EXHIBIT 10.2
NOTE AND WARRANT PURCHASE AGREEMENT
This NOTE AND WARRANT PURCHASE AGREEMENT ("AGREEMENT") is dated as of
__________ ___, 2002, by and among BestNet Communications Corp., a Nevada
corporation (the "COMPANY"), and each person or entity who executes a
counterpart signature page to this Agreement and is listed as an investor on
SCHEDULE I attached to this Agreement (each individually an "INVESTOR" and
collectively the "INVESTORS").
W I T N E S S E T H:
WHEREAS, the Company desires to sell and issue up to an aggregate of
$1,000,000 (in one or more promissory notes) in the original principal amount of
its 6% Convertible Promissory Notes, in the identical form and substance of
EXHIBIT A attached hereto, on the terms and conditions set forth herein (the
"NOTES"), to be unsecured obligations of the Company and to bear interest
(computed on the basis of a 360-day year and actual days elapsed) from the date
of issuance at the rate of six percent (6%) per annum;
WHEREAS, the Company intends to offer the Notes during the period ending
September 30, 2002, subject to the Company's right to unilaterally extend such
period one time for up to an additional 30 days (the "OFFERING PERIOD");
WHEREAS, each Investor listed on SCHEDULE I will also receive two-year
warrants (the "INVESTOR WARRANTS"), in substantially the form and substance of
EXHIBIT B attached hereto, to purchase one share of common stock, par value
$.001 per share, of the Company for each $2.00 of Notes acquired by such
Investor (the "WARRANT SHARES"); and
WHEREAS, the per share exercise price of the Investor Warrants shall be
$1.50.
NOW, THEREFORE, in consideration of the foregoing premises and the
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
CERTAIN DEFINITIONS. As used in this Agreement, the following terms shall
have the following respective meanings:
"Closing" and "Closing Date" shall have the meanings ascribed to such terms
in Section 1.3 herein.
"Commission" shall mean the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
"Common Stock" shall mean the common stock, par value $.001 per share, of
the Company.
"Holder" and "Holders" shall include an Investor or Investors,
respectively, and any transferee of the Notes, the Warrants or the Underlying
Shares which have been transferred in compliance thereof.
"Maturity Date" shall mean the 360th day following the Closing Date, the
date upon which the Notes mature and the principal thereof and any accrued but
unpaid interest thereon becomes due and payable.
"Regulation D" shall mean Regulation D as promulgated pursuant to the
Securities Act, and as subsequently amended.
"Securities" shall mean the Notes, the Warrants and the Warrant Shares.
"Securities Act" or "Act" shall mean the Securities Act of 1933, as
amended.
ARTICLE I
PURCHASE AND SALE OF THE STOCK AND WARRANTS
Section 1.1 PURCHASE AND SALE.
(a) Upon the following terms and conditions, the Company shall issue and
sell to each Investor listed on SCHEDULE I severally, and each Investor listed
on SCHEDULE I severally shall purchase from the Company, the aggregate principal
amount of Notes and the number of Investor Warrants indicated next to such
Investor's name on SCHEDULE I attached hereto.
Section 1.2 PURCHASE PRICE. The purchase price for the Notes shall be 100%
of the principal amount thereof (the "NOTE PURCHASE PRICE"). Each Investor
listed on SCHEDULE I will also receive Warrants to purchase their pro rata share
of the Warrant Shares.
Section 1.3 THE CLOSING.
(a) The date of this Agreement shall be the date this Agreement is
signed by the first Investor(s) to acquire the Notes hereunder. It is expected
that there will be one or more closings of the sale of the Notes hereunder until
such time as all of the Notes have been acquired or the Offering Period has
expired. Each closing of the purchase and sale of the Notes and Investor
Warrants (the "CLOSING") shall take place by facsimile transmission of signature
pages to each of the documents contemplated by this Agreement, following
acceptance by the Company of subscriptions for Notes being offered hereby, which
acceptance shall not occur until the conditions set forth in Article IV hereof
with respect to each sale shall be fulfilled or waived in accordance herewith.
The date on which the Closing occurs is referred to herein as the "CLOSING
DATE."
(b) On the Closing Date, the Company shall deliver to the applicable
Investor the Notes and corresponding Investor Warrants purchased hereunder by
such Investor registered in the name of such Investor, and such Investor shall
deliver to the Company the purchase price for the Warrants and Notes purchased
by such Investor hereunder by wire transfer in immediately available funds to an
account designated in writing not less than two (2) business days prior to the
Closing Date by the Company. Each party shall deliver all documents, instruments
and writings required to be delivered by such party pursuant to this Agreement
at or prior to the Closing Date.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby makes the following representations and warranties to each of the
Investors from and as of the date hereof through the Closing Date:
(a) ORGANIZATION AND QUALIFICATION; MATERIAL ADVERSE EFFECT. The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of Nevada. Except for the Company's subsidiaries
disclosed in its Form 10-KSB for the fiscal year ended August 31, 2001 or its
subsequently filed Form 10-QSBs (the "COMPANY SEC FILINGS"), there are no other
corporations or other entities (including partnerships, limited liability
companies and joint ventures) in which the Company directly or indirectly owns
at least a majority of the voting power represented by the outstanding capital
stock or other voting securities or interests having voting power under ordinary
circumstances to elect a majority of the directors or similar members of the
governing body, or otherwise to direct the management and policies, of such
corporation or entity. The Company has the requisite corporate power to own its
properties and to carry on its business as now being conducted. The Company is
duly qualified as a foreign corporation to do business and is in good standing
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, individually or in the aggregate, have a
Material Adverse Effect. "MATERIAL ADVERSE EFFECT" means any adverse effect on
the business, operations, properties, prospects, or financial condition of the
entity with respect to which such term is used and which is material to such
entity and other entities controlling or controlled by such entity, taken as a
whole, and any material adverse effect on the transactions contemplated under
the Agreement or any other agreement or document contemplated hereby.
(b) AUTHORIZATION; ENFORCEMENT. (i) The Company has the requisite
corporate power and authority to enter into and perform this Agreement and to
issue the Securities in accordance with the terms hereof, the terms of the Notes
and the terms of the Investor Warrants, (ii) the execution and delivery of this
Agreement by the Company and the consummation by it of the transactions
contemplated hereby and thereby, including the issuance of the Notes, the
Investor Warrants in accordance with the terms of this Agreement and the shares
of Common Stock underlying the Notes and the Investor Warrants (the "UNDERLYING
SHARES"), have been duly authorized by all necessary action, and no further
consent or authorization of the Company is required, (iii) this Agreement has
been duly executed and delivered by the Company, and (iv) each of this
Agreement, the Notes and the Investor Warrants constitutes the valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms, except as the enforceability thereof may be limited by bankruptcy,
insolvency, reorganization or similar laws relating to the enforcement of
creditors' rights generally and by general principles of equity.
(c) CAPITALIZATION. SCHEDULE 2.1(C) sets forth the outstanding capital
stock of the Company. The issued and outstanding shares of capital stock of the
Company have been validly issued and are fully paid and non-assessable. Except
as set forth on SCHEDULE 2.1(C), there are no outstanding options, warrants,
rights to subscribe for, calls or commitments of any character whatsoever
relating to, or securities or rights exchangeable or convertible into, any
ownership interest in the Company.
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(d) ISSUANCE OF NOTES AND THE INVESTOR WARRANTS. The Notes and
Investor Warrants are duly authorized and the Underlying Shares will be, as of
the Closing Date, reserved for issuance and, upon conversion of the Notes in
accordance with the terms thereof and upon exercise of the Warrants in
accordance with terms thereof, will be validly issued, fully paid and
non-assessable, free and clear of any and all liens, claims and encumbrances,
except for liens, claims and encumbrances placed upon such Securities by an
Investor.
