SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of February 6,
2003, by and among iDial Networks, Inc., a Nevada corporation, with headquarters
located at 00000 Xxxx Xxxxxxx Xxxxx, Xxxxx 000, Xxxxxx, Xxxxxxxx 00000 (the
"Company"), and each of the purchasers set forth on the signature pages hereto
(the "Buyers").
WHEREAS:
A. The Company and the Buyers are executing and delivering this Agreement in
reliance upon the exemption from securities registration afforded by the
rules and regulations as promulgated by the United States Securities and
Exchange Commission (the "SEC") under the Securities Act of 1933, as
amended (the "1933 Act");
B. Buyers desire to purchase and the Company desires to issue and sell, upon
the terms and conditions set forth in this Agreement (i) 12% convertible
debentures of the Company, in the form attached hereto as Exhibit "A", in
the aggregate principal amount of Seven Hundred Fifty Thousand Dollars
($750,000) (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, par value $.005 per share, of the Company (the "Common Stock"), upon
the terms and subject to the limitations and conditions set forth in such
Debentures and (ii) warrants, in the form attached hereto as Exhibit "B",
to purchase Two Million Two Hundred Fifty Thousand (2,250,000) shares of
Common Stock (the "Warrants").
C. Each Buyer wishes to purchase, upon the terms and conditions stated in this
Agreement, such principal amount of Debentures and number of Warrants as is
set forth immediately below its name on the signature pages hereto; and
D. Contemporaneous with the execution and delivery of this Agreement, the
parties hereto are executing and delivering a Registration Rights
Agreement, in the form attached hereto as Exhibit "C" (the "Registration
Rights Agreement"), pursuant to which the Company has agreed to provide
certain registration rights under the 1933 Act and the rules and
regulations promulgated thereunder, and applicable state securities laws.
NOW THEREFORE, the Company and each of the Buyers severally (and not jointly)
hereby agree as follows:
1. PURCHASE AND SALE OF DEBENTURES AND WARRANTS.
a. Purchase of Debentures and Warrants. On the Closing Date (as defined
below), the Company shall issue and sell to each Buyer and each Buyer
severally agrees to purchase from the Company such principal amount of
Debentures and number of Warrants as is set forth immediately below
such Buyer's name on the signature pages hereto.
b. Form of Payment. On the Closing Date (as defined below), (i) each
Buyer shall pay the purchase price for the Debentures and the Warrants
to be issued and sold to it at the Closing (as defined below) (the
"Purchase Price") by wire transfer of immediately available funds to
the Company, in accordance with the Company's written wiring
instructions, against delivery of the Debentures in the principal
amount equal to the Purchase Price and the number of Warrants as is
set forth immediately below such Buyer's name on the signature pages
hereto, and (ii) the Company shall deliver such Debentures and
Warrants duly executed on behalf of the Company, to such Buyer,
against delivery of such Purchase Price.
c. Closing Date. Subject to the satisfaction (or written waiver) of the
conditions thereto set forth in Section 6 and Section 7 below, the
date and time of the issuance and sale of the Debentures and the
Warrants pursuant to this Agreement (the "Closing Date") shall be
12:00 noon, Eastern Standard Time on February 6, 2003 or such other
mutually agreed upon time. The closing of the transactions
contemplated by this Agreement (the "Closing") shall occur on the
Closing Date at such location as may be agreed to by the parties.
2. BUYERS' REPRESENTATIONS AND WARRANTIES. Each Buyer severally (and not
jointly) represents and warrants to the Company solely as to such Buyer
that:
a. Investment Purpose. As of the date hereof, the Buyer is purchasing the
Debentures and the shares of Common Stock issuable upon conversion of
or otherwise pursuant to the Debentures (including, without
limitation, such additional shares of Common Stock, if any, as are
issuable (i) on account of interest on the Debentures, (ii) as a
result of the events described in Sections 1.3 and 1.4(g) of the
Debentures and Section 2(c) of the Registration Rights Agreement or
(iii) in payment of the Standard Liquidated Damages Amount (as defined
in Section 2(f) below) pursuant to this Agreement, such shares of
Common Stock being collectively referred to herein as the "Conversion
Shares") and the Warrants and the shares of Common Stock issuable upon
exercise thereof (the "Warrant Shares" and, collectively with the
Debentures, Warrants and Conversion Shares, the "Securities") for its
own account and not with a present view towards the public sale or
distribution thereof, except pursuant to sales registered or exempted
from registration under the 1933 Act; provided, however, that by
making the representations herein, the Buyer does not agree to hold
any of the Securities for any minimum or other specific term and
reserves the right to dispose of the Securities at any time in
accordance with or pursuant to a registration statement or an
exemption under the 1933 Act.
b. Accredited Investor Status. The Buyer is an "accredited investor" as
that term is defined in Rule 501(a) of Regulation D (an "Accredited
Investor").
c. Reliance on Exemptions. The Buyer understands that the Securities are
being offered and sold to it in reliance upon specific exemptions from
the registration requirements of United States federal and state
securities laws and that the Company is relying upon the truth and
accuracy of, and the Buyer's compliance with, the representations,
warranties, agreements, acknowledgments and understandings of the
Buyer set forth herein in order to determine the availability of such
exemptions and the eligibility of the Buyer to acquire the Securities.
d. Information. The Buyer and its advisors, if any, have been, and for so
long as the Debentures and Warrants remain outstanding will continue
to be, furnished with all materials relating to the business, finances
and operations of the Company and materials relating to the offer and
sale of the Securities which have been requested by the Buyer or its
advisors. The Buyer and its advisors, if any, have been, and for so
long as the Debentures and Warrants remain outstanding will continue
to be, afforded the opportunity to ask questions of the Company.
Notwithstanding the foregoing, the Company has not disclosed to the
Buyer any material nonpublic information and will not disclose such
information unless such information is disclosed to the public prior
to or promptly following such disclosure to the Buyer. Neither such
inquiries nor any other due diligence investigation conducted by Buyer
or any of its advisors or representatives shall modify, amend or
affect Buyer's right to rely on the Company's representations and
warranties contained in Section 3 below. The Buyer understands that
its investment in the Securities involves a significant degree of
risk.
e. Governmental Review. The Buyer understands that no United States
federal or state agency or any other government or governmental agency
has passed upon or made any recommendation or endorsement of the
Securities.
f. Transfer or Re-sale. The Buyer understands that (i) except as provided
in the Registration Rights Agreement, the sale or re-sale of the
Securities has not been and is not being registered under the 1933 Act
or any applicable state securities laws, and the Securities may not be
transferred unless (a) the Securities are sold pursuant to an
effective registration statement under the 1933 Act, (b) the Buyer
shall have delivered to the Company an opinion of counsel that shall
be in form, substance and scope customary for opinions of counsel in
comparable transactions to the effect that the Securities to be sold
or transferred may be sold or transferred pursuant to an exemption
from such registration, which opinion shall be accepted by the
Company, (c) the Securities are sold or transferred to an "affiliate"
(as defined in Rule 144 promulgated under the 1933 Act (or a successor
rule) ("Rule 144")) of the Buyer who agrees to sell or otherwise
transfer the Securities only in accordance with this Section 2(f) and
who is an Accredited Investor, (d) the Securities are sold pursuant to
Rule 144, or (e) the Securities are sold pursuant to Regulation S
under the 1933 Act (or a successor rule) ("Regulation S"), and the
Buyer shall have delivered to the Company an opinion of counsel that
shall be in form, substance and scope customary for opinions of
counsel in corporate transactions, which opinion shall be accepted by
the Company; (ii) any sale of such Securities made in reliance on Rule
144 may be made only in accordance with the terms of said Rule and
further, if said Rule is not applicable, any re-sale of such
Securities under circumstances in which the seller (or the person
through whom the sale is made) may be deemed to be an underwriter (as
that term is defined in the 0000 Xxx) may require compliance with some
other exemption under the 1933 Act or the rules and regulations of the
SEC thereunder; and (iii) neither the Company nor any other person is
under any obligation to register such Securities under the 1933 Act or
any state securities laws or to comply with the terms and conditions
of any exemption thereunder (in each case, other than pursuant to the
Registration Rights Agreement). Notwithstanding the foregoing or
anything else contained herein to the contrary, the Securities may be
pledged as collateral in connection with a bona fide margin account or
other lending arrangement. In the event that the Company does not
accept the opinion of counsel provided by the Buyer with respect to
the transfer of Securities pursuant to an exemption from registration,
such as Rule 144 or Regulation S, within three (3) business days of
delivery of the opinion to the Company, the Company shall pay to the
Buyer liquidated damages of three percent (3%) of the outstanding
amount of the Debentures per month plus accrued and unpaid interest on
the Debentures, prorated for partial months, in cash or shares at the
option of the Buyer ("Standard Liquidated Damages Amount"). If the
Buyer elects to be paid the Standard Liquidated Damages Amount in
shares of Common Stock, such shares shall be issued at the Conversion
Price at the time of payment.
