Exhibit 10.23
FINANCING AGREEMENT
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THIS FINANCING AGREEMENT (this "Agreement") is entered into as of
December 22, 2000, between Mcglen Internet Group, Inc., a Delaware corporation
("Borrower") and Xxxxxx & Xxxxxx, Inc., a California corporation (the "Financial
Advisor"), with reference to the following.
RECITALS
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A. Borrower desires to borrow an aggregate of $700,000 (the "Loans")
from lenders (the "Lenders") introduced to Borrower and selected by the
Financial Advisor and the Financial Advisor desires to make such introductions.
The Loans will be secured by a blanket security interest in Borrower's assets
and convertible into common stock of Borrower at the conversion price of $0.25
per share (the "Loan Shares") upon the effectiveness of a registration statement
covering the Loan Shares.
B. Borrower also desires to sell and the Financial Advisor shall
introduce purchasers that desire to purchase, an aggregate of 3,200,000 shares
of common stock (the "Purchase Shares") for $0.25 per share for an aggregate
purchase price of $800,000, which amount shall be retained in an escrow until
the Purchase Shares are registered.
AGREEMENT
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NOW, THEREFORE, in consideration of the foregoing premises, the
provisions set forth below, and other good and valuable consideration, the
parties agree as follows.
1. LOAN. Borrower hereby agrees to borrow from the Lenders, and the
Financial Advisor agrees to introduce the Lenders who will extend secured loans
to Borrower, in the aggregate amount of $700,000.00 in accordance with the terms
of secured promissory note(s) the form of which is attached hereto as Exhibit A
(the "Notes").
2. SENIOR DEBT. The Notes will be secured by all of Borrower's assets,
as more particularly described in a Security Agreement and Financing Statement
acceptable to the Lenders and the Financial Advisor, and will rank senior
(subject to application of the use of proceeds as described below) in right of
payment to all existing and future indebtedness of Borrower.
3. USE OF LOAN PROCEEDS. The proceeds from the Loan shall be used for
general corporate purposes; provided, that amounts approved by Financial Advisor
shall be used by Borrower to acquire any secured indebtedness of Borrower
outstanding on the date hereof in a manner to grant Lenders a senior security
interest in Borrower's assets.
4. CONVERSION. The Notes shall convert automatically into shares of
Borrower's common stock upon the Effective Date, as defined below, at conversion
price of $0.25 per share.
5. PURCHASE AND SALE OF STOCK. Borrower agrees to sell to purchasers
identified exclusively by the Financial Advisor an aggregate of 3,200,000 shares
of the Borrower's common stock for $0.25 per share, for an aggregate purchase
price of $800,000.00. Financial Advisor agrees to identify to Borrower (a) the
Lenders and the amount to be advanced by each Lender and (b) the purchasers of
the shares to be purchased and the number of shares to be purchased by each such
purchaser (and such other information as shall be requested by Borrower to
enable Borrower to amend its registration statement described in paragraph 8
below, so as to include such Lenders and purchasers in the registration
statement) within two business days after the date of this Agreement, and each
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Lender and Purchaser shall within three (3) business days after the date hereof
enter into a Stock Subscription Agreement (each a "Stock Subscription
Agreement," and collectively the "Stock Subscription Agreements'") with Borrower
(a) agreeing to purchase such purchaser's pro rata portion of the shares to be
sold; (b) making representations and warranties regarding such purchaser's
status and an "accredited investor" and (c) agreeing to place the full purchase
price for the shares to be purchased into the escrow no later than January 20,
2001.