(e) NO CONFLICTS. The execution, delivery and performance of this
Agreement, the Notes and the Investor Warrants by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby
do not and will not (i) result in a violation of the organizational documents,
as amended, of the Company or (ii) conflict with, or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture, patent, patent license or instrument
to which the Company is a party, or result in a violation of any Federal, state,
local or foreign law, rule, regulation, order, judgment or decree (including
Federal and state securities laws and regulations) applicable to the Company or
by which any property or asset of the Company is bound (except for such
conflicts, defaults, terminations, amendments, accelerations, cancellations and
violations as would not, individually or in the aggregate, have a Material
Adverse Effect); provided, that, for purposes of such representation as to
Federal, state, local or foreign law, rule or regulation, no representation is
made herein with respect to any of the same applicable solely to the Investors
and not to the Company. The business of the Company has not been, is not now
being conducted in violation of any law, ordinance or regulation of any
governmental entity, except for violations which either singly or in the
aggregate do not and will not have a Material Adverse Effect. The Company is not
required under Federal, state, local or foreign law, rule or regulation to
obtain any consent, authorization or order of, or to 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, the Notes, the
Investor Warrants or issue and sell the Notes or such Warrants in accordance
with the terms hereof, the Underlying Shares issuable upon conversion of the
Notes and upon exercise of the Warrants, 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 Investors
herein.
(f) NO MATERIAL ADVERSE CHANGE. Since May 31, 2002, the date through
which the most recent unaudited financial statements (the "FINANCIAL
STATEMENTS") of the Company have been prepared, no event which, individually or
in the aggregate, when considered with any other event, had or is likely to have
a Material Adverse Effect has occurred or exists with respect to the Company,
except as otherwise disclosed or reflected in Financial Statements, and as
otherwise provided to the Investors prior to the date hereof.
(g) NO UNDISCLOSED LIABILITIES. Except as set forth in the SEC
Filings, the Company does not have any liabilities or obligations not disclosed
in the Financial Statements, other than those liabilities incurred in the
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ordinary course of its respective business since May 31, 2002, or liabilities or
obligations, individually or in the aggregate, which do not or would not have a
Material Adverse Effect on the Company.
(h) NO GENERAL SOLICITATION. Neither the Company nor, to the Company's
knowledge, any of its affiliates or any person acting on its or their behalf has
engaged in any form of general solicitation or general advertising (within the
meaning of Regulation D) in connection with the offer or sale of the Securities.
(i) INTELLECTUAL PROPERTY. Except as set forth in the SEC Filings, the
Company owns, or has legal and valid rights by license, lease, or other
agreement to use, all trademarks, trade names, service marks, Internet domain
names, logos, assumed names, copyrights, patents, trade secrets, software,
databases and names, likenesses and other information concerning real persons,
and all registrations and applications therefor (collectively, the "INTELLECTUAL
PROPERTY RIGHTS") which are used or are needed to conduct its business as it is
now being conducted or as proposed to be conducted. The Company has no reason to
believe that the Intellectual Property Rights owned or used by the Company are
invalid or unenforceable or that the use of such Intellectual Property Rights by
the Company infringes upon or conflicts with any right of any third party, and
the Company has no knowledge of a basis for such claim or has received notice of
any such infringement or conflict. The Company has no knowledge of any
infringement or other violation of the Company's Intellectual Property Rights by
any third party. All registrations and applications for material Intellectual
Property Rights owned by the Company are valid and subsisting, and standing in
the record ownership of the Company. There are no settlements, consents,
agreements to forebear or other similar agreements or arrangements to which the
Company is bound which materially affects its rights to own, use or enforce any
Intellectual Property Rights.
(j) NO LITIGATION. Except as set forth in the SEC Filings, no
litigation or claim (including those for unpaid taxes) against the Company is
pending or, to the Company's knowledge, threatened, and no other event has
occurred, which if determined adversely would have a Material Adverse Effect on
the Company, or would materially adversely effect the transactions contemplated
hereby.
(k) BROKERS. During the Offering Period, the Company may elect to pay
brokerage commissions to registered broker-dealers who, at the Company's
request, assist in the sale of the Notes. The commissions will be up to a
maximum of eight percent (8%) of any proceeds received from the Notes offered
and sold by an authorized broker-dealer.
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Section 2.2 REPRESENTATIONS AND WARRANTIES OF THE INVESTORS. Each of the
Investors, severally and not jointly, hereby makes the following representations
and warranties to the Company as of the date hereof and on the Closing Date:
(a) AUTHORIZATION; ENFORCEMENT. (i) Such Investor has the requisite
power and authority, or the legal capacity, as the case may be, to enter into
and perform this Agreement and to purchase the Securities being sold to such
Investor hereunder, (ii) the execution and delivery of this Agreement by such
Investor and the consummation by it of the transactions contemplated hereby have
been duly authorized by all necessary corporate or partnership action, as
required, and (iii) this Agreement constitutes the valid and binding obligation
of such Investor enforceable against such Investor in accordance its terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation or similar laws relating to,
or affecting generally the enforcement of creditors' rights and remedies or by
other equitable principles of general application.
(b) NO CONFLICTS. The execution, delivery and performance of this
Agreement and the consummation by such Investor of the transactions contemplated
hereby do not and will not (i) result in a violation of such Investor's
organizational documents, or (ii) conflict with any agreement, indenture, or
instrument to which such Investor is a party, or (iii) result in a violation of
any law, rule, or regulation or any order, judgment or decree of any court or
governmental agency applicable to such Investor. Such Investor is not required
to obtain any consent or authorization of any governmental agency in order for
it to perform its obligations under this Agreement.
(c) INVESTMENT REPRESENTATION. Such Investor is purchasing the
securities purchased hereunder for its own account and not with a view to
distribution in violation of any securities laws. With respect to the purchase
of the securities pursuant to this Agreement, Investor is not acting as an
"underwriter" within the meaning of Section 2(a)(11) of the Securities Act. Such
Investor has no present intention to sell the securities purchased hereunder and
such Investor has no present arrangement (whether or not legally binding) to
sell the Securities purchased hereunder to or through any person or entity;
provided, however, that by the representations herein, such Investor does not
agree to hold any of the Securities for any minimum or other specific term and
reserves the right to dispose of any of the Securities at any time in accordance
with Federal and state securities laws applicable to such disposition.
(d) ACCREDITED INVESTOR. Such Investor is an "ACCREDITED INVESTOR" as
defined in Rule 501 promulgated under the Securities Act. The Investor has such
knowledge and experience in financial and business matters in general and
investments in particular, so that such Investor is able to evaluate the merits
and risks of an investment in the Securities purchased hereunder and to protect
its own interests in connection with such investment. In addition (but without
limiting the effect of the Company's representations and warranties contained
herein), such Investor has reviewed the Company's SEC Filings and received such
information as it considers necessary or appropriate for deciding whether to
purchase the Securities purchased hereunder. Notwithstanding the foregoing, the
Investor has not been provided and is not otherwise in possession of material
nonpublic information pertaining to the Company.
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(e) RULE 144. Such Investor understands that there is no public
trading market for the Notes or the Warrants, that none is expected to develop,
and that the Notes and the Warrants must be held indefinitely unless such
securities are registered under the Securities Act or an exemption from
registration is available. Such Investor understands that any Underlying Shares
issued upon exercise of the Warrants must be held indefinitely unless such
securities are registered under the Act or an exemption from registration is
available. Such Investor has been advised or is aware of the provisions of Rule
144 promulgated under the Act.
(f) BROKERS. Investor has taken no action, which would give rise to
any claim by any person for brokerage commissions, finder's fees or similar
payments by the Company relating to this Agreement or the transactions
contemplated hereby.
(g) RELIANCE BY THE COMPANY. Such Investor understands that the Notes
and Warrants are being offered and sold in reliance on a transactional exemption
from the registration requirements of Federal and state securities laws and that
the Company is relying upon the truth and accuracy of the representations,
warranties, agreements, acknowledgments and understandings of such Investor set
forth herein in order to determine the applicability of such exemptions and the
suitability of such Investor to acquire the Securities.
ARTICLE III
COVENANTS
Section 3.1 CERTIFICATES ON CONVERSION OR EXERCISE. Upon (i) the exercise
of any Warrants in accordance with the terms of the Warrants, the Company shall
issue and deliver to such Investor (or the then holder) within five (5) business
days of the exercise date, (x) a Certificate or Certificates representing the
Underlying Shares issuable upon exercise, and (y) a new certificate or
certificates for the Warrants of such Investor (or holder) which have not yet
been exercised but which are evidenced in part by the certificate(s) submitted
to the Company in connection with such exercise (with the number of and
denomination of such new certificate(s) designated by such Investor or holder).
Section 3.2 REPLACEMENT CERTIFICATES. The certificate(s) representing the
Notes, the Underlying Shares or the Warrants held by any Investor (or then
holder) may be exchanged by such Investor (or such holder) at any time and from
time to time for certificates with different denominations representing an equal
amount of Notes or an equal number of Warrants, as the case may be, as
reasonably requested by such Investor (or such holder) upon surrendering the
same. No service charge will be made for such registration, transfer or
exchange.