g. Legends. The Buyer understands that the Debentures and the Warrants
and, until such time as the Conversion Shares and Warrant Shares have
been registered under the 1933 Act as contemplated by the Registration
Rights Agreement or otherwise may be sold pursuant to Rule 144 or
Regulation S without any restriction as to the number of securities as
of a particular date that can then be immediately sold, the Conversion
Shares and Warrant Shares may bear a restrictive legend in
substantially the following form (and a stop-transfer order may be
placed against transfer of the certificates for such Securities):
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended. The
securities may not be sold, transferred or assigned in the
absence of an effective registration statement for the securities
under said Act, or an opinion of counsel, in form, substance and
scope customary for opinions of counsel in comparable
transactions, that registration is not required under said Act or
unless sold pursuant to Rule 144 or Regulation S under said Act."
The legend set forth above shall be removed and the Company shall
issue a certificate without such legend to the holder of any
Security upon which it is stamped, if, unless otherwise required
by applicable state securities laws, (a) such Security is
registered for sale under an effective registration statement
filed under the 1933 Act or otherwise may be sold pursuant to
Rule 144 or Regulation S without any restriction as to the number
of securities as of a particular date that can then be
immediately sold, or (b) such holder provides the Company with an
opinion of counsel, in form, substance and scope customary for
opinions of counsel in comparable transactions, to the effect
that a public sale or transfer of such Security may be made
without registration under the 1933 Act, which opinion shall be
accepted by the Company so that the sale or transfer is effected
or (c) such holder provides the Company with reasonable
assurances that such Security can be sold pursuant to Rule 144 or
Regulation S. The Buyer agrees to sell all Securities, including
those represented by a certificate(s) from which the legend has
been removed, in compliance with applicable prospectus delivery
requirements, if any.
h. Authorization; Enforcement. This Agreement and the Registration Rights
Agreement have been duly and validly authorized. This Agreement has
been duly executed and delivered on behalf of the Buyer, and this
Agreement constitutes, and upon execution and delivery by the Buyer of
the Registration Rights Agreement, such agreement will constitute,
valid and binding agreements of the Buyer enforceable in accordance
with their terms.
i. Residency. The Buyer is a resident of the jurisdiction set forth
immediately below such Buyer's name on the signature pages hereto.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and
warrants to each Buyer that:
a. Organization and Qualification. The Company and each of its
Subsidiaries (as defined below), if any, is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is incorporated, with full power and
authority (corporate and other) to own, lease, use and operate its
properties and to carry on its business as and where now owned,
leased, used, operated and conducted. Schedule 3(a) sets forth a list
of all of the Subsidiaries of the Company and the jurisdiction in
which each is incorporated. The Company and each of its Subsidiaries
is duly qualified as a foreign corporation to do business and is in
good standing in every jurisdiction in which its ownership or use of
property or the nature of the business conducted by it makes such
qualification necessary except where the failure to be so qualified or
in good standing would not have a Material Adverse Effect. "Material
Adverse Effect" means any material adverse effect on the business,
operations, assets, financial condition or prospects of the Company or
its Subsidiaries, if any, taken as a whole, or on the transactions
contemplated hereby or by the agreements or instruments to be entered
into in connection herewith. "Subsidiaries" means any corporation or
other organization, whether incorporated or unincorporated, in which
the Company owns, directly or indirectly, any equity or other
ownership interest.
b. Authorization; Enforcement. (i) The Company has all requisite
corporate power and authority to enter into and perform this
Agreement, the Registration Rights Agreement, the Debentures and the
Warrants and to consummate the transactions contemplated hereby and
thereby and to issue the Securities, in accordance with the terms
hereof and thereof, (ii) the execution and delivery of this Agreement,
the Registration Rights Agreement, the Debentures and the Warrants by
the Company and the consummation by it of the transactions
contemplated hereby and thereby (including without limitation, the
issuance of the Debentures and the Warrants and the issuance and
reservation for issuance of the Conversion Shares and Warrant Shares
issuable upon conversion or exercise thereof) have been duly
authorized by the Company's Board of Directors and no further consent
or authorization of the Company, its Board of Directors, or its
shareholders is required, (iii) this Agreement has been duly executed
and delivered by the Company by its authorized representative, and
such authorized representative is the true and official representative
with authority to sign this Agreement and the other documents executed
in connection herewith and bind the Company accordingly, and (iv) this
Agreement constitutes, and upon execution and delivery by the Company
of the Registration Rights Agreement, the Debentures and the Warrants,
each of such instruments will constitute, a legal, valid and binding
obligation of the Company enforceable against the Company in
accordance with its terms.
c. Capitalization. As of the date hereof, the authorized capital stock of
the Company consists of (i) 500,000,000 shares of Common Stock, of
which 106,442,055 shares are issued and outstanding, no shares are
reserved for issuance pursuant to the Company's stock option plans,
167,000 shares are reserved for issuance pursuant to securities (other
than the Debentures and the Warrants) exercisable for, or convertible
into or exchangeable for shares of Common Stock and 104,500,000 shares
are reserved for issuance upon conversion of the Debentures and the
Additional Debentures (as defined in Section 4(l)) and exercise of the
Warrants and the Additional Warrants (as defined in Section 4(l))
(subject to adjustment pursuant to the Company's covenant set forth in
Section 4(h) below); and (ii) 30,000,000 shares of preferred stock, of
which no shares are issued and outstanding. All of such outstanding
shares of capital stock are, or upon issuance will be, duly
authorized, validly issued, fully paid and nonassessable. No shares of
capital stock of the Company are subject to preemptive rights or any
other similar rights of the shareholders of the Company or any liens
or encumbrances imposed through the actions or failure to act of the
Company. Except as disclosed in Schedule 3(c), as of the effective
date of this Agreement, (i) there are no outstanding options,
warrants, scrip, rights to subscribe for, puts, calls, rights of first
refusal, agreements, understandings, claims or other commitments or
rights of any character whatsoever relating to, or securities or
rights convertible into or exchangeable for any shares of capital
stock of the Company or any of its Subsidiaries, or arrangements by
which the Company or any of its Subsidiaries is or may become bound to
issue additional shares of capital stock of the Company or any of its
Subsidiaries, (ii) there are no agreements or arrangements under which
the Company or any of its Subsidiaries is obligated to register the
sale of any of its or their securities under the 1933 Act (except the
Registration Rights Agreement) and (iii) there are no anti-dilution or
price adjustment provisions contained in any security issued by the
Company (or in any agreement providing rights to security holders)
that will be triggered by the issuance of the Debentures, the
Warrants, the Conversion Shares or Warrant Shares. The Company has
furnished to the Buyer true and correct copies of the Company's
Articles of Incorporation as in effect on the date hereof ("Articles
of Incorporation"), the Company's By-laws, as in effect on the date
hereof (the "By-laws"), and the terms of all securities convertible
into or exercisable for Common Stock of the Company and the material
rights of the holders thereof in respect thereto. The Company shall
provide the Buyer with a written update of this representation signed
by the Company's Chief Executive or Chief Financial Officer on behalf
of the Company as of the Closing Date.
