EXHIBIT 10.3
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement"), dated as of
__________ ___, 2002, is entered into by and among BestNet Communications Corp.,
a Nevada corporation (the "Company"), and the undersigned investors. Capitalized
terms used but not otherwise defined herein shall have the meaning assigning to
such terms in that certain Note and Warrant Purchase Agreement by and among the
Company and the Investors of even date herewith (individually and collectively,
the "Investors").
WHEREAS, the Company has entered into a Note and Warrant Purchase Agreement
dated August ___, 2002, by and among the Company and the Investors (the
"Purchase Agreement") pursuant to which the Investors agreed to purchase from
the Company, up to an aggregate of $1,000,000 in the original principal amount
of its 6% Convertible Promissory Notes (the "Notes") together with 2-year
warrants to purchase Common Stock (the "Warrants");
WHEREAS, the Notes are convertible at the option of the holder into shares
of Common Stock of the Company pursuant to a formula set forth in the Purchase
Agreement; and
WHEREAS, pursuant to the terms of the Purchase Agreement, the Company has
agreed to provide the Investors with certain registration rights with respect to
the resale of the shares of Common Stock issuable upon conversion of the Notes
and upon exercise of the Warrants.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained in this Agreement, the parties hereto agree as follows:
1. REQUIRED REGISTRATION.
a. One or more Investors holding a majority of the Registrable Shares (the
"Initiating Investors") may elect to exercise the right to request a Demand
Registration pursuant to this SECTION 1 by furnishing the Company with written
notice thereof (a "Demand Notice"). Upon receipt by the Company of a Demand
Notice, the Company shall promptly notify each other Investor in writing of the
Demand Notice received by the Company. Upon receipt of such notice from the
Company (the "Company Notice"), each such Investor may give the Company a
written request to register all or some of such Investor's Registrable Shares in
the registration described in the Company Notice, provided that such written
request is received within twenty (20) days after the date on which the Company
Notice is given (with such request stating (i) the amount of Registrable Shares
to be included, (ii) such Investor's intended method of distribution of such
Registrable Shares and (iii) any other information reasonably requested by the
Company to properly effect the registration of such Registrable Shares). The
Company shall as soon as practicable after the date on which the Company Notice
is given, but in no event less than 30 days from receipt of the Company notice
and no more than 45 days from receipt by the Company of the Demand Notice, file
with the Commission and use its commercially reasonable best efforts to promptly
cause to become effective no later than 60 days from filing a Registration
Statement which shall cover the Registrable Shares specified in the Demand
Notice and in any written request from any other Investor received by the
Company within twenty (20) days from the date on which the Company Notice is
received.
b. The Registration Statement filed pursuant to the request of the
Initiating Investors may, subject to the provisions of SECTION 1(C) below,
include other securities of the Company which are held by persons who, by virtue
of agreements entered into with the Company prior or subsequent to the date of
this Agreement, are entitled to include their securities in such registration.
If, by virtue of agreements with the Company, the holders of other
securities of the Company (the "Other Holders") request and are entitled to
inclusion in such registration, the Company shall, on behalf of all Investors,
offer to the Other Holders that such other securities be included in the
underwriting and may condition such offer on the acceptance by such Other
Holders of the further provisions of this SECTION 1.
c. The Company shall be obligated to register Investor stock pursuant to
this SECTION 1 on one occasion only, provided, however, that such obligation
shall be deemed satisfied only when a registration statement covering all shares
of Investor stock specified in notices received as aforesaid, for sale in
accordance with the method of disposition specified by the requesting holders,
shall have (i) become effective, or (ii) been withdrawn at the request of the
Investors requesting such registration (other than solely as a result of
material information concerning the business or financial condition of the
Company which is made known to such Investors after the date on which
registration was requested). In addition, the Company shall not be required to
effect any registration within 180 days after the effective date of any other
Registration Statement of the Company.
d. If at the time of any request to register Registrable Shares pursuant to
this SECTION 1, the Company is engaged or has fixed plans to engage within 30
days of the time of the Demand Notice in a registered public offering as to
which the Investors may include Registrable Shares, then the Company may at its
option direct that such request be delayed for a period not in excess of 120
days from the effective date of such offering or 120 days from the date of
commencement of such other material activity, as the case may be, such right to
delay a request to be exercised by the Company not more than once.