Section 3.3 NOTICES. The Company agrees to provide all holders of Notes and
all holders of Warrants with copies of all notices and information, including,
without limitation, notices and proxy statements in connection with any
meetings, that are provided to the holders of Underlying Shares in the Company,
contemporaneously with the delivery of such notices or information to such
existing members.
Section 3.4 RESERVATION OF UNDERLYING SHARES ISSUABLE UPON EXERCISE. The
Company shall at all times reserve and keep available, solely for the purpose of
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affecting the exercise of the Warrants, such number of Underlying Shares as
shall from time to time be sufficient to effect the exercise of all outstanding
Warrants.
Section 3.5 NO IMPAIRMENT. The Company will not, by amendment of its
organizational documents or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities, or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed by it under this Agreement, the Notes and
the Warrants, but will at all times in good faith assist in the carrying out of
all the provisions of such agreements and instruments.
ARTICLE IV
CONDITIONS
Section 4.1 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE COMPANY TO ISSUE
AND SELL THE NOTES AND THE INVESTOR WARRANTS. The obligation hereunder of the
Company to issue and sell the Notes and Investor Warrants to the Investors is
subject to the satisfaction, at or before the Closing Date, of each of the
conditions set forth below. These conditions are for the Company's sole benefit
and may be waived by the Company at any time in its sole discretion.
(a) ACCURACY OF THE INVESTORS' REPRESENTATIONS AND WARRANTIES. The
representations and warranties of each Investor shall be true and correct in all
material respects as of the date when made and as of the Closing Date as though
made at that time (except for representations and warranties that speak as of a
particular date, which shall be true and correct in all material respects as of
such other date).
(b) PERFORMANCE BY THE INVESTORS. Each Investor shall have performed
all agreements and satisfied all conditions required hereby to be performed or
satisfied by such Investor at or prior to the Closing Date.
(c) NO INJUNCTION. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
(d) APPROVALS. The Company shall have obtained the requisite
consents/approvals with respect to the transactions contemplated by this
Agreement in accordance with the Company's organizational documents, including,
without limitation, receipt of approval of the Company's board of directors.
Section 4.2 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE INVESTORS TO
PURCHASE THE NOTES AND THE WARRANTS. The obligation hereunder of each Investor
to acquire and pay for the Notes and Warrants is subject to the satisfaction, at
or before the Closing Date, of each of the conditions set forth below. These
conditions are for each Investor's sole benefit and may be waived by each
Investor at any time in its sole discretion.
(a) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND WARRANTIES. The
representation and warranties of the Company shall be true and correct in all
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material respects as of the date when made and as of the Closing Date as though
made at that time (except for representations and warranties that speak as of a
particular date which shall be true and correct in all material respects as of
such other date), and except that all representations and warranties that by
their terms are qualified by reference to "materiality" or to a "Material
Adverse Effect" shall be, or have been, true and correct in all respects.
(b) PERFORMANCE BY THE COMPANY. The Company shall have performed all
agreements and satisfied all conditions required to be performed or satisfied by
the Company at or prior to the Closing Date.
(c) NO INJUNCTION. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority or competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
(d) OFFICER'S CERTIFICATE. The Company shall have delivered to the
Investors a certificate in form and substance reasonably satisfactory to the
Investors, executed by the Secretary or an Assistant Secretary of the Company on
behalf of the Company, certifying as to the satisfaction of all closing
conditions, incumbency of signing officers, charter, Bylaws, good standing and
authorizing resolutions of the Company.
ARTICLE V
LEGEND AND STOCK; REGISTRATION RIGHTS
Section 5.1 LEGEND AND STOCK. Each certificate representing the Notes, the
Warrants and the Underlying Shares shall be stamped or otherwise imprinted with
a legend substantially in the following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), AND THEY MAY NOT BE OFFERED, SOLD, PLEDGED,
HYPOTHECATED, ASSIGNED OR TRANSFERRED EXCEPT (I) PURSUANT TO A REGISTRATION
STATEMENT UNDER THE SECURITIES ACT WHICH HAS BECOME EFFECTIVE AND IS CURRENT
WITH RESPECT TO THESE SECURITIES OR (II) PURSUANT TO A SPECIFIC EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT, BUT ONLY UPON A HOLDER HEREOF FIRST
HAVING OBTAINED THE WRITTEN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO THE
ISSUER THAT THE PROPOSED DISPOSITION IS CONSISTENT WITH ALL APPLICABLE
PROVISIONS OF THE SECURITIES ACT AS WELL AS ANY APPLICABLE "BLUE SKY" OR SIMILAR
SECURITIES LAW.
Section 5.2 REGISTRATION RIGHTS. The shares of Common Stock issuable upon
conversion of the Notes and upon exercise of the Warrants shall be entitled to
the registration rights set forth in a registration rights agreement, in
substantially the form and substance of EXHIBIT C attached hereto.
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ARTICLE VI
TERMINATION
Section 6.1 TERMINATION BY MUTUAL CONSENT. This Agreement may be terminated
at any time prior to the Closing Date by the mutual written consent of the
Company and the Investors.
Section 6.2 OTHER TERMINATION. This Agreement may be terminated by the
Company or by any of the Investors at any time if the Closing Date shall not
have occurred by the fifth business day following the date of this Agreement;
provided, however, that the right to terminate this Agreement under this Section
6.2 shall not be available to any party whose failure to fulfill any obligation
under this Agreement has been the cause of, or resulted in, the failure of the
Closing Date to have occurred on or prior to such date.
ARTICLE VII
MISCELLANEOUS
Section 7.1 STAMP TAXES; AGENT FEES. The Company shall pay all stamp and
other taxes and duties levied in connection with the issuance of the Notes and
the Warrants pursuant hereto, and the Underlying Shares issued upon exercise of
the Warrants.
Section 7.2 SPECIFIC ENFORCEMENT; CONSENT TO JURISDICTION.
(a) The Company and the Investors acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent or cure breaches of the provisions of
this Agreement and to enforce specifically the terms and provisions hereof, this
being in addition to any other remedy to which any of them may be entitled by
law or equity.
(b) The Company and each of the Investors (i) hereby irrevocably
submits to the exclusive jurisdiction of the United States District Court for
the District of Arizona, the Arizona State courts and other courts of the United
States sitting in Maricopa County, Arizona for the purposes of any suit, action
or proceeding arising out of or relating to this Agreement and (ii) hereby
waives, and agrees not to assert in any such suit, action or proceeding, any
claim that it is not personally subject to the jurisdiction of such court, that
the suit, action or proceeding is brought in an inconvenient forum or that the
venue of the suit, action or proceeding is improper. The Company and each of the
Investors consents to process being served in any such suit, action or
proceeding by mailing a copy thereof to such party at the address in effect for
notices to it under this Agreement and agrees that such service shall constitute
good and sufficient service of process and notice thereof. Nothing in this
paragraph shall affect or limit any right to serve process in any other manner
permitted by law.
Section 7.3 ENTIRE AGREEMENT; AMENDMENT. This Agreement together with the
agreements and documents executed in connection herewith, contains the entire
understanding of the parties with respect to the matters covered hereby and,
except as specifically set forth herein, neither the Company nor any Investor
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makes any representation, warranty, covenant or undertaking with respect to such
matters. No provision of this Agreement may be waived or amended other than by a
written instrument signed by the party against whom enforcement of any such
amendment or waiver is sought.
Section 7.4 NOTICES. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one business day after deposit with
a nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile numbers
for such communications shall be:
to the Company: BestNet Communications Corp.
0000 Xxxx Xxxxxxx Xxxx, Xxxxx X
Xxxxx Xxxxxx, Xxxxxxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attn: Xxxxxx X. Xxxxxxxxx
with copies to: Squire, Xxxxxxx & Xxxxxxx L.L.P.
Two Renaissance Square
00 Xxxxx Xxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxx 00000-0000
Telephone: 000-000-0000
Facsimile: 000-000-0000
Attn: Xxxxxxx X. Xxxx, Esq.
to the Investors: To each Investor with a copy to its counsel at the
addresses set forth on SCHEDULE I of this Agreement.
