EXHIBIT 10.2
EXHIBIT A
TO
THE SECURITIES PURCHASE AGREEMENT
See Exhibit 4.2 to this Annual Report on Form 10-KSB/A.
EXHIBIT B
TO
THE SECURITIES PURCHASE AGREEMENT
See Exhibit 4.3 to this Annual Report on Form 10-KSB/A.
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EXHIBIT C
TO
THE SECURITIES PURCHASE AGREEMENT
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of February
___________, 2003, by and among Q Comm International, Inc., a Utah corporation,
with its offices located at 0000 Xxxxx 0000 Xxxx, Xxxx, Xxxx 00000 (the
"Company"), and _________________ (collectively and together with their
respective affiliates and any assignee or transferee of all of their respective
rights hereunder, the "Buyer").
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 Buyer: (i) 12% secured convertible debentures
of the Company, in the aggregate principal amount of up to One Million Five
Hundred Thousand Dollars ($1,500,000) (together with any debenture(s) issued in
replacement thereof or as a dividend thereon or otherwise with respect thereto
in accordance with the terms thereof, the "Debentures"), convertible into shares
of common stock, $0.001 par value per share, of the Company (the "Common
Stock"), upon the terms and subject to the limitations and conditions set forth
in such Debentures; (ii) up to 2,538,465 shares of Common Stock (the "Shares");
and (iii) warrants to purchase up to 2,538,465 shares of Common Stock (the
"Warrants");
B. To induce the Buyer 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 the
Buyer hereby agree as follows:
1. DEFINITIONS.
a. As used in this Agreement, the following terms shall have
the following meanings:
(i) "Buyers" means the Buyer and all other buyers
that execute agreements substantially identical to the Securities Purchase
Agreement on or before March 31, 2003 (collectively, the "Buyers"), including
any transferees or assignees of Buyers who agree 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 one hundred and
thirty percent (130%) of the shares of Common Stock issued or issuable upon
conversion or otherwise pursuant to the Debentures (including, without
limitation, such additional shares of Common Stock, if any, as are issuable as a
result of the events described in the Debentures (including but not limited to
Section 1.6 of the Debentures) and Section 2(b) of this Agreement, such shares
of Common Stock being referred to herein as the "Conversion Shares"), the
Shares, and the shares of Common Stock issued or issuable upon exercise or
otherwise pursuant to the Warrants (the "Warrant Shares"), and any shares of
Common Stock issued or issuable as a dividend on or in exchange for or otherwise
with respect to any of the foregoing.
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(iv) "Registration Statement" means a registration
statement of the Company under the 1933 Act.
(v) "Resale Registration Statement" means a
Registration Statement covering the resale of all, or any portion of, the
Registrable Securities.
(vi) "Xxxxxxx Offering" means a public offering of
the Company's securities for which Xxxxxxx Investment Company, Inc. ("Xxxxxxx")
is to act as a representative to one or more underwriters pursuant to a
non-binding letter of intent between the Company and Xxxxxxx dated November 18,
2002.
(vii) "Xxxxxxx Registration Statement" means the
registration statement to be filed by the Company to register the securities
issued pursuant to the Xxxxxxx Offering.
b. Capitalized terms used herein and not otherwise defined
herein shall have the respective meanings set forth in the Securities Purchase
Agreement or Debentures.
2. REGISTRATION.
a. Mandatory Registration. The Company shall prepare, and, on
or prior to the tenth (10th) business day following a declaration of
effectiveness by the SEC of the Xxxxxxx Registration Statement (the "Filing
Date"), file with the SEC a Resale 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 Buyers, which consent will not be unreasonably withheld),
which such Resale Registration Statement, to the extent allowable under the 1933
Act and the rules and regulations promulgated thereunder (including Rule 416),
shall state that such Resale 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 (i) to prevent dilution resulting from stock splits, stock dividends or
similar transactions or (ii) by reason of changes in the Conversion Price of the
Debentures in accordance with the terms thereof or the exercise price of the
Warrants in accordance with the terms thereof. Notwithstanding anything to the
contrary contained in this Section 2(a), the Company shall file with the SEC a
Resale Registration Statement no later than July 15, 2003, subject to the
Company's failure to file the Xxxxxxx Registration Statement on or before April
15, 2003, in which case the Company shall file the Resale Registration Statement
on or before June 1, 2003 (the "Mandatory Filing Date"); provided, however, in
the event the Xxxxxxx Registration Statement is withdrawn, the Company shall
have a period of ninety (90) days from the date of such withdrawal to file the
Resale Registration Statement.