2. REGISTRATION PROCEDURES. If and whenever the Company is required by the
provisions of SECTION 1 of this Agreement to use its reasonable best efforts to
effect the registration of any of the Registrable Shares under the Securities
Act, the Company shall:
a. prepare and file with the Commission a Registration Statement with
respect to such Registrable Shares and use its reasonable best efforts to cause
that Registration Statement to become and remain effective;
b. as expeditiously as possible prepare and file with the Commission any
amendments and supplements to the Registration Statement and the prospectus
included in the Registration Statement as may be necessary to keep the
Registration Statement effective, in the case of a firm commitment underwritten
2
public offering, until each underwriter has completed the distribution of all
securities purchased by it but not more than one year after the effective date
and, in the case of any other offering, until the earlier of the sale of all
Registrable Shares covered thereby or one year after the effective date thereof;
c. as expeditiously as possible furnish to each Selling Investor such
reasonable numbers of copies of the prospectus, including a preliminary
prospectus, in conformity with the requirements of the Securities Act, and such
other documents as the Selling Investor may reasonably request in order to
facilitate the public sale or other disposition of the Registrable Shares owned
by the selling Investor;
d. as expeditiously as possible use its reasonable best efforts to register
or qualify the Registrable Shares covered by the Registration Statement under
the securities or blue sky laws of such states as the Selling Investors shall
reasonably request, and do any and all other acts and things that may be
necessary or desirable to enable the Selling Investors to consummate the public
sale or other disposition in such states of the Registrable Shares owned by the
selling Investor; and
e. keep the Registration Statement effective for a period ending on the
earlier of the sale by the Selling Investors of all Registrable Shares covered
by the Registration Statement or one year from the effective date of the
Registration Statement.
If the Company has delivered preliminary or final prospectuses to the
Selling Investors and after having done so the prospectus is amended to comply
with the requirements of the Securities Act, the Company shall promptly notify
the Selling Investors and, if requested, the Selling Investors shall immediately
cease making offers of Registrable Shares and return all prospectuses to the
Company at the Company's sole cost and expense. The Company shall promptly
provide the Selling Investors with revised prospectuses and, following receipt
of the revised prospectuses, the Selling Investors shall be free to resume
making offers of the Registrable Shares.
3. ALLOCATION OF EXPENSES. The Company will pay all Registration Expenses of all
registrations under this Agreement. For purposes of this SECTION 3, the term
"Registration Expenses" shall mean all expenses to be incurred by the Company in
complying with this Agreement, including, without limitation, all registration
and filing fees, exchange listing fees, printing and shipping expenses, fees and
expenses of counsel for the Company, state blue sky fees and expenses.
Notwithstanding the foregoing, "Registration Expenses" shall not include any and
all underwriting discounts and selling commissions applicable to the sale of the
Registrable Securities.
4. INDEMNIFICATION AND CONTRIBUTION.
a. In the event of any registration of any of the Registrable Shares under
the Securities Act pursuant to this Agreement, the Company will indemnify and
hold harmless the Selling Investor of such Registrable Shares, each underwriter
of such Registrable Shares, if any, and each other person, if any, who controls
such Selling Investor or underwriter within the meaning of the Securities Act or
the Exchange Act against any losses, claims, damages or liabilities, joint or
several, to which such Selling Investor, underwriter or controlling person may
become subject under the Securities Act, the Exchange Act, state securities or
blue sky laws or otherwise, insofar as such losses, claims, damages or
3
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any Registration Statement under which such Registrable Shares were registered
under the Securities Act, any preliminary prospectus or final prospectus
contained in the Registration Statement, or any amendment or supplement to such
Registration Statement, or arise out of or are based upon the omission or
alleged omission to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading; PROVIDED, HOWEVER, that the Company will
not be liable in any such case to the extent that any such loss, claim, damage
or liability arises out of or is based upon any untrue statement or omission
made in such Registration Statement, preliminary prospectus or final prospectus,
or any such amendment or supplement, (i) in reliance upon and in conformity with
information furnished to the Company, in writing, by or on behalf of such
Selling Investor, underwriter or controlling person specifically for use in the
preparation thereof or (ii) which untrue statement was corrected by the Company
and delivered to the Selling Investor prior to consummation of the sale by the
Selling Investor resulting in such loss, claim, damage or liability.
