EXHIBIT 10.1
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SERIES A CONVERTIBLE PREFERRED STOCK AND COMMON
STOCK PURCHASE WARRANT PURCHASE AGREEMENT
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SERIES A CONVERTIBLE PREFERRED
STOCK AND COMMON STOCK PURCHASE WARRANT PURCHASE AGREEMENT
THIS SERIES A CONVERTIBLE PREFERRED STOCK AND COMMON STOCK PURCHASE WARRANT
PURCHASE AGREEMENT, dated as of February 28, 2002 (together with the Disclosure
Statement, Exhibits and Schedules hereto, the "Agreement"), is entered into
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between Intercallnet, Inc., a Florida corporation (the "Company"), and Stanford
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Venture Capital Holdings, Inc., a Delaware corporation (the "Investor").
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RECITALS
WHEREAS, the Company desires to issue and sell to the Investor for an
aggregate purchase price of $1,500,000 (the "Purchase Price") 1,500,000 shares
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of authorized but unissued Series A Convertible Preferred Stock, $0.0001 par
value per share, of the Company (the "Series A Convertible Preferred Stock") and
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common stock purchase warrants (individually a "Warrant" and collectively the
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"Warrants") to purchase the number of shares of the Company's common stock at
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such exercise prices and through such expiration periods as further described
herein; and
WHEREAS, the Investor desires to purchase the Series A Convertible
Preferred Stock and Warrants on the terms and subject to the conditions set
forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained in this Agreement and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, and intending to be
legally bound, the parties agree as follows:
ARTICLE I
THE PREFERRED SHARES AND WARRANTS
1.01 Recitals. The foregoing recitals are true and correct and are
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incorporated herein by reference thereto.
1.02 Authorization of the Preferred Shares and Warrants. The Company has
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authorized the sale and issuance to the Investor of: (a) 1,500,000 shares (the
"Preferred Shares") of its Series A Convertible Preferred Stock having the
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rights, restrictions, privileges and preferences set forth in the Company's
Amended Articles of Incorporation in the form attached hereto as Exhibit A (as
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amended, the "Articles"); and (b) the Warrants to purchase 6,500,000 shares of
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the Company's common stock at such exercise prices and through such expiration
periods as set forth in the form of each Warrant attached hereto as Exhibit B.
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1.03 Issuance, Sale and Delivery of the Preferred Shares and Warrants.
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Subject to the terms and conditions hereof and in reliance upon the
representations, warranties, covenants and
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agreements contained herein, the Company hereby agrees to issue and sell to the
Investor, and the Investor hereby agrees to purchase from the Company at each
Closing (as hereinafter defined), such number of the Preferred Shares and the
Warrants as is set forth in Section 1.04 below.
1.04 Closing. The closing of the sale and purchase of the Preferred
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Shares and Warrants shall take place at the offices of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ &
▇▇▇▇▇▇▇▇, P.A. ("▇▇▇▇▇▇ ▇▇▇▇▇▇▇"), ▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇
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▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇ at 9:00 a.m. (East Coast time), or at such other
date, time and place as the Company and the Investor shall agree, on each of
three dates (each a "Closing Date" and each a "Closing") as follows:
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(a) 500,000 of the Preferred Shares and 2,166,666 Warrants for U.S.
$500,000 (payable in cash or immediately available funds) on February 28, 2002,
or at such other place, date and time as may be mutually agreed upon by the
Company and the Investor (the "Initial Closing Date"or the "Initial Closing");
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(b) 500,000 of the Preferred Shares and 2,166,666 Warrants for U.S.
$500,000 (payable in cash or immediately available funds) during the week of
March 11, 2002, or at such other place, date and time as may be mutually agreed
upon by the Company and the Investor (the "Second Closing Date" or the "Second
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Closing"); and
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(c) 500,000 of the Preferred Shares and 2,166,668 Warrants for U.S.
$500,000 (payable in cash or immediately available funds) fifteen days after the
Second Closing, or at such other place, date and time as may be mutually agreed
upon by the Company and the Investor (the "Third Closing Date" or the "Third
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Closing").
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Upon the Investor's purchase of the Preferred Shares and the Warrants
at each Closing, as set forth above, the Company shall issue and deliver to the
Investor a stock certificate or certificates and warrant certificate or
certificates in definitive form registered in the name of such Investor (or its
designee) representing such number of Preferred Shares and Warrants purchased at
such Closing. Each such certificate representing Preferred Shares and Warrant
Shares shall bear a restrictive legend restricting transferability under the
Securities Act of 1933, as amended (the "Securities Act") and a legend
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referencing that the Company will furnish the holder of the share certificate
with the designations, rights, preferences, and restrictions pertaining to the
shares represented by the share certificate upon request (the "Preferred Stock
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Legend"). As payment in full for 500,000 of the Preferred Shares and the
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Warrants being purchased by it at each Closing, and against delivery of the
stock certificates therefor as aforesaid on each Closing Date, the Investor
shall deliver to the Company by check or wire transfer $500,000 in U.S. federal
funds (the "Required Disbursement").
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as disclosed in a separate disclosure statement attached hereto
referring to the sections contained in this Article II, which has been delivered
by the Company to the Investor prior to the execution of this Agreement (the
"Disclosure Statement"), the Company hereby represents and warrants to the
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Investor as of the date hereof and as of each Closing Date as follows:
2.01 Organization, Qualification and Corporate Power; Subsidiaries.
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(a) Each of the Company and its wholly-owned subsidiaries,
Inter-Call-Net Teleservices, Inc. ("ICN") and Inter-Call-Net International, Inc.
(incorporated January 30, 2002) ("ICNI") is a duly organized and validly
existing corporation and its status is active under the laws of the State of
Florida and has all requisite corporate power and corporate authority required
for the ownership and operation of its properties and for the carrying on of its
business as now conducted and as now proposed to be conducted. Each of the
Company, ICN and ICNI is duly qualified and is in good standing as a foreign
corporation and authorized to do business in all jurisdictions wherein the
character of the property owned or leased, or the nature of the activities
conducted by it, makes such qualification or authorization necessary, except
where the failure to so qualify or be so authorized would not have a material
adverse effect on the Company's (including each of ICN's and ICNI's) assets,
business, prospects, liabilities, properties, condition (financial or otherwise)
or results of operations taken as a whole (a "Material Adverse Effect"). The
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Company has all requisite corporate power and corporate authority to execute and
deliver this Agreement, the Warrants, the Registration Rights Agreement (as
hereinafter defined), the Shareholders' Agreement (as hereinafter defined), and
the Consulting Agreement (as hereinafter defined) (the Registration Rights
Agreement, the Shareholders' Agreement and the Consulting Agreement are
collectively referred to herein as the "Collateral Agreements"), to perform all
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its obligations hereunder and thereunder, to issue, sell and deliver the
Preferred Shares and Warrants, and to issue and deliver the shares of common
stock, $0.0001 par value per share, of the Company (the "Common Stock") issuable
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upon conversion of the Preferred Shares (the "Conversion Shares") and issuable
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upon exercise of the Warrants (the "Warrant Shares").
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(b) The Company has no subsidiaries or affiliated companies other
than ICN and ICNI and does not own of record or beneficially, directly or
indirectly, (i) any shares of capital stock, securities convertible into capital
stock of any other corporation other than ICN and ICNI, or (ii) any
participating interest in any partnership, joint venture, limited liability
company or other non-corporate business enterprise and does not control,
directly or indirectly, any other entity other than ICN and ICNI.
2.02 Authorization of Agreements, etc.
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(a) The execution and delivery by the Company of this Agreement and
the Collateral Agreements, the performance by the Company of its obligations
hereunder and thereunder, the issuance, sale and delivery in accordance with the
Articles of the Preferred Shares and the Warrants, and the issuance and delivery
of the Conversion Shares and Warrant Shares have been duly authorized by all
requisite corporate action and will not (x) violate (i) any provision of any
applicable law, or any order of any court or other agency of government
applicable to the Company and/or to ICN and/or to ICNI, (ii) the Articles, or
the Articles of Incorporation of each of ICN and ICNI, (iii) the Bylaws of each
of the Company, ICN and ICNI, or (iv) any provision of any mortgage, lease,
indenture, agreement or other instrument to which each of the Company, ICN and
ICNI or any of their respective properties or assets is bound, or (y) conflict
with, result in a breach of or constitute (with due notice or lapse of time or
both) a default under any such indenture, agreement or other instrument, or
result in the creation or imposition of any lien, charge, restriction, claim or
encumbrance of any nature whatsoever upon any of the properties or assets of
each of the Company, ICN and ICNI, except in the case of clauses (x)(iv) and
(y), where such violation, conflict, breach, default or lien would not have a
Material Adverse Effect.
(b) The Preferred Shares and Warrants have been duly authorized and,
when issued, sold and delivered in accordance with this Agreement for the
consideration expressed herein, will be validly issued, fully paid and non-
assessable with no personal liability attaching to the ownership thereof, will
have the rights, preferences, privileges and restrictions described in the
Articles, and will be free and clear of all liens, charges and encumbrances of
any nature whatsoever except for restrictions on transfer under the Collateral
Agreements and under applicable Federal and state securities laws. The
Conversion Shares and Warrant Shares have been duly reserved for issuance upon
conversion of the Preferred Shares and exercise of the Warrants, respectively,
and when so issued pursuant to the provisions of the Articles, will be duly
authorized, validly issued, fully paid and non-assessable shares with no
personal liability attaching to the ownership thereof, will have the rights,
preferences, privileges and restrictions described in the Articles, and will be
free and clear of all liens, charges and encumbrances of any nature whatsoever
except for restrictions on transfer under the Collateral Agreements and under
applicable Federal and state securities laws. Neither the issuance, sale or
delivery of the Preferred Shares and Warrants nor the issuance or delivery of
the Conversion Shares and Warrant Shares is subject to any preemptive right of
shareholders of the Company, or to any right of first refusal or other right in
favor of any Person.
