REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of February 6,
2003, by and among iDial Networks, Inc., a Nevada corporation with its
headquarters located at 00000 Xxxx Xxxxxxx Xxxxx, Xxxxx 000, Xxxxxx, Xxxxxxxx
00000 (the "Company"), and each of the undersigned (together with their
respective affiliates and any assignee or transferee of all of their respective
rights hereunder, the "Initial Investors").
WHEREAS:
A. In connection with the Securities Purchase Agreement by and among the
parties hereto of even date herewith (the "Securities Purchase Agreement"),
the Company has agreed, upon the terms and subject to the conditions
contained therein, to issue and sell to the Initial Investors (i)
convertible debentures in the aggregate principal amount of up to Seven
Hundred Fifty Thousand Dollars ($750,000) (the "Debentures") that are
convertible into shares of the Company's common stock (the "Common Stock"),
upon the terms and subject to the limitations and conditions set forth in
such Debentures and (ii) warrants (the "Warrants") to acquire an aggregate
of 2,250,000 shares of Common Stock, upon the terms and conditions and
subject to the limitations and conditions set forth in the Warrants dated
February 6, 2003; and
B. To induce the Initial Investors to execute and deliver the Securities
Purchase Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any similar successor statute (collectively, the
"1933 Act"), and applicable state securities laws;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and each of the
Initial Investors hereby agree as follows:
1. DEFINITIONS.
a. As used in this Agreement, the following terms shall have the
following meanings:
(i) "Investors" means the Initial Investors and any transferee or
assignee who agrees to become bound by the provisions of this
Agreement in accordance with Section 9 hereof.
(ii) "register," "registered," and "registration" refer to a
registration effected by preparing and filing a Registration
Statement or Statements in compliance with the 1933 Act and
pursuant to Rule 415 under the 1933 Act or any successor rule
providing for offering securities on a continuous basis ("Rule
415"), and the declaration or ordering of effectiveness of such
Registration Statement by the United States Securities and
Exchange Commission (the "SEC").
(iii)"Registrable Securities" means the Conversion Shares issued or
issuable upon conversion or otherwise pursuant to the Debentures
and Additional Debentures (as defined in the Securities Purchase
Agreement) including, without limitation, Damages Shares (as
defined in the Debentures) issued or issuable pursuant to the
Debentures, shares of Common Stock issued or issuable in payment
of the Standard Liquidated Damages Amount (as defined in the
Securities Purchase Agreement), shares issued or issuable in
respect of interest or in redemption of the Debentures in
accordance with the terms thereof) and Warrant Shares issuable,
upon exercise or otherwise pursuant to the Warrants and
Additional Warrants (as defined in the Securities Purchase
Agreement), and any shares of capital stock issued or issuable as
a dividend on or in exchange for or otherwise with respect to any
of the foregoing.
(iv) "Registration Statement" means a registration statement of the
Company under the 0000 Xxx.
b. Capitalized terms used herein and not otherwise defined herein shall
have the respective meanings set forth in the Securities Purchase
Agreement or the Convertible Debenture.
2. REGISTRATION.
a. Mandatory Registration. The Company shall prepare, and, on or prior to
thirty (30) days from the date of Closing (as defined in the
Securities Purchase Agreement) (the "Filing Date"), file with the SEC
a Registration Statement on Form S-3 (or, if Form S-3 is not then
available, on such form of Registration Statement as is then available
to effect a registration of the Registrable Securities, subject to the
consent of the Initial Investors, which consent will not be
unreasonably withheld) covering the resale of the Registrable
Securities underlying the Debentures and Warrants issued or issuable
pursuant to the Securities Purchase Agreement, which Registration
Statement, to the extent allowable under the 1933 Act and the rules
and regulations promulgated thereunder (including Rule 416), shall
state that such Registration Statement also covers such indeterminate
number of additional shares of Common Stock as may become issuable
upon conversion of or otherwise pursuant to the Debentures and
exercise of the Warrants to prevent dilution resulting from stock
splits, stock dividends or similar transactions. The number of shares
of Common Stock initially included in such Registration Statement
shall be no less than an amount equal to two (2) times the sum of the
number of Conversion Shares that are then issuable upon conversion of
the Debentures and Additional Debentures (based on the Variable
Conversion Price as would then be in effect and assuming the Variable
Conversion Price is the Conversion Price at such time), and the number
of Warrant Shares that are then issuable upon exercise of the
Warrants, without regard to any limitation on the Investor's ability
to convert the Debentures or exercise the Warrants. The Company
acknowledges that the number of shares initially included in the
Registration Statement represents a good faith estimate of the maximum
number of shares issuable upon conversion of the Debentures and upon
exercise of the Warrants.
b. Underwritten Offering. If any offering pursuant to a Registration
Statement pursuant to Section 2(a) hereof involves an underwritten
offering, the Investors who hold a majority in interest of the
Registrable Securities subject to such underwritten offering, with the
consent of a majority-in-interest of the Initial Investors, shall have
the right to select one legal counsel and an investment banker or
bankers and manager or managers to administer the offering, which
investment banker or bankers or manager or managers shall be
reasonably satisfactory to the Company.
