SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of August 21,
2003, by and among iDial Networks, Inc., a Nevada corporation, with headquarters
located at 0000 Xxxxxxxxxx Xxxxx, Xxxxx 000, Xxx Xxxxxxxxx, Xxxxx 00000 (the
"Company"), and each of the purchasers set forth on the signature pages hereto
(the "Buyers").
WHEREAS:
A. The Company and the Buyers are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by the rules and regulations as promulgated by the United States Securities and
Exchange Commission (the "SEC") under the Securities Act of 1933, as amended
(the "1933 Act");
B. Buyers desire to purchase and the Company desires to issue and sell,
upon the terms and conditions set forth in this Agreement 12% convertible
debentures of the Company, in the form attached hereto as Exhibit "A", in the
aggregate principal amount of One Million, Seven Hundred Fifty Thousand Dollars
($1,750,000) (together with any debenture(s) issued in replacement thereof or as
a dividend thereon or otherwise with respect thereto in accordance with the
terms thereof, the "Debentures"), convertible into shares of common stock, par
value $.005 per share, of the Company (the "Common Stock"), upon the terms and
subject to the limitations and conditions set forth in such Debentures.
C. Each Buyer wishes to purchase, upon the terms and conditions stated
in this Agreement, such principal amount of Debentures as is set forth
immediately below its name on the signature pages hereto; and
D. Contemporaneous with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement,
in the form attached hereto as Exhibit "B" (the "Registration Rights
Agreement"), pursuant to which the Company has agreed to provide certain
registration rights under the 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws.
NOW THEREFORE, the Company and each of the Buyers severally (and not
jointly) hereby agree as follows:
1. PURCHASE AND SALE OF DEBENTURES.
a. Purchase of Debentures. On the Closing Date (as defined
below), the Company shall issue and sell to each Buyer and each Buyer
severally agrees to purchase from the Company such principal amount of
Debentures as is set forth immediately below such Buyer's name on the
signature pages hereto, for an aggregate of One Million, Seven Hundred
Fifty Thousand Dollars ($1,750,000) principal amount of Debentures.
b. Form of Payment. On the Closing Date (as defined below), (i)
each Buyer shall pay the purchase price for the Debentures to be
issued and sold to it at the Closing (as defined below) (the "Purchase
Price") by wire transfer of immediately available funds to the
Company, in accordance with the Company's written wiring instructions,
against delivery of the Debentures in the principal amount equal to
the Purchase Price, and (ii) the Company shall deliver such Debentures
duly executed on behalf of the Company, to such Buyer, against
delivery of such Purchase Price.
c. Closing Date. Subject to the satisfaction (or written waiver)
of the conditions thereto set forth in Section 6 and Section 7 below,
the date and time of the issuance and sale of the Debentures pursuant
to this Agreement (the "Closing Date") shall be 12:00 noon, Eastern
Standard Time on August 21, 2003 or such other mutually agreed upon
time. The closing of the transactions contemplated by this Agreement
(the "Closing") shall occur on the Closing Date at such location as
may be agreed to by the parties.
2. BUYERS' REPRESENTATIONS AND WARRANTIES. Each Buyer severally (and not
jointly) represents and warrants to the Company solely as to such Buyer that:
a. Investment Purpose. As of the date hereof, the Buyer is
purchasing the Debentures and the shares of Common Stock issuable upon
conversion of or otherwise pursuant to the Debentures (including,
without limitation, such additional shares of Common Stock, if any, as
are issuable (i) on account of interest on the Debentures, (ii) as a
result of the events described in Sections 1.3 and 1.4(g) of the
Debentures and Section 2(c) of the Registration Rights Agreement or
(iii) in payment of the Standard Liquidated Damages Amount (as defined
in Section 2(f) below) pursuant to this Agreement, such shares of
Common Stock being collectively referred to herein as the "Conversion
Shares") and, collectively with the Debentures, the "Securities") for
its own account and not with a present view towards the public sale or
distribution thereof, except pursuant to sales registered or exempted
from registration under the 1933 Act; provided, however, that by
making the representations herein, the Buyer does not agree to hold
any of the Securities for any minimum or other specific term and
reserves the right to dispose of the Securities at any time in
accordance with or pursuant to a registration statement or an
exemption under the 1933 Act.
b. Accredited Investor Status. The Buyer is an "accredited
investor" as that term is defined in Rule 501(a) of Regulation D (an
"Accredited Investor").
c. Reliance on Exemptions. The Buyer understands that the
Securities are being offered and sold to it in reliance upon specific
exemptions from the registration requirements of United States federal
and state securities laws and that the Company is relying upon the
truth and accuracy of, and the Buyer's compliance with, the
representations, warranties, agreements, acknowledgments and
understandings of the Buyer set forth herein in order to determine the
availability of such exemptions and the eligibility of the Buyer to
acquire the Securities.
d. Information. The Buyer and its advisors, if any, have been,
and for so long as the Debentures remain outstanding will continue to
be, furnished with all materials relating to the business, finances
and operations of the Company and materials relating to the offer and
sale of the Securities which have been requested by the Buyer or its
advisors. The Buyer and its advisors, if any, have been, and for so
long as the Debentures remain outstanding will continue to be,
afforded the opportunity to ask questions of the Company.
Notwithstanding the foregoing, the Company has not disclosed to the
Buyer any material nonpublic information and will not disclose such
information unless such information is disclosed to the public prior
to or promptly following such disclosure to the Buyer. Neither such
inquiries nor any other due diligence investigation conducted by Buyer
or any of its advisors or representatives shall modify, amend or
affect Buyer's right to rely on the Company's representations and
warranties contained in Section 3 below. The Buyer understands that
its investment in the Securities involves a significant degree of
risk.
e. Governmental Review. The Buyer understands that no United
States federal or state agency or any other government or governmental
agency has passed upon or made any recommendation or endorsement of
the Securities.
f. Transfer or Re-sale. The Buyer understands that (i) except as
provided in the Registration Rights Agreement, the sale or re-sale of
the Securities has not been and is not being registered under the 1933
Act or any applicable state securities laws, and the Securities may
not be transferred unless (a) the Securities are sold pursuant to an
effective registration statement under the 1933 Act, (b) the Buyer
shall have delivered to the Company an opinion of counsel that shall
be in form, substance and scope customary for opinions of counsel in
comparable transactions to the effect that the Securities to be sold
or transferred may be sold or transferred pursuant to an exemption
from such registration, which opinion shall be accepted by the
Company, (c) the Securities are sold or transferred to an "affiliate"
(as defined in Rule 144 promulgated under the 1933 Act (or a successor
rule) ("Rule 144")) of the Buyer who agrees to sell or otherwise
transfer the Securities only in accordance with this Section 2(f) and
who is an Accredited Investor, (d) the Securities are sold pursuant to
Rule 144, or (e) the Securities are sold pursuant to Regulation S
under the 1933 Act (or a successor rule) ("Regulation S"), and the
Buyer shall have delivered to the Company an opinion of counsel that
shall be in form, substance and scope customary for opinions of
counsel in corporate transactions, which opinion shall be accepted by
the Company; (ii) any sale of such Securities made in reliance on Rule
144 may be made only in accordance with the terms of said Rule and
further, if said Rule is not applicable, any re-sale of such
Securities under circumstances in which the seller (or the person
through whom the sale is made) may be deemed to be an underwriter (as
that term is defined in the 0000 Xxx) may require compliance with some
other exemption under the 1933 Act or the rules and regulations of the
SEC thereunder; and (iii) neither the Company nor any other person is
under any obligation to register such Securities under the 1933 Act or
any state securities laws or to comply with the terms and conditions
of any exemption thereunder (in each case, other than pursuant to the
Registration Rights Agreement). Notwithstanding the foregoing or
anything else contained herein to the contrary, the Securities may be
pledged as collateral in connection with a bona fide margin account or
other lending arrangement. In the event that the Company does not
accept the opinion of counsel provided by the Buyer with respect to
the transfer of Securities pursuant to an exemption from registration,
such as Rule 144 or Regulation S, within three (3) business days of
delivery of the opinion to the Company, the Company shall pay to the
Buyer liquidated damages of three percent (3%) of the outstanding
amount of the Debentures per month plus accrued and unpaid interest on
the Debentures, prorated for partial months, in cash or shares at the
option of the Company ("Standard Liquidated Damages Amount"). If the
Company elects to pay the Standard Liquidated Damages Amount in shares
of Common Stock, such shares shall be issued at the Conversion Price
at the time of payment.