2.03 Validity. This Agreement has been duly executed and delivered by
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the Company and constitutes the legal, valid and binding obligation of the
Company, enforceable in accordance with its terms except (i) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of
general application affecting enforcement of creditors' rights generally, (ii)
as limited by laws relating to the availability of specific performance,
injunctive relief, or other equitable remedies, and (iii) to the extent the
indemnification provisions contained in this Agreement or the Collateral
Agreements may be limited by applicable Federal or state securities laws. The
Collateral Agreements, when executed and delivered in accordance with this
Agreement, will constitute the legal, valid and binding obligations of the
Company, enforceable in accordance with their respective
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terms except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, and other laws of general application affecting
enforcement of creditors' rights generally, (ii) as limited by laws relating to
the availability of specific performance, injunctive relief, or other equitable
remedies, and (iii) to the extent the indemnification provisions contained in
this Agreement or the Collateral Agreements may be limited by applicable Federal
or state securities laws.
2.04 Authorized Capital Stock. Upon the filing of the Articles, the
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authorized capital stock of the Company shall consist of (i) 2,000,000 shares of
preferred stock, $0.0001 par value (the "Preferred Stock"), 1,500,000 of which
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shares have been designated Series A Convertible Preferred Stock, and (ii)
50,000,000 shares of Common Stock. Schedule 2.04 sets forth a capitalization
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table of the Company on a fully-diluted, post-Third Closing basis. Immediately
prior to the Initial Closing, 12,180,735 shares of Common Stock will be issued
and outstanding, and no shares of Preferred Stock will be issued and outstanding
(however, it is planned that Series B Preferred Stock will be authorized and
issued). All issued and outstanding shares of Common Stock of the Company are
duly authorized and validly issued, and are fully paid and non-assessable.
Following receipt of payment pursuant to Section 1.04 hereof, the Preferred
Shares and Warrants issuable in connection with the transactions contemplated
hereby will be duly authorized and validly issued, and will be fully paid and
non-assessable. The designations, powers, preferences, rights, qualifications,
limitations and restrictions in respect of each class and series of authorized
capital stock of the Company will be as set forth in the Articles, and all such
designations, powers, preferences, rights, qualifications, limitations and
restrictions are in accordance with all applicable laws and are legal, valid and
binding obligations of the Company, enforceable in accordance with its terms
except (i) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium, and other laws of general application affecting enforcement of
creditors' rights generally, and (ii) as limited by laws relating to the
availability of specific performance, injunctive relief, or other equitable
remedies. Except as set forth on Section 2.04 of the Disclosure Statement, (i)
no Person owns of record or is known to the Company to own beneficially any
share of Preferred Stock (however, it is planned that Series B Preferred Stock
will be authorized and issued), (ii) no subscription, warrant, option, scrip,
convertible security or other right (contingent or other) to purchase or
otherwise acquire from the Company (or, to the best of the Company's knowledge,
from any other Person or entity) any equity securities of the Company, ICN or
ICNI is authorized or outstanding, and (iii) there are no additional commitments
by the Company to issue shares, subscriptions, warrants, options, scrip,
convertible securities or other such rights or to distribute to holders of any
of its equity securities any evidence of indebtedness or assets. Except as
provided for in the Articles, the Collateral Agreements or as set forth on
Section 2.04 of the Disclosure Statement, the Company has no obligation to
purchase, redeem or otherwise acquire any of its equity securities or any
interest therein or to pay any dividend or make any other distribution in
respect thereof. Except for the Shareholders' Agreement, the Company is not a
party or subject to, and to the Company's knowledge, no other person or entity
is a party or subject to, any voting trusts or agreements, shareholders'
agreements, pledge agreements, buy-sell agreements, rights of first refusal,
preemptive rights (statutory or contractual) or proxies relating to any
securities of the Company. Except as set forth on Section 2.04 of the
Disclosure Statement, there are no restrictions on the transfer of shares of
capital stock of the Company, other than those imposed by relevant Federal and
state securities laws and pursuant to the Collateral
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Agreements. Neither the issuance of the Preferred Shares, the Warrants, the
Conversion Shares or the Warrant Shares will result in any adjustment under the
antidilution or exercise rights of any holders of any outstanding shares of
capital stock, options, warrants or other rights to acquire any security of the
Company. The offer and sale of all shares of capital stock and other securities
of the Company issued before the Initial Closing hereunder complied with or were
exempt from Federal and applicable state securities laws.
2.05 Financial Statements. The audited consolidated financial statements
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of the Company and ICN and notes thereto contained within the Company's Form 10-
KSB for the fiscal year ended June 30, 2001 as filed by the Company with the
U.S. Securities and Exchange Commission ("SEC") under the Securities Exchange
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Act of 1934 (the "Exchange Act"), and the unaudited consolidated financial
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statements of the Company and ICN and notes thereto contained within the
Company's Form 10-QSB for the quarter ended September 30, 2001 as filed by the
Company with the SEC under the Exchange Act and Form 8-K dated January 8, 2002
as filed by the Company with the SEC under the Exchange Act (collectively, the
"Financial Statements") (such Form 10-KSB and Form 10-QSB , the consolidated
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financial statements and notes and exhibits thereto, and Form 8-K as filed by
the Company with the SEC are collectively referred to as the "Exchange Act
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Reports") present fairly in all material respects the financial position of the
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Company and ICN as at the dates thereof and its results of operations the
periods covered thereby, and the Financial Statements have been prepared in
accordance with generally accepted accounting principles ("GAAP") consistently
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applied except as may be indicated therein or in the notes thereto (subject, in
the case of unaudited statements, to normal year-end adjustments) or except as
set forth on Section 2.05 of the Disclosure Statement. Except as set forth in
the Financial Statements or in the Exchange Act Reports or on Section 2.05 of
the Disclosure Statement, (i) each of the Company, ICN and ICNI has no material
liabilities, contingent or otherwise, other than (a) liabilities incurred in the
ordinary course of business subsequent to September 30, 2001, and (b)
obligations under contracts and commitments incurred in the ordinary course of
business and not required under generally accepted accounting principles to be
reflected in the Financial Statements; (ii) there has been no material adverse
change in the assets, business, liabilities, properties, prospects, condition
(financial or otherwise) or results of operations of each of the Company, ICN
and ICNI; (iii) neither the business, condition or operations of each of the
Company, ICN and ICNI nor any of their respective properties or assets has been
materially or adversely affected as a result of any (a) legislative or
regulatory change, any revocation or change in any franchise, license or right
to do business, or any other event or occurrence, whether or not insured
against; (b) any waiver by the Company, ICN or ICNI of a valuable right or of a
material debt owed to any of them; (c) any satisfaction or discharge of any
lien, claim or encumbrance or payment of any obligation by the Company ICN, or
ICNI except in the ordinary course of business and that is not material to the
assets, properties, financial condition, operating results, business or
prospects of the Company; any material change or amendment to a material
contract by which the Company, ICN or ICNI or any of their respective assets or
properties is bound or subject; or (d) any material change in any compensation
arrangement or agreement with any employee; and (vi) neither the Company nor ICN
nor ICNI has entered into any material transaction outside of the ordinary
course of business or made any distribution on its capital stock or other
ownership interest.
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2.06 Litigation, Compliance with Law. Except as set forth in the Exchange
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Act Reports and in Section 2.06 of the Disclosure Statement, there is no (i)
action, suit, claim, proceeding or investigation pending or, to the best of the
Company's knowledge, threatened against or affecting the Company and/or ICN
and/or ICNI, including without limitation, that questions the validity of this
Agreement and any of the Collateral Agreements or the right of the Company to
enter into any of such agreements or to consummate the transactions contemplated
thereby, at law or in equity, or before or by any Federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign; (ii) arbitration proceeding relating to
the Company and/or ICN and/or ICNI pending under collective bargaining
agreements or otherwise; or (iii) governmental inquiry pending or, to the best
of the Company's knowledge, threatened against or affecting the Company and/or
ICN and/or ICNI (including, without limitation, any inquiry as to the
qualification of each of the Company, ICN and ICNI to hold or receive any
license or permit), and, to the best of the Company's knowledge, there is no
reasonable basis for any of the foregoing. Neither the Company nor ICN nor ICNI
have been served with or, to the best of the Company's knowledge, are otherwise
subject to any governmental order, writ, judgment, injunction or decree of any
court or of any Federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign.
There is no action or suit by the Company pending or threatened against others.
Each of the Company, ICN and ICNI has complied in all material respects with all
laws, rules, regulations and orders applicable to their respective business,
operations, properties, assets, products and services, and each of the Company,
ICN and ICNI has all necessary permits, licenses and other authorizations
required to conduct its respective business as conducted and as proposed to be
conducted, except to the extent failure to comply or obtain any such permits,
licenses or authorizations will not have a Material Adverse Effect. There is no
existing law, rule, regulation or order, and the Company is not aware of any
proposed law, rule, regulation or order, whether Federal or state, which would
prohibit or materially restrict the Company and/or ICN and/or ICNI from, or
otherwise materially adversely affect the Company and/or ICN and/or ICNI in
conducting their respective business in any jurisdiction in which each is now
conducting business or in which each proposes to conduct business.
