Exhibit 4.9
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 1
DEFINITIONS
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.
(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 2
PURCHASE AND SALE OF COMMON STOCK
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.
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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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 Xxxxxxx Xxxxxx & Green, P.C., 000 Xxxx Xxxxxx, Xxx Xxxx,
Xxx Xxxx 00000 (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 3
REPRESENTATIONS AND WARRANTIES
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.
(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
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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, 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
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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.
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).
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(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.
(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.
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(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.
(O) TAXES. Since December 3, 1999, and to the best knowledge
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.
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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 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.
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.
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(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"). 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
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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.
(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;
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(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;
(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.
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(b) 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.
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 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.
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(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 4
COVENANTS
The Company covenants with the Purchaser as follows:
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.
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.
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.
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4.4 ESCROW ARRANGEMENT. The Company and the Purchaser shall enter into
an escrow arrangement with Xxxxxxx Xxxxxx & Green, P.C. (the "Escrow Agent") in
the Form of EXHIBIT B hereto respecting payment against delivery of the Shares.
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.
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.
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.
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.
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.
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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.
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.
ARTICLE 5
CONDITIONS TO CLOSING AND DRAW DOWNS
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.
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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.
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.
(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.
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.
16
(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.
(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 6
DRAW DOWN TERMS
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.
17
(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.
(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 7
TERMINATION
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.
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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.
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 8
INDEMNIFICATION
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.
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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, 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.
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ARTICLE 9
MISCELLANEOUS
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.
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.
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.
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.
0000 Xxx Xxxxxx, Xxxxx 000
Xxxxxx, XX 00000
Telephone Number: (000) 000-0000
Fax: (000) 000-0000
Attention: Xxxx Xxxx
with copies to: Xxxx & Xxxxx, LLP
(does not constitute Newport Gateway, Tower II
noitce) 00000 XxxXxxxxx Xxxxxxxxx, Xxxxx 000
Xxxxxx, Xxxxxxxxxx 00000
Telephone Number: (000) 000-0000
Fax: (000) 000-0000
Attention: Xxxx Xxx
21
If to Purchaser: c/o Dr. Xx. Xxxxxxxx & Partner
Xxxxxxxxxxxx 00
XX-0000 Xxxxx, Xxxxxxxxxxxxx
Telephone Number: 000-000-000-0000
Fax: 000-000-000-0000
Attention: Xxxx Xxxxxxx
with copies to: Xxxxxxx Xxxxxx & Green, P.C.
(does not constitute 000 Xxxx Xxxxxx
xxxxxx) Xxx Xxxx, Xxx Xxxx 00000
Telephone Number: (000) 000-0000
Fax: (000) 000-0000
Attention: Xxxxxx X. Xxxxx
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.
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.
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.
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.
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.
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
22
arbitration consisting of 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. 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.
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.
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.
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 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.
23
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.
24
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/ XXXX XXXX
-----------------------------------------------
Xxxx Xxxx, President
PLUMROSE HOLDINGS INC.
By: /S/ XXXX XXXXXXX
-----------------------------------------------
Name: Xxxx Xxxxxxx,
Title: Authorized Signatory
25
SCHEDULES & EXHIBITS
TO
COMMON STOCK PURCHASE AGREEMENT
26
SCHEDULE 3.1(c)
---------------
REGISTRATION RIGHTS
-------------------
1. Xxxxxxxxx Xxxx, Inc., a former financial consultant of the Company has
registration rights to approximately 200,000 shares of the Company
common stock.
2. Synnex Information Technologies, Inc. has registration rights on the
shares underlying warrants to Purchase $1,000,000 worth of Common
Stock.
3. Akihiro Furusoto has registration rights covering 19,779 shares of
Common Stock.
4. Xxxxxxxxx Xxxxxxxx has registration rights covering 197,792 shares of
Common Stock.
5. 00xx Xxxxxx Corporation has registration rights covering approximately
100,000 shares of Common Stock.
6. Pacrim Access Group, Inc. has registration rights on shares underlying
warrants to Purchase shares of Common Stock.
7. The Lin Law Corporation has registration rights on 741,720 shares of
Common Stock.
8. Institutional Equities Holding Corporation has registration rights on
the shares underlying the conversion of a $500,000 Convertible Loan and
the warrants to Purchase 35% - 50% of the Convertible Shares. (This
loan is still in progress with uncertainty on whether it will be
consummated. Only $150,000 of which has been funded.)
9. Triangle Associates, LLC has registration rights on the underlying
shares of the warrant issued by the Company.
