EXHIBIT NO. 10.33
LOAN AGREEMENT
BETWEEN
AQUIS COMMUNICATIONS GROUP, INC.
AND
THE LENDERS SIGNATORY HERETO
LOAN AGREEMENT dated as of March 31, 2000 (the "Agreement"), between
the Lenders signatory hereto (each a "Lender" and together the "Lenders"), and
Aquis Communications Group, Inc., a corporation organized and existing under the
laws of the State of Delaware (the "Company").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall borrow from the Lenders, and the
Lenders shall lend to the Company in the aggregate, (i) $2,000,000 in exchange
for the Company's 11% Convertible Debentures (as defined below) and (ii)
Warrants (as defined below) to purchase shares of the Common Stock (as defined
below) as described herein;
WHEREAS, such investments will be made in reliance upon the provisions
of Section 4(2) ("Section 4(2)") and/or 4(6) of the United States Securities Act
of 1933 and/or Regulation D ("Regulation D") and the other rules and regulations
promulgated thereunder (the "Securities Act"), and/or upon such other exemption
from the registration requirements of the Securities Act as may be available
with respect to any or all of the investments in securities to be made
hereunder;
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1. "CAPITAL SHARES" shall mean the Common Stock and any shares of
any other class of common stock whether now or hereafter authorized, having the
right to participate in the distribution of earnings and assets of the Company.
Section 1.2. "CAPITAL SHARES EQUIVALENTS" shall mean any securities,
rights, or obligations that are convertible into or exchangeable for or give any
right to subscribe for any Capital Shares of the Company or any Warrants,
options or other rights to subscribe for or purchase Capital Shares or any such
convertible or exchangeable securities.
Section 1.3. "CLOSING" shall mean the closing of the purchase and sale of
the Convertible Debentures and Warrants pursuant to Section 2.1.
Section 1.4. "CLOSING DATE" shall mean the date on which all conditions to
the Closing have been satisfied (as defined in Section 2.1 (b) hereto) and the
Closing shall have occurred.
Section 1.5. "COMMON STOCK" shall mean the Company's common stock, $0.01
par value per share.
Section 1.6. "CONVERSION SHARES" shall mean the shares of Common Stock
issuable upon conversion of the Convertible Debentures.
Section 1.7. "CONVERTIBLE DEBENTURES" shall mean the Company's 11%
Convertible Debentures in the form of EXHIBIT A hereto.
Section 1.8. "DAMAGES" shall mean any loss, claim, damage, judgment,
penalty, deficiency, liability, costs and expenses (including, without
limitation, reasonable attorney's fees and disbursements and reasonable costs
and expenses of expert witnesses and investigation).
Section 1.9. "EFFECTIVE DATE" shall mean the date on which the SEC first
declares effective a Registration Statement registering the resale of the
Registrable Securities as set forth in the Registration Rights Agreement.
Section 1.10. "ESCROW AGENT" shall have the meaning set forth in the Escrow
Agreement.
Section 1.11. "ESCROW AGREEMENT" shall mean the Escrow Agreement in
substantially the form of EXHIBIT D hereto executed and delivered
contemporaneously with this Agreement.
Section 1.12. "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934,
as amended, and the rules and regulations promulgated thereunder.
Section 1.13. "LEGEND" shall mean the legend set forth in Section 9.1.
Section 1.14. "MARKET PRICE" on any given date shall mean the average of the
five (5) lowest closing bid prices on the Principal Market (as reported by
Bloomberg L.P.) of the Common Stock during the twenty-two Trading Day period
ending on the Trading Day immediately prior to the date for which the Market
Price is to be determined.
Section 1.15. "MATERIAL ADVERSE EFFECT" shall mean any effect on the
business, operations, properties, prospects, stock price or financial condition
of the Company that is material and adverse to the Company and its subsidiaries
and affiliates, taken as a whole, and/or any condition, circumstance, or
situation that would prohibit or otherwise interfere with the ability of the
Company to enter into and perform any of its obligations under this Agreement,
the Registration Rights Agreement, the Escrow Agreement, the Convertible
Debentures or the Warrants in any material respect.
Section 1.16. "OUTSTANDING" when used with reference to shares of Common
Stock or Capital Shares (collectively the "Shares"), shall mean, at any date as
of which the number of such Shares is to be determined, all issued and
outstanding Shares, and shall include all such Shares issuable in respect of
outstanding scrip or any certificates representing fractional interests in such
Shares;
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PROVIDED, HOWEVER, that "Outstanding" shall not mean any such Shares then
directly or indirectly owned or held by or for the account of the Company.
Section 1.17. "PERSON" shall mean an individual, a corporation, a
partnership, a limited liability company, an association, a trust or other
entity or organization, including a government or political subdivision or an
agency or instrumentality thereof.
Section 1.18. "PRINCIPAL MARKET" shall mean the American Stock Exchange, the
New York Stock Exchange, the NASDAQ National Market, or the NASDAQ Small-Cap
Market or the OTC Bulletin Board, whichever is at the time the principal trading
exchange or market for the Common Stock, based upon share volume.
Section 1.19. "PURCHASE PRICE" shall mean the principal amount of the
Convertible Debentures.
Section 1.20. "REGISTRABLE SECURITIES" shall mean the Conversion Shares and
the Warrant Shares until (i) the Registration Statement has been declared
effective by the SEC, and all Conversion Shares and Warrant Shares have been
disposed of pursuant to the Registration Statement, (ii) all Conversion Shares
and Warrant Shares have been sold under circumstances under which all of the
applicable conditions of Rule 144 (or any similar provision then in force) under
the Securities Act ("Rule 144") are met, (iii) all Conversion Shares and Warrant
Shares have been otherwise transferred to holders who may trade such shares
without restriction under the Securities Act, and the Company has delivered a
new certificate or other evidence of ownership for such securities not bearing a
restrictive legend or (iv) such time as, in the opinion of counsel to the
Company, all Conversion Shares and Warrant Shares may be sold without any time,
volume or manner limitations pursuant to Rule 144(k) (or any similar provision
then in effect) under the Securities Act.
Section 1.21. "REGISTRATION RIGHTS AGREEMENT" shall mean the agreement
regarding the filing of the Registration Statement for the resale of the
Registrable Securities, entered into between the Company and the Lenders as of
the Closing Date in the form annexed hereto as EXHIBIT C.
Section 1.22. "REGISTRATION STATEMENT" shall mean a registration statement
on Form S-3 (if use of such form is then available to the Company pursuant to
the rules of the SEC and, if not, on such other form promulgated by the SEC for
which the Company then qualifies and which counsel for the Company shall deem
appropriate, and which form shall be available for the resale by the Lenders of
the Registrable Securities to be registered thereunder in accordance with the
provisions of this Agreement, the Registration Rights Agreement and in
accordance with the intended method of distribution of such securities), for the
registration of the resale by the Lender of the Registrable Securities under the
Securities Act.
Section 1.23. "REGULATION D" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.24. "SEC" shall mean the Securities and Exchange Commission.
Section 1.25. "SECTION 4(2)" and "SECTION 4(6)" shall have the meanings set
forth in the recitals of this Agreement.