b. Payments by the Company. The Company shall use its best
efforts to obtain effectiveness of the Resale Registration Statement as soon as
practicable. If (i) the Resale Registration Statement is not filed by the Filing
Date or the Mandatory Filing Date, as the case may be, or declared effective by
the SEC on or prior to one hundred and twenty (120) days after filing the Resale
Registration Statement with the SEC, then the Company will make payments to the
Buyers in such amounts and at such times as shall be determined pursuant to this
Section 2(b) as partial relief for the damages to the Buyers by reason of any
such delay in 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 three percent (3%) per month of 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 number of months
(prorated for partial months) after the Filing Date (or Mandatory Filing Date)
or the end of the aforementioned one hundred and twenty (120) day period and
prior to the date the Resale 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 Buyers in the Resale
Registration Statement with respect to information relating to the Buyers,
including, without limitation, changes to the plan of distribution, or to the
failure of the Buyers to conduct their review of the Registration Statement
pursuant to Section 3(g) below in a reasonably prompt manner. Any payments due
pursuant to this Section 2(b) may be paid by the Company in cash or shares of
the Company's Common Stock at the option of the Buyers. If the Buyers elect to
receive payment in shares of Common Stock, such shares shall be issued at the
Conversion Price (as that term is defined in the Debenture).
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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 (or Mandatory Filing Date), a Resale Registration
Statement with respect to the number of Registrable Securities provided in
Section 2(a), and thereafter use its best efforts to cause such Resale
Registration Statement relating to Registrable Securities to become effective as
soon as possible after such filing but in no event later than one hundred and
twenty (120) days after filing the Resale Registration Statement with the SEC,
and keep the Resale Registration Statement effective pursuant to Rule 415 until
March 31, 2005 (the "Registration Period"), which Resale 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 Resale
Registration Statement and the prospectus used in connection with the Resale
Registration Statement as may be necessary to keep the Resale Registration
Statement 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 Resale
Registration Statement until such time as all of such Registrable Securities
have been disposed of in accordance with the intended methods of disposition by
the Buyers as set forth in the Resale Registration Statement. In the event the
number of shares available under the Resale Registration Statement filed
pursuant to this Agreement is insufficient to cover all of the Registrable
Securities, the Company shall amend the Resale Registration Statement, or file a
new Registration Statement (on the short form available therefore, 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 twenty (20) business 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 any amendment to the
Resale Registration Statement to become effective as soon as practicable
following the filing thereof, but in any event within sixty (60) days after the
date on which the Company reasonably first determines (or reasonably should have
determined) the need therefor. The Company shall use its best efforts to cause
any new Registration Statement to become effective as soon as practicable
following the filing thereof, but in any event within one hundred and twenty
(120) days after the date on which the Company reasonably first determines (or
reasonably should have determined) the need therefor. The provisions of Section
2(b) above shall be applicable with respect to such obligation.
c. The Company shall furnish to legal counsel for the Buyers
(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 Resale 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 Resale Registration Statement (other than any
portion of any thereof which contains information for which the Company has
sought confidential treatment), and (ii) such number of copies of a prospectus,
including a preliminary prospectus, and all amendments and supplements thereto
and such other documents as such Buyers may reasonably request in order to
facilitate the disposition of the Registrable Securities owned by such Buyers.
The Company will immediately notify each Buyer by facsimile of the effectiveness
of each Registration Statement or any post-effective amendment. The Company will
promptly respond (but in no event more than ten (10) business days) to any and
all comments received from the SEC (which comments shall promptly be made
available to the Buyers 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 three (3) 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(b) hereof.
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d. The Company shall use reasonable efforts to (i) register
and qualify the Registrable Securities covered by any Registration Statement
under such other securities or "blue sky" laws of such jurisdictions in the
United States as the Buyers 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 stockholders.
e. As promptly as practicable after becoming aware of such
event, the Company shall notify each Buyer 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 Buyer as such Buyer may
reasonably request; provided that, for not more than thirty (30) consecutive
trading days (or a total of not more than forty-five (45) 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 Buyers in writing of the existence of (but in no event, without the prior
written consent of the Buyers, shall the Company disclose to such Buyers any of
the facts or circumstances regarding) material non-public information giving
rise to an Allowed Delay and (ii) advise the Buyers 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(e) with respect to the information giving rise
thereto.
f. 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
Buyers 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.
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g. The Company shall permit a single firm or counsel
designated by the Buyers to review such Resale 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 Resale Registration Statement
without prior notice to such counsel. The sections of such Resale Registration
Statement covering information with respect to the Buyers, the Buyer's
beneficial ownership of securities of the Company or the Buyers intended method
of disposition of Registrable Securities shall conform to the information
provided to the Company by each of the Buyers.
h. At the request of the Buyer, the Company shall make
available for inspection by (i) any Buyers, and (ii) Buyers legal counsel,
(collectively, the "Inspectors") all pertinent financial and other records, and
pertinent corporate documents and properties of the Company (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 a Buyer) 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.