Any party hereto may from time to time change its address for notices by giving
at least five (5) days written notice of such changed address to the other
parties hereto. Written confirmation of receipt (A) given by the recipient of
such notice, consent, waiver or other communication, (B) mechanically or
electronically generated by the sender's facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission or (C) provided by a nationally recognized overnight delivery
service shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above.
Section 7.5 INDEMNITY. Each party shall indemnify, defend and hold harmless
each other party against any loss, cost or damages (including reasonable
attorney's fees) incurred as a result of such parties' breach of any
representation, warranty, covenant or agreement in this Agreement.
Section 7.6 WAIVERS. No waiver by any party of any default with respect to
any provision, condition or requirement of this Agreement shall be deemed to be
a continuing waiver in the future or a waiver of any other provision, condition
11
or requirement hereof, nor shall any delay or omission of any party to exercise
any right hereunder in any manner impair the exercise of any such right accruing
to it thereafter.
Section 7.7 HEADINGS. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
Section 7.8 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein,
this Agreement shall be binding upon and inure to the benefit of the parties and
their successors and permitted assigns. The parties hereto may amend this
Agreement without notice to or the consent of any third party. The Company may
not assign this Agreement or any rights or obligations hereunder without the
prior written consent of such Investors holding a majority in principal amount
of the Notes (which consent may be withheld for any reason in their sole
discretion), except that the Company may assign this Agreement in connection
with a merger, consolidation, business combination or the sale of all or
substantially all of its assets provided that the Company is not released from
any of its obligations hereunder, such successor in interest or assignee assumes
all obligations of the Company hereunder, and appropriate adjustment of the
provisions contained in this Agreement, the Notes and the Investor Warrants is
made, in form and substance satisfactory to the Investors, to place the
Investors in substantially the same position as they would have been but for
such assignment. No Investor may assign this Agreement (in whole or in part) or
any rights or obligations hereunder without the Company's prior written consent
(which consent may be withheld for any reason in their sole discretion).
Section 7.9 NO THIRD PARTY BENEFICIARIES. This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
Section 7.10 GOVERNING LAW. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of
Arizona without regard to such State's principles of conflict of laws.
Section 7.11 SURVIVAL. The representations and warranties and the
agreements and covenants of the Company and each Investor contained herein shall
survive the Closing.
Section 7.12 EXECUTION. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement, it
being understood that all parties need not sign the same counterpart.
Section 7.13 PUBLICITY. The Company agrees that it will not include in any
public announcement the name of any Investor without its consent, unless and
until such disclosure is required by law or applicable regulation, and then only
to the extent of such requirement.
Section 7.14 SEVERABILITY. The parties acknowledge and agree that all
representations, warranties, covenants and agreements of the Investors hereunder
are several and not joint, that no Investor shall have any responsibility or
12
liability for the representations, warrants, agreements, acts or omissions of
any other Investor, and that any rights granted to "Investors" hereunder shall
be enforceable by each Investor hereunder.
Section 7.15 LIKE TREATMENT OF HOLDERS. Neither the Company nor any of its
affiliates shall, directly or indirectly, pay or cause to be paid any
consideration, whether by way of interest, fee, payment for the redemption or
exchange of Securities, or otherwise, to any holder of Securities, for or as an
inducement to, or in connection with the solicitation of, any consent, waiver or
amendment of any terms or provisions of the Securities or this Agreement, unless
such consideration is required to be paid to all holders of Securities bound by
such consent, waiver or amendment whether or not such holders so consent, waive
or agree to amend and whether or not such holders tender their Securities for
redemption or exchange. The Company shall not, directly or indirectly, redeem
any Securities unless such offer of redemption is made pro rata to all holders
of Securities on identical terms.
Section 7.16 EXPENSES. Each party shall pay its own expenses incident to
the preparation and performance of this Agreement and the documents provided for
herein.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
BESTNET COMMUNICATIONS CORP.,
a Nevada corporation
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
INVESTOR:
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
14
EXHIBITS AND SCHEDULES
Exhibit A Form of Notes
Exhibit B Form of Warrant
Exhibit C Form of Registration Rights Agreement
SCHEDULE I
NAME AND ADDRESS OF NAME AND ADDRESS PRINCIPAL AMOUNT NO. OF SHARES
INVESTOR (1) OF REPRESENTATIVE PURCHASE PRICE OF NOTES UNDERLYINGWARRANTS
------------ ----------------- -------------- -------- ------------------
$
EXHIBIT A
THE SECURITIES EVIDENCED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND HAVE BEEN TAKEN FOR
INVESTMENT PURPOSES ONLY, AND NOT WITH A VIEW TO THE DISTRIBUTION THEREOF, AND,
EXCEPT AS STATED IN THE NOTE AND WARRANT PURCHASE AGREEMENT DATED __________
___, 2002, PURSUANT TO WHICH SUCH SECURITIES WERE ISSUED, SUCH SECURITIES MAY
NOT BE SOLD, PLEDGED OR TRANSFERRED UNLESS THERE IS AN EFFECTIVE REGISTRATION
STATEMENT OR REGULATION A NOTIFICATION UNDER THE ACT COVERING SUCH SECURITIES OR
THE COMPANY RECEIVES AN OPINION OF COUNSEL (WHICH MAY BE COUNSEL FOR THE
COMPANY), REASONABLY SATISFACTORY IN FORM AND CONTENT TO THE COMPANY, STATING
THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS
DELIVERY REQUIREMENTS OF THE ACT.
$_________ __________ ___, 0000 Xxxxx Xxxxxx, XX
6% CONVERTIBLE PROMISSORY NOTE
FOR VALUE RECEIVED, BESTNET COMMUNICATIONS CORP., a Nevada corporation (the
"COMPANY"), hereby promises to pay to the order of _____________________, a
_________________ corporation ("HOLDER"), or Holder's registered assigns, the
principal sum of __________________ Dollars ($_______________) or, if less, the
aggregate unpaid principal amount this Note on the Maturity Date (as defined
herein); together with interest on any and all principal amounts remaining
unpaid hereunder from time to time outstanding from the date hereof until
payment in full.
1. NOTE AND WARRANT PURCHASE AGREEMENT. This Note has been issued to Holder
by the Company pursuant to the Note and Warrant Purchase Agreement dated of even
date herewith (the "NOTE PURCHASE AGREEMENT"), between the Company and the
Holder. Capitalized terms used herein but not herein defined shall have the
meanings ascribed thereto in the Note Purchase Agreement, unless the context
otherwise requires.
2. INTEREST. Except as otherwise provided below, interest will accrue on
the unpaid principal balance of this Note outstanding from time to time at the
rate of six percent (6%) per annum, calculated on the basis of the actual number
of days elapsed and on the basis of a 360 day year. Except as provided herein or
in the Note Purchase Agreement, all accrued interest on this Note shall be paid
quarterly commencing on __________ ____, 2002 and on the same day of each of
________________ thereafter. If the Company shall default in the payment of the
principal of or interest on this Note, the Company shall on demand from time to
time pay interest (i) on the amount of such defaulted principal and, (ii) to the
extent permitted by law, on the amount of such defaulted interest up to the date
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of actual payment of such defaulted principal and interest amounts (as well as
before judgment), at a rate per annum equal to six percent (6%) in excess of the
rate otherwise applicable to such obligations. In the event the principal amount
of this Note is converted into Common Stock pursuant to Section 7 hereof, this
Note shall accrue no interest and none shall be payable at the time of such
conversion.
3. PREPAYMENT. This Note may be prepaid at any time without penalty. Any
prepayment hereunder shall be credited first upon interest accrued and the
remainder, if any, upon the outstanding principal amount of this Note.
4. PAYMENT. The date (the "MATURITY DATE") upon which this Note matures and
the principal hereof and all interest accrued hereon become due shall be
__________ ___, 2003. All payments of principal and interest due in respect of
this Note shall be made without deduction, defense, set off or counterclaim, in
lawful money of the United States of America, and in same day funds and
delivered to the Holder by wire transfer to a bank account of Holder, as
specified by Holder from time to time, or at such other place as shall be
designated by notice for such purpose in accordance with the terms of the Note
Purchase Agreement.
5. REGISTRATION RIGHTS. The shares of common stock issuable upon conversion
of this Note shall be entitled to the registration rights set forth in the
Registration Rights Agreement attached as an Exhibit to the Note Purchase
Agreement.