2.07 Proprietary Information of Third Parties. To the best of the
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Company's knowledge, no third party has claimed or has reason to claim that any
Person employed by or affiliated with the Company and/or ICN and/or ICNI has (a)
violated or may be violating to any material extent any of the terms or
conditions of such person's employment, non-competition or non-disclosure
agreement with such third party, (b) disclosed or may be disclosing or utilized
or may be utilizing any trade secret or proprietary information or documentation
of such third party, or (c) interfered or may be interfering in the employment
relationship between such third party and any of its present or former
employees, or has requested information from the Company and/or ICN and/or ICNI
which suggests that such a claim might be contemplated. To the best of the
Company's knowledge, no Person employed by or affiliated with the Company and/or
ICN and/or ICNI has improperly utilized or proposes to improperly utilize any
trade secret or any information or documentation proprietary to any former
employer, and to the best of the Company's knowledge, no Person employed by or
affiliated with the Company and/or ICN and/or ICNI has violated any confidential
relationship which such Person may have had with any third party, in connection
with the development, manufacture or
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sale of any product or proposed product or the development or sale of any
service or proposed service of the Company and/or ICN and/or ICNI, and the
Company has no reason to believe there will be any such employment or violation.
To the best of the Company's knowledge, neither the execution nor delivery of
this Agreement, the Collateral Agreements, and the other related agreements and
documents executed in connection with each Closing hereunder, or the carrying on
of the business of the Company and/or ICN and/or ICNI by any of its officers,
directors, key employees or agents, or the conduct or proposed conduct of the
business of the Company and/or ICN and/or ICNI, will materially conflict with or
result in a material breach of the terms, conditions or provisions of or
constitute a material default under any contract, covenant or instrument under
which any such Person is obligated.
2.08 Title to Assets. Except as set forth on Section 2.08 of the
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Disclosure Statement, each of the Company, ICN and ICNI has valid and marketable
title to all of its assets now carried on its books including those reflected in
the most recent consolidated balance sheet of the Company which forms a part of
the Financial Statements, or acquired since the date of such balance sheet
(except personal property disposed of since said date in the ordinary course of
business), free of any liens, charges or encumbrances of any kind whatsoever,
except such encumbrances and liens that arise in the ordinary course of business
and do not materially impair the Company's and/or ICN's and/or ICNI's ownership
or use of such property or assets set forth on the Financial Statements.
Neither the Company nor ICN nor ICNI owns any real property. Each of the
Company, ICN and ICNI is in compliance in all material respects under all leases
for property and assets under which it is operating, and all said leases are
valid and subsisting and are in full force and effect.
2.09 Insurance. The Company carries insurance covering its, ICN's and
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ICNI's properties and business adequate and customary for the type and scope of
their respective properties and business. Each of the Company's insurance
policies is in full force and effect, and all premiums due and payable have been
paid. Each of the Company, ICN and ICNI are in compliance in all material
respects with the terms and conditions of such policies. Neither the Company
nor ICN nor ICNI has received any notice of cancellation of, or threatening to
cancel any such insurance policy not otherwise timely cured.
2.10 Taxes. Each of the Company, ICN and ICNI has accurately prepared and
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timely filed all Federal, state and other tax returns required by law to be
filed by it, and all taxes (including all withholding taxes) shown to be due and
all additional assessments have been paid or provisions made therefor. The
Company knows of no additional assessments or adjustments pending or threatened
against the Company and/or ICN and/or ICNI for any period, nor of any basis for
any such assessment or adjustment. Neither the Company nor ICN nor ICNI has
elected pursuant to the Internal Revenue Code of 1986, as amended (the "Code"),
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to be treated as a collapsible corporation pursuant to Section 1362(a) or
Section 341(f) of the Code, nor has the Company or ICN or ICNI made any other
elections pursuant to the Code (other than elections that relate solely to
methods of accounting, depreciation or amortization) that would have a Material
Adverse Effect. The federal income tax returns of the Company, ICN and ICNI
have never been audited by the Internal Revenue
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Service and neither the Company nor ICN nor ICNI has received any notice that
any of its returns (federal, state or local) have been or are being audited as
of the date hereof.
2.11 Other Agreements. Except as set forth in the Exchange Act Reports or
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on Section 2.11 of the Disclosure Statement, neither the Company nor ICN nor
ICNI is a party to or otherwise bound by any written or oral contract or
instrument or other restriction which individually or in the aggregate is
material to the business, financial condition, operations, prospects, property
or affairs of the Company and/or ICN and/or ICNI. Except as set forth on
Section 2.11 of the Disclosure Statement, neither the Company nor ICN nor ICNI
is a party to or otherwise bound by any written or oral:
(a) contract or agreement which is not terminable on less than thirty
(30) days notice without cost or other liability to the Company and/or ICN
and/or ICNI (except for contracts which, in the aggregate, are not material to
the business of the Company and/or ICN and/or ICNI);
(b) material contract which entitles any customer to a rebate or
right of set-off, or which varies in any material respect from the Company's
and/or ICN's and/or ICNI's standard form contracts;
(c) contract with any labor union (and, to the knowledge of the
Company, no organizational effort is being made with respect to any of its
and/or ICN's and/or ICNI's employees);
(d) contract or other commitment with any supplier of goods or
services containing any provision permitting any party other than the Company
and/or ICN and/or ICNI to renegotiate the price or other terms, or containing
any pay-back or other similar provision, upon the occurrence of a failure by the
Company and/or ICN and/or ICNI to meet its/their obligations under the contract
when due or the occurrence of any other event;
(e) contract for the future purchase of fixed assets or for the
future purchase of materials, supplies or equipment in excess of its normal
operating requirements;
(f) contract for the employment of any officer, employee or other
natural person (whether of a legally binding nature or in the nature of informal
understandings) on a full-time or consulting basis which is not terminable on
notice without cost or other liability to the Company, except normal severance
arrangements and accrued vacation pay;
(g) bonus, pension, profit-sharing, retirement, hospitalization,
insurance, stock purchase, stock option or other plan, contract or understanding
pursuant to which benefits are provided to any employee of the Company (other
than group insurance plans applicable to employees generally);
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(h) agreement or indenture relating to the borrowing of money or to
the mortgaging or pledging of, or otherwise placing a lien or security interest
on, any asset of the Company and/or ICN and/or ICNI;
(i) guaranty or collateralization of any obligation for borrowed money
or otherwise;
(j) voting trust or agreement, shareholders' agreement, pledge
agreement, buy-sell agreement or first refusal or preemptive rights agreement
relating to any securities of the Company;
(k) agreement, or group of related agreements with the same party or
any group of affiliated parties, under which the Company and/or ICN has advanced
or agreed to advance money or has agreed to lease any property as lessee or
lessor;
(l) agreement or obligation (contingent or otherwise) to issue, sell
or otherwise distribute or to repurchase or otherwise acquire or retire any
share of its capital stock or any of its other equity securities;
(m) assignment, license or other agreement with respect to any form of
intangible property involving in the aggregate more than $25,000 in payments;
(n) agreement under which it has granted any Person any registration
rights (other than pursuant to or as contemplated by this Agreement or the
Collateral Agreements);
(o) agreement under which it has limited or restricted its right to
compete with any Person in any material respect;
(p) other contract or group of related contracts with the same party
involving more than $25,000, which contract or group of contracts is not
terminable by the Company and/or ICN without penalty upon notice of thirty (30)
days or less; or
(q) leases for office facilities and office equipment.
Each of the Company and/or ICN and/or ICNI, and to the best of the
Company's knowledge, each other party thereto have in all material respects
performed all the obligations required to be performed by them to date, have
received no notice of default and are not in default (with due notice or lapse
of time or both) under any lease, agreement or contract now in effect to which
the Company and/or ICN and/or ICNI is a party or by which it or its property may
be bound. Neither the Company nor ICN nor ICNI has any present expectation or
intention of not fully performing all its obligations under each such lease,
contract or other agreement, and the Company has no knowledge of any breach or
anticipated breach by the other party to any such lease, contract or other
agreement. Each of the Company, ICN and ICNI is in full compliance with all of
the terms and provisions of its Articles and Bylaws, each as amended.