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Section 1.26. "SECURITIES ACT" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.27. "SEC DOCUMENTS" shall mean the Company's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1998, the draft Annual Report on
Form 10-K, for the fiscal year ended December 31, 1999 in the form provided to
the Lenders, and each report, proxy statement or registration statement filed by
the Company with the SEC pursuant to the Exchange Act or the Securities Act
since the filing of the Annual Report for the fiscal year ended December 31,
1998 through the date hereof.
Section 1.28. "SHARES" shall have the meaning set forth in Section 1.16.
Section 1.29. "TRADING DAY" shall mean any day during which the Principal
Market shall be open for business.
Section 1.30. "WARRANTS" shall mean the Warrants substantially in the form
of EXHIBIT B to be issued to the Lenders hereunder.
Section 1.31. "WARRANT SHARES" shall mean all shares of Common Stock
or other securities issued or issuable pursuant to exercise of the Warrants.
ARTICLE II
PURCHASE AND SALE OF CONVERTIBLE DEBENTURES AND WARRANTS
Section 2.1. INVESTMENT.
(a) Upon the terms and subject to the conditions set forth herein,
the Company agrees to sell, and the Lenders agree to purchase the Convertible
Debentures together with the Warrants at the Purchase Price on the Closing Date
as follows:
(i) Upon execution and delivery of this Agreement, each
Lender shall deliver to the Escrow Agent immediately
available funds in their proportionate amount of the
Purchase Price as set forth on the signature pages
hereto, and the Company shall deliver the Convertible
Debentures and the Warrants to the Escrow Agent, in
each case to be held by the Escrow Agent pursuant to
the Escrow Agreement.
(ii) Upon satisfaction of the conditions set forth in
Section 2.1(b), the Closing ("Closing") shall occur
at the offices of the Escrow Agent at which the
Escrow Agent (x) shall release the Convertible
Debentures and the Warrants to the Lenders and (y)
shall release the Purchase Price (after all fees have
been paid as set forth in the Escrow Agreement),
pursuant to the terms of the Escrow Agreement.
(b) The Closing is subject to the satisfaction or waiver by the
party sought to be benefited thereby of the following conditions:
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(i) acceptance and execution by the Company and by the
Lenders, of this Agreement and all Exhibits hereto;
(ii) delivery into escrow by each Lender of immediately
available funds in the amount of the Purchase Price
of the Convertible Debentures and the Warrants, as
more fully set forth in the Escrow Agreement;
(iii) all representations and warranties of the Lenders
contained herein shall remain true and correct as of
the Closing Date (as a condition to the Company's
obligations);
(iv) all representations and warranties of the Company
contained herein shall remain true and correct as of
the Closing Date (as a condition to the Lenders'
obligations);
(v) the Company shall have obtained all permits and
qualifications required by any state for the offer
and sale of the Convertible Debentures and Warrants,
or shall have the availability of exemptions
therefrom;
(vi) the sale and issuance of the Convertible Debentures
and the Warrants hereunder, and the proposed issuance
by the Company to the Lenders of the Common Stock
underlying the Convertible Debentures and the
Warrants upon the conversion or exercise thereof
shall be legally permitted by all laws and
regulations to which the Lenders and the Company are
subject and there shall be no ruling, judgment or
writ of any court prohibiting the transactions
contemplated by this Agreement;
(vii) delivery of the original fully executed Convertible
Debentures and Warrants certificates to the Escrow
Agent;
(viii) delivery to the Escrow Agent of an opinion of
Xxxxxxxx Xxxxxxxxx Professional Corporation, counsel
to the Company, in the form of EXHIBIT E hereto;
(ix) delivery to the Escrow Agent of the Irrevocable
Instructions to Transfer Agent in the form attached
hereto as EXHIBIT F;
(x) delivery to the Escrow Agent of the Registration
Rights Agreement; and
(xi) The Company shall have entered into an equity
financing arrangement acceptable for up to Twenty
Million Dollars ($20,000,000) arranged through
Ladenburg Xxxxxxxx & Co. Inc. or other equity
financing agreement approved by all of the Lenders
within thirty (30) days of the Closing Date.
Section 2.2. THE WARRANTS. The number of Warrants to be issued shall equal
one-half of (i) the principal amount of the Convertible Debentures issued at
Closing divided by (ii) the Market
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Price on the Trading Day immediately prior to the Closing Date. The exercise
price of such Warrants shall be 115% of the closing bid price for the Common
Stock on the Principal Market on the Trading Day immediately prior to the
Closing Date. Two-thirds of the Warrants shall be immediately exercisable upon
issuance. The remaining one-third of each Lender's Warrants shall only become
exercisable if the Convertible Debentures have not been redeemed in accordance
with their terms on or before the 100th day after the Closing Date.
Section 2.3. LIQUIDATED DAMAGES. The parties hereto acknowledge and agree
that the sums payable pursuant to the Registration Rights Agreement shall
constitute liquidated damages and not penalties. The parties further acknowledge
that (a) the amount of loss or damages likely to be incurred is incapable or is
difficult to precisely estimate, (b) the amounts specified in such Registration
Rights Agreement bear a reasonable proportion and are not plainly or grossly
disproportionate to the probable loss likely to be incurred by the Lenders in
connection with the failure by the Company to timely cause the registration of
the Registrable Securities and (c) the parties are sophisticated business
parties and have been represented by sophisticated and able legal and financial
counsel and negotiated this Agreement at arm's length.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF LENDERS
Each Lender, severally and not jointly, represents and warrants to the Company
that:
Section 3.1. INTENT. The Lender is entering into this Agreement for its own
account and not with a view to or for sale in connection with any distribution
of the Convertible Debentures, the Warrants or the Conversion Shares. The Lender
has no present arrangement (whether or not legally binding) at any time to sell
the Convertible Debentures, the Warrants, any Conversion Shares or Warrant
Shares to or through any person or entity; provided, however, that by making the
representations herein, the Lender does not agree to hold such securities for
any minimum or other specific term and reserves the right to dispose of the
Conversion Shares and Warrant Shares at any time in accordance with Federal and
state securities laws applicable to such disposition.
Section 3.2. SOPHISTICATED LENDER. The Lender is a sophisticated investor
(as described in Rule 506(b)(2)(ii) of Regulation D) and an accredited investor
(as defined in Rule 501 of Regulation D), and Lender has such experience in
business and financial matters that it has the capacity to protect its own
interests in connection with this transaction and is capable of evaluating the
merits and risks of an investment in the Convertible Debentures, the Warrants
and the underlying Common Stock. The Lender acknowledges that an investment in
the Convertible Debentures, the Warrants and the underlying Common Stock is
speculative and involves a high degree of risk.
Section 3.3. AUTHORITY. This Agreement and each agreement attached as an
Exhibit hereto which is required to be executed by Lender has been duly
authorized and validly executed and delivered by the Lender and is a valid and
binding agreement of the Lender enforceable against it in accordance with its
terms, subject to applicable bankruptcy, insolvency, or similar laws
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relating to, or affecting generally the enforcement of, creditors' rights and
remedies or by other equitable principles of general application.
Section 3.4. NOT AN AFFILIATE. The Lender is not an officer, director or
"affiliate" (as that term is defined in Rule 405 of the Securities Act) of the
Company.