i. The Company shall hold in confidence and not make any
disclosure of information concerning any Buyers 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 a Buyer
is sought in or by a court or governmental body of competent jurisdiction or
through other means, give prompt notice to such Buyer prior to making such
disclosure, and allow the Buyer, at its expense, to undertake appropriate action
to prevent disclosure of, or to obtain a protective order for, such information.
j. The Company shall (i) cause all the Registrable Securities
covered by any 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 any Registration Statement on the OTC BB 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.
k. 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 any Registration Statement.
l. The Company shall cooperate with the Buyers who hold
Registrable Securities being offered to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be offered
pursuant to any Registration Statement and enable such certificates to be in
such denominations or amounts, as the case may be, or the Buyers may reasonably
request and registered in such names as the Buyers may request, and, within
three (3) business days after any 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 Buyers
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.
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m. 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.
n. 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.
o. The Company shall take all other reasonable actions
necessary to expedite and facilitate disposition by the Buyers of Registrable
Securities pursuant to a Registration Statement.
4. OBLIGATIONS OF THE BUYERS.
In connection with the registration of the Registrable Securities, the
Buyers 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 Buyer that such Buyer shall furnish
to the Company, in writing,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 seven (7)
business days prior to the first anticipated filing date of a Registration
Statement, the Company shall notify each Buyer of the information the Company
requires from each such Buyer.
b. Each Buyer, by such Xxxxx'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 a Registration
Statement hereunder, unless such Xxxxx has notified the Company in writing of
such Xxxxx's election to exclude all of such Xxxxx's Registrable Securities from
the Registration Statements.
c. In the event Buyer holding a majority-in-interest of the
Registrable Securities being registered determine to engage the services of an
underwriter, each Buyer agrees to enter into and perform such Buyer'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 Buyer has notified the
Company in writing of such Xxxxx's election to exclude all of such Xxxxx's
Registrable Securities from such Registration Statement.
d. Each Buyer agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3(e) or
3(f), such Buyers will immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Xxxxx's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3(e) or 3(f) and, if so directed by
the Company, such Buyer 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 Buyer's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice.
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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 Buyers pursuant to Sections 2(b)
and 3(g) 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 Buyer who holds such Registrable Securities,
(ii) the directors, officers, partners, employees, agents and each person who
controls any Buyer 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 1933 Act) for the Buyers, 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 Buyers pursuant to Section 9.
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b. In connection with any Registration Statement in which a
Buyer is participating, each such Buyer 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 stockholder selling securities pursuant to the Registration
Statement or any of its directors or officers or any person who controls such
stockholder 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 Buyer, 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 Buyer expressly for use in
connection with such Registration Statement; and subject to Section 6(c) such
Buyer 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 Buyer, which consent shall not be unreasonably withheld;
provided, further, however, that the Buyer 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 Buyer 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 Buyer 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 Buyers 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 Buyers), if the Buyers 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.
10
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 1933 Act) 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 Buyers 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 Buyers 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 Buyers so long as such Buyers 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 Buyers 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 Buyers to any transferee of all or any portion of Registrable Securities if:
(i) the Buyers agree 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, the
Buyers (to the extent such Buyers still own Registrable Securities) and Buyers
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
Buyer and the Company.
11
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:
Q Comm International, Inc.
0000 Xxxxx 0000 Xxxx
Xxxx, Xxxx 00000
Attention: Chief Executive Officer
Telephone: 000-000-0000
Facsimile: 000-000-0000
With copy to:
Xxxxx, Xxxxxxx, Rose & Lander, LLP
000 Xxxx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxx Xxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to any Buyers: to the address set forth immediately below such
Xxxxx's name on the signature pages to the Securities Purchase Agreement.
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.
12
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 Securities Purchase Agreement
(including all schedules and exhibits thereto), the Debenture, the Warrant and
all other documents relating to this transaction (collectively, the "Transaction
Documents") 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. The Transaction Documents 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 Buyers pursuant to this Agreement shall be made
by Buyers holding a majority of the Registrable Securities, determined as if all
of the Debentures then outstanding have been converted into Registrable
Securities.
l. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to each Buyer 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 Buyer 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.
13
IN WITNESS WHEREOF, the Company and the undersigned Buyers have caused this
Agreement to be duly executed as of the date first above written.
Q COMM INTERNATIONAL, INC.
--------------------------------------
Xxxx Xxxxxx
Chief Executive Officer
BUYER
--------------------------------------
By:
Title:
--------------------------------------
By:
Title:
14
EXHIBIT D
TO
THE SECURITIES PURCHASE AGREEMENT
(000) 000-0000
_______________, 2003
[Name of Accredited Investor]
c/x Xxxxx & Xxxxxxx, LLP
00 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
Gentlemen:
We have acted as counsel to Q Comm International, Inc., a Utah
corporation ("Q Comm") and its wholly owned subsidiary, Q Comm, Inc. ("Sub"), in
connection with the execution and delivery of a Securities Purchase Agreement,
dated as of______________, 2003 (the "Agreement") by and between Q Comm and you
("Investor") and the transactions contemplated thereby.
