normal business
hours where such notice is to be received) or (b) on the second business day
following the date of mailing by express courier service, fully prepaid,
addressed to such address, or upon actual receipt of such mailing, whichever
shall first occur. The addresses for such communications shall be:
If to the Company: McGlen Internet Group, Inc.
3002 Dow Avenue, Suite 212
Tustin, CA 92780
Telephone Number: (714) 915-5088
Fax: (714) 918-1947
Attention: Mike Chen
with copies to: Boyd & Chang, LLP
(does not constitute Newport Gateway, Tower II
noitce) 19900 MacArthur Boulevard, Suite 660
Irvine, California 92612
Telephone Number: (949) 851-9800
Fax: (949) 851-0159
Attention: Paul Lin
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If to Purchaser: c/o Dr. Dr. Batliner & Partner
Aeulestrasse 74
FL-9490 Vaduz, Liechtenstein
Telephone Number: 011-075-236-0404
Fax: 011-075-236-0405
Attention: Hans Gassner
with copies to: Epstein Becker & Green, P.C.
(does not constitute 250 Park Avenue
notice) New York, New York 10177
Telephone Number: (212) 351-4924
Fax: (212) 661-0989
Attention: Joseph A. Smith
Any party hereto may from time to time change its address for notices
by giving written notice of such changed address to the other party hereto in
accordance herewith.
Section 9.5 WAIVERS. No waiver by either party of any default with
respect to any provision, condition or requirement of this Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any other
provisions, condition or requirement hereof, nor shall any delay or omission of
any party to exercise any right hereunder in any manner impair the exercise of
any such right accruing to it thereafter.
Section 9.6 HEADINGS. The article, section and subsection headings in
this Agreement are for convenience only and shall not constitute a part of this
Agreement for any other purpose and shall not be deemed to limit or affect any
of the provisions hereof.
Section 9.7 SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the parties and their successors and assigns.
The parties hereto may not amend this Agreement or any rights or obligations
hereunder without the prior written consent of the Company and each Purchaser to
be affected by the amendment. After Closing, the assignment by a party to this
Agreement of any rights hereunder shall not affect the obligations of such party
under this Agreement.
Section 9.8 NO THIRD PARTY BENEFICIARIES. This Agreement is intended
for the benefit of the parties hereto and their respective permitted successors
and assigns and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.
Section 9.9 GOVERNING LAW/ARBITRATION. This Agreement shall be governed
by and construed in accordance with the internal laws of the State of New York,
without giving effect to the choice of law provisions. Any dispute under this
Agreement or any Exhibit attached hereto 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
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"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. The Board of Arbitration shall
be authorized and is directed to enter a default judgment against any party
refusing to participate in the arbitration proceeding within thirty days of any
deadline for such participation. 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 prevailing party shall be awarded
its costs, including attorneys' fees, from the non-prevailing party as part of
the arbitration award. Any party shall have the right to seek injunctive relief
from any court of competent jurisdiction in any case where such relief is
available. The prevailing party in such injunctive action shall be awarded its
costs, including attorney's fees, from the non-prevailing party.
Section 9.10 COUNTERPARTS. This Agreement may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
instrument and shall become effective when counterparts have been signed by each
party and delivered to the other parties hereto, it being understood that all
parties need not sign the same counterpart. Execution may be made by delivery by
facsimile.
Section 9.11 PUBLICITY. Prior to the Closing, neither the Company nor
the Purchaser shall issue any press release or otherwise make any public
statement or announcement with respect to this Agreement or the transactions
contemplated hereby or the existence of this Agreement. After the Closing, the
Company may issue a press release or otherwise make a public statement or
announcement with respect to this Agreement or the transactions contemplated
hereby or the existence of this Agreement; provided, that prior to issuing any
such press release, making any such public statement or announcement, the
Company obtains the prior consent of the Purchaser, which consent shall not be
unreasonably withheld or delayed.
Section 9.12 SEVERABILITY. The provisions of this Agreement are
severable and, in the event that any court of competent jurisdiction shall
determine that any one or more of the provisions or part of the provisions
contained in this Agreement shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision or part of a provision of
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this Agreement and this Agreement shall be reformed and construed as if such
invalid or illegal or unenforceable provision, or part of such provision, had
never been contained herein, so that such provisions would be valid, legal and
enforceable to the maximum extent possible.
Section 9.13 FURTHER ASSURANCES. From and after the date of this
Agreement, upon the request of the Purchaser or the Company, each of the Company
and the Purchaser shall execute and deliver such instruments, documents and
other writings as may be reasonably necessary or desirable to confirm and carry
out and to effectuate fully the intent and purposes of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorize officer as of the date first above
written.
MCGLEN INTERNET GROUP, INC.
By: /S/ Mike Chen
--------------------------------
Mike Chen, President
PLUMROSE HOLDINGS INC.
By: Hans Gassner
--------------------------------
Name: Hans Gassner
Title: Authorized Signatory
25