6. NOTE. This Note is one of the Notes (as defined in the Note Purchase
Agreement) referred to in, and is entitled to the benefits of, the Note Purchase
Agreement, which Note Purchase Agreement, among other things, contains
provisions for acceleration of the maturity hereof upon the happening of certain
stated events, for prepayments on account of principal hereof prior to the
maturity hereof upon the terms and conditions therein specified.
7. CONVERSION BY THE HOLDER.
(a) RIGHT OF CONVERSION; CONVERSION PRICE. Subject to the provisions
in the Note Purchase Agreement and herein, the Holder shall have the option, on
or prior to the Maturity Date, to convert the principal amount of this Note
together with accrued but unpaid interest (the "CONVERSION AMOUNT"), into shares
of Common Stock of the Company. Upon notice to the Company of its election to
convert the Note (the "NOTICE"), the Holder shall promptly surrender this Note
to the Company. Interest on the Note shall cease on the date immediately
preceding the Company's receipt of such notice. The number of shares of Common
Stock issuable upon conversion of the Conversion Amount shall be determined by
dividing the Conversion Amount by $1.00. Any resulting fractional shares
otherwise issuable pursuant to such calculation shall be paid in cash to the
Holder in lieu of issuing such fractional shares.
(b) ISSUANCE OF SHARES OF COMMON STOCK. Within five (5) days after the
surrender, as herein provided, of this Note for conversion, the Company shall
deliver or cause to be delivered to or upon the written order of the Holder of
this Note, certificates representing the shares of Common Stock into which this
Note may be converted in accordance with the provisions of this Section 7(b).
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Such conversion shall be deemed to have been made as of the close of business on
the date of the Notice and the person or persons entitled to receive the shares
of Common Stock upon conversion of this Note shall be treated for all purposes
as having become the record holder or holders of such shares at such time and
such conversion.
8. EVENTS OF DEFAULT. If any event of default set forth below ("EVENT OF
DEFAULT") occurs, the entire unpaid principal balance and accrued interest
payable hereunder shall automatically become immediately due and payable without
presentment, demand or notice of any kind, all of which are hereby expressly
waived by the Company:
(a) If default shall be made in the due and punctual payment of any
principal of or premium (if any) on, the Note when and as the same shall become
due and payable, whether at maturity or a date fixed for prepayment or by
declaration or otherwise, which default is not cured within fifteen (15) days;
or
(b) If default shall be made in the due and punctual payment of any
interest on the Note when and as such interest shall become due and payable, and
such default shall have continued for a period of fifteen (15) days; or
(c) If any representation or warranty made or deemed to be made by or
on behalf of the Company in this Agreement, the Note Purchase Agreement, the
Note or the Investor Warrants or in any certificate, statement, report or other
instrument delivered under or pursuant to any term hereof or thereof shall prove
to have been untrue or incorrect in any material respect as of the date of this
Agreement or as of the Closing Date, or if any statement, report, certificate,
financial statement or financial schedule or other writing or instrument
prepared or purporting to be prepared by the Company or any officer of the
Company that is hereafter furnished or delivered in connection with or under or
pursuant to or contemplated by this Agreement to Buyer shall prove to be untrue
or incorrect in any material respect as of the date it was made, furnished or
delivered; or
(d) If the validity or enforceability of this Agreement, the Note
Purchase Agreement, the Note or the Investor Warrants shall be contested by
either the Company or any security holder of the Company or any action, suit or
proceeding is commenced that alleges or contends that this Agreement, the Note
Purchase Agreement, the Note or the Investor Warrants is no longer in full force
or effect or is null and void or the Company denies that it has any further
liability or obligation under this Agreement, the Note or the Warrant; or
(e) If the Company shall (i) file a petition seeking relief for itself
under Title 11 of the United States Code, as now constituted or hereafter
amended, or file an answer consenting to, admitting the material allegations of,
or otherwise not controverting, or fail timely to controvert, a petition filed
against it seeking relief under Title 11 of the United States Code, as now
constituted or hereafter amended, or (ii) file such a petition or answer with
respect to relief under the provisions of any other now existing or future
applicable bankruptcy, insolvency, or other similar law of the United States of
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America, or State thereof, or of any other country or jurisdiction providing for
the reorganization, winding-up or liquidation of corporations or an arrangement,
composition, extension or adjustment with its creditors; or
(f) If an order for relief shall be entered against the Company under
Title 11 of the United States Code, as now constituted or hereafter amended,
which order is not stayed; or upon the entry of an order, judgment or decree by
operation of law, or by a court having jurisdiction in the premises which is not
stayed, adjudging it a bankrupt or insolvent under, or ordering relief against
it under, or approving as properly filed a petition seeking relief against it
under, the provisions of any other now existing or future applicable bankruptcy,
insolvency or other similar law of the United States of America or any State
thereof, or of any other country or jurisdiction providing for the
reorganization, winding-up or liquidation of corporations or any arrangement,
composition, extension or adjustment with creditors, or appointing a receiver,
liquidator, assignee, sequestrator, trustee or custodian of the Company or any
Subsidiary or any substantial part of its property, or ordering the
reorganization, winding-up or liquidation of its affairs or upon the expiration
of thirty (30) days after the filing of any involuntary petition against it
seeking any of the relief specified in paragraph (e) or this paragraph (f)
without the petition being dismissed prior to that time; or
(g) If the Company shall (i) make a general assignment for the benefit
of its creditors, (ii) consent to the appointment of or taking possession by a
receiver, liquidator, assignee, sequestrator, trustee or custodian of the
Company of all or a substantial part of its property, or (iii) admit its
insolvency or inability to pay its debts generally as such debts become due, or
(iv) fail generally to pay its debts as such debts become due, or (v) take any
action (or if such action is taken by its directors or stockholders) looking to
the dissolution or liquidation of the Company; or
(h) If a final judgment for the payment of money in excess of $100,000
shall be rendered by a court of record against the Company and the Company or
shall not (i) within 30 days from the date of entry thereof, discharge the same
or provide for its discharge in accordance with its terms, or procure a stay of
execution thereof, and (ii) if execution of such judgment shall be stayed,
within such period of 30 days or such longer period during which the execution
of such judgment shall have been stayed, appeal therefrom and cause the
execution thereof to be stayed during such appeal, or, after the expiration of
any such stay or the denial of such appeal, forthwith discharge the same or
provide for its discharge.
9. ENFORCEMENT. If any one or more Events of Default shall have occurred,
the Holder may proceed to protect and enforce the rights of the Holder by suit
in equity or action at law or the employment of any other available right or
remedy, as the Holder shall deem most effective to protect and enforce any such
rights. Each party shall pay all costs and expenses incurred in the collection
and enforcement of this Note. The Company and endorsers of this Note hereby
consent to renewals and extensions of time at or after the maturity hereof,
without notice, and hereby waive diligence, presentment, protest, demand and
notice of every kind (except such notices as may be required under the Note
Purchase Agreement) and, to the full extent permitted by law, the right to plead
any statute of limitations as a defense to any demand hereunder.
A-4
10. NOTE. This Note is one of the Notes (as defined in the Note Purchase
Agreement) referred to in, and is entitled to the benefits of, the Note Purchase
Agreement. This Note is unsecured.
11. WAIVERS AND AMENDMENTS. The Note Purchase Agreement and this Note may
be amended only with the written consent of the Holder.
12. GOVERNING LAW. This Note shall be governed by, and construed and
enforced in accordance with, the internal laws (but not the law of choice of
laws) of the State of Arizona, without regard to the conflict of laws principles
thereof.
IN WITNESS WHEREOF, the Company has caused this Note to be executed and
delivered by its duly authorized officer, as of the day and year first written
above.
BESTNET COMMUNICATIONS CORP.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
A-5
EXHIBIT B
THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL IN A FORM REASONABLY
SATISFACTORY TO THE ISSUER THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID
ACT. NOTWITHSTANDING THE FOREGOING, THIS WARRANT MAY BE PLEDGED IN CONNECTION
WITH A BONA FIDE MARGIN ACCOUNT.
BESTNET COMMUNICATIONS CORP.
WARRANT TO PURCHASE COMMON STOCK
WARRANT NO.:______ NUMBER OF SHARES: __________________
DATE OF ISSUANCE: __________ _____, 2002
BestNet Communications Corp., a Nevada corporation (the "COMPANY"), hereby
certifies that, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, _________________, the registered holder
hereof or his permitted assigns (a "HOLDER"), is entitled, subject to the terms
set forth below, to purchase from the Company upon surrender of this Warrant, at
any time or times on or after the date hereof, but not after 11:59 p.m. Eastern
Time on the Expiration Date (as defined herein) ____________ fully paid and
nonassessable shares of Common Stock (as defined herein) of the Company (the
"WARRANT SHARES"), at the purchase price per share provided in Section 2(a)
below.