c. Payments by the Company. The Company shall use its best efforts to
obtain effectiveness of the Registration Statement as soon as
practicable. If (i) the Registration Statement(s) covering the
Registrable Securities required to be filed by the Company pursuant to
Section 2(a) hereof is not filed by the Filing Date or declared
effective by the SEC on or prior to one hundred (100) days from the
date of Closing (as defined in the Securities Purchase Agreement), or
(ii) after the Registration Statement has been declared effective by
the SEC, sales of all of the Registrable Securities cannot be made
pursuant to the Registration Statement, or (iii) the Common Stock is
not listed or included for quotation on the Nasdaq National Market
("Nasdaq"), the Nasdaq SmallCap Market ("Nasdaq SmallCap"), the New
York Stock Exchange (the "NYSE") or the American Stock Exchange (the
"AMEX") after being so listed or included for quotation, or (iv) the
Common Stock ceases to be traded on the Over-the-Counter Bulletin
Board (the "OTCBB") or any equivalent replacement exchange prior to
being listed or included for quotation on one of the aforementioned
markets, then the Company will make payments to the Investors in such
amounts and at such times as shall be determined pursuant to this
Section 2(c) as partial relief for the damages to the Investors by
reason of any such delay in or reduction of their ability to sell the
Registrable Securities (which remedy shall not be exclusive of any
other remedies available at law or in equity). The Company shall pay
to each holder of the Debentures or Registrable Securities an amount
equal to the then outstanding principal amount of the Debentures (and,
in the case of holders of Registrable Securities, the principal amount
of Debentures from which such Registrable Securities were converted)
("Outstanding Principal Amount"), multiplied by the Applicable
Percentage (as defined below) times the sum of: (i) the number of
months (prorated for partial months) after the Filing Date or the end
of the aforementioned one hundred (100) day period and prior to the
date the Registration Statement is declared effective by the SEC,
provided, however, that there shall be excluded from such period any
delays which are solely attributable to changes required by the
Investors in the Registration Statement with respect to information
relating to the Investors, including, without limitation, changes to
the plan of distribution, or to the failure of the Investors to
conduct their review of the Registration Statement pursuant to Section
3(h) below in a reasonably prompt manner; (ii) the number of months
(prorated for partial months) that sales of all of the Registrable
Securities cannot be made pursuant to the Registration Statement after
the Registration Statement has been declared effective (including,
without limitation, when sales cannot be made by reason of the
Company's failure to properly supplement or amend the prospectus
included therein in accordance with the terms of this Agreement, but
excluding any days during an Allowed Delay (as defined in Section
3(f)); and (iii) the number of months (prorated for partial months)
that the Common Stock is not listed or included for quotation on the
OTCBB, Nasdaq, Nasdaq SmallCap, NYSE or AMEX or that trading thereon
is halted after the Registration Statement has been declared
effective. The term "Applicable Percentage" means two hundredths
(.02). (For example, if the Registration Statement becomes effective
one (1) month after the end of such one hundred-day period, the
Company would pay $5,000 for each $250,000 of Outstanding Principal
Amount. If thereafter, sales could not be made pursuant to the
Registration Statement for an additional period of one (1) month, the
Company would pay an additional $5,000 for each $250,000 of
Outstanding Principal Amount.) Such amounts shall be paid in cash or,
at each Investor's option, in shares of Common Stock priced at the
Conversion Price (as defined in the Debentures) on such payment date.
d. Piggy-Back Registrations. Subject to the last sentence of this Section
2(d), if at any time prior to the expiration of the Registration
Period (as hereinafter defined) the Company shall determine to file
with the SEC a Registration Statement relating to an offering for its
own account or the account of others under the 1933 Act of any of its
equity securities (other than on Form S-4 or Form S-8 or their then
equivalents relating to equity securities to be issued solely in
connection with any acquisition of any entity or business or equity
securities issuable in connection with stock option or other bona
fide, employee benefit plans), the Company shall send to each Investor
who is entitled to registration rights under this Section 2(d) written
notice of such determination and, if within fifteen (15) days after
the effective date of such notice, such Investor shall so request in
writing, the Company shall include in such Registration Statement all
or any part of the Registrable Securities such Investor requests to be
registered, except that if, in connection with any underwritten public
offering for the account of the Company the managing underwriter(s)
thereof shall impose a limitation on the number of shares of Common
Stock which may be included in the Registration Statement because, in
such underwriter(s)' judgment, marketing or other factors dictate such
limitation is necessary to facilitate public distribution, then the
Company shall be obligated to include in such Registration Statement
only such limited portion of the Registrable Securities with respect
to which such Investor has requested inclusion hereunder as the
underwriter shall permit. Any exclusion of Registrable Securities
shall be made pro rata among the Investors seeking to include
Registrable Securities in proportion to the number of Registrable
Securities sought to be included by such Investors; provided, however,
that the Company shall not exclude any Registrable Securities unless
the Company has first excluded all outstanding securities, the holders
of which are not entitled to inclusion of such securities in such
Registration Statement or are not entitled to pro rata inclusion with
the Registrable Securities; and provided, further, however, that,
after giving effect to the immediately preceding proviso, any
exclusion of Registrable Securities shall be made pro rata with
holders of other securities having the right to include such
securities in the Registration Statement other than holders of
securities entitled to inclusion of their securities in such
Registration Statement by reason of demand registration rights. No
right to registration of Registrable Securities under this Section
2(d) shall be construed to limit any registration required under
Section 2(a) hereof. If an offering in connection with which an
Investor is entitled to registration under this Section 2(d) is an
underwritten offering, then each Investor whose Registrable Securities
are included in such Registration Statement shall, unless otherwise
agreed by the Company, offer and sell such Registrable Securities in
an underwritten offering using the same underwriter or underwriters
and, subject to the provisions of this Agreement, on the same terms
and conditions as other shares of Common Stock included in such
underwritten offering. Notwithstanding anything to the contrary set
forth herein, the registration rights of the Investors pursuant to
this Section 2(d) shall only be available in the event the Company
fails to timely file, obtain effectiveness or maintain effectiveness
of any Registration Statement to be filed pursuant to Section 2(a) in
accordance with the terms of this Agreement.