This opinion is being furnished to you pursuant to Section 7(h) of the
Agreement. Capitalized terms used herein and not otherwise defined herein have
the respective meanings ascribed to them in the Agreement.
In rendering this opinion, we have examined the following documents:
(1) the Agreement;
(2) a security agreement, dated the date hereof, between Q Comm,
Sub, the Investor and Xxxxx & Xxxxxxx, LLP, as agent for the
Investors (the "Security Agreement");
(3) Form of 12% secured convertible debentures due ____________,
2004;
(4) Form of Stock Purchase Warrant, dated the date hereof
(the "Warrant");
(5) Registration Rights Agreement, dated the date hereof, between
Q Comm and the Investor;
15
(6) Stock Pledge Agreement, dated the date hereof, executed by
Xxxx X. Xxxxxx, Q Comm, the Investors and Xxxxx & Xxxxxxx,
LLP, as agent for the Investor;
(7) Uniform Commercial Code Financing Statement - Form UCC-1,
dated the date hereof, with Q Comm as debtor and the Investor
as secured party attached hereto as Exhibit A (the "Financing
Statement");
(8) a certificate, dated ________, 2003, of the Secretary of State
of the State of Utah relating to the incorporation, legal
existence and good standing of Q Comm in the State of Utah
(the "Utah Certificate"); and
(9) such other documents, instruments and certificates (including,
but not limited to, certificates of public officials and
officers of Q Comm) as we have considered necessary for
purposes of this opinion.
The documents referred to in clauses (1) through (6) above are sometimes
hereinafter collectively called the "Operative Agreements".
In our examination of the documents we have assumed the completeness of
the corporate and stock record books of Q Comm, the genuineness of all
signatures, the legal capacity of each signatory to such documents, the
authenticity of all documents submitted to us as originals, the conformity to
original documents of all documents submitted to us as certified, facsimile or
photostatic copies and the authenticity of the originals of such certified,
facsimile or photostatic documents. We have assumed that the Operative
Agreements accurately describe and contain the mutual understanding of the
parties thereto as to all matters contained therein, and that no other
agreements or understandings exist between such parties with respect to the
Operative Agreements.
Insofar as this opinion relates to factual matters, information with
respect to which is in the possession of Q Comm, we have relied, without
independent investigation, upon certificates, statements and representations
made to us by one or more officers or employees of Q Comm and upon the
representations and warranties made by Q Comm in the Operative Agreements.
Any reference herein to "our knowledge," or to matters "known to us,"
or to any matter of which we "are aware" or coming "to our attention" or any
variation of any of the foregoing, shall mean, as used herein, the conscious
awareness of those attorneys of this firm who have rendered substantive
attention to the transaction to which this opinion relates of the existence or
absence of any facts which would contradict our opinions set forth below. We
have not undertaken, for purposes of this opinion, any independent investigation
to determine the existence or absence of such facts, and no inference as to our
knowledge of the existence or absence of such facts should be drawn from the
fact of our representation of Q Comm. Moreover, we have not, for purposes of our
opinions below, searched computerized or electronic databases (except for the
Utah Department of Commerce) or the docket of any court, governmental agency or
regulatory body or other filing office in any jurisdiction.
For purposes of this opinion, we have assumed that the Operative
Agreements have been duly authorized, executed and delivered by the signatories
thereto other than Q Comm, that the signatories thereto other than Q Comm have
the legal capacity and all requisite power and authority to effect the
transactions contemplated by the Operative Agreements and that the Operative
Agreements are the valid and binding obligations of the signatories thereto
other than Q Comm, enforceable against them in accordance with their respective
terms. We are expressing no opinion herein as to the application of or
compliance with any foreign, federal or state law or regulation to the power,
authority or competence of any party to the documents other than Q Comm.
16
Our opinions expressed in paragraph 1 below, insofar as they relate to
the incorporation, valid existence, good standing of Q Comm are based solely on
the Utah Certificate, copies of which have been made available to the Investors,
and our opinions with respect to such matters are limited accordingly.
The opinions hereinafter expressed are qualified to the extent that
they may be subject to or affected by (i) applicable bankruptcy, insolvency,
reorganization, moratorium, usury, fraudulent transfer or other laws relating to
or affecting the rights and remedies of creditors generally; (ii) statutory or
decisional law concerning recourse by creditors to security in the absence of
notice or hearing; and (iii) duties and standards imposed on parties to
contracts, including without limitation, requirements of good faith,
reasonableness and fair dealing. We express no opinion as to the availability of
the remedy of specific performance, injunctive relief or any other equitable or
specific remedy upon any breach of any documents or obligations referred to
herein, or to the successful assertion of any equitable defenses, inasmuch as
the availability of such remedies or the success of such defenses may be subject
to the discretion of the court before which any proceeding therefor may be
brought. Our opinion in paragraph 3 below as to the enforceability of the
Operative Agreements is subject to the unenforceability under certain
circumstances of broadly or vaguely stated waivers or waivers of rights granted
by law where the waivers are against public policy or prohibited by law.