b. In the event of any registration of any of the Registrable Shares under
the Securities Act pursuant to this Agreement, each Selling Investor of
Registrable Shares, severally and not jointly, will indemnify and hold harmless
the Company, each of its directors and officers and each underwriter (if any)
and each person, if any, who controls the Company or any such underwriter within
the meaning of the Securities Act or the Exchange Act, against any losses,
claims, damages or liabilities, joint or several, to which the Company, such
directors and officers, underwriter or controlling person may become subject
under the Securities Act, Exchange Act, state securities or blue sky laws or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in any Registration Statement
under which such Registrable Shares were registered under the Securities Act,
any preliminary prospectus or final prospectus contained in the Registration
Statement, or any amendment or supplement to the Registration Statement, or
arise out of or are based upon any omission or alleged omission to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, provided that such statement or omission was made in reliance upon
and in conformity with information relating to such Selling Investor furnished
in writing to the Company by and on behalf of such Selling Investor specifically
for use in connection with the preparation of such Registration Statement,
prospectus, amendment or supplement; PROVIDED, HOWEVER, that the obligations of
such Selling Investors hereunder shall be limited to an amount equal to the
proceeds to each Selling Investor of Registrable Shares sold in connection with
such registration.
c. Each party entitled to indemnification under this SECTION 4 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; PROVIDED, HOWEVER, that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (whose approval shall not be
unreasonably withheld); and, PROVIDED, FURTHER, that the failure of any
4
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this SECTION 5, except to the extent
that such delay prejudices such indemnifying party. The Indemnified Party may
participate in such defense at such party's expense; PROVIDED, HOWEVER, that the
Indemnifying Party shall pay such expense if representation of such Indemnified
Party by the counsel retained by the Indemnifying Party would be inappropriate
due to actual or potential differing interests between the Indemnified Party and
any other party represented by such counsel in such proceeding. No Indemnifying
Party, in the defense of any such claim or litigation shall, except with the
consent of each Indemnified Party, consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party of a release from
all liability in respect of such claim or litigation, and no Indemnified Party
shall consent to entry of any judgment or settle such claim or litigation
without the prior written consent of the Indemnifying Party.
d. If the indemnification provided for under this SECTION 4 is unavailable
to or insufficient to hold the Indemnified Party harmless under subparagraphs
(a) or (b) above in respect of any losses, claims, damages or liabilities (or
actions in respect thereof) referred to therein for any reason other than as
specified therein, then the Indemnifying Party shall contribute to the amount
paid or payable by such Indemnified Party as a result of such losses, claims,
damages or liabilities (or actions in respect thereof) (i) in such proportion as
is appropriate to reflect the relative benefits received by the Indemnifying
Party on the one hand and such Indemnified Party on the other from the subject
offering or distribution or (ii) if the allocation provided by clause (i) above
is not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above but also
the relative fault of the Indemnifying Party on the one hand and such
Indemnified Party on the other in connection with the statements or omissions
which resulted in such losses, claims, damages or liabilities (or actions in
respect thereof) as well as any other relevant equitable considerations. The
relative benefits received by the Indemnifying Party on the one hand and the
Indemnified Party on the other hand shall be deemed to be in the same proportion
as the net proceeds of the offering or other distribution (after deducting
expenses) received by the Indemnifying Party bears to the net proceeds of the
offering or other distribution (after deducting expenses) received by the
Indemnified Party. The relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by (or omitted to be supplied by) the Company or the
Selling Investor, the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission, the relative
benefits received by each party from the sale of the Registrable Shares and any
other equitable considerations appropriate under the circumstances. The amount
paid or payable by an Indemnified Party as a result of the losses, claims,
damages or liabilities (or actions in respect thereof) referred to above in this
subsection (d) shall be deemed to include any legal or other expenses reasonably
incurred by such Indemnified Party in connection with investigating or defending
any such action or claim. 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.
5. INFORMATION BY INVESTOR. Each Investor including Registrable Shares in any
registration shall furnish to the Company such information regarding such
Investor and the distribution proposed by such Investor as the Company may
5
reasonably request in writing and as shall be required in connection with any
registration, qualification or compliance referred to in this Agreement. The
Investors shall perform all acts reasonably necessary to effect the registration
of the Registrable Shares.
6. CERTAIN DEFINITIONS. As used in this Agreement, the following terms shall
have the following respective meanings:
"COMMISSION" means the Securities and Exchange Commission, or any other
federal agency at the time administering the Securities Act.