CONTRACTS FOR ADDITIONAL EQUITIES
---------------------------------
1. Institutional Equities Holdings Corporation entered into a Convertible
Loan Agreement with the Company which may entitle them to registration
rights if they decide to convert the loan to shares of the Company
Common Stock.
2. The Company is contemplating a possible acquisition of a division of
C-Enterprises, Inc., in a transaction in which the seller is demanding
registration rights on approximately 200,000 shares.
27
SCHEDULE 3.1(f)
---------------
Upon the completion of the merger of McGlen Micro, Inc. and Adrenalin
Interactive, Inc., on December 3, 1999, with the resulting change of accountants
and control, the Company post merger form 8-K as amended was not filed in a
timely manner. Additionally, the Company has utilized available extensions for
filing periods for its annual, quarterly, and interim reports.
28
SCHEDULE 3.1(g)
---------------
McGlen Micro, Inc.
AMT Component, Inc.
Adrenalin Entertainment, Inc.
Western Technologies, Inc.
29
SCHEDULE 3.1(h)
---------------
None
30
SCHEDULE 3.1(i)
---------------
The Company is currently negotiating with Xxxxxx Xxxxx, former Chief
Marketing Officer of the Company in an attempt to settle a dispute over his
recent termination by the Company.
31
SCHEDULE 3.1(k)
---------------
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. To date, IEHC has
only funded approximately $150,000 of the $500,000 loan agreement.
32
SCHEDULE 3.1(l)
---------------
1. As set forth in the SEC Documents, the Company's only secured creditors
as of the date of the Agreement are Synnex Information Technologies,
Inc.
2. The Company has entered into a Merchant Member and Processing Agreement
with Imperial Bank which makes Imperial Bank a secured creditor.
33
SCHEDULE 3.1(m)
---------------
See Xxxxxx Xxxxx dispute set forth in Schedule 3.1(i).
34
SCHEDULE 3.1(n)
---------------
The Company does not file state sales or income tax returns in any state
other than California.
35
SCHEDULE 3.1(o)
---------------
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, the Company believes 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, the Company believes the worst case would be
for the net operating loss carry forwards of the Company to be reduced.
36
SCHEDULE 3.1(p)
---------------
1. Landanberg Xxxxxxx
2. Xxxxxxx Consulting
3. Rhino Advisors
37
SCHEDULE 3.1(r)
---------------
1. XxXxxx.xxx
2. Xxxxxxxxx.xxx
3. XxxxxxXxxxx.xxx
38
SCHEDULE 3.1(u)
---------------
None
39
SCHEDULE 3.1(v)
---------------
None
40
SCHEDULE 3.1(x)
---------------
None
41
SCHEDULE 3.1(y)
---------------
1. The Company is currently in discussions with Xxxxxx Xxxxx, the
Company's former Chief Marketing Officer, regarding a settlement of a
dispute over his recent termination by the Company. Xx. Xxxxx was
terminated in March 2000.
42
SCHEDULE 3.1(z)
---------------
3. 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.
4. There are two contracts with members of the Company's management which
are in excess of $100,000. Xxxxx Xxxxxx, CFO, has an employment
contract which calls for his annual salary of $130,000. Xxxxx Xxxx,
CIO, has an employment contract which calls for an annual salary of
$120,000. The Company also has an employment contract with Xxxxxxx
Cartibiano, the former Vice President of Western Technologies, Inc. (a
wholly owned subsidiary of the Company) whereby Mr. Cartibiano will
receive up to $200,000 as a bonus for the completion of certain
software development projects conducted by Western which are fulfilled
within budget. The Company's has accrued for this potential liability
at December 31, 1999. As part of Mr. Cartibiano's contract, certain
assets owned by Western were transferred to Mr. Cartibiano in March
2000. The net book value of these assets was less than $250,000.
43
SCHEDULE 3(z)
-------------
1. Xxxxxx Xxxxx Executive Employment Agreement.
44
EXHIBIT A
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of April 12, 2000, between
Plumrose Holdings Inc. ("Purchaser"), and McGlen Internet Group, Inc. (the
"Company").