e. Eligibility for Form X-0, XX-0 or S-1; Conversion to Form S-3. The
Company represents and warrants that it meets the requirements for the
use of Form X-0, XX-0 or S-1 for registration of the sale by the
Initial Investors and any other Investors of the Registrable
Securities. The Company agrees to file all reports required to be
filed by the Company with the SEC in a timely manner so as to remain
eligible or become eligible, as the case may be, and thereafter to
maintain its eligibility, for the use of Form S-3. If the Company is
not currently eligible to use Form S-3, not later than five (5)
business days after the Company first meets the registration
eligibility and transaction requirements for the use of Form S-3 (or
any successor form) for registration of the offer and sale by the
Initial Investors and any other Investors of Registrable Securities,
the Company shall file a Registration Statement on Form S-3 (or such
successor form) with respect to the Registrable Securities covered by
the Registration Statement on Form SB-2 or Form S-1, whichever is
applicable, filed pursuant to Section 2(a) (and include in such
Registration Statement on Form S-3 the information required by Rule
429 under the 0000 Xxx) or convert the Registration Statement on Form
SB-2 or Form S-1, whichever is applicable, filed pursuant to Section
2(a) to a Form S-3 pursuant to Rule 429 under the 1933 Act and cause
such Registration Statement (or such amendment) to be declared
effective no later than forty-five (45) days after filing. In the
event of a breach by the Company of the provisions of this Section
2(e), the Company will be required to make payments pursuant to
Section 2(c) hereof.
3. OBLIGATIONS OF THE COMPANY.
In connection with the registration of the Registrable Securities, the
Company shall have the following obligations:
a. The Company shall prepare promptly, and file with the SEC not later
than the Filing Date, a Registration Statement with respect to the
number of Registrable Securities provided in Section 2(a), and
thereafter use its best efforts to cause such Registration Statement
relating to Registrable Securities to become effective as soon as
possible after such filing but in no event later than one hundred
(100) days from the date of Closing), and keep the Registration
Statement effective pursuant to Rule 415 at all times until such date
as is the earlier of (i) the date on which all of the Registrable
Securities have been sold and (ii) the date on which the Registrable
Securities (in the opinion of counsel to the Initial Investors) may be
immediately sold to the public without registration or restriction
(including without limitation as to volume by each holder thereof)
under the 1933 Act (the "Registration Period"), which Registration
Statement (including any amendments or supplements thereto and
prospectuses contained therein) shall 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 not
misleading.
b. The Company shall prepare and file with the SEC such amendments
(including post-effective amendments) and supplements to the
Registration Statements and the prospectus used in connection with the
Registration Statements as may be necessary to keep the Registration
Statements effective at all times during the Registration Period, and,
during such period, comply with the provisions of the 1933 Act with
respect to the disposition of all Registrable Securities of the
Company covered by the Registration Statements until such time as all
of such Registrable Securities have been disposed of in accordance
with the intended methods of disposition by the seller or sellers
thereof as set forth in the Registration Statements. In the event the
number of shares available under a Registration Statement filed
pursuant to this Agreement is insufficient to cover all of the
Registrable Securities issued or issuable upon conversion of the
Debentures and exercise of the Warrants, the Company shall amend the
Registration Statement, or file a new Registration Statement (on the
short form available therefor, if applicable), or both, so as to cover
all of the Registrable Securities, in each case, as soon as
practicable, but in any event within fifteen (15) days after the
necessity therefor arises (based on the market price of the Common
Stock and other relevant factors on which the Company reasonably
elects to rely). The Company shall use its best efforts to cause such
amendment and/or new Registration Statement to become effective as
soon as practicable following the filing thereof, but in any event
within thirty (30) days after the date on which the Company reasonably
first determines (or reasonably should have determined) the need
therefor. The provisions of Section 2(c) above shall be applicable
with respect to such obligation, with the one hundred (100) days
running from the day the Company reasonably first determines (or
reasonably should have determined) the need therefor.
c. The Company shall furnish to each Investor whose Registrable
Securities are included in a Registration Statement and its legal
counsel (i) promptly (but in no event more than two (2) business days)
after the same is prepared and publicly distributed, filed with the
SEC, or received by the Company, one copy of each Registration
Statement and any amendment thereto, each preliminary prospectus and
prospectus and each amendment or supplement thereto, and, in the case
of the Registration Statement referred to in Section 2(a), each letter
written by or on behalf of the Company to the SEC or the staff of the
SEC, and each item of correspondence from the SEC or the staff of the
SEC, in each case relating to such Registration Statement (other than
any portion of any thereof which contains information for which the
Company has sought confidential treatment), and (ii) promptly (but in
no event more than two (2) business days) after the Registration
Statement is declared effective by the SEC, such number of copies of a
prospectus, including a preliminary prospectus, and all amendments and
supplements thereto and such other documents as such Investor may
reasonably request in order to facilitate the disposition of the
Registrable Securities owned by such Investor. The Company will
immediately notify each Investor by facsimile of the effectiveness of
each Registration Statement or any post-effective amendment. The
Company will promptly (but in no event more than five (5) business
days) respond to any and all comments received from the SEC (which
comments shall promptly be made available to the Investors upon
request), with a view towards causing each Registration Statement or
any amendment thereto to be declared effective by the SEC as soon as
practicable, shall promptly file an acceleration request as soon as
practicable (but in no event more than two (2) business days)
following the resolution or clearance of all SEC comments or, if
applicable, following notification by the SEC that any such
Registration Statement or any amendment thereto will not be subject to
review and shall promptly file with the SEC a final prospectus as soon
as practicable (but in no event more than two (2) business days)
following receipt by the Company from the SEC of an order declaring
the Registration Statement effective. In the event of a breach by the
Company of the provisions of this Section 3(c), the Company will be
required to make payments pursuant to Section 2(c) hereof.