d. Issuance of Shares. The Conversion Shares and Warrant Shares are duly
authorized and reserved for issuance and, upon conversion of the
Debentures and exercise of the Warrants in accordance with their
respective terms, will be validly issued, fully paid and
non-assessable, and free from all taxes, liens, claims and
encumbrances with respect to the issue thereof and shall not be
subject to preemptive rights or other similar rights of shareholders
of the Company and will not impose personal liability upon the holder
thereof.
e. Acknowledgment of Dilution. The Company understands and acknowledges
the potentially dilutive effect to the Common Stock upon the issuance
of the Conversion Shares and Warrant Shares upon conversion of the
Debenture or exercise of the Warrants. The Company further
acknowledges that its obligation to issue Conversion Shares and
Warrant Shares upon conversion of the Debentures or exercise of the
Warrants in accordance with this Agreement, the Debentures and the
Warrants is absolute and unconditional regardless of the dilutive
effect that such issuance may have on the ownership interests of other
shareholders of the Company.
f. No Conflicts. The execution, delivery and performance of this
Agreement, the Registration Rights Agreement, the Debentures and the
Warrants by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby (including, without
limitation, the issuance and reservation for issuance of the
Conversion Shares and Warrant Shares) will not (i) conflict with or
result in a violation of any provision of the Articles of
Incorporation or By-laws or (ii) violate or conflict with, or result
in a breach of any provision of, or constitute a default (or an event
which with notice or lapse of time or both could 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 or any of its
Subsidiaries is a party, or (iii) result in a violation of any law,
rule, regulation, order, judgment or decree (including federal and
state securities laws and regulations and regulations of any
self-regulatory organizations to which the Company or its securities
are subject) applicable to the Company or any of its Subsidiaries or
by which any property or asset of the Company or any of its
Subsidiaries is bound or affected (except for such conflicts,
defaults, terminations, amendments, accelerations, cancellations and
violations as would not, individually or in the aggregate, have a
Material Adverse Effect). Neither the Company nor any of its
Subsidiaries is in violation of its Articles of Incorporation, By-laws
or other organizational documents and neither the Company nor any of
its Subsidiaries is in default (and no event has occurred which with
notice or lapse of time or both could put the Company or any of its
Subsidiaries in default) under, and neither the Company nor any of its
Subsidiaries has taken any action or failed to take any action that
would give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or
instrument to which the Company or any of its Subsidiaries is a party
or by which any property or assets of the Company or any of its
Subsidiaries is bound or affected, except for possible defaults as
would not, individually or in the aggregate, have a Material Adverse
Effect. The businesses of the Company and its Subsidiaries, if any,
are not being conducted, and shall not be conducted so long as a Buyer
owns any of the Securities, in violation of any law, ordinance or
regulation of any governmental entity. Except as specifically
contemplated by this Agreement and as required under the 1933 Act and
any applicable state securities laws, the Company is not required to
obtain any consent, authorization or order of, or make any filing or
registration with, any court, governmental agency, regulatory agency,
self regulatory organization or stock market or any third party in
order for it to execute, deliver or perform any of its obligations
under this Agreement, the Registration Rights Agreement, the
Debentures or the Warrants in accordance with the terms hereof or
thereof or to issue and sell the Debentures and Warrants in accordance
with the terms hereof and to issue the Conversion Shares upon
conversion of the Debentures and the Warrant Shares upon exercise of
the Warrants. Except as disclosed in Schedule 3(f), all consents,
authorizations, orders, filings and registrations which the Company is
required to obtain pursuant to the preceding sentence have been
obtained or effected on or prior to the date hereof. The Company is
not in violation of the listing requirements of the Over-the-Counter
Bulletin Board (the "OTCBB") and does not reasonably anticipate that
the Common Stock will be delisted by the OTCBB in the foreseeable
future. The Company and its Subsidiaries are unaware of any facts or
circumstances which might give rise to any of the foregoing.
g. SEC Documents; Financial Statements. Except as disclosed in Schedule
3(g), the Company has timely filed all reports, schedules, forms,
statements and other documents required to be filed by it with the SEC
pursuant to the reporting requirements of the Securities Exchange Act
of 1934, as amended (the "1934 Act") (all of the foregoing filed prior
to the date hereof and all exhibits included therein and financial
statements and schedules thereto and documents (other than exhibits to
such documents) incorporated by reference therein, being hereinafter
referred to herein as the "SEC Documents"). The Company has delivered
to each Buyer true and complete copies of the SEC Documents, except
for such exhibits and incorporated documents. As of their respective
dates, the SEC Documents complied in all material respects with the
requirements of the 1934 Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of
the SEC Documents, at the time they were filed with the SEC, contained
any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they
were made, not misleading. None of the statements made in any such SEC
Documents is, or has been, required to be amended or updated under
applicable law (except for such statements as have been amended or
updated in subsequent filings prior the date hereof). As of their
respective dates, the financial statements of the Company included in
the SEC Documents complied as to form in all material respects with
applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Such financial statements
have been prepared in accordance with United States generally accepted
accounting principles, consistently applied, during the periods
involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto, or (ii) in the case of unaudited
interim statements, to the extent they may not include footnotes or
may be condensed or summary statements) and fairly present in all
material respects the consolidated financial position of the Company
and its consolidated Subsidiaries as of the dates thereof and the
consolidated results of their operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to
normal year-end audit adjustments). Except as set forth in the
financial statements of the Company included in the SEC Documents, the
Company has no liabilities, contingent or otherwise, other than (i)
liabilities incurred in the ordinary course of business subsequent to
December 31, 2001 and (ii) obligations under contracts and commitments
incurred in the ordinary course of business and not required under
generally accepted accounting principles to be reflected in such
financial statements, which, individually or in the aggregate, are not
material to the financial condition or operating results of the
Company.
h. Absence of Certain Changes. Except as set forth in Schedule 3(h),
Since December 31, 2001, there has been no material adverse change and
no material adverse development in the assets, liabilities, business,
properties, operations, financial condition, results of operations or
prospects of the Company or any of its Subsidiaries.
i. Absence of Litigation. There is no action, suit, claim, proceeding,
inquiry or investigation before or by any court, public board,
government agency, self-regulatory organization or body pending or, to
the knowledge of the Company or any of its Subsidiaries, threatened
against or affecting the Company or any of its Subsidiaries, or their
officers or directors in their capacity as such, that could have a
Material Adverse Effect. Schedule 3(i) contains a complete list and
summary description of any pending or threatened proceeding against or
affecting the Company or any of its Subsidiaries, without regard to
whether it would have a Material Adverse Effect. The Company and its
Subsidiaries are unaware of any facts or circumstances which might
give rise to any of the foregoing.
j. Patents, Copyrights, etc.