WHEREAS, simultaneously with the execution and delivery of this
Agreement, pursuant to a Common Stock Purchase Agreement dated the date hereof
(the "Purchase Agreement") the Purchaser has committed to purchase up to
$24,000,000 worth of the Company's Common Stock (terms not defined herein shall
have the meanings ascribed to them in the Purchase Agreement); and
WHEREAS, the Company desires to grant to the Purchaser the registration
rights set forth herein with respect to the Shares and the shares of Common
Stock issuable upon exercise of the Purchaser's Warrants (hereinafter referred
to collectively 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) 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
persons 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. The Purchaser acknowledges and
understands that in the absence of an effective Registration Statement
authorizing the resale of the Securities as provided herein, the Securities are
"restricted securities" as defined in Rule 144 promulgated under the Act. The
Purchaser understands that no disposition or transfer of the Securities may be
made by Purchaser in the absence of (i) an opinion of counsel to the Purchaser,
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.
45
With a view to making available to the Purchaser 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 Purchaser 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 by the Company pursuant to Section 13
or 15(d) under the Exchange Act; and, if at any time it is not required to file
such reports but in the past had been required to or did file such reports, it
will, upon the request of any Purchaser, make available other information as
required by, and so long as necessary to permit sales of, its Registrable
Securities pursuant to Rule 144.
SECTION 3. REGISTRATION RIGHTS WITH RESPECT TO THE SECURITIES.
(a) The Company agrees that it will prepare and file with the
Securities and Exchange Commission ("Commission"), within forty-five (45) days
after the date hereof, a registration statement (on Form S-3 and/or S-1, or
other appropriate form of registration statement) 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 Purchaser, so as to permit a
public offering and resale of the Securities under the Act by Purchaser.
The Company shall use its best efforts to cause the Registration
Statement to become effective within five (5) days of SEC clearance to request
acceleration of effectiveness. If the Registration Statement is not declared
effective by August 31, 2000 this Agreement and the Purchase Agreement shall
terminate. The Company will notify Purchaser of the effectiveness of the
Registration Statement within one Trading Day of such event.
(b) The Company will maintain the Registration Statement or
post-effective amendment filed under this Section 3 hereof effective under the
Securities Act until the earlier of (i) the date that none of the Securities are
or may become issued and outstanding, (ii) the date that all of the Securities
have been sold pursuant to the Registration Statement, (iii) the date the
holders thereof receive an opinion of counsel to the Company, which counsel
shall be reasonably acceptable to the Purchaser, 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 Purchaser (the "Effectiveness
Period").
46
(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 Purchaser
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 its counsel. The Purchaser and its counsel shall have a
reasonable period, not to exceed ten (10) Trading Days, to review the proposed
Registration Statement or any amendment thereto, prior to filing with the
Commission, and the Company shall provide each Purchaser with copies of any
comment letters received from the Commission with respect thereto within two (2)
Trading Days of receipt thereof. The Company shall make reasonably available for
inspection by Purchaser, any underwriter participating in any disposition
pursuant to the Registration Statement, and any attorney, accountant or other
agent retained by such Purchaser or any such underwriter all relevant financial
and other records, pertinent corporate documents and properties of the Company
and its subsidiaries, and cause the Company's officers, directors and employees
to supply all information reasonably requested by such Purchaser or any such
underwriter, attorney, accountant or agent in connection with the Registration
Statement, in each case, as is customary for similar due diligence examinations;
provided, however, that all records, information and documents that are
designated in writing by the Company, in good faith, as confidential,
proprietary or containing any material non-public information shall be kept
confidential by such Purchaser and any such underwriter, attorney, accountant or
agent (pursuant to an appropriate confidentiality agreement in the case of any
such Purchaser or agent), unless such disclosure is made pursuant to judicial
process in a court proceeding (after first giving the Company an opportunity
promptly to seek a protective order or otherwise limit the scope of the
information sought to be disclosed) or is required by law, or such records,
information or documents become available to the public generally or through a
third party not in violation of an accompanying obligation of confidentiality;
and provided further that, if the foregoing inspection and information gathering
would otherwise disrupt the Company's conduct of its business, such inspection
and information gathering shall, to the maximum extent possible, be coordinated
on behalf of the Purchaser and the other parties entitled thereto by one firm of
counsel designed by and on behalf of the majority in interest of Purchaser and
other parties. The Company shall qualify any of the securities for sale in such
states as such Purchaser 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 Purchaser with copies of the Registration Statement and
the prospectus included therein and other related documents in such quantities
as may be reasonably requested by the Purchaser.
(d) The Company shall not be required by this Section 3 to
include a Purchaser's Securities in any Registration Statement which is to be
filed if, in the opinion of counsel for both the Purchaser and the Company (or,
should they not agree, in the opinion of another counsel experienced in
securities law matters acceptable to counsel for the Purchaser 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.
