Exhibit 10.12
NOTE PURCHASE AGREEMENT
This NOTE Purchase Agreement is made this day of November 2003, by and
between QUINTEK TECHNOLOGIES, INC., a California corporation ("QTEK" or
"Company"), and KAZI MANAGEMENT V.I. LLC, a U. S. Virgin Islands corporation
("KAZI").
Background
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As more fully set forth herein, KAZI agrees to purchase from the Company a total
of five (5) Convertible Notes (the "Notes"), each in $100,000 denominations with
a 10% annual interest rate and one year term, and convertible in accordance with
the terms thereof into shares of the Company's Common Stock (the "Shares") at a
conversion price of $0.06. The initial Convertible Note (which is the form of
the four (4) subsequent Notes) is annexed hereto as Exhibit A. (The Shares
included in the Securities (as hereinafter defined) are sometimes referred to
herein as the "Shares" or "Common Stock"). (The Notes, the Shares, bonus
Warrants ("Warrants") issuable on a one-to one basis with each Share issued upon
conversion of all or part of a Note, and the Common Stock issuable upon exercise
of the Warrants ("Warrant Stock") are collectively referred to herein as, the
"Securities"). Upon acceptance of this Agreement by the Subscriber, the Company
shall issue and deliver to the Subscriber the Initial Note against payment, by
federal funds wire transfer of $100,000. A form of the Warrant is attached
hereto as Exhibit B.
Agreement
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NOW THEREFORE, intending to be legally bound hereby, the parties hereto agree as
follows:
1. Subscription. KAZI hereby purchases the initial Note from the
Company, the funding of which Note shall occur within 48 hours of the execution
of this Note Purchase Agreement. Each of the other four Notes shall be purchased
by and paid for by Kazi consecutively no later than forty five (45) days from
the last funding date of the immediately prior Note.
At the time of the execution and delivery of this Note Purchase
Agreement (and execution by the Company of the initial Note), KAZI and QTEK have
also executed and delivered the Registration Rights Agreement attached hereto as
Exhibit "C" ("Registration Rights Agreement")and the Security Agreement attached
hereto as Exhibit "D" ("Security Agreement"). Pursuant to the Registration
Rights Agreement, the Company agrees to register all of the Securities with the
Securities and Exchange Commission. Pursuant to the Security Agreement, the
Notes are secured by KAZI by all the assets and intellectual property of the
Company.
2. Verification of Status as "Accredited Investor". KAZI hereby
represents to QTEK that it qualifies as an "accredited investor" as such term is
defined in Rule 501 promulgated under the Act because either (a) KAZI was not
formed for the specific purpose of investing in the Securities and has total
assets in excess of $5,000,000, or (b) each of the equity owners of KAZI has a
net worth in excess of $1,000,000.
3. Representations And Warranties of the Company. The Company hereby
makes the following representations and warranties to KAZI:
(a) Issuance of Securities. The issuance of the Securities has
been duly authorized by QTEK, and when issued will be validly issued. The Shares
and Warrant Shares when issued will be fully paid and non-assessable.
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(b) Corporate Organization. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the state of
California, with all requisite power, authority and licensing to own, operate
and lease its properties and carry on its business as now being conducted.
(c) Authority. The execution and delivery of this Agreement,
and the consummation of the transactions contemplated hereby has been duly
authorized by the Board of Directors of the Company and no other corporate
proceedings on the part of the Company are necessary to authorize this Agreement
or to carry out the transactions contemplated hereby.
(d) Unavailability of Authorized Shares. KAZI understands that
the Company is currently preparing a proxy statement to be filed with the
Securities and Exchange Commission and sent to shareholders seeking to amend
Company's Articles of Incorporation to authorize 200,000,000 shares of Common
Stock; and that the Company does not have sufficient available Common Stock to
provide for the issuance of Common Stock upon the full conversion of the Notes
and exercise of the Warrants. Thus, the conversion right of KAZI with respect to
the Notes shall only exist upon: (i)approval of the abovesaid proxy statement by
the Securities and Exchange Commission and approval of the abovesaid amendment
by Company shareholders; and (ii) the Company's registration statement
registering the Shares underlying the Notes and other Securities has been
declared effective by the Securities Exchange Commission. Once the conversion
right exists, the Borrower will reserve from its authorized and unissued Common
Stock a sufficient number of shares to provide for the issuance of Common Stock
and upon the full conversion of the Notes and exercise of all Warants. All
shares of Common Stock issued upon conversion of the Notes and exercise of the
Warrants shall be, at the time of delivery of the certificates for such Common
Stock, validly issued and outstanding, fully paid and non-assessable.