10
2.12 Intellectual Property Assets. The Exchange Act Reports set forth all
----------------------------
patents, patent rights, patent applications, trademarks, trademark applications,
service marks, service ▇▇▇▇ applications, trade names and copyrights, and all
applications for such which are in the process of being prepared, owned by or
registered in the name of the Company and/or ICN and/or ICNI, or of which the
Company and/or ICN and/or ICNI is a licensor or licensee or in which the Company
and/or ICN and/or ICNI has any right. Each of the Company, ICN and ICNI has
legal title and ownership of, or full right to use all patents, patent
applications, trademarks, trademark applications, service marks, service ▇▇▇▇
applications, trade names, copyrights, licenses, internal domain names, domain
name reservations, source and object codes, algorithms, architecture, structure,
display, screens, layouts, manufacturing processes, formulae, trade secrets and
know how (collectively, "Intellectual Property") necessary or material to the
---------------------
conduct of its business as currently conducted and as proposed to be conducted,
without any conflict with or infringement of the rights of others, and no claim
is pending or, to the best of the Company's knowledge, threatened to the effect
that the operations of the Company and/or ICN and/or ICNI infringe upon or
conflict with the asserted rights of any other Person under any Intellectual
Property, and, to the best of the Company's knowledge, there is no basis for any
such claim (whether or not pending or threatened). Except as disclosed on
Section 2.12 of the Disclosure Statement, no claim is pending or, to the best of
the Company's knowledge, threatened to the effect that any such Intellectual
Property owned or licensed by the Company and/or ICN and/or ICNI or which the
Company and/or ICN and/or ICNI otherwise has the right to use, is invalid or
unenforceable by the Company and/or ICN and/or ICNI, and, to the best of the
Company's knowledge, there is no basis for any such claim (whether or not
pending or threatened). To the best of the Company's knowledge, all material
technical information developed by and belonging to the Company and/or ICN
and/or ICNI which has not been patented has been kept confidential. Neither the
Company nor ICN nor ICNI has not granted or assigned to any other Person any
right to provide the services or proposed services of the Company and/or ICN
and/or ICNI. Except as set forth in the Exchange Act Reports, neither the
Company nor ICN nor ICNI has no material obligation to compensate any Person for
the use of any Intellectual Property nor has the Company nor ICN nor ICNI
granted to any Person any license or other rights to use in any manner any
Intellectual Property of the Company and/or of ICN and/or of ICNI.
2.13 Investments in Other Persons. Except as set forth on Section 2.13 of
----------------------------
the Disclosure Statement, neither the Company nor ICN nor ICNI has not made any
loan or advance to any Person which is outstanding on the date of this
Agreement, nor is the Company nor ICN nor ICNI obligated or committed to make
any such loan or advance, nor does the Company or ICN or ICNI own any capital
stock or assets comprising the business of, obligations of, or any interest in,
any Person, except in the case of the Company owning all of the issued and
outstanding securities of each of ICN and ICNI.
2.14 Assumptions, Guaranties, etc. of Indebtedness of Other Persons.
--------------------------------------------------------------
Except as set forth in the Exchange Act Reports, neither the Company nor ICN nor
ICNI has assumed, guaranteed, endorsed or otherwise become directly or
contingently liable for any material amount of indebtedness of any other Person
for (including, without limitation, liability by way of agreement, contingent or
otherwise, to purchase, to provide funds for payment, to supply funds to or
otherwise invest in the
11
debtor, or otherwise to assure the creditor against loss), except for guaranties
by endorsement of negotiable instruments for deposit or collection in the
ordinary course of business.
2.15 Significant Customers and Suppliers. Except as set forth in the
-----------------------------------
Exchange Act Reports, since September 30, 2001, no customer or supplier which
was significant to the Company and/or ICN and/or ICNI has terminated, materially
reduced or threatened to terminate or materially reduce its purchases of
products or services from or provision of products or services to the Company or
ICN, as the case may be.
2.16 Governmental Approvals. Except as otherwise contemplated by this
----------------------
Agreement, no authorization, consent, approval, license, filing or registration
with any court or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, is or will be necessary for the valid
execution, delivery and performance by the Company of this Agreement or the
Collateral Agreements, the issuance, sale and delivery of the Preferred Shares
or the Warrants, or, upon conversion or exercise thereof, respectively, the
issuance and delivery of the Conversion Shares or Warrant Shares, other than
filings pursuant to Federal and state securities laws (all of which filings have
been made or will be made by the Company) in connection with the sale of all
such securities.
2.17 Disclosure. The Company's representations and warranties in this
----------
Agreement and in the Disclosure Statement, Schedules and Exhibits to this
Agreement and in any other agreements, statements, certificates made or
delivered in connection herewith or therewith, do not contain any untrue
statement of a material fact or omit a material fact necessary to make the
statements contained herein or therein, taken as a whole, not misleading.
2.18 Offering of the Preferred Shares and Warrants. Neither the Company
---------------------------------------------
nor any Person acting on its behalf has taken or will take any other action
(including, without limitation, any offer, issuance or sale of any security of
the Company under circumstances which might require the integration of any of
the foregoing with the transactions contemplated by this Agreement under the
Securities Act or the rules and regulations of the Commission thereunder), in
either case so as to subject the offering, issuance or sale of the Preferred
Shares or Warrants to the registration provisions of the Securities Act.
2.19 No Brokers or Finders. No Person has or will have, as a result of
---------------------
the transactions contemplated by this Agreement, any right, interest or valid
claim against or upon the Company or ICN or ICNI for any commission, fee or
other compensation as a finder or broker arising out of the transactions
contemplated by this Agreement or the Collateral Agreements.
2.20 Transactions with Affiliates. Except as disclosed in the Exchange
----------------------------
Act Reports or on Section 2.20 of the Disclosure Statement, there are no loans,
leases, royalty agreements or other continuing transactions or arrangements
between the Company, or any officer or director of the Company, and any Person
owning five percent (5%) or more of any class of capital stock of the
12
Company or other entity controlled by any such Person or any other Company
affiliate (as such term is defined in Rule 405 under the Securities Act).
2.21 ERISA. No employee benefit plan established or maintained, or to
-----
which contributions have been made, by the Company and/or ICN which is subject
to Part 3 of Subtitle B of Title I of ERISA had an accumulated funding
deficiency (as such term is defined in Section 302 of ERISA) as of the last day
of the most recent fiscal year of such plan ended prior to the date hereof, and
no material liability to the Pension Benefit Guaranty Corporation has been
incurred with respect to any such plan by the Company and/or ICN and/or ICNI.
2.22 Labor Relations. To the best of the Company's knowledge, no labor
---------------
union or any representative thereof has made any attempt to organize or
represent employees of the Company and/or of ICN and/or ICNI. Neither the
Company nor ICN nor ICNI has any collective bargaining agreements with any of
its employees. There are no pending unfair labor practice charges, material
grievance proceedings or adverse decisions of a Trial Examiner of the National
Labor Relations Board against the Company and/or ICN and/or ICNI. The Company is
not aware that any officer or key employee, or that any group of key employees,
intends to terminate his, her or their employment with the Company, ICN, or
ICNI, nor does the Company nor ICN nor ICNI have a present intention to
terminate the employment of any officer, key employee or group of employees.
Except as set forth in the Exchange Act Reports or on Schedule 2.22, neither the
Company nor ICN nor ICNI is a party to or bound by any employment contract,
deferred compensation agreement, bonus plan, incentive plan, profit sharing
plan, retirement agreement or other employee compensation agreement, and subject
to the foregoing and general principles related to wrongful termination of
employees, the employment of each officer and employee of the Company, ICN and
ICNI is terminable at the will of the Company, ICN and ICNI.
2.23 Books and Records. The books of account, ledgers, order books,
-----------------
records and documents of each of the Company, ICN and ICNI accurately reflect
all material information relating to the business of the Company, ICN, and ICNI,
respectively, that is appropriate to be reflected therein in all material
respects.
2.24 Validity of Offering. Subject to the accuracy of the Investor's
--------------------
representations in Article III hereof, the offer, sale and issuance of the
Preferred Shares and Warrants pursuant to this Agreement are, to the Company's
knowledge, exempt from the registration provisions of Section 5 of the
Securities Act and the registration and qualification requirements of applicable
state securities laws. Neither the Company nor any person authorized or employed
by the Company as agent, broker, dealer or otherwise in connection with the
offering or sale of the Preferred Shares or the Warrants has offered the
Preferred Shares, the Warrants or any similar security from, or otherwise
approached or negotiated with respect thereto with, any person or persons, and
neither the Company nor any person acting on its behalf has taken or will take
any other action (including, without limitation, any offer, issuance or sale of
any security of the Company under circumstances which, to the Company's
knowledge, might require the integration of such security with the offering of
the Shares under the Securities Act or the rules and regulations promulgated
thereunder), in either case
13
so as to subject the offering or issuance of the Preferred Shares or the
Warrants to the registration provisions of the Securities Act.
2.25 Investor Approval Rights. The Investor shall have such approval
------------------------
rights as are set forth in the Articles and/or in the Shareholders' Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE INVESTOR
The Investor represents and warrants to the Company as of the date hereof and as
of each Closing Date that:
(a) it is an "accredited investor" within the meaning of Rule 501 of
Regulation D under the Securities Act and either (i) it was not organized for
the specific purpose of acquiring the Preferred Shares and Warrants, or (ii)
each Person who has invested in the Investor is an "accredited investor" within
the meaning of Rule 501 of Regulation D under the Securities Act;
(b) it has sufficient knowledge and experience in investing in
companies similar to the Company in terms of the Company's stage of development
so as to be able to evaluate the risks and merits of its investment in the
Company and it is able financially to bear the risks thereof;
(c) it is the present intention that the Preferred Shares and
Warrants being purchased by the Investor (and the underlying Conversion Shares
and Warrant Shares) are being acquired for its own account for the purpose of
investment and not with a present view to or for sale in connection with any
distribution thereof;
(d) it understands that (i) the Preferred Shares, the Conversion
Shares, the Warrants and the Warrant Shares have not been registered under the
Securities Act by reason of their issuance in a transaction exempt from the
registration requirements of the Securities Act pursuant to Section 4(2) thereof
or Rule 505 or 506 promulgated under the Securities Act, (ii) the Preferred
Shares and, upon conversion thereof, the Conversion Shares, and the Warrants
and, upon exercise thereof, the Warrant Shares, must be held indefinitely unless
a subsequent disposition thereof is registered under the Securities Act or is
exempt from such registration, (iii) the Preferred Shares, the Conversion
Shares, the Warrants and the Warrant Shares will bear a legend to such effect,
and (iv) the Company will cause its transfer agent to make a notation on its
transfer books to such effect;
(e) no Person, except the Investor, has or will have, as a result of
the transactions contemplated by this Agreement, any right, interest or valid
claim against or upon the Investor for any commission, fee or other compensation
as a finder or broker because of any act or omission of the Investor or any
agent for such Investor;
14
(f) it has full corporate or other power and authority to enter into
and to perform this Agreement in accordance with its terms;
(g) the execution of, and performance of the transactions
contemplated by this Agreement is not in conflict with and will not, with or
without notice and/or the passage of time, result in any material breach of any
terms, conditions or provisions of, or constitute a material default under, its
corporate charter or any indenture, lease, agreement, order, judgment or other
instrument to which such Investor is a party or otherwise subject;
(h) it has had the opportunity to review the Exchange Act Reports,
ask questions of the management of the Company, and has had access to each of
the Company's and ICN's books and records; and
(i) it has had the opportunity to consult with and discuss the
transactions contemplated herein with its own legal and tax counsel, including
but not limited to the allocation of the purchase price between the Preferred
Shares and Warrants, and acknowledges that the Company has not provided any
legal or tax advice to the Investor in connection with any of the foregoing.