1. DEFINITIONS.
(a) WARRANT ISSUANCE. This Warrant ("WARRANT") is being issued to the
holder by the Company pursuant to the Note and Warrant Purchase Agreement dated
of even date herewith, between the Company and holder.
(b) DEFINITIONS. The following words and terms as used in this Warrant
shall have the following meanings:
(i) "Business Day" means any day other than Saturday, Sunday or
other day on which commercial banks in the City of Arizona are
authorized or required by law to remain closed.
B-1
(ii) "Common Stock" means (A) the Company's common stock, par
value $.001 per share, and (B) any capital stock into which such
Common Stock shall have been changed or any capital stock resulting
from a reclassification of such Common Stock.
(iii) "Expiration Date" means the date two (2) years from the
date of this Warrant or, if such date falls on a Saturday, Sunday or
other day on which banks are required or authorized to be closed in
the City of Phoenix, Arizona or the State of Arizona or on which
trading does not take place on the principal exchange or automated
quotation system on which the Common Stock is traded (a "Holiday"),
the next date that is not a Holiday.
(iv) "Issuance Date" means the date of issuance of this Warrant.
(v) "Person" means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a government or any department or
agency thereof.
(vi) "Principal Market" means the Over-The-Counter Bulletin Board
operated by the NASD.
(vii) "Securities Act" means the Securities Act of 1933, as
amended.
(viii) "Warrant" means this Warrant and all warrants issued in
exchange, transfer or replacement thereof.
(ix) "Warrant Exercise Price" shall mean $1.50 per share.
(x) OTHER DEFINITIONAL PROVISIONS. Except as otherwise specified
herein, all references herein (A) to the Company shall be deemed to
include the Company's successors and (B) to any applicable law defined
or referred to herein, shall be deemed references to such applicable
law as the same may have been or may be amended or supplemented from
time to time. When used in this Warrant, the words "herein," "hereof,"
and "hereunder," and words of similar import, shall refer to this
Warrant as a whole and not to any provision of this Warrant, and the
words "Section," "Schedule," and "Exhibit" shall refer to Sections of,
and Schedules and Exhibits to, this Warrant unless otherwise
specified. Whenever the context so requires, the neuter gender
includes the masculine or feminine, and the singular number includes
the plural, and vice versa.
2. EXERCISE OF WARRANT.
(a) Subject to the terms and conditions hereof, this Warrant may be
exercised by the holder hereof then registered on the books of the Company, in
whole or in part, at any time on any Business Day on or after the opening of
business on the date hereof and prior to 11:59 P.M. Eastern Time on the
Expiration Date by (i) delivery of a written notice, in the form of the
subscription notice attached as EXHIBIT A hereto (the "EXERCISE NOTICE"), of
such holder's election to exercise this Warrant, which notice shall specify the
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number of Warrant Shares to be purchased; (ii) payment to the Company of an
amount equal to the Warrant Exercise Price multiplied by the number of Warrant
Shares as to which this Warrant is being exercised in cash, certified or bank
funds or wire transfer of immediately available funds and (iii) the surrender of
this Warrant (or a Lost Warrant Affidavit in substantially the form annexed
hereto as EXHIBIT C with respect to this Warrant in the case of its loss, theft
or destruction) to a common carrier for overnight delivery to the Company;
provided, that if such Warrant Shares are to be issued in any name other than
that of the registered holder of this Warrant, such issuance shall be deemed a
transfer and the provisions of Section 8 shall be applicable. In the event of
any exercise of the rights represented by this Warrant in compliance with this
Section 2(a), the Company shall on the second Business Day following the date of
receipt of the Exercise Notice, and this Warrant (or a Lost Warrant Affidavit in
substantially the form annexed hereto as EXHIBIT C with respect to this Warrant
in the case of its loss, theft or destruction) (the "EXERCISE DELIVERY
DOCUMENTS"), credit such aggregate number of shares of Common Stock to which the
holder (or its designee) shall be entitled to the holder's (or its designee's)
balance account with The Depository Trust Company; provided, however, if the
holder who submitted the Exercise Notice requested physical delivery of any or
all of the Warrant Shares, then the Company shall, on or before the fifth
Business Day following receipt of the Exercise Delivery Documents issue and
surrender to a common carrier for overnight delivery to the address specified in
the Exercise Notice, a certificate, registered in the name of the holder (or its
designee), for the number of shares of Common Stock to which the holder (or its
designee) shall be entitled. Upon delivery of the Exercise Notice referred to
above, the holder of this Warrant (or its designee) shall be deemed for all
corporate purposes to have become the holder of record of the Warrant Shares
with respect to which this Warrant has been exercised, irrespective of the date
of delivery of this Warrant as required by clause (iii) above or the
certificates evidencing such Warrant Shares. In the case of a dispute as to the
determination of the Warrant Exercise Price or the arithmetic calculation of the
Warrant Shares, the Company shall promptly issue to the holder (or its designee)
the number of shares of Common Stock that is not disputed and shall submit the
disputed determinations or arithmetic calculations to the holder via facsimile
within five Business Days of receipt of the holder's Exercise Notice. If the
holder and the Company are unable to agree upon the determination of the Warrant
Exercise Price or the arithmetic calculation of the Warrant Shares within five
days of such disputed determination or arithmetic calculation being submitted to
the holder, then the Company shall immediately submit via facsimile (i) the
disputed determination of the Warrant Exercise Price to an independent,
reputable investment banking firm of nationally recognized standing, mutually
acceptable to both the Company and the holder or (ii) the disputed arithmetic
calculation of the Warrant Shares to an independent, outside accountant,
mutually acceptable to both the Company and the holder. The Company shall cause
the investment banking firm or the accountant, as the case may be, to perform
the determinations or calculations and notify the Company and the holder of the
results no later than forty-eight (48) hours from the time it receives the
disputed determinations or calculations. Such investment banking firm's or
accountant's determination or calculation, as the case may be, shall be deemed
conclusive absent manifest error.
(b) Unless the rights represented by this Warrant shall have expired
or shall have been fully exercised, the Company shall, as soon as practicable
and in no event later than five (5) Business Days after delivery of the Exercise
Delivery Documents and at its own expense, issue a new Warrant identical in all
respects to this Warrant exercised except it shall represent rights to purchase
the number of Warrant Shares purchasable immediately prior to such exercise
under this Warrant exercised, less the number of Warrant Shares with respect to
which such Warrant is exercised.
B-3
(c) No fractional shares of Common Stock are to be issued upon the
exercise of this Warrant, but rather the number of shares of Common Stock issued
upon exercise of this Warrant shall be rounded up to the nearest whole number.
This Warrant shall not be exercisable by cashless exercise.
3. (a) ADJUSTMENT FOR DIVIDENDS IN OTHER STOCK AND PROPERTY;
RECLASSIFICATIONS. In case at any time or from time to time the holders of the
Common Stock (or any shares of stock or other securities at the time receivable
upon the exercise of this Warrant) shall have received, or, on or after the
record date fixed for the determination of eligible shareholders, shall have
become entitled to receive, without payment therefor,
(1) other or additional stock or other securities or property
(other than cash) by way of dividend,
(2) any cash or other property paid or payable out of any source
other than retained earnings (determined in accordance with generally
accepted accounting principles), or
(3) other or additional stock or other securities or property
(including cash) by way of stock-split, spin-off, reclassification,
combination of shares or similar corporate rearrangement,
(other than (x) shares of Common Stock or any other stock or securities into
which such Common Stock shall have been exchanged, or (y) any other stock or
securities convertible into or exchangeable for such Common Stock or such other
stock or securities), then and in each such case a holder, upon the exercise
hereof as provided in Section 2, shall be entitled to receive the amount of
stock and other securities and property (including cash in the cases referred to
in clauses (2) and (3) above) which such holder would hold on the date of such
exercise if on the Issuance Date such holder had been the holder of record of
the number of shares of Common Stock called for on the face of this Warrant, and
had thereafter, during the period from the Issuance Date to and including the
date of such exercise, retained such shares and/or all other or additional stock
and other securities and property (including cash in the cases referred to in
clause (2) and (3) above) receivable by it as aforesaid during such period,
giving effect to all adjustments called for during such period by Sections 3(a)
and 3(b).