d. The Company shall use reasonable efforts to (i) register and qualify
the Registrable Securities covered by the Registration Statements
under such other securities or "blue sky" laws of such jurisdictions
in the United States as the Investors who hold a majority in interest
of the Registrable Securities being offered reasonably request, (ii)
prepare and file in those jurisdictions such amendments (including
post-effective amendments) and supplements to such registrations and
qualifications as may be necessary to maintain the effectiveness
thereof during the Registration Period, (iii) take such other actions
as may be necessary to maintain such registrations and qualifications
in effect at all times during the Registration Period, and (iv) take
all other actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions; provided,
however, that the Company shall not be required in connection
therewith or as a condition thereto to (a) qualify to do business in
any jurisdiction where it would not otherwise be required to qualify
but for this Section 3(d), (b) subject itself to general taxation in
any such jurisdiction, (c) file a general consent to service of
process in any such jurisdiction, (d) provide any undertakings that
cause the Company undue expense or burden, or (e) make any change in
its charter or bylaws, which in each case the Board of Directors of
the Company determines to be contrary to the best interests of the
Company and its shareholders.
e. In the event Investors who hold a majority-in-interest of the
Registrable Securities being offered in the offering (with the
approval of a majority-in-interest of the Initial Investors) select
underwriters for the offering, the Company shall enter into and
perform its obligations under an underwriting agreement, in usual and
customary form, including, without limitation, customary
indemnification and contribution obligations, with the underwriters of
such offering.
f. As promptly as practicable after becoming aware of such event, the
Company shall notify each Investor of the happening of any event, of
which the Company has knowledge, as a result of which the prospectus
included in any Registration Statement, as then in effect, includes an
untrue statement of a material fact or omission to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading, and use its best efforts promptly to prepare a
supplement or amendment to any Registration Statement to correct such
untrue statement or omission, and deliver such number of copies of
such supplement or amendment to each Investor as such Investor may
reasonably request; provided that, for not more than ten (10)
consecutive trading days (or a total of not more than twenty (20)
trading days in any twelve (12) month period), the Company may delay
the disclosure of material non-public information concerning the
Company (as well as prospectus or Registration Statement updating) the
disclosure of which at the time is not, in the good faith opinion of
the Company, in the best interests of the Company (an "Allowed
Delay"); provided, further, that the Company shall promptly (i) notify
the Investors in writing of the existence of (but in no event, without
the prior written consent of an Investor, shall the Company disclose
to such investor any of the facts or circumstances regarding) material
non-public information giving rise to an Allowed Delay and (ii) advise
the Investors in writing to cease all sales under such Registration
Statement until the end of the Allowed Delay. Upon expiration of the
Allowed Delay, the Company shall again be bound by the first sentence
of this Section 3(f) with respect to the information giving rise
thereto.
g. The Company shall use its best efforts to prevent the issuance of any
stop order or other suspension of effectiveness of any Registration
Statement, and, if such an order is issued, to obtain the withdrawal
of such order at the earliest possible moment and to notify each
Investor who holds Registrable Securities being sold (or, in the event
of an underwritten offering, the managing underwriters) of the
issuance of such order and the resolution thereof.
h. The Company shall permit a single firm of counsel designated by the
Initial Investors to review such Registration Statement and all
amendments and supplements thereto (as well as all requests for
acceleration or effectiveness thereof) a reasonable period of time
prior to their filing with the SEC, and not file any document in a
form to which such counsel reasonably objects and will not request
acceleration of such Registration Statement without prior notice to
such counsel. The sections of such Registration Statement covering
information with respect to the Investors, the Investor's beneficial
ownership of securities of the Company or the Investors intended
method of disposition of Registrable Securities shall conform to the
information provided to the Company by each of the Investors.
i. The Company shall make generally available to its security holders as
soon as practicable, but not later than ninety (90) days after the
close of the period covered thereby, an earnings statement (in form
complying with the provisions of Rule 158 under the 0000 Xxx) covering
a twelve-month period beginning not later than the first day of the
Company's fiscal quarter next following the effective date of the
Registration Statement.
j. At the request of any Investor, the Company shall furnish, on the date
that Registrable Securities are delivered to an underwriter, if any,
for sale in connection with any Registration Statement or, if such
securities are not being sold by an underwriter, on the date of
effectiveness thereof (i) an opinion, dated as of such date, from
counsel representing the Company for purposes of such Registration
Statement, in form, scope and substance as is customarily given in an
underwritten public offering, addressed to the underwriters, if any,
and the Investors and (ii) a letter, dated such date, from the
Company's independent certified public accountants in form and
substance as is customarily given by independent certified public
accountants to underwriters in an underwritten public offering,
addressed to the underwriters, if any, and the Investors.
k. The Company shall make available for inspection by (i) any Investor,
(ii) any underwriter participating in any disposition pursuant to a
Registration Statement, (iii) one firm of attorneys and one firm of
accountants or other agents retained by the Initial Investors, (iv)
one firm of attorneys and one firm of accountants or other agents
retained by all other Investors, and (v) one firm of attorneys
retained by all such underwriters (collectively, the "Inspectors") all
pertinent financial and other records, and pertinent corporate
documents and properties of the Company, including without limitation,
records of conversions by other holders of convertible securities
issued by the Company and the issuance of stock to such holders
pursuant to the conversions (collectively, the "Records"), as shall be
reasonably deemed necessary by each Inspector to enable each Inspector
to exercise its due diligence responsibility, and cause the Company's
officers, directors and employees to supply all information which any
Inspector may reasonably request for purposes of such due diligence;
provided, however, that each Inspector shall hold in confidence and
shall not make any disclosure (except to an Investor) of any Record or
other information which the Company determines in good faith to be
confidential, and of which determination the Inspectors are so
notified, unless (a) the disclosure of such Records is necessary to
avoid or correct a misstatement or omission in any Registration
Statement, (b) the release of such Records is ordered pursuant to a
subpoena or other order from a court or government body of competent
jurisdiction, or (c) the information in such Records has been made
generally available to the public other than by disclosure in
violation of this or any other agreement. The Company shall not be
required to disclose any confidential information in such Records to
any Inspector until and unless such Inspector shall have entered into
confidentiality agreements (in form and substance satisfactory to the
Company) with the Company with respect thereto, substantially in the
form of this Section 3(k). Each Investor agrees that it shall, upon
learning that disclosure of such Records is sought in or by a court or
governmental body of competent jurisdiction or through other means,
give prompt notice to the Company and allow the Company, at its
expense, to undertake appropriate action to prevent disclosure of, or
to obtain a protective order for, the Records deemed confidential.