Section 3.5. ABSENCE OF CONFLICTS. The execution and delivery of this
Agreement and each agreement which is attached as an Exhibit hereto and executed
by the Lender in connection herewith, and the consummation of the transactions
contemplated hereby and thereby, and compliance with the requirements hereof and
thereof by the Lender, will not violate any law, rule, regulation, order, writ,
judgment, injunction, decree or award binding on Lender or (a) violate any
provision of any indenture, instrument or agreement to which Lender is a party
or is subject, or by which Lender or any of its assets is bound; (b) conflict
with or constitute a material default thereunder; (c) result in the creation or
imposition of any lien pursuant to the terms of any such indenture, instrument
or agreement, or constitute a breach of any fiduciary duty owed by Lender to any
third party; or (d) require the approval of any third-party (which has not been
obtained) pursuant to any material contract, agreement, instrument, relationship
or legal obligation to which Lender is subject or to which any of its assets,
operations or management may be subject.
Section 3.6. DISCLOSURE; ACCESS TO INFORMATION. The Lender has received all
documents, records, books and other publicly available information pertaining to
Lender's investment in the Company that have been requested by the Lender. The
Company is subject to the periodic reporting requirements of the Exchange Act,
and the Lender has reviewed copies of all SEC Documents deemed relevant by
Lender.
Section 3.7. MANNER OF SALE. At no time was Lender presented with or
solicited by or through any leaflet, public promotional meeting, television
advertisement or any other form of general solicitation or advertising.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and Warrants to the Lenders that, except as set forth on
the Disclosure Schedule prepared by the Company and attached hereto:
Section 4.1. ORGANIZATION OF THE COMPANY. The Company is a corporation duly
incorporated and existing in good standing under the laws of the State of
Delaware and has all requisite corporate authority to own its properties and to
carry on its business as now being conducted. 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.
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Section 4.2. AUTHORITY. (i) The Company has the requisite corporate power
and corporate authority to enter into and perform its obligations under this
Agreement, the Registration Rights Agreement, the Escrow Agreement, and the
Warrants and to issue the Convertible Debentures, the Conversion Shares, the
Warrants and the Warrant Shares pursuant to their respective terms, (ii) the
execution, issuance and delivery of this Agreement, the Registration Rights
Agreement, the Escrow Agreement, the Convertible Debentures, the Convertible
Debentures and the Warrants by the Company and the consummation by it of the
transactions contemplated hereby and 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, and (iii) this
Agreement, the Registration Rights Agreement, the Escrow Agreement, the
Convertible Debentures and the Warrants have been duly executed and delivered by
the Company and at the Closing shall constitute valid and binding obligations of
the Company enforceable against the Company in accordance with their terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, or similar laws relating to, or affecting generally the enforcement
of, creditors' rights and remedies or by other equitable principles of general
application. The Company has duly and validly authorized and reserved for
issuance shares of Common Stock sufficient in number for the conversion of the
Convertible Debentures and for the exercise of the Warrants. The Company
understands and acknowledges the potentially dilutive effect to the Common Stock
of the issuance of the Conversion Shares. The Company further acknowledges that
its obligation to issue Conversion Shares upon conversion of the Convertible
Debentures and Warrant Shares upon exercise of the Warrants in accordance with
this Agreement and the Convertible Debentures is absolute and unconditional
regardless of the dilutive effect that such issuance may have on the ownership
interests of other stockholders of the Company and notwithstanding the
commencement of any case under 11 U.S.C. Section 101 et seq. (the "Bankruptcy
Code"). The Company shall not seek judicial relief from its obligations
hereunder except pursuant to the Bankruptcy Code. In the event the Company is a
debtor under the Bankruptcy Code, the Company hereby waives to the fullest
extent permitted any rights to relief it may have under 11 U.S.C. Section 362 in
respect of the conversion of the Convertible Debentures and the exercise of the
Warrants. The Company agrees, without cost or expense to the Lenders, to take or
consent to any and all action necessary to effectuate relief under 11 U.S.C.
Section 362.
Section 4.3. CAPITALIZATION. The authorized capital stock of the Company
consists of 75,000,000 shares of Common Stock, $0.01 par value per share, of
which 16,371,000 shares are issued and outstanding as of March 31, 2000 and
1,000,000 shares of preferred stock, $0.01 par value per share, of which 100,000
shares, designated as 7-1/2% Redeemable Preferred Stock, are issued and
outstanding as of March 31, 2000. Except as set forth in the SEC Documents and
as set forth in the Disclosure Schedule, there are no outstanding Capital Shares
Equivalents nor any agreements or understandings pursuant to which any Capital
Shares Equivalents may become outstanding. The Company is not a party to any
agreement granting registration or anti-dilution rights to any person with
respect to any of its equity or debt securities. All of the outstanding shares
of Common Stock and Preferred Stock of the Company have been duly and validly
authorized and issued and are fully paid and non-assessable.
Section 4.4. COMMON STOCK. The Company has registered its Common Stock
pursuant to Section 12(b) or (g) of the Exchange Act and is in full compliance
with all reporting requirements of the Exchange Act, and the Company is in
compliance with all requirements for
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the continued listing or quotation of its Common Stock, and such Common Stock is
currently listed or quoted on, the Principal Market. As of the date hereof, the
Principal Market is the NASDAQ Small-Cap Market and the Company has not received
any notice regarding, and to its knowledge there is no threat, of the
termination or discontinuance of the eligibility of the Common Stock for such
listing.
Section 4.5. SEC DOCUMENTS. The Company has made available to the Lenders
true and complete copies of the SEC Documents. Except for the information
contained in the draft Annual Report on Form 10-K for the fiscal year ended
December 31, 1999, the Company has not provided to the Lenders any information
that, according to applicable law, rule or regulation, should have been
disclosed publicly prior to the date hereof by the Company, but which has not
been so disclosed. As of their respective dates, the SEC Documents complied in
all material respects with the requirements of the Exchange Act, and rules and
regulations of the SEC promulgated thereunder and the SEC Documents did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the SEC
Documents complied in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC or other
applicable rules and regulations with respect thereto at the time of such
inclusion. Such financial statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto or (ii) in the case of unaudited interim
statements, to the extent they exclude footnotes or may be condensed or summary
statements) and fairly present in all material respects the financial position
of the Company as of the dates thereof and the results of operations and cash
flows for the periods then ended (subject, in the case of unaudited interim
statements, to normal year-end audit adjustments). Neither the Company nor any
of its subsidiaries has any material indebtedness, obligations or liabilities of
any kind (whether accrued, absolute, contingent or otherwise, and whether due or
to become due) that would have been required to be reflected in, reserved
against or otherwise described in the financial statements or in the notes
thereto in accordance with GAAP, which was not fully reflected in, reserved
against or otherwise described in the financial statements or the notes thereto
included in the SEC Documents or was not incurred in the ordinary course of
business consistent with the Company's past practices since the last date of
such financial statements.