(b) ADJUSTMENT FOR REORGANIZATION, CONSOLIDATION AND MERGER. In case
of any reorganization of the Company (or any other corporation the stock or
other securities of which are at the time receivable on the exercise of this
Warrant) or reclassification of its securities after the Issuance Date, or the
Company (or any such other corporation) shall consolidate with or merge into
another corporation or entity or convey or exchange all or substantially all its
assets to another corporation or entity, then and in each such case the holder
of this Warrant, upon the exercise hereof as provided in Section 2 at any time
after the consummation of such reorganization, reclassification, consolidation,
merger, conveyance or exchange, shall be entitled to receive, in lieu of the
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stock or other securities and property receivable upon the exercise of this
Warrant prior to such consummation, the stock or other securities or property to
which such holder would have been entitled upon such consummation if such holder
had exercised this Warrant immediately prior thereto, all subject to further
adjustment as provided in Sections 3(a), (b), (c) and (d); in each such case,
the terms of this Warrant shall be applicable to the shares of stock or other
securities or property receivable upon the exercise of this Warrant after such
consummation.
(c) ADJUSTMENT FOR CERTAIN DIVIDENDS AND DISTRIBUTIONS. If the Company
at any time or from time to time makes, or fixes a record date for the
determination of holders of Common Stock (or any shares of stock or other
securities at the time receivable upon the exercise of this Warrant) entitled to
receive, a dividend or other distribution payable in additional shares of (x)
Common Stock or any other stock or securities into which such Common Stock shall
have been exchanged, or (y) any other stock or securities convertible into or
exchangeable for such Common Stock or such other stock or securities, then and
in each such event
(1) the Warrant Exercise Price then in effect shall be decreased
as of the time of the issuance of such additional shares or, in the event such
record date is fixed, as of the close of business on such record date, by
multiplying the Warrant Exercise Price then in effect by a fraction (A) the
numerator of which is the total number of shares of Common Stock issued and
outstanding immediately prior to the time of such issuance or the close of
business on such record date, and (B) the denominator of which shall be the
total number of shares of Common Stock issued and outstanding immediately prior
to the time of such issuance or the close of business on such record date as the
case may be, plus the number of shares of Common Stock issuable in payment of
such dividend or distribution; PROVIDED, HOWEVER, that if such record date is
fixed and such dividend is not fully paid or if such distribution is not fully
made on the date fixed therefor, the Warrant Exercise Price shall be recomputed
accordingly as of the close of business on such record date, and thereafter the
Warrant Exercise Price shall be adjusted pursuant to this Section 3(c) as of the
time of actual payment of such dividends or distributions; and
(2) the number of shares of Common Stock theretofore receivable
upon the exercise of this Warrant shall be increased, as of the time of such
issuance or, in the event such record date is fixed, as of the close of business
on such record date, in inverse proportion to the decrease in the Warrant
Exercise Price.
(d) STOCK SPLIT AND REVERSE STOCK SPLIT. If the Company at any time or
from time to time effects a stock split or subdivision of the outstanding Common
Stock, the Warrant Exercise Price then in effect immediately before that stock
split or subdivision shall be proportionately decreased and the number of shares
of Common Stock theretofore receivable upon the exercise of this Warrant shall
be proportionately increased. If the Company at any time or from time to time
effects a reverse stock split or combines the outstanding shares of Common Stock
into a smaller number of shares, the Warrant Exercise Price then in effect
immediately before that reverse stock split or combination shall be
proportionately increased and the number of shares of Common Stock theretofore
receivable upon the exercise of this Warrant shall be proportionately decreased.
Each adjustment under this Section 3(d) shall become effective at the close of
business on the date the stock split, subdivision, reverse stock split or
combination becomes effective.
B-5
4. COVENANTS AS TO COMMON STOCK. The Company hereby covenants and agrees as
follows:
(a) This Warrant is, and any Warrants issued in substitution for or
replacement of this Warrant will upon issuance be, duly authorized and validly
issued.
(b) All Warrant Shares which may be issued upon the exercise of the
rights represented by this Warrant will, upon issuance, be validly issued, fully
paid and nonassessable and free from all taxes, liens and charges with respect
to the issuance thereof.
(c) During the period within which the rights represented by this
Warrant may be exercised, the Company will at all times have authorized and
reserved at least 100% of the number of shares of Common Stock needed to provide
for the exercise of the rights then represented by this Warrant and the par
value of said shares will at all times be less than or equal to the applicable
Warrant Exercise Price.
(d) The Company shall secure the listing of the shares of Common Stock
issuable upon exercise of this Warrant upon each national securities exchange or
automated quotation system, if any, upon which shares of Common Stock are then
listed within the time required by such exchange or quotation system's rules and
regulations and shall maintain, so long as any other shares of Common Stock
shall be so listed, such listing of all shares of Common Stock from time to time
issuable upon the exercise of this Warrant; and the Company shall so list on
each national securities exchange or automated quotation system within the time
required by such exchange or quotation system's rules and regulations, as the
case may be, and shall maintain such listing of, any other shares of capital
stock of the Company issuable upon the exercise of this Warrant if and so long
as any shares of the same class shall be listed on such national securities
exchange or automated quotation system.
(e) The Company will not, by amendment of its Certificate of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities, or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed by it hereunder, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all such action as may reasonably be requested by the holder of this
Warrant in order to protect the exercise privilege of the holder of this Warrant
against dilution or other impairment, consistent with the tenor and purpose of
this Warrant. Without limiting the generality of the foregoing, the Company (i)
will not increase the par value of any shares of Common Stock receivable upon
the exercise of this Warrant above the Warrant Exercise Price then in effect,
and (ii) will take all such actions as may be necessary or appropriate in order
that the Company may validly and legally issue fully paid and nonassessable
shares of Common Stock upon the exercise of this Warrant.
(f) This Warrant will be binding upon any entity succeeding to the
Company by merger, consolidation or acquisition of all or substantially all of
the Company's assets and any such successive mergers, consolidations or
acquisitions.
B-6
5. TAXES. The Company shall pay any and all taxes which may be payable with
respect to the issuance and delivery of Warrant Shares upon exercise of this
Warrant; provided, however, that the Company shall not be required to pay any
tax that may be payable in respect of any transfer involved in the issue or
delivery of Common Stock or other securities or property in a name other than
that of the registered holders of this Warrant to be converted and such holder
shall pay such amount, if any, to cover any applicable transfer or similar tax.
6. WARRANT HOLDER NOT DEEMED A STOCKHOLDER. Except as otherwise
specifically provided herein, no holder of this Warrant, solely by virtue of
such holding, shall be entitled to vote or receive dividends or be deemed the
holder of shares of the Company for any purpose, nor shall anything contained in
this Warrant be construed to confer upon the holder hereof, as such, any of the
rights of a stockholder of the Company or any right to vote, give or withhold
consent to any corporate action (whether a reorganization, issue of stock,
reclassification of stock, consolidation, merger, conveyance or otherwise),
receive notice of meetings, receive dividends or subscription rights, or
otherwise, prior to the issuance to the holder of this Warrant of the Warrant
Shares which he or she is then entitled to receive upon the due exercise of this
Warrant. In addition, nothing contained in this Warrant shall be construed as
imposing any liabilities on such holder to purchase any securities (upon
exercise of this Warrant or otherwise) or as a stockholder of the Company,
whether such liabilities are asserted by the Company or by creditors of the
Company. Notwithstanding this Section 6, the Company will provide the holder of
this Warrant with copies of the same notices and other information given to the
stockholders of the Company generally, contemporaneously with the giving thereof
to the stockholders.
7. REPRESENTATIONS OF HOLDER. The holder of this Warrant, by the acceptance
hereof, represents that it is acquiring this Warrant and the Warrant Shares for
its own account for investment only and not with a view towards, or for resale
in connection with, the public sale or distribution of this Warrant or the
Warrant Shares, except pursuant to sales registered or exempted under the
Securities Act; provided, however, that by making the representations herein,
the holder does not agree to hold this Warrant or any of the Warrant Shares for
any minimum or other specific term and reserves the right to dispose of this
Warrant and the Warrant Shares at any time in accordance with or pursuant to a
registration statement or an exemption under the Securities Act. The holder of
this Warrant further represents, by acceptance hereof, that, as of this date,
such holder is an "accredited investor" as such term is defined in Rule
501(a)(1) of Regulation D promulgated by the Securities and Exchange Commission
under the Securities Act (an "Accredited Investor").