4. Representations by KAZI. KAZI represents and warrants to the Company
as follows:
(a) KAZI has received, read and understands the provisions of
each of the Company's reports on Forms 8-K, 10-QSB and 10-KSB for the
past three fiscal years, including the following: (i) the Company's
Annual Report on Form 10-KSB for the fiscal year ended June 30, 2003;
and (ii) the Company's Quarterly Report on Form 10-QSB for the quarter
ended September 30, 2003; KAZI understands that all of the foregoing
together with this Note Purchase Agreement shall be referred to herein
as "Offering Materials".
(b) KAZI has relied only upon the information presented and
contained in the Offering Materials. KAZI has had the opportunity to
ask of the person or persons acting on behalf of the Company any and
all relevant questions in connection with any aspect of the Company
including, but not limited to, the Securities offered by the Offering
Materials and has received answers which it considers to be reasonably
responsive to such questions. KAZI has had the opportunity to verify
the accuracy of the information contained in the Offering Materials.
KAZI understands that the proceeds from the sale of the Securities will
be used for working capital purposes, primarily to make payment of
obligations and debts of the Company.
(c) KAZI understands that it is subscribing for the Securities
withoutbeing furnished any literature or prospectus in connection with
the offering of the Securities other than the Offering Materials, and
that the offering of the Securities presented in the Offering Materials
will not have been scrutinized by the securities administrator or
similar bureau, agency, or department of the state of its domicile.
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(d) KAZI understands (i) that neither the Shares, Warrants nor
the Warrant Stock has been registered under the Act or registered or
qualified under the securities laws of the state of domicile of KAZI;
(ii) that except as otherwise provided in the Registration Rights
Agreement, KAZI has no right to require such registration or
qualification; and (iii) that therefore KAZI must bear the economic
risk of the investment for an indefinite period of time because neither
the Shares, Warrants nor Warrant Stock may be sold unless so registered
or qualified or unless an exemption from such registration and
qualification is available.
(e) Subject to being resold pursuant to an effective
registration statement, the Securities are being purchased for KAZI's
own account for investment purposes only and not for the interest of
any other person and are not being purchased with a view to or for the
resale, distribution, subdivision or fractionalization thereof.
Although the Common Stock of QTEK is currently traded on the OTC
Bulletin Board under the symbol "QTEK", KAZI also understands that
there may not be any established public trading market for the sale of
the Shares.
(f) KAZI recognizes that the purchase of the Securities
involves a high degree of risk including those special risks set forth
under the caption "Risk Factors" and "Forward Looking Statements" in
the Form SB-2 Registration Statement of the Company (File No.
333-86064) filed with the Securities and Exchange Commission on April
11, 2002 and the Form 10-QSB for the quarter ended March 31, 2002, all
of which are incorporated herein by reference.
(g) Subject to the registration rights set forth above, KAZI
understands that its right to transfer the Shares, Warrants and Warrant
Stock will be restricted as set forth on the stock certificates. Such
restrictions include provisions against transfer unless such transfer
is not in violation of the Act, or applicable state securities laws
(including investor suitability standards).
(h) All information which KAZI has provided to the Company
including, but not limited to, its tax identification number, its
financial position, and status as an accredited investor, and its
knowledge of financial and business matters is true, correct and
complete as of the date of execution of this Note Purchase Agreement.
KAZI understands that QTEK will rely in a material degree upon the
representations contained herein.
(i) KAZI maintains its principal place of business at the
address shown on the signature page of this Note Purchase Agreement, at
which address KAZI has subscribed for the Securities.
(j) KAZI understands that legends may be placed on any
certificate representing the Shares, Warrants, and Warrant Shares
substantially to the following effect:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES STATUTES AND
REGULATIONS. SUCH SHARES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD,
TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR SUCH SHARES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES STATUTES AND REGULATIONS, UNLESS, IN THE OPINION
(WHICH SHALL BE IN FORM AND SUBSTANCE SATISFACTORY TO THE CORPORATION) OF
COUNSEL SATISFACTORY TO THE CORPORATION, SUCH REGISTRATION IS NOT REQUIRED.