6. ESCROW. The proceeds of the Loans and from the sale of the Purchase
Shares shall be delivered to Borrower through an escrow, net of all fees,
commissions and costs set forth in this Agreement. Xxxx & Xxxxx, LLP (the
"Escrow Agent") shall act as the escrow agent for the proceeds of the Loans and
the Purchase Shares. The escrowed funds shall be released to Borrower as
follows:
(a) LOAN PROCEEDS. Provided Borrower is not in default under
this Agreement or the Notes, the proceeds of the Loans shall be released to
Borrower by the Escrow Agent as follows: $400,000 less costs and fees set forth
in this Agreement, upon assignment to the Lenders of the first priority security
interest in favor of Deutsche Bank or its affiliates, which funds must be
released to Borrower by December 28, 2000, if Borrower is in compliance with
this and other provisions of this Agreement. The balance of $300,000 less fees
and costs shall be released to the Company on or before January 8, 2001.
(b) PROCEEDS OF PURCHASE SHARES. Provided Borrower is not in
default under this Agreement or the Notes the proceeds of the Purchase Shares
shall be released to Borrower upon the Effective Date.
(c) SHARES. Within five (5) days of the Financial Advisor
identifying the Lenders and the purchasers of the Purchase Shares, Borrower
shall deliver the underlying shares to the Escrow Agent for safe keeping
pursuant to the terms of this Agreement.
7. INCENTIVE WARRANTS. Borrower shall issue to the Financial Advisor or
investor relations firms designated by the Financial Advisor, a one-year warrant
to purchase one (1) share of Borrower's common stock for every eight (8) shares
of Borrower's common stock issued to the Lenders in accordance with this
Agreement (the "Warrants"). Provided this Agreement is funded in full, Borrower
will issue a total of six million shares of common stock in exchange for gross
beneficial receipts of $1,500,000 plus the Warrants which provide for the
purchase of an additional 750,000 shares. One-third of the Warrants will entitle
the holders to purchase a total of 250,000 shares of Borrower's common stock for
an exercise price of $0.30 per share; one-third of the Warrants will entitle the
holders to purchase a total of 250,000 shares of Borrower's common stock for an
exercise price of $0.50 per share; and one third of the Warrants with entitle
the holders to purchase a total of 250,000 shares of Borrower's common stock for
an exercise price of $0.75 per share. The Warrants shall be evidenced by a form
of warrant acceptable to the Financial Advisor.
8. REGISTRATION. Immediately upon execution of this Agreement and the
receipt from Financial Advisor of the names and addresses of the Lenders and
each of the purchasers of the Purchase Shares, the amount of the loan and the
number of Purchase Shares to be acquired by each such person, and such other
information as shall be required by the rules and regulations of the Securities
and Exchange Commission (including, without limitation, for each entity the name
of the natural person that exercises voting and dispositive power over the
shares to be acquired by such entity), Borrower shall amend its current Form
SB-2 Registration Statement and use its best efforts to register each of the
shares of common stock issuable in accordance with this Agreement, including:
(i) the 6,000,000 shares issuable pursuant to the conversion of the Notes and
the Purchase Shares; (ii) the 750,000 shares of Borrower's common stock
underlying the Warrants; and (iii) the 300,000 shares of Borrower's common stock
equity portion of Finders Fee, as set forth in Section 10 below, (collectively
the "Registered Shares"). Borrower shall use its best efforts to cause the
Registration Statement, which includes the Registered Shares to become effective
on or before January 15, 2001. The actual date the Registration Statement
becomes effective and the Registered Shares hereunder may be sold in accordance
with the terms of the Registration Statement is referred to as the "Effective
Date."
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9. COSTS AND FEES. The Loan funds shall be released to Borrower, net of
all costs and legal fees not to exceed $20,000.00.
10. FINDERS FEE. Borrower shall pay to the Financial Advisors or its
assigns a finders fee equal to 10% of the Loan and the Stock Purchase Amount
(the "Finders Fee"). The Finders Fee shall be payable 5% in cash, to be deducted
from the Loan and Stock Purchase proceeds upon their release from escrow, and 5%
in Borrowers common stock (300,000 shares at $0.25 per share). The Finder's Fee
shares shall also be delivered to the Escrow Agent for disbursement in
accordance with this Agreement.