(i) The Company and each of its Subsidiaries owns or possesses the
requisite licenses or rights to use all patents, patent
applications, patent rights, inventions, know-how, trade secrets,
trademarks, trademark applications, service marks, service names,
trade names and copyrights ("Intellectual Property") necessary to
enable it to conduct its business as now operated (and, except as
set forth in Schedule 3(j) hereof, to the best of the Company's
knowledge, as presently contemplated to be operated in the
future); there is no claim or action by any person pertaining to,
or proceeding pending, or to the Company's knowledge threatened,
which challenges the right of the Company or of a Subsidiary with
respect to any Intellectual Property necessary to enable it to
conduct its business as now operated (and, except as set forth in
Schedule 3(j) hereof, to the best of the Company's knowledge, as
presently contemplated to be operated in the future); to the best
of the Company's knowledge, the Company's or its Subsidiaries'
current and intended products, services and processes do not
infringe on any Intellectual Property or other rights held by any
person; and the Company is unaware of any facts or circumstances
which might give rise to any of the foregoing. The Company and
each of its Subsidiaries have taken reasonable security measures
to protect the secrecy, confidentiality and value of their
Intellectual Property.
(ii) All of the Company's computer software and computer hardware, and
other similar or related items of automated, computerized or
software systems that are used or relied on by the Company in the
conduct of its business or that were, or currently are being,
sold or licensed by the Company to customers (collectively,
"Information Technology"), are Year 2000 Compliant. For purposes
of this Agreement, the term "Year 2000 Compliant" means, with
respect to the Company's Information Technology, that the
Information Technology is designed to be used prior to, during
and after the calendar Year 2000, and the Information Technology
used during each such time period will accurately receive,
provide and process date and time data (including, but not
limited to, calculating, comparing and sequencing) from, into and
between the 20th and 21st centuries, including the years 1999 and
2000, and leap-year calculations, and will not malfunction, cease
to function, or provide invalid or incorrect results as a result
of the date or time data, to the extent that other information
technology, used in combination with the Information Technology,
properly exchanges date and time data with it. The Company has
delivered to the Buyers true and correct copies of all analyses,
reports, studies and similar written information, whether
prepared by the Company or another party, relating to whether the
Information Technology is Year 2000 Compliant, if any.
k. No Materially Adverse Contracts, Etc. Neither the Company nor any of
its Subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation which
in the judgment of the Company's officers has or is expected in the
future to have a Material Adverse Effect. Neither the Company nor any
of its Subsidiaries is a party to any contract or agreement which in
the judgment of the Company's officers has or is expected to have a
Material Adverse Effect.
l. Tax Status. Except as set forth on Schedule 3(l), the Company and each
of its Subsidiaries has made or filed all federal, state and foreign
income and all other tax returns, reports and declarations required by
any jurisdiction to which it is subject (unless and only to the extent
that the Company and each of its Subsidiaries has set aside on its
books provisions reasonably adequate for the payment of all unpaid and
unreported taxes) and has paid all taxes and other governmental
assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except
those being contested in good faith and has set aside on its books
provisions reasonably adequate for the payment of all taxes for
periods subsequent to the periods to which such returns, reports or
declarations apply. There are no unpaid taxes in any material amount
claimed to be due by the taxing authority of any jurisdiction, and the
officers of the Company know of no basis for any such claim. The
Company has not executed a waiver with respect to the statute of
limitations relating to the assessment or collection of any foreign,
federal, state or local tax. Except as set forth on Schedule 3(l),
none of the Company's tax returns is presently being audited by any
taxing authority.
m. Certain Transactions. Except as set forth on Schedule 3(m) and except
for arm's length transactions pursuant to which the Company or any of
its Subsidiaries makes payments in the ordinary course of business
upon terms no less favorable than the Company or any of its
Subsidiaries could obtain from third parties and other than the grant
of stock options disclosed on Schedule 3(c), none of the officers,
directors, or employees of the Company is presently a party to any
transaction with the Company or any of its Subsidiaries (other than
for services as employees, officers and directors), including any
contract, agreement or other arrangement providing for the furnishing
of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any
officer, director or such employee or, to the knowledge of the
Company, any corporation, partnership, trust or other entity in which
any officer, director, or any such employee has a substantial interest
or is an officer, director, trustee or partner.
n. Disclosure. All information relating to or concerning the Company or
any of its Subsidiaries set forth in this Agreement and provided to
the Buyers pursuant to Section 2(d) hereof and otherwise in connection
with the transactions contemplated hereby is true and correct in all
material respects and the Company has not omitted to state any
material fact necessary in order to make the statements made herein or
therein, in light of the circumstances under which they were made, not
misleading. No event or circumstance has occurred or exists with
respect to the Company or any of its Subsidiaries or its or their
business, properties, prospects, operations or financial conditions,
which, under applicable law, rule or regulation, requires public
disclosure or announcement by the Company but which has not been so
publicly announced or disclosed (assuming for this purpose that the
Company's reports filed under the 1934 Act are being incorporated into
an effective registration statement filed by the Company under the
1933 Act).
o. Acknowledgment Regarding Buyers' Purchase of Securities. The Company
acknowledges and agrees that the Buyers are acting solely in the
capacity of arm's length purchasers with respect to this Agreement and
the transactions contemplated hereby. The Company further acknowledges
that no Buyer is acting as a financial advisor or fiduciary of the
Company (or in any similar capacity) with respect to this Agreement
and the transactions contemplated hereby and any statement made by any
Buyer or any of their respective representatives or agents in
connection with this Agreement and the transactions contemplated
hereby is not advice or a recommendation and is merely incidental to
the Buyers' purchase of the Securities. The Company further represents
to each Buyer that the Company's decision to enter into this Agreement
has been based solely on the independent evaluation of the Company and
its representatives.
p. No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly
or indirectly made any offers or sales in any security or solicited
any offers to buy any security under circumstances that would require
registration under the 1933 Act of the issuance of the Securities to
the Buyers. The issuance of the Securities to the Buyers will not be
integrated with any other issuance of the Company's securities (past,
current or future) for purposes of any shareholder approval provisions
applicable to the Company or its securities.
q. No Brokers. The Company has taken no action which would give rise to
any claim by any person for brokerage commissions, transaction fees or
similar payments relating to this Agreement or the transactions
contemplated hereby.
r. Permits; Compliance. The Company and each of its Subsidiaries is in
possession of all franchises, grants, authorizations, licenses,
permits, easements, variances, exemptions, consents, certificates,
approvals and orders necessary to own, lease and operate its
properties and to carry on its business as it is now being conducted
(collectively, the "Company Permits"), and there is no action pending
or, to the knowledge of the Company, threatened regarding suspension
or cancellation of any of the Company Permits. Neither the Company nor
any of its Subsidiaries is in conflict with, or in default or
violation of, any of the Company Permits, except for any such
conflicts, defaults or violations which, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse
Effect. Since December 31, 2001, neither the Company nor any of its
Subsidiaries has received any notification with respect to possible
conflicts, defaults or violations of applicable laws, except for
notices relating to possible conflicts, defaults or violations, which
conflicts, defaults or violations would not have a Material Adverse
Effect.
s. Environmental Matters.
(i) Except as set forth in Schedule 3(s), there are, to the Company's
knowledge, with respect to the Company or any of its Subsidiaries
or any predecessor of the Company, no past or present violations
of Environmental Laws (as defined below), releases of any
material into the environment, actions, activities,
circumstances, conditions, events, incidents, or contractual
obligations which may give rise to any common law environmental
liability or any liability under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 or similar
federal, state, local or foreign laws and neither the Company nor
any of its Subsidiaries has received any notice with respect to
any of the foregoing, nor is any action pending or, to the
Company's knowledge, threatened in connection with any of the
foregoing. The term "Environmental Laws" means all federal,
state, local or foreign laws relating to pollution or protection
of human health or the environment (including, without
limitation, ambient air, surface water, groundwater, land surface
or subsurface strata), including, without limitation, laws
relating to emissions, discharges, releases or threatened
releases of chemicals, pollutants contaminants, or toxic or
hazardous substances or wastes (collectively, "Hazardous
Materials") into the environment, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials, as well
as all authorizations, codes, decrees, demands or demand letters,
injunctions, judgments, licenses, notices or notice letters,
orders, permits, plans or regulations issued, entered,
promulgated or approved thereunder.
