SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "Agreement"), is made as of
September 14, 2001, by and between Wizzard Software Corp., a corporation
organized under the laws of the State of Colorado, U.S.A., with headquarters
located at 000 Xxxx Xxx, Xxxxxxxxxx, Xxxxxxxxxxxx 00000 (the "Company") and
Maricopa Equity Management Corp., a Minnesota corporation with headquarters
located at 0000 Xxxxx Xxxxxxxx Xxxx, Xxxxx 000, Xxxxxxxxxx, Xxxxxxxxx 00000
(the "Buyer").
RECITALS
A. The Company and the Buyer are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by the provisions of Regulation D ("Regulation D") as promulgated by the
United States Securities and Exchange Commission (the "SEC") under the
Securities Act of 1933, as amended (the "1933 Act") and Section 4(2) under the
1933 Act;
B. The Buyer desires to purchase from the Company, and the
Company desires to sell to the Buyer, for the amounts and
upon the terms and conditions stated in this Agreement, in a
closing (the "Closing") as herein described, the Company's
Series 2001-A Eight Percent (8%) Convertible Notes, the form
of which is attached hereto as Exhibit A (the "Notes"),
which may be converted into common stock of the Company,
$.001 par value per share ("Common Stock"), upon the terms
and conditions hereof and upon the terms and conditions of
the Notes. The purchase price for the Notes sold pursuant to
this Agreement shall be as stated in Section 1(a) below. The
total aggregate principal amount of Notes to be issued and
sold by the Company at the Closing is Two Hundred Fifty
Thousand and no/100 United States Dollars ($250,000.00), all
in accordance with the terms of this Agreement and of the
Notes.
The Common Stock into which the Notes may (in accordance with their
terms) be convertible shall be collectively referred to herein as the
"Conversion Shares." Certain shares of Common Stock may (at the Company's
option as described in the Notes) be issued to the Buyer in payment of
interest (the "Interest Shares"). The Notes, the Conversion Shares and the
Interest Shares (if any) may be collectively referred to herein as the
"Securities."
C. Contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Registration
Rights Agreement (the "Registration Rights Agreement") substantially in the
form of Exhibit B attached hereto 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.
AGREEMENTS
NOW, THEREFORE, in consideration of their respective promises contained
herein and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged by the parties, the Company and the Buyer
hereby agree as follows:
1. PURCHASE AND SALE OF SECURITIES.
a. Purchase. The Buyer hereby agrees to purchase from the Company,
and the Company agrees to sell to the Buyer, $250,000.00 in aggregate
principal amount of Notes at the Closing. The purchase price (the "Purchase
Price") for the Notes purchased at the Closing shall be $250,000.00.
b. The Closing. The date of the Closing shall be September 14, 2001,
or on such other date as may be mutually agreed by the parties (the "Closing
Date"). The Purchase Price for the Notes being purchased at the Closing shall
be delivered to the Escrow Agent (as defined in the Escrow Agreement
substantially in the form of Exhibit C attached hereto (the "Escrow
Agreement")) on behalf of the Company on or before the Closing Date. On or
before the Closing Date, the Company shall deliver the original Notes being
purchased at the Closing, duly issued, authorized and executed by the
authorized officers on behalf of the Company, to the Escrow Agent (as defined
in the Escrow Agreement) on behalf of the Buyer.
c. Form of Payment. The Buyer shall pay the Purchase Price for the
Securities purchased at the Closing by wire transfer of immediately available
funds in United States Dollars, to be deposited into the Escrow Account as
defined in the Escrow Agreement, against delivery to the Escrow Agent of duly
executed Notes being purchased by the Buyer hereunder at such Closing. The
Escrow Agent shall be responsible for delivery of the Purchase Price to the
Company and the Notes to the Buyer in accordance with the terms of the Escrow
Agreement and with the instructions of the said parties.
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
The Buyer understands, agrees with, and represents and warrants to the
Company with respect to its purchase hereunder, that:
a. Investment Purposes; Compliance With 1933 Act. The Buyer is
purchasing the Securities for its own account for investment only and not with
a view towards, or in connection with, the public sale or distribution
thereof, except pursuant to sales registered under or exempt from the 0000
Xxx. The Buyer is not purchasing the Securities for the purpose of covering
short sale positions in the Common Stock established on or prior to the
Closing Date. The Buyer agrees to offer, sell or otherwise transfer the
Securities only (i) in accordance with the terms of this Agreement and the
Notes, as applicable, and (ii) pursuant to registration under the 1933 Act or
to an exemption from registration under the 1933 Act and any other applicable
securities laws. The Buyer does not by its representations contained in this
Section 2(a) agree to hold the Securities for any minimum or other specific
term and reserves the right to dispose of the Securities at any time pursuant
to a registration statement or in accordance with an exemption from
registration under the 1933 Act, in all cases in accordance with applicable
state and federal securities laws. The Buyer understands that it shall be a
condition to the issuance of the Conversion Shares and the Interest Shares (if
any) that the Conversion Shares and the Interest Shares (if any) be and are
subject to the representations set forth in this Section 2(a).
b. Accredited Investor Status. The Buyer is an "accredited investor"
as that term is defined in Rule 501 (a) of Regulation D. The Buyer has such
knowledge and experience in financial and business matters that it is capable
of evaluating the merits and risks of an investment made pursuant to this
Agreement. The Buyer is aware that it may be required to bear the economic
risk of an investment made pursuant to this Agreement for an indefinite period
of time, and is able to bear such risk for an indefinite period.
c. Reliance on Exemptions. The Buyer understands the Securities are
being offered and sold to it in reliance on specific exemptions from the
registration requirements of the applicable 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,
acknowledgments, understandings, agreements and covenants 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
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
that have been requested by the Buyer. The Buyer and its advisors, if any,
have been afforded the opportunity to ask all such questions of the Company as
they have in their discretion deemed advisable. The Buyer understands that its
investment in the Securities involves a high degree of risk. The Buyer has
sought such accounting, legal and tax advice as it has considered necessary to
an informed investment decision with respect to the investment made pursuant
to this Agreement.
e. No Government Review. The Buyer understands that no United States
federal or state agency or any other government or governmental agency has
approved or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities, nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
f. Transfer or Resale. The Buyer understands that: (i) except as
provided in the Registration Rights Agreement, the Securities have not been
and are not being registered under the 1933 Act or any state securities laws,
and may not be offered for sale, sold, assigned or transferred unless either
(a) subsequently registered thereunder or (b) the Buyer shall have delivered
(see Section 4(n) below) to the Company an opinion by counsel reasonably
satisfactory to the Company, in form, scope and substance reasonably
satisfactory to the Company, to the effect that the securities to be sold,
assigned or transferred may be sold, assigned or transferred pursuant to an
exemption from such registration, (ii) any sale of such securities made in
reliance on Rule 144 (as hereafter defined) may be made only in accordance
with the terms of Rule 144 and further, if Rule 144 is not applicable, any
resale of such securities under circumstances in which the seller (or the
person though 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 this Agreement or the
Registration Rights Agreement).
g. Legend. The Buyer understands that the Notes, and until such time
as the Conversion Shares and the Interest Shares (if any) (collectively, the
"Registrable Securities"), have been registered under the 1933 Act as
contemplated by the Registration Rights Agreement or otherwise may be sold by
the Buyer pursuant to Rule 144 (as amended, or any applicable rule which
operates to replace said Rule) promulgated under the 1933 Act ("Rule 144"),
the stock certificates representing the Registrable Securities will bear a
restrictive legend (the "Legend") in substantially the following form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR APPLICABLE STATE SECURITIES
LAWS (COLLECTIVELY, THE "LAWS"). THE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN
THE ABSENCE OF EITHER (I) AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE LAWS, OR (II) AN OPINION OF COUNSEL PROVIDED TO THE
ISSUER IN FORM, SUBSTANCE AND SCOPE REASONABLY ACCEPTABLE TO THE ISSUER TO THE
EFFECT THAT REGISTRATION IS NOT REQUIRED UNDER THE LAWS DUE TO AN AVAILABLE
EXCEPTION TO OR EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE LAWS.
The Legend shall be removed and the Company will issue certificates
without the Legend to the holder of the applicable Notes or any Registrable
Securities upon which the Legend is stamped, in accordance with Section 5(b).
h. Authorization; Enforcement. This Agreement, the Registration
Rights Agreement and the Escrow Agreement have been duly and validly
authorized, executed and delivered by the Buyer and are each and collectively
valid and binding agreements of the Buyer enforceable in accordance with their
terms, subject as to enforceability to general principles of equity and to
bankruptcy, insolvency, moratorium, and other similar laws affecting the
enforcement of creditors' rights generally.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company understands, agrees with, and represents and warrants to the
Buyer that:
a. Organization and Qualification. The Company and its subsidiaries
are corporations duly organized and existing in good standing under the laws
of the respective jurisdictions in which they are incorporated, except as
would not have a Material Adverse Effect (as defined below), and have the
requisite corporate power to own their properties and to carry on their
business as now being conducted. Each of the Company and its subsidiary is
duly qualified as a foreign corporation to do business and is in good standing
in every jurisdiction in which the nature of the business conducted by it
makes such qualification necessary and where the failure so to qualify would
have a Material Adverse Effect. "Material Adverse Effect" means any material
adverse effect on the operations, properties or financial condition of the
Company and its subsidiaries taken as a whole. The Common Stock is eligible to
trade and is listed for trading on the OTC Bulletin Board Market. The Company
has received no notice, either written or oral, with respect to the continued
eligibility of the Common Stock for such listing, and the Company has
maintained all requirements for the continuation of such listing, and the
Company does not reasonably anticipate that the Common Stock will be delisted
from the OTC Bulletin Board Market for the foreseeable future. The Company has
complied with all requirements of the National Association of Securities
Dealers and the OTC Bulletin Board Market with respect to the issuance of the
Securities.
b. Authorization; Enforcement. (i) The Company has the requisite
corporate power and authority to enter into and perform this Agreement, the
Registration Rights Agreement and the Escrow Agreement, to issue and sell the
Registrable Securities in accordance with the terms hereof, and to perform its
obligations under the Notes in accordance with the requirements of the same,
(ii) the execution, delivery and performance of this Agreement, the Notes, the
Registration Rights Agreement and the Escrow Agreement by the Company and the
consummation by it of the transactions contemplated hereby and thereby 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
stockholders is required, (iii) this Agreement, the Registration Rights
Agreement, the Escrow Agreement and, on the Closing Date, the Notes sold at
the Closing, have been duly and validly authorized, executed and delivered by
the Company, and (iv) this Agreement, the Notes (when issued), the
Registration Rights Agreement and the Escrow Agreement constitute the valid
and binding obligations of the Company enforceable against the Company in
accordance with their respective terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting, generally, the
enforcement of creditors' rights and remedies or by other equitable principles
of general application. The Company (and its legal counsel) has examined this
Agreement and is satisfied in its sole discretion that this Agreement and the
accompanying Exhibits, Schedules and the Addenda, if any, are in accordance
with Regulation D and the 1933 Act and are effective to accomplish the
purposes set forth herein and therein.
c. Capitalization. As of September 1, 2001, the authorized capital
stock of the Company consists of (I) 100,000,000 shares of Common Stock of
which 16,390,791 shares were issued and outstanding, and (II) 1,000,000 shares
of Preferred Stock of which -0- shares were issued and outstanding. All of
such outstanding shares have been validly issued and are fully paid and
nonassessable. No shares of Common Stock are subject to preemptive rights or
any other similar rights or any liens or encumbrances. Except as disclosed in
Schedule 3(c) (attached if applicable), as of the effective date of this
Agreement, (i) there are no outstanding options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, 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
outstanding debt securities, and (iii) 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 as provided herein and in the Registration Rights Agreement). If
requested by the Buyer, the Company has furnished to the Buyer, and the Buyer
acknowledges receipt of same by its signature hereafter, true and correct
copies of the Company's Certificate of Incorporation, as amended, as in effect
on the date hereof ("Certificate of Incorporation"), and the Company's Bylaws,
as in effect on the date hereof (the "Bylaws").
d. Issuance of Securities. The Registrable Securities are all duly
authorized and reserved for issuance, and in all cases upon issuance shall be
validly issued, fully paid and non-assessable, free from all taxes, liens and
charges with respect to the issue thereof, and will not be subject to
preemptive rights or other similar rights of stockholders of the Company.
e. Acknowledgment Regarding Buyer's Purchase of the Securities. The
Company acknowledges and agrees that the Buyer is not acting as financial
advisor to or fiduciary of the Company (or in any similar capacity with
respect to this Agreement or the transactions contemplated hereby), that this
Agreement and the transactions contemplated hereby, and the relationship
between the Buyer and the Company, are and will be considered "arms-length"
notwithstanding any other or prior agreements or nexus between the Buyer and
the Company, whether or not disclosed, and that any statement made by the
Buyer, or any of its representatives or agents, in connection with this
Agreement and the transactions contemplated hereby is not advice or a
recommendation, is merely incidental to the Buyer's purchase of the Securities
and has not been relied upon in any way by the Company, its officers or
directors. The Company further represents to the Buyer that the Company's
decision to enter into this Agreement and the transactions contemplated hereby
have been based solely upon an independent evaluation by the Company, its
officers and directors.
f. 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 of any security or solicited any offers to
buy any security under circumstances which would prevent the parties hereto
from consummating the transactions contemplated hereby pursuant to an
exemption from registration under the 1933 Act and specifically in accordance
with the provisions of Regulation D. The transactions contemplated hereby are
exempt from the registration requirements of the 1933 Act, assuming the
accuracy of the representations and warranties contained herein of the Buyer.
g. No Conflicts. The execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby will not (i) result in a violation of the
Certificate of Incorporation or Bylaws or (ii) conflict with, or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to
which the Company or any of its subsidiaries is a party, or result in a
violation of any law, rule, regulation, order, judgment or decree (including
federal and state securities laws and regulations) 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). Except as set forth in Schedule 3(g) (attached if
applicable), neither the Company nor any of its subsidiaries is in violation
of its Certificate of Incorporation 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, would put the
Company or any of its subsidiaries in default) under, nor has there occurred
any event giving others (with notice or lapse of time or both) 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, except for possible defaults or rights as would not, in the aggregate
or individually, have a Material Adverse Effect. The business of the Company
and its subsidiaries is not being conducted, and shall not be conducted so
long as the Buyer owns any of the Securities, in violation of any law,
ordinance or regulation of any governmental entity, except for possible
violations which neither singly or in the aggregate would have a Material
Adverse Effect. Except as specifically contemplated by this Agreement and as
required under the 1933 Act and any applicable state securities laws (any of
which exceptions are set forth in Schedule 3(g)), the Company is not required
to obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency in order for it to
execute, deliver or perform any of its obligations under this Agreement, the
Notes, the Registration Rights Agreement or the Escrow Agreement in accordance
with the terms hereof and thereof, or to perform its obligations with respect
to the Notes exactly as described in the Notes (once issued).
h. SEC Documents; Financial Statements. Except as disclosed on
Schedule 3(h) hereof, attached if applicable, since at least September 1, 2000
(or such later date as the Company first began filing), the Company has timely
filed (including extensions granted by the SEC) 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) incorporated by
reference therein, being hereinafter referred to as the "SEC Documents"). The
Company has delivered to the Buyer as requested by the Buyer true and complete
copies of the SEC Documents, except for such exhibits, schedules 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. 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 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
exclude footnotes or may be condensed or summary statements) and fairly
present in all material respects the financial position of the Company as of
the dates thereof and the results of its operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments). No other information provided by or on behalf of
the Company to the Buyer (including the information referred to in Section
2(d) of this Agreement) contains any untrue statement of a material fact or
omits to state any material fact necessary in order to make the statements
therein, in the light of the circumstance under which they are or were made,
not misleading. 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 the date of such financial statements 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, in each case of clause (i) and (ii)
next above which, individually or in the aggregate, are not material to the
financial condition, business, operations, properties, operating results or
prospects of the Company. The SEC Documents contain a complete and accurate
list of all written and oral contracts, agreements, leases or other
instruments to which the Company or any subsidiary is a party or by which the
Company or any subsidiary is subject which are required by the rules and
regulations promulgated by the SEC to be so listed (each a "Contract"). None
of the Company, its subsidiaries or, to the best of the Company's knowledge,
any of the other parties thereto, is in breach or violation of any Contract,
which breach or violation would, or with the lapse of time, the giving of
notice, or both, have a Material Adverse Effect.
i. Absence of Certain Changes. Except as disclosed in Schedule 3(i)
(attached if applicable), since at least September 1, 2000, there has been no
material adverse change and no material adverse development in the business,
properties, operation, financial condition, results of operations or prospects
of the Company. The Company has not taken any steps, and does not currently
have any reasonable expectation of taking any steps, to seek protection
pursuant to any bankruptcy law nor does the Company have any knowledge that
its creditors intend to initiate involuntary bankruptcy proceedings. The
Company shall, at least until Buyer no longer holds any of the Securities,
maintain its corporate existence in good standing and shall pay all taxes when
due except for taxes it reasonably disputes.
j. Absence of Litigation. Except as set forth in Schedule 3(j)
(attached if applicable), there is no action, suit, proceeding, inquiry or
investigation before or by any court, public board or body pending or, to the
knowledge of the Company, threatened against or affecting the Company, wherein
an unfavorable decision, ruling or finding would have a Material Adverse
Effect or which would adversely affect the validity or enforceability of, or
the authority or ability of the Company to perform its obligations under, this
Agreement or any of the documents contemplated herein.
k. Foreign Corrupt Practices. Neither the Company nor any of its
subsidiaries, nor any officer, director 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 expense 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.
l. Brokers; No General Solicitation. The Company has taken no action
that would give rise to any claim by any person for brokerage commissions,
finder's fees or similar payments relating to this Agreement and the
transactions contemplated hereby, other than to Corporate Capital Management,
LLC, which is entitled to consulting fees of five percent (5%) of the Purchase
Price out of escrow at Closing, along with five percent (5%) of the Purchase
Price in Common Stock valued as of the Closing Date. The Company and the
Buyer both acknowledge that no broker or finder was involved with respect to
the transactions contemplated hereby, other than Corporate Capital Management,
LLC. The only services provided by Corporate Capital Management, LLC, were the
introduction of the Company and the Buyer. Neither the Company nor any
distributor participating on the Company's behalf in the transactions
contemplated hereby nor any person acting for the Company, or any such
distributor, has conducted any "general solicitation," as described in Rule
502(c) under Regulation D, with respect to the Securities being offered
hereby.
m. Acknowledgment of Dilution. The number of Conversion Shares
issuable upon conversion of the Notes may increase substantially in certain
circumstances, including the circumstance wherein the trading price of the
Common Stock declines. The Company's executive officers and directors have
studied and fully understand the nature of the securities being sold hereunder
and recognize they have a potential dilutive effect. The board of directors
of the Company has concluded in its good faith business judgment that such
issuance is in the best interests of the Company. The Company acknowledges
that its obligation to issue Conversion Shares upon conversion of the Notes is
binding upon it and enforceable regardless of the dilution that such issuance
may have on the ownership interests of other stockholders.
n. Eligibility to File Registration Statement. The Company is
currently eligible to file a registration statement with the SEC either on
Form S-1 or Form S-B2 under the 0000 Xxx.
o. (Intentionally Omitted.)
p. Non-Disclosure of Non-Public Information. (a) The Company shall
in no event disclose non-public information to the Buyer, advisors to or
representatives of the Buyer unless prior to such disclosure of information
the Company marks such information as "non-public information confidential"
and provides the Buyer, such advisors and representatives with the opportunity
to accept or refuse to accept such non-public information for review. The
Company may, as a condition to disclosing any non-public information
hereunder, require the Buyer, its advisors and representatives to enter into a
confidentiality agreement in form reasonably satisfactory to the Company and
the Buyer.