ARTICLE IV
CONDITIONS TO THE OBLIGATIONS OF THE INVESTOR
The obligation of the Investor to purchase and pay for the number of
Preferred Shares and Warrants being purchased by it on each of the Closing Dates
is, at its option, subject to the satisfaction, on or before each of the Closing
Dates (except as otherwise noted) of the following conditions:
4.01 Articles. The Company shall have filed the Articles with the
--------
Secretary of State of the State of Florida prior to the Initial Closing.
4.02 Representations and Warranties to be True and Correct. The
-----------------------------------------------------
representations and warranties contained in Article II shall be true, complete
and correct on and as of each Closing Date with the same effect as though such
representations and warranties had been made on and as of such date, except for
changes contemplated or permitted by this Agreement, and the President and
Secretary of the Company shall have certified to such effect to the Investor in
writing on behalf of the Company on each such Closing Date:
4.03 Performance. The Company shall have performed and complied in all
-----------
material respects with all agreements and conditions contained herein required
to be performed or complied with by it prior to or at each Closing Date, as
appropriate, and the President and Secretary of the Company shall have certified
to the Investor in writing to such effect on behalf of the Company on each such
Closing Date.
15
4.04 Consents and Approvals; All Proceedings to be Satisfactory. All
----------------------------------------------------------
consents, authorizations, approvals and permits that are required in connection
with the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby, including, without limitation, the lawful
issuance and sale of the Preferred Shares and the Warrants, shall have been duly
obtained and shall be effective as of each Closing. all corporate and other
proceedings to be taken by the Company in connection with the transactions
contemplated hereby and all documents incident thereto shall be satisfactory in
form and substance to the Investor and its counsel, and the Investor and its
counsel shall have received all such counterpart originals or certified or other
copies of such documents as they may reasonably request.
4.05 Opinion of Company's Counsel. The Investor shall have received from
----------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇, counsel for the Company, on the Initial Closing Date, an opinion
dated the Initial Closing Date, regarding the due authority of the Company to
execute this Agreement, the Collateral Agreements and the other documents and
instruments executed and delivered in connection herewith, the enforceability of
the terms of the same against the Company (except (i) as may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of
general application affecting enforcement of creditor's rights generally; (ii)
as limited by laws relating to the availability of specific performance,
injunctive relief, or other equitable remedies; and to the extent the
indemnification provisions contained in this Agreement or the Collateral
Agreements may be limited by applicable Federal or state securities laws), the
Company's compliance with Federal and state securities laws in connection with
the sale and issuance of the Preferred Shares and Warrants (it being understood
that the opinion shall only relate to the laws of the State of Florida). As to
factual matters which affect the opinions expressed therein, such firm may rely
upon the representations and warranties of the Company set forth in this
Agreement, in the Collateral Agreements, in the certificates described in
Section 4.07 below, and one or more affidavits from one or more members of the
Company's management concerning certain of such factual matters.
4.06 Delivery of Preferred Shares and Warrants. The Investor shall have
-----------------------------------------
received from the Company the certificates representing the number of Preferred
Shares and the Warrants to which such particular Closing relates.
4.07 Supporting Documents. The Investor and its counsel shall have
--------------------
received copies of the following documents at each Closing (except as otherwise
noted):
(i) (a) the Articles certified as of a recent date prior to the
Initial Closing by the Secretary of State of the State of Florida, and (b) a
certificate of said Secretary dated as of a recent date prior to the Initial
Closing as to the existence of the Company, ICN and ICNI;
(ii) a certificate of the Secretary or an Assistant Secretary of the
Company dated the Initial Closing Date and certifying: (a) that attached thereto
is a true and complete copy of the Bylaws of the Company as in effect on the
date of such certification; (b) that attached thereto is a true and complete
copy of all resolutions adopted by the Board of Directors authorizing the
execution, delivery and performance of this Agreement and the Collateral
Agreements, the
16
designation, issuance, sale and delivery of the Preferred Shares and Warrants
and the reservation, issuance and delivery of the Conversion Shares and Warrant
Shares, and (c) that all such resolutions are in full force and effect and are
all the resolutions adopted in connection with the transactions contemplated by
this Agreement; and (d) that the Articles have not been amended since the date
of the certificate delivered pursuant to clause (i)(b) above (a certificate of
the Secretary or an Assistant Secretary of the Company dated as of the Second
Closing Date and the Third Closing Date, respectively, certifying only as to the
matters discussed in (ii) (c) and (ii) (d) above shall be delivered on the
Second Closing Date and Third Closing Date, respectively); and
(iii) such additional supporting documents and other information
with respect to the operations and affairs of the Company as the Investor or its
counsel may reasonably request.
4.08 Registration Rights Agreement. The Company and each of the other
-----------------------------
parties thereto (other than the Investor) shall have executed and delivered the
Registration Rights Agreement, in the form attached hereto as Exhibit C (the
---------
"Registration Rights Agreement").
-----------------------------
4.09 Shareholders' Agreement. The Company and each of the other parties
-----------------------
thereto (other than the Investor) shall have executed and delivered a
Shareholders' Agreement in the form attached hereto as Exhibit D (the
---------
"Shareholders' Agreement").
-----------------------
4.10 Consulting Agreement. The Company and each of the other parties
--------------------
thereto (other than the Investor) shall have executed and delivered a Consulting
Agreement in the form attached hereto as Exhibit E (the "Consulting Agreement"),
--------------------
the effective date of which shall be April 1, 2002 (provided that the Investor
has made the three Required Disbursements pursuant to Section 1.04 hereof prior
thereto).
4.11 Lock-up Agreement. Shareholders of the Company owning an aggregate of
-----------------
4,720,833 shares of the Company's Common Stock shall have delivered executed
Lock-up Agreements in the form attached hereto as Exhibit F (the "Lock-up
--------- -------
Agreement") to the Company with copies thereof delivered to the Investor.
---------
4.12 Reimbursement of Investor's Expenses, Including Fees of Investor's
------------------------------------------------------------------
Counsel. The Company shall have paid in accordance with Section 8.01 the fees
-------
and out-of-pocket disbursements of the Investor and the Investor's counsel.
4.13 Board of Directors. The Company agrees to cooperate with the
------------------
Investor in causing the Investor's then designated nominee to fill one vacancy
and serve on the Company's Board of Directors until the next annual meeting of
the Company's shareholders, provided, however, that in the event the Second
Closing and/or the Third Closing do not occur during the timeframe outlined in
Section 1.04(b) and/or 1.04(c), the Investor shall cause its chosen nominee to
immediately resign from the Company's Board of Directors and such person shall
immediately so resign.
17
ARTICLE V
CONDITIONS TO THE OBLIGATIONS OF THE COMPANY
The obligation of the Company to sell the Preferred Shares and the Warrants
being sold by it on each of the Closing Dates is, at its option, subject to the
satisfaction, on or before each of the Closing Dates of the following
conditions:
5.01 Representations and Warranties to be True and Correct. The
-----------------------------------------------------
representations and warranties contained in Article III shall be true, complete
and correct on and as of each of the Closing Dates with the same effect as
though such representations and warranties had been made on and as of such date.
5.02 Payment of Purchase Price. The Investor shall have delivered to the
-------------------------
Company the full purchase price for all of the Preferred Shares and Warrants to
be purchased by it at each such Closing in accordance with the provisions of
Section 1.04 hereof.
5.03 Litigation. No action or proceeding before any court or any other
----------
governmental agency shall have been instituted or threatened to restrain or
prohibit the sale of the Preferred Shares and Warrants by the Company to the
Investor.
ARTICLE VI
COVENANTS OF THE COMPANY
The Company covenants and agrees with the Investor that so long as the
Investor owns any of the Preferred Shares and Warrants:
6.01 Reserve for Conversion Shares and Warrants. The Company shall at all
------------------------------------------
times reserve and keep available out of its authorized but unissued shares of
Common Stock, for the purpose of effecting the conversion of the Preferred
Shares and exercise of the Warrants and otherwise complying with the terms of
this Agreement, such number of its duly authorized shares of Common Stock as
shall be sufficient to effect the conversion of the Preferred Shares and
exercise of the Warrants from time to time outstanding or otherwise to comply
with the terms of this Agreement. If at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to effect the conversion
of the Preferred Shares or the exercise of the Warrants or otherwise to comply
with the terms of this Agreement, the Company will forthwith take such corporate
action as may be necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for such purposes.