Section 4.6. EXEMPTION FROM REGISTRATION; VALID ISSUANCES. Subject to the
accuracy of the Lenders' representations in Article III, the sale of the
Convertible Debentures, the Conversion Shares, the Warrants and the Warrant
Shares will not require registration under the Securities Act and/or any
applicable state securities law. When issued and paid for in accordance with the
Warrants and validly converted in accordance with the terms of the Convertible
Debentures, the Conversion Shares and the Warrant Shares will be duly and
validly issued, fully paid, and non-assessable. Neither the sales of the
Convertible Debentures, the Conversion Shares, the Warrants or the Warrant
Shares pursuant to, nor the Company's performance of its obligations under, this
Agreement, the Registration Rights Agreement, the Escrow Agreement, the
Convertible Debentures or the Warrants will (i) result in the creation or
imposition by the Company of any liens, charges, claims or other encumbrances
upon the Convertible Debentures, the Conversion Shares, the Warrants or the
Warrant Shares or, except as contemplated herein, any of the assets
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of the Company, or (ii) entitle the holders of Outstanding Capital Shares to
preemptive or other rights to subscribe for or acquire the Capital Shares or
other securities of the Company. The Convertible Debentures, the Conversion
Shares, the Warrants and the Warrant Shares shall not subject the Lenders to
personal liability to the Company or its creditors by reason of the possession
thereof.
Section 4.7. NO GENERAL SOLICITATION OR ADVERTISING IN REGARD TO THIS
TRANSACTION. Neither the Company nor any of its affiliates nor, to the knowledge
of the Company, any person acting on its or their behalf (i) has conducted or
will conduct any general solicitation (as that term is used in Rule 502(c) of
Regulation D) or general advertising with respect to the sale of the Convertible
Debentures or the Warrants, or (ii) made any offers or sales of any security or
solicited any offers to buy any security under any circumstances that would
require registration of the Convertible Debentures, the Conversion Shares, the
Warrants or the Warrant Shares under the Securities Act.
Section 4.8. NO CONFLICTS. The execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby, including without limitation the issuance of and payment of
interest upon the Convertible Debentures, the Conversion Shares, the Warrants
and the Warrant Shares, do not and will not (i) result in a violation of the
Company's Certificate of Incorporation or By-Laws or (ii) conflict with, or
constitute a material default (or an event that with notice or lapse of time or
both would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any material agreement, indenture or
instrument, or any "lock-up" or similar provision of any underwriting or similar
agreement to which the Company is a party, or (iii) result in a violation of any
Federal, state or local law, rule, regulation, order, judgment or decree
(including Federal and state securities laws and regulations) applicable to the
Company or by which any material property or asset of the Company is bound or
affected, nor is the Company otherwise in violation of, conflict with or default
under any of the foregoing (except in each case for such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations as would
not have, individually or in the aggregate, a Material Adverse Effect). The
business of the Company is not being conducted in violation of any law,
ordinance or regulation of any governmental entity, except for possible
violations that either singly or in the aggregate would not have a Material
Adverse Effect. The Company is not required under any Federal, state or local
law, rule or regulation to obtain any consent, authorization or order of, or
make any filing or registration with, any court or governmental agency in order
for it to execute, deliver or perform any of its obligations under this
Agreement or issue and sell the Convertible Debentures or the Warrants in
accordance with the terms hereof (other than any SEC, Principal Market or state
securities filings that may be required to be made by the Company subsequent to
Closing, any registration statement that may be filed pursuant hereto, and any
shareholder approval required by the rules applicable to companies whose common
stock trades on the Principal Market); provided that, for purposes of the
representation made in this sentence, the Company is assuming and relying upon
the accuracy of the relevant representations and agreements of the Lenders
herein.
Section 4.9. NO MATERIAL ADVERSE CHANGE. Since December 31, 1999, no
Material Adverse Effect has occurred or exists with respect to the Company,
except as disclosed in the SEC Documents.
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Section 4.10. NO UNDISCLOSED EVENTS OR CIRCUMSTANCES. Since December 31,
1999, no event or circumstance has occurred or exists with respect to the
Company or its businesses, properties, prospects, operations or financial
condition, that, under applicable law, rule or regulation, requires public
disclosure or announcement prior to the date hereof by the Company but which has
not been so publicly announced or disclosed in the SEC Documents.
Section 4.11. INTEGRATED OFFERING. Other than pursuant to an effective
registration statement under the Securities Act, or pursuant to the issuance or
exercise of employee stock options, or pursuant to its discussion with the
Lenders in connection with the transactions contemplated hereby, the Company has
not issued, offered or sold the Convertible Debentures, the Warrants or any
shares of Common Stock (including for this purpose any securities of the same or
a similar class as the Convertible Debentures, the Warrants or Common Stock, or
any securities convertible into a exchangeable or exercisable for the
Convertible Debentures or Common Stock or any such other securities) within the
six-month period next preceding the date hereof, and the Company shall not
permit any of its directors, officers or affiliates directly or indirectly to
take, any action (including, without limitation, any offering or sale to any
Person of the Convertible Debentures, Warrants or shares of Common Stock), so as
to make unavailable the exemption from Securities Act registration being relied
upon by the Company for the offer and sale to Lenders of the Convertible
Debentures (and the Conversion Shares) or the Warrants (and the Warrant Shares)
as contemplated by this Agreement.
Section 4.12. LITIGATION AND OTHER PROCEEDINGS. Except as disclosed in the
SEC Documents, there are no lawsuits or proceedings pending or, to the knowledge
of the Company, threatened, against the Company or any subsidiary, nor has the
Company received any written or oral notice of any such action, suit, proceeding
or investigation, which could reasonably be expected to have a Material Adverse
Effect. Except as set forth in the SEC Documents, no judgment, order, writ,
injunction or decree or award has been issued by or, to the knowledge of the
Company, requested of any court, arbitrator or governmental agency which could
result in a Material Adverse Effect.
Section 4.13. NO MISLEADING OR UNTRUE COMMUNICATION. The Company and, to the
knowledge of the Company, any person representing the Company, or any other
person selling or offering to sell the Convertible Debentures or the Warrants in
connection with the transaction contemplated by this Agreement, have not made,
at any time, any oral communication in connection with the offer or sale of the
same which contained any untrue statement of a material fact or omitted to state
any material fact necessary in order to make the statements, in the light of the
circumstances under which they were made, not misleading.
Section 4.14. MATERIAL NON-PUBLIC INFORMATION. Except for the information
contained in the draft Annual Report on Form 10-K for the fiscal year ended
December 31, 1999, the Company has not disclosed to the Lenders any material
non-public information that (i) if disclosed, would reasonably be expected to
have a material effect on the price of the Common Stock or (ii) according to
applicable law, rule or regulation, should have been disclosed publicly by the
Company prior to the date hereof but which has not been so disclosed.
Section 4.15. INSURANCE. The Company and each subsidiary maintains property
and casualty, general liability, workers' compensation, environmental hazard,
personal injury and other similar types of insurance with financially sound and
reputable insurers that is adequate, consistent with
11
industry standards and the Company's historical claims experience. The Company
has not received notice from, and has no knowledge of any threat by, any insurer
(that has issued any insurance policy to the Company) that such insurer intends
to deny coverage under or cancel, discontinue or not renew any insurance policy
presently in force.
Section 4.16. TAX MATTERS.
(a) 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.