g. Legends. The Buyer understands that the Debentures and, until
such time as the Conversion Shares have been registered under the 1933
Act as contemplated by the Registration Rights Agreement or otherwise
may be sold pursuant to Rule 144 or Regulation S without any
restriction as to the number of securities as of a particular date
that can then be immediately sold, the Conversion Shares may bear a
restrictive legend in substantially the following form (and a
stop-transfer order may be placed against transfer of the certificates
for such Securities):
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended. The
securities may not be sold, transferred or assigned in the absence of
an effective registration statement for the securities under said Act,
or an opinion of counsel, in form, substance and scope customary for
opinions of counsel in comparable transactions, that registration is
not required under said Act or unless sold pursuant to Rule 144 or
Regulation S under said Act.
The legend set forth above shall be removed and the Company shall issue
a certificate without such legend to the holder of any Security upon which it is
stamped, if, unless otherwise required by applicable state securities laws, (a)
such Security is registered for sale under an effective registration statement
filed under the 1933 Act or otherwise may be sold pursuant to Rule 144 or
Regulation S without any restriction as to the number of securities as of a
particular date that can then be immediately sold, or (b) such holder provides
the Company with an opinion of counsel, in form, substance and scope customary
for opinions of counsel in comparable transactions, to the effect that a public
sale or transfer of such Security may be made without registration under the
1933 Act, which opinion shall be accepted by the Company so that the sale or
transfer is effected or (c) such holder provides the Company with reasonable
assurances that such Security can be sold pursuant to Rule 144 or Regulation S.
The Buyer agrees to sell all Securities, including those represented by a
certificate(s) from which the legend has been removed, in compliance with
applicable prospectus delivery requirements, if any.
h. Authorization; Enforcement. This Agreement and the
Registration Rights Agreement have been duly and validly authorized.
This Agreement has been duly executed and delivered on behalf of the
Buyer, and this Agreement constitutes, and upon execution and delivery
by the Buyer of the Registration Rights Agreement, such agreement will
constitute, valid and binding agreements of the Buyer enforceable in
accordance with their terms.
i. Residency. The Buyer is a resident of the jurisdiction set
forth immediately below such Buyer's name on the signature pages
hereto.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and warrants to each Buyer that:
a. Organization and Qualification. The Company and each of its
Subsidiaries (as defined below), if any, is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is incorporated, with full power and
authority (corporate and other) to own, lease, use and operate its
properties and to carry on its business as and where now owned,
leased, used, operated and conducted. Schedule 3(a) sets forth a list
of all of the Subsidiaries of the Company and the jurisdiction in
which each is incorporated. The Company and each of its Subsidiaries
is duly qualified as a foreign corporation to do business and is in
good standing in every jurisdiction in which its ownership or use of
property or the nature of the business conducted by it makes such
qualification necessary except where the failure to be so qualified or
in good standing would not have a Material Adverse Effect. "Material
Adverse Effect" means any material adverse effect on the business,
operations, assets, financial condition or prospects of the Company or
its Subsidiaries, if any, taken as a whole, or on the transactions
contemplated hereby or by the agreements or instruments to be entered
into in connection herewith. "Subsidiaries" means any corporation or
other organization, whether incorporated or unincorporated, in which
the Company owns, directly or indirectly, any equity or other
ownership interest.
b. Authorization; Enforcement. (i) The Company has all requisite
corporate power and authority to enter into and perform this
Agreement, the Registration Rights Agreement and the Debentures and to
consummate the transactions contemplated hereby and thereby and to
issue the Securities, in accordance with the terms hereof and thereof,
(ii) the execution and delivery of this Agreement, the Registration
Rights Agreement and the Debentures by the Company and the
consummation by it of the transactions contemplated hereby and thereby
(including without limitation, the issuance of the Debentures and the
issuance and reservation for issuance of the Conversion Shares
issuable upon conversion thereof) have been duly authorized by the
Company's Board of Directors and no further consent or authorization
of the Company, its Board of Directors, or its shareholders is
required, (iii) this Agreement has been duly executed and delivered by
the Company by its authorized representative, and such authorized
representative is the true and official representative with authority
to sign this Agreement and the other documents executed in connection
herewith and bind the Company accordingly, and (iv) this Agreement
constitutes, and upon execution and delivery by the Company of the
Registration Rights Agreement and the Debentures, each of such
instruments will constitute, a legal, valid and binding obligation of
the Company enforceable against the Company in accordance with its
terms.
c. Capitalization. As of the date hereof, the authorized capital
stock of the Company consists of (i) 500,000,000 shares of Common
Stock, of which 495,159,278 shares are issued and outstanding, 167,000
shares are reserved for issuance pursuant to the Company's stock
option plans and, subject to Stockholder Approval (as defined in
Section 4(l)), 1,562,500,000 shares are reserved for issuance pursuant
to securities (other than the Debentures) exercisable for, or
convertible into or exchangeable for shares of Common Stock and,
subject to Stockholder Approval (as defined in Section 4(l)),
2,187,500,000 shares are reserved for issuance upon conversion of the
Debentures (subject to adjustment pursuant to the Company's covenant
set forth in Section 4(h) below); and (ii) 30,000,000 shares of
preferred stock, of which no shares are issued and outstanding. All of
such outstanding shares of capital stock are, or upon issuance will
be, duly authorized, validly issued, fully paid and nonassessable. No
shares of capital stock of the Company are subject to preemptive
rights or any other similar rights of the shareholders of the Company
or any liens or encumbrances imposed through the actions or failure to
act of the Company. Except as disclosed in Schedule 3(c), as of the
effective date of this Agreement, (i) there are no outstanding
options, warrants, scrip, rights to subscribe for, puts, calls, rights
of first refusal, agreements, understandings, claims or other
commitments or rights of any character whatsoever relating to, or
securities or rights convertible into or exchangeable for any shares
of capital stock of the Company or any of its Subsidiaries, or
arrangements by which the Company or any of its Subsidiaries is or may
become bound to issue additional shares of capital stock of the
Company or any of its Subsidiaries, (ii) there are no agreements or
arrangements under which the Company or any of its Subsidiaries is
obligated to register the sale of any of its or their securities under
the 1933 Act (except the Registration Rights Agreement) and (iii)
there are no anti-dilution or price adjustment provisions contained in
any security issued by the Company (or in any agreement providing
rights to security holders) that will be triggered by the issuance of
the Debentures or the Conversion Shares. The Company has furnished to
the Buyer true and correct copies of the Company's Articles of
Incorporation as in effect on the date hereof ("Articles of
Incorporation"), the Company's By-laws, as in effect on the date
hereof (the "By-laws"), and the terms of all securities convertible
into or exercisable for Common Stock of the Company and the material
rights of the holders thereof in respect thereto. The Company shall
provide the Buyer with a written update of this representation signed
by the Company's Chief Executive or Chief Financial Officer on behalf
of the Company as of the Closing Date.