Furthermore, we express no opinion herein as to any provision of any agreement
(i) to the effect that rights and remedies are not exclusive, that every right
or remedy is cumulative and may be exercised in addition to or with any other
right or remedy and does not preclude recourse to one or more other rights or
remedies, (ii) relating to the effect of invalidity or enforceability of the
provisions of any of the Operative Agreements on the validity or enforceability
of any other provision thereof, (iii) requiring the payment of consequential
damages or liquidated damages, (iv) relating to non-competition and
non-solicitation, (v) relating to indemnification and contribution with respect
to securities law claims and (vi) relating to consent to jurisdiction or waiver
of trial by jury.
We express no opinion as to compliance by Q Comm with any federal or
so-called "blue sky" or state securities laws or with any state or federal
antifraud laws or with the fraudulent transfer laws of any jurisdiction.
We are opining herein only with respect to the state laws of the State
of New York and the federal laws of the United States of America. Accordingly,
to the extent that any laws other than those upon which we are opining govern
any of the matters as to which we express an opinion below, we have assumed for
purposes of this opinion, with your permission and without independent
investigation, that the laws of such jurisdiction are identical to the state
laws of the State of New York, and we express no opinion as to whether such
assumption is reasonable or correct.
On the basis of and subject to the foregoing, we are of the opinion
that:
1. Q Comm is a corporation incorporated, validly existing and in good
standing under the laws of the State of Utah.
2. Q Comm has the corporate power and corporate authority to enter into
and perform each of the Operative Agreements and has taken all necessary
corporate action to authorize the execution, delivery and performance of the
Operative Agreements and the Financing Statements.
17
3. The Operative Agreements have been duly executed and delivered by Q
Comm and constitute the legally valid and binding obligation of Q Comm,
enforceable against it in accordance with the respective terms of such Operative
Agreements.
4. No consents, approvals or authorizations of, or notices to or
filings with the shareholders of Q Comm or any governmental authority or agency
under the laws of the State of New York or the laws of the United States, in
each case as presently in effect and interpreted, are required on the part of Q
Comm in connection with the execution and delivery by Q Comm of the Operative
Agreements, except for such filings as are necessary in connection with the
creation and/or perfection of security interests in collateral granted by Q Comm
to the Investors.
5. The execution, delivery and performance by Q Comm of the Operative
Agreements and the consummation by Q Comm of the transactions contemplated
thereby, does not (i) violate or conflict with any provision of the Certificate
of Incorporation or ByLaws of Q Comm, (ii) constitute a breach of, or result in
a default under any agreement to which Q Comm is a party, known to us or (iii)
violate any federal, state or local law, statute, rule or regulation that we
have in the exercise of customary professional diligence, recognized as
applicable to Q Comm or to transactions of this type contemplated by the
Operative Agreements.
6. The provisions of the Security Agreement are sufficient to create in
favor of the Investor a security interest in the Collateral (as defined therein)
to the extent that a security interest can be created pursuant to the Uniform
Commercial Code and Article 9 of the Uniform Commercial Code as in effect in the
States of New York and Utah (the "UCC") and the UCC applies to such types of
Collateral.
7. The Financing Statement is in proper form and when filed with the
Utah Department of Commerce, the liens created by the Security Agreement will be
duly perfected, to the extent that such security interests can be perfected by
the filing of such Financing Statement.
This opinion is based upon currently existing statutes, rules,
regulations and judicial decisions and is rendered as of the date hereof, and we
disclaim any obligation to advise you of any change in any of the foregoing
sources of law or subsequent developments in law or changes in fact or
circumstances which might affect any matters or opinions set forth herein.
Please note that we are opining only as to the matters expressly set forth
herein, and no opinion should be inferred as to any other matter.
This opinion is being furnished to the Investors, at the request of Q
Comm, solely for the purpose set forth in the first paragraph hereof and solely
for the benefit of the Investors and may not be relied upon for any other
purpose or by any other person or entity without our prior written consent;
except that as contemplated by the Agreement, any other person or entity that
executes a securities purchase agreement on or before__________, 2003, which is
substantially identical to the Agreement, may rely hereon.