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(k) The execution and delivery of this Agreement, and the
consummation of the transactions contemplated hereby has been duly
authorized by KAZI.
5. Conditions of Funding; Miscellaneous. Notwithstanding anything
contained herein to the contrary, In the event that the authorization of more
shares is not approved by the shareholders of the Company within ninety (90)
days of receipt of funding of the initial Note, continued funding of Notes will
occur at the discretion of KAZI. In the event that the Company is not able to
secure additional senior management satisfactory to KAZI within the next
forty-five (45) days after funding of the initial Note, continued funding will
occur at the discretion of KAZI.
Notwithstanding anything herein to the contrary, if and to the extent that, on
any date (the "Section 16 Determination Date"), the holding by KAZI of all or
part the Securities would result in KAZI's becoming subject to the provisions of
Section 16(b) of the Securities Exchange Act of 1934, as amended, by virtue of
being deemed the "beneficial owner" of more than ten percent (10%) of the then
outstanding shares of Common Stock of the Company, then KAZI shall not have the
right to convert any portion of the Notes or exercise any portion of the
Warrants as shall cause KAZI to be deemed the beneficial owner of more than ten
percent (10%) of the then outstanding shares of Common Stock of the Company
during the period ending sixty (60) days after the Section 16 Determination
Date.
6. Delay of Registration. Notwithstanding anything contained herein to
the contrary, if the Registration Statement (as such term is defined in the
Registration Rights Agreement) has not been declared effective under the Act by
the Securities and Exchange Commission within 90 days following the date hereof,
then in such event, the Company shall issue to KAZI an additional three percent
(3%) of the aggregate number of Shares, Warrants, and Additional Warrants issued
to KAZI by the Company hereunder on the date hereof, on a pro rata basis for
partial months, for each full month that the Registration Statement is not so
declared effective. In lieu of issuing additional Shares, the Company may elect
to xxxxx XXXX the cash equivalent of the additional Shares (based upon the
conversion price of the Common Stock). The additional Shares, if any, and the
additional shares of Common Stock underlying the new warrants shall be covered
by the Registration Rights Agreement.
7. Survival of Representations, Warranties, Covenants, Agreements and
Remedies. Except as specifically provided otherwise herein, all representations,
warranties, covenants, agreements and remedies of the parties hereto, shall
survive the date hereof.
8. Entire Agreement. This Agreement constitutes the entire
understanding and agreement between the parties hereto with respect to the
transactions contemplated herein, supersedes all prior and contemporaneous
agreements, understandings, negotiations and discussions, whether oral or
written, of the parties, and there have been no warranties, representations or
promises, written or oral, made by any of the parties hereto except as herein
expressly set forth herein.
9. Binding Agreement. This Agreement shall be binding upon and inure to
the benefit of the parties hereto, as well as their respective heirs, personal
representatives, successors and assigns but no party may assign its obligations
hereunder.
10. California Law Controls. This Agreement shall be construed in
accordance with and shall be governed by the laws of the state of California
without regard to its conflicts of law rules.
11. Expenses. The Company shall pay for and prepare all documentation
and filings related to this transaction. The Company shall pay KAZI a two and
one half percent (2 1/2%) due diligence fee to be deducted from funding of each
Note.
[THIS SPACE INTENTIONALLY LEFT BLANK.]
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IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Stock Purchase Agreement the date first above written.
KAZI MANAGEMENT V.I., LLC
Witness:_________________ By: /s/ Xxxxx Xxxx
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Its: President
Address:
30 Dronnigens Xxxx, Suite B
St. Xxxxxx, Virgin Islands 00802
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QUINTEK TECHNOLOGIES, INC.
By: /s/ Xxxxxx Xxxxxx
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Chief Executive Officer
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Exhibit A
Loan Schedule
Loan payment schedule;
o Initial $100,000 loan was made on November 26, 2003;
o 2nd loan of 100,000 due on or before January 10, 2004;
o 3rd loan of $100,000 due on or before February 24, 2004
o 4th loan of $100,000 due on or before April 9, 2004
o 5th loan of $100,000 due on or before May 24,2004
THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS NOTE AND THE
COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS NOTE UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO QUINTEK TECHNOLOGIES, INC., THAT SUCH REGISTRATION IS NOT
REQUIRED.
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