(b) No claim has been made 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 Section 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 Section 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 Section 897(c)(2) of the
Internal Revenue Code during the applicable period specified in Section
897(c)(1)(A)(ii) of the Internal Revenue Code.
(c) The Company has not made an election under Section 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. Section
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
Section 280G of the Internal Revenue Code.
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(d) For purposes of this Section 4.16:
"IRS" means the United States Internal Revenue Service.
"TAX" or "TAXES" means Federal, state, county, local, foreign,
or other income, gross receipts, ad valorem, franchise,
profits, sales or use, transfer, registration, excise,
utility, environmental, communications, real or personal
property, capital stock, license, payroll, wage or other
withholding, employment, social security, severance, stamp,
occupation, alternative or add-on minimum, estimated and other
taxes of any kind whatsoever (including, without limitation,
deficiencies, penalties, additions to tax, and interest
attributable thereto) whether disputed or not.
"TAX RETURN" means any return, information report or filing
with respect to Taxes, including any schedules attached
thereto and including any amendment thereof.
Section 1.17. PROPERTY. Neither the Company nor any of its subsidiaries owns
any real property. Each of the Company and its subsidiaries has good and
marketable title to all personal property owned by it, free and clear of all
liens, encumbrances and defects except such as do not materially affect the
value of such property and do not materially interfere with the use made and
proposed to be made of such property by the Company; and to the Company's
knowledge any real property, mineral or water rights, and buildings held under
lease by the Company as tenant are held by it under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and intended to be made of such property, mineral or water
rights, and buildings by the Company.
Section 4.18. INTELLECTUAL PROPERTY. Each of the Company and its
subsidiaries owns or possesses adequate and enforceable rights to use all
patents, patent applications, trademarks, trademark applications, trade names,
service marks, copyrights, copyright applications, licenses, know-how (including
trade secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures) and other similar rights and
proprietary knowledge (collectively, "Intangibles") necessary for the conduct of
its business as now being conducted. To the Company's knowledge, except as
disclosed in the SEC Documents neither the Company nor any of its subsidiaries
is infringing upon or in conflict with any right of any other person with
respect to any Intangibles. Except as disclosed in the SEC Documents, no adverse
claims have been asserted by any person to the ownership or use of any
Intangibles and the Company has no knowledge of any basis for such claim.
Section 4.19. INTERNAL CONTROLS AND PROCEDURES. The Company maintains books
and records and internal accounting controls which provide reasonable assurance
that (i) all transactions to which the Company or any subsidiary is a party or
by which its properties are bound are executed with management's authorization;
(ii) the recorded accounting of the Company's consolidated assets is compared
with existing assets at regular intervals; (iii) access to the Company's
consolidated assets is permitted only in accordance with management's
authorization; and (iv) all transactions to which the Company or any subsidiary
is a party or by which its properties are bound are recorded as necessary to
permit preparation of the financial statements of the Company in accordance with
U.S. generally accepted accounting principles.
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Section 4.20. PAYMENTS AND CONTRIBUTIONS. Neither the Company, any
subsidiary, nor any of its directors, officers or, to its knowledge, other
employees has (i) used any Company funds for any unlawful contribution,
endorsement, gift, entertainment or other unlawful expense relating to political
activity; (ii) made any direct or indirect unlawful payment of Company funds to
any foreign or domestic government official or employee; (iii) violated or is in
violation of any provision of the Foreign Corrupt Practices Act of 1977, as
amended; or (iv) made any bribe, rebate, payoff, influence payment, kickback or
other similar payment to any person with respect to Company matters.
Section 4.21. NO MISREPRESENTATION. The representations and warranties of
the Company contained in this Agreement, any schedule, annex or exhibit hereto
and any agreement, instrument or certificate furnished by the Company to the
Lenders pursuant to this Agreement, do not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
ARTICLE V
COVENANTS OF THE LENDERS
Each Lender, severally and not jointly, covenants with the Company
that:
Section 5.1. COMPLIANCE WITH LAW. The Lender's trading activities with
respect to shares of the Company's Common Stock will be in compliance with all
applicable state and Federal securities laws, rules and regulations and rules
and regulations of the Principal Market on which the Company's Common Stock is
listed.
ARTICLE VI
COVENANTS OF THE COMPANY
Section 6.1. REGISTRATION RIGHTS. The Company shall cause the Registration
Rights Agreement to remain in full force and effect and the Company shall comply
in all material respects with the terms thereof.
Section 6.2. RESERVATION OF COMMON STOCK. As of the date hereof, the
Company has reserved and the Company shall continue to reserve and keep
available at all times, free of preemptive rights, shares of Common Stock for
the purpose of enabling the Company to issue the Conversion Shares and the
Warrant Shares pursuant to any conversion of the Convertible Debentures or
exercise of the Warrants. The number of shares so reserved from time to time, as
theretofore increased or reduced as hereinafter provided, may be reduced by the
number of shares actually delivered pursuant to any conversion of the
Convertible Debentures or exercise of the Warrants and the number of shares so
reserved shall be increased or decreased to reflect potential increases or
decreases in the Common Stock that the Company may thereafter be obligated to
issue by reason of adjustments to the Warrants.
14
Section 6.3. LISTING OF COMMON STOCK. The Company hereby agrees to maintain
the listing of the Common Stock on a Principal Market, and as soon as reasonably
practicable following the Closing to list the Conversion Shares and the Warrant
Shares on the Principal Market, if required. The Company further agrees, if the
Company applies to have the Common Stock traded on any other Principal Market,
it will include in such application the Conversion Shares and the Warrant
Shares, and will take such other action as is necessary or desirable in the
opinion of the Lenders to cause the Conversion Shares and Warrant Shares to be
listed on such other Principal Market as promptly as possible. The Company will
take all action to continue the listing and trading of its Common Stock on a
Principal Market and will comply in all respects with the Company's reporting,
filing and other obligations under the bylaws or rules of the Principal Market
and shall provide Lenders with copies of any correspondence to or from such
Principal Market which questions or threatens delisting of the Common Stock,
within three (3) Trading Days of the Company's receipt thereof, until the
Lenders have disposed of all of their Registrable Securities.
Section 6.4. EXCHANGE ACT REGISTRATION. The Company will cause its Common
Stock to continue to be registered under Section 12(b) or (g) of the Exchange
Act, will use its best efforts to comply in all respects with its reporting and
filing obligations under the Exchange Act, and will not take any action or file
any document (whether or not permitted by the Exchange Act or the rules
thereunder) to terminate or suspend such registration or to terminate or suspend
its reporting and filing obligations under said Act until the Lenders have
disposed of all of their Registrable Securities.
Section 6.5. LEGENDS. The certificates evidencing the Registrable
Securities shall be free of legends, except as set forth in Article IX.
Section 6.6. CORPORATE EXISTENCE; CONFLICTING AGREEMENTS. The Company will
take all steps necessary to preserve and continue the corporate existence of the
Company. The Company shall not enter into any agreement, the terms of which
agreement would restrict or impair the right or ability of the Company to
perform any of its obligations under this Agreement or any of the other
agreements attached as exhibits hereto or under the Convertible Debentures.