11. PARTICIPATION. The Financial Advisor shall receive, as a credit
against the purchase price for the Purchase Shares, 10% of any savings Borrower
receives from any compromise or settlement of indebtedness to Deutsche Bank or
its affiliates; provided, that funds under the Loan are advanced to Borrower by
5:00 p.m., on December 28, 2000.
12. TIMING OF REGISTRATION STATEMENT. Borrower agrees that it shall not
conduct a reverse stock split or otherwise adjust its capitalization within
thirty (30) days of the Effective Date.
13. EXCLUSIVITY. The Financial Advisor shall be the exclusive advisor
for the first $1,500,00 raised by Borrower. Borrower will accept loans and
purchase subscriptions only from lenders and purchaser designated and approved
by the Financial Advisor. The Financial Advisor shall have the exclusive
authority to select the Lenders and the purchasers of the Purchase Shares.
Provided the Financial Advisor complies with the terms hereof, Borrower shall
not issue any other securities, debt or equity, prior to the Effective Date,
without the Financial Advisor's consent, which shall not be unreasonably
withheld.
14. ADDITIONAL DOCUMENTS. Borrower shall execute such additional
documents as may be required from time to time by the Financial Advisor,
including without limitation, the following:
(a) A Security Agreement;
(b) UCC-1 Financing Statement and fixture filings;
(c) A Registration Rights Agreement with standard
indemnification provisions; and
(d) An Escrow Agreement.
15. REPRESENTATIONS AND WARRANTIES OF BORROWER. Borrower hereby
represents and warrants to Lender as follows.
(a) ORGANIZATION. Borrower: (i) is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its formation; and (ii) and has all requisite power and
authority to carry on its business, to own and hold its properties and assets,
to enter into and perform this Agreement and to issue and carry out the
provisions of the Note and this Agreement.
(b) AUTHORIZATION. The execution, delivery and performance by
Borrower of this Agreement, and the issuance of the Shares, the Purchase Shares,
the Warrants and the Notes have been duly and validly authorized by Borrower's
Board of Directors and no authorization or approval of Borrower's shareholders
is required in connection therewith. This Agreement, the Warrants and the Note
constitute the legal, valid and binding obligations of Borrower and each is
enforceable against Borrower in accordance with their respective terms, except
as such enforcement may be limited by bankruptcy, insolvency and other similar
laws affecting the enforcement of creditors' rights generally.
(c) NO CONFLICT. The execution, delivery and performance by
Borrower of this Agreement, and the issuance of the Loan Shares, the Purchase
Shares and the Notes and the Warrants: (i) will not conflict with, result in a
breach of or constitute a default under any material contract, agreement,
indenture, loan or credit agreement, deed of trust, mortgage, lease, security
agreement lock-up agreement, or other arrangement to which Borrower is a party
or by which Borrower or any of its properties or assets is bound or affected;
(ii) will not cause Borrower to violate or contravene any provision of its
Certificate of Incorporation or Bylaws; or (iii) require any authorization,
consent, approval, permit, exemption or other action by or notice to any court
or administrative or governmental body, any law, statute, rule or regulation to
which Borrower is subject or any agreement, instrument, order, judgment or
decree to which Borrower is subject.
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(d) PAYMENT OF TAXES AND OTHER CHARGES. Borrower shall pay,
prior to the delinquency date, all taxes, liens, assessments and of other
Borrower's charges against Borrower or its assets, and in the event of
Borrower's failure to do so, the Lenders may at their election pay any or all of
such taxes and charge without contesting the validity or legality thereof. The
payments so made shall become part of the indebtedness secured hereunder and
shall bear interest at the same rate as provided for in the Notes.
(e) LITIGATION. There are no: (i) actions, proceedings or
investigations pending or, to Borrower's knowledge, threatened, or any verdicts
or judgments entered against Borrower, its officers or directors or shareholders
before any court or before any administrative agency or officer that might
result in any material adverse change in the business, properties or condition,
financial or otherwise, of Borrower; or (ii) violation of which would have a
material adverse effect on the business or assets of Borrower and Borrower has
received no correspondence or communications with respect to any possible
violation or investigation of the same.