Very truly yours,
Xxxxx, Xxxxxxx, Xxxx & Xxxxxx, LLP
18
DISCLOSURE SCHEDULES
TO
SECURITIES PURCHASE AGREEMENT
This Disclosure Schedule is annexed to and made a part of the
Securities Purchase Agreement. The numbered paragraphs set forth below
correspond to the numbered paragraphs set forth in the Securities Purchase
Agreement, dated as of February 12, 2003 (the "Securities Purchase Agreement"),
between Q Comm International, Inc. (the "Company") and the purchasers set forth
on the signature pages thereto (the "Buyers"). Capitalized terms used herein
shall have the same meaning ascribed to such terms in the Securities Purchase
Agreement.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
a. Organization and Qualification. The Company has one
subsidiary. Q Comm, Inc., a Utah corporation, is wholly-owned
by the Company.
c. Attached hereto as Exhibit 3(c)-1 is a list of option holders
and warrant holders, the number of shares of common stock
which they have the right to acquire and the exercise price of
their options and/or warrants. Exhibit 3(c)-2 also lists
convertible securities issued by the Company currently
outstanding and the conversion price that applies to those
instruments. Exhibit 3(c)-3 lists agreements or arrangements
under which the Company is obligated to register its
securities under the 1933 Act. Exhibit 3(c)-4 lists the
agreements that contain anti-dilution or price protection
provisions that will be triggered by the issuance of the
Debentures, the Warrants, the Conversion Shares or Warrant
Shares.
f. The issuance of the Conversion Shares prior to the delivery of
a Notice of Conversion with respect to the Debentures and the
delivery of the Warrant Shares prior to the delivery of a
Notice of Exercise with respect to the Warrants may conflict
with or result in the violation of the Company's Articles of
Incorporation and/or By-laws and may result in a violation of
the Utah Business Corporation Act.
g. Since January 1, 2002, the Company has timely filed all
reports, schedules, forms, statements and other documents
required to be filed with the SEC pursuant to the reporting
requirements of the Exchange Act of 1934. In January 2003, the
Company sold its 12% unsecured convertible note due February
28, 2004 in the aggregate principal amount of $200,000 and
363,636 shares of Common Stock for an aggregate purchase price
of $200,000. Also, see paragraph 3(l) below.
h. The Company continues to operate at a loss and continues to
experience negative cash flow in each calendar month since
September 30, 2002. The fourth quarter of 2002 is likely to be
the lowest revenue quarter for the year and have the greatest
negative cash flow for the year. See also paragraph 3(g) above
and 3(l) below.
i. On October 10, 2000, First Security Bank, N.A. filed suit in
the Fourth Judicial District Court of Utah County, claiming
breach of a Merchant Agreement. The complaint relates to
charge-backs of customer credit card purchases, which resulted
in overdrafts of our merchant account with First Security.
First Security claims $175,477 in damages. We believe that
First Security honored charge-backs inappropriately, based on
the terms and conditions of the customers' credit card
agreements and the terms and conditions of their contracts
with us. First Security recently filed a motion for summary
judgment, which we are contesting. We anticipate that this
case will not be resolved until after trial, which has not yet
been scheduled, but which will likely be scheduled to take
place within the next four to six months. We have recorded a
contingent liability in connection with this matter and
believe the resolution of this suit will not have a material
impact on our financial condition or results of operations.
19
We have agreed to indemnify Xxxx Xxxxxx against any and all
costs, fees, expenses, damages and liabilities that he may
incur in connection with the matter of Xxxxxx Xxxxxx v. Xxxx
Xxxxxx. In that lawsuit the plaintiff claims that he had a
right to purchase 300,000 shares of our common stock from Xx.
Xxxxxx at a significant discount and that as a result of Xx.
Xxxxxx'x breach of their agreement, he suffered damages in the
amount of $400,000. Xx. Xxxxxx contests the enforceability of
the agreement. We indemnified Xx. Xxxxxx because the
plaintiff's allegations relate to a matter in which Xx. Xxxxxx
acted in the interest of Q Comm.
j. None. Exhibit 3(j) attached hereto lists all of the patents
owned by the Company.
l. The Company has not filed any income tax returns since 1997.
In addition, the Company has not filed any returns or made any
required payments with respect to employment taxes for the
periods beginning August 2002.
m. As of January 1, 2003, we owed Xxxx Xxxxxx, our principal
stockholder and chief executive officer, an aggregate amount
of $410,962, consisting of loans from him to cover cash
shortfalls, past due lease payments, and deferred salary. This
amount is reflected in a note that bears interest at 10%. The
note provides that we must pay Xx. Xxxxxx $150,000 out of the
proceeds of the contemplated underwritten public offering
scheduled for later this year. Also, beginning one year after
this offering is completed, we are obligated to amortize the
balance of the note over its remaining term.
We have agreed to indemnify Xxxx Xxxxxx against any and all
costs, fees, expenses, damages and liabilities that he may
incur in connection with the matter of Xxxxxx Xxxxxx v. Xxxx
Xxxxxx. In that lawsuit the plaintiff claims that he had a
right to purchase 300,000 shares of our common stock from Xx.