(ii) Other than those that are or were stored, used or disposed of in
compliance with applicable law, no Hazardous Materials are
contained on or about any real property currently owned, leased
or used by the Company or any of its Subsidiaries, and no
Hazardous Materials were released on or about any real property
previously owned, leased or used by the Company or any of its
Subsidiaries during the period the property was owned, leased or
used by the Company or any of its Subsidiaries, except in the
normal course of the Company's or any of its Subsidiaries'
business.
(iii)Except as set forth in Schedule 3(s), there are no underground
storage tanks on or under any real property owned, leased or used
by the Company or any of its Subsidiaries that are not in
compliance with applicable law.
t. Title to Property. The Company and its Subsidiaries have good and
marketable title in fee simple to all real property and good and
marketable title to all personal property owned by them which is
material to the business of the Company and its Subsidiaries, in each
case free and clear of all liens, encumbrances and defects except such
as are described in Schedule 3(t) or such as would not have a Material
Adverse Effect. Any real property and facilities held under lease by
the Company and its Subsidiaries are held by them under valid,
subsisting and enforceable leases with such exceptions as would not
have a Material Adverse Effect.
u. Insurance. The Company and each of its Subsidiaries are insured by
insurers of recognized financial responsibility against such losses
and risks and in such amounts as management of the Company believes to
be prudent and customary in the businesses in which the Company and
its Subsidiaries are engaged. Neither the Company nor any such
Subsidiary has any reason to believe that it will not be able to renew
its existing insurance coverage as and when such coverage expires or
to obtain similar coverage from similar insurers as may be necessary
to continue its business at a cost that would not have a Material
Adverse Effect. The Company has provided to Buyer true and correct
copies of all policies relating to directors' and officers' liability
coverage, errors and omissions coverage, and commercial general
liability coverage.
v. Internal Accounting Controls. The Company and each of its Subsidiaries
maintain a system of internal accounting controls sufficient, in the
judgment of the Company's board of directors, to provide reasonable
assurance that (i) transactions are executed in accordance with
management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to
maintain asset accountability, (iii) access to assets is permitted
only in accordance with management's general or specific authorization
and (iv) the recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
w. Foreign Corrupt Practices. Neither the Company, nor any of its
Subsidiaries, nor any director, officer, agent, employee or other
person acting on behalf of the Company or any Subsidiary has, in the
course of his actions for, or on behalf of, the Company, used any
corporate funds for any unlawful contribution, gift, entertainment or
other unlawful expenses relating to political activity; made any
direct or indirect unlawful payment to any foreign or domestic
government official or employee from corporate funds; violated or is
in violation of any provision of the U.S. Foreign Corrupt Practices
Act of 1977, as amended, or made any bribe, rebate, payoff, influence
payment, kickback or other unlawful payment to any foreign or domestic
government official or employee.
x. Solvency. Except as set forth in Schedule 3(x), the Company (after
giving effect to the transactions contemplated by this Agreement) is
solvent (i.e., its assets have a fair market value in excess of the
amount required to pay its probable liabilities on its existing debts
as they become absolute and matured) and currently the Company has no
information that would lead it to reasonably conclude that the Company
would not, after giving effect to the transaction contemplated by this
Agreement, have the ability to, nor does it intend to take any action
that would impair its ability to, pay its debts from time to time
incurred in connection therewith as such debts mature. Except as set
forth in Schedule 3(x), the Company did not receive a qualified
opinion from its auditors with respect to its most recent fiscal year
end and, after giving effect to the transactions contemplated by this
Agreement, does not anticipate or know of any basis upon which its
auditors might issue a qualified opinion in respect of its current
fiscal year.
y. No Investment Company. The Company is not, and upon the issuance and
sale of the Securities as contemplated by this Agreement will not be
an "investment company" required to be registered under the Investment
Company Act of 1940 (an "Investment Company"). The Company is not
controlled by an Investment Company.
z. Breach of Representations and Warranties by the Company. If the
Company breaches any of the representations or warranties set forth in
this Section 3, and in addition to any other remedies available to the
Buyers pursuant to this Agreement, the Company shall pay to the Buyer
the Standard Liquidated Damages Amount in cash or in shares of Common
Stock at the option of the Buyer, until such breach is cured. If the
Buyers elect to be paid the Standard Liquidated Damages Amounts in
shares of Common Stock, such shares shall be issued at the Conversion
Price at the time of payment.
4. COVENANTS.
a. Best Efforts. The parties shall use their best efforts to satisfy
timely each of the conditions described in Section 6 and 7 of this
Agreement.
b. Form D; Blue Sky Laws. The Company agrees to file a Form D with
respect to the Securities as required under Regulation D and to
provide a copy thereof to each Buyer promptly after such filing. The
Company shall, on or before the Closing Date, take such action as the
Company shall reasonably determine is necessary to qualify the
Securities for sale to the Buyers at the applicable closing pursuant
to this Agreement under applicable securities or "blue sky" laws of
the states of the United States (or to obtain an exemption from such
qualification), and shall provide evidence of any such action so taken
to each Buyer on or prior to the Closing Date.
c. Reporting Status; Eligibility to Use Form S-3, SB-2 or Form S-1. The
Company's Common Stock is registered under Section 12(g) of the 1934
Act. The Company represents and warrants that it meets the
requirements for the use of Form S-3 (or if the Company is not
eligible for the use of Form S-3 as of the Filing Date (as defined in
the Registration Rights Agreement), the Company may use the form of
registration for which it is eligible at that time) for registration
of the sale by the Buyer of the Registrable Securities (as defined in
the Registration Rights Agreement). So long as the Buyer beneficially
owns any of the Securities, the Company shall timely file all reports
required to be filed with the SEC pursuant to the 1934 Act, and the
Company shall not terminate its status as an issuer required to file
reports under the 1934 Act even if the 1934 Act or the rules and
regulations thereunder would permit such termination. The Company
further agrees to file all reports required to be filed by the Company
with the SEC in a timely manner so as to become eligible, and
thereafter to maintain its eligibility, for the use of Form S-3. The
Company shall issue a press release describing the materials terms of
the transaction contemplated hereby as soon as practicable following
the Closing Date but in no event more than two (2) business days of
the Closing Date, which press release shall be subject to prior review
by the Buyers. The Company agrees that such press release shall not
disclose the name of the Buyers unless expressly consented to in
writing by the Buyers or unless required by applicable law or
regulation, and then only to the extent of such requirement.