47
(e) If at any time or from time to time after the effective
date of the Registration Statement, the Company notifies the Purchaser in
writing of the existence of a Potential Material Event (as defined in Section
3(f) below), the Purchaser 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 such Purchaser
receives 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 if the Company so suspends the right to
such holders of Securities for more than twenty (20) days in the aggregate
during any twelve month period, during the periods the Registration Statement is
required to be in effect then the Company must compensate the Purchaser for any
decline in market value of the Securities held by Purchaser at the beginning of
such suspension through the end of such suspension. If a Potential Material
Event shall occur prior to the date the Registration Statement is filed, then
the Company's obligation to file the Registration Statement shall be delayed
without penalty for not more than thirty (30) days. The Company must give
Purchaser notice in writing at least two (2) Trading Days prior to the first day
of the blackout period, if lawful to do so.
(f) "Potential Material Event" means any of the following: (a)
the possession by the Company of material information that is 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 or that disclosure of
such information in the 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 Registration
Statement would be materially misleading absent the inclusion of such
information.
SECTION 4. COOPERATION WITH COMPANY. Purchaser 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 Purchaser and proposed manner of sale of
the Registrable Securities required to be disclosed in the 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 its 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. The
Purchaser shall consent to be named as an underwriter in the Registration
Statement. Purchaser acknowledges that in accordance with current Commission
policy, the Purchaser will be named as the underwriter of the Securities in the
Registration Statement.
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 Purchaser's assistance and cooperation as reasonably required:
48
(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 Purchaser of such Registrable Securities shall desire to sell or
otherwise dispose of the same (including prospectus supplements with respect to
the sales of securities from time to time in connection with a registration
statement pursuant to Rule 415 promulgated under the Act) 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, 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 Purchasers and reflect in such documents all such comments
as the Purchasers (and their counsel) reasonably may propose and (ii) furnish to
each Purchaser 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
Purchaser may reasonably request in order to facilitate the public sale or other
disposition of the securities owned by such Purchaser;
(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 Purchaser shall reasonably request (subject to the
limitations set forth in Section 3(d) above), and do any and all other acts and
things which may be necessary or advisable to enable each Purchaser to
consummate the public sale or other disposition in such jurisdiction of the
securities owned by such Purchaser, except that the Company shall not for any
such purpose be required to qualify to do business as a foreign corporation in
any jurisdiction wherein it is not so qualified or to file therein any general
consent to service of process;
(d) list such Registrable Securities on the Principal Market,
and any other exchange on which the Common Stock of the Company is then listed,
if the listing of such Registrable Securities is then permitted under the rules
of such exchange or the Nasdaq Stock Market;
(e) notify each Purchaser 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;
49
(f) as promptly as practicable after becoming aware of such
event, notify each Purchaser who holds Registrable Securities being sold (or, in
the event of an underwritten offering, the managing underwriters) of the
issuance by the Commission or any state authority 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 Purchasers 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 Purchasers reasonably may request and registered in such names as
the Purchaser 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 Purchasers whose Registrable Securities are included in such
Registration Statement) 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 Purchasers 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.
SECTION 6. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless the
Purchaser and each person, if any, who controls the Purchaser within the meaning
of the Securities Act ("Distributing Purchaser") 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), to which the Distributing
Purchaser may become subject, under the Securities Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
50
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in the Registration Statement, or any related
preliminary prospectus, 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 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 the 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 Purchaser, specifically for use in the preparation
thereof. This Section 6(a) shall not inure to the benefit of any Distributing
Purchaser with respect to any person asserting such loss, claim, damage or
liability who purchased the Registrable Securities which are the subject thereof
if the Distributing Purchaser failed to send or give (in violation of the
Securities Act or the rules and regulations promulgated thereunder) a copy of
the prospectus contained in such Registration Statement to such person at or
prior to the written confirmation to such person of the sale of such Registrable
Securities, where the Distributing Purchaser was obligated to do so under the
Securities Act or the rules and regulations promulgated thereunder. This
indemnity agreement will be in addition to any liability which the Company may
otherwise have.
(b) Each Distributing Purchaser agrees that it will indemnify
and hold harmless the Company, and each officer, director of the Company or
person, if any, who controls the Company within the meaning of the Securities
Act, against any losses, claims, damages or liabilities (which shall, for all
purposes of this Agreement, include, but not be limited to, all reasonable costs
of defense and investigation and all reasonable attorneys' fees) to which the
Company or any such officer, director or controlling person may become subject
under the Securities Act or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact contained
in the Registration Statement, or any related preliminary prospectus, 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 the 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 such Distributing Purchaser, specifically for use in the
preparation thereof. This indemnity agreement will be in addition to any
liability which the Distributing Purchaser may otherwise have. Notwithstanding
anything to the contrary herein, the Distributing Investor shall not be liable
under this Section 6(b) for any amount in excess of the net proceeds to such
Distributing Investor as a result of the sale of Registrable Securities pursuant
to the Registration Statement.