(f) INSURANCE. Borrower maintains insurance coverage with
respect to its properties, assets and business, which is customary and
sufficient for corporations of similar size and engaged in similar lines of
business and is in full force and effect.
(g) REGISTRATION STATEMENT. All of the information contained
in Borrowers' Form SB-2 Registration Statement, as amended, is true, accurate
and complete in all material respects and complies with the disclosure
requirements for a registration statement under the Securities Act of 1933, as
amended (the "Act").
(h) REPORTS. All of the information contained in Borrower's
quarterly reports filed for the periods ending June 30, 2000 and September 30,
2000, are true, complete and accurate in all material respects and disclose all
the required information for the period reported on therein.
(i) FILINGS. Borrower has filed all forms, reports,
disclosures, and registration statements and made all other filings necessary or
required under the Act or the Securities and Exchange Act of 1934, as amended
(the "Exchange Act").
16. AFFIRMATIVE COVENANTS OF BORROWER. Borrower makes the following
affirmative covenants to the Lenders and the Financial Advisor, upon which each
is relying in entering into this Agreement making the Loans and purchasing the
Purchase Shares:
(a) PUBLIC FILINGS. Borrower shall make all filing with the
Securities and Exchange Commission, NASDAQ and applicable state regulatory
agencies as required under the Act and the Exchange Act and any other applicable
law.
(b) AMENDMENT OF SB-2 REGISTRATION STATEMENT. Borrowers shall
file with the Securities and Exchange Commission, the amended SB-2 Registration
Statement covering the registration of each of the shares issuable pursuant to
this Agreement within three (3) days of the date of this Agreement and shall
make all such modifications and amendments and supply all such supplemental data
as may required from time to time until the earlier of the date on which the
Registered Shares are eligible for sale under Rule 144 or the date all of the
Registered Shares are sold.
(c) COMPLETION OF MERGER. Borrower shall use its best efforts
to complete its merger with Lan Plus, in accordance with its terms.
17. DEFAULT.
(a) EVENTS OF DEFAULT. The occurrence of any of the following
events shall be an event of default under this Agreement and the Notes ("Events
of Default).
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(i) If default shall be made in the due and punctual
payment of any principal of or interest or cost under the Notes;
(ii) If the default shall be made in the due and
punctual payment, after applicable cure periods, under any material note, bond,
indenture, loan agreement, note agreement, mortgage, security agreement or other
instrument entered into by Borrower, which in the Financial Advisor's reasonable
opinion increases the risk of its repayment or increases the risk that the
Registration Statement will not become effective in a timely manner or at all,
or the Registered Shares will not be able to be readily sold;
(iii) If default shall be made in the due and
punctual performance or observance of any material non-payment term, condition
or covenant contained in this Agreement the Warrants, or the Notes and such
default continues unremedied for a period of three (3) days after written notice
to Borrower, or if any representations or warranties of Borrower contained in
this Agreement is untrue or inaccurate in any material respect as of the date on
which such representation or warranty is made;
(iv) The material breach of any warranty of Borrower
contained in this Agreement not cured within ten (10) days of written notice of
such breach;
(v) If Borrower: (A) becomes unable to pay its debts
generally as they become due; (B) files a petition in bankruptcy or a petition
to take advantage of any insolvency act or other act for the relief or aid of
debtors; (C) makes an assignment for the benefit of its creditors; (D) consents
to or acquiesces in the appointment of a receiver, liquidator or trustee of
itself or of the whole or any part of its properties and assets; (E) files a
petition or answer seeking for itself reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under the federal
bankruptcy laws or any other applicable law; (F) on a petition in bankruptcy
filed against it, is adjudicated a bankrupt; or (G) is served with a three-day
notice to quit any of its leasehold premises, which notice is not discharged or
contested in good faith by appropriate proceedings prior to the initiation of an
unlawful detainer suit against Borrower;
(vi) If a court of competent jurisdiction shall enter
an order, judgment or decree appointing, without the consent of acquiescence of
Borrower, as a receiver, liquidator or trustee of Borrower, or of the whole or
any substantial part of its properties and assets, or approving a petition filed
against it seeking reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under the federal bankruptcy laws or
any other applicable law;
(vii) If, under the provisions of any other law for
the relief or aid of debtors, any court of competent jurisdiction shall assume
custody or control of Borrower or the whole of any substantial part of its
operations and assets;
(viii) if Borrower fails to cause the Registration
Statement to be effective by February l , 2001; or in any manner impedes or
interferes with the resale of the Registered Shares; or
(ix) Borrower is de-listed from NASDAQ within 90 days
of the Effective Date.