Xxxxxx at a significant discount and that as a result of Xx.
Xxxxxx'x breach of their agreement, he suffered damages in the
amount of $400,000. Xx. Xxxxxx contests the enforceability of
the agreement. We indemnified Xx. Xxxxxx because the
plaintiff's allegations relate to a matter in which Xx. Xxxxxx
acted in the interest of Q Comm.
Xx. Xxxxxx has personally guaranteed the repayment of the
convertible note held by UTFC Financing Solutions, LLC in the
original principal amount of $250,000. In addition, Xx. Xxxxxx
has personally guaranteed customer chargebacks under our
merchant agreement with First Security Bank. First Security
Bank has brought a lawsuit claiming that it is owed
approximately $175,000 relating to customer chargebacks.
s. See Exhibit 3(s) for the details of liens filed against the
Company.
20
4. Covenants.
(d) The proceeds from the sale of the Debentures will be used
to purchase additional Qxpress 200 terminals, for sales and
marketing and for working capital purposes, including legal,
accounting expenses and filing fees and other expenses related
to the Xxxxxxx Offering.
21
Exhibit 3(c)-1
Q Comm International, Inc.
Options and Warrants Oustanding
As of February 5, 2003
Number of Vested at
Employee Options Shares Price 12/31/2002
---------------- --------- ----- ----------
Xxxx Xxxxxx (Exec officer) 800,000 1.10 800,000
Xxxxx Xxxxxxxx (Exec officer) 426,250 1.00 426,250
Xxxxx Xxxxxxxx (Exec officer) 400,000 1.00
Xxxx Xxxxxx (Exec officer) 343,750 1.00 343,750
Xxxx Xxxxxx 200,000 1.00 200,000
Xxxxx Xxxxxxx 200,000 1.00
Xxxx Xxxxxx 189,062 1.00 189,062
Xxxxx Xxxxxxxx 151,250 1.00 151,250
Xxxx Xxxxxxxx (Exec officer) 151,250 1.00 151,250
Xxxx Xxxxxxxx (Exec officer) 68,750 1.00 18,750
Xxxxx Xxxxx 30,938 1.00 30,938
Xxxx Xxxxxx 30,000 1.00 30,000
Xxxxxxx Xxxxxxxx 27,500 1.00 27,500
Xxxxx Xxxxxxxx 25,000 1.00
Xxxx Xxxxxx 25,000 1.00
Xxxxxxx Xxxxxxxx 25,000 1.00
Xxx Xxxxxxx 25,000 1.00
Xxx Xxxxxx 17,188 1.00 17,188
XX Xxxxxx 17,188 1.00 4,688
Xxxxxx Xxxxxxx 10,000 1.00
Xxxxx Xxxxxxxx 10,000 1.00
Xxxx Xxxxxx 6,876 1.00 6,876
Xxxxx Xxxxxxxx 3,438 1.00 938
Xxxxxx Xxxxxxx 3,438 1.00 938
---------- ---------
Total Employee 3,186,878 2,399,378
---------- ---------
Number of Vested at
Non-employee Options/Warrants Shares Price 12/31/2002
----------------------------- --------- ----- ----------
Private placement participants (1) 1,253,333 1.00 1,253,333
Xxxxx Xxxx 200,000 1.00 200,000
UTFC 150,000 1.25 150,000
Balallan Ltd 80,000 0.90 80,000
Coast Market Research 75,000 1.65 75,000
XX Xxxxxx 70,000 1.50 70,000
Noble Asset Management 62,500 1.65 62,500
Xxxx Xxxxxx (Microcap) 50,000 0.50 50,000
Xxxx Xxxxxx (PPM Commission) 31,667 1.00 31,667
Xxxx Xxxxxx 30,000 1.50 30,000
Xxxx Xxxxx (PPM Commission) 23,667 1.00 23,667
Quality Asset Mgt (PPM Comm) 20,000 1.00 20,000
Xxxxxxx Xxxxxxx 15,000 1.00 15,000
Xxxxxx Xxxxxxxxx 15,000 0.40 15,000
Xxxxxxx Xxxxxxxx 10,000 1.00 10,000
---------- ---------
Total Non-employee 2,086,167 2,086,167
---------- ---------
Grand Total 5,273,045 4,485,545
---------- ---------
(1) In 2001, the Company sold 1,253,333 units, consisting of one share common
stock and a warrant to purchase one share of common stock, to a total of
15 private investors.
Exhibit 3(c)-2
Q Comm International, Inc.
Convertible Securities
As of February 5, 2003
Balance
Conversion Subject to
Holder Price Conversion (1)
------ ----- --------------
UTFC Financing Solutions, LLC $1.25 207,908.98
(1) The note is a $250,000 convertible note with monthly payments due over a
five-year period at 14%. The agreement allows for the outstanding balance of the
note at any time subsequent to one year from the origination date to be
converted at $1.25 per share at the option of the holder. The note was issued on
December 28, 2002.