(c) Promptly after receipt by an indemnified party under this
Section 6 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section 6, notify the indemnifying party of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve the
indemnifying party from any liability which it may have to any indemnified party
except to the extent of actual prejudice demonstrated by the indemnifying party.
51
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 party shall have the
right to employ separate counsel in any such action and to participate in the
defense thereof, but the fees and expenses of such counsel shall not be at the
expense of the indemnifying party if the indemnifying party has assumed the
defense of the action with counsel reasonably satisfactory to the indemnified
party; provided that if the indemnified party is the Distributing Purchaser, the
fees and expenses of such counsel shall be at the expense of the indemnifying
party if (i) the employment of such counsel has been specifically authorized in
writing by the indemnifying party, or (ii) the named parties to any such action
(including any impleaded parties) include both the Distributing Purchaser and
the indemnifying party and the Distributing Purchaser shall have been advised by
such counsel that there may be one or more legal defenses available to the
indemnifying party different from or in conflict with any legal defenses which
may be available to the Distributing Purchaser (in which case the indemnifying
party shall not have the right to assume the defense of such action on behalf of
the Distributing Purchaser, it being understood, however, that the indemnifying
party shall, in connection with any one such action or separate but
substantially similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances, be liable only for the reasonable
fees and expenses of one separate firm of attorneys for the Distributing
Purchaser, which firm shall be designated in writing by the Distributing
Purchaser). 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.
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 Purchaser shall contribute to the aggregate losses,
52
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), 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 Purchaser 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 Purchaser
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) Purchaser be required to undertake liability to any person under
this Section 7 for any amounts in excess of the dollar amount of the net
proceeds to be received by such Purchaser from the sale of such Purchaser's
Registrable Securities (after deducting any fees, discounts and commissions
applicable thereto) pursuant to any Registration Statement under which such
Registrable Securities are to be 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 the Registration Statement.
SECTION 8. 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 delivered as set forth
in the Purchase Agreement.
SECTION 9. ASSIGNMENT. Neither this Agreement nor any rights of the
Purchaser 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 transferee of any of
the Common Stock purchased by the Purchaser pursuant to the Purchase Agreement
other than through open-market sales, and (b) upon the prior written consent of
the Company, which consent shall not be unreasonably withheld or delayed in the
case of an assignment to an affiliate of the Purchaser, the Purchaser'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 Purchaser) who agrees to be
bound hereby.
53
SECTION 10. 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 party. In lieu of the original, a facsimile
transmission or copy of the original shall be as effective and enforceable as
the original.
SECTION 11. 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. It is
hereby stipulated and declared to be the intention of the parties that they
would have executed the remaining terms, provisions, covenants and restrictions
without including any of such that may be hereafter declared invalid, illegal,
void or unenforceable.
SECTION 12. 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 13. HEADINGS. The headings in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
SECTION 14. GOVERNING LAW. 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 action may be brought as set
forth in the Purchase Agreement. Any party shall have the right to seek
injunctive relief from any court of competent jurisdiction in any case where
such relief is available. 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 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 with 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.
54
SECTION 15. SEVERABILITY. If any provision of this Agreement shall for
any reason be held invalid or unenforceable, such invalidity or unenforceablity
shall not affect any other provision hereof and this Agreement shall be
construed as if such invalid or unenforceable provision had never been contained
herein. Terms not otherwise defined herein shall be defined in accordance with
the Agreement. 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/ XXXX XXXX
-------------------------------
Xxxx Xxxx, President
PLUMROSE HOLDINGS INC.
By: /S/ XXXX XXXXXXX
-------------------------------
Name: Xxxx Xxxxxxx
55
EXHIBIT B
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (this "Agreement") is made as of April 12, 2000,
by and among McGlen Internet Group, Inc., a corporation incorporated under the
laws of Delaware, (the "Company"), Plumrose Holdings Inc. ("Purchaser"), and
Xxxxxxx Xxxxxx & Green, P.C., having an address at 000 Xxxx Xxxxxx, Xxx Xxxx, XX
00000 (the "Escrow Agent"). Capitalized terms used but not defined herein shall
have the meanings set forth in the Common Stock Purchase Agreement referred to
in the first recital.