d. Use of Proceeds. The Company shall use the proceeds from the sale of
the Debentures and the Warrants in the manner set forth in Schedule
4(d) attached hereto and made a part hereof and shall not, directly or
indirectly, use such proceeds for any loan to or investment in any
other corporation, partnership, enterprise or other person (except in
connection with its currently existing direct or indirect
Subsidiaries)
e. Future Offerings. Subject to the exceptions described below, the
Company will not, without the prior written consent of a
majority-in-interest of the Buyers, not to be unreasonably withheld,
negotiate or contract with any party to obtain additional equity
financing (including debt financing with an equity component) that
involves (A) the issuance of Common Stock at a discount to the market
price of the Common Stock on the date of issuance (taking into account
the value of any warrants or options to acquire Common Stock issued in
connection therewith) or (B) the issuance of convertible securities
that are convertible into an indeterminate number of shares of Common
Stock or (C) the issuance of warrants during the period (the "Lock-up
Period") beginning on the Closing Date and ending on the later of (i)
two hundred seventy (270) days from the Closing Date and (ii) one
hundred eighty (180) days from the date the Registration Statement (as
defined in the Registration Rights Agreement) is declared effective
(plus any days in which sales cannot be made thereunder). In addition,
subject to the exceptions described below, the Company will not
conduct any equity financing (including debt with an equity component)
("Future Offerings") during the period beginning on the Closing Date
and ending two (2) years after the end of the Lock-up Period unless it
shall have first delivered to each Buyer, at least twenty (20)
business days prior to the closing of such Future Offering, written
notice describing the proposed Future Offering, including the terms
and conditions thereof and proposed definitive documentation to be
entered into in connection therewith, and providing each Buyer an
option during the fifteen (15) day period following delivery of such
notice to purchase its pro rata share (based on the ratio that the
aggregate principal amount of Debentures purchased by it hereunder
bears to the aggregate principal amount of Debentures purchased
hereunder) of the securities being offered in the Future Offering on
the same terms as contemplated by such Future Offering (the
limitations referred to in this sentence and the preceding sentence
are collectively referred to as the "Capital Raising Limitations"). In
the event the terms and conditions of a proposed Future Offering are
amended in any respect after delivery of the notice to the Buyers
concerning the proposed Future Offering, the Company shall deliver a
new notice to each Buyer describing the amended terms and conditions
of the proposed Future Offering and each Buyer thereafter shall have
an option during the fifteen (15) day period following delivery of
such new notice to purchase its pro rata share of the securities being
offered on the same terms as contemplated by such proposed Future
Offering, as amended. The foregoing sentence shall apply to successive
amendments to the terms and conditions of any proposed Future
Offering. The Capital Raising Limitations shall not apply to any
transaction involving (i) issuances of securities in a firm commitment
underwritten public offering (excluding a continuous offering pursuant
to Rule 415 under the 0000 Xxx) or (ii) issuances of securities as
consideration for a merger, consolidation or purchase of assets, or in
connection with any strategic partnership or joint venture (the
primary purpose of which is not to raise equity capital), or in
connection with the disposition or acquisition of a business, product
or license by the Company. The Capital Raising Limitations also shall
not apply to the issuance of securities upon exercise or conversion of
the Company's options, warrants or other convertible securities
outstanding as of the date hereof or to the grant of additional
options or warrants, or the issuance of additional securities, under
any Company stock option or restricted stock plan approved by the
shareholders of the Company.
f. Expenses. At the Closing, the Company shall reimburse Buyers for
expenses incurred by them in connection with the negotiation,
preparation, execution, delivery and performance of this Agreement and
the other agreements to be executed in connection herewith
("Documents"), including, without limitation, attorneys' and
consultants' fees and expenses, transfer agent fees, fees for stock
quotation services, fees relating to any amendments or modifications
of the Documents or any consents or waivers of provisions in the
Documents, fees for the preparation of opinions of counsel, escrow
fees, and costs of restructuring the transactions contemplated by the
Documents. When possible, the Company must pay these fees directly,
otherwise the Company must make immediate payment for reimbursement to
the Buyers for all fees and expenses immediately upon written notice
by the Buyer or the submission of an invoice by the Buyer If the
Company fails to reimburse the Buyer in full within three (3) business
days of the written notice or submission of invoice by the Buyer, the
Company shall pay interest on the total amount of fees to be
reimbursed at a rate of 15% per annum.
g. Financial Information. The Company agrees to send the following
reports to each Buyer until such Buyer transfers, assigns, or sells
all of the Securities: (i) within ten (10) days after the filing with
the SEC, a copy of its Annual Report on Form 10-KSB, its Quarterly
Reports on Form 10-QSB and any Current Reports on Form 8-K; (ii)
within one (1) day after release, copies of all press releases issued
by the Company or any of its Subsidiaries; and (iii) contemporaneously
with the making available or giving to the shareholders of the
Company, copies of any notices or other information the Company makes
available or gives to such shareholders.
h. Authorization and Reservation of Shares. The Company shall at all
times have authorized, and reserved for the purpose of issuance, a
sufficient number of shares of Common Stock to provide for the full
conversion or exercise of the outstanding Debentures and Warrants and
issuance of the Conversion Shares and Warrant Shares in connection
therewith (based on the Conversion Price of the Debentures or Exercise
Price of the Warrants in effect from time to time) and as otherwise
required by the Debentures. The Company shall not reduce the number of
shares of Common Stock reserved for issuance upon conversion of
Debentures and exercise of the Warrants without the consent of each
Buyer. The Company shall at all times maintain the number of shares of
Common Stock so reserved for issuance at an amount ("Reserved Amount")
equal to no less than two (2) times the number that is then actually
issuable upon full conversion of the Debentures and Additional
Debentures and upon exercise of the Warrants and the Additional
Warrants (based on the Conversion Price of the Debentures or the
Exercise Price of the Warrants in effect from time to time). If at any
time the number of shares of Common Stock authorized and reserved for
issuance ("Authorized and Reserved Shares") is below the Reserved
Amount, the Company will promptly take all corporate action necessary
to authorize and reserve a sufficient number of shares, including,
without limitation, calling a special meeting of shareholders to
authorize additional shares to meet the Company's obligations under
this Section 4(h), in the case of an insufficient number of authorized
shares, obtain shareholder approval of an increase in such authorized
number of shares, and voting the management shares of the Company in
favor of an increase in the authorized shares of the Company to ensure
that the number of authorized shares is sufficient to meet the
Reserved Amount. If the Company fails to obtain such shareholder
approval within thirty (30) days following the date on which the
number of Authorized and Reserved Shares exceeds the Reserved Amount,
the Company shall pay to the Borrower the Standard Liquidated Damages
Amount, in cash or in shares of Common Stock at the option of the
Buyer. If the Buyer elects to be paid the Standard Liquidated Damages
Amount in shares of Common Stock, such shares shall be issued at the
Conversion Price at the time of payment. In order to ensure that the
Company has authorized a sufficient amount of shares to meet the
Reserved Amount at all times, the Company must deliver to the Buyer at
the end of every month a list detailing (1) the current amount of
shares authorized by the Company and reserved for the Buyer; and (2)
amount of shares issuable upon conversion of the Debentures and upon
exercise of the Warrants and as payment of interest accrued on the
Debentures for one year. If the Company fails to provide such list
within five (5) business days of the end of each month, the Company
shall pay the Standard Liquidated Damages Amount, in cash or in shares
of Common Stock at the option of the Buyer, until the list is
delivered. If the Buyer elects to be paid the Standard Liquidated
Damages Amount in shares of Common Stock, such shares shall be issued
at the Conversion Price at the time of payment.
i. Listing. The Company shall promptly secure the listing of the
Conversion Shares and Warrant Shares upon each national securities
exchange or automated quotation system, if any, upon which shares of
Common Stock are then listed (subject to official notice of issuance)
and, so long as any Buyer owns any of the Securities, shall maintain,
so long as any other shares of Common Stock shall be so listed, such
listing of all Conversion Shares and Warrant Shares from time to time
issuable upon conversion of the Debentures or exercise of the
Warrants. The Company will obtain and, so long as any Buyer owns any
of the Securities, maintain the listing and trading of its Common
Stock on the OTCBB or any equivalent replacement exchange, the Nasdaq
National Market ("Nasdaq"), the Nasdaq SmallCap Market ("Nasdaq
SmallCap"), the New York Stock Exchange ("NYSE"), or the American
Stock Exchange ("AMEX") and will comply in all respects with the
Company's reporting, filing and other obligations under the bylaws or
rules of the National Association of Securities Dealers ("NASD") and
such exchanges, as applicable. The Company shall promptly provide to
each Buyer copies of any notices it receives from the OTCBB and any
other exchanges or quotation systems on which the Common Stock is then
listed regarding the continued eligibility of the Common Stock for
listing on such exchanges and quotation systems.