The Company will use reasonable efforts to obtain any authorization, consent,
approval or other action by or make any filing with any court or administrative
body that may be required under applicable state securities laws in connection
with the issuance of shares of Common Stock upon conversion of the Preferred
Shares and/or exercise of the Warrants.
18
6.02 Corporate Existence. The Company shall maintain its, ICN's and ICNI's
-------------------
corporate existence, rights and franchises in full force and effect.
6.03 Required Insurance Coverage. The Company shall maintain insurance
---------------------------
coverage against such casualties and contingencies and of such types and in such
amounts as is customary for companies similarly situated, of similar size, scope
and financial condition.
6.04 Expenses of Directors. The Company shall promptly reimburse in full,
---------------------
upon submission of receipts or other documentation reasonably acceptable to the
Company, the Investor's designee to the Company's Board of Directors pursuant
hereto (and pursuant to the Registration Rights Agreement, to the extent
-----------------------------
applicable) for all of such person's reasonable out-of-pocket expenses incurred
in attending each meeting of the Board of Directors of the Company or any
committee thereof.
6.05 Use of Proceeds. The Company shall use the proceeds from the sale of
---------------
the Preferred Shares and Warrants only as set forth in Schedule 6.05 hereto.
-------------
6.06 Compliance with Laws. The Company shall comply, and shall cause each
--------------------
of ICN and ICNI to comply with all applicable laws, rules, regulations and
orders, noncompliance with which would or is likely to have a Material Adverse
Effect. The Company shall, at all times, comply, and shall cause each of ICN and
ICNI to comply, with the Foreign Corrupt Practices Act of 1977, or any rules or
regulations promulgated thereunder.
6.07 Keeping of Records and Books of Account. The Company shall keep, and
---------------------------------------
shall cause each of ICN and ICNI to keep adequate records and books of account,
in which entries will be made in accordance with generally accepted accounting
principles consistently applied, reflecting all material financial transactions
of each of the Company, ICN, and ICNI, respectively, and in which, for each
fiscal year, all proper reserves for depreciation, depletion, obsolescence,
amortization, taxes, bad debts and other purposes in connection with its
business shall be made.
6.08 Change in Nature of Business. The Company shall not make, and shall
----------------------------
cause each of ICN and ICNI not to make, any material change in the nature of
its, ICN's and ICNI's business without the approval of the Company's Board of
Directors.
6.09 Employee Non-Disclosure and Non-Compete Agreements. The Company
--------------------------------------------------
shall obtain non-disclosure and minimum 1 year non-compete (from date of
termination for any reason) agreements from all future Company officers and key
Company employees, and shall obtain non-disclosure agreements from all other
Company employees who will have access by virtue of their employment with the
Company to confidential Company information.
6.10 Compliance With Exchange Act Reporting Requirement and Continued
----------------------------------------------------------------
Listing on the Over-the-Counter Bulletin Board. The Company shall use its best
----------------------------------------------
efforts to: (a) timely file all
19
requests required to be filed with the SEC under the Exchange Act; and (b)
continue to maintain its listing on the Over-the Counter Bulletin Board.
ARTICLE VII
INDEMNIFICATION
7.01 General Indemnity. The Company agrees to indemnify and hold harmless
-----------------
the Investor and its agents, heirs, successors and assigns from and against any
and all losses, liabilities, deficiencies, costs, damages and reasonable
expenses (including, without limitation, reasonable attorney's fees, charges and
disbursements) (collectively, "Losses") incurred by the Investor as a result of
any misrepresentation or breach of any representation, warranty, covenant or
agreement set forth in this Agreement or any of the Collateral Agreements. The
Investor agrees to indemnify and hold harmless the Company and its directors,
officers, affiliates, agents, successors and assigns from and against any and
all Losses incurred by the Company as a result of any misrepresentation or
breach of any representation, warranty, covenant or agreement set forth in this
Agreement or any of the Collateral Agreements.
7.02 Indemnification Procedure. Any party entitled to indemnification
-------------------------
under this Article (an "indemnified party") will give written notice to the
indemnifying party of any matters giving rise to a claim for indemnification;
provided, that the failure of any party entitled to indemnification hereunder to
give notice as provided herein shall not relieve the indemnifying party of its
obligations under this Section except to the extent that the indemnifying party
is actually prejudiced by such failure to give notice. In case any action,
proceeding or claim is brought against an indemnified party in respect of which
indemnification is sought hereunder, the indemnifying party shall be entitled to
participate in and, unless in the reasonable judgment of the indemnified party a
conflict of interest between it and the indemnifying party may exist with
respect of such action, proceeding or claim, to assume the defense thereof with
counsel reasonably satisfactory to the indemnified party. In the event that the
indemnifying party advises an indemnified party that it will contest such a
claim for indemnification hereunder, or fails, within thirty (30) days of
receipt of any indemnification notice to notify, in writing, such person of its
election to defend, settle or compromise, at its sole cost and expense, any
action, proceeding or claim (or discontinues its defense at any time after it
commences such defense), then the indemnified party may, at its option, defend,
settle or otherwise compromise or pay such action or claim. In any event,
unless and until the indemnifying party elects in writing to assume and does so
assume the defense of any such claim, proceeding or action, the indemnified
party's costs and expenses arising out of the defense, settlement or compromise
of any such action, claim or proceeding shall be losses subject to
indemnification hereunder. The indemnified party shall cooperate fully with the
indemnifying party in connection with any negotiation or defense of any such
action or claim by the indemnifying party and shall furnish to the indemnifying
party all information reasonably available to the indemnified party which
relates to such action or claim. The indemnifying party shall keep the
indemnified party fully apprised at all times as to the status of the defense or
any settlement negotiations with respect thereto. If the indemnifying party
elects to
20
defend any such action or claim, then the indemnified party shall be entitled to
participate in such defense with counsel of its choice at its sole cost and
expense. The indemnifying party shall not be liable for any settlement of any
action, claim or proceeding effected without its prior written consent.
notwithstanding anything in this Section to the contrary, the indemnifying party
shall not, without the indemnified party's prior written consent (which consent
shall not be unreasonably withheld), settle or compromise any claim or consent
to entry of any judgment in respect thereof, which imposes any future obligation
on the indemnified party or which does not include, as an unconditional term
thereof, the giving by the claimant or the plaintiff to the indemnified party of
a release from all liability in respect of such claim. The indemnification
required by this Section shall be made by periodic payments of the amount
thereof during the course of investigation or defense, as and when bills are
received or expense, loss, damage or liability is incurred, so long as the
indemnified party irrevocably agrees to refund such moneys if it is ultimately
determined by a court of competent jurisdiction that such party was not entitled
to indemnification. The indemnity provisions contained herein shall be in
addition to (a) any cause of action or similar rights of the indemnified party
against the indemnifying party or others, and (b) any liabilities the
indemnifying party may be subject to pursuant to the law.
ARTICLE VIII
MISCELLANEOUS
8.01 Placement Fee and Expenses. Promptly following the Company's receipt
--------------------------
of cleared funds from the Required Disbursement made by the Investor at each
Closing, the Company shall pay the Investor a placement fee of 5% on the gross
amount of each such Required Disbursement at each Closing. In addition,
promptly following the Company's receipt of cleared funds from the Required
Disbursement made by the Investor at the Initial Closing, the Company shall
reimburse the Investor for all of its documented reasonable out-of-pocket fees
and expenses, including reasonable fees and disbursements of its counsel, Hunton
& ▇▇▇▇▇▇▇▇ P.A., subject to a maximum reimbursement amount of $50,000, incurred
in connection with: (a) this Agreement and the transactions contemplated by
this Agreement; and (b) as may be incurred in connection with a separate
promissory note agreement and contemplated related documents and transactions
pursuant thereto, contemplated to be entered into by and between the Company and
the Investor and/or its designee.
8.02 Survival of Representations and Warranties. All representations,
------------------------------------------
warranties and covenants made by the Company herein or in any agreement,
certificate or instrument delivered to the Investor pursuant to or in connection
with this Agreement shall survive the execution and delivery of this Agreement,
the Collateral Agreements, the issuance, sale and delivery of the Preferred
Shares and Warrants to the Investor and the issuance and delivery of the
Conversion Shares and Warrant Shares to the Investor and shall terminate on the
earlier of: (a) the private sale by the Investor of the Preferred Shares and
Warrants and/or the Conversion Shares and Warrant Shares to a third party; (b)
the sale of all of the Registrable Securities (as such term is defined in the
Registration Rights Agreement); or (c) one hundred eighty (180) days after the
-----------------------------
effective date of the registration statement registering the Registrable
Securities for public resale.
21
8.03 Brokerage. Each party hereto will indemnify and hold harmless the
---------
others against and in respect of any claim for brokerage or other commissions
relative to this Agreement or to the transactions contemplated hereby, based in
any way on agreements, arrangements or understandings made or claimed to have
been made by such party with any third party.
8.04 Parties in Interest. Except as otherwise set forth herein, all
-------------------
representations, waranties, covenants and agreements contained in this Agreement
by or on behalf of any of the parties hereto shall bind and inure to the benefit
of their respective successors and permitted assigns. Neither party hereto may
assign its rights or obligations hereunder without the express prior written
consent of the other party hereto, which consent may be withheld by such other
party in its sole discretion and without any liability to such party.