(b) Nothing herein shall require the Company to disclose non-
public information to the Buyer, its advisors or representatives, and the
Company represents that it does not disseminate non-public information to
investors who purchase stock in the Company in a public offering, to money
managers or to securities analysts; provided, however, that notwithstanding
anything herein to the contrary, the Company will, as hereinabove provided,
immediately notify the advisors and representatives of the Buyer and, if any,
underwriters, of any event or the existence of any circumstance (without any
obligation to disclose the specific event or circumstance) of which it becomes
aware, constituting non-public information (whether or not requested of the
Company specifically or generally during the course of due diligence by such
persons or entities), which, if not disclosed in the prospectus included in
the registration statement to be filed pursuant to the Registration Rights
Agreement, would cause such prospectus to include a material misstatement or
to omit a material fact required to be stated therein in order to make the
statements therein, in light of the circumstances in which they were made, not
misleading. Nothing herein shall be construed to mean that such persons or
entities other than the Buyer (without the written consent of the Buyer prior
to disclosure of such information) may not obtain non-public information in
the course of conducting due diligence in accordance with the terms of this
Agreement and nothing herein shall prevent any such persons or entities from
notifying the Company of their opinion that, based upon such due diligence by
such persons or entities, that the registration statement contains an untrue
statement of a material fact or omits a material fact required to be stated in
such registration statement or necessary to make the statements contained
therein, in light of the circumstances in which they were made, not
misleading.
4. COVENANTS.
a. Best Efforts. Each party shall use its best efforts timely to
satisfy each of the conditions to be satisfied by it as provided in Sections 6
and 7 of this Agreement.
b. Securities Laws. The Company agrees to timely file a Form D (or
equivalent form required by applicable state law) with respect to the
Securities if and as required under Regulation D and applicable state
securities laws and to provide a copy thereof to the Buyer promptly after such
filing. The Company shall, on or before the Closing Date, take such action as
is necessary to sell the Securities being sold to the Buyer on each such date
under applicable securities laws of the United States, and shall if
specifically so requested provide evidence of any such action so taken to the
Buyer on or prior to the Closing Date.
c. Reporting Status. So long as the Buyer beneficially owns any of
the Securities, the Company shall 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 filing reports under the 1934 Act even if the 1934 Act or
the rules and regulations hereunder would permit such termination.
d. Use of Proceeds. The Company will use the proceeds from the sale
of the Securities for advertising and marketing, product development and
general working capital purposes.
e. Financial Information. Until such time as the Buyer no longer
beneficially owns Notes or Conversion Shares, the Company agrees to send the
following reports to the Buyer: (i) after filing with the SEC, a copy of each
of its Annual Reports, its quarterly Reports, and any reports filed on Form 8-
K; and (ii) as soon as practicable after release thereof, copies of all press
releases issued by the Company or any of its subsidiaries.
f. 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 issuance of all of the Conversion
Shares and the Interest Shares (if any). Prior to complete conversion of the
Notes, the Company shall not reduce the number of shares of Common Stock
reserved for issuance hereunder without the written consent of the Buyer
except for a reduction proportionate to a reverse stock split effected for a
business purpose other than affecting the requirements of this Section, which
reverse stock split affects all shares of Common Stock equally.
g. Listing. Upon the Closing, the Company shall promptly secure the
listing of the Registrable Securities underlying the Notes 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
shall maintain, so long as any other shares of Common Stock shall be so
listed, such listing of shares of Registrable Securities from time to time
issued under the terms of this Agreement and the Registration Rights
Agreement. The Company shall at all times comply in all respects with the
Company's reporting, filing and other obligations under the by-laws or rules
of the National Association of Securities Dealers and the OTC Bulletin Board
Market (or such other national securities exchange or market on which the
Common Stock may then be listed, as applicable).
h. Prospectus Delivery Requirement. The Buyer understands that the
1933 Act requires delivery of a prospectus relating to the Common Stock in
connection with any sale thereof pursuant to a registration statement under
the 1933 Act covering any resale by the Buyer of the Common Stock being sold,
and the Buyer shall comply with any applicable prospectus delivery
requirements of the 1933 Act in connection with any such sale.
i. Intentional Acts or Omissions. Neither party shall intentionally
perform any act that if performed, or omit to perform any act which if
omitted to be performed, would prevent or excuse the performance of this
Agreement or any of the transactions contemplated hereby.
j. No Shorting. As a material inducement for the Company to enter
into this Agreement, the Buyer represents that it has not as of the date
hereof, and covenants on behalf of itself and its affiliates that neither
Buyer nor any affiliate of Buyer will at any time in which the Buyer or any
affiliate of the Buyer beneficially owns any of the Securities, engage in any
short sales of, or hedging or arbitrage transactions with respect to, the
Common Stock, or sell "put" options or similar instruments with respect to the
Common Stock. The Company acknowledges that a sale of Conversion Shares on the
date a conversion of the Notes is made, even if such sale is made prior to
delivery of the notice of conversion with respect to such Conversion Shares,
is not a "short sale" for purposes of this Section 4(j).
k. Expenses. The Company agrees to pay to or at the direction of
the Buyer the sum of $5,000.00 at the Closing as reimbursement for the
attorney's fees and expenses of the Buyer incurred by it in connection with
the transactions contemplated by this Agreement, including without limitation
the fees of the Escrow Agent.
1. Conversion Restrictions. Notwithstanding anything to the contrary
set forth herein or in the Notes, in no event shall any holder of the Notes be
entitled to convert Notes in excess of such portion of the principal of the
Notes that, upon giving effect to such conversion, would cause the aggregate
number of shares of Common Stock beneficially owned by the holder and its
affiliates to exceed 4.99% of the outstanding shares of the Common Stock
following such conversion. For purposes of the foregoing provision, the
aggregate number of shares of Common Stock beneficially owned by the holder
and its affiliates shall include the number of shares of Common Stock issuable
upon conversion of the Notes with respect to which the determination of such
proviso is being made. Except as set forth in the preceding sentence, for
purposes of this Section 2(a), beneficial ownership shall be calculated in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended. The limitations imposed by this Section 4(l) on conversion of Notes
shall no longer apply, and the holder of the Notes may convert all or any
portion of the Notes, irrespective of the resulting beneficial ownership of
the Company's Common Stock, should any of the following events occur: (I) The
Company shall either: (i) become insolvent; (ii) admit in writing its
inability to pay its debts generally or as they become due; (iii) make an
assignment for the benefit of creditors or commence proceedings for its
dissolution; or (iv) apply for, or consent to the appointment of, a trustee,
liquidator, or receiver for its or for a substantial part of its property or
business; or (II) A trustee, liquidator or receiver shall be appointed for the
Company or for a substantial part of its property or business without the
Company's consent and such appointment is not discharged within sixty (60)
days after such appointment; or (III) Any governmental agency or any court of
competent jurisdiction at the instance of any governmental agency shall assume
custody or control of the whole or any substantial portion of the properties
or assets of the Company and shall not be dismissed within sixty (60) days
thereafter; or (IV) Any money judgment, writ or Note of attachment, or similar
process in excess of Two Hundred Thousand United States Dollars
(US$200,000.00) in the aggregate shall be entered or filed against the Company
or any of its properties or assets and shall remain unpaid, unvacated,
unbonded or unstayed for a period of fifteen (15) days or in any event later
than five (5) days prior to the date of any proposed sale thereunder; or (V)
Bankruptcy, reorganization, insolvency or liquidation proceedings or other
proceedings for relief under any bankruptcy law or any law for the relief of
debtors shall be instituted by or against the Company and, if instituted
against the Company, shall not be dismissed within sixty days after such
institution or the Company shall by any action or answer approve of, consent
to, or acquiesce in any such proceedings or admit the material allegations of,
or default in answering a petition filed in, any such proceeding.
m. Restriction on Below Market Issuance of Securities. Until the
date which is twelve (12) months from the Closing Date, the Company shall not
issue or agree to issue {other than (i) to the Buyer pursuant to the
transactions contemplated herein, (ii) pursuant to any employee stock option
plan or employee stock purchase plan of the Company established during the
term of this restriction for a legitimate business purpose and not to avoid
the restrictions imposed in this Section 4(m), (iii) pursuant to any existing
security, option, warrant, scrip, call or commitment or right in each case as
disclosed on Schedule 3(c) hereof, or (iv) with the consent of the Buyer, not
to be unreasonably withheld} any equity securities of the Company (or any
security convertible into or exercisable or exchangeable, directly or
indirectly, for equity securities of the Company) or debt securities of the
Company if such securities are issued at a price (or provide for a conversion,
exercise or exchange price) which may be less than the current market price
for the Common Stock on the date of issuance (in the case of Common Stock) or
the date of conversion, exercise or exchange (in the case of securities
convertible into or exercisable or exchangeable, directly or indirectly, for
Common Stock). Except as provided with respect to the transactions
contemplated herein and in subsections (i), (ii), (iii), or (iv) above of this
Section 4(m), the Company shall not grant any additional so-called
"registration rights." Notwithstanding the above, the Company shall have the
right to issue and sell up to 500,000 restricted shares of its Common Stock
each three (3) month period, at such price as the Company deems appropriate,
subject to the requirement that the purchaser(s) of such restricted shares
shall be contractually prohibited from selling more than fifteen percent (15%)
of such restricted shares in any three (3) month period, may not sell any such
shares at the bid price, and may not sell such shares at a price less than
$1.00 per share, in each case prior to conversion in full of the Notes by the
Buyer, without the prior written consent of the Buyer.
n. The Company agrees that, at such time as the safe harbor
provisions of Rule 144 become available to the Buyer such that the Buyer may
sell all or a portion of the Securities pursuant thereto, the Company shall
immediately (but in any event within five (5) business days) after demand from
the Buyer, cause a legal opinion of Company counsel to be delivered to the
Company, its transfer agent and to the Buyer, reasonably acceptable to all
said parties, to the effect that the Securities may be sold pursuant to Rule
144. When and if the safe harbor provisions of Rule 144k become available to
the Buyer, the Company shall likewise immediately (but in any event within
five (5) business days) after demand from the Buyer, cause a legal opinion of
Company counsel to be delivered to the said parties, so that any Conversion
Shares received by the Buyer will contain no restrictive legend of any kind
(except as required by applicable law). The provisions of this Section 4(n)
shall not apply if the Buyer has sold all of the Securities to which it is or
shall be entitled pursuant to this Agreement and the Notes; otherwise, the
provisions of this Section 4(n) shall apply notwithstanding anything in this
Agreement or the Notes to the contrary.
5. LEGEND AND TRANSFER INSTRUCTIONS.
a. Transfer Agent Instructions. The Company shall instruct its
transfer agent to issue certificates, registered in the name of the Buyer or
its nominee, for the Conversion Shares and the Interest Shares (if any) in
accordance with the terms of the applicable Notes and in such amounts as
specified from time to time by the Buyer to the Company, upon conversion of
the Notes. All such certificates shall bear the restrictive legend specified
in Section 2(g) of this Agreement only to the extent required by applicable
law and as specified in this Agreement and the Exhibits and Addenda hereto.
The Company warrants that no instruction other than such 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 the Interest Shares (if
any) prior to the registration of same under the 1933 Act, will be given by
the Company to its transfer agent and that the Conversion Shares and the
Interest Shares (if any) shall otherwise be freely transferable on the books
and records of the Company as and to the extent permitted by applicable law
and provided by this Agreement and the Registration Rights Agreement. Nothing
in this Section shall affect in any way the Buyer's obligations and agreement
to comply with all applicable securities laws upon resale of the Conversion
Shares and/or the Interest Shares (if any). If the Buyer (x) provides the
Company (see Section 4(n)) with an opinion of counsel reasonably satisfactory
to Company that registration by the Buyer of the Notes, the Conversion Shares
and/or the Interest Shares (if any) is not required under the 1933 Act, or (y)
transfers Securities to an affiliate which is an accredited investor (in
accordance with the provisions of this Agreement) or in compliance with Rule
144, then in either instance the Company shall permit the said transfer, and
if applicable promptly (and in all events within two (2) business days)
instruct its transfer agent to issue one or more certificates in such name and
in such denominations as specified by the Buyer.
b. Removal of Legends. If permitted by the Company's transfer agent,
the Legend shall be removed and the Company shall issue a certificate without
such Legend to the holder of any Security upon which it is stamped, and a
certificate for a security shall be originally issued without the Legend, if,
unless otherwise required by state securities laws, (x) the sale of such
Security is registered under the 1933 Act, or (y) such holder provides (see
Section 4(n)) the Company with an opinion by counsel reasonably satisfactory
to the Company, that is in form, substance and scope reasonably satisfactory
to the Company, to the effect that a public sale or transfer of such Security
may be made without registration under the 1933 Act or (z) such holder
provides the Company with assurances reasonably satisfactory to the Company
and its counsel, that such Security can be sold pursuant to Rule 144. The
Buyer agrees that its sale of all Securities, including those represented by a
certificate(s) from which the Legend has been removed, or which were
originally issued without the Legend, shall be made only pursuant to an
effective registration statement (and to deliver a prospectus in connection
with such sale) or in compliance with an exemption from the registration
requirements of the 1933 Act. In the event the Legend is removed from any
Security or any Security is issued without the Legend and thereafter the
effectiveness of a registration statement covering the sales of such Security
is suspended or the Company determines that a supplement or amendment thereto
is required by applicable securities laws, then upon reasonable advance notice
to the holder of such Security, the Company shall be entitled to require that
the Legend be placed upon any such Security which cannot then be sold pursuant
to an effective registration statement or Rule 144 or with respect to which
the opinion referred to in clause (y) next above has not been rendered, which
Legend shall be removed when such Security may be sold pursuant to an
effective registration statement or Rule 144 (or such holder provides the
opinion with respect thereto described in clause (y) next above.
Notwithstanding anything herein to the contrary, the Buyer shall not pledge or
sell the Securities to any third party (other than to an affiliate of the
Buyer) without the Company's prior written consent (such consent not to be
unreasonably withheld), except that this sentence shall not operate to
restrict the Buyer from selling in its discretion Conversion Shares received
upon conversions of Notes, so long as such sales are made in accordance with
this Agreement, the terms of the Notes and applicable law.
c. Conversion of Notes. The Buyer shall have the right to convert
the Notes sold hereunder by delivering via facsimile an executed and completed
Notice of Conversion (as defined in the Notes) to the Company and delivering
within two (2) business days thereafter the original Notice of Conversion and
(once it has been fully converted) the original Note being converted by
express courier to the Company. Each date on which a Notice of Conversion is
telecopied to the Company in accordance with the provisions hereof shall be
deemed a "Conversion Date." The Company will transmit the certificates
representing the shares of Common Stock issuable upon conversion of any Notes
(along with a replacement Note representing the amount of principal of said
Note not so converted, if applicable) to the Buyer via express courier, within
three (3) business days after the relevant Conversion Date (with respect to
each conversion, the "Deadline"). Time is of the essence with respect to the
requirements of the immediately preceding sentence.
d. Injunctive Relief for Breach. The Company acknowledges that a
breach of its obligations under Sections 5(a), 5(b) and 5(c) above will cause
irreparable harm to the Buyer by vitiating the intent and purpose of the
transactions contemplated hereby. Accordingly the Company agrees that the
remedy at law for a breach of its obligations under such Sections would be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of such Sections, the Buyer shall be entitled, in
addition to all other remedies at law or in equity, to an injunction
restraining any breach and requiring immediate issuance and transfer, without
the necessity of showing economic loss and without any bond or other security
being required.
e. Liquidated Damages for Non-Delivery of Certificates. In addition
to the provisions of Section 5(d) above, the Company understands and agrees
that a delay in the issuance of the Certificates beyond the Deadline will
result in substantial economic loss and other damages to the Buyer. As partial
compensation to the Buyer for such loss, the Company agrees to pay liquidated
damages (and which the Company acknowledges is not a penalty) to the Buyer for
issuance and delivery of the Certificates after the Deadline, in accordance
with the following schedule (where "No. Business Days Late" is defined as the
number of business days beyond five (5) business days from the date of
delivery by the Buyer to the Company of a facsimile Notice of Conversion (or,
if later, from the date on which all other necessary documentation duly
executed and in proper form required for conversion of Notes as described in
this Agreement, including the original Notice of Conversion, all in accordance
with this Agreement only if such necessary documentation has not been
delivered to the Company within the two (2) business day period after the
facsimile delivery to the Company of the Notice of Conversion required in this
Agreement)):
No. Business Days Late Liquidated Damages
(in US$)
1 $300
2 $400
3 $500
4 $600
5 $700
6 $800
7 $900
8 $1,000
9 $1,000
10 $1,500
11+ $1,500 + $500 for
each Business Day Late
beyond 11 days
The Company shall pay the Buyer any liquidated damages incurred as
called for under this Section 5(e) by certified or cashier's check upon the
earlier of (i) issuance of the Certificates to the Buyer or (ii) each monthly
anniversary of the receipt by the Company of the Buyer's Notice of Conversion.