d. Issuance of Shares. Subject to Stockholder Approval (as
defined in Section 4(l)), the Conversion Shares are duly authorized
and reserved for issuance and, upon conversion of the Debentures in
accordance with their terms, will be validly issued, fully paid and
non-assessable, and free from all taxes, liens, claims and
encumbrances with respect to the issue thereof and shall not be
subject to preemptive rights or other similar rights of shareholders
of the Company and will not impose personal liability upon the holder
thereof.
e. Acknowledgment of Dilution. The Company understands and
acknowledges the potentially dilutive effect to the Common Stock upon
the issuance of the Conversion Shares upon conversion of the
Debentures. The Company further acknowledges that its obligation to
issue Conversion Shares upon conversion of the Debentures in
accordance with this Agreement and the Debentures is absolute and
unconditional regardless of the dilutive effect that such issuance may
have on the ownership interests of other shareholders of the Company.
f. No Conflicts. Subject to Stockholder Approval (as defined in
Section 4(l)), the execution, delivery and performance of this
Agreement, the Registration Rights Agreement and the Debentures by the
Company and the consummation by the Company of the transactions
contemplated hereby and thereby (including, without limitation, the
issuance and reservation for issuance of the Conversion Shares) will
not (i) conflict with or result in a violation of any provision of the
Articles of Incorporation or By-laws or (ii) violate or conflict with,
or result in a breach of any provision of, or constitute a default (or
an event which with notice or lapse of time or both could become a
default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture,
patent, patent license or instrument to which the Company or any of
its Subsidiaries is a party, or (iii) result in a violation of any
law, rule, regulation, order, judgment or decree (including federal
and state securities laws and regulations and regulations of any
self-regulatory organizations to which the Company or its securities
are subject) applicable to the Company or any of its Subsidiaries or
by which any property or asset of the Company or any of its
Subsidiaries is bound or affected (except for such conflicts,
defaults, terminations, amendments, accelerations, cancellations and
violations as would not, individually or in the aggregate, have a
Material Adverse Effect). Neither the Company nor any of its
Subsidiaries is in violation of its Articles of Incorporation, By-laws
or other organizational documents and neither the Company nor any of
its Subsidiaries is in default (and no event has occurred which with
notice or lapse of time or both could put the Company or any of its
Subsidiaries in default) under, and neither the Company nor any of its
Subsidiaries has taken any action or failed to take any action that
would give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or
instrument to which the Company or any of its Subsidiaries is a party
or by which any property or assets of the Company or any of its
Subsidiaries is bound or affected, except for possible defaults as
would not, individually or in the aggregate, have a Material Adverse
Effect. The businesses of the Company and its Subsidiaries, if any,
are not being conducted, and shall not be conducted so long as a Buyer
owns any of the Securities, in violation of any law, ordinance or
regulation of any governmental entity. Except as specifically
contemplated by this Agreement and as required under the 1933 Act and
any applicable state securities laws, the Company is not required to
obtain any consent, authorization or order of, or make any filing or
registration with, any court, governmental agency, regulatory agency,
self regulatory organization or stock market or any third party in
order for it to execute, deliver or perform any of its obligations
under this Agreement, the Registration Rights Agreement or the
Debentures in accordance with the terms hereof or thereof or to issue
and sell the Debentures in accordance with the terms hereof and to
issue the Conversion Shares upon conversion of the Debentures. Except
as disclosed in Schedule 3(f), all consents, authorizations, orders,
filings and registrations which the Company is required to obtain
pursuant to the preceding sentence have been obtained or effected on
or prior to the date hereof. The Company is not in violation of the
listing requirements of the Over-the-Counter Bulletin Board (the
"OTCBB") and does not reasonably anticipate that the Common Stock will
be delisted by the OTCBB in the foreseeable future. The Company and
its Subsidiaries are unaware of any facts or circumstances which might
give rise to any of the foregoing.
g. SEC Documents; Financial Statements. Except as disclosed in
Schedule 3(g), the Company has timely filed all reports, schedules,
forms, statements and other documents required to be filed by it with
the SEC pursuant to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "1934 Act") (all of the
foregoing filed prior to the date hereof and all exhibits included
therein and financial statements and schedules thereto and documents
(other than exhibits to such documents) incorporated by reference
therein, being hereinafter referred to herein as the "SEC Documents").
The Company has delivered to each Buyer true and complete copies of
the SEC Documents, except for such exhibits and incorporated
documents. As of their respective dates, the SEC Documents complied in
all material respects with the requirements of the 1934 Act and the
rules and regulations of the SEC promulgated thereunder applicable to
the SEC Documents, and none of the SEC Documents, at the time they
were filed with the SEC, contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. None of the
statements made in any such SEC Documents is, or has been, required to
be amended or updated under applicable law (except for such statements
as have been amended or updated in subsequent filings prior the date
hereof). As of their respective dates, the financial statements of the
Company included in the SEC Documents complied as to form in all
material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto. Such
financial statements have been prepared in accordance with United
States generally accepted accounting principles, consistently applied,
during the periods involved (except (i) as may be otherwise indicated
in such financial statements or the notes thereto, or (ii) in the case
of unaudited interim statements, to the extent they may not include
footnotes or may be condensed or summary statements) and fairly
present in all material respects the consolidated financial position
of the Company and its consolidated Subsidiaries as of the dates
thereof and the consolidated results of their operations and cash
flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments). Except as set forth
in the financial statements of the Company included in the SEC
Documents, the Company has no liabilities, contingent or otherwise,
other than (i) liabilities incurred in the ordinary course of business
subsequent to December 31, 2002 and (ii) obligations under contracts
and commitments incurred in the ordinary course of business and not
required under generally accepted accounting principles to be
reflected in such financial statements, which, individually or in the
aggregate, are not material to the financial condition or operating
results of the Company.
h. Absence of Certain Changes. Except as set forth in Schedule
3(h), since December 31, 2002, there has been no material adverse
change and no material adverse development in the assets, liabilities,
business, properties, operations, financial condition, results of
operations or prospects of the Company or any of its Subsidiaries.
i. Absence of Litigation. There is no action, suit, claim,
proceeding, inquiry or investigation before or by any court, public
board, government agency, self-regulatory organization or body pending
or, to the knowledge of the Company or any of its Subsidiaries,
threatened against or affecting the Company or any of its
Subsidiaries, or their officers or directors in their capacity as
such, that could have a Material Adverse Effect. Schedule 3(i)
contains a complete list and summary description of any pending or
threatened proceeding against or affecting the Company or any of its
Subsidiaries, without regard to whether it would have a Material
Adverse Effect. The Company and its Subsidiaries are unaware of any
facts or circumstances which might give rise to any of the foregoing.
j. Patents, Copyrights, etc.
(i) The Company and each of its Subsidiaries owns or
possesses the requisite licenses or rights to use all patents,
patent applications, patent rights, inventions, know-how, trade
secrets, trademarks, trademark applications, service marks,
service names, trade names and copyrights ("Intellectual
Property") necessary to enable it to conduct its business as now
operated (and, except as set forth in Schedule 3(j) hereof, to
the best of the Company's knowledge, as presently contemplated to
be operated in the future); there is no claim or action by any
person pertaining to, or proceeding pending, or to the Company's
knowledge threatened, which challenges the right of the Company
or of a Subsidiary with respect to any Intellectual Property
necessary to enable it to conduct its business as now operated
(and, except as set forth in Schedule 3(j) hereof, to the best of
the Company's knowledge, as presently contemplated to be operated
in the future); to the best of the Company's knowledge, the
Company's or its Subsidiaries' current and intended products,
services and processes do not infringe on any Intellectual
Property or other rights held by any person; and the Company is
unaware of any facts or circumstances which might give rise to
any of the foregoing. The Company and each of its Subsidiaries
have taken reasonable security measures to protect the secrecy,
confidentiality and value of their Intellectual Property.