j. Corporate Existence. So long as a Buyer beneficially owns any
Debentures or Warrants, the Company shall maintain its corporate
existence and shall not sell all or substantially all of the Company's
assets, except in the event of a merger or consolidation or sale of
all or substantially all of the Company's assets, where the surviving
or successor entity in such transaction (i) assumes the Company's
obligations hereunder and under the agreements and instruments entered
into in connection herewith and (ii) is a publicly traded corporation
whose Common Stock is listed for trading on the OTCBB, Nasdaq, Nasdaq
SmallCap, NYSE or AMEX.
k. No Integration. The Company shall not make any offers or sales of any
security (other than the Securities) under circumstances that would
require registration of the Securities being offered or sold hereunder
under the 1933 Act or cause the offering of the Securities to be
integrated with any other offering of securities by the Company for
the purpose of any stockholder approval provision applicable to the
Company or its securities.
l. Subsequent Investment. The Company and the Buyers agree that, upon
filing by the Company of the Registration Statement to be filed
pursuant to the Registration Rights Agreement (the "Filing Date"), the
Buyers shall purchase additional debentures ("Filing Debentures") in
the aggregate principal amount of Two Hundred Fifty Thousand Dollars
($250,000) and additional warrants (the "Filing Warrants") to purchase
an aggregate of 750,000 shares of Common Stock, for an aggregate
purchase price of Two Hundred Fifty Thousand Dollars ($250,000), with
the closing of such purchase to occur within five (5) business days of
the Filing Date; provided, however, that the obligation of each Buyer
to purchase the Filing Debentures and the Filing Warrants is subject
to the satisfaction, at or before the closing of such purchase and
sale, of the conditions set forth in Section 7. The Company and the
Buyers further agree that, upon the declaration of effectiveness of
the Registration Statement to be filed pursuant to the Registration
Rights Agreement (the "Effective Date"), the Buyers shall purchase
additional debentures (the "Effectiveness Debentures" and,
collectively with the Filing Debentures, the "Additional Debentures")
in the aggregate principal amount of Two Hundred Fifty Thousand
Dollars ($250,000) and additional warrants (the "Effectiveness
Warrants" and, collectively with the Filing Warrants, the "Additional
Warrants") to purchase an aggregate of 750,000 shares of Common Stock,
for an aggregate purchase price of Two Hundred Fifty Thousand Dollars
($250,000), with the closing of such purchase to occur within five (5)
business days of the Effective Date; provided, however, that the
obligation of each Buyer to purchase the Effectiveness Debentures and
the Effectiveness Warrants is subject to the satisfaction, at or
before the closing of such purchase and sale, of the conditions set
forth in Section 7; and, provided, further, that there shall not have
been a Material Adverse Effect as of such effective date. The terms of
the Additional Debentures and the Additional Warrants shall be
identical to the terms of the Debentures and Warrants, as the case may
be, to be issued on the Closing Date. The Common Stock underlying the
Additional Debentures and the Additional Warrants shall be Registrable
Securities (as defined in the Registration Rights Agreement) and shall
be included in the Registration Statement to be filed pursuant to the
Registration Rights Agreement.
m. Breach of Covenants. If the Company breaches any of the covenants set
forth in this Section 4, and in addition to any other remedies
available to the Buyers pursuant to this Agreement, the Company shall
pay to the Buyers the Standard Liquidated Damages Amount, in cash or
in shares of Common Stock at the option of the Buyer, until such
breach is cured. If the Buyers elect to be paid the Standard
Liquidated Damages Amount in shares, such shares shall be issued at
the Conversion Price at the time of payment.
5. TRANSFER AGENT INSTRUCTIONS. The Company shall issue irrevocable
instructions to its transfer agent to issue certificates, registered in the
name of each Buyer or its nominee, for the Conversion Shares and Warrant
Shares in such amounts as specified from time to time by each Buyer to the
Company upon conversion of the Debentures or exercise of the Warrants in
accordance with the terms thereof (the "Irrevocable Transfer Agent
Instructions"). Prior to registration of the Conversion Shares and Warrant
Shares under the 1933 Act or the date on which the Conversion Shares and
Warrant Shares may be sold pursuant to Rule 144 without any restriction as
to the number of Securities as of a particular date that can then be
immediately sold, all such certificates shall bear the restrictive legend
specified in Section 2(g) of this Agreement. The Company warrants that no
instruction other than the Irrevocable Transfer Agent Instructions referred
to in this Section 5, and stop transfer instructions to give effect to
Section 2(f) hereof (in the case of the Conversion Shares and Warrant
Shares, prior to registration of the Conversion Shares and Warrant Shares
under the 1933 Act or the date on which the Conversion Shares and Warrant
Shares may be sold pursuant to Rule 144 without any restriction as to the
number of Securities as of a particular date that can then be immediately
sold), will be given by the Company to its transfer agent and that the
Securities shall otherwise be freely transferable on the books and records
of the Company as and to the extent provided in this Agreement and the
Registration Rights Agreement. Nothing in this Section shall affect in any
way the Buyer's obligations and agreement set forth in Section 2(g) hereof
to comply with all applicable prospectus delivery requirements, if any,
upon re-sale of the Securities. If a Buyer provides the Company with (i) an
opinion of counsel in form, substance and scope customary for opinions in
comparable transactions, to the effect that a public sale or transfer of
such Securities may be made without registration under the 1933 Act and
such sale or transfer is effected or (ii) the Buyer provides reasonable
assurances that the Securities can be sold pursuant to Rule 144, the
Company shall permit the transfer, and, in the case of the Conversion
Shares and Warrant Shares, promptly instruct its transfer agent to issue
one or more certificates, free from restrictive legend, in such name and in
such denominations as specified by such Buyer. The Company acknowledges
that a breach by it of its obligations hereunder will cause irreparable
harm to the Buyers, by vitiating the intent and purpose of the transactions
contemplated hereby. Accordingly, the Company acknowledges that the remedy
at law for a breach of its obligations under this Section 5 may be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section, that the Buyers shall be
entitled, in addition to all other available remedies, to an injunction
restraining any breach and requiring immediate transfer, without the
necessity of showing economic loss and without any bond or other security
being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The obligation of the
Company hereunder to issue and sell the Debentures and Warrants to a Buyer
at the Closing is subject to the satisfaction, at or before the Closing
Date of each of the following conditions thereto, provided that these
conditions are for the Company's sole benefit and may be waived by the
Company at any time in its sole discretion:
a. The applicable Buyer shall have executed this Agreement and the
Registration Rights Agreement, and delivered the same to the Company.
b. The applicable Buyer shall have delivered the Purchase Price in
accordance with Section 1(b) above.
c. The representations and warranties of the applicable Buyer 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 specific date), and
the applicable Buyer shall have performed, satisfied and complied in
all material respects with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with
by the applicable Buyer at or prior to the Closing Date.