Nothing herein shall limit the Buyer's right to pursue actual damages for the
Company's failure to issue and deliver the Certificates to the Buyer in
accordance with the terms of this Agreement or for breach by the Company of
this Agreement.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to sell Notes at the Closing is
subject to the satisfaction, on or before the Closing Date, of each of the
following conditions, 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 parties shall have executed this Agreement, the Registration
Rights Agreement and the Escrow Agreement, and the parties shall have
delivered the respective documents or signature pages thereof (via facsimile
or otherwise as permitted in the Escrow Agreement) to the Escrow Agent.
b. The Buyer shall have delivered to the Escrow Agent on behalf of
the Company the Purchase Price for the Notes purchased at the Closing, by wire
transfer of immediately available funds pursuant to the wiring instructions
provided by the Escrow Agent.
c. The representations and warranties of the Buyer shall be true and
correct in all material respects as of the date 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 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 Buyer at or prior to the Closing Date.
d. No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction or any self
regulatory organization having authority over the matters contemplated hereby
which restricts or prohibits the consummation of any of the transactions
contemplated herein.
7. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The obligation of the Buyer to purchase Notes is subject to the
satisfaction, on or before the Closing Date, of each of the following
conditions, provided that these conditions are for the sole benefit of the
Buyer and may be waived by the Buyer at any time in its sole discretion:
a. The parties shall have executed this Agreement, the Registration
Rights Agreement and the Escrow Agreement, the parties shall have delivered
the respective documents or signature pages thereof (via facsimile or
otherwise as permitted in the Escrow Agreement) to the Escrow Agent on behalf
of each other.
b. The representations and warranties of the Company shall be true
and correct in all material respects as of the date made and as of Closing
Date as though made at that 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.
c. With respect to the Closing, the Company shall have issued and
have duly executed by the authorized officers of the Company, and delivered to
the Escrow Agent on behalf of the Buyer, the Notes being sold at the Closing
(via facsimile or otherwise as required by the Escrow Agreement, provided that
any permitted facsimile of such documents shall be followed with physical
delivery to the Escrow Agent of the original instrument or security within one
(1) business day after facsimile of same to the Escrow Agent).
d. The Common Stock shall be authorized for quotation on the OTC
Bulletin Board Market (or another national securities exchange or market) and
trading in the Common Stock on such market shall not have been suspended by
the SEC or other relevant regulatory agency.
e. No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction or any self
regulatory organization having authority over the matters contemplated hereby
which restricts or prohibits the consummation of any of the transactions
contemplated herein.
f. The Escrow Agent shall have received on behalf of the Buyer the
opinion of Company counsel, dated as of the Closing Date, substantially in the
form attached hereto as Exhibit D.
8. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of Delaware without
regard to the principles of conflict of laws. In the event of any litigation
regarding the interpretation or application of this Agreement, the parties
irrevocably consent to jurisdiction in any of the state or federal courts
located in the City and State of Minneapolis, Minnesota and waive their rights
to object to venue in any such court, regardless of the convenience or
inconvenience thereof to any party. Service of process in any civil action
relating to or arising out of this Agreement (including also all Exhibits or
Addenda hereto) or the transaction(s) contemplated herein may be accomplished
in any manner provided by law. The parties hereto 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.
b. Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by
each party and signature pages from such counterparts have been delivered to
the Escrow Agent on behalf of the other party. In the event any signature
page is delivered by facsimile transmission (which the parties agree is an
acceptable form of delivery), the party using such means of delivery shall
cause three (3) additional originally executed signature pages to be
physically delivered to the Escrow Agent on behalf of the other party within
two (2) business days of the execution and delivery hereof.
c. Headings; Gender, Etc. The headings of this Agreement are for
convenience of reference and shall not form a part of, or affect the
interpretation of this Agreement. As used herein, the masculine shall refer
to the feminine and neuter, the feminine to the masculine and neuter, and the
neuter to the masculine and feminine, as the context may require. As used
herein, unless the context clearly requires otherwise, the words "herein,"
"hereunder" and "hereby," shall refer to this entire Agreement and not only to
the Section or paragraph in which such word appears. If any date specified
herein falls upon a Saturday, Sunday or public or legal holidays, the date
shall be construed to mean the next business day following such Saturday,
Sunday or public or legal holiday. For purposes of this Agreement, a
"business day" is any day other than a Saturday, Sunday or public or legal
holiday.
d. Severability. If any provision of this Agreement shall be invalid
or unenforceable in any jurisdiction, such invalidity or unenforceability
shall not affect the validity or enforceability of the remainder of this
Agreement in that jurisdiction or the validity or enforceability of any
provision of this Agreement in any other jurisdiction.
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 U. S. Mail or delivered personally or
by courier or via facsimile (if via facsimile, to be followed within three (3)
business days by an original of the notice document via U.S. Mail or courier)
and shall be effective five (5) days after being placed in the mail, if
mailed, certified or registered, return receipt requested, or upon receipt, if
delivered personally or by courier or by facsimile, in each case properly
addressed to the party to receive the same. The addresses for such
communications shall be:
If to the Company: Wizzard Software Corp.
000 Xxxx Xxx
Xxxxxxxxxx, Xxxxxxxxxxxx 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
Attention: Mr. Xxxxx Xxxxxxx, President & CEO
If to the Buyer, at the address on the signature page of this Agreement. Each
party shall provide written 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 respective successors and
assigns. Neither the Company nor the Buyer shall assign this Agreement or any
rights or obligations hereunder without the prior written consent of the other
(which consent shall not be unreasonably withheld), and in any event any
assignee of the Buyer shall be an accredited investor (as defined in
Regulation D), in the written opinion of counsel who is reasonably
satisfactory to the Company and in form, substance and scope reasonably
satisfactory to the Company. Notwithstanding the foregoing, if applicable, any
of the entities constituting the Buyer (if greater than one (1) entity) may
assign its rights hereunder to any of its "affiliates," as that term is
defined under the 1934 Act, without the consent of the Company; provided,
however, that any such assignment shall not release such assigning entity from
its obligations hereunder unless such obligations are assumed by such
affiliate and the Company has prior to such assignment and assumption
consented in writing to the same; and no such assignment shall be made unless
it is made in accordance with any applicable securities laws of any applicable
jurisdiction. Any request for an assignment made hereunder by the Buyer shall
be accompanied by a legal opinion in form, substance and scope reasonably
satisfactory to the Company, that such assignment is proper under applicable
law. Notwithstanding anything herein to the contrary, Buyer may pledge the
Securities as collateral for a bona fide loan pursuant to a security agreement
with a third party lender, and such pledge shall not be considered an
assignment in violation of this Agreement so long as it is made in compliance
with all applicable law, so long as the Buyer first obtains the Company's
written consent.
h. No Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.
i. Survival. Unless this Agreement is terminated under Section 8(1),
the representations and warranties of the Company and the Buyer contained in
Sections 2 and 3 and the agreements and covenants set forth in Sections 4, 5
and 8 shall survive the Closing of the purchase and sale of Securities
purchased and sold hereby.
j. Publicity. The Company and the Buyer shall have the right to
review before issuance by the other, any press releases or any other public
statements with respect to the transactions contemplated hereby; provided,
however, that the Company shall be entitled, without prior consultation with
or approval of the Buyer, to make any press release or other public disclosure
with respect to such transactions as is required by applicable law and
regulations.
k. Further Assurance. 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. Termination. In the event that the Closing shall not have
occurred on or before ten (10) business days from the date hereof, this
Agreement shall terminate at the close of business on such date. Neither
party may unilaterally terminate this Agreement after the Closing for any
reason other than a material breach of this Agreement by the non-terminating
party, other than as specified in Section 4(l) above. Such termination shall
not be the sole remedy for a breach of this Agreement by the non-terminating
party, and each party shall retain all of its rights hereunder at law or in
equity. Notwithstanding anything herein to the contrary, a party whose breach
of a covenant or representation and warranty or failure to satisfy a condition
prevented the Closing shall not be entitled to terminate this Agreement.
m. Remedies. No provision of this Agreement providing for any
specific remedy to a party shall be construed to limit such party to the
specific remedy described, and any other remedy that would otherwise be
available to such party at law or in equity shall be so available. Nothing in
this Agreement shall limit any rights a party may have with any applicable
federal or state securities laws with respect to the transactions contemplated
hereby.
IN WITNESS WHEREOF, the Buyer and the Company have caused this
Securities Purchase Agreement to be duly executed as of the date first written
above.
[SIGNATURE PAGE FOLLOWS]
List of Exhibits
Exhibit A Form of Note
Exhibit B Registration Rights Agreement
Exhibit C Escrow Agreement
Exhibit D Opinion of Counsel for Wizzard Software Corp.
[SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT DATED
AS OF SEPTEMBER 14, 2001]
COMPANY:
WIZZARD SOFTWARE CORP.
By:_____________________________________________
Xx. Xxxxxxxxxxx X. Xxxxxxx, President & CEO
BUYER:
MARICOPA EQUITY MANAGEMENT CORP.
By:____________________________________________
(Duly Authorized Corporate Executive)
BUYER'S ADDRESS:
0000 Xxxxx Xxxxxxxx Xxxx
Xxxxx 000
Xxxxxxxxxx, Xxxxxxxxx 00000
Telephone: 000.000.0000
Telecopier: 952.543.5659
SCHEDULE 3(c)
The following is an excerpt from the draft of an SB-2 Registration Statement
that the Company intends to file within 30 days of the Closing of the
Securities Purchase Agreement, and in which the shares that can be issued on
conversion of the Note will be registered; these persons have registration
rights on common stock, options or warrants.
Common Stock (1)
----------------
No. of Shares No. of Shares Number of Shares
Name of Selling Owned Prior to Registered in Beneficially
Stockholder the Offering the Offering Owned
after the Offering
----------- ------------ ------------ ------------------
Xxxxxxxxxxx 2,888,167 320,000 2,568,167
X. Xxxxxxx (3)
Xxxxx Xxxxxxxx 2,889,194 320,000 2,569,194
(3)
Xxxxxx Xxxxx (3) 513,634 50,000 463,634
Voice Recognition 3,431,078 320,000 3,111,078
Investment, L. P.
(2), (3)
Xxxx and Xxxxx 2,912,307 320,000 2,592,307
Xxxxxxx (3)
Xxxxx Xxxxxxx (3) 513,634 50,000 463,634
Xxxx Xxxxxx (3) 256,817 25,000 231,817
Xxxxxx X. Xxxxxxx 15,000 15,000 -0-
III Revocable Trust
Maricopa Equity 50,000 50,000 -0-
Management Corp.
(2), (4)
J. Xxxxxx Xxxxx (4) 10,000 10,000 -0-
Corporate Capital 702,318 702,318 -0-
Management, LLC
(2), (4), (5)
Xxxx X. Xxxx (4) 30,000 30,000 -0-
Xxxxxxxxx Xxxxx (4) 15,000 15,000 -0-
Xxxxxxx X. Xxxxxx (4) 20,000 20,000 -0-
Xxxx Xxxxxx 4) 30,000 30,000 -0-
Syndenham Holding 15,000 15,000 -0-
Ltd. (2), (4)
Xxxx Xxxxxx (4) 20,000 20,000 -0-
Xxx X. Xxxxxx (4) 5,000 5,000 -0-
Xxxxx Xxxxxxx 100,000 100,000 -0-
Financial, Inc.
Xxx Xxxxx (4) 9,000 9,000 -0-
Xxxxxxx X. Xxxxx (4) 12,000 12,000 -0-
Maricopa Equity 20,000 20,000 -0-
Management Corp.
(2), (4)
Xxxx L. and Xxxx 15,000 15,000 -0-
A, XxXxxxxx (4)
Xxxxxx Xxxxxxxxx (4) 25,000 25,000 -0-
Xxxxxx X. Xxxxxx (4) 25,000 25,000 -0-
The Xxxxxx Group 5,000 5,000 -0-
(2), (4)
Xxxxx and Xxxxxxxx 6,500 6,500 -0-
Xxxxxxx (4)
Xxxx Xxxxxx Gilece (4) 10,000 10,000 -0-
Power Fuel & 10,000 10,000 -0-
Transport, LLC
(2), (4)
Xxxxx X. Xxxx 10,000 10,000 -0-
and Merrell
B. Dick (4)
Xxxxx X. Xxxxxxx (4) 14,000 14,000 -0-
Savage Holdings, 65,000 65,000 -0-
Inc. (2), (6)
Xxxxx Xxxxxxx 500,000 500,000 -0-
Financial, Inc. (6)
DMG, Inc. (2), (6) 258,449 258,449 -0-
Xxxx X. Xxxxxxxx (6) 149,627 149,627 -0-
Xxxxx X. Xxxxxx (6) 292,648 292,648 -0-
(5)
Xxxxxx Services, 910,000 910,000 -0-
Inc. (2), (5), (6)
Xxxxxxx X. 100,000 60,000 40,000
Xxxxxxxxxx, Esq.
(5), (6)
Noble House of 450,000 350,000 100,000
Boston, Inc. (2), (6)
Xxxx XxXxxxx (7) 20,000 20,000 -0-
Xxxx Xxxxxx (7) 15,000 15,000 -0-
Ori Pessach (7) 5,000 5,000 -0-
Xxxx Xxxxx (7) 11,000 11,000 -0-
Xxxxx Xxxxxxx (7) 11,000 11,000 -0-
Xxxx Xxxxxx (7) 5,000 5,000 -0-
Xxxx Land (7) 5,000 5,000 -0-
Carbon Capital Corp. 50,000 50,000 -0-
Xxxxx Xxxxxx (7) 10,000 10,000 -0-
Johan de Muinck 10,000 10,000 -0-
Keizer (7)
Xxxxxxx Xxxxxxx (7) 5,000 5,000 -0-
Xxxx Xxxxxxx (7) 403,000 403,000 -0-
(1) We assume no purchase in this offering by the selling stockholders of
any shares of our common stock.
(2) No director, advisory director, executive officer or any "associate"
of any director, advisory director or executive officer has any interest,
direct or indirect, by security holdings or otherwise, in any of the
selling stockholders.
(3) Resales are subject to certain limitations set by the Board of
Directors and outlined herein for shares of directors, executive officers or
affiliated persons.
(4) Resales are subject to certain limitations set by the Board of
Directors and outlined herein for shares purchased on the Wizzard Delaware
reorganization private offering.
(5) Resales are subject to certain limitations agreed upon by the holders
and outlined herein for shares of certain persons who were our principal
stockholders at the time closing of the Wizzard Delaware reorganization.
(6) Includes the following shares underlying warrants, and assumes that
all warrants are exercised and all common stock owned or received on the
exercise of the warrants are sold: Savage Holdings, 65,000; DMG, 258,449; Xxxx
X. Xxxxxxxx, 149,627; Xxxxxx Services, 540,000; Xxxxx Xxxxxxx Financial, Inc.
500,000; Xxxxxxx X. Xxxxxxxxxx, Esq., 60,000; and Noble House of Boston,
100,000.
(7) Resales are subject to certain limitations set by the Board of
Directors and outlined herein for shares acquired in the acquisition of Speech
Systems, Inc.
SECURITIES PURCHASE AGREEMENT
SCHEDULE 3(g)
Registration of all the Registrable Securities under the Securities Act
of 1933, as amended, requires the filing of a registration statement with the
Securities and Exchange Commission and a declaration of effectiveness of the
registration statement by the Securities and Exchange Commission.
SCHEDULE 3(h)
No exceptions.
SCHEDULE 3(i)
No exceptions.
SCHEDULE 3(j)
No exceptions.
EXHIBIT A (Form of Note)
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR APPLICABLE STATE SECURITIES
LAWS (COLLECTIVELY, THE "LAWS"). THE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN
THE ABSENCE OF EITHER (I) AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE LAWS, OR (II) AN OPINION OF COUNSEL PROVIDED TO THE
ISSUER IN FORM, SUBSTANCE AND SCOPE REASONABLY ACCEPTABLE TO THE ISSUER TO THE
EFFECT THAT REGISTRATION IS NOT REQUIRED UNDER THE LAWS DUE TO AN AVAILABLE
EXCEPTION TO OR EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE LAWS.
September 14, 2001
NOTE # 01 U.S.$250,000.00
WIZZARD SOFTWARE CORP.
SERIES 2001-A EIGHT PERCENT (8%) CONVERTIBLE PROMISSORY NOTE
DUE AUGUST 31, 2011
THIS NOTE is one of a duly authorized issue of Notes (a "Note" or the
"Notes") of Wizzard Software Corp., a corporation duly organized and validly
existing under the laws of the State of Colorado, U.S.A. (the "Company")
designated as its Series 2001-A Eight Percent (8%) Convertible Notes Due
August 31, 2011, in an aggregate principal face value for all Notes of this
series of Two Hundred Fifty Thousand and no/100 United States Dollars
(US$250,000.00).
FOR VALUE RECEIVED, the Company promises to pay to Maricopa Equity
Management Corp., the registered holder hereof and its permitted successors
and assigns (the "Holder"), the principal sum of Two Hundred Fifty Thousand
and no/100 United States Dollars ($250,000.00) on August 31, 2011 (the
"Maturity Date"), and to pay interest on the principal sum outstanding, at the
rate of eight percent (8%) per annum due and payable in quarterly installments
in arrears, on June 30, September 30, December 31 and March 31 of each year
during the term of this Note, with the first such payment to be made on
December 31, 2001. Accrual of interest on the outstanding principal amount,
payable in cash or Common Stock (defined hereinafter) at the Company's option,
shall commence on the date hereof and shall continue until payment in full of
the outstanding principal amount has been made or duly provided for. The
interest so payable will be paid to the person in whose name this Note (or one
or more predecessor Notes) is registered on the records of the Company
regarding registration and transfers of the Note (the "Note Register");
provided, however, that the Company's obligation to a transferee of this Note
arises only if such transfer, sale or other disposition is made in accordance
with the terms and conditions of that Securities Purchase Agreement of even
date herewith between the Company and Maricopa Equity Management Corp. (the
"Securities Purchase Agreement").