WHEREAS, the Purchaser will from time to time as requested by the
Company, purchase shares of the Company's Common Stock from the Company as set
forth in that certain Common Stock Purchase Agreement (the "Purchase Agreement")
dated the date hereof between the Purchaser and the Company, which will be
issued as per the terms and conditions contained herein and in the Purchase
Agreement; and
WHEREAS, the Company and the Purchaser have requested that the Escrow
Agent hold in escrow and then distribute the initial documents and certain funds
which are conditions precedent to the effectiveness of the Purchase Agreement,
and have further requested that upon each exercise of a Draw Down, the Escrow
Agent hold the relevant documents and the applicable purchase price pending
receipt by Purchaser of certificates representing the securities issuable upon
such Draw Down;
NOW, THEREFORE, in consideration of the covenants and mutual promises
contained herein and other good and valuable consideration, the receipt and
legal sufficiency of which are hereby acknowledged and intending to be legally
bound hereby, the parties agree as follows:
ARTICLE 1
TERMS OF THE ESCROW FOR THE INITIAL CLOSING
1.1 The parties hereby agree to establish an escrow account with the
Escrow Agent whereby the Escrow Agent shall hold the funds and documents which
are referenced in Section 5.2 of the Purchase Agreement.
1.2 At the Closing, the Company shall deliver to the Escrow Agent:
(a) the original executed Registration Rights Agreement in the
form of EXHIBIT A to the Purchase Agreement;
(b) the original executed opinion of Xxxx & Xxxxx, LLP, in the
form of EXHIBIT C to the Purchase Agreement;
(c) the sum of $35,000;
56
(d) the sum of $20,000;
(e) the original executed Company counterpart of this Escrow
Agreement;
(f) the original executed Company counterpart of the Purchase
Agreement; and
(g) the Warrant referred to in Section 5.2(f) of the Purchase
Agreement.
1.3 Upon receipt of the foregoing, and receipt of executed counterparts
from Purchaser of the Purchase Agreement, the Registration Rights Agreement and
this Escrow Agreement, the Escrow Agent shall immediately transfer the sum of
Twenty Thousand Dollars ($20,000) to Xxxxxxx Xxxxxx & Green, P.C. ("EB&G"), 000
Xxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000 for the Purchaser's legal, administrative
and escrow costs and the sum of Thirty-Five Thousand Dollars ($35,000), as a
non-accountable expense allowance, to Ladenburg Xxxxxxxx & Co. Inc. and the
Escrow Agent shall then arrange to have the Purchase Agreement, this Escrow
Agreement, the Registration Rights Agreement and the opinion of counsel
delivered to the appropriate parties.
ARTICLE 2
TERMS OF THE ESCROW FOR EACH DRAW DOWN
2.1 Each time the Company shall send a Draw Down Notice to the
Purchaser as provided in the Purchase Agreement, it shall send a copy, by
facsimile, to the Escrow Agent.
2.2 Each time the Purchaser shall purchase Shares pursuant to a Draw
Down, the Purchaser shall send the applicable purchase price of the Draw Down
Shares to the Escrow Agent, which shall advise the Company in writing that it
has received the purchase price for such Draw Down Shares. The Company shall
promptly, but no later than three (3) Trading Days after receipt of such funding
notice from the Escrow Agent, cause its transfer agent to issue the Draw Down
Shares to the Purchaser via DTC deposit to the account specified by the
Purchaser from time to time and the Company shall deliver to the Escrow Agent a
warrant certificate for an amount of the Company's Common Stock equal to five
percent (5%) of the purchase price for such Draw Down Shares divided by the VWAP
on the Trading Day prior to the applicable Closing Date, at an exercise price
equal to 115% of the VWAP on the Trading Day prior to the applicable Closing
Date issued to Ladenburg Xxxxxxxx & Co., Inc. (the "LT Warrant"). Upon receipt
of written confirmation from the transfer agent or from the Purchaser that such
Draw Down Shares have been so deposited and the LT Warrant has been delivered,
the Escrow Agent shall within one (1) Trading Day wire 95% of the purchase price
per the written instructions of the Company, net of One Thousand Five Hundred
Dollars ($1,500) as escrow expenses to the Escrow Agent, and the remaining 5% of
the purchase price as directed by Ladenburg Xxxxxxxx & Co. Inc.
57
ARTICLE 3
MISCELLANEOUS
3.1 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 an extension of
the time for performance of any other obligation or act.
3.2 All notices or other communications required or permitted hereunder
shall be in writing, and shall be sent by fax, overnight courier, registered or
certified mail, postage prepaid, return receipt requested, and shall be deemed
received upon receipt thereof, as set forth in the Purchase Agreement.