Section 6.7. CONSOLIDATION; MERGER. The Company shall not, at any time
after the date hereof, effect any merger or consolidation of the Company with or
into, or a transfer of all or substantially all of the assets of the Company to,
another entity (a "Consolidation Event") unless the resulting successor or
acquiring entity (if not the Company) assumes by written instrument or by
operation of law the obligations of the Company to the Lenders pursuant to this
Agreement and the Convertible Debentures.
Section 6.8. ISSUANCE OF CONVERTIBLE DEBENTURES AND WARRANT SHARES. The
sale of the Convertible Debentures and the Warrants and the issuance of the
Warrant Shares pursuant to exercise of the Warrants and the Conversion Shares
upon conversion of the Convertible Debentures shall be made in accordance with
the provisions and requirements of Section 4(2), 4(6) or Regulation D and any
applicable state securities law. The Company shall make any necessary SEC and
"blue sky" filings required to be made by the Company in connection with the
sale of the Securities to the Lenders as required by all applicable laws, and
shall provide a copy thereof to the Lenders promptly after such filing.
15
Section 6.9. LIMITATION ON FUTURE FINANCING. The Company agrees that it
will not enter into any sale of its securities for cash at a discount to the
then-current bid price until the earlier of repayment in full of all of the
Convertible Debentures, or 120 days after the effective date of the Registration
Statement except for any sales (i) pursuant to any presently existing employee
benefit plan which plan has been approved by the Company's stockholders, (ii)
pursuant to any compensatory plan for a full-time employee or key consultant,
(iv) pursuant to any transaction arranged through Ladenburg Xxxxxxxx & Co., Inc.
or (iv) with the prior approval of a majority in interest of the Lenders, which
will not be unreasonably withheld, in connection with a strategic partnership or
other business transaction, the principal purpose of which is not simply to
raise money.
Section 6.10. PRO-RATA REDEMPTION. The Company agrees that if it shall
redeem any of the Convertible Debentures, that it shall make such redemption
pro-rata among all Lenders in proportion their respective initial purchases of
such securities pursuant to this Agreement.
ARTICLE VII
SURVIVAL; INDEMNIFICATION
Section 7.1. SURVIVAL. The representations, warranties and covenants made
by each of the Company and each Lender in this Agreement, the annexes, schedules
and exhibits hereto and in each instrument, agreement and certificate entered
into and delivered by them pursuant to this Agreement, shall survive the Closing
and the consummation of the transactions contemplated hereby. In the event of a
breach or violation of any of such representations, warranties or covenants, the
party to whom such representations, warranties or covenants have been made shall
have all rights and remedies for such breach or violation available to it under
the provisions of this Agreement, irrespective of any investigation made by or
on behalf of such party on or prior to the Closing Date.
Section 7.2. INDEMNITY. (a) The Company hereby agrees to indemnify and hold
harmless the Lenders, their respective Affiliates and their respective officers,
directors, partners and members (collectively, the "Lender Indemnitees"), from
and against any and all Damages, and agrees to reimburse the Lender Indemnitees
for all reasonable out-of-pocket expenses (including the reasonable fees and
expenses of legal counsel), in each case promptly as incurred by the Lender
Indemnitees and to the extent arising out of or in connection with:
(i) any misrepresentation, omission of fact or breach of
any of the Company's representations or warranties contained in this
Agreement, the annexes, schedules or exhibits hereto or any instrument,
agreement or certificate entered into or delivered by the Company
pursuant to this Agreement; or
(ii) any failure by the Company to perform in any material
respect any of its covenants, agreements, undertakings or obligations
set forth in this Agreement, the annexes, schedules or exhibits hereto
or any instrument, agreement or certificate entered into or delivered
by the Company pursuant to this Agreement; or
16
(iii) any action instituted against the Lenders, or any of
them, by any stockholder of the Company who is not an Affiliate of an
Lender, with respect to any of the transactions contemplated by this
Agreement.
(b) Each Lender, severally and not jointly, hereby agrees to
indemnify and hold harmless the Company, its Affiliates and their respective
officers, directors, partners and members (collectively, the "Company
Indemnitees"), from and against any and all Damages, and agrees to reimburse the
Company Indemnitees for reasonable all out-of-pocket expenses (including the
reasonable fees and expenses of legal counsel), in each case promptly as
incurred by the Company Indemnitees and to the extent arising out of or in
connection with any misrepresentation, omission of fact, or breach of any of the
Lender's representations or warranties contained in this Agreement, the annexes,
schedules or exhibits hereto or any instrument, agreement or certificate entered
into or delivered by the Lender pursuant to this Agreement. Notwithstanding
anything to the contrary herein, the Lender shall be liable under this Section
7.2(b) for only that amount as does not exceed the net proceeds to such Lender
as a result of the sale of Registrable Securities pursuant to the Registration
Statement.
Section 7.3. NOTICE. Promptly after receipt by either party hereto seeking
indemnification pursuant to Section 7.2 (an "Indemnified Party") of written
notice of any investigation, claim, proceeding or other action in respect of
which indemnification is being sought (each, a "Claim"), the Indemnified Party
promptly shall notify the party from whom indemnification pursuant to Section
7.2 is being sought (the "Indemnifying Party") of the commencement thereof; but
the omission to so notify the Indemnifying Party shall not relieve it from any
liability that it otherwise may have to the Indemnified Party, except to the
extent that the Indemnifying Party is actually prejudiced by such omission or
delay. In connection with any Claim as to which both the Indemnifying Party and
the Indemnified Party are parties, the Indemnifying Party shall be entitled to
assume the defense thereof. Notwithstanding the assumption of the defense of any
Claim by the Indemnifying Party, the Indemnified Party shall have the right to
employ separate legal counsel and to participate in the defense of such Claim,
and the Indemnifying Party shall bear the reasonable fees, out-of-pocket costs
and expenses of such separate legal counsel to the Indemnified Party if (and
only if): (x) the Indemnifying Party shall have agreed to pay such fees,
out-of-pocket costs and expenses, (y) the Indemnified Party reasonably shall
have concluded that representation of the Indemnified Party and the Indemnifying
Party by the same legal counsel would not be appropriate due to actual or, as
reasonably determined by legal counsel to the Indemnified Party, potentially
differing interests between such parties in the conduct of the defense of such
Claim, or if there may be legal defenses available to the Indemnified Party that
are in addition to or disparate from those available to the Indemnifying Party,
or (z) the Indemnifying Party shall have failed to employ legal counsel
reasonably satisfactory to the Indemnified Party within a reasonable period of
time after notice of the commencement of such Claim. If the Indemnified Party
employs separate legal counsel in circumstances other than as described in
clauses (x), (y) or (z) above, the fees, costs and expenses of such legal
counsel shall be borne exclusively by the Indemnified Party. Except as provided
above, the Indemnifying Party shall not, in connection with any Claim in the
same jurisdiction, be liable for the fees and expenses of more than one firm of
legal counsel for the Indemnified Party (together with appropriate local
counsel). The Indemnifying Party shall not, without the prior written consent of
the Indemnified Party (which consent shall not unreasonably be withheld), settle
or
17
compromise any Claim or consent to the entry of any judgment that does not
include an unconditional release of the Indemnified Party from all liabilities
with respect to such Claim or judgment.