8. OWNERSHIP AND TRANSFER.
(a) The Company shall maintain at its principal executive offices (or
such other office or agency of the Company as it may designate by notice to the
holder hereof), a register for this Warrant, in which the Company shall record
the name and address of the person in whose name this Warrant has been issued,
as well as the name and address of each transferee. The Company may treat the
person in whose name any Warrant is registered on the register as the owner and
holder thereof for all purposes, but in all events recognizing any transfers
made in accordance with the terms of this Warrant.
B-7
(b) This Warrant and the rights granted hereunder shall not be
assignable by the holder hereof without the consent of the Company.
9. LOST, STOLEN, MUTILATED OR DESTROYED WARRANT. If this Warrant is lost,
stolen, mutilated or destroyed, the Company shall, on receipt of an executed
Lost Warrant Affidavit in substantially the form annexed hereto as EXHIBIT C
(or, in the case of a mutilated Warrant, the Warrant), issue a new Warrant of
like denomination and tenor as this Warrant so lost, stolen, mutilated or
destroyed.
10. NOTICE. Any notices, consents, waivers or other communications required
or permitted to be given under the terms of this Warrant must be in writing and
will be deemed to have been delivered: (i) upon receipt, when delivered
personally; (ii) upon receipt, when sent by facsimile (provided confirmation of
transmission is mechanically or electronically generated and kept on file by the
sending party); or (iii) one Business Day after deposit with a nationally
recognized overnight delivery service, in each case properly addressed to the
party to receive the same. The addresses and facsimile numbers for such
communications shall be:
If to the Company:
BestNet Communications Corp.
0000 Xxxxxxx Xxxx, XX
Xxxxx X
Xxxxx Xxxxxx, Xxxxxxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxxxx Xxxxxxxxx, President and Chief Executive Officer
With copy to:
Squire, Xxxxxxx & Xxxxxxx L.L.P.
Two Renaissance Square
Suite 2700
00 Xxxxx Xxxxxxx Xxxxxx
Xxxxxxx, Xxxxxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxxxxx X. Xxxx, Esq.
If to a holder of this Warrant, to it at the address and facsimile number set
forth in writing by the holder and delivered from time to time, or at such other
address and facsimile as shall be delivered to the Company by the holder at any
time. Each party shall provide five days' prior written notice to the other
party of any change in address or facsimile number. Written confirmation of
receipt (A) given by the recipient of such notice, consent, waiver or other
communication, (B) mechanically or electronically generated by the sender's
facsimile machine containing the time, date, recipient facsimile number and an
image of the first page of such transmission or (C) provided by a nationally
recognized overnight delivery service shall be rebuttable evidence of personal
service, receipt by facsimile or receipt from a nationally recognized overnight
delivery service in accordance with clause (i), (ii) or (iii) above,
respectively.
B-8
11. DATE. The date of this Warrant is __________ ___, 2002. This Warrant,
in all events, shall be wholly void and of no effect after the close of business
on the Expiration Date, except that notwithstanding any other provisions hereof,
the provisions of Section 7 shall continue in full force and effect after such
date as to any Warrant Shares or other securities issued upon the exercise of
this Warrant.
12. AMENDMENT AND WAIVER. Except as otherwise provided herein, the
provisions of the Warrants may be amended and the Company may take any action
herein prohibited, or omit to perform any act herein required to be performed by
it, only if the Company has obtained the written consent of the holder of this
Warrant provided that no such action may increase the Warrant Exercise Price of
the Warrants, decrease the number of shares or class of stock obtainable upon
exercise of any Warrants, or otherwise materially adversely effect the rights of
the holder of this Warrant without the written consent of such holder.
13. DESCRIPTIVE HEADINGS; GOVERNING LAW; JURISDICTION. The descriptive
headings of the several Sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. The corporate
laws of the State of Nevada shall govern all issues concerning the relative
rights of the Company and its stockholders. All other questions concerning the
construction, validity, enforcement and interpretation of this Warrant shall be
governed by the internal laws of the State of Arizona, without giving effect to
any choice of law or conflict of law provision or rule (whether of the State of
Arizona, or any other jurisdictions) that would cause the application of the
laws of any jurisdictions other than the State of Arizona. Each of the parties
hereto irrevocably consents and submits to the nonexclusive jurisdiction of the
Supreme Court of the State of Arizona and the United States District Court for
the District of Arizona in connection with any proceeding arising out of or
relating to this Warrant, waives any objection to venue in the County of
Maricopa, State of Arizona, or such District, and agrees that service of any
summons, complaint, notice of other process relating to such proceeding may be
effected in the manner provided by Section 10 hereof.
BESTNET COMMUNICATIONS CORP.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
B-9
EXHIBIT A TO WARRANT
SUBSCRIPTION FORM
TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS WARRANT
BESTNET COMMUNICATIONS CORP.
The undersigned holder hereby exercises the right to purchase
_________________ of the shares of Common Stock ("Warrant Shares") of BestNet
Communications Corp., a Nevada corporation (the "Company"), evidenced by the
attached Warrant (the "Warrant"). Capitalized terms used herein and not
otherwise defined shall have the respective meanings set forth in the Warrant.
1. Payment of Warrant Exercise Price. In the event that the holder has
elected a Cash Exercise with respect to some or all of the Warrant Shares to be
issued pursuant hereto, the holder shall pay the sum of $___________________ to
the Company in accordance with the terms of the Warrant.
2. Delivery of Warrant Shares. The Company shall deliver to the holder
__________ Warrant Shares in accordance with the terms of the Warrant.
Date: _______________ __, ______
Name of Registered Holder
By:
-----------------------------------
Name:
Title:
EXHIBIT B TO WARRANT
FORM OF WARRANT POWER
FOR VALUE RECEIVED, the undersigned does hereby assign and transfer to
________________, Federal Identification No. __________, a warrant to purchase
____________ shares of the capital stock of BestNet Communications Corp., a
Nevada corporation, represented by warrant certificate no. _____, standing in
the name of the undersigned on the books of said corporation. The undersigned
does hereby irrevocably constitute and appoint ______________, attorney to
transfer the warrants of said corporation, with full power of substitution in
the premises.
Dated: _________________, ____
----------------------------------------
By:
------------------------------------
Its:
-----------------------------------
EXHIBIT C TO WARRANT
FORM OF AFFIDAVIT OF LOSS
STATE OF )
) ss:
COUNTY OF )
The undersigned (hereinafter "Deponent"), being duly sworn, deposes and
says that:
1. Deponent is an adult whose mailing address is:
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2. Deponent is the recipient of a Warrant (the "Warrant") from BestNet
Communications Corp. (the "Company"), dated ___________________________________
for the purchase of ___________________________________ shares of Common Stock,
par value $.001 per share, of the Company, at an exercise price of
$_________________________ per share.
3. The Warrant has been lost, stolen, destroyed or misplaced, under the
following circumstances:
4. The Warrant was not endorsed.
5. Deponent has made a diligent search for the Warrant, and has been unable
to find or recover same, and Deponent was the unconditional owner of the Warrant
at the time of loss, and is entitled to the full and exclusive possession
thereof; that neither the Warrant nor the rights of Deponent therein have, in
whole or in part, been assigned, transferred, hypothecated, pledged or otherwise
disposed of, in any manner whatsoever, and that no person, firm or corporation
other than the Deponent has any right, title, claim, equity or interest in, to,
or respecting the Warrant.
6. Deponent makes this Affidavit for the purpose of requesting and inducing
the Company and its agents to issue a new warrant in substitution for the
Warrant.
7. If the Warrant should ever come into the hands, custody or power of the
Deponent or the Deponent's representatives, agents or assigns, the Deponent will
immediately and without consideration surrender the Warrant to the Company, its
representatives, agents or assigns, its transfer agents or subscription agents
for cancellation.
8. The Deponent hereby indemnifies and holds harmless the Company from any
claim or demand for payment or reimbursement of any party arising in connection
with the subject matter of this Affidavit.
Signed, sealed and dated: _________________________
________________________________________
Deponent
Sworn to and subscribed before me this
____ day of _____________, _________
____________________________________
Notary Public