(ii) All of the Company's computer software and computer
hardware, and other similar or related items of automated,
computerized or software systems that are used or relied on by
the Company in the conduct of its business or that were, or
currently are being, sold or licensed by the Company to customers
(collectively, "Information Technology"), are Year 2000
Compliant. For purposes of this Agreement, the term "Year 2000
Compliant" means, with respect to the Company's Information
Technology, that the Information Technology is designed to be
used prior to, during and after the calendar Year 2000, and the
Information Technology used during each such time period will
accurately receive, provide and process date and time data
(including, but not limited to, calculating, comparing and
sequencing) from, into and between the 20th and 21st centuries,
including the years 1999 and 2000, and leap-year calculations,
and will not malfunction, cease to function, or provide invalid
or incorrect results as a result of the date or time data, to the
extent that other information technology, used in combination
with the Information Technology, properly exchanges date and time
data with it. The Company has delivered to the Buyers true and
correct copies of all analyses, reports, studies and similar
written information, whether prepared by the Company or another
party, relating to whether the Information Technology is Year
2000 Compliant, if any.
k. No Materially Adverse Contracts, Etc. Neither the Company nor any
of its Subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation which in
the judgment of the Company's officers has or is expected in the future to
have a Material Adverse Effect. Neither the Company nor any of its
Subsidiaries is a party to any contract or agreement which in the judgment
of the Company's officers has or is expected to have a Material Adverse
Effect.
l. Tax Status. Except as set forth on Schedule 3(l), the Company and
each of its Subsidiaries has made or filed all federal, state and foreign
income and all other tax returns, reports and declarations required by any
jurisdiction to which it is subject (unless and only to the extent that the
Company and each of its Subsidiaries has set aside on its books provisions
reasonably adequate for the payment of all unpaid and unreported taxes) and
has paid all taxes and other governmental assessments and charges that are
material in amount, shown or determined to be due on such returns, reports
and declarations, except those being contested in good faith and has set
aside on its books provisions reasonably adequate for the payment of all
taxes for periods subsequent to the periods to which such returns, reports
or declarations apply. There are no unpaid taxes in any material amount
claimed to be due by the taxing authority of any jurisdiction, and the
officers of the Company know of no basis for any such claim. The Company
has not executed a waiver with respect to the statute of limitations
relating to the assessment or collection of any foreign, federal, state or
local tax. Except as set forth on Schedule 3(l), none of the Company's tax
returns is presently being audited by any taxing authority.
m. Certain Transactions. Except as set forth on Schedule 3(m) and
except for arm's length transactions pursuant to which the Company or any
of its Subsidiaries makes payments in the ordinary course of business upon
terms no less favorable than the Company or any of its Subsidiaries could
obtain from third parties and other than the grant of stock options
disclosed on Schedule 3(c), none of the officers, directors, or employees
of the Company is presently a party to any transaction with the Company or
any of its Subsidiaries (other than for services as employees, officers and
directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental of
real or personal property to or from, or otherwise requiring payments to or
from any officer, director or such employee or, to the knowledge of the
Company, any corporation, partnership, trust or other entity in which any
officer, director, or any such employee has a substantial interest or is an
officer, director, trustee or partner.
n. Disclosure. All information relating to or concerning the Company
or any of its Subsidiaries set forth in this Agreement and provided to the
Buyers pursuant to Section 2(d) hereof and otherwise in connection with the
transactions contemplated hereby is true and correct in all material
respects and the Company has not omitted to state any material fact
necessary in order to make the statements made herein or therein, in light
of the circumstances under which they were made, not misleading. No event
or circumstance has occurred or exists with respect to the Company or any
of its Subsidiaries or its or their business, properties, prospects,
operations or financial conditions, which, under applicable law, rule or
regulation, requires public disclosure or announcement by the Company but
which has not been so publicly announced or disclosed (assuming for this
purpose that the Company's reports filed under the 1934 Act are being
incorporated into an effective registration statement filed by the Company
under the 1933 Act).
o. Acknowledgment Regarding Buyers' Purchase of Securities. The
Company acknowledges and agrees that the Buyers are acting solely in the
capacity of arm's length purchasers with respect to this Agreement and the
transactions contemplated hereby. The Company further acknowledges that no
Buyer is acting as a financial advisor or fiduciary of the Company (or in
any similar capacity) with respect to this Agreement and the transactions
contemplated hereby and any statement made by any Buyer or any of their
respective representatives or agents in connection with this Agreement and
the transactions contemplated hereby is not advice or a recommendation and
is merely incidental to the Buyers' purchase of the Securities. The Company
further represents to each Buyer that the Company's decision to enter into
this Agreement has been based solely on the independent evaluation of the
Company and its representatives.
p. No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales in any security or solicited any offers
to buy any security under circumstances that would require registration
under the 1933 Act of the issuance of the Securities to the Buyers. The
issuance of the Securities to the Buyers will not be integrated with any
other issuance of the Company's securities (past, current or future) for
purposes of any shareholder approval provisions applicable to the Company
or its securities.
q. No Brokers. The Company has taken no action which would give rise
to any claim by any person for brokerage commissions, transaction fees or
similar payments relating to this Agreement or the transactions
contemplated hereby.
r. Permits; Compliance. The Company and each of its Subsidiaries is in
possession of all franchises, grants, authorizations, licenses, permits,
easements, variances, exemptions, consents, certificates, approvals and
orders necessary to own, lease and operate its properties and to carry on
its business as it is now being conducted (collectively, the "Company
Permits"), and there is no action pending or, to the knowledge of the
Company, threatened regarding suspension or cancellation of any of the
Company Permits. Neither the Company nor any of its Subsidiaries is in
conflict with, or in default or violation of, any of the Company Permits,
except for any such conflicts, defaults or violations which, individually
or in the aggregate, would not reasonably be expected to have a Material
Adverse Effect. Since December 31, 2002, neither the Company nor any of its
Subsidiaries has received any notification with respect to possible
conflicts, defaults or violations of applicable laws, except for notices
relating to possible conflicts, defaults or violations, which conflicts,
defaults or violations would not have a Material Adverse Effect.
s. Environmental Matters.
(i) Except as set forth in Schedule 3(s), there are, to the
Company's knowledge, with respect to the Company or any of its
Subsidiaries or any predecessor of the Company, no past or present
violations of Environmental Laws (as defined below), releases of any
material into the environment, actions, activities, circumstances,
conditions, events, incidents, or contractual obligations which may
give rise to any common law environmental liability or any liability
under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 or similar federal, state, local or foreign laws
and neither the Company nor any of its Subsidiaries has received any
notice with respect to any of the foregoing, nor is any action pending
or, to the Company's knowledge, threatened in connection with any of
the foregoing. The term "Environmental Laws" means all federal, state,
local or foreign laws relating to pollution or protection of human
health or the environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata),
including, without limitation, laws relating to emissions, discharges,
releases or threatened releases of chemicals, pollutants contaminants,
or toxic or hazardous substances or wastes (collectively, "Hazardous
Materials") into the environment, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials, as well as all
authorizations, codes, decrees, demands or demand letters,
injunctions, judgments, licenses, notices or notice letters, orders,
permits, plans or regulations issued, entered, promulgated or approved
thereunder.
(ii) Other than those that are or were stored, used or
disposed of in compliance with applicable law, no Hazardous
Materials are contained on or about any real property currently
owned, leased or used by the Company or any of its Subsidiaries,
and no Hazardous Materials were released on or about any real
property previously owned, leased or used by the Company or any
of its Subsidiaries during the period the property was owned,
leased or used by the Company or any of its Subsidiaries, except
in the normal course of the Company's or any of its Subsidiaries'
business.