8.05 Notices. All notices, requests, consents, demands, and other
-------
communications under this Agreement shall be in writing and shall be deemed to
have been duly given on the date of service if served personally on the party to
whom notice is to be given, on the date of transmittal of service via telecopier
to the party to whom notice is to be given (provided the sender of such notice
is provided with a printed confirmation of same) or on the third day after
mailing if mailed to the party to whom notice is to be given, by first class
mail, registered or certified, postage prepaid, or overnight mail via a
nationally recognized courier to the respective party's address (or at such
other address for a party as shall be specified in a notice given in accordance
with this Section 8.05):
If to the Company: Intercallnet, Inc.
▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇, Chief Executive Officer
With copies to: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇ ▇/▇▇/ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇. ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇ ▇▇▇▇▇▇▇▇, Esq.
If to the Investor: Stanford Venture Capital Holdings, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇, President
With copies to: Hunton & ▇▇▇▇▇▇▇▇, P.A.
22
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, Esq.
8.06 Governing Law; Jurisdiction; Venue; Attorney's Fees. This Agreement
---------------------------------------------------
shall be governed by and construed in accordance with the laws of the State of
Florida for all purposes and in all respects, without regard to the conflict or
choice of law provisions of such state. Any action and/or proceeding relating
to or arising out of this Agreement shall be brought solely in the federal
and/or state court located in Miami-Dade, Florida. The prevailing party in any
such action and/or proceeding shall be entitled to recover its reasonable
attorney's fees and costs from the other party.
8.07 Entire Agreement. This Agreement, including the Disclosure
----------------
Statement, Exhibits, Schedules and related agreements attached as exhibits
hereto constitutes the sole and entire agreement of the parties with respect to
the subject matter hereof. The Disclosure Statement and all Exhibits and
Schedules hereto are hereby incorporated herein by reference and made a part of
this Agreement as if fully set forth herein.
8.08 Counterparts; Telecopier. This Agreement may be executed in
------------------------
counterparts and via telecopier, each of which shall be deemed an original, but
all of which together shall constitute the same instrument.
8.09 Amendments; Modifications. This Agreement may only be amended or
-------------------------
modified pursuant to a written agreement executed by both parties hereto,
consent to which may be given or withheld for any reason or for no reason, and
in the case of consent being withheld for any reason or no reason, without any
liability to the party withholding such consent.
8.10 Severability. If any provision of this Agreement shall be declared
------------
void or unenforceable by any judicial or administrative authority, the validity
of any other provision and of the entire Agreement shall not be affected
thereby.
8.11 Titles and Subtitles. The titles and subtitles used in this
--------------------
Agreement are for convenience only and are not to be considered in construing or
interpreting any term or provision of this Agreement.
8.12 Definition of "Person." As used in this Agreement, the term "Person"
-----------------------
shall mean an individual, corporation, trust, partnership, limited liability
company or partnership, joint venture, unincorporated organization, governmental
authority or any agency or political subdivision thereof, or other entity.
8.13 Press Release and Other Public Disclosure. Promptly following the
-----------------------------------------
execution of this Agreement by both parties hereto, it is acknowledged and
agreed that the Company shall issue a press release and file a Form 8-K with the
SEC disclosing the execution of this Agreement by both
23
parties hereto, the terms hereof and otherwise making such disclosure as
required by the instructions to Form 8-K.
8.14 Rule of Construction that Ambiguities to be Construed Against the
-----------------------------------------------------------------
Drafter of the Document Not Applicable. In view of the fact that both parties
--------------------------------------
to this Agreement, the Disclosure Statement, Exhibits, Schedules and Collateral
Agreements attached hereto have each been represented by their respective
counsel in connection herewith and therewith, the rule of construction that
ambiguities shall be construed against the drafter shall not be applicable to
any of such documents.
IN WITNESS WHEREOF, the Company and the Investor have executed this Series
A Convertible Preferred Stock and Common Stock Purchase Warrant Purchase
Agreement as of the date first above written.
THE COMPANY:
Intercallnet, Inc.
By:
▇▇▇▇▇ ▇▇▇▇▇▇▇, Chief Executive Officer
THE INVESTOR:
Stanford Venture Capital Holdings, Inc.
By: ___________________________________
▇▇▇▇▇ ▇. ▇▇▇▇▇, President
24
Disclosure Statement
Section 2.04 Authorized Capital Stock
Section 2.05 Financial Statements
Section 2.06 Litigation, Compliance With Law
Section 2.08 Title to Assets
Section 2.11(i); (l); (n) Other Agreements
Section 2.12 Intellectual Property Assets
Section 2.13 Investments in Other Persons
Section 2.20 Transactions With Affiliates
Section 2.22 Labor Relations
25
SECTION 2.04 ~ AUTHORIZED CAPITAL STOCK
As disclosed in the Exchange Act Reports, as defined in paragraph 2.05 of the
Series A Convertible Preferred Stock Purchase Agreement, there are 12,180,735
shares of the Company's Common Stock outstanding and no shares of the Company's
preferred stock issued and outstanding (however, it is planned that Series B
Preferred Stock will be authorized and issued). The 12,180,735 shares of Common
Stock issued and outstanding have been issued in the following manners:
Initial Founders 4,396,875
Capital Raise ~ Net Cash Proceeds of $5,727,715 5,015,110
Services and Non-Cash Issuances 318,750
Merger with Never Miss A Call 2,450,000
Total Shares Issued and Outstanding 12,180,735
The following description represents additional capital stock issuances since
the effective time periods of the Exchange Act Reports:
Financial Related Services
--------------------------
On November 23, 2001, the Company entered into an agreement with an unrelated
third party to provide certain financial related services. As compensation
under this agreement, the Company issued 144,513 shares of the Company's Common
Stock and warrants to purchase an aggregate of 289,027 shares of the Company's
Common Stock at $1.00 per share, exercisable for a period of five years. Such
Common Stock and warrants will be held in escrow and shall vest ratably over six
months. If the agreement is terminated, by either party, during the six month
term then the unvested shares of Common Stock and warrants will be returned to
the Company and the Company shall have no further obligation for any equity
based incentive. The shares of the Company's Common Stock issued in connection
with this transaction and the shares of the Company's Common Stock underlying
the warrants are restricted and have piggyback registration rights when and if
the Company files a registration statement during the one year period commencing
on May 22, 2002 and terminating on May 22, 2003.
Unit Offering
-------------
During the period from November 2001 through January 2002, the Company raised
approximately $175,000 through a private unit offering ("Unit Offering") to
accredited investors who are friends and family of the Company. During the
above referenced time period the Company sold seven (7) units. Each unit was
priced at $25,000, which consisted of a promissory note for $25,000 and warrants
to purchase 50,000 shares of restricted, par value $0.0001 Common Stock subject
to the discretion of management to accept fractional units.
The promissory note bears interest, on a monthly basis, at a rate of prime plus
2.0%, (which ranges from 6.75% to 7.0%) with a term of one year. The promissory
note (including accrued interest) may,
26
at the option of the note holder, be re-paid in cash or converted at or after
the scheduled maturity date into restricted shares of the Company's Common Stock
at a conversion rate of $0.25 per share.
The warrants are exercisable at a price of $0.50 per share and are immediately
exercisable and expire two years after the date of grant. The warrants bear a
call provision by the Company when and if the bid price of the stock is at $1.00
or more for any ten (10) day consecutive trading period, then the Company may
demand the warrant holder to exercise 100% of the warrants issued and
outstanding under the unit offering and the warrant holder has ten (10) business
days to exercise said warrants. If warrants are not exercised within said ten
(10) business days then 100% of the warrants issued and outstanding under the
unit offering immediately expire and are deemed to be forfeited by the warrant
holder.
Investor Warrants
-----------------
On December 7, 2001, the Company sold warrants to purchase an aggregate of
150,000 shares of the Company's Common Stock at an exercise price of $.50 per
share to an existing warrant holder for $5,000. The warrants are subject to a
six (6) month holding period and expire 18 months after the date of grant.
Common Stock Equivalents
------------------------
The following represents a description of the common stock equivalents, issued
------------------------
and outstanding, inclusive of the common stock equivalents as described above
which were not previously disclosed in the Exchange Act Reports based on the
dates of when such transactions were consummated:
Common Stock Purchase Warrants:
During the period from July 2000 through June 2001, the Company issued
1,1,85,625 warrants to purchase shares of the Company's Common Stock at
$0.57 per share, exercisable for a period of three years in connection with
a private placement offering.
During July 2001, the Company issued 150,000 warrants to purchase shares of
the Company's Common Stock at $1.02 per share, which vest ratably over
twelve months and are exercisable for a period of five years in connection
with an agreement for certain investor relation services. The shares of
the Company's Common Stock underlying the warrants have piggyback
registration rights when and if the Company files a registration statement.
On December 7, 2001, the Company sold an additional 150,000 warrants to
this warrant holder for $5,000. The additional warrants are subject to a
six-month holding period and expire 18 months after the date of grant.
These additional 150,000 warrant do not have registration rights.