3.3 This Escrow Agreement shall be binding upon and shall inure to the
benefit of the permitted successors and permitted assigns of the parties hereto.
3.4 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 their respective agents duly authorized in writing
or as otherwise expressly permitted herein.
3.5 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.
3.6 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. Except as expressly set forth herein, any
action to enforce, arising out of, or relating in any way to, any provisions of
this Escrow Agreement shall brought in the Federal or state courts of New York,
New York as is more fully set forth in the Purchase Agreement.
3.7 The Escrow Agent's duties hereunder may be altered, amended,
modified or revoked only by a writing signed by the Company, Purchaser and the
Escrow Agent.
3.8 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, excepting only its own gross negligence or willful
misconduct, and any act done or omitted by the Escrow Agent pursuant to the
advice of the Escrow Agent's attorneys-at-law (other than Escrow Agent itself)
shall be conclusive evidence of such good faith.
3.9 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.
58
3.10 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 Purchase Agreement or any documents or
papers deposited or called for thereunder or hereunder.
3.11 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
PURCHASER, AND MAY CONTINUE TO ACT AS LEGAL COUNSEL FOR THE PURCHASER, 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 PURCHASER
AND WAIVES ANY CLAIM THAT SUCH REPRESENTATION REPRESENTS A CONFLICT OF INTEREST
ON THE PART OF THE ESCROW AGENT. THE COMPANY UNDERSTANDS THAT THE PURCHASER AND
THE ESCROW AGENT ARE RELYING EXPLICITLY ON THE FOREGOING PROVISION IN ENTERING
INTO THIS ESCROW AGREEMENT.
3.12 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 Purchaser. In the event of any such resignation, the Purchaser
and the Company shall appoint a successor Escrow Agent.
3.13 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.
3.14 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 State and City of New York in accordance
with the applicable procedure therefor.
3.15 The Company and the Purchaser 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 Purchase
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.
59
IN WITNESS WHEREOF, the parties hereto have executed this
Escrow Agreement as of the date set forth above.
MCGLEN INTERNET GROUP, INC.
By: /S/ XXXX XXXX
---------------------------
Xxxx Xxxx, President
PURCHASER:
PLUMROSE HOLDINGS INC.
By: /S/ XXXX XXXXXXX
---------------------------
Name: Xxxx Xxxxxxx
Title: Authorized Signatory
ESCROW AGENT:
Xxxxxxx Xxxxxx & Green, P.C.
By: /S/ XXXXXX X. XXXXXXX
---------------------------
Authorized Signatory
60
EXHIBIT C
LAW OFFICES OF
XXXX & XXXXX, LLP
NEWPORT GATEWAY - TOWER II
00000 XXXXXXXXX XXXXXXXXX
XXXXX 000
XXXXXX, XXXXXXXXXX 00000
TELEPHONE: (000) 000-0000
FACSIMILE: (000) 000-0000
E-MAIL: xxxx_xxxxx@xxxxxxxxx.xxx
April 14, 2000
Plumrose Holdings, Inc.
c/o Xx. Xxxxxxxx & Partner
Xxxxxxxxxxxx 00
XX-0000 Xxxxx Liechtenstein
RE: COMMON STOCK PURCHASE AGREEMENT BETWEEN PLUMROSE HOLDINGS, INC. AND
MCGLEN INTERNET GROUP, INC.
Ladies and Gentlemen:
This opinion is furnished to you pursuant to the Common Stock Purchase
Agreement by and between Plumrose Holdings, Inc. (the "Purchaser") and McGlen
Internet Group, Inc. (the "Company"), dated as of April 12, 2000 (the "Purchase
Agreement"), which provides for the issuance and sale by the Company of up to
$24,000,000 worth of shares of Common Stock of the Company. All terms used
herein have the meanings defined for them in the Purchase Agreement unless
otherwise defined herein.
We have acted as counsel for the Company in connection with the
negotiation of the Purchase Agreement, the Registration Rights Agreement between
the Purchaser and the Company, dated as of April 12, 2000 (the "Registration
Rights Agreement"), and the Escrow Agreement between the Purchaser, the Company
and Xxxxxxx Xxxxxx & Green, P.C., dated as of April 12, 2000 (the "Escrow
Agreement", and together with the Purchase Agreement and the Registration Rights
Agreement, referred to 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.
As used in this opinion, the expression "to our knowledge" refers to
the current actual knowledge of the attorneys of this firm who have worked on
matters for the Company solely in connection with the Agreements and the
transactions contemplated thereby.