(iii) Except as set forth in Schedule 3(s), there are no
underground storage tanks on or under any real property owned,
leased or used by the Company or any of its Subsidiaries that are
not in compliance with applicable law.
t. Title to Property. The Company and its Subsidiaries have good and
marketable title in fee simple to all real property and good and marketable
title to all personal property owned by them which is material to the
business of the Company and its Subsidiaries, in each case free and clear
of all liens, encumbrances and defects except such as are described in
Schedule 3(t) or such as would not have a Material Adverse Effect. Any real
property and facilities held under lease by the Company and its
Subsidiaries are held by them under valid, subsisting and enforceable
leases with such exceptions as would not have a Material Adverse Effect.
u. Insurance. The Company and each of its Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as management of the Company believes to be
prudent and customary in the businesses in which the Company and its
Subsidiaries are engaged. Neither the Company nor any such Subsidiary has
any reason to believe that it will not be able to renew its existing
insurance coverage as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue its business
at a cost that would not have a Material Adverse Effect. The Company has
provided to Buyer true and correct copies of all policies relating to
directors' and officers' liability coverage, errors and omissions coverage,
and commercial general liability coverage.
v. Internal Accounting Controls. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient,
in the judgment of the Company's board of directors, to provide reasonable
assurance that (i) transactions are executed in accordance with
management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain
asset accountability, (iii) access to assets is permitted only in
accordance with management's general or specific authorization and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
w. Foreign Corrupt Practices. Neither the Company, nor any of its
Subsidiaries, nor any director, officer, agent, employee or other person
acting on behalf of the Company or any Subsidiary has, in the course of his
actions for, or on behalf of, the Company, used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expenses
relating to political activity; made any direct or indirect unlawful
payment to any foreign or domestic government official or employee from
corporate funds; violated or is in violation of any provision of the U.S.
Foreign Corrupt Practices Act of 1977, as amended, or made any bribe,
rebate, payoff, influence payment, kickback or other unlawful payment to
any foreign or domestic government official or employee.
x. Solvency. Except as set forth in Schedule 3(x), the Company (after
giving effect to the transactions contemplated by this Agreement) is
solvent (i.e., its assets have a fair market value in excess of the amount
required to pay its probable liabilities on its existing debts as they
become absolute and matured) and currently the Company has no information
that would lead it to reasonably conclude that the Company would not, after
giving effect to the transaction contemplated by this Agreement, have the
ability to, nor does it intend to take any action that would impair its
ability to, pay its debts from time to time incurred in connection
therewith as such debts mature. Except as set forth in Schedule 3(x), the
Company did not receive a qualified opinion from its auditors with respect
to its most recent fiscal year end and, after giving effect to the
transactions contemplated by this Agreement, does not anticipate or know of
any basis upon which its auditors might issue a qualified opinion in
respect of its current fiscal year.
y. No Investment Company. The Company is not, and upon the issuance
and sale of the Securities as contemplated by this Agreement will not be an
"investment company" required to be registered under the Investment Company
Act of 1940 (an "Investment Company"). The Company is not controlled by an
Investment Company.
z. Breach of Representations and Warranties by the Company. If the
Company breaches any of the representations or warranties set forth in this
Section 3, and in addition to any other remedies available to the Buyers
pursuant to this Agreement, the Company shall pay to the Buyer the Standard
Liquidated Damages Amount in cash or in shares of Common Stock at the
option of the Company, until such breach is cured. If the Company elects to
pay the Standard Liquidated Damages Amounts in shares of Common Stock, such
shares shall be issued at the Conversion Price at the time of payment.
4. COVENANTS.
a. Best Efforts. The parties shall use their best efforts to satisfy
timely each of the conditions described in Section 6 and 7 of this
Agreement.
b. Form D; Blue Sky Laws. The Company agrees to file a Form D with
respect to the Securities as required under Regulation D and to provide a
copy thereof to each Buyer promptly after such filing. The Company shall,
on or before the Closing Date, take such action as the Company shall
reasonably determine is necessary to qualify the Securities for sale to the
Buyers at the applicable closing pursuant to this Agreement under
applicable securities or "blue sky" laws of the states of the United States
(or to obtain an exemption from such qualification), and shall provide
evidence of any such action so taken to each Buyer on or prior to the
Closing Date.
c. Reporting Status; Eligibility to Use Form S-3, SB-2 or Form S-1.
The Company's Common Stock is registered under Section 12(g) of the 1934
Act. The Company represents and warrants that it meets the requirements for
the use of Form S-3 (or if the Company is not eligible for the use of Form
S-3 as of the Filing Date (as defined in the Registration Rights
Agreement), the Company may use the form of registration for which it is
eligible at that time) for registration of the sale by the Buyer of the
Registrable Securities (as defined in the Registration Rights Agreement).
So long as the Buyer beneficially owns any of the Securities, the Company
shall timely file all reports required to be filed with the SEC pursuant to
the 1934 Act, and the Company shall not terminate its status as an issuer
required to file reports under the 1934 Act even if the 1934 Act or the
rules and regulations thereunder would permit such termination. The Company
further agrees to file all reports required to be filed by the Company with
the SEC in a timely manner so as to become eligible, and thereafter to
maintain its eligibility, for the use of Form S-3. The Company shall issue
a press release describing the material terms of the transaction
contemplated hereby as soon as practicable following the Closing Date but
in no event more than two (2) business days of the Closing Date, which
press release shall be subject to prior review by the Buyers. The Company
agrees that such press release shall not disclose the name of the Buyers
unless expressly consented to in writing by the Buyers or unless required
by applicable law or regulation, and then only to the extent of such
requirement.
d. Use of Proceeds. The Company shall use the proceeds from the sale
of the Debentures in the manner set forth in Schedule 4(d) attached hereto
and made a part hereof and shall not, directly or indirectly, use such
proceeds for any loan to or investment in any other corporation,
partnership, enterprise or other person (except in connection with its
currently existing direct or indirect Subsidiaries)
e. Future Offerings. Subject to the exceptions described below, the
Company will not, without the prior written consent of a
majority-in-interest of the Buyers, not to be unreasonably withheld,
negotiate or contract with any party to obtain additional equity financing
(including debt financing with an equity component) that involves (A) the
issuance of Common Stock at a discount to the market price of the Common
Stock on the date of issuance (taking into account the value of any
warrants or options to acquire Common Stock issued in connection therewith)
or (B) the issuance of convertible securities that are convertible into an
indeterminate number of shares of Common Stock or (C) the issuance of
warrants during the period (the "Lock-up Period") beginning on the Closing
Date and ending on the later of (i) two hundred seventy (270) days from the
Closing Date and (ii) one hundred eighty (180) days from the date the
Registration Statement (as defined in the Registration Rights Agreement) is
declared effective (plus any days in which sales cannot be made
thereunder). In addition, subject to the exceptions described below, the
Company will not conduct any equity financing (including debt with an
equity component) ("Future Offerings") during the period beginning on the
Closing Date and ending two (2) years after the end of the Lock-up Period
unless it shall have first delivered to each Buyer, at least twenty (20)
business days prior to the closing of such Future Offering, written notice
describing the proposed Future Offering, including the terms and conditions
thereof and proposed definitive documentation to be entered into in
connection therewith, and providing each Buyer an option during the fifteen
(15) day period following delivery of such notice to purchase its pro rata
share (based on the ratio that the aggregate principal amount of Debentures
purchased by it hereunder bears to the aggregate principal amount of
Debentures purchased hereunder) of the securities being offered in the
Future Offering on the same terms as contemplated by such Future Offering
(the limitations referred to in this sentence and the preceding sentence
are collectively referred to as the "Capital Raising Limitations"). In the
event the terms and conditions of a proposed Future Offering are amended in
any respect after delivery of the notice to the Buyers concerning the
proposed Future Offering, the Company shall deliver a new notice to each
Buyer describing the amended terms and conditions of the proposed Future
Offering and each Buyer thereafter shall have an option during the fifteen
(15) day period following delivery of such new notice to purchase its pro
rata share of the securities being offered on the same terms as
contemplated by such proposed Future Offering, as amended. The foregoing
sentence shall apply to successive amendments to the terms and conditions
of any proposed Future Offering. The Capital Raising Limitations shall not
apply to any transaction involving (i) issuances of securities in a firm
commitment underwritten public offering (excluding a continuous offering
pursuant to Rule 415 under the 0000 Xxx) or (ii) issuances of securities as
consideration for a merger, consolidation or purchase of assets, or in
connection with any strategic partnership or joint venture (the primary
purpose of which is not to raise equity capital), or in connection with the
disposition or acquisition of a business, product or license by the
Company. The Capital Raising Limitations also shall not apply to the
issuance of securities upon exercise or conversion of the Company's
options, warrants or other convertible securities outstanding as of the
date hereof or to the grant of additional options or warrants, or the
issuance of additional securities, under any Company stock option or
restricted stock plan approved by the shareholders of the Company.