d. No litigation, statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or
endorsed by or in any court or governmental authority of competent
jurisdiction or any self-regulatory organization having authority over
the matters contemplated hereby which prohibits the consummation of
any of the transactions contemplated by this Agreement.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE. The obligation of each
Buyer hereunder to purchase the Debentures and Warrants at the Closing is
subject to the satisfaction, at or before the Closing Date of each of the
following conditions, provided that these conditions are for such Buyer's
sole benefit and may be waived by such Buyer at any time in its sole
discretion:
a. The Company shall have executed this Agreement and the Registration
Rights Agreement, and delivered the same to the Buyer.
b. The Company shall have delivered to such Buyer duly executed
Debentures (in such denominations as the Buyer shall request) and
Warrants in accordance with Section 1(b) above.
c. The Irrevocable Transfer Agent Instructions, in form and substance
satisfactory to a majority-in-interest of the Buyers, shall have been
delivered to and acknowledged in writing by the Company's Transfer
Agent.
d. The representations and warranties of the Company 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 such time (except for
representations and warranties that speak as of a specific date) and
the Company shall have performed, satisfied and complied in all
material respects with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with
by the Company at or prior to the Closing Date. The Buyer shall have
received a certificate or certificates, executed by the chief
executive officer of the Company, dated as of the Closing Date, to the
foregoing effect and as to such other matters as may be reasonably
requested by such Buyer including, but not limited to certificates
with respect to the Company's Articles of Incorporation, By-laws and
Board of Directors' resolutions relating to the transactions
contemplated hereby.
e. No litigation, statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or
endorsed by or in any court or governmental authority of competent
jurisdiction or any self-regulatory organization having authority over
the matters contemplated hereby which prohibits the consummation of
any of the transactions contemplated by this Agreement.
f. No event shall have occurred which could reasonably be expected to
have a Material Adverse Effect on the Company.
g. The Conversion Shares and Warrant Shares shall have been authorized
for quotation on the OTCBB and trading in the Common Stock on the
OTCBB shall not have been suspended by the SEC or the OTCBB.
h. The Buyer shall have received an opinion of the Company's counsel,
dated as of the Closing Date, in form, scope and substance reasonably
satisfactory to the Buyer and in substantially the same form as
Exhibit "D" attached hereto.
i. The Buyer shall have received an officer's certificate described in
Section 3(c) above, dated as of the Closing Date.
8. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law. 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 IN 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.
b. Counterparts; Signatures by Facsimile. This Agreement may be executed
in one 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.
c. Headings. The headings of this Agreement are for convenience of
reference only and shall not form part of, or affect the
interpretation of, this Agreement.
d. Severability. 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.
e. Entire Agreement; Amendments. This Agreement and the instruments
referenced herein contain the entire understanding of the parties with
respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither the Company nor the
Buyer 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 an instrument in writing signed by the party
to be charged with enforcement.
f. Notices. Any notices required or permitted to be given under the terms
of this Agreement shall be sent by certified or registered mail
(return receipt requested) or delivered personally or by courier
(including a recognized overnight delivery service) or by facsimile
and shall be effective five days after being placed in the mail, if
mailed by regular United States mail, or upon receipt, if delivered
personally or by courier (including a recognized overnight delivery
service) or by facsimile, in each case addressed to a party. The
addresses for such communications shall be:
If to the Company:
iDial Networks, Inc.
00000 Xxxx Xxxxxxx Xxxxx
Xxxxx 000
Xxxxxx, Xxxxxxxx 00000
Attention: Xxxx X. Xxxx
Telephone: 000-000-0000
Facsimile: 000-000-0000
With a copy to:
Sichenzia Xxxx Xxxxxxxx Xxxxxxx LLP
1065 Avenue of the Xxxxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxx Xxxxxxxxx, Esq.
Telephone: 000-000-0000
Facsimile: 212-930-9725
Email: XXxxxxxxxx@xxxxxx.xxx
If to a Buyer: To the address set forth immediately below such Buyer's name
on the signature pages hereto.
With copy to:
Xxxxxxx Xxxxx Xxxxxxx & Xxxxxxxxx, LLP
0000 Xxxxxx Xxxxxx
00xx Xxxxx
Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000
Attention: Xxxxxx X. Xxxxxxxx, Esq.
Telephone: 000-000-0000
Facsimile: 000-000-0000
Email: xxxxxxxx@xxxxxxxxxxxx.xxx
Each party shall provide notice to the other party of any change in
address.
g. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and
assigns. Neither the Company nor any Buyer shall assign this
Agreement or any rights or obligations hereunder without the
prior written consent of the other. Notwithstanding the
foregoing, subject to Section 2(f), any Buyer may assign its
rights hereunder to any person that purchases Securities in a
private transaction from a Buyer or to any of its "affiliates,"
as that term is defined under the 1934 Act, without the consent
of the Company.
h. 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.
i. Survival. The representations and warranties of the Company and
the agreements and covenants set forth in Sections 3, 4, 5 and 8
shall survive the closing hereunder notwithstanding any due
diligence investigation conducted by or on behalf of the Buyers.
The Company agrees to indemnify and hold harmless each of the
Buyers and all their officers, directors, employees and agents
for loss or damage arising as a result of or related to any
breach or alleged breach by the Company of any of its
representations, warranties and covenants set forth in Sections 3
and 4 hereof or any of its covenants and obligations under this
Agreement or the Registration Rights Agreement, including
advancement of expenses as they are incurred.
j. Publicity. The Company and each of the Buyers shall have the
right to review a reasonable period of time before issuance of
any press releases, SEC, OTCBB or NASD filings, or any other
public statements with respect to the transactions contemplated
hereby; provided, however, that the Company shall be entitled,
without the prior approval of each of the Buyers, to make any
press release or SEC, OTCBB (or other applicable trading market)
or NASD filings with respect to such transactions as is required
by applicable law and regulations (although each of the Buyers
shall be consulted by the Company in connection with any such
press release prior to its release and shall be provided with a
copy thereof and be given an opportunity to comment thereon).
k. Further Assurances. 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.
l. No Strict Construction. 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.
m. Remedies. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the Buyers
by vitiating the intent and purpose of the transaction
contemplated hereby. Accordingly, the Company acknowledges that
the remedy at law for a 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 the provisions of this
Agreement, that the Buyers shall be entitled, in addition to all
other available remedies at 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.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the undersigned Buyers and the Company have caused this
Agreement to be duly executed as of the date first above written.
IDIAL NETWORKS, INC.
--------------------------------
Xxxx X. Xxxx
Chief Executive Officer
AJW PARTNERS, LLC
By: SMS Group, LLC
--------------------------------------
Xxxxx X. Xxxxxxxx
Manager
RESIDENCE: Delaware
ADDRESS: 0000 Xxxxxxxx Xxxxxxxxx
Xxxxx 000
Xxxxxx, Xxx Xxxx 00000
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Principal Amount of Debentures: $100,000
Number of Warrants: 300,000
Aggregate Purchase Price: $100,000
AJW OFFSHORE, LTD.
By: First Street Manager II, LLC
--------------------------------------
Xxxxx X. Xxxxxxxx
Manager
RESIDENCE: Cayman Islands
ADDRESS: AJW Offshore, Ltd.
X.X. Xxx 00000 XXX
Xxxxx Xxxxxx, Xxxxxx Xxxxxx, B.W.I.
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Principal Amount of Debentures: $100,000
Number of Warrants: 300,000
Aggregate Purchase Price: $100,000
AJW QUALIFIED PARTNERS, LLC
By: AJW Manager, LLC
------------------------------------
Xxxxx X. Xxxxxxxx
Manager
RESIDENCE: New York
ADDRESS: 0000 Xxxxxxxx Xxxxxxxxx
Xxxxx 000
Xxxxxx, Xxx Xxxx 00000
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Principal Amount of Debentures: $50,000
Number of Warrants: 150,000
Aggregate Purchase Price: $50,000