All fees and expenses of the Indemnified Party (including
reasonable costs of defense and investigation in a manner not inconsistent with
this Section and all reasonable attorneys' fees and expenses) shall be paid to
the Indemnified Party, as incurred, within ten (10) Trading Days of written
notice thereof to the Indemnifying Party (regardless of whether it is ultimately
determined that an indemnified party is not entitled to indemnification
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 7.4. DIRECT CLAIMS. In the event one party hereunder should have a
claim for indemnification that does not involve a claim or demand being asserted
by a third party, the Indemnified Party promptly shall deliver notice of such
claim to the Indemnifying Party. If the Indemnified Party disputes the claim,
such dispute shall be resolved by mutual agreement of the Indemnified Party and
the Indemnifying Party or by binding arbitration conducted in accordance with
the procedures and rules of the American Arbitration Association as set forth in
Article X. Judgment upon any award rendered by any arbitrators may be entered in
any court having competent jurisdiction thereof.
ARTICLE VIII
DUE DILIGENCE REVIEW; NON-DISCLOSURE OF NON-PUBLIC INFORMATION.
Section 8.1. DUE DILIGENCE REVIEW. Subject to Section 8.2, the Company
shall make available for inspection and review by the Lenders, advisors to and
representatives of the Lenders (who may or may not be affiliated with the
Lenders and who are reasonably acceptable to the Company), any underwriter
participating in any disposition of the Registrable Securities on behalf of the
Lenders pursuant to the Registration Statement, any such registration statement
or amendment or supplement thereto or any blue sky, Nasdaq or other filing, all
SEC Documents and other filings with the SEC, and all other publicly available
corporate documents and properties of the Company as may be reasonably necessary
for the purpose of such review, and cause the Company's officers, directors and
employees to supply all such publicly available information reasonably requested
by the Lenders or any such representative, advisor or underwriter in connection
with such Registration Statement (including, without limitation, in response to
all questions and other inquiries reasonably made or submitted by any of them),
prior to and from time to time after the filing and effectiveness of the
Registration Statement for the sole purpose of enabling the Lenders and such
representatives, advisors and underwriters and their respective accountants and
attorneys to conduct initial and ongoing due diligence with respect to the
Company and the accuracy of the Registration Statement.
Section 8.2. NON-DISCLOSURE OF NON-PUBLIC INFORMATION.
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(a) Except for the information contained in the draft Annual
Report on Form 10-K for the fiscal year ended December 31, 1999, the Company
shall not disclose material non-public information to the Lenders, advisors to
or representatives of the Lenders unless prior to disclosure of such information
the Company identifies such information as being non-public information and
provides the Lenders, such advisors and representatives with the opportunity to
accept or refuse to accept such non-public information for review. Other than
disclosure of any comment letters received from the SEC staff with respect to
the Registration Statement, the Company may, as a condition to disclosing any
non-public information hereunder, require the Lenders' advisors and
representatives to enter into a confidentiality agreement in form and content
reasonably satisfactory to the Company and the Lenders.
(b) Nothing herein shall require the Company to disclose material
non-public information to the Lenders or their advisors or representatives, and
the Company represents that it does not disseminate material non-public
information to any Lenders who purchase stock in the Company in a public
offering, to money managers or to securities analysts, provided, however, that
notwithstanding anything herein to the contrary, the Company will, as
hereinabove provided, promptly notify the advisors and representatives of the
Lenders and, if any, underwriters, of any event or the existence of any
circumstance (without any obligation to disclose the specific event or
circumstance) of which it becomes aware, constituting material non-public
information (whether or not requested of the Company specifically or generally
during the course of due diligence by such persons or entities), which, if not
disclosed in the prospectus included in the Registration Statement would cause
such prospectus to include a material misstatement or to omit a material fact
required to be stated therein in order to make the statements, therein in light
of the circumstances in which they were made, not misleading. Nothing contained
in this Section 8.2 shall be construed to mean that such persons or entities
other than the Lenders (without the written consent of the Lenders prior to
disclosure of such information as set forth in Section 8.2(a)) may not obtain
non-public information in the course of conducting due diligence in accordance
with the terms of this Agreement and nothing herein shall prevent any such
persons or entities from notifying the Company of their opinion that based on
such due diligence by such persons or entities, that the Registration Statement
contains an untrue statement of a material fact or omits a material fact
required to be stated in the Registration Statement or necessary to make the
statements contained therein, in light of the circumstances in which they were
made, not misleading.
ARTICLE IX
LEGENDS; TRANSFER AGENT INSTRUCTIONS
Section 9.1. LEGENDS. Unless otherwise provided below, each certificate
representing Registrable Securities will bear the following
legend or equivalent (the "Legend"):
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY OTHER
APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER
SECURITIES LAWS.
19
NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, OR OTHERWISE DISPOSED OF, EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR
PURSUANT TO A TRANSACTION THAT IS EXEMPT FROM SUCH REGISTRATION.
Section 9.2. TRANSFER AGENT INSTRUCTIONS. Upon the execution and delivery
hereof, the Company is issuing to the transfer agent for its Common Stock (and
to any substitute or replacement transfer agent for its Common Stock upon the
Company's appointment of any such substitute or replacement transfer agent)
instructions substantially in the form of Exhibit F hereto. Such instructions
shall be irrevocable by the Company from and after the date hereof or from and
after the issuance thereof to any such substitute or replacement transfer agent,
as the case may be.
Section 9.3. NO OTHER LEGEND OR STOCK TRANSFER RESTRICTIONS. No legend
other than the one specified in Section 9.1 has been or shall be placed on the
share certificates representing the Registrable Securities and no instructions
or "stop transfer orders," "stock transfer restrictions," or other restrictions
have been or shall be given to the Company's transfer agent with respect thereto
other than as expressly set forth in this Article IX.
Section 9.4. LENDERS' COMPLIANCE. Nothing in this Article shall affect in
any way each Lender's obligations to comply with all applicable securities laws
upon resale of the Common Stock.
ARTICLE X
CHOICE OF LAW; ARBITRATION
Section 10.1. GOVERNING LAW/ARBITRATION. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York applicable to
contracts made in New York by persons domiciled in New York City and without
regard to its principles of conflicts of laws. Any dispute under this Agreement
shall be submitted to arbitration under the American Arbitration Association
(the "AAA") in New York City, New York, and shall be finally and conclusively
determined by the decision of a board of arbitration consisting of three (3)
members (hereinafter referred to as the "Board of Arbitration") selected
according to the rules governing the AAA. The Board of Arbitration shall meet on
consecutive business days in New York City, New York, and shall reach and render
a decision in writing (concurred in by a majority of the members of the Board of
Arbitration) with respect to the amount, if any, which the losing party is
required to pay to the other party in respect of a claim filed. In connection
with rendering its decisions, the Board of Arbitration shall adopt and follow
the laws of the State of New York unless the matter at issue is the corporation
law of the company's state of incorporation, in which event the corporation law
of such jurisdiction shall govern such issue. To the extent practical, decisions
of the Board of Arbitration shall be rendered no more than thirty (30) calendar
days following commencement of proceedings with respect thereto. The Board of
Arbitration shall cause its written decision to be delivered to all
20
parties involved in the dispute. Any decision made by the Board of Arbitration
(either prior to or after the expiration of such thirty (30) calendar day
period) shall be final, binding and conclusive on the parties to the dispute,
and entitled to be enforced to the fullest extent permitted by law and entered
in any court of competent jurisdiction. The Board of Arbitration shall be
authorized and is hereby directed to enter a default judgment against any party
failing to participate in any proceeding hereunder within the time periods set
forth in the AAA rules. The non-prevailing party to any arbitration (as
determined by the Board of Arbitration) shall pay the expenses of the prevailing
party, including reasonable attorney's fees, in connection with such
arbitration. Any party shall be entitled to obtain injunctive relief from a
court in any case where such relief is available, and the non-prevailing party
to any such injunctive proceeding shall pay the expenses of the prevailing
party, including reasonable attorney's fees, in connection with such proceeding.