f. Expenses. At the Closing, the Company shall reimburse Buyers for
expenses incurred by them in connection with the negotiation, preparation,
execution, delivery and performance of this Agreement and the other
agreements to be executed in connection herewith ("Documents"), including,
without limitation, attorneys' and consultants' fees and expenses, transfer
agent fees, fees for stock quotation services, fees relating to any
amendments or modifications of the Documents or any consents or waivers of
provisions in the Documents, fees for the preparation of opinions of
counsel, escrow fees, and costs of restructuring the transactions
contemplated by the Documents. When possible, the Company must pay these
fees directly, otherwise the Company must make immediate payment for
reimbursement to the Buyers for all fees and expenses immediately upon
written notice by the Buyer or the submission of an invoice by the Buyer If
the Company fails to reimburse the Buyer in full within three (3) business
days of the written notice or submission of invoice by the Buyer, the
Company shall pay interest on the total amount of fees to be reimbursed at
a rate of 15% per annum.
g. Financial Information. The Company agrees to send the following
reports to each Buyer until such Buyer transfers, assigns, or sells all of
the Securities: (i) within ten (10) days after the filing with the SEC, a
copy of its Annual Report on Form 10-KSB, its Quarterly Reports on Form
10-QSB and any Current Reports on Form 8-K; (ii) within one (1) day after
release, copies of all press releases issued by the Company or any of its
Subsidiaries; and (iii) contemporaneously with the making available or
giving to the shareholders of the Company, copies of any notices or other
information the Company makes available or gives to such shareholders.
h. Authorization and Reservation of Shares. Subject to Stockholder
Approval (as defined in Section 4(l)), the Company shall at all times have
authorized, and reserved for the purpose of issuance, a sufficient number
of shares of Common Stock to provide for the full conversion of the
outstanding Debentures and issuance of the Conversion Shares in connection
therewith (based on the Conversion Price of the Debentures in effect from
time to time) and as otherwise required by the Debentures. The Company
shall not reduce the number of shares of Common Stock reserved for issuance
upon conversion of Debentures without the consent of each Buyer. The
Company shall at all times maintain the number of shares of Common Stock so
reserved for issuance at an amount ("Reserved Amount") equal to no less
than two (2) times the number that is then actually issuable upon full
conversion of the Debentures (based on the Conversion Price of the
Debentures in effect from time to time). If at any time the number of
shares of Common Stock authorized and reserved for issuance ("Authorized
and Reserved Shares") is below the Reserved Amount, the Company will
promptly take all corporate action necessary to authorize and reserve a
sufficient number of shares, including, without limitation, calling a
special meeting of shareholders to authorize additional shares to meet the
Company's obligations under this Section 4(h), in the case of an
insufficient number of authorized shares, obtain shareholder approval of an
increase in such authorized number of shares, and voting the management
shares of the Company in favor of an increase in the authorized shares of
the Company to ensure that the number of authorized shares is sufficient to
meet the Reserved Amount. If the Company fails to obtain such shareholder
approval within thirty (30) days following the date on which the Reserved
Amount exceeds the number of Authorized and Reserved Shares, the Company
shall pay to the Borrower the Standard Liquidated Damages Amount, in cash
or in shares of Common Stock at the option of the Buyer. If the Buyer
elects to be paid the Standard Liquidated Damages Amount in shares of
Common Stock, such shares shall be issued at the Conversion Price at the
time of payment. In order to ensure that the Company has authorized a
sufficient amount of shares to meet the Reserved Amount at all times, the
Company must deliver to the Buyer at the end of every month a list
detailing (1) the current amount of shares authorized by the Company and
reserved for the Buyer; and (2) amount of shares issuable upon conversion
of the Debentures and as payment of interest accrued on the Debentures for
two years. If the Company fails to provide such list within five (5)
business days of the end of each month, the Company shall pay the Standard
Liquidated Damages Amount, in cash or in shares of Common Stock at the
option of the Company, until the list is delivered. If the Buyer elects to
be paid the Standard Liquidated Damages Amount in shares of Common Stock,
such shares shall be issued at the Conversion Price at the time of payment.
i. Listing. The Company shall promptly secure the listing of the
Conversion Shares upon each national securities exchange or automated
quotation system, if any, upon which shares of Common Stock are then listed
(subject to official notice of issuance) and, so long as any Buyer owns any
of the Securities, shall maintain, so long as any other shares of Common
Stock shall be so listed, such listing of all Conversion Shares from time
to time issuable upon conversion of the Debentures. The Company will obtain
and, so long as any Buyer owns any of the Securities, maintain the listing
and trading of its Common Stock on the OTCBB or any equivalent replacement
exchange, the Nasdaq National Market ("Nasdaq"), the Nasdaq SmallCap Market
("Nasdaq SmallCap"), the New York Stock Exchange ("NYSE"), or the American
Stock Exchange ("AMEX") and will comply in all respects with the Company's
reporting, filing and other obligations under the bylaws or rules of the
National Association of Securities Dealers ("NASD") and such exchanges, as
applicable. The Company shall promptly provide to each Buyer copies of any
notices it receives from the OTCBB and any other exchanges or quotation
systems on which the Common Stock is then listed regarding the continued
eligibility of the Common Stock for listing on such exchanges and quotation
systems.
j. Corporate Existence. So long as a Buyer beneficially owns any
Debentures, the Company shall maintain its corporate existence and shall
not sell all or substantially all of the Company's assets, except in the
event of a merger or consolidation or sale of all or substantially all of
the Company's assets, where the surviving or successor entity in such
transaction (i) assumes the Company's obligations hereunder and under the
agreements and instruments entered into in connection herewith and (ii) is
a publicly traded corporation whose Common Stock is listed for trading on
the OTCBB, Nasdaq, Nasdaq SmallCap, NYSE or AMEX.
k. No Integration. The Company shall not make any offers or sales of
any security (other than the Securities) under circumstances that would
require registration of the Securities being offered or sold hereunder
under the 1933 Act or cause the offering of the Securities to be integrated
with any other offering of securities by the Company for the purpose of any
stockholder approval provision applicable to the Company or its securities.
l. Stockholder Approval. The Company shall file a proxy statement or
information statement with the SEC no later than September 5, 2003 and use
its best efforts to file the Certificate of Amendment to the Certificate of
Incorporation, on or before November 7, 2003, increasing the Company's
authorized shares of Common Stock so that the Company can issue all of the
shares of Common Stock issuable upon conversion or exercise of, or
otherwise with respect to, the Debentures in accordance with Nevada law and
any applicable rules or regulations of the OTCBB and Nasdaq (the
"Stockholder Approval"). The Company shall furnish to each Buyer and its
legal counsel promptly (but in no event less than two (2) business days)
before the same is filed with the SEC, one copy of the proxy statement or
information statement and any amendment thereto, and shall deliver to each
Buyer promptly each letter written by or on behalf of the Company to the
SEC or the staff of the SEC, and each item of correspondence from the SEC
or the staff of the SEC, in each case relating to such proxy statement or
information statement (other than any portion thereof which contains
information for which the Company has sought confidential treatment). The
Company will promptly (but in no event more than three (3) business days)
respond to any and all comments received from the SEC (which comments shall
promptly be made available to each Buyer). The Company shall comply with
the filing and disclosure requirements of Section 14 under the 1934 Act in
connection with the Stockholder Approval. The Company represents and
warrants that its Board of Directors has approved the proposal contemplated
by this Section 4(l) and shall indicate such approval in the proxy
statement or information statement used in connection with the Stockholder
Approval.
m. Breach of Covenants. If the Company breaches any of the covenants
set forth in this Section 4, and in addition to any other remedies
available to the Buyers pursuant to this Agreement, the Company shall pay
to the Buyers the Standard Liquidated Damages Amount, in cash or in shares
of Common Stock at the option of the Company, until such breach is cured.