"COMMON STOCK" means the common stock, par value $.001 per share, of the
Company.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, or
any similar federal statute, and the rules and regulations promulgated
thereunder, all as the same shall be in effect at the time.
"REGISTRATION EXPENSES" means the expenses described in SECTION 3.
"REGISTRABLE SHARES" shall mean shares of Common Stock issued to the
Investors pursuant to the conversion of the Notes and upon exercise of the
Warrants and any other shares of capital stock of the Company issued to the
Investors in respect of such shares as a result of stock splits, stock
dividends, reclassification, recapitalizations, mergers, consolidations or
similar events. References in this Agreement to amounts or percentages of
Registrable Shares as of or on any particular date shall be deemed to refer to
amounts or percentages after giving effect to any applicable events contemplated
by the preceding sentence.
"REGISTRATION STATEMENT" shall mean any registration statement of the
Company, including, without limitation, an initial Registration Statement, on
any form (to be selected by the Company) for which the Company then qualifies
and which permits the secondary resale thereunder of Registrable Shares. The
term Registration Statement shall also include all exhibits and financial
statements and schedules and documents incorporated by reference in such
Registration Statement when it becomes effective under the Securities Act, and
in the case of the references to the Registration Statement as of a date
subsequent to the effective date, as amended or supplemented as of such date.
"SECURITIES ACT" means the Securities Act of 1933, as amended, or any
similar federal statute, and the rules and regulations promulgated thereunder,
all as the same shall be in effect at the time.
"SELLING INVESTOR" shall mean any Investor whose Registrable Shares are
included at the request of such Investor in any Registration Statement filed
pursuant to this Agreement.
"INVESTOR" shall mean a Investor (as defined in the preamble to this
Agreement) or any transferee of Registrable Shares, if such transferee has
executed a counterpart hereof at the time of the transfer to such transferee,
unless the Registrable Shares held by such transferee are acquired in a public
distribution pursuant to a registration statement under the Securities Act.
6
7. GENERAL.
a. NOTICES. All notices, requests, claims, demands and other communications
hereunder shall be in writing and shall be deemed to have been given if sent by
registered or certified mail, first class postage prepaid, return receipt
requested, to the address of such parties set forth on the signature pages of
this Agreement or such other future address as may be specified by any party by
notice to all of the other parties. Such communications may also be given by
personal delivery, by facsimile or by regular mail, but shall be effective only
if and when actually received.
b. ENTIRE AGREEMENT. This Agreement embodies the entire agreement and
understanding between the parties hereto with respect to the subject matter
hereof and supersedes all prior agreements and understandings relating to such
subject matter.
c. AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended with
the written consent of the Company and each of the Investors. No waivers of or
exceptions to any term, condition or provision of this Agreement, in any one or
more instances, shall be deemed to be, or construed as, a further or continuing
waiver of any such term, condition or provision. A party hereto may waive the
performance of any covenant for its benefit (either generally or in a particular
instance and either retroactively or prospectively), PROVIDED, HOWEVER, that no
such waiver shall be effective unless in writing and signed by such party.
d. SEVERABILITY. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
e. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Arizona without regard to its
principals of conflicts of law.
f. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate 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 instrument.
g. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of,
and be binding upon, the successors, assigns and transferees of each of the
parties hereto.
7
IN WITNESS WHEREOF, the Company and the Investors have executed this
Agreement as of the _____ day of August, 2002.
COMPANY
BESTNET COMMUNICATIONS CORP.
By:
------------------------------------
ADDRESS FOR NOTICE:
------------------
0000 Xxxx Xxxxxxx Xxxx, Xxxxx X
Xxxxx Xxxxxx, Xxxxxxxx 00000
Telecopy: (000) 000-0000
WITH A COPY TO:
--------------
Squire, Xxxxxxx & Xxxxxxx L.L.P.
Attn: Xxxxxxx X. Xxxx, Esq.
Two Renaissance Square
00 Xxxxx Xxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxx 00000
Telecopy: (000) 000-0000
8
INVESTORS
________________________________________
ADDRESS FOR NOTICE:
------------------
____________________________________
____________________________________
________________________________________
ADDRESS FOR NOTICE:
------------------
____________________________________
____________________________________
________________________________________
ADDRESS FOR NOTICE:
------------------
____________________________________
____________________________________
________________________________________
ADDRESS FOR NOTICE:
------------------
____________________________________
____________________________________
9