The principal of, and interest on, this Note are payable in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts, at the address last appearing
on the Note Register of the Company as designated in writing by the Holder
hereof from time to time. The Company will pay the outstanding principal of
and any and all accrued and unpaid interest due upon this Note on the Maturity
Date, less any amounts required by law to be deducted or withheld, to the
record Holder of this Note as of the fifth business day (as defined in the
Securities Purchase Agreement) prior to the Maturity Date and addressed to
such Holder at the last address appearing on the Note Register. The forwarding
of such funds shall constitute a payment of outstanding principal and interest
hereunder and shall satisfy and discharge the liability for principal and
interest on this Note to the extent of the sum represented by such payment
plus any amounts so deducted or withheld. Except as herein provided, this Note
may not be prepaid without the prior written consent of the Holder. Interest
may at the Company's option be paid in Common Stock, with the number of shares
of Common Stock to be delivered in payment of such interest determined by
taking the dollar amount of interest being paid divided by the applicable
Conversion Price (defined below).
This Note is subject to the following additional provisions:
1. Withholding. The Company shall be entitled to withhold from
all payments of principal or interest pursuant to this Note any amounts
required to be withheld under the applicable provisions of the United States
income tax or other applicable laws at the time of such payments, but only to
the extent so required.
2. Transfer/Exchange of Note; Registered Holder; Opinion of Counsel;
Legend. This Note has been issued subject to investment representations of
the original purchaser hereof and may be transferred or exchanged only in
compliance with the Securities Act of 1933, as amended (the "1933 Act") and
applicable state securities laws. Prior to due presentment for transfer of
this Note, the Company and any agent of the Company may treat the person in
whose name this Note is duly registered on the Company's Note Register as the
owner hereof for the purpose of receiving payment as herein provided and for
all other purposes, whether or not this Note be overdue, and neither the
Company nor any such agent shall be affected or bound by notice to the
contrary.
The Holder understands and acknowledges by its acceptance hereof that
(i) except as provided in the Securities Purchase Agreement and in that
Registration Rights Agreement attached as Exhibit C to the Securities Purchase
Agreement (the "Registration Rights Agreement"), both such documents
incorporated herein by reference, this Note and the shares of common stock in
the Company issuable upon conversion thereof as herein provided ("Conversion
Shares"), and any shares of Common Stock payable as interest hereunder have
not been and are not being registered under the 1933 Act or any state
securities laws, and may not be offered for sale, sold, assigned or
transferred unless (a) subsequently registered thereunder, or (b) the Holder
shall have delivered to the Company an opinion of counsel, reasonably
satisfactory in form, substance and scope to the Company, to the effect that
the securities to be sold, assigned or transferred may be sold, assigned or
transferred pursuant to an exemption from such registration; (ii) any sale of
such securities made in reliance on Rule 144 promulgated under the 1933 Act
may be made only in accordance with the terms of said Rule and further, if
said Rule is not applicable, any resale 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 regulation and/or exemption under the 1933
Act or the rules and regulations of the United States Securities and Exchange
Commission (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 (other than pursuant to the terms of the
Securities Purchase Agreement and the Registration Rights Agreement) or to
comply with the terms and conditions of any exemption thereunder.
Any Conversion Shares issued upon conversion of this Note, and if
applicable, any Common Stock issued in payment of interest as herein provided,
shall, if and only to the extent required by law, bear legends in similar form
to the legends set forth on the first page of this Note.
3. Conversion of Note into Common Stock; Redemption.
The Holder of this Note is entitled, at its option, at any time
commencing on the date first written at the top of this Note, to convert all
or a portion of the original principal face amount of this Note into shares of
common stock in the Company, $.001 par value per share (defined herein as
"Common Stock"), at a conversion price (the "Conversion Price") for each share
of Common Stock equal to the lesser of (x) $.50 (the "Fixed Price"), or (y)
seventy five percent (75%) of the closing bid price for the Common Stock on
the Conversion Date (as hereinafter defined), as reported on the National
Association of Securities Dealers OTC Bulletin Board Market (or on such other
national securities exchange or market as the Common Stock may trade at such
time).
Any conversion of this Note shall be achieved by submitting to the
Company the fully completed form of conversion notice attached hereto as
Exhibit I (a "Notice of Conversion"), executed by the Holder of this Note
evidencing such Holder's intention to convert this Note or the specified
portion (as herein provided) hereof. A Notice of Conversion may be submitted
via facsimile to the Company at the telecopier number for the Company provided
in the Securities Purchase Agreement (or at such other number as requested in
advance of such conversion in writing by the Company), and if so submitted the
original Notice of Conversion shall be delivered to the Company within two (2)
business days thereafter. The Company and the Holder shall each keep records
with respect to the portion of this Note then being converted and all portions
previously converted; upon receipt by the Holder of the requisite Conversion
Shares, the outstanding principal amount of the Note shall be reduced by the
amount specified in the Notice of Conversion resulting in such Conversion
Shares. The Company may from time to time, but is not required to, instruct
the Holder and the Holder shall surrender this Note along with the Notice of
Conversion for the purposes of making a notation thereon as to the amount of
principal being converted, or of canceling this Note and issuing a new Note in
the same form with the principal amount of such Note reduced by the amount
converted. Such new or notated Note shall be delivered to the Holder within
five (5) business days after such Holder's surrender to the Company. No
fractional shares or scrip representing fractions of shares will be issued on
conversion, but the number of shares issuable shall be rounded up to the
nearest whole share. Accrued interest on the converted portion of the Note
shall be payable upon conversion thereof, in cash or Common Stock at the
Conversion Price, at the Company's option. The date on which a notice of
conversion is given (a "Conversion Date") shall be deemed to be either the
date on which the Company receives from the Holder an original Notice of
Conversion duly executed, or, if earlier, the date set forth in such Notice of
Conversion if the original Notice of Conversion is received by the Company
within two (2) business days thereafter.
In all cases, the Company shall deliver the Conversion Shares to the
Holder within three (3) business days after the Conversion Date with respect
to such Conversion Shares being delivered, and at the address specified in the
Notice of Conversion.
Subject to the provisions of Paragraph 4(b) hereof, at the Maturity
Date, the remaining portion of this Note which remains unconverted, if any,
plus accrued interest shall be automatically converted into shares of Common
Stock as of the Maturity Date, as if the Holder had converted the remaining
portion of this Note according to the provisions of this Section 3, with the
Conversion Date being equivalent in such event to the Maturity Date, as if the
Holder had provided the Company with a Notice of Conversion with respect to
the outstanding principal amount of this Note on the Maturity Date.
Notwithstanding anything herein to the contrary, the Company shall have
the unequivocal right to redeem any unconverted portion of this Note at any
time prior to the Maturity Date at a price equal to the economic benefit that
the Holder would have received by converting the portion of the Note to be
redeemed into Common Stock and selling the resulting Conversion Shares at the
highest 'best offer' price for the Common Stock (as quoted by Bloomberg, LP)
on the date the Company provides the Holder with a Redemption Notice (defined
hereafter). If there is a dispute as to the dollar amount of such economic
benefit, the Company shall provide the relevant information to its auditors,
who shall determine the economic benefit and such amount shall be deemed
conclusive if the Holder does not object thereto within five (5) business days
thereafter. For any redemption to be made pursuant to this paragraph, the
Company shall give to the Holder five (5) business days' written notice (a
"Redemption Notice") of its intention to so redeem the Note or a portion
thereof, assuming that the Holder has not faxed a Notice of Conversion with
respect to the Note (or portion thereof) sought to be redeemed (in which case
the Redemption Notice shall be null and void). Upon notice of its intention
to redeem the Note, the Company shall immediately, but in any event within
five (5) business days after notice of its intention to so redeem is
delivered, transfer the full redemption price to the Holder. Notwithstanding
anything herein to the contrary, the Company may not redeem any portion of
this Note with respect to which the Holder has delivered a Notice of
Conversion (via facsimile or otherwise) to the Company prior to the Holder's
receipt of a Redemption Notice. Should the Company not timely pay to the
Holder the full redemption amount described in this Note, then its redemption
rights as described in this paragraph shall be nullified, unless the Holder
consents otherwise in writing.
4. Conversion Restrictions. Notwithstanding anything to the contrary set
forth herein or in the Securities Purchase Agreement, in no event shall any
holder of this Note be entitled to convert this Note in excess of such portion
of the principal of the Note that, upon giving effect to such conversion,
would cause the aggregate number of shares of Common Stock beneficially owned
by such converting holder and its affiliates to exceed 4.99% of the
outstanding shares of the Common Stock following such conversion. For purposes
of this Section 4(b), beneficial ownership shall be calculated in accordance
with Section 13(d) of the Securities Exchange Act of 1934, as amended. The
limitations imposed by this Section 4(b) on conversion of this Note shall no
longer apply, and the holder of this Note may convert all or any portion of
this Note, irrespective of the resulting beneficial ownership of the Company's
Common Stock, should any of the following events occur: (I) The Company shall
either: (i) become insolvent; (ii) admit in writing its inability to pay its
debts generally or as they become due; (iii) make an assignment for the
benefit of creditors or commence proceedings for its dissolution; or (iv)
apply for, or consent to the appointment of, a trustee, liquidator, or
receiver for its or for a substantial part of its property or business; or
(II) A trustee, liquidator or receiver shall be appointed for the Company or
for a substantial part of its property or business without the Company's
consent and such appointment is not discharged within sixty (60) days after
such appointment; or (III) Any governmental agency or any court of competent
jurisdiction at the instance of any governmental agency shall assume custody
or control of the whole or any substantial portion of the properties or assets
of the Company and shall not be dismissed within sixty (60) days thereafter;
or (IV) Bankruptcy, reorganization, insolvency or liquidation proceedings or
other proceedings for relief under any bankruptcy law or any law for the
relief of debtors shall be instituted by or against the Company and, if
instituted against the Company, shall not be dismissed within sixty (60) days
after such institution or the Company shall by any action or answer approve
of, consent to, or acquiesce in any such proceedings or admit the material
allegations of, or default in answering a petition filed in, any such
proceeding.
5. Obligations of the Company Herein are Unconditional. No provision
of this Note shall alter or impair the obligation of the Company, which
obligation is absolute and unconditional, to repay the principal amount of
this Note at the time, place and rate herein stated. This Note and all other
Notes now or hereafter issued in replacement of this Note on the same or
similar terms are direct obligations of the Company. This Note ranks at least
equally with all other Notes now or hereafter issued under the terms set forth
herein. The Conversion Price and number of shares of Common Stock issuable
upon conversion shall be subject to adjustment from time to time as provided
in Section 6 below.
6. Adjustments.
(a) In the event the Company should at any time or from time to time,
after the date of this Note, fix a record date for the effectuation of a split
or subdivision of the outstanding shares of Common Stock or the determination
of holders of Common Stock entitled to receive a dividend or other
distribution payable in additional shares of Common Stock (equal to at least
ten percent (10%) or more of the Company's then issued and outstanding shares
of Common Stock) or other securities or rights convertible into, or entitling
the holder thereof to receive directly or indirectly additional shares of
Common Stock (hereinafter referred to as "Common Stock Equivalents") without
payment of any consideration by such holder for the additional shares of
Common Stock or the Common Stock Equivalents (including the additional shares
of Common Stock issuable upon conversion or exercise thereof), then, as of
such record date (or the date of such dividend, distribution, split or
subdivision if no record date is fixed), then unless the Conversion Price is
otherwise automatically adjusted in accordance with the terms of this Note,
the Conversion Price shall be appropriately decreased so that the number of
shares of Common Stock issuable on conversion of this Note shall be increased
in proportion to such increase in the aggregate number of shares of Common
Stock outstanding and those issuable with respect to such Common Stock
Equivalents.
(b) If the number of shares of Common Stock outstanding at any time
after the date of this Note is decreased by a combination of the outstanding
shares of Common Stock, then, following the record date of such combination,
the Conversion Price shall be appropriately increased so that the number of
shares of Common Stock issuable upon conversion of this Note shall be
decreased in proportion to such decrease in outstanding shares.
(c) In the event the Company, at any time while all or any portion of
this Note is outstanding, shall be consolidated with or merged into any other
corporation or corporations or shall sell or lease all or substantially all of
its property and business as an entirety, then lawful provisions shall be made
as part of the terms of such consolidation, merger, sale or lease so that the
holder of this Note may thereafter receive in lieu of such Common Stock
otherwise issuable to such holder upon conversion of this Note, but at the
conversion rate which would otherwise be in effect at the time of conversion,
as hereinbefore provided, the same kind and amount of securities or assets as
may be issuable, distributable or payable upon such consolidation, merger,
sale or lease with respect to Common Stock of the Company.
7. Reservation of Shares. The Company shall at all times reserve and
keep available out of its authorized but unissued shares of Common Stock,
solely for the purpose of effecting the conversion of this Note, such number
of its shares of Common Stock as shall from time to time be sufficient to
effect the conversion of all of the outstanding principal amount, and if at
any time the number of authorized but unissued shares of Common Stock shall
not be sufficient to effect the conversion of this Note, in addition to such
other remedies as shall be available to Holder, the Company will take such
corporate action as may, in the opinion of its counsel, be necessary to
increase the number of authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purposes, including without
limitation, using its best efforts to obtain the requisite stockholder
approval necessary to increase the number of authorized shares of the
Company's Common Stock.
8. Note Holder Not Deemed a Stockholder. No Holder, as such, of
this Note shall be entitled (prior to conversion of this Note into Common
Stock, and only then to the extent of such conversion) to vote or receive
dividends or be deemed the holder of shares of the Company for any purpose,
nor shall anything contained in this Note be construed to confer upon the
Holder hereof, as such, any of the rights of a stockholder of the Company or
any right to vote, give or withhold consent to any corporate action (whether
any reorganization, issue of stock, reclassification of stock, consolidation,
merger, conveyance or otherwise), receive notice of meetings, receive
dividends or subscription rights, or otherwise, prior to the issuance to the
holder of this Note of the Conversion Shares which he or she is then entitled
to receive upon the due conversion of all or a portion of this Note.
Notwithstanding the foregoing, the Company will provide the Holder with copies
of the same notices and other information given to the stockholders of the
Company generally, contemporaneously with the giving thereof to the
stockholders.
9. No Limitation on Corporate Action. No provisions of this Note and
no right or option granted or conferred hereunder shall in any way limit,
affect or abridge the exercise by the Company of any of its corporate rights
or powers to recapitalize, amend its Articles of Incorporation, reorganize,
consolidate or merge with or into another corporation, or to transfer all or
any part of its property or assets, or the exercise of any other of its
corporate rights and powers.
10. Representations of Holder. Upon conversion of all or a portion
of this Note, the Holder shall confirm in writing, in a form reasonably
satisfactory to the Company, that the Conversion Shares so purchased are being
acquired solely for the Holder's own account and not as a nominee for any
other party, and that such Holder is an Accredited Investor (as defined in
Rule 501(a) of Regulation D promulgated under the 1933 Act). The Company
acknowledges that Holder's duly executed certification on the Notice of
Conversion is satisfactory confirmation of the facts set forth in the
immediately preceding sentence. If such Holder cannot make such
representations because they would be factually incorrect, it shall be a
condition to such Holder's conversion of all or a portion of the Note that the
Company receive such other representations as the Company considers reasonably
necessary to assure the Company that the issuance of its securities upon
conversion of the Note shall not violate any United States or state securities
laws.
11. Waiver of Demand, Presentment, Etc. The Company hereby expressly
waives demand and presentment for payment, notice of nonpayment, protest,
notice of protest, notice of dishonor, notice of acceleration or intent to
accelerate, bringing of suit and diligence in taking any action to collect
amounts called for hereunder and shall be directly and primarily liable for
the payment of all sums owing and to be owing hereunder, regardless of and
without any notice, diligence, act or omission as or with respect to the
collection of any amount called for hereunder.
12. Attorney's Fees. The Company agrees to pay all costs and
expenses, including without limitation reasonable attorney's fees, which may
be incurred by the Holder in collecting any amount due under this Note or in
enforcing any of Holder's conversion rights as described herein, if the Holder
is required to pursue legal action to so collect or enforce its rights
described herein, and is successful in such legal action.
13. Default. If one or more of the following described "Events of
Default" shall occur:
(a) The Company shall continue in default in the payment of principal
or interest on this Note for a period of ten (10) days after a notice of
default is received by the Company with respect to any such payment, or
the Company shall not timely honor any Notice of Conversion as specified
herein and in the Securities Purchase Agreement; or
(b) Any of the representations or warranties made by the Company
herein, in the Securities Purchase Agreement, the Registration Rights
Agreement, or in any certificate or financial or other written statement
heretofore or hereafter furnished by or on behalf of the Company in
connection with the execution and delivery of this Note or the
Securities Purchase Agreement or the Registration Rights Agreement shall
be false or misleading in any material respect at the time made and the
Holder shall have provided seven (7) days prior written notice to the
Company of the alleged misrepresentation or breach of warranty and the
same shall continue uncured for a period of seven (7) days after such
written notice from the Holder; or
(c) The Company shall fail to perform or observe, in any material
respect, any other covenant, term, provision, condition, agreement or
obligation of the Company under this Note or the Securities Purchase
Agreement and such failure shall continue uncured for a period of seven
(7) days after written notice from the Holder of such failure; or
(d) The Company shall either: (i) become insolvent; (ii) admit in
writing its inability to pay its debts generally or as they become due;
(iii) make an assignment for the benefit of creditors or commence
proceedings for its dissolution; or (iv) apply for, or consent to the
appointment of, a trustee, liquidator, or receiver for its or for a
substantial part of its property or business; or
(e) A trustee, liquidator or receiver shall be appointed for the
Company or for a substantial part of its property or business without
the Company's consent and such appointment is not discharged within
sixty (60) days after such appointment; or
(f) Any governmental agency or any court of competent jurisdiction at
the instance of any governmental agency shall assume custody or control
of the whole or any substantial portion of the properties or assets of
the Company and shall not be dismissed within sixty (60) days
thereafter; or
(g) Any money judgment, writ or Note of attachment, or similar process
in excess of Five Hundred Thousand United States Dollars (US$500,000.00)
in the aggregate shall be entered or filed against the Company or any of
its properties or assets and shall remain unpaid, unvacated, unbonded or
unstayed for a period of fifteen (15) days or in any event later than
five (5) days prior to the date of any proposed sale thereunder (this
paragraph shall not include a civil action filed against the Company
that is not reduced to judgment); or
(h) Bankruptcy, reorganization, insolvency or liquidation proceedings
or other proceedings for relief under any bankruptcy law or any law for
the relief of debtors shall be instituted by or against the Company and,
if instituted against the Company, shall not be dismissed within sixty
(60) days after such institution or the Company shall by any action or
answer approve of, consent to, or acquiesce in any such proceedings or
admit the material allegations of, or default in answering a petition
filed in, any such proceeding; or
(i) The Company shall have its Common Stock delisted from the OTC
Bulletin Board Market or suspended from trading thereon, and shall not
have its Common Stock relisted on the same or another national
securities exchange (other than the National Quotation Bureau, Inc.,
"pink sheets" market), or have such suspension lifted, as the case may
be, within ninety (90) days after such delisting or suspension; or
(j) The Company shall have received a notice of default on the payment
of any debt(s) aggregating in excess of Five Hundred Thousand United
States Dollars (US$500,000.00) beyond any applicable grace period;
then, or at any time thereafter, and in any and every such case, unless such
Event of Default shall have been waived in writing by the Holder (which waiver
in one instance shall not be deemed to be a waiver in another instance or for
any other prior or subsequent Event of Default) at the option of the Holder
and in the Holder's sole discretion, the Holder may immediately accelerate the
maturity hereof, whereupon all principal and interest hereunder shall be
immediately due and payable, without presentment, demand, protest or notice of
any kind, all of which are hereby expressly waived by the Company, anything
herein or in any Note or other instrument contained to the contrary
notwithstanding, and the Holder may immediately, and upon the expiration of
any period of grace, enforce any and all of the Holder's rights and remedies
provided herein or any other rights or remedies afforded by law or equity.