(b) DUE AND PAYABLE. Upon the occurrences of any such event of
default, at the Lenders' option, the principal under the Notes, together with
the interest and charges accrued thereon, shall be immediately due and payable.
(c) OTHER REMEDIES. The rights, powers, and remedies granted
to the Lenders pursuant to the provisions of this Agreement shall be in addition
to all the rights, powers and remedies granted to the Lenders under the Notes,
any statute or rule of law. Any forbearance, failure or delay the by the Lenders
in exercising any right, power or remedy under this Agreement shall not be
deemed to be waiver of such right, power or remedy. Any single or partial
exercise of any right, power or remedy under this Agreement shall not preclude
the further exercise thereof, and every right, power and remedy of the Lenders
under this Agreement shall continue in full force and effect until such right,
power or remedy is specifically waived by any instrument executed by the
Lenders.
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18. CHOICE OF FORUM. Any suit, action or legal proceeding against
Borrower with respect to this Agreement, or any judgment entered by any court in
respect thereof shall be brought in the Courts of the State of California,
County of Orange and Borrower hereby submits to the exclusive jurisdiction of
such courts for the purpose of any such suit, action or proceeding. Borrower
hereby irrevocably waives any objection which it may now or hereafter have to
the laying of venue of any suit, action or proceeding arising out of or relating
to this Agreement brought in the Courts located in the State of California,
County of Orange, and hereby further irrevocably waives any claim that any such
suit, action or proceeding brought in any such Court has been brought in an
inconvenient forum.
19. ATTORNEYS' FEES. If any arbitration, litigation, action, suit or
other proceeding is instituted to remedy, prevent or obtain relief from a breach
of this Agreement, in relation to a breach of this Agreement or pertaining to a
declaration of rights under this Agreement, and prevailing party will recover
all such party's attorneys' fees incurred in each and every such action, suit or
other proceeding, including any and all appeals or petitions there from. As used
in this Agreement, attorneys' fees will be deemed to be the full and actual
costs of any legal services actually performed in connection with the matters
involved, including those related to any appeal or the enforcement of any
judgment, calculated on the basis of the usual fee charged by attorneys
performing such services, and will not be limited to "reasonable attorneys'
fees" as defined in any statute or rule of court.
20. NOTICES. Any notice to be given hereunder shall be given (except as
otherwise expressly set forth herein) by registered or certified mail, postage
prepaid, by cable, telex or facsimile, or may be delivered by hand or by
messenger and shall be deemed to have been received as follows: if given by
registered or certified mail, five business days after posting; if given by
cable, two business days after dispatch; if given by telex or facsimile, one
business day after dispatch; and if delivered by hand or by messenger and
receipted for by or on behalf of the party to whom the notice is directed, at
the time of such delivery. Any notice shall be sent to the address set forth
below or to such other address as the relevant party may notify to the other.
If to Borrower: Mcglen Internet Group, Inc.