Nothing herein (or in any other confidentiality agreement between the
Company and any Investor) shall be deemed to limit the Investor's
ability to sell Registrable Securities in a manner which is otherwise
consistent with applicable laws and regulations.
l. The Company shall hold in confidence and not make any disclosure of
information concerning an Investor provided to the Company unless (i)
disclosure of such information is necessary to comply with federal or
state securities laws, (ii) the disclosure of such information is
necessary to avoid or correct a misstatement or omission in any
Registration Statement, (iii) the release of such information is
ordered pursuant to a subpoena or other order from a court or
governmental body of competent jurisdiction, or (iv) such information
has been made generally available to the public other than by
disclosure in violation of this or any other agreement. The Company
agrees that it shall, upon learning that disclosure of such
information concerning an Investor is sought in or by a court or
governmental body of competent jurisdiction or through other means,
give prompt notice to such Investor prior to making such disclosure,
and allow the Investor, at its expense, to undertake appropriate
action to prevent disclosure of, or to obtain a protective order for,
such information.
m. The Company shall (i) cause all the Registrable Securities covered by
the Registration Statement to be listed on each national securities
exchange on which securities of the same class or series issued by the
Company are then listed, if any, if the listing of such Registrable
Securities is then permitted under the rules of such exchange, or (ii)
to the extent the securities of the same class or series are not then
listed on a national securities exchange, secure the designation and
quotation, of all the Registrable Securities covered by the
Registration Statement on Nasdaq or, if not eligible for Nasdaq, on
Nasdaq SmallCap or, if not eligible for Nasdaq or Nasdaq SmallCap, on
the OTCBB and, without limiting the generality of the foregoing, to
arrange for at least two market makers to register with the National
Association of Securities Dealers, Inc. ("NASD") as such with respect
to such Registrable Securities.
n. The Company shall provide a transfer agent and registrar, which may be
a single entity, for the Registrable Securities not later than the
effective date of the Registration Statement.
o. The Company shall cooperate with the Investors who hold Registrable
Securities being offered and the managing underwriter or underwriters,
if any, to facilitate the timely preparation and delivery of
certificates (not bearing any restrictive legends) representing
Registrable Securities to be offered pursuant to a Registration
Statement and enable such certificates to be in such denominations or
amounts, as the case may be, as the managing underwriter or
underwriters, if any, or the Investors may reasonably request and
registered in such names as the managing underwriter or underwriters,
if any, or the Investors may request, and, within three (3) business
days after a Registration Statement which includes Registrable
Securities is ordered effective by the SEC, the Company shall deliver,
and shall cause legal counsel selected by the Company to deliver, to
the transfer agent for the Registrable Securities (with copies to the
Investors whose Registrable Securities are included in such
Registration Statement) an instruction in the form attached hereto as
Exhibit 1 and an opinion of such counsel in the form attached hereto
as Exhibit 2.
p. At the request of the holders of a majority-in-interest of the
Registrable Securities, the Company shall prepare and file with the
SEC such amendments (including post-effective amendments) and
supplements to a Registration Statement and any prospectus used in
connection with the Registration Statement as may be necessary in
order to change the plan of distribution set forth in such
Registration Statement.
q. From and after the date of this Agreement, the Company shall not, and
shall not agree to, allow the holders of any securities of the Company
to include any of their securities in any Registration Statement under
Section 2(a) hereof or any amendment or supplement thereto under
Section 3(b) hereof without the consent of the holders of a
majority-in-interest of the Registrable Securities.
r. The Company shall take all other reasonable actions necessary to
expedite and facilitate disposition by the Investors of Registrable
Securities pursuant to a Registration Statement.
4. OBLIGATIONS OF THE INVESTORS.
In connection with the registration of the Registrable Securities, the
Investors shall have the following obligations:
a. It shall be a condition precedent to the obligations of the Company to
complete the registration pursuant to this Agreement with respect to
the Registrable Securities of a particular Investor that such Investor
shall furnish to the Company such information regarding itself, the
Registrable Securities held by it and the intended method of
disposition of the Registrable Securities held by it as shall be
reasonably required to effect the registration of such Registrable
Securities and shall execute such documents in connection with such
registration as the Company may reasonably request. At least three (3)
business days prior to the first anticipated filing date of the
Registration Statement, the Company shall notify each Investor of the
information the Company requires from each such Investor.
b. Each Investor, by such Investor's acceptance of the Registrable
Securities, agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing
of the Registration Statements hereunder, unless such Investor has
notified the Company in writing of such Investor's election to exclude
all of such Investor's Registrable Securities from the Registration
Statements.
c. In the event Investors holding a majority-in-interest of the
Registrable Securities being registered (with the approval of the
Initial Investors) determine to engage the services of an underwriter,
each Investor agrees to enter into and perform such Investor's
obligations under an underwriting agreement, in usual and customary
form, including, without limitation, customary indemnification and
contribution obligations, with the managing underwriter of such
offering and take such other actions as are reasonably required in
order to expedite or facilitate the disposition of the Registrable
Securities, unless such Investor has notified the Company in writing
of such Investor's election to exclude all of such Investor's
Registrable Securities from such Registration Statement.
d. Each Investor agrees that, upon receipt of any notice from the Company
of the happening of any event of the kind described in Section 3(f) or
3(g), such Investor will immediately discontinue disposition of
Registrable Securities pursuant to the Registration Statement covering
such Registrable Securities until such Investor's receipt of the
copies of the supplemented or amended prospectus contemplated by
Section 3(f) or 3(g) and, if so directed by the Company, such Investor
shall deliver to the Company (at the expense of the Company) or
destroy (and deliver to the Company a certificate of destruction) all
copies in such Investor's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice.
e. No Investor may participate in any underwritten registration hereunder
unless such Investor (i) agrees to sell such Investor's Registrable
Securities on the basis provided in any underwriting arrangements in
usual and customary form entered into by the Company, (ii) completes
and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents reasonably required under
the terms of such underwriting arrangements, and (iii) agrees to pay
its pro rata share of all underwriting discounts and commissions and
any expenses in excess of those payable by the Company pursuant to
Section 5 below.