14. Note a General Unsecured Obligation of the Company. This Note
represents a general unsecured obligation of the Company. No recourse shall be
had for the payment of the principal of, or the interest on, this Note, or for
any claim based thereon, or otherwise in respect hereof, against any
incorporator, shareholder, officer, director, or agent of the Company or any
successor corporation, whether by virtue of any constitution, statute or rule
of law, or by the enforcement of any assessment or penalty or otherwise, all
such liability being, by the acceptance hereof and as part of the
consideration for the issue hereof, expressly waived and released.
15. Enforceability. In case any provision of this Note is held
by a court of competent jurisdiction to be excessive in scope or otherwise
invalid or unenforceable, such provision shall be adjusted rather than voided,
if possible, so that it is enforceable to the maximum extent possible, and the
validity and enforceability of the remaining provisions of this Note will not
in any way be affected or impaired thereby.
16. Entire Agreement. This Note and Exhibit I attached hereto, the
Securities Purchase Agreement and the Exhibits attached thereto and the
Registration Rights Agreement and the Exhibits attached thereto (if any)
constitute the full and entire understanding between the Company and the
Holder with respect to the subject matter hereof and thereof. Neither this
Note nor any term hereof may be amended, waived, discharged or terminated
other than by a written instrument signed by the Company and the Holder.
17. Governing Law. This Note shall be governed by and construed in
accordance with the laws of the state of Delaware without giving effect to
applicable principles of conflict of law.
18. Headings. Headings in this Note are for convenience only, and
shall not be used in the construction of this Note.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized, all as of the date first
hereinabove written.
WIZZARD SOFTWARE CORP.
By: _________________________________________
Xx. Xxxxxxxxxxx X. Xxxxxxx, President and CEO
EXHIBIT I
NOTICE OF CONVERSION
(To Be Executed by the Registered Holder in Order to Convert the Note)
The Undersigned hereby irrevocably elects to convert $
of the Eight Percent (8%) Convertible Note Due August 31, 2011,
No. 01, into shares of Common Stock of Wizzard Software Corp. (the "Company"),
according to the terms and conditions set forth in such Note, as of the date
written below. If securities are to be issued to a person other than the
Undersigned, the Undersigned agrees to pay all applicable transfer taxes with
respect thereto.
The Undersigned represents that it, as of this date, is an "accredited
investor" as such term is defined in Rule 501(a) of Regulation D promulgated
by the SEC under the 1933 Act.
The Undersigned also represents that the Conversion Shares are being
acquired for the Holder's own account and not as a nominee for any other
party. The Undersigned represents and warrants that all offers and sales by
the Undersigned of the Conversion Shares shall be made pursuant to
registration of the same under the 1933 Act, or pursuant to an exemption from
registration under the 1933 Act. The Undersigned acknowledges that the
Conversion Shares shall if (and only if) required by law contain the legend
contained on page 1 of the Note.
Conversion Date:* _____________________
Applicable Conversion Price: ______________________________
Holder (Print True Legal Name): ______________________________________
__________________________________________________
(Signature of Duly Authorized Representative of Holder)
Address of Holder: ___________________________
____________________________
____________________________
* This original Notice of Conversion must be received by the Company by the
second business day following the Conversion Date.
EXHIBIT B
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made as
of September 14, 2001, by and between Wizzard Software Corp., a corporation
organized under the laws of the State of Colorado, U.S.A., with headquarters
located at 000 Xxxx Xxx, Xxxxxxxxxx, Xxxxxxxxxxxx 00000 (the "Company") and
Maricopa Equity Management Corp., a Minnesota corporation with headquarters
located at 0000 Xxxxx Xxxxxxxx Xxxx, Xxxxx 000, Xxxxxxxxxx, Xxxxxxxxx 00000
(the "Purchaser").
This Agreement is being entered into pursuant to that Securities
Purchase Agreement, dated as of the date hereof, by and between the Company
and the Purchaser (the "Purchase Agreement").
The Company and the Purchaser hereby agree as follows:
1. Definitions.
Capitalized terms used and not otherwise defined herein shall have
the meanings given such terms in the Purchase Agreement. As used in this
Agreement, the following terms shall have the following meanings:
"Advice" shall have the meaning set forth in Section 3(m).
"Affiliate" means, with respect to any Person, any other Person
that directly or indirectly controls or is controlled by or under common
control with such Person. For the purposes of this definition, "control,"
when used with respect to any Person, means the possession, direct or
indirect, of the power to direct or cause the direction of the management and
policies of such Person, whether through the ownership of voting securities,
by contract or otherwise; and the terms of "affiliated," "controlling" and
"controlled" have meanings correlative to the foregoing.
"Blackout Period" shall have the meaning set forth in Section
3(n).
"Board" shall have the meaning set forth in Section 3(n).
"Business Day" means any day except Saturday, Sunday and any
day
that shall be a legal holiday or a day on which banking institutions in the
state of New York generally are authorized or required by law or other
government actions to close.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Company's Common Stock, $.001 par value
per share.
"Effectiveness Date" means to the date the Registration Statement
is declared effective by the SEC, which shall be on or before March 14, 2002.
"Effectiveness Period" shall have the meaning set forth in Section
2(a).
"Event" shall have the meaning set forth in Section 7(e)(i).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Filing Date" means the date of filing of the Registration
Statement, which shall be on or before October 14, 2001.
"Holder" or "Holders" means the holder or holders, as the case
may
be, from time to time of Registrable Securities.
"Indemnified Party" shall have the meaning set forth in Section
5(c).
"Indemnifying Party" shall have the meaning set forth in Section
5(c).
"Losses" shall have the meaning set forth in Section 5(a).
"Note" or "Notes" means the Series 2001-A Eight Percent (8%)
Convertible Notes of the Company, the form of which is shown as Exhibit A to
the Purchase Agreement, issued or to be issued to the Purchaser pursuant to
the Purchase Agreement.
"OTC Bulletin Board" shall mean the over-the-counter electronic
bulletin board market or exchange.
"Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political
subdivision thereof) or other entity of any kind.
"Proceeding" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"Prospectus" means the prospectus included in the Registration
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities covered by the Registration Statement, and all other amendments and
supplements to the Prospectus, including post-effective amendments, and all
material incorporated by reference in such Prospectus.
"Registrable Securities" means (i) the shares of Common Stock
issuable upon conversion of the Note (the "Conversion Shares") or in payment
of interest in accordance with the terms of the Note ("Interest Shares"), and
upon any stock split, stock dividend, recapitalization or similar event with
respect to such Conversion Shares, Interest Shares, or any Note, (ii) the
shares of Common Stock issued upon any redemption of a Note pursuant to the
terms of the Notes and (iii) any other dividend or other distribution with
respect to, conversion or exchange of, or in replacement of, Registrable
Securities; provided, however, that Registrable Securities shall include (but
not be limited to) a number of shares of Common Stock (the "Required Number")
equal to no less than the greater of (x) 500,000, or (y) 200% of the maximum
number of shares of Common Stock which would be issuable upon conversion of
the Note, assuming such conversion occurred on the Closing Date or the Filing
Date, whichever date would result in the greater number of Registrable
Securities. Notwithstanding anything contained herein to the contrary, if the
actual number of shares of Common Stock issuable upon conversion of the Note
exceeds the Required Number, the term "Registrable Securities" shall be deemed
to include such additional shares of Common Stock as are necessary to include
all of the shares of Common Stock issuable upon conversion of the Note and in
payment of Interest (if applicable).
"Registration Statement" means the registration statements and any
additional registration statements contemplated by Section 2(a), including (in
each case) the Prospectus, amendments and supplements to such registration
statement or Prospectus, including pre- and post-effective amendments, all
exhibits thereto, and all material incorporated by reference in such
registration statement.
"Rule 144" means Rule 144 promulgated by the Commission pursuant
to the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Rule 158" means Rule 158 promulgated by the Commission pursuant
to the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Rule 415" means Rule 415 promulgated by the Commission pursuant
to the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Securities Act" means the Securities Act of 1933, as amended.
2. Registration.
(a) Required Registration. On or prior to the Filing Date the
Company shall prepare and file with the Commission a Registration Statement
covering all Registrable Securities for an offering to be made on a continuous
basis pursuant to Rule 415. The Registration Statement shall be on Form SB-2
(except if the Company is not then eligible to register for resale the
Registrable Securities on Form SB-2, in which case such registration shall be
on another appropriate form in accordance herewith). The Company shall use its
best efforts to cause the Registration Statement to be declared effective
under the Securities Act as promptly as possible after the filing thereof, but
in any event prior to the Effectiveness Date, and to keep such Registration
Statement continuously effective under the Securities Act until such date as
is the earlier of (x) the date when all Registrable Securities covered by such
Registration Statement have been sold or (y) the date on which the Registrable
Securities may be sold without any restriction pursuant to Rule 144(k) as
determined by the counsel to the Company pursuant to a written opinion letter,
addressed to the Company's transfer agent to such effect (the "Effectiveness
Period"). If an additional Registration Statement is required to be filed
because the actual number of shares of Common Stock into which the Note is
convertible exceeds the number of shares of Common Stock initially registered
in respect of the Conversion Shares and the Interest Shares based upon the
computation on the Closing Date, the Company shall have twenty (20) Business
Days to file such additional Registration Statement, and the Company shall use
its best efforts to cause such additional Registration Statement to be
declared effective by the Commission as soon as possible, but in no event
later than ninety (90) days after filing.
(b) Shelf Registration. If the Company is not on the Filing
Date eligible to file a registration statement on Form S-3, then as soon as
possible but no later than thirty (30) days after becoming eligible to file a
registration statement for a secondary or resale offering of the Registrable
Securities on Form S-3, the Company shall prepare and file with the Commission
a post-effective amendment to Form SB-2 (or such other applicable form filed
in accordance with Section 2(a) above) on Form S-3 to continue the
registration of all Registrable Securities pursuant to a "shelf" Registration
Statement on Form S-3 covering all Registrable Securities for an offering to
be made on a continuous basis pursuant to Rule 415. Notwithstanding anything
to the contrary contained herein, at no time during the Effectiveness Period
shall any of the Registrable Securities cease being registered.
3. Registration Procedures.
In connection with the Company's registration obligations
hereunder, the Company shall:
(a) Prepare and file with the Commission on or prior to the
Filing Date, a Registration Statement on Form SB-2 (or if the Company is not
then eligible to register for resale the Registrable Securities on Form SB-2
such registration shall be on another appropriate form in accordance herewith)
in accordance with the method or methods of distribution thereof as specified
by the Holder (except if otherwise directed by the Holder), and cause the
Registration Statement to become effective and remain effective as provided
herein; provided, however, that not less than five (5) Business Days prior to
the filing of the Registration Statement or any related Prospectus or any
amendment or supplement thereto (including any document that would be
incorporated therein by reference), the Company shall (i) furnish to the
Holder and its counsel, copies of all such documents proposed to be filed,
which documents (other than those incorporated by reference) will be subject
to the review of the Holder and its counsel , and (ii) at the request of the
Holder cause its officers and directors, counsel and independent certified
public accountants to respond to such inquiries as shall be necessary, in the
reasonable opinion of counsel to such Holder, to conduct a reasonable
investigation within the meaning of the Securities Act. The Company shall not
file the Registration Statement or any such Prospectus or any amendments or
supplements thereto to which the Holder or its counsel shall reasonably object
in writing within three (3) Business Days of their receipt thereof.
(b) (i) Prepare and file with the Commission such amendments,
including post-effective amendments, to the Registration Statement as may be
necessary to keep the Registration Statement continuously effective as to the
applicable Registrable Securities for the Effectiveness Period and prepare and
file with the Commission such additional Registration Statements in order to
register for resale under the Securities Act all of the Registrable
Securities; (ii) cause the related Prospectus to be amended or supplemented by
any required Prospectus supplement, and as so supplemented or amended to be
filed pursuant to Rule 424 (or any similar provisions then in force)
promulgated under the Securities Act; (iii) respond as promptly as possible to
any comments received from the Commission with respect to the Registration
Statement or any amendment thereto and as promptly as possible provide the
Holder true and complete copies of all correspondence from and to the
Commission relating to the Registration Statement; and (iv) comply in all
material respects with the provisions of the Securities Act and the Exchange
Act with respect to the disposition of all Registrable Securities covered by
the Registration Statement during the applicable period in accordance with the
intended methods of disposition by the Holder thereof set forth in the
Registration Statement as so amended or in such Prospectus as so supplemented.
(c) Notify the Holder of Registrable Securities to be sold and
its counsel as promptly as possible (and, in the case of (i)(A) below, not
less than five (5) Business Days prior to such filing) and (if requested by
any such Person) confirm such notice in writing no later than one (1) Business
Day following the day (i)(A) when a Prospectus or any Prospectus supplement or
post-effective amendment to the Registration Statement is proposed to be
filed; (B) when the Commission notifies the Company whether there will be a
"review" of such Registration Statement and whenever the Commission comments
in writing on such Registration Statement and (C) with respect to the
Registration Statement or any post-effective amendment, when the same has
become effective; (ii) of any request by the Commission or any other Federal
or state governmental authority for amendments or supplements to the
Registration Statement or Prospectus or for additional information; (iii) of
the issuance by the Commission of any stop order suspending the effectiveness
of the Registration Statement covering any or all of the Registrable
Securities or the initiation of any Proceedings for that purpose; (iv) if at
any time any of the representations and warranties of the Company contained in
any agreement contemplated hereby ceases to be true and correct in all
material respects; (v) of the receipt by the Company of any notification with
respect to the suspension of the qualification or exemption from qualification
of any of the Registrable Securities for sale in any jurisdiction, or the
initiation or threatening of any Proceeding for such purpose; and (vi) of the
occurrence of any event that makes any statement made in the Registration
Statement or Prospectus or any document incorporated or deemed to be
incorporated therein by reference untrue in any material respect or that
requires any revisions to the Registration Statement, Prospectus or other
documents so that, in the case of the Registration Statement or the
Prospectus, as the case may be, it will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
(d) Use its best efforts to avoid the issuance of, or, if
issued, obtain the withdrawal of, (i) any order suspending the effectiveness
of the Registration Statement or (ii) any suspension of the qualification (or
exemption from qualification) of any of the Registrable Securities for sale in
any jurisdiction, at the earliest practicable moment.
(e) If requested by the Holders of a majority in interest of the
Registrable Securities, (i) promptly incorporate in a Prospectus supplement or
post-effective amendment to the Registration Statement such information as the
Company reasonably agrees should be included therein and (ii) make all
required filings of such Prospectus supplement or such post-effective
amendment as soon as practicable after the Company has received notification
of the matters to be incorporated in such Prospectus supplement or post-
effective amendment.
(f) Furnish to the Holder and its counsel, without charge, at
least one conformed copy of each Registration Statement and each amendment
thereto, including financial statements and schedules, all documents
incorporated or deemed to be incorporated therein by reference, and all
exhibits to the extent requested by such Person (including those previously
furnished or incorporated by reference) promptly after the filing of such
documents with the Commission.
(g) Promptly deliver to the Holder and its counsel, without
charge, as many copies of the Prospectus or Prospectuses (including each form
of prospectus) and each amendment or supplement thereto as such Persons may
reasonably request; and the Company hereby consents to the use of such
Prospectus and each amendment or supplement thereto by each of the selling
Holders in connection with the offering and sale of the Registrable Securities
covered by such Prospectus and any amendment or supplement thereto.
(h) Prior to any public offering of Registrable Securities, use
its best efforts to register or qualify or cooperate with the selling Holders
and its counsel in connection with the registration or qualification (or
exemption from such registration or qualification) of such Registrable
Securities for offer and sale under the securities or Blue Sky laws of such
jurisdictions within the United States as any Holder reasonably requests in
writing, to keep each such registration or qualification (or exemption
therefrom) effective during the Effectiveness Period and to do any and all
other acts or things necessary or advisable to enable the disposition in such
jurisdictions of the Registrable Securities covered by a Registration
Statement; provided, however, that the Company shall not be required to
qualify generally to do business in any jurisdiction where it is not then so
qualified or to take any action that would subject it to general service of
process in any such jurisdiction where it is not then so subject or subject
the Company to any material tax in any such jurisdiction where it is not then
so subject.
(i) Cooperate with the Holder to facilitate the timely
preparation and delivery of certificates representing Registrable Securities
to be sold pursuant to a Registration Statement, which certificates shall be
free of all restrictive legends, and to enable such Registrable Securities to
be in such denominations and registered in such names as any Holder may
request at least two (2) Business Days prior to any sale of Registrable
Securities.