ARTICLE XI
ASSIGNMENT
Section 11.1. ASSIGNMENT. Neither this Agreement nor any rights of the
Lenders or the Company hereunder may be assigned by either party to any other
person. Notwithstanding the foregoing, (a) the provisions of this Agreement
shall inure to the benefit of, and be enforceable by, any permitted transferee
of any of the Convertible Debentures or Warrants purchased or acquired by any
Lender hereunder with respect to the Convertible Debentures or Warrants held by
such person, and (b) subject to compliance with applicable Federal and state
securities laws, upon the prior written consent of the Company, which consent
shall not unreasonably be withheld or delayed, each Lender's interest in this
Agreement may be assigned at any time, in whole or in part, to any other person
or entity (including any Affiliate of the Lender) who agrees to make the
representations and warranties contained in Article III and who agrees to be
bound by the terms of this Agreement.
ARTICLE XII
NOTICES
Section 12.1. NOTICES. All notices, demands, requests, consents, approvals,
and other communications required or permitted hereunder shall be in writing
and, unless otherwise specified herein, shall be (i) hand delivered, (ii)
deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by facsimile, addressed as set forth below or to
such other address as such party shall have specified most recently by written
notice. Any notice or other communication required or permitted to be given
hereunder shall be deemed effective (a) upon hand delivery or delivery by
facsimile, with accurate confirmation generated by the transmitting facsimile
machine, at the address or number designated below (if delivered on a business
day during normal business hours where such notice is to be received), or the
first business day following such delivery (if delivered other than on a
business day during normal business hours where such notice is to be received)
or (b) on the first business day following the date of sending
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by reputable courier service, fully prepaid, addressed to such address, or (c)
upon actual receipt of such mailing, if mailed. The addresses for such
communications shall be as set forth in the Escrow Agreement. Either party
hereto may from time to time change its address or facsimile number for notices
under this Section 12.1 by giving written notice of such changed address or
facsimile number to the other party hereto as provided in this Section 12.1.
ARTICLE XIII
MISCELLANEOUS
Section 13.1. COUNTERPARTS/ FACSIMILE/ AMENDMENTS. This Agreement may be
executed in multiple counterparts, each of which may be executed by less than
all of the parties and shall be deemed to be an original instrument which shall
be enforceable against the parties actually executing such counterparts and all
of which together shall constitute one and the same instrument. Except as
otherwise stated herein, in lieu of the original documents, a facsimile
transmission or copy of the original documents shall be as effective and
enforceable as the original. This Agreement may be amended only by a writing
executed by all parties.
Section 13.2. ENTIRE AGREEMENT. This Agreement, the agreements attached as
Exhibits hereto, which include, but are not limited to the Convertible
Debentures, the Warrants, the Escrow Agreement, and the Registration Rights
Agreement, set forth the entire agreement and understanding of the parties
relating to the subject matter hereof and supersedes all prior and
contemporaneous agreements, negotiations and understandings between the parties,
both oral and written relating to the subject matter hereof. The terms and
conditions of all Exhibits to this Agreement are incorporated herein by this
reference and shall constitute part of this Agreement as is fully set forth
herein.
Section 13.3. SEVERABILITY. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in full force and
effect without said provision; provided that such severability shall be
ineffective if it materially changes the economic benefit of this Agreement to
any party.
Section 13.4. HEADINGS. The headings used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting this
Agreement.
Section 13.5. NUMBER AND GENDER. There may be one or more Lenders parties to
this Agreement, which Lenders may be natural persons or entities. All references
to plural Lenders shall apply equally to a single Lender if there is only one
Lender, and all references to an Lender as "it" shall apply equally to a natural
person.
Section 13.6. REPORTING ENTITY FOR THE COMMON STOCK. The reporting entity
relied upon for the determination of the trading price or trading volume of the
Common Stock on any given Trading Day for the purposes of this Agreement shall
be Bloomberg, L.P. or any successor thereto. The written mutual consent of the
Lenders and the Company shall be required to employ any other reporting entity.
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Section 13.7. REPLACEMENT OF CERTIFICATES. Upon (i) receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of a certificate representing the Convertible Debentures or any
Conversion Shares or Warrants or any Warrant Shares and (ii) in the case of any
such loss, theft or destruction of such certificate, upon delivery of an
indemnity agreement or security reasonably satisfactory in form to the Company
(which shall not include the posting of any bond) or (iii) in the case of any
such mutilation, on surrender and cancellation of such certificate, the Company
at its expense will execute and deliver, in lieu thereof, a new certificate of
like tenor.
Section 13.8. FEES AND EXPENSES. Each of the Company and the Lenders agrees
to pay its own expenses incident to the performance of its obligations
hereunder, except that the Company shall pay the fees, expenses and
disbursements of counsel to the Lenders, in an amount equal to $15,000, all as
set forth in the Escrow Agreement.
Section 13.9. FINDER'S AND BROKER'S FEES. Each of the parties hereto
represents that it has had no dealings in connection with this transaction with
any finder or broker who will demand payment of any fee or commission from the
other party except for Ladenburg Xxxxxxxx & Co., Inc., whose fee shall be paid
by the Company. The Company on the one hand, and the Lenders, on the other hand,
agree to indemnify the other against and hold the other harmless from any and
all liabilities to any person claiming brokerage commissions or finder's fees on
account of services purported to have been rendered on behalf of the
indemnifying party in connection with this Agreement or the transactions
contemplated hereby.
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Section 13.10. PUBLICITY. The Company agrees that it will not issue any press
release or other public announcement of the transactions contemplated by this
Agreement without the prior consent of the Lenders, which shall not be
unreasonably withheld nor delayed by more than two (2) Trading Days from their
receipt of such proposed release. No release shall name the Lenders without
their express consent.
IN WITNESS WHEREOF, the parties hereto have caused this Loan Agreement
to be executed by the undersigned, thereunto duly authorized, as of the date
first set forth above.
AQUIS COMMUNICATIONS GROUP, INC.
By: /s/ XXXX X. XXXXXXX
-----------------------------------
Xxxx X. Xxxxxxx, President & CEO
LENDER:
Amount subscribed for: AMRO International, S.A.
$2,000,000
By: /s/ X.X. XXXXXXXX
----------------------------------------
X.X. Xxxxxxxx, Director
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