For purposes of this opinion, we have assumed that the Purchaser has
all requisite power and authority, and has taken any and all necessary corporate
action, to execute and deliver the Agreements, and we are assuming that the
representations and warranties made by the Purchaser in the Agreements and
pursuant thereto are true and correct.
61
Based upon and subject to the foregoing and other assumptions,
limitations, qualification and exceptions stated herein, we are of the opinion
that as of the date hereof:
1. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
all requisite power and authority (corporate and other) to carry on its business
and to own, lease and operate its properties and assets as described in the
Company's SEC Documents. The Company and each subsidiary is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which the Company owns or leases property, other than those in which the
failure so to qualify would not have a Material Adverse Effect.
2. The Company has the requisite corporate power and authority
to enter into and perform its obligations under the Agreements and to issue the
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 (except as may be required pursuant to the corporate governance rules
of the Nasdaq Stock Market with respect to the potential issuance of shares in
excess of 20% of the number of shares of Common Stock issued and outstanding on
the Closing Date). Each of the Agreements has been duly executed and delivered
by the Company and each of the Agreements 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 Shares,
do not and will not (i) result in a violation of the Company's Certificate of
Incorporation or Bylaws; (ii) to our knowledge, conflict with, or constitute a
material default (or an event that with notice or lapse of time or both would
become a default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any material agreement, indenture, instrument
or any "lock-up" or similar provision of any underwriting or similar agreement
to which the Company is a party; 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. When issued and paid for, the 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 (the "Certificate") or Bylaws or, to our knowledge,
in any agreement to which the Company is party.
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5. To our knowledge, except as disclosed in the SEC Documents
or the Agreements, there are no claims, actions, suits, proceedings or
investigations that are pending against the Company or its properties, or
against any officer or director of the Company in his or her capacity as such,
nor has the Company received any written threat of any such claims, actions,
suits, proceedings, or investigations.
6. To our knowledge, there are no outstanding options,
warrants, calls or commitments of any character whatsoever relating to, or
securities, rights or obligations convertible into or exchangeable for, or
giving any right to subscribe for or acquire any shares of Common Stock or
contracts, commitments, understanding, or arrangements by which the Company is
or may become bound to issue additional shares of Common Stock, or securities or
rights convertible or exchangeable into shares of Common Stock, except as
described in the SEC Documents or the Agreements. To our knowledge, the Company
is not a party to or subject to the provisions of any order, writ, injunction,
judgment or decree of any court or government agency or instrumentality.
7. Subject to compliance with the Nasdaq Stock Market
corporate governance rules, the issuance of the Shares will not violate the
applicable listing agreement between the Company and any securities exchange or
market on which the Company's securities are listed.
8. The authorized capital stock of the Company consists of
50,000,000 shares of Common Stock, $0.03 value per share of which approximately
33,000,000 shares are issued and outstanding and 100,000 shares of preferred
stock, $0.01 par value per share, of which none are issued and outstanding.
This opinion is furnished to the Purchaser solely for its
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
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.
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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.
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 of any other
document, order or agreement other than 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.
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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 law, 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,
except as shall be set forth in any subsequent bring-down opinions pursuant to
the terms of the Purchase Agreement. 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, to 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/ Xxxx & Xxxxx, LLP
---------------------
XXXX & XXXXX, LLP
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EXHIBIT D
DRAW DOWN NOTICE/COMPLIANCE CERTIFICATE
McGlen Internet Group, Inc.
The undersigned hereby certifies, with respect to shares of Common Stock of
McGlen Internet Group, Inc. (the "Company") issuable in connection with this
Draw Down Notice and Compliance Certificate dated _____________ (the "Notice"),
delivered pursuant to Article V of the Common Stock Purchase Agreement dated as
of April 10, 2000 (the "Agreement"), as follows:
1. The undersigned is the duly appointed President of the Company.
2. The representations and warranties of the Company set forth in the Agreement
are true and correct in all material respects as though made on and as of the
date hereof and all SEC Documents are as represented in Section 3.1(f) of the
Agreement.
3. The Company has performed in all material respects all covenants and
agreements to be performed by the Company on or prior to the date of this Put
Notice and has complied in all material respects with all obligations and
conditions contained in the Agreement.
4. The Investment Amount is $___________.
5. The Threshold Price, if any, is $__________.
The undersigned has executed this Certificate this ____ day of ________, _____.
MCGLEN INTERNET GROUP, INC.
--------------------
President
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