(j) Upon the occurrence of any event contemplated by Section
3(c)(vi), as promptly as possible, prepare a supplement or amendment,
including a post-effective amendment, to the Registration Statement or a
supplement to the related Prospectus or any document incorporated or deemed to
be incorporated therein by reference, and file any other required document so
that, as thereafter delivered, neither the Registration Statement nor such
Prospectus will contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
(k) Use its best efforts to cause all Registrable Securities
relating to such Registration Statement to be listed on the OTC Bulletin Board
and any other securities exchange, quotation system, market or
over-the-counter bulletin board, if any, on which similar securities issued by
the Company are then listed as and when required pursuant to the Purchase
Agreement.
(l) Comply in all material respects with all applicable rules
and regulations of the Commission and make generally available to its security
holders earning statements satisfying the provisions of Section 11(a) of the
Securities Act and Rule 158 not later than 45 days after the end of any 12-
month period (or 90 days after the end of any 12-month period if such period
is a fiscal year) commencing on the first day of the first fiscal quarter of
the Company after the effective date of the Registration Statement, which
statement shall conform to the requirements of Rule 158.
(m) Require each selling Holder to furnish to the Company
information regarding such Holder and the distribution of such Registrable
Securities as is required by law to be disclosed in the Registration
Statement, and the Company may exclude from such registration the Registrable
Securities of any such Holder who fails to furnish such information within a
reasonable time prior to the filing of each Registration Statement,
supplemented Prospectus and/or amended Registration Statement.
If the Registration Statement refers to any Holder by name or
otherwise as the holder of any securities of the Company, then such Holder
shall have the right to require (if such reference to such Holder by name or
otherwise is not required by the Securities Act or any similar federal statute
then in force) the deletion of the reference to such Holder in any amendment
or supplement to the Registration Statement filed or prepared subsequent to
the time that such reference ceases to be required.
Each Holder covenants and agrees that (i) it will not sell any
Registrable Securities under the Registration Statement until it has received
copies of the Prospectus as then amended or supplemented as contemplated in
Section 3(g) and notice from the Company that such Registration Statement and
any post-effective amendments thereto have become effective as contemplated by
Section 3(c) and (ii) it and its officers, directors or Affiliates, if any,
will comply with the prospectus delivery requirements of the Securities Act as
applicable to them in connection with sales of Registrable Securities pursuant
to the Registration Statement.
Each Holder agrees by its acquisition of such Registrable
Securities that, upon receipt of a notice from the Company of the occurrence
of any event of the kind described in Section 3(c)(ii), 3(c)(iii), 3(c)(iv),
3(c)(v) or 3(c)(vi), such Holder will forthwith discontinue disposition of
such Registrable Securities under the Registration Statement until such
Holder's receipt of the copies of the supplemented Prospectus and/or amended
Registration Statement contemplated by Section 3(j), or until it is advised in
writing (the "Advice") by the Company that the use of the applicable
Prospectus may be resumed, and, in either case, has received copies of any
additional or supplemental filings that are incorporated or deemed to be
incorporated by reference in such Prospectus or Registration Statement.
(n) If (i) there is material non-public information regarding
the Company which the Company's Board of Directors (the "Board") reasonably
determines not to be in the Company's best interest to disclose and which the
Company is not otherwise required to disclose, or (ii) there is a significant
business opportunity (including, but not limited to, the acquisition or
disposition of assets (other than in the ordinary course of business) or any
merger, consolidation, tender offer or other similar transaction) available to
the Company which the Board reasonably determines not to be in the Company's
best interest to disclose and which the Company would be required to disclose
under the Registration Statement, then the Company may postpone or suspend
filing or effectiveness of a registration statement for a period not to exceed
20 consecutive days, provided that the Company may not postpone or suspend its
obligation under this Section 3(n) for more than 45 days in the aggregate
during any 12 month period (each, a "Blackout Period"); provided, however,
that no such postponement or suspension shall be permitted for consecutive 20
day periods, arising out of the same set of facts, circumstances or
transactions.
4. Registration Expenses
All fees and expenses incident to the performance of or compliance
with this Agreement by the Company shall be borne by the Company whether or
not the Registration Statement is filed or becomes effective and whether or
not any Registrable Securities are sold pursuant to the Registration
Statement. The fees and expenses referred to in the foregoing sentence shall
include, without limitation, (i) all registration and filing fees (including,
without limitation, fees and expenses (A) with respect to filings required to
be made with the OTC Bulletin Board and each other securities exchange or
market on which Registrable Securities are required hereunder to be listed,
(B) with respect to filings required to be made with the Commission, (C) with
respect to filings required to be made under the OTC Bulletin Board and (D) in
compliance with state securities or Blue Sky laws (including, without
limitation, fees and disbursements of counsel for the Holder in connection
with Blue Sky qualifications of the Registrable Securities and determination
of the eligibility of the Registrable Securities for investment under the laws
of such jurisdictions as the Holders of a majority of Registrable Securities
may designate)), (ii) printing expenses (including, without limitation,
expenses of printing certificates for Registrable Securities and of printing
prospectuses if the printing of prospectuses is requested by the holders of a
majority of the Registrable Securities included in the Registration
Statement), (iii) the messenger, telephone and delivery expenses of the
Company, (iv) fees and disbursements of counsel for the Company, (v)
Securities Act liability insurance, if the Company so desires such insurance,
and (vi) fees and expenses of all other Persons retained by the Company in
connection with the consummation of the transactions contemplated by this
Agreement, including, without limitation, the Company's independent public
accountants (including the expenses of any comfort letters or costs associated
with the delivery by independent public accountants of a comfort letter or
comfort letters). In addition, the Company shall be responsible for all of
its internal expenses incurred in connection with the consummation of the
transactions contemplated by this Agreement (including, without limitation,
all salaries and expenses of its officers and employees performing legal or
accounting duties), the expense of any annual audit, the fees and expenses
incurred in connection with the listing of the Registrable Securities on any
securities exchange as required hereunder.
5. Indemnification
(a) Indemnification by the Company. The Company shall,
notwithstanding any termination of this Agreement, indemnify and hold harmless
each Holder, the officers, directors, agents, and employees of each of them,
each Person who controls any such Holder (within the meaning of Section 15 of
the Securities Act or Section 20 of the Exchange Act) and the officers,
directors, agents and employees of each such controlling Person, to the
fullest extent permitted by applicable law, from and against any and all
losses, claims, damages, liabilities, costs (including, without limitation,
costs of preparation and attorneys' fees) and expenses (collectively,
"Losses"), as incurred, arising out of or relating to any untrue or alleged
untrue statement of a material fact contained in the Registration Statement,
any Prospectus or any form of prospectus or in any amendment or supplement
thereto or in any preliminary prospectus, or arising out of or relating to any
omission or alleged omission of a material fact required to be stated therein
or necessary to make the statements therein (in the case of any Prospectus or
form of prospectus or supplement thereto, in the light of the circumstances
under which they were made) not misleading, except to the extent, but only to
the extent, that such untrue statements or omissions are based upon
information regarding such Holder furnished in writing to the Company by such
Holder expressly for use therein, which information was reasonably relied on
by the Company for use therein or to the extent that such information relates
to such Holder or such Holder's proposed method of distribution of Registrable
Securities and was reviewed and expressly approved in writing by such Holder
expressly for use in the Registration Statement, such Prospectus or such form
of Prospectus or in any amendment or supplement thereto. The Company shall
notify the Holder promptly of the institution, threat or assertion of any
Proceeding of which the Company is aware in connection with the transactions
contemplated by this Agreement. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of an Indemnified
Party and shall survive the transfer of the Registrable Securities by the
Holder.
(b) Indemnification by Holder. The Holders shall,
notwithstanding any termination of this Agreement, severally and not jointly,
indemnify and hold harmless the Company, the directors, officers, agents and
employees, each Person who controls the Company (within the meaning of Section
15 of the Securities Act and Section 20 of the Exchange Act), and the
directors, officers, agents or employees of such controlling Persons, to the
fullest extent permitted by applicable law, from and against all Losses, as
incurred, arising out of or based upon any untrue statement of a material fact
contained in the Registration Statement, any Prospectus, or any form of
prospectus, or arising solely out of or based solely upon any omission of a
material fact required to be stated therein or necessary to make the
statements therein (in the case of any Prospectus or form of prospectus or
supplement thereto, in the light of the circumstances under which they were
made) not misleading, to the extent, but only to the extent, that such untrue
statement or omission is contained in or omitted from any information so
furnished in writing by such Holder to the Company specifically for inclusion
in the Registration Statement or such Prospectus and that such information was
reasonably relied upon by the Company for use in the Registration Statement,
such Prospectus or such form of prospectus or to the extent that such
information relates to such Holder or such Holder's proposed method of
distribution of Registrable Securities and was reviewed and expressly approved
in writing by such Holder expressly for use in the Registration Statement,
such Prospectus or such form of Prospectus Supplement.
(c) Conduct of Indemnification Proceedings. If any Proceeding
shall be brought or asserted against any Person entitled to indemnity
hereunder (an "Indemnified Party"), such Indemnified Party promptly shall
notify the Person from whom indemnity is sought (the "Indemnifying Party) in
writing, and the Indemnifying Party shall assume the defense thereof,
including the employment of counsel reasonably satisfactory to the Indemnified
Party and the payment of all fees and expenses incurred in connection with
defense thereof; provided, that the failure of any Indemnified Party to give
such notice shall not relieve the Indemnifying Party of its obligations or
liabilities pursuant to this Agreement, except (and only) to the extent that
it shall be finally determined by a court of competent jurisdiction (which
determination is not subject to appeal or further review) that such failure
shall have proximately and materially adversely prejudiced the Indemnifying
Party.
An Indemnified Party shall have the right to employ separate
counsel in any such Proceeding and to participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of such
Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed in
writing to pay such fees and expenses; or (2) the Indemnifying Party shall
have failed promptly to assume the defense of such Proceeding and to employ
counsel reasonably satisfactory to such Indemnified Party in any such
Proceeding; or (3) the named parties to any such Proceeding (including any
impleaded parties) include both such Indemnified Party and the Indemnifying
Party, and such Indemnified Party shall have been advised by counsel that a
conflict of interest is likely to exist if the same counsel were to represent
such Indemnified Party and the Indemnifying Party (in which case, if such
Indemnified Party notifies the Indemnifying Party in writing that it elects to
employ separate counsel at the expense of the Indemnifying Party, the
Indemnifying Party shall not have the right to assume the defense thereof and
such counsel shall be at the expense of the Indemnifying Party). The
Indemnifying Party shall not be liable for any settlement of any such
Proceeding effected without its written consent, which consent shall not be
unreasonably withheld. No Indemnifying Party shall, without the prior written
consent of the Indemnified Party, effect any settlement of any pending
Proceeding in respect of which any Indemnified Party is a party, unless such
settlement includes an unconditional release of such Indemnified Party from
all liability on claims that are the subject matter of such Proceeding.
All fees and expenses of the Indemnified Party (including
reasonable fees and expenses to the extent incurred in connection with
investigating or preparing to defend such Proceeding in a manner not
inconsistent with this Section) shall be paid to the Indemnified Party, as
incurred, within ten (10) Business Days of written notice thereof to the
Indemnifying Party (regardless of whether it is ultimately determined that an
Indemnified Party is not entitled to indemnification hereunder; provided, that
the Indemnifying Party may require such Indemnified Party to undertake to
reimburse all such fees and expenses to the extent it is finally judicially
determined that such Indemnified Party is not entitled to indemnification
hereunder).
(d) Contribution. If a claim for indemnification under Section
5(a) or 5(b) is unavailable to an Indemnified Party because of a failure or
refusal of a governmental authority to enforce such indemnification in
accordance with its terms (by reason of public policy or otherwise), then each
Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such Losses, in such proportion as is appropriate to reflect the relative
fault of the Indemnifying Party and Indemnified Party in connection with the
actions, statements or omissions that resulted in such Losses as well as any
other relevant equitable considerations. The relative fault of such
Indemnifying Party and Indemnified Party shall be determined by reference to,
among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission of
a material fact, has been taken or made by, or relates to information supplied
by, such Indemnifying Party or Indemnified Party, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such action, statement or omission. The amount paid or payable by a party as
a result of any Losses shall be deemed to include, subject to the limitations
set forth in Section 5(c), any reasonable attorneys' or other reasonable fees
or expenses incurred by such party in connection with any Proceeding to the
extent such party would have been indemnified for such fees or expenses if the
indemnification provided for in this Section was available to such party in
accordance with its terms.
The parties hereto agree that it would not be just and
equitable
if contribution pursuant to this Section 5(d) were determined by pro rata
allocation or by any other method of allocation that does not take into
account the equitable considerations referred to in the immediately preceding
paragraph. No Person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.
The indemnity and contribution agreements contained in this
Section are in addition to any liability that the Indemnifying Parties may
have to the Indemnified Parties
6. Rule 144.
As long as any Holder owns Notes, Interest Shares or Conversion
Shares, the Company covenants to timely file (or obtain extensions in respect
thereof and file within the applicable grace period) all reports required to
be filed by the Company after the date hereof pursuant to Section 13(a) or
15(d) of the Exchange Act and to promptly furnish the Holder with true and
complete copies of all such filings. As long as any Holder owns Notes,
Interest Shares or Conversion Shares, if the Company is not required to file
reports pursuant to Section 13(a) or 15(d) of the Exchange Act, it will
prepare and furnish to the Holder and make publicly available in accordance
with Rule 144(c) promulgated under the Securities Act annual and quarterly
financial statements, together with a discussion and analysis of such
financial statements in form and substance substantially similar to those that
would otherwise be required to be included in reports required by Section
13(a) or 15(d) of the Exchange Act, as well as any other information required
thereby, in the time period that such filings would have been required to have
been made under the Exchange Act. The Company further covenants that it will
take such further action as any Holder may reasonably request, all to the
extent required from time to time to enable such Person to sell Interest
Shares or Conversion Shares without registration under the Securities Act
within the limitation of the exemptions provided by Rule 144 promulgated under
the Securities Act, including providing any legal opinions of counsel to the
Company referred to in the Purchase Agreement. Upon the request of any
Holder, the Company shall deliver to such Holder a written certification of a
duly authorized officer as to whether it has complied with such requirements.
7. Miscellaneous.
(a) Remedies. In the event of a breach by the Company or by a
Holder, of any of their obligations under this Agreement, each Holder or the
Company, as the case may be, in addition to being entitled to exercise all
rights granted by law and under this Agreement, including recovery of damages,
will be entitled to specific performance of its rights under this Agreement.
The Company and each Holder agree that monetary damages would not
provideadequate compensation for any losses incurred by reason of a breach by
it of
any of the provisions of this Agreement and hereby further agrees that, in the
event of any action for specific performance in respect of such breach, it
shall waive the defense that a remedy at law would be adequate.
(b) No Inconsistent Agreements. Neither the Company nor any of
its subsidiaries has, as of the date hereof entered into and currently in
effect, nor shall the Company or any of its subsidiaries, on or after the date
of this Agreement, enter into any agreement with respect to its securities
that is inconsistent with the rights granted to the Holder in this Agreement
or otherwise conflicts with the provisions hereof except for registration
rights provisions disclosed in the Company's Disclosure Schedule to the
Purchase Agreement. Except for registration rights provisions disclosed in
the Company's Disclosure Schedule to the Purchase Agreement, neither the
Company nor any of its subsidiaries has previously entered into any agreement
currently in effect granting any registration rights with respect to any of
its securities to any Person.
(c) [Intentionally Omitted.]
(d) Piggy-Back Registrations. If at any time when there is not
an effective Registration Statement covering all necessary Conversion Shares
and Interest Shares, the Company shall determine to prepare and file with the
Commission a registration statement relating to an offering for its own
account or the account of others under the Securities Act of any of its equity
securities, other than on Form S-4 or Form S-8 (each as promulgated under the
Securities Act) or its then equivalents relating to equity securities to be
issued solely in connection with any acquisition of any entity or business or
equity securities issuable in connection with stock option or other employee
benefit plans, the Company shall send to each holder of Registrable Securities
written notice of such determination and, if within thirty (30) days after
receipt of such notice, any such holder shall so request in writing (which
request shall specify the Registrable Securities intended to be disposed of by
the Purchaser), the Company will cause the registration under the Securities
Act of all Registrable Securities which the Company has been so requested to
register by the holder, to the extent requisite to permit the disposition of
the Registrable Securities so to be registered, provided that if at any time
after giving written notice of its intention to register any securities and
prior to the effective date of the registration statement filed in connection
with such registration, the Company shall determine for any reason not to
register or to delay registration of such securities, the Company may, at its
election, give written notice of such determination to such holder and,
thereupon, (i) in the case of a determination not to register, shall be
relieved of its obligation to register any Registrable Securities in
connection with such registration (but not from its obligation to pay expenses
in accordance with Section 4 hereof), and (ii) in the case of a determination
to delay registering, shall be permitted to delay registering any Registrable
Securities being registered pursuant to this Section 7(d) for the same period
as the delay in registering such other securities. The Company shall include
in such registration statement all or any part of such Registrable Securities
such holder requests to be registered; provided, however, that the Company
shall not be required to register any Registrable Securities pursuant to this
Section 7(d) that are eligible for sale pursuant to Rule 144(k) of the
Securities Act. In the case of an underwritten public offering, if the
managing underwriter(s) or underwriter(s) should reasonably object to the
inclusion of the Registrable Securities in such registration statement, then
if the Company after consultation with the managing underwriter should
reasonably determine that the inclusion of such Registrable Securities, would
materially adversely affect the offering contemplated in such registration
statement, and based on such determination recommends inclusion in such
registration statement of fewer or none of the Registrable Securities of the
Holder, then (x) the number of Registrable Securities of the Holders included
in such registration statement shall be reduced pro-rata among such
Holders(based upon the number of Registrable Securities requested to be
included in the registration), if the Company after consultation with the
underwriter(s) recommends the inclusion of fewer Registrable Securities, or
(y) none of the Registrable Securities of the Holder shall be included in such
registration statement, if the Company after consultation with the
underwriter(s) recommends the inclusion of none of such Registrable
Securities; provided, however, that if securities are being offered for the
account of other persons or entities as well as the Company, such reduction
shall not represent a greater fraction of the number of Registrable Securities
intended to be offered by the Holder than the fraction of similar reductions
imposed on such other persons or entities (other than the Company).