5. EXPENSES OF REGISTRATION.
All reasonable expenses, other than underwriting discounts and
commissions, incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation,
all registration, listing and qualification fees, printers and accounting
fees, the fees and disbursements of counsel for the Company, and the
reasonable fees and disbursements of one counsel selected by the Initial
Investors pursuant to Sections 2(b) and 3(h) hereof shall be borne by the
Company.
6. INDEMNIFICATION.
In the event any Registrable Securities are included in a Registration
Statement under this Agreement:
a. To the extent permitted by law, the Company will indemnify, hold
harmless and defend (i) each Investor who holds such Registrable
Securities, (ii) the directors, officers, partners, employees, agents
and each person who controls any Investor within the meaning of the
1933 Act or the Securities Exchange Act of 1934, as amended (the "1934
Act"), if any, (iii) any underwriter (as defined in the 0000 Xxx) for
the Investors, and (iv) the directors, officers, partners, employees
and each person who controls any such underwriter within the meaning
of the 1933 Act or the 1934 Act, if any (each, an "Indemnified
Person"), against any joint or several losses, claims, damages,
liabilities or expenses (collectively, together with actions,
proceedings or inquiries by any regulatory or self-regulatory
organization, whether commenced or threatened, in respect thereof,
"Claims") to which any of them may become subject insofar as such
Claims arise out of or are based upon: (i) any untrue statement or
alleged untrue statement of a material fact in a Registration
Statement or the omission or alleged omission to state therein a
material fact required to be stated or necessary to make the
statements therein not misleading; (ii) any untrue statement or
alleged untrue statement of a material fact contained in any
preliminary prospectus if used prior to the effective date of such
Registration Statement, or contained in the final prospectus (as
amended or supplemented, if the Company files any amendment thereof or
supplement thereto with the SEC) or the omission or alleged omission
to state therein any material fact necessary to make the statements
made therein, in light of the circumstances under which the statements
therein were made, not misleading; or (iii) any violation or alleged
violation by the Company of the 1933 Act, the 1934 Act, any other law,
including, without limitation, any state securities law, or any rule
or regulation thereunder relating to the offer or sale of the
Registrable Securities (the matters in the foregoing clauses (i)
through (iii) being, collectively, "Violations"). Subject to the
restrictions set forth in Section 6(c) with respect to the number of
legal counsel, the Company shall reimburse the Indemnified Person,
promptly as such expenses are incurred and are due and payable, for
any reasonable legal fees or other reasonable expenses incurred by
them in connection with investigating or defending any such Claim.
Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6(a): (i) shall
not apply to a Claim arising out of or based upon a Violation which
occurs in reliance upon and in conformity with information furnished
in writing to the Company by any Indemnified Person or underwriter for
such Indemnified Person expressly for use in connection with the
preparation of such Registration Statement or any such amendment
thereof or supplement thereto, if such prospectus was timely made
available by the Company pursuant to Section 3(c) hereof; (ii) shall
not apply to amounts paid in settlement of any Claim if such
settlement is effected without the prior written consent of the
Company, which consent shall not be unreasonably withheld; and (iii)
with respect to any preliminary prospectus, shall not inure to the
benefit of any Indemnified Person if the untrue statement or omission
of material fact contained in the preliminary prospectus was corrected
on a timely basis in the prospectus, as then amended or supplemented,
such corrected prospectus was timely made available by the Company
pursuant to Section 3(c) hereof, and the Indemnified Person was
promptly advised in writing not to use the incorrect prospectus prior
to the use giving rise to a Violation and such Indemnified Person,
notwithstanding such advice, used it. Such indemnity shall remain in
full force and effect regardless of any investigation made by or on
behalf of the Indemnified Person and shall survive the transfer of the
Registrable Securities by the Investors pursuant to Section 9.
b. In connection with any Registration Statement in which an Investor is
participating, each such Investor agrees severally and not jointly to
indemnify, hold harmless and defend, to the same extent and in the
same manner set forth in Section 6(a), the Company, each of its
directors, each of its officers who signs the Registration Statement,
each person, if any, who controls the Company within the meaning of
the 1933 Act or the 1934 Act, any underwriter and any other
shareholder selling securities pursuant to the Registration Statement
or any of its directors or officers or any person who controls such
shareholder or underwriter within the meaning of the 1933 Act or the
1934 Act (collectively and together with an Indemnified Person, an
"Indemnified Party"), against any Claim to which any of them may
become subject, under the 1933 Act, the 1934 Act or otherwise, insofar
as such Claim arises out of or is based upon any Violation by such
Investor, in each case to the extent (and only to the extent) that
such Violation occurs in reliance upon and in conformity with written
information furnished to the Company by such Investor expressly for
use in connection with such Registration Statement; and subject to
Section 6(c) such Investor will reimburse any legal or other expenses
(promptly as such expenses are incurred and are due and payable)
reasonably incurred by them in connection with investigating or
defending any such Claim; provided, however, that the indemnity
agreement contained in this Section 6(b) shall not apply to amounts
paid in settlement of any Claim if such settlement is effected without
the prior written consent of such Investor, which consent shall not be
unreasonably withheld; provided, further, however, that the Investor
shall be liable under this Agreement (including this Section 6(b) and
Section 7) for only that amount as does not exceed the net proceeds to
such Investor as a result of the sale of Registrable Securities
pursuant to such Registration Statement. Such indemnity shall remain
in full force and effect regardless of any investigation made by or on
behalf of such Indemnified Party and shall survive the transfer of the
Registrable Securities by the Investors pursuant to Section 9.
Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6(b) with respect
to any preliminary prospectus shall not inure to the benefit of any
Indemnified Party if the untrue statement or omission of material fact
contained in the preliminary prospectus was corrected on a timely
basis in the prospectus, as then amended or supplemented.
c. Promptly after receipt by an Indemnified Person or Indemnified Party
under this Section 6 of notice of the commencement of any action
(including any governmental action), such Indemnified Person or
Indemnified Party shall, if a Claim in respect thereof is to be made
against any indemnifying party under this Section 6, deliver to the
indemnifying party a written notice of the commencement thereof, and
the indemnifying party shall have the right to participate in, and, to
the extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume control of the defense
thereof with counsel mutually satisfactory to the indemnifying party
and the Indemnified Person or the Indemnified Party, as the case may
be; provided, however, that an Indemnified Person or Indemnified Party
shall have the right to retain its own counsel with the fees and
expenses to be paid by the indemnifying party, if, in the reasonable
opinion of counsel retained by the indemnifying party, the
representation by such counsel of the Indemnified Person or
Indemnified Party and the indemnifying party would be inappropriate
due to actual or potential differing interests between such
Indemnified Person or Indemnified Party and any other party
represented by such counsel in such proceeding. The indemnifying party
shall pay for only one separate legal counsel for the Indemnified
Persons or the Indemnified Parties, as applicable, and such legal
counsel shall be selected by Investors holding a majority-in-interest
of the Registrable Securities included in the Registration Statement
to which the Claim relates (with the approval of a
majority-in-interest of the Initial Investors), if the Investors are
entitled to indemnification hereunder, or the Company, if the Company
is entitled to indemnification hereunder, as applicable. The failure
to deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action shall not
relieve such indemnifying party of any liability to the Indemnified
Person or Indemnified Party under this Section 6, except to the extent
that the indemnifying party is actually prejudiced in its ability to
defend such action. The indemnification required by this Section 6
shall be made by periodic payments of the amount thereof during the
course of the investigation or defense, as such expense, loss, damage
or liability is incurred and is due and payable.
7. CONTRIBUTION.
To the extent any indemnification by an indemnifying party is prohibited or
limited by law, the indemnifying party agrees to make the maximum contribution
with respect to any amounts for which it would otherwise be liable under Section
6 to the fullest extent permitted by law; provided, however, that (i) no
contribution shall be made under circumstances where the maker would not have
been liable for indemnification under the fault standards set forth in Section
6, (ii) no seller of Registrable Securities guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 0000 Xxx) shall be
entitled to contribution from any seller of Registrable Securities who was not
guilty of such fraudulent misrepresentation, and (iii) contribution (together
with any indemnification or other obligations under this Agreement) by any
seller of Registrable Securities shall be limited in amount to the net amount of
proceeds received by such seller from the sale of such Registrable Securities.
8. REPORTS UNDER THE 1934 ACT.
With a view to making available to the Investors the benefits of Rule 144
promulgated under the 1933 Act or any other similar rule or regulation of the
SEC that may at any time permit the investors to sell securities of the Company
to the public without registration ("Rule 144"), the Company agrees to:
a. make and keep public information available, as those terms are
understood and defined in Rule 144;
b. file with the SEC in a timely manner all reports and other documents
required of the Company under the 1933 Act and the 1934 Act so long as
the Company remains subject to such requirements (it being understood
that nothing herein shall limit the Company's obligations under
Section 4(c) of the Securities Purchase Agreement) and the filing of
such reports and other documents is required for the applicable
provisions of Rule 144; and
c. furnish to each Investor so long as such Investor owns Registrable
Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule
144, the 1933 Act and the 1934 Act, (ii) a copy of the most recent
annual or quarterly report of the Company and such other reports and
documents so filed by the Company, and (iii) such other information as
may be reasonably requested to permit the Investors to sell such
securities pursuant to Rule 144 without registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights under this Agreement shall be automatically assignable by the
Investors to any transferee of all or any portion of Registrable Securities if:
(i) the Investor agrees in writing with the transferee or assignee to assign
such rights, and a copy of such agreement is furnished to the Company within a
reasonable time after such assignment, (ii) the Company is, within a reasonable
time after such transfer or assignment, furnished with written notice of (a) the
name and address of such transferee or assignee, and (b) the securities with
respect to which such registration rights are being transferred or assigned,
(iii) following such transfer or assignment, the further disposition of such
securities by the transferee or assignee is restricted under the 1933 Act and
applicable state securities laws, (iv) at or before the time the Company
receives the written notice contemplated by clause (ii) of this sentence, the
transferee or assignee agrees in writing with the Company to be bound by all of
the provisions contained herein, (v) such transfer shall have been made in
accordance with the applicable requirements of the Securities Purchase
Agreement, and (vi) such transferee shall be an "accredited investor" as that
term defined in Rule 501 of Regulation D promulgated under the 1933 Act.
10. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of this Agreement may be amended and the observance thereof may
be waived (either generally or in a particular instance and either retroactively
or prospectively), only with written consent of the Company, each of the Initial
Investors (to the extent such Initial Investor still owns Registrable
Securities) and Investors who hold a majority interest of the Registrable
Securities. Any amendment or waiver effected in accordance with this Section 10
shall be binding upon each Investor and the Company.
11. MISCELLANEOUS.
a. A person or entity is deemed to be a holder of Registrable Securities
whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices
or elections from two or more persons or entities with respect to the
same Registrable Securities, the Company shall act upon the basis of
instructions, notice or election received from the registered owner of
such Registrable Securities.
b. Any notices required or permitted to be given under the terms hereof
shall be sent by certified or registered mail (return receipt
requested) or delivered personally or by courier (including a
recognized overnight delivery service) or by facsimile and shall be
effective five days after being placed in the mail, if mailed by
regular United States mail, or upon receipt, if delivered personally
or by courier (including a recognized overnight delivery service) or
by facsimile, in each case addressed to a party. The addresses for
such communications shall be:
If to the Company:
iDial Networks, Inc.