Exhibit 3(c)-3
Q Comm International, Inc.
Obligations to Register Securities
As of February 5, 2003
Oustanding Options/Warrants/Convertible Securities
Outstanding Vested Exercise Date Expiration
Name Shares Shares Price Granted Date
---- ------ ------ ----- ------- ----
Xxxxx Xxxxxxxx (Exec officer) 400,000 - $1.00 9/6/2001 9/6/2006
Xxxxxx Xxxxxxxxx 15,000 15,000 $0.40 6/1/2001 5/31/2006
Balallan Ltd 80,000 80,000 $0.90 9/15/2001 9/15/2006
UTFC 150,000 150,000 $1.25 11/27/2001 11/27/2008
Coast Market Research 75,000 75,000 $1.50-$1.80 7/17/2002 7/17/2004
---------------------------------
Total 720,000 320,000
================================
Restricted Shares Issued Within the Last 12 Months
Number of Date
Shares Issued
--------- ------
Xxxx Xxxxxx 31,874 06/05/02
==============================
All of the above agreements contain "piggyback" registration rights.
Exhibit 3(c)-4
Q Comm International, Inc.
Agreements with Anti-dilution Provisions
As of February 5, 2003
None
EXHIBIT 3(j)
Patents
Matter Serial No.
U.S. Design Patent Application for
POINT-OF-SALE-ACTIVATION DEVICE 29/169,739
U.S. Patent Application for
SYSTEM AND METHOD FOR DISTRIBUTING INVENTORY FOR
POINT-OF-SALE-ACTIVATION SERVICES 10/351,493
U.S. Patent Application for
POINT-OF-SALE-ACTIVATION DEVICE 10/350,198
U.S. Patent Application for
SYSTEM AND METHOD FOR POINT-OF-
SALE TRAINING CONCERNING PREPAID
SERVICE TRANSACTIONS 10/350,203
23
EXHIBIT 3(s)
[Uniform Commercial Code] [Utah Department of Commerce]
[GRAPHIC]
Filing Record Detail:
Filing Detail:
--------------
File Number: 165942200133
Old File Number: N/A
Start Date: 09/26/2001
Lapse Date: 09/26/2006
Filing Type: UCC
Filing Status: ACTIVE
Debtor:
-------
ACTIVE
Q COMM INTERNATIONAL, INC. Jurisdiction: UT
0000 XXXXX 0000 XXXX Xxxxxxxxxxxx ID: 923846-0142
OREM UT 84058 Organization Type: CORP
Secured Party
-------------
ACTIVE
MSM CAPITAL CORPORATION
0000 XXXXXX XXXXXX XXXXX, XXX. 000
XXXXXX XX 00000
Secured Party
-------------
ACTIVE
COLONIAL PACIFIC LEASING CORP
00000 XX 00XX XXXX.
PORTLAND OR 97223
Collateral Description:
-----------------------
2 IBM X350 SERVER PII 700 XEON W 2MB CACHE RACK2 IBM PII 700 MHZ XEON W/2MB
CACHE PROCESSING KIT3 IBM X230 SERVER PIII 1GB W/256K CACHE 128SDRAM11 IBM
18.2GB 10K ULTRA 160 SCSI HOT SWAP SL HDD1 IBM 9.1GB 10K ULTRA 160 SCSI HOT SWAP
SL HDD XXXXX YOSA Action: ADD
--------------------------------------------------------------------------------
[Uniform Commercial Code] [Utah Department of Commerce]
[GRAPHIC]
Filing Record Detail:
Filing Detail:
--------------
File Number: 174669200140
Old File Number: N/A
Start Date: 11/30/2001
Lapse Date: 11/30/2006
Filing Type: UCC
Filing Status: ACTIVE
Debtor:
-------
ACTIVE
Q COMM INTERNATIONAL, INC. Jurisdiction: UTAH
0000 XXXXX 0000 XXXX Xxxxxxxxxxxx XX: UT923846-0142
OREM UT 84058 Organization Type: CORP
Secured Party
-------------
ACTIVE
UTFC
000 XXXX 000 XXXXX
XXXX XXXX XXXX XX 00000
Collateral Description:
-----------------------
ALL OF DEBTOR'S NOW OWNED OR HEREAFTER ACQUIRED INVENTORY, EQUIPMENT,
FURNISHINGS, FIXTURES, COMPUTERS AND SOFTWARE, AND PRESENT AND FUTURE RIGHTS,
ACCOUNTS CONTRACTS, GENERAL INTANGIBLES, TECHNOLOGY, AND OTHER INTELLECTUAL
PROPERTY, AND THE SPECIFIC
Action: ADD
--------------------------------------------------------------------------------