(e) Failure to File Registration Statement and Other Events.
The Company and the Purchaser agree that the Holder will suffer damages if the
Registration Statement is not filed on or prior to the Filing Date and not
declared effective by the Commission on or prior to the Effectiveness Date and
maintained in the manner contemplated herein during the Effectiveness Period
or if certain other events occur. The Company and the Holder further agree
that it would not be feasible to ascertain the extent of such damages with
precision. Accordingly, if (i) the Registration Statement is not filed on or
prior to the Filing Date, or is not declared effective by the Commission on or
prior to the Effectiveness Date (or in the event an additional Registration
Statement is filed because the actual number of shares of Common Stock into
which the Note is convertible exceeds the number of shares of Common Stock
initially registered is not filed and declared effective within the time
periods set forth in Section 2(a)), or (ii) the Company fails to file with the
Commission a request for acceleration in accordance with Rule 12dl-2
promulgated under the Exchange Act within five (5) Business Days of the date
that the Company is notified (orally or in writing, whichever is earlier) by
the Commission that a Registration Statement will not be "reviewed," or not
subject to further review, or (iii) the Registration Statement is filed with
and declared effective by the Commission but thereafter ceases to be effective
as to all Registrable Securities at any time prior to the expiration of the
Effectiveness Period, without being succeeded immediately by a subsequent
Registration Statement filed with and declared effective by the Commission, or
(iv) trading in the Common Stock shall be suspended or if the Common Stock is
delisted from the OTC Bulletin Board for any reason for more than ninety (90)
days in the aggregate, or (v) the conversion rights of the Holder are
suspended for any reason, including by the Company, or (vi) the Company
breaches in a material respect any covenant or other material term or
condition to this Agreement, the Notes, the Purchase Agreement (other than a
representation or warranty contained therein) or any other agreement,
document, certificate or other instrument delivered in connection with the
transactions contemplated hereby and thereby, and such breach continues for a
period of thirty (30) days after written notice thereof to the Company, or
(vii) the Company has breached Section 3(n) of this Agreement (any such
failure or breach being referred to as an "Event"), the Company shall pay in
cash as liquidated damages for such failure and not as a penalty to the Holder
an amount equal to 3% of the Purchase Price paid by the Holder for all Notes
(or Common Stock held by the Holder upon conversion or exercise thereof)
purchased and then outstanding pursuant to the Purchase Agreement for the
first thirty (30) day period, and 4% for each additional thirty (30) day
period until the applicable Event has been cured, which shall be pro rated for
such periods less than thirty (30) days (the "Periodic Amount"). Payments to
be made pursuant to this Section 7(e) shall be due and payable immediately
upon demand in immediately available funds. The parties agree that the
Periodic Amount represents a reasonable estimate on the part of the parties,
as of the date of this Agreement, of the amount of damages that may be
incurred by the Holder if the Registration Statement is not filed on or prior
to the Filing Date or has not been declared effective by the Commission on or
prior to the Effectiveness Date and maintained in the manner contemplated
herein during the Effectiveness Period or if any other Event as described
herein has occurred.
(f) Specific Enforcement, Consent to Jurisdiction.
(i) The Company and the Purchaser acknowledge and agree
that irreparable damage would occur in the event that any of the provisions of
this Registration Rights Agreement or the Purchase Agreement were not
performed in accordance with their specific terms or were otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction
or injunctions to prevent or cure breaches of the provisions of this
Registration Rights Agreement or the Purchase Agreement and to enforce
specifically the terms and provisions hereof or thereof, this being in
addition to any other remedy to which any of them may be entitled by law or
equity.
(ii) Each of the Company and the Purchaser (i) hereby
irrevocably submits to the jurisdiction of the United States District Court
sitting in Minneapolis, Minnesota for the purposes of any suit, action or
proceeding arising out of or relating to this Agreement or the Purchase
Agreement and (ii) hereby waives, and agrees not to assert in any such suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of such court, that the suit, action or proceeding is brought in
an inconvenient forum or that the venue of the suit, action or proceeding is
improper. Each of the Company and the Purchaser consents to process being
served in any such suit, action or proceeding by mailing a copy thereof to
such party at the address in effect for notices to it under this Agreement and
agrees that such service shall constitute good and sufficient service of
process and notice thereof. Nothing in this Section 7(f) shall affect or
limit any right to serve process in any other manner permitted by law.
(g) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the same shall be in writing and signed by the
Company and the Holder. Notwithstanding the foregoing, a waiver or consent to
depart from the provisions hereof with respect to a matter that relates
exclusively to the rights of Holder and that does not directly or indirectly
affect the rights of other Holders may be given by Holders of at least a
majority of the Registrable Securities to which such waiver or consent
relates; provided, however, that the provisions of this sentence may not be
amended, modified, or supplemented except in accordance with the provisions of
the immediately preceding sentence.
(h) Notices. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earlier of (i) the date of
transmission, if such notice or communication is delivered via facsimile at
the facsimile telephone number specified for notice prior to 5:00 p.m.,
central standard time, on a Business Day, (ii) the Business Day after the date
of transmission, if such notice or communication is delivered via facsimile at
the facsimile telephone number specified for notice later than 5:00 p.m.,
central standard time, on any date and earlier than 11:59 p.m., central time,
on such date, (iii) the Business Day following the date of mailing, if sent by
nationally recognized overnight courier service or (iv) actual receipt by the
party to whom such notice is required to be given. The addresses for such
communications shall be with respect to each party at such party's address as
set forth in the Purchase Agreement, or to such other address or addresses or
facsimile number or numbers as any such party may most recently have
designated in writing to the other parties hereto by such notice.
(i) Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties and their successors and
permitted assigns and shall inure to the benefit of the Holder and its
successors and assigns. Neither party may assign this Agreement or any of its
rights or obligations hereunder without the prior written consent of the
other, except that the Holder may without such consent assign its rights to an
affiliate, so long as such affiliate agrees to be bound by the terms hereof.
(j) Assignment of Registration Rights. The rights of each
Holder hereunder, including the right to have the Company register for resale
Registrable Securities in accordance with the terms of this Agreement, shall
be automatically assignable by each Holder to any transferee of such Holder of
all or a portion of the Notes or the Registrable Securities if: (i) the
Holder agrees in writing with the transferee or assignee to assign such
rights, and a copy of such agreement is furnished to the Company within a
reasonable time after such assignment, (ii) the Company is, within a
reasonable time after such transfer or assignment, furnished with written
notice of (a) the name and address of such transferee or assignee, and (b) the
securities with respect to which such registration rights are being
transferred or assigned, (iii) following such transfer or assignment the
further disposition of such securities by the transferee or assignees is
restricted under the Securities Act and applicable state securities laws, (iv)
at or before the time the Company receives the written notice contemplated by
clause (ii) of this Section, the transferee or assignee agrees in writing with
the Company to be bound by all of the provisions of this Agreement, and (v)
such transfer shall have been made in accordance with the applicable
requirements of the Purchase Agreement. In addition, each Holder shall have
the right to assign its rights hereunder to any other Person with the prior
written consent of the Company, which consent shall not be unreasonably
withheld. The rights to assignment shall apply to the Holders (and to
subsequent) successors and assigns. Nothing herein shall operate to require
the Company to undertake additional "blue sky" requirements hereunder, though
if requested by the Holder the Company will promptly undertake the same at the
Holder's expense.
(k) Counterparts. This Agreement may be executed in any number
of counterparts, each of which when so executed shall be deemed to be an
original and, all of which taken together shall constitute one and the same
Agreement. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid binding obligation of the
party executing (or on whose behalf such signature is executed) the same with
the same force and effect as if such facsimile signature were the original
thereof.
(l) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without regard
to principles of conflicts of law thereof.
(m) Cumulative Remedies. The remedies provided herein are
cumulative and not exclusive of any remedies provided by law.
(n) Severability. If any term, provision, covenant or
restriction of this Agreement is held to be invalid, illegal, void or
unenforceable in any respect, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the
parties hereto shall use their reasonable efforts to find and employ an
alternative means to achieve the same or substantially the same result as that
contemplated by such term, provision, covenant or restriction. It is hereby
stipulated and declared to be the intention of the parties that they would
have executed the remaining terms, provisions, covenants and restrictions
without including any of such that may be hereafter declared invalid, illegal,
void or unenforceable.
(o) Headings. The headings herein are for convenience only, do
not constitute a part of this Agreement and shall not be deemed to limit or
affect any of the provisions hereof.
(p) Shares Held by the Company and its Affiliates. Whenever the
consent or approval of Holders of a specified percentage of Registrable
Securities is required hereunder, Registrable Securities held by the Company
or its Affiliates (other than any Holder or transferees or successors or
assigns thereof if such Holder is deemed to be an Affiliate solely by reason
of its holdings of such Registrable Securities) shall not be counted in
determining whether such consent or approval was given by the Holders of such
required percentage and shall not be counted as outstanding.
(q) Notice of Effectiveness. Within two (2) business days after
the Registration Statement which includes the Registrable Securities is
ordered effective by the Commission, the Company shall deliver, and shall
cause legal counsel for the Company to deliver, to the transfer agent for such
Registrable Securities and to the Purchaser (with copies to the Holders whose
Registrable Securities are included in such Registration Statement, if other
than the Purchaser) confirmation that the Registration Statement has been
declared effective by the Commission in the form attached hereto as Exhibit A.
IN WITNESS WHEREOF, the parties hereto have caused this Registration
Rights Agreement to be duly executed by their respective authorized persons as
of the date first indicated above. [SIGNATURE PAGE FOLLOWS]
[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT DATED AS OF SEPTEMBER 14,
2001]
WIZZARD SOFTWARE CORP.
By:_____________________________________
Xxxxxxxxxxx X. Xxxxxxx, President and CEO
MARICOPA EQUITY MANAGEMENT CORP.
By:__________________________________________
(Duly Authorized Corporate Executive)
EXHIBIT A
FORM OF NOTICE OF EFFECTIVENESS OF REGISTRATION STATEMENT
[NAME AND ADDRESS OF TRANSFER AGENT]
Attn: _____________
Maricopa Equity Management Corp.
0000 Xxxxx Xxxxxxxx Xxxx, Xxxxx 000
Xxxxxxxxxx, Xxxxxxxxx 00000
Attention: Mr. Xxxx Xxxxxxx
Re: Wizzard Software Corp.
Ladies and Gentlemen:
We are counsel to Wizzard Software Corp., a Colorado corporation (the
"Company"), and have represented the Company in connection with that certain
Securities Purchase Agreement (the "Purchase Agreement"), dated as of
September 14, 2001, by and among the Company and Maricopa Equity Management
Corp. (the "Holder") pursuant to which the Company issued to the Holder its
Series 2001-A Eight Percent (8%) Convertible Notes (the "Notes") convertible
into shares of the Company's common stock, $.001 par value per share (the
"Common Stock"). Pursuant to the Purchase Agreement, the Company has also
entered into a Registration Rights Agreement with the Holder (the
"Registration Rights Agreement"), dated of even date with the Purchase
Agreement, pursuant to which the Company agreed, among other things, to
register the Registrable Securities (as defined in the Registration Rights
Agreement), including the shares of Common Stock issuable upon conversion of
the Notes, under the Securities Act of 1933, as amended (the "1933 Act"). In
connection with the Company's obligations under the Registration Rights
Agreement, on ______, 2001, the Company filed a Registration Statement on Form
___ (File No. ) (the "Registration Statement") with the
Securities and Exchange Commission (the "SEC") relating to the resale of the
Registrable Securities which names the Holder as a selling stockholder
thereunder.
In connection with the foregoing, we advise you that a member of the
SEC's staff has advised us by telephone that the SEC has entered an order
declaring the Registration Statement effective under the 1933 Act at [ENTER
TIME OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no
knowledge, after telephonic inquiry of a member of the SEC's staff, that any
stop order suspending its effectiveness has been issued or that any
proceedings for that purpose are pending before, or threatened by, the SEC and
the Registrable Securities are available for resale under the 1933 Act
pursuant to the Registration Statement.
Very truly yours,
[COMPANY COUNSEL]
By:
EXHIBIT C
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (this "Agreement") is made as of September 1114,
2001, by and among Wizzard Software Corp., a corporation organized under the
laws of the State of Colorado, U.S.A. (the "Company"), the buyer set forth on
the execution page hereof (the "Buyer") and H. Xxxxx Xxxxxxx, Xx., a duly
licensed attorney who practices law in the State of North Carolina, U.S.A., as
Escrow Agent (the "Escrow Agent").
Capitalized terms used herein and not otherwise defined herein shall
have the meanings set forth in that Securities Purchase Agreement between the
Company and the Buyer dated of even date herewith (the "Securities Purchase
Agreement").
W I T N E S S E T H:
WHEREAS, the Buyer and the Company have entered into the Securities
Purchase Agreement, pursuant to which the Company has agreed to sell, and the
Buyer has agreed to purchase, at the Closing, the Notes (collectively, the
"Securities"); and
WHEREAS, the Buyer and the Company have agreed to effectuate the Closing
utilizing an escrow arrangement as described in this Agreement; and
WHEREAS, it is a condition of the Company's obligation to sell, and the
Buyer's obli-gation to purchase, the Securities, that this Agreement be
executed and delivered; and
WHEREAS, the Escrow Agent is willing to act hereunder on the terms and
conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants and obligations
set forth below, the parties hereto hereby agree as follows:
1. ESCROW ACCOUNT.
1.1 Deposit. On the Closing Date, by wire transfer of immediately
available funds in United States Dollars, Buyer shall deposit the full
Purchase Price (the "Escrow") with the Escrow Agent, to be held by the Escrow
Agent in a separate non-interest bearing account (the "Escrow Account"),
established at Wachovia Bank, N.A., (the "Bank"), subject to the terms and
provisions contained herein. At the request of the Company the Escrow Agent
shall provide the Company with all Bank statements, notices and other writings
that it receives from the Bank in connection with the Escrow Account.
2. DISBURSEMENT OF ESCROW/SECURITIES; ESCROW OF COMMON STOCK.
2.1 Disbursement. At the Closing, upon receipt by the Escrow
Agent of all of the moneys, documents, and things from the respective parties
with respect to such Closing as described in the Securities Purchase Agreement
and as further described in Sections 2.1(a) and 2.1(b) below, the Escrow Agent
shall deliver to each party via facsimile the documents and things (or if
requested by the parties, only the signature pages thereto) to have been
delivered by the other party in accordance with the Securities Purchase
Agreement and this Agreement. The Escrow Agent shall transfer, by the next
business day following the Closing, by wire transfer to the Company the full
Escrow then held, less any charges and fees agreed to be paid by the Company,
including (without limitation) the fees owed by the Company to Corporate
Capital Management, LLC. The Escrow Agent shall, upon receipt thereof, deliver
(via courier delivery service) to the Company originals of all other documents
and things listed in Section 2.1(b) below. The Escrow Agent shall, upon
receipt thereof, deliver (via courier delivery service) originals of all of
the documents and things listed in Section 2.1(a) below to the Buyer at the
address provided in writing by the Buyer to the Escrow Agent.
The Closing may take place via facsimile. This shall be accomplished in
the following manner. Each party shall deliver via facsimile to the Escrow
Agent, at the telecopier number provided on the signature page to this
Agreement, the first page and the fully executed signature page to each of the
documents and things to be executed by such party at the Closing. If stock
certificates or Notes are to be delivered, each such certificate or document
shall be delivered via overnight courier to the Escrow Agent. Upon receipt of
the requisite documents and things via facsimile or otherwise from each party,
the Escrow Agent shall in turn send to each party the documents and things
received from the other party. Thereafter, upon receipt by the Escrow Agent of
the Purchase Price and the original Notes being sold at such Closing, the
Escrow Agent shall wire transfer the Escrow (less any charges and fees agreed
to be paid by the Company to third parties) to the Company. Each party closing
the transactions contemplated herein via facsimile shall deliver via overnight
courier service to the Escrow Agent complete originals of all documents and
things (as called for in Sections 2.1(a) and 2.1(b) below) within one (1)
business day after such delivery via facsimile. Each party hereby agrees that
a facsimile of each document and thing to be delivered hereunder, once
delivered to the Escrow Agent, shall be binding upon such party in the same
manner as would an original to the full extent allowed by applicable law.
(a). Items to be Delivered by the Company to the Escrow Agent.
At the Closing. On the Closing Date, the Company shall send to the
Escrow Agent on behalf of the Buyer, unless otherwise stated, three (3) fully
executed (by the authorized officer(s) of the Company) originals of each of
the following documents: (I) the Securities Purchase Agreement, (II) the
Registration Rights Agreement, (III) one (1) original of each Note, as
applicable, fully executed, along with two (2) copies of each Note issued by
the Company; (IV) the executed original Legal Opinion (Exhibit D to the
Securities Purchase Agreement) along with two (2) copies thereof; (V) this
Agreement; and (VI) the Escrow Shares (defined below).
(b). Items to be Delivered by the Buyer to the Escrow Agent.
At the Closing. On or before the Closing Date, the Buyer shall send
to
the Escrow Agent on behalf of the Company, unless otherwise stated, three (3)
fully executed originals of each of the following documents: (I) the
Securities Purchase Agreement, (II) the Registration Rights Agreement, (III)
this Agreement; and (IV) the full purchase price for the Securities being
purchased at such Closing, via wire transfer to the Escrow Account.
2.2 Escrow of Certain Common Stock. There will be placed, on or
before the Closing Date, in escrow with the Escrow Agent 40,000 shares of
Common Stock (the Escrow Shares). The Escrow Shares shall be held in a
brokerage account by the Escrow Agent and delivered to the Buyer under the
following circumstances. Should the Buyer convert a portion of the Note prior
to effectiveness of the Registration Statement, such that the Buyer would
receive restricted Conversion Shares, then the Buyer shall submit a copy of
the notice of conversion to the Escrow Agent, and within three (3) business
days thereafter the Escrow Agent shall deliver to the Buyer such number of
Escrow Shares as are necessary to satisfy the conversion, up to a maximum of
40,000 Escrow Shares. Should the Buyer exercise its rights under this
provision, the Company (or its nominee) shall be entitled to beneficial
ownership of the restricted Conversion Shares that would otherwise be received
by the Buyer upon conversion of the Notes, so that the Buyer would not receive
more Common Stock than it is entitled to upon a conversion. The Buyer shall
follow the instructions of the Company with respect to such restricted
Conversion Shares. The Escrow Shares shall be included in the definition of
the Escrow, and the Escrow Agent shall administer them in accordance with the
terms of this Agreement. Any Escrow Shares remaining upon full conversion of
the Notes shall be returned to the Company per its written instructions within
five (5) business days after conversion of the Notes in full.