00000 Xxxx Xxxxxx
Xxxx xx Xxxxxxxx, XX 00000
Attn: Xxxxx Xxxxxxx - CFO
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
With Copies to: O'Melveny & Xxxxx, LLP
000 Xxxxxxxx
Xxxxx 000
Xxxxxx, XX 00000
Attn: Xxxxxxx X. Xxxxxxx
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
If to Financial Advisor: Xxxxxx & Xxxxxx, Inc.
0000 Xxxxxxxx, Xxxxx 000
Xxxxxx Xxxxx, Xxxxxxxxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attn: Xxxxxxxxxxx Xxxxxx
With Copies to: Xxxx & Xxxxx, LLP
00000 XxxXxxxxx Xxxxxxxxx
Xxxxx 000
Xxxxxx, XX 00000
Attn: Xxxxxxx. X. Xxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
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22. COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be an original but all of which shall be constituted one and the
same instrument.
23. INTERPRETATION. The language in all parts of this Agreement shall
be in all cases construed simply according to its fair meaning and not strictly
for or against any party. Whenever the context requires, all words used in the
singular shall be construed to have been used in the plural and vice versa and
each gender will include any other gender. The captions of the paragraphs of
this Agreement are for convenience only and shall not affect the construction or
interpretation of any of the provisions herein.
24. MODIFICATIONS AMENDMENTS AND WAIVERS. No provision of this
Agreement or the documents referred to herein may be altered, amended, canceled,
revoked, or otherwise modified, and no addition to this Agreement may be made,
unless in writing signed by each of the parties. There can be no waiver with
respect to this Agreement of any provision of this Agreement by any party will
be, nor will it be deemed to be, a waiver of the right of any other party to
enforce strict compliance with the provisions hereof.
25. SEVERABILITY. Each provision of this Agreement is intended to be
severable and if any term or provision herein is determined invalid or
unenforceable for any reason, such illegality or invalidity will not affect the
validity of the remainder of this Agreement and, wherever possible, intent will
be given to the invalid or unenforceable provision.
26. MERGER. The terms of this Agreement and the agreements contemplated
hereby are intended by the parties as a final expression of their agreement with
respect to such terms and may not be contradicted by evidence of any prior
agreement or contemporaneous oral agreement, and this agreement and the
agreements referenced herein constitute the complete and exclusive statement of
its terms and no extrinsic evidence whatsoever may be introduced in any judicial
or arbitration proceeding, if any, involving this Agreement.
27. TERMINATION. This Agreement shall terminate and be of no further
force and effect, and all of Borrower's obligations hereunder shall terminate,
if (a) the Financial Advisor fails to identify to Borrower the Lenders and
purchasers hereunder within the five (5) business days of the date hereof, (b)
the Lenders and purchasers fail to execute and deliver to Borrower the
Subscription Agreements within five (5) business days after the date hereof, or
(c) the Escrow Agent has not confirmed to Borrower, in writing, that it has
received an aggregate of $500,000 from the Lenders by December 27, 2000.
28. MISCELLANEOUS. The recitals and all exhibits, attachments or other
documents referenced in this Agreement are fully incorporated into this
Agreement by reference. Unless expressly set forth otherwise herein, all
references herein to a "day, month or year" will be deemed to be a reference to
a calendar day, month or year, as the case may be. Unless expressly set forth
otherwise herein, all cross-references herein will refer to provisions within
this Agreement, and will not be deemed to be references to the overall
transaction or to any other agreement or documents.
IN WITNESS WHEREOF, this Agreement is entered into by the parties as of
the date set forth above.
"BORROWER"
MCGLEN INTERNET GROUP, INC.,
a Delaware corporation.
By: /s/ Xxxxx Xxxxxxx
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Its: Chief Financial Officer
By: /s/ Xxxx Xxxx
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Its: President and Secretary
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"FINANCIAL ADVISOR"
XXXXXX & XXXXXX, INC.,
a California corporation.
By: /s/ Xxxxxxxxxxx Xxxxxx
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Xxxxxxxxxxx Xxxxxx, CEO
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