00000 Xxxx Xxxxxxx Xxxxx
Xxxxx 000
Xxxxxx, Xxxxxxxx 00000
Attention: Xxxx X. Xxxx
Telephone: 000-000-0000
Facsimile: 000-000-0000
With copies to:
Sichenzia Xxxx Xxxxxxxx Xxxxxxx LLP
1065 Avenue of the Xxxxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxx Xxxxxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Email: XXxxxxxxxx@xxxxxx.xxx
If to an Investor: to the address set forth immediately below such Investor's
name on the signature pages to the Securities Purchase Agreement.
With a copy to:
Xxxxxxx Xxxxx Xxxxxxx & Ingersoll, LLP
0000 Xxxxxx Xxxxxx
00xx Xxxxx
Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000
Attention: Xxxxxx X. Xxxxxxxx, Esq.
Telephone: 000-000-0000
Facsimile: 000-000-0000
Email: xxxxxxxx@xxxxxxxxxxxx.xxx
c. Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right
or remedy, shall not operate as a waiver thereof.
d. THIS AGREEMENT SHALL BE ENFORCED, GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE,
WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS. THE PARTIES
HERETO HEREBY SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE UNITED
STATES FEDERAL COURTS LOCATED NEW YORK, NEW YORK WITH RESPECT TO ANY
DISPUTE ARISING UNDER THIS AGREEMENT, THE AGREEMENTS ENTERED INTO IN
CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY. BOTH PARTIES IRREVOCABLY WAIVE THE DEFENSE OF AN INCONVENIENT
FORUM TO THE MAINTENANCE OF SUCH SUIT OR PROCEEDING. BOTH PARTIES
FURTHER AGREE THAT SERVICE OF PROCESS UPON A PARTY MAILED BY FIRST
CLASS MAIL SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF
PROCESS UPON THE PARTY IN ANY SUCH SUIT OR PROCEEDING. NOTHING HEREIN
SHALL AFFECT EITHER PARTY'S RIGHT TO SERVE PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW. BOTH PARTIES AGREE THAT A FINAL NON-APPEALABLE
JUDGMENT IN ANY SUCH SUIT OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE
ENFORCED IN OTHER JURISDICTIONS BY SUIT ON SUCH JUDGMENT OR IN ANY
OTHER LAWFUL MANNER. THE PARTY WHICH DOES NOT PREVAIL IN ANY DISPUTE
ARISING UNDER THIS AGREEMENT SHALL BE RESPONSIBLE FOR ALL FEES AND
EXPENSES, INCLUDING ATTORNEYS' FEES, INCURRED BY THE PREVAILING PARTY
IN CONNECTION WITH SUCH DISPUTE.
e. In the event that any provision of this Agreement is invalid or
unenforceable under any applicable statute or rule of law, then such
provision shall be deemed inoperative to the extent that it may
conflict therewith and shall be deemed modified to conform with such
statute or rule of law. Any provision hereof which may prove invalid
or unenforceable under any law shall not affect the validity or
enforceability of any other provision hereof.
f. This Agreement, the Warrants and the Securities Purchase Agreement
(including all schedules and exhibits thereto) constitute the entire
agreement among the parties hereto with respect to the subject matter
hereof and thereof. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein and
therein. This Agreement and the Securities Purchase Agreement
supersede all prior agreements and understandings among the parties
hereto with respect to the subject matter hereof and thereof.
g. Subject to the requirements of Section 9 hereof, this Agreement shall
be binding upon and inure to the benefit of the parties and their
successors and assigns.
h. The headings in this Agreement are for convenience of reference only
and shall not form part of, or affect the interpretation of, this
Agreement.
i. This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original but all of which shall constitute
one and the same agreement and shall become effective when
counterparts have been signed by each party and delivered to the other
party. This Agreement, once executed by a party, may be delivered to
the other party hereto by facsimile transmission of a copy of this
Agreement bearing the signature of the party so delivering this
Agreement.
j. Each party shall do and perform, or cause to be done and performed,
all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the
other party may reasonably request in order to carry out the intent
and accomplish the purposes of this Agreement and the consummation of
the transactions contemplated hereby.
k. Except as otherwise provided herein, all consents and other
determinations to be made by the Investors pursuant to this Agreement
shall be made by Investors holding a majority of the Registrable
Securities, determined as if the all of the Debentures then
outstanding have been converted into for Registrable Securities.
l. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to each Investor by vitiating
the intent and purpose of the transactions contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for
breach of its obligations under this Agreement will be inadequate and
agrees, in the event of a breach or threatened breach by the Company
of any of the provisions under this Agreement, that each Investor
shall be entitled, in addition to all other available remedies in law
or in equity, and in addition to the penalties assessable herein, to
an injunction or injunctions restraining, preventing or curing any
breach of this Agreement and to enforce specifically the terms and
provisions hereof, without the necessity of showing economic loss and
without any bond or other security being required.
m. The language used in this Agreement will be deemed to be the language
chosen by the parties to express their mutual intent, and no rules of
strict construction will be applied against any party.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the Company and the undersigned Initial Investors have
caused this Agreement to be duly executed as of the date first above written.
IDIAL NETWORKS, INC.
--------------------------------------
Xxxx X. Xxxx
Chief Executive Officer
AJW PARTNERS, LLC
By: SMS Group, LLC
--------------------------------------
Xxxxx X. Xxxxxxxx
Manager
AJW OFFSHORE, LTD.
By: First Street Manager II, LLC
--------------------------------------
Xxxxx X. Xxxxxxxx
Manager
AJW QUALIFIED PARTNERS, LLC
By: AJW Manager, LLC
------------------------------------
Xxxxx X. Xxxxxxxx
Manager