2.3 Controversies. If any controversy arises between two or
more of the parties hereto, or between any of the parties hereto and any
person not a party hereto, as to whether or not or to whom the Escrow Agent
shall deliver the Escrow or any portion thereof or as to any other matter
arising out of or relating to this Escrow Agreement, the Escrow Agent shall
not be required to determine the same and need not make any delivery of the
Escrow concerned or any portion thereof but may retain the same until the
rights of the parties to the dispute shall have been finally determined by
agreement or by final judgment of a court of competent jurisdiction after all
appeals have been finally determined (or the time for further appeals has
expired without an appeal having been made). The Escrow Agent shall deliver
that portion of the Escrow concerned covered by such agreement or final order
within five (5) business days after the Escrow Agent receives a copy thereof.
The Escrow Agent shall assume that no such controversy has arisen unless and
until it receives written notice from the Buyer or the Company that such
controversy has arisen, which refers specifically to this Agreement and
identifies the adverse claimants to the controversy.
2.4 No Other Disbursements. No portion of the Escrow shall be
disbursed or otherwise transferred except in accordance with this Section 2,
Section 4 or Section 5.1(b). Without limiting the foregoing, neither Escrow
Agent nor the Buyer shall be entitled to any right of offset against the
Escrow or otherwise entitled to receive any portion of the Escrow.
3. ESCROW AGENT. The acceptance by the Escrow Agent of his duties
hereunder is subject to the following terms and conditions, which the parties
to this Agreement hereby agree shall govern and control with respect to the
rights, duties, liabilities and immunities of the Escrow Agent:
3.1 The Escrow Agent shall not be responsible or liable in any manner
whatever for the sufficiency, correctness, genuineness or validity of any
cash, investments or other amounts deposited with or held by the Escrow Agent.
3.2 The Escrow Agent shall be protected in acting upon any written
notice, certificate, instruction, request or other paper or document believed
by the Escrow Agent to be genuine and to have been signed or presented by the
proper party or parties.
3.3 The Escrow Agent shall not be liable for any act done hereunder
except in the case of the Escrow Agent's willful misconduct or bad faith.
3.4 The Escrow Agent shall not be obligated or permitted to
investigate the correctness or accuracy of any document or to determine
whether or not the signatures contained in said documents are genuine or to
require documentation or evidence substantiating any such document or
signature.
3.5 The Escrow Agent shall have no duties as Escrow Agent except those
that are expressly set forth herein, and in any modification or amendment
hereof; provided, however, that no such modification or amendment hereof shall
affect his duties unless it shall have given his written consent thereto. The
Escrow Agent shall not be prohibited from owning an equity interest in the
Company, the Buyer, another buyer, any of their respective subsidiaries or any
third party that is in any way affiliated with or conducts business with
either the Company, the Buyer or another buyer.
3.6 The Company and the Buyer specifically acknowledge that the Escrow
Agent is a practicing attorney in Raleigh, North Carolina U.S.A., and may have
worked with or be affiliated with the Company, the Buyer, or affiliates of
either of them on other transactions, and that they and each of them has
specifically requested that the Escrow Agent draft the documents for the said
transactions and act as Escrow Agent with respect to the said transactions.
Each party represents that it has retained legal and other counsel of its
choosing with respect to the transactions contemplated herein and in the
Securities Purchase Agreement, and is satisfied in its sole discretion with
the form and content of the documentation drafted by the Escrow Agent, as the
same has been approved prior to closing by the parties and their respective
counsel. The Escrow Agent may own an equity interest in the Company and/or may
be an equity owner of the Buyer or another buyer, and may increase or sell any
such interest, so long as in accordance with any and all applicable law, and
without further disclosure of any kind to any party. The said parties hereby
waive any objection to the Escrow Agent so acting based upon conflict of
interest or lack of impartiality. The Escrow Agent agrees to act impartially
and in accordance with the terms of this Agreement and with the parties'
respective instructions, so long as they are not in conflict with the terms of
this Agreement.
4. TERMINATION. This Agreement shall terminate on the earlier of
(a) the date on which the Escrow and all other escrowed documents and things
described herein shall have been fully disbursed in accordance with the terms
and conditions of this Agreement, (b) any other date agreed to by the Buyer
and the Company, or (c) the next business day after the maturity date of the
last of the Notes to be issued by the Company in accordance with the terms of
the Securities Purchase Agreement, in which event the Escrow shall be
disbursed in full to the Company.
5. MISCELLANEOUS.
5.1 Indemnification of Escrow Agent.
(a) The Company and the Buyer each agree, jointly and severally, to
indemnify the Escrow Agent for, and to hold him harmless against, any loss
incurred without willful misconduct or bad faith on the Escrow Agent's part,
arising out of or in connection with the administration of this Agreement,
including the costs and expenses of defending himself against any claim or
liability in connection with the exercise or performance of any of his powers
or duties hereunder. This indemnification shall not apply to with respect to a
direct claim against the Escrow Agent by the Company or the Buyer alleging in
good faith a breach of this Agreement by the Escrow Agent, which claim results
in a final non-appealable judgment against the Escrow Agent with respect to
such claim.
(b) In the event of any dispute as to the nature of the rights or
obligations of the Buyer, the Company or the Escrow Agent hereunder, the
Escrow Agent may at any time or from time to time interplead, deposit and/or
pay all or any part of the Escrow Funds with or to a court of competent
jurisdiction sitting in Wake County, North Carolina or in any appropriate
federal court, in accordance with the procedural rules thereof. The Escrow
Agent shall give notice of such action to the Company and the Buyer. Upon such
interpleader, deposit or payment, the Escrow Agent shall immediately and
automatically be relieved and discharged from all further obligations and
responsibilities hereunder, including the decision to interplead, deposit or
pay such funds.
5.2 Amendments. This Agreement may be modified or amended only
by a written instrument executed by each of the parties hereto.
5.3 Notices. All communications required or permitted to be given
under this Agreement to any party hereto shall be sent by first class mail or
facsimile to such party at the address, except in the case of the Escrow
Agent, of such party set forth in the Securities Purchase Agreement and, in
the case of the Escrow Agent, at 000 Xxxxxxxx Xxxxxx, Xxxxx 000, Xxxxxxx,
Xxxxx Xxxxxxxx X.X.X. 00000; fax number 000.000.0000.
5.5 Successors and Assigns. This Agreement shall bind and inure to the
benefit of the parties hereto and their respective successors and assigns;
provided, however, that the Escrow Agent shall not assign his duties under
this Agreement.
5.6 Governing Law. This Agreement shall be governed by and
construed and interpreted in accordance with the laws of the State of North
Carolina. Venue for any civil action taken with respect to this Agreement or
to the Escrow Agent shall be in the state or federal courts sitting in Wake
County, North Carolina, and no other place without the prior written consent
of the Escrow Agent.
5.7 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be an original, and all of which together
shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
[SIGNATURE PAGE FOLLOWS]
[SIGNATURE PAGE TO ESCROW AGREEMENT DATED AS
OF SEPTEMBER 14, 2001]
THE COMPANY:
WIZZARD SOFTWARE CORP.
By:_____________________________________
Xx. Xxxxxxxxxxx X. Xxxxxxx, President and CEO
THE BUYER:
MARICOPA EQUITY MANAGEMENT CORP.
By:____________________________________________
(Duly Authorized Corporation Executive)
ESCROW AGENT:
__________________________________________
H. XXXXX XXXXXXX, XX., ESQ.
Address: 000 Xxxxxxxx Xxxxxx, Xxxxx 000
Xxxxxxx, Xxxxx Xxxxxxxx XXX 00000
Telephone 000.000.0000
Telecopier 919.785.3116
EXHIBIT D
Xxxxxxx X. Xxxxxxxxxx
Lawyer
Hermes Building Suite 205
455 East Xxxxx Xxxxx
Xxxx Xxxx Xxxx, Xxxx 00000-0000
Telephone (000) 000-0000
Fax (000) 000-0000
e-mail xxx@xxxxxxxxxx.xxx
September 14, 2001
Maricopa Equity Management Corp.
x/x X. Xxxxx Xxxxxxx, Xx., Xxx.
000 Xxxxxxxx Xxxxxx, Xxxxx 000
Xxxxxxx, Xxxxx Xxxxxxxx 00000
Re: Wizzard Software Corp.
Gentlemen:
We have acted as counsel to Wizzard Software Corp., a Colorado
corporation (the "Company"), in connection with your purchase of Series 2001-A
Convertible Notes in accordance with the terms of that Securities Purchase
Agreement dated as of September 14, 2001 (the "Agreement") between the Company
and Maricopa Equity Management Corp. (the "Investor"), (ii) the Registration
Rights Agreement dated as of the date hereof (the "Registration Rights
Agreement") between the Company and the Investor, and (iii) the Escrow
Agreement dated as of the date hereof (the "Escrow Agreement") among the
Company, the Investor and H. Xxxxx Xxxxxxx, Xx., Esq., as escrow agent.
Capitalized terms used herein but not otherwise defined herein shall have the
meanings set forth in the Agreement.
In connection with rendering this opinion, we have examined the
Agreement, the Registration Rights Agreement, the Escrow Agreement and the
form of the Notes (collectively, the "Transaction Documents"), as well as the
Company's Articles of Incorporation ("Articles") and By-laws and the
resolutions of the Board of Directors of the Company approving the
transactions contemplated by the Agreement.
We have also made such examination of law and have examined originals
or copies, certified or otherwise, of such corporate records and documents of
the Company, such agreements, certificates of officers or representatives of
the Company, and such other records, certificates, including certificates of
public officials, and documents as we have deemed relevant and necessary as a
basis for the opinions hereinafter expressed. In such examination, we have
assumed the genuineness of all signatures, the authenticity of all documents
submitted to us as originals and the conformity with authentic original
documents of all documents submitted to us as copies. As to any facts relevant
to the opinions expressed below, we have relied upon certificates and written
and/or oral representations of officers of the Company (including the
representations of the Company set forth in the Transaction Documents) and
public officials. We have also assumed that the representations and
warranties of the Investor as set forth in the Transaction Documents are true
and correct as of the date hereof. All references herein to contracts,
instruments or other documents of the Company are limited to such documents as
have been provided to us by the Company or of which we have actual knowledge
after due inquiry of the Company and its officers. As to our opinion in
paragraphs 2, 3, and 7 set forth below, we have examined only resolutions of
the Board of Directors of the Company relating to such share issuances and our
opinion set forth in such paragraphs is limited thereto. We have not examined
or reviewed any communication, instrument, agreement, document or other item
or conducted any independent inquiry or investigation of any matter except as
otherwise expressly set forth above. We have also assumed that the Agreement
and the other Transaction Documents have been executed and delivered by and
are binding on each of the parties thereto.
The opinions expressed below with respect to compliance with certain
statutes, rules and regulations are based upon a review of those statutes,
rules and regulations that, in our experience, are applicable to transactions
of the type contemplated by the Agreement and to businesses such as the
Company's. Our opinion as to the good standing of the Company in Colorado set
forth in the first sentence of paragraph 1 below is based solely upon our
examination of information acquired from the web site of the Colorado
Secretary of State as of September 14, 2001, and such opinion is given solely
as of such date.
In connection with our opinion with respect to pending litigation and
existing orders, contracts, injunctions, judgments and decrees set forth in
paragraph 5 below, we have not undertaken searches of the dockets of any court
of any jurisdiction, nor conducted a judgment, lien, litigation or similar
search and have relied upon certificates and written or oral representations
of officers of the Company.
We express no opinion respecting the enforceable nature of the
Agreement, the other Transaction Documents or any document or instrument
executed pursuant thereto or in connection therewith, insofar as the
enforceable nature thereof, or any right, power, privilege, remedy or interest
intended to be created thereunder, may be limited (i) by applicable
bankruptcy, insolvency, moratorium, fraudulent conveyance, reorganization or
other laws or judicial decisions affecting any rights, powers, privileges,
remedies or interests of creditors generally, (ii) by rules or principles of
equity affecting the enforcement of obligations generally, whether at law, in
equity or otherwise, (iii) by the exercise of the discretionary powers of any
court or other authority before which may be brought any proceeding seeking
equitable or other remedies, including, without limitation, specific
performance, injunctive relief and indemnification or (iv) insofar as rights
to indemnity and/or contribution are concerned, by federal or state securities
laws or the public policy underlying such laws.
Our opinion is limited to the date hereof and we do not in any event
undertake to advise you of any facts or circumstances occurring or coming to
our attention subsequent to the date hereof.
Where reference is made in this opinion to matters within or to our
knowledge, to the best of our knowledge, or to facts or circumstances known to
us or which have come to our attention, such reference means the actual
knowledge of those attorneys in our firm who have given substantive attention
to the preparation of the Agreement and other Transaction Documents and those
attorneys in our firm who, from time to time, have given substantive attention
to the general corporate and securities matters for which our firm has been
engaged by the Company, their review of documents in connection with this
engagement and the general corporate and securities matters for which our firm
has been engaged by the Company, and inquiries of officers of the Company,
without, however, independent investigation of any matter unless expressly set
forth herein.
We call your attention to the fact that we are counsel admitted to
practice in the State of Utah, and we do not express any opinion with respect
to the applicable laws, or the effect or applicability of the laws, of any
jurisdiction other than those of the State of Utah, the general corporation
laws of the State of Colorado, and the securities laws of the United States of
America. In particular, but without limitation, we do not express any opinion
with respect to the Blue Sky or securities laws of any State or other
jurisdiction (other than the federal securities laws of the United States of
America), or any law relating specifically to telecommunications or patents,
trademarks or other intellectual property rights. Accordingly, and
notwithstanding anything contained in any document or instrument to the
contrary, for purposes of the opinions expressed below, we have assumed that
notwithstanding any choice of law provision contained in the Agreement and in
the other Transaction Documents, the internal laws of the State of Colorado
will be applied to the Agreement and to each other document and instrument
with respect to which we opine below and that the Agreement and each other
document and instrument with respect to which we opine below will be governed
by, and construed and enforced in accordance with, the laws of the State of
Colorado without regard to principles of conflicts or choice of law.
Based upon and subject to the foregoing, we are of the opinion that:
1. The Company is a corporation organized, validly existing and in
good standing under the laws of the State of Colorado and has all requisite
power and authority to carry on its business and to own, lease and operate its
properties and assets as, to our knowledge, it is presently conducted. To the
best of my knowledge, the Company and its subsidiaries (if any) are qualified
to do business as a foreign corporation(s) in the State of Pennsylvania and
every other applicable jurisdiction, except where failure to be so qualified
would not have a Material Adverse Effect. To the best of my knowledge, the
Company is duly qualified as a foreign corporation to do business and is in
good standing in every jurisdiction in which the Company owns or leases
property, other than those in which the failure so to qualify would not have a
Material Adverse Effect.
2. The Company has the requisite corporate power and authority to
enter into and perform its obligations under the Agreement and the other
Transaction Documents, to issue the Notes and the Common Stock issuable upon
conversion thereof or in payment of interest. The execution and delivery of
the Agreement, and the execution, issuance and delivery of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated thereby have been duly authorized by all necessary corporate
action and no further consent or authorization of the Company or its Board of
Directors or stockholders is required except for approval of the stockholders
of the Company with respect to the issuance by the Company of more than 19.99%
of the outstanding shares of Common Stock that may be required by the NASDAQ
Market (if applicable). The Agreement and the other Transaction Documents have
been duly executed and delivered by the Company and each of the Agreement and
the other Transaction Documents constitutes valid and binding obligations of
the Company enforceable against the Company in accordance with their
respective terms.
3. Subject to the Company maintaining the requisite number of
authorized shares of Common Stock, the execution, delivery and performance of
the Agreement and the other Transaction Documents by the Company and the
consummation by the Company of the transactions contemplated thereby,
including, without limitation, the issuance of the Securities, do not and will
not (i) result in a violation of the Company's Articles or By-Laws, or (ii) to
our knowledge, conflict with, or constitute a material default (or an event
that with notice or lapse of time or both would become a default) under, or
give to others any rights of termination, amendment, acceleration or
cancellation of, any material agreement, indenture, instrument or any
"lock-up" or similar provision of any underwriting or similar agreement to
which the Company is a party, except for such conflicts, defaults,
terminations, amendments, accelerations and cancellations as would not,
individually or in the aggregate, have a Material Adverse Effect.
4. The issuance of the Securities in accordance with the Agreement
will be exempt from registration under the Securities Act of 1933, as amended.
When so issued against payment in full of the Purchase Price, the Securities
will be duly and validly issued, fully paid and nonassessable, and free of any
liens, encumbrances and preemptive or similar rights contained in the
Company's Articles or By-laws or, to our knowledge, in any agreement to which
the Company is party.
5. To our knowledge, except as disclosed in the Financial Statements
or in a schedule to the Agreement, there are no claims, actions, suits,
proceedings or investigations that are pending against the Company or its
properties, nor has the Company received any written threat of any such
claims, actions, suits, proceedings or investigations. To our knowledge, the
Company is not a party to or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality.
6. To our knowledge, other than as referenced in Schedule 3(c) to
the Agreement, there are no outstanding options, warrants, calls or
commitments of any character whatsoever relating to, or securities, rights or
obligations convertible into or exchangeable for, or giving any right to
subscribe for or acquire any shares of Common Stock or contracts, commitments,
understanding, or arrangements by which the Company is or may become bound to
issue additional shares of Common Stock, or securities or rights convertible
or exchangeable into shares of Common Stock, except as described in a schedule
to the Agreement.
This opinion is rendered solely to the Investor in connection with the
transactions contemplated by the Agreement and only the Investor is entitled
to rely hereon. This opinion may not be used or relied on by the Investor for
any other purpose, or by any other person, firm, corporation or entity for any
purpose, without our prior written consent.
Very truly yours,
Xxxxxxx X. Xxxxxxxxxx
LWB/sr