If the Company elects to pay the Standard Liquidated Damages Amount in
shares, such shares shall be issued at the Conversion Price at the time of
payment.
5. TRANSFER AGENT INSTRUCTIONS. The Company shall issue irrevocable
instructions to its transfer agent to issue certificates, registered in the name
of each Buyer or its nominee, for the Conversion Shares in such amounts as
specified from time to time by each Buyer to the Company upon conversion of the
Debentures in accordance with the terms thereof (the "Irrevocable Transfer Agent
Instructions"). Prior to registration of the Conversion Shares under the 1933
Act or the date on which the Conversion Shares may be sold pursuant to Rule 144
without any restriction as to the number of Securities as of a particular date
that can then be immediately sold, all such certificates shall bear the
restrictive legend specified in Section 2(g) of this Agreement. The Company
warrants that no instruction other than the Irrevocable Transfer Agent
Instructions referred to in this Section 5, and stop transfer instructions to
give effect to Section 2(f) hereof (in the case of the Conversion Shares prior
to registration of the Conversion Shares under the 1933 Act or the date
on which the Conversion Shares may be sold pursuant to Rule 144 without any
restriction as to the number of Securities as of a particular date that can then
be immediately sold), will be given by the Company to its transfer agent and
that the Securities shall otherwise be freely transferable on the books and
records of the Company as and to the extent provided in this Agreement and the
Registration Rights Agreement. Nothing in this Section shall affect in any way
the Buyer's obligations and agreement set forth in Section 2(g) hereof to comply
with all applicable prospectus delivery requirements, if any, upon re-sale of
the Securities. If a Buyer provides the Company with (i) an opinion of counsel
in form, substance and scope customary for opinions in comparable transactions,
to the effect that a public sale or transfer of such Securities may be made
without registration under the 1933 Act and such sale or transfer is effected or
(ii) the Buyer provides reasonable assurances that the Securities can be sold
pursuant to Rule 144, the Company shall permit the transfer, and, in the case of
the Conversion Shares, promptly instruct its transfer agent to issue one or more
certificates, free from restrictive legend, in such name and in such
denominations as specified by such Buyer. The Company acknowledges that a breach
by it of its obligations hereunder will cause irreparable harm to the Buyers, by
vitiating the intent and purpose of the transactions contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach of its
obligations under this Section 5 may be inadequate and agrees, in the event of a
breach or threatened breach by the Company of the provisions of this Section,
that the Buyers shall be entitled, in addition to all other available remedies,
to an injunction restraining any breach and requiring immediate transfer,
without the necessity of showing economic loss and without any bond or other
security being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The obligation of the
Company hereunder to issue and sell the Debentures to a Buyer at the Closing is
subject to the satisfaction, at or before the Closing Date of each of the
following conditions thereto, provided that these conditions are for the
Company's sole benefit and may be waived by the Company at any time in its sole
discretion:
a. The applicable Buyer shall have executed this Agreement and the
Registration Rights Agreement, and delivered the same to the Company.
b. The applicable Buyer shall have delivered the Purchase Price in
accordance with Section 1(b) above.
c. The representations and warranties of the applicable Buyer shall be
true and correct in all material respects as of the date when made and as
of the Closing Date as though made at that time (except for representations
and warranties that speak as of a specific date), and the applicable Buyer
shall have performed, satisfied and complied in all material respects with
the covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the applicable Buyer at or prior
to the Closing Date.
d. No litigation, statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or
endorsed by or in any court or governmental authority of competent
jurisdiction or any self-regulatory organization having authority over the
matters contemplated hereby which prohibits the consummation of any of the
transactions contemplated by this Agreement.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE. The obligation of
each Buyer hereunder to purchase the Debentures at the Closing is subject to the
satisfaction, at or before the Closing Date of each of the following conditions,
provided that these conditions are for such Buyer's sole benefit and may be
waived by such Buyer at any time in its sole discretion:
a. The Company shall have executed this Agreement and the Registration
Rights Agreement, and delivered the same to the Buyer.
b. The Company shall have delivered to such Buyer duly executed
Debentures (in such denominations as the Buyer shall request) in accordance
with Section 1(b) above.
c. The Irrevocable Transfer Agent Instructions, in form and substance
satisfactory to a majority-in-interest of the Buyers, shall have been
delivered to and acknowledged in writing by the Company's Transfer Agent.
d. The representations and warranties of the Company shall be true and
correct in all material respects as of the date when made and as of the
Closing Date as though made at such time (except for representations and
warranties that speak as of a specific date) and the Company shall have
performed, satisfied and complied in all material respects with the
covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the Company at or prior to the
Closing Date. The Buyer shall have received a certificate or certificates,
executed by the chief executive officer of the Company, dated as of the
Closing Date, to the foregoing effect and as to such other matters as may
be reasonably requested by such Buyer including, but not limited to
certificates with respect to the Company's Articles of Incorporation,
By-laws and Board of Directors' resolutions relating to the transactions
contemplated hereby.
e. No litigation, statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or
endorsed by or in any court or governmental authority of competent
jurisdiction or any self-regulatory organization having authority over the
matters contemplated hereby which prohibits the consummation of any of the
transactions contemplated by this Agreement.
f. No event shall have occurred which could reasonably be expected to
have a Material Adverse Effect on the Company.
g. The Conversion Shares shall have been authorized for quotation on
the OTCBB and trading in the Common Stock on the OTCBB shall not have been
suspended by the SEC or the OTCBB.
h. The Buyer shall have received an opinion of the Company's counsel,
dated as of the Closing Date, in form, scope and substance reasonably
satisfactory to the Buyer and in substantially the same form as Exhibit "C"
attached hereto.
i. The Buyer shall have received an officer's certificate described in
Section 3(c) above, dated as of the Closing Date.
j. The merger of GlobalNet, Inc. with and into the Company shall have
become effective.
8. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law. THIS AGREEMENT SHALL BE ENFORCED, GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE
TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT
REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS. THE PARTIES HERETO HEREBY
SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES FEDERAL COURTS
LOCATED IN NEW YORK, NEW YORK WITH RESPECT TO ANY DISPUTE ARISING UNDER
THIS AGREEMENT, THE AGREEMENTS ENTERED INTO IN CONNECTION HEREWITH OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. BOTH PARTIES IRREVOCABLY WAIVE
THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH SUIT OR
PROCEEDING. BOTH PARTIES FURTHER AGREE THAT SERVICE OF PROCESS UPON A PARTY
MAILED BY FIRST CLASS MAIL SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE
SERVICE OF PROCESS UPON THE PARTY IN ANY SUCH SUIT OR PROCEEDING. NOTHING
HEREIN SHALL AFFECT EITHER PARTY'S RIGHT TO SERVE PROCESS IN ANY OTHER
MANNER PERMITTED BY LAW. BOTH PARTIES AGREE THAT A FINAL NON-APPEALABLE
JUDGMENT IN ANY SUCH SUIT OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE
ENFORCED IN OTHER JURISDICTIONS BY SUIT ON SUCH JUDGMENT OR IN ANY OTHER
LAWFUL MANNER. THE PARTY WHICH DOES NOT PREVAIL IN ANY DISPUTE ARISING
UNDER THIS AGREEMENT SHALL BE RESPONSIBLE FOR ALL FEES AND EXPENSES,
INCLUDING ATTORNEYS' FEES, INCURRED BY THE PREVAILING PARTY IN CONNECTION
WITH SUCH DISPUTE.
b. Counterparts; Signatures by Facsimile. This Agreement may be
executed in one or more counterparts, each of which shall be deemed an
original but all of which shall constitute one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party. This Agreement, once executed by a party, may
be delivered to the other party hereto by facsimile transmission of a copy
of this Agreement bearing the signature of the party so delivering this
Agreement. c. Headings. The headings of this Agreement are for convenience
of reference only and shall not form part of, or affect the interpretation
of, this Agreement.
d. Severability. In the event that any provision of this Agreement is
invalid or unenforceable under any applicable statute or rule of law, then
such provision shall be deemed inoperative to the extent that it may
conflict therewith and shall be deemed modified to conform with such
statute or rule of law. Any provision hereof which may prove invalid or
unenforceable under any law shall not affect the validity or enforceability
of any other provision hereof.
e. Entire Agreement; Amendments. This Agreement and the instruments
referenced herein contain the entire understanding of the parties with
respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither the Company nor the Buyer
makes any representation, warranty, covenant or undertaking with respect to
such matters. No provision of this Agreement may be waived or amended other
than by an instrument in writing signed by the party to be charged with
enforcement.
f. Notices. Any notices required or permitted to be given under the
terms of this Agreement shall be sent by certified or registered mail
(return receipt requested) or delivered personally or by courier (including
a recognized overnight delivery service) or by facsimile and shall be
effective five days after being placed in the mail, if mailed by regular
United States mail, or upon receipt, if delivered personally or by courier
(including a recognized overnight delivery service) or by facsimile, in
each case addressed to a party. The addresses for such communications shall
be:
If to the Company:
iDial Networks, Inc.
0000 Xxxxxxxxxx Xxxxx
Xxxxx 000
Xxx Xxxxxxxxx, Xxxxx 00000
Attention: Xxxx X. Xxxx
Telephone: 000-000-0000
Facsimile: 000-000-0000
With a copy to:
Sichenzia Xxxx Xxxxxxxx Xxxxxxx LLP
1065 Avenue of the Xxxxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxx Xxxxxxxxx, Esq.
Telephone: 000-000-0000
Facsimile: 212-930-9725
Email: XXxxxxxxxx@xxxxxx.xxx
If to a Buyer: To the address set forth immediately below such Buyer's
name on the signature pages hereto.
With copy to:
Xxxxxxx Xxxxx Xxxxxxx & Ingersoll, LLP
0000 Xxxxxx Xxxxxx
00xx Xxxxx
Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000
Attention: Xxxxxx X. Xxxxxxxx, Esq.
Telephone: 000-000-0000
Facsimile: 000-000-0000
Email: xxxxxxxx@xxxxxxxxxxxx.xxx
Each party shall provide notice to the other party of any change in
address.
g. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and assigns.
Neither the Company nor any Buyer shall assign this Agreement or any rights
or obligations hereunder without the prior written consent of the other;
provided, however, that, subject to Section 2(f), any Buyer may assign its
rights hereunder to any person that purchases Securities in a private
transaction from a Buyer or to any of its "affiliates," as that term is
defined under the 1934 Act, without the consent of the Company.
h. Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.
i. Survival. The representations and warranties of the Company and the
agreements and covenants set forth in Sections 3, 4, 5 and 8 shall survive
the closing hereunder notwithstanding any due diligence investigation
conducted by or on behalf of the Buyers. The Company agrees to indemnify
and hold harmless each of the Buyers and all their officers, directors,
employees and agents for loss or damage arising as a result of or related
to any breach or alleged breach by the Company of any of its
representations, warranties and covenants set forth in Sections 3 and 4
hereof or any of its covenants and obligations under this Agreement or the
Registration Rights Agreement, including advancement of expenses as they
are incurred.
j. Publicity. The Company and each of the Buyers shall have the right
to review a reasonable period of time before issuance of any press
releases, SEC, OTCBB or NASD filings, or any other public statements with
respect to the transactions contemplated hereby; provided, however, that
the Company shall be entitled, without the prior approval of each of the
Buyers, to make any press release or SEC, OTCBB (or other applicable
trading market) or NASD filings with respect to such transactions as is
required by applicable law and regulations (although each of the Buyers
shall be consulted by the Company in connection with any such press release
prior to its release and shall be provided with a copy thereof and be given
an opportunity to comment thereon).
k. Further Assurances. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents,
as the other party may reasonably request in order to carry out the intent
and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
l. No Strict Construction. The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any
party.
m. Remedies. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the Buyers by
vitiating the intent and purpose of the transaction contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach
of its obligations under this Agreement will be inadequate and agrees, in
the event of a breach or threatened breach by the Company of the provisions
of this Agreement, that the Buyers shall be entitled, in addition to all
other available remedies at law or in equity, and in addition to the
penalties assessable herein, to an injunction or injunctions restraining,
preventing or curing any breach of this Agreement and to enforce
specifically the terms and provisions hereof, without the necessity of
showing economic loss and without any bond or other security being
required.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the undersigned Buyers and the Company have caused
this Agreement to be duly executed as of the date first above written.
IDIAL NETWORKS, INC.
--------------------------------
Xxxx X. Xxxx
Chief Executive Officer
AJW PARTNERS, LLC
By: SMS Group, LLC
--------------------------------------
Xxxxx X. Xxxxxxxx
Manager
RESIDENCE: Delaware
ADDRESS: 0000 Xxxxxxxx Xxxxxxxxx
Xxxxx 000
Xxxxxx, Xxx Xxxx 00000
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Principal Amount of Debentures: $275,000
Aggregate Purchase Price: $275,000
AJW OFFSHORE, LTD.
By: First Street Manager II, LLC
--------------------------------------
Xxxxx X. Xxxxxxxx
Manager
RESIDENCE: Cayman Islands
ADDRESS: AJW Offshore, Ltd.
X.X. Xxx 00000 XXX
Xxxxx Xxxxxx, Xxxxxx Xxxxxx, B.W.I.
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Principal Amount of Debentures: $275,000
Aggregate Purchase Price: $275,000
AJW QUALIFIED PARTNERS, LLC
By: AJW Manager, LLC
------------------------------------
Xxxxx X. Xxxxxxxx
Manager
RESIDENCE: New York
ADDRESS: 0000 Xxxxxxxx Xxxxxxxxx
Xxxxx 000
Xxxxxx, Xxx Xxxx 00000
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Principal Amount of Debentures: $450,000
Aggregate Purchase Price: $450,000
NEW MILLENNIUM CAPITAL PARTNERS II, LLC
By: First Street Manager II, LLC
--------------------------------------
Xxxxx X. Xxxxxxxx
Manager
RESIDENCE: New York
ADDRESS: 0000 Xxxxxxxx Xxxxxxxxx
Xxxxx 000
Xxxxxx, Xxx Xxxx 00000
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Principal Amount of Debentures: $150,000
Aggregate Purchase Price: $150,000
AJW MANAGED ACCOUNT
--------------------------------------
Xxxxx X. Xxxxxxxx
Authorized Signatory
RESIDENCE: New York
ADDRESS: 0000 Xxxxxxxx Xxxxxxxxx
Xxxxx 000
Xxxxxx, Xxx Xxxx 00000
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Principal Amount of Debentures: $600,000
Aggregate Purchase Price: $600,000