During the period from November 2001 through January 2002, the Company
issued 350,000 warrants to purchase shares of the Company's Common Stock at
$0.50 per share, immediately exercisable and expire after two years from
the date of grant in connection with the Unit Offering. The warrants
contain a call provision by the Company when and if the bid price of the
stock is at $1.00 or more for any ten (10) day consecutive trading period,
then the
27
Company may demand the warrant holder to exercise 100% of the warrants
issued and outstanding under the unit offering and the warrant holder has
ten (10) business days to exercise said warrants. If warrants are not
exercised within said ten (10) business days then 100% of the warrants
issued and outstanding under the unit offering immediately expire and are
deemed to be forfeited by the warrant holder.
During November 2001, the Company issued warrants to purchase 289,027
shares of the Company's Common Stock at $1.00 per share, which vest ratably
over six months and are exercisable for a period of five years in
connection with an agreement for certain financial related services. If
the agreement is terminated by either party during the six-month term, then
the unvested warrants will be returned to the Company and the Company shall
have no further obligation for any equity based incentive. The shares of
the Company's Common Stock underlying the warrants have piggyback
registration rights when and if the Company files a registration statement
during the one-year period commencing on May 22, 2002 and terminating on
May 22, 2003.
Stock Options:
The following represents the stock options issued and outstanding, to
executives, employees, consultants, and advisory board members as
previously disclosed in the Exchange Act Reports:
Executives 475,000
Employees (net of forfeitures) 110,000
Consultants 150,000
Advisory Board Members 200,000
Total Stock Options Granted 935,000
Convertible Debt:
If all of the convertible debt issued in accordance with the Unit Offering,
as described above, was to be converted by the note holders, an additional
700,000 shares of the Company's Common Stock will be issued between
November 2002 and January 2003, exclusive of interest. As a result of the
interest rate being based upon the prime rate, a determination of the
number of shares to be issued as a result of the conversion of the interest
due and accrued cannot be made at this time.
From November through December 2001, the Company issued $350,000 of short-
term debt with interest rates ranging from 10% to 12%. Such interest is
charged on a per annum basis in 30-day increments. The total interest due
and accrued may be repaid in shares of the Company's Common Stock based on
the average bid and ask quotations as reported by the Over-The-Counter
Bulletin Board ("OTCBB") during the time period that such interest payment
covers. Such average bid and ask quotations shall be discounted based on
the
28
difference between the last cash sale of restricted shares by the Company
(September 4, 2001) and the closing price as reported by the OTCBB on such
date. Such short-term debt is secured with certain assets of the Company.
As a result of the conversion rate being based upon actual trading results,
a determination of the number of shares to be issued as a result of the
conversion of the interest due and accrued cannot be made at this time.
SECTION 2.05 FINANCIAL STATEMENTS
The following descriptions represent significant changes to the financial
statements since the effective dates of the Exchange Act Reports:
Restricted Cash and Note Payable
--------------------------------
On December 11, 2001, the Company's revolving line of credit with a commercial
bank matured and was satisfied in full with the $500,000 certificate of deposit
that was guaranteeing the performance under the line of credit. The balance of
the line of credit at maturity was $500,000. As a result, there were no
proceeds returned to the Company.
Accounts Receivable
-------------------
On January 8, 2002, the Company was notified by the client under Master Services
Agreement A that the campaign for selling wireless phones and services was
terminated by the wireless carrier and all payments due under the campaign will
be held for a period of 181 days. As a result of the campaign termination and
payment hold period, the potential uncollectibility of the receivable under this
campaign has increased from the previous estimate as reported in the Exchange
Act Reports. The Company is currently analyzing the potential uncollectibility
of this receivable and plans to record an additional allowance for doubtful
accounts for the quarterly period ended December 31, 2001, which will be
reflected and disclosed in the Company's Form 10-QSB for the quarterly period
ended December 31, 2001. The Company is presently considering its legal options
with counsel concerning this matter. A Form 8-K was filed with the Securities
and Exchange Commission disclosing this mater on January 17, 2002.
Unit Offering
-------------
During the period from November 2001 through January 2002, the Company raised
approximately $175,000 through a private unit offering to accredited investors
who are "friends and family" of the Company. During the above- referenced time
period the Company sold seven (7) units. Each unit was priced at $25,000, which
consisted of a promissory note for $25,000 and warrants to purchase 50,000
shares of restricted, par value $0.0001 Common Stock subject to the discretion
of management to accept fractional units.
The promissory note bears interest, on a monthly basis, at a rate of prime plus
2.0%, (which ranges from 6.75% to 7.0%) with a term of one year. The promissory
note (including accrued interest) may, at the option of the note holder, be re-
paid in cash or converted at or after the scheduled maturity date into
restricted shares of the Company's Common Stock at a conversion rate of $0.25
per share.
29
The warrants are exercisable at a price of $0.50 per share and are immediately
exercisable and expire two years after the date of grant. The warrants contain
a call provision by the Company when and if the bid price of the stock is at
$1.00 or more for any ten (10) day consecutive trading period then the Company
may demand the warrant holder to exercise 100% of the warrants issued and
outstanding under the unit offering and the warrant holder has ten (10) business
days to exercise said warrants. If warrants are not exercised within said ten
(10) business days then 100% of the warrants issued and outstanding under the
unit offering immediately expire and are deemed to be forfeited by the warrant
holder.
Short-Term Debt
---------------
From November through December 2001, the Company issued $350,000 of short-term
debt with interest rates ranging from 10% to 12%. Such interest is charged on a
per annum basis in 30-day increments. The total interest due and accrued may be
repaid in shares of the Company's Common Stock based on the average bid and ask
quotations as reported by the OTCBB during the time period that such interest
payment covers. Such average bid and ask quotations shall be discounted based
on the difference between the last cash sale of restricted shares by the Company
(September 4, 2001) and the closing price as reported by the OTCBB on such
dated. Such short-term debt is secured with certain assets of the Company.
Deferred Compensation
---------------------
Certain executive officers of the Company such as the Chief Executive Officer,
the President and the Chief Financial Officer have agreed to defer drawing
payroll from the Company commencing in November 2001. Such payroll deferral is
scheduled to continue until the Company's cash flow is sufficient to support the
payment of payroll but shall continue no longer than through December 31, 2001.
Interest is accruing at a rate of prime plus 2% per annum, calculated over the
time period that such deferred amounts are outstanding. At December 31, 2001,
the total amount due to the key executive officers is approximately $170,000 in
gross wages.
Due to Officers
---------------
From time to time, the Chief Executive Officer of the Company has directly paid
certain Company expenses. Interest is accruing at a rate of prime plus 2%, per
annum, calculated over the time period that such amounts are outstanding. At
December 31, 2001, the total amount Due to Officers is approximately $30,000.
Due to Directors
----------------
One of the Company's consultants who is also a Director has agreed to defer from
drawing payments for such consulting services commencing in November 2001. Such
deferral is scheduled to continue until the Company's cash flow is sufficient to
support the payment of consulting services, but shall continue no longer than
through December 31, 2001. At December 31, 2001, the total amount due to this
consultant is approximately $10,000.
30
Insurance Financing
-------------------
In December 2001, the Company entered into a financing arrangement to finance
the cost of the annual premiums under the Directors and Officers insurance
policy. The total cost of the premiums was approximately $73,000 and the
Company made a cash payment of approximately $18,000 and the remaining $55,000
is being financed over a period of nine months at an interest rate of 6.50% per
annum.
SECTION 2.06 ~ LITIGATION, COMPLIANCE WITH LAW
On or about January 4, 2002, the Company was served with a demand for
arbitration before the American Arbitration Association by Web United a/k/a
Ciberlynx, Inc. ("Cyberlynx"). Cyberlynx alleges, in summary, that Cyberlynx
entered into a written contract with the Company to provide the Company with
internet access service and equipment, and that the Company has failed and
refused to compensate Cyberlynx in accordance with the terms of the written
contract. Cyberlynx alleges that fees owed aggregate $34,564. The Company has
until March 16, 2002 to respond to such demand and plans to vigorously contest
the alleged amount owed in view of set-off claims that the Company believes it
has against Cyberlynx for services performed by the Company for Cyberlynx for
which the Company was not compensated.
SECTION 2.08 ~ TITLE TO ASSETS
Short-Term Debt
---------------
From November through December 2001, the Company issued $350,000 of short-term
debt with interest rates ranging from 10% to 12%. Such short-term debt is
secured with certain assets of the Company. The Company has (or will shortly)
file two UCC-1 financing statements, one for $250,000 for the Davox dialer and
the other for $150,000 for the NEC Business Network equipment.
SECTION 2.11 ~ OTHER AGREEMENTS
(i) guaranty or collateralization of any obligation for borrowed money or
---------------------------------------------------------------------
otherwise;
---------
The Company has (or will shortly) file two UCC-1 financing statements, one for
$250,000 for the Davox dialer and the other for $150,000 for the NEC Business
Network equipment. Such UCC-1 financing statements secure the $350,000 of
short-term debt issued between November and December 2001.
(l) agreement or obligation (contingent or otherwise) to issue, sell or
-------------------------------------------------------------------
otherwise distribute or to repurchase or otherwise acquire or retire any shares
-------------------------------------------------------------------------------
of its capital stock or any of its other equity securities;
----------------------------------------------------------
In connection with the Unit Offering, the Company has issued warrants that
contain a call provision by the Company when and if the bid price of the stock
is at $1.00 or more for any ten (10) day consecutive trading period, then the
Company may demand the warrant holder to exercise 100% of the warrants issued
and outstanding under the unit offering and the warrant holder has ten (10)
business days to exercise said warrants. If warrants are not exercised within
said ten (10) business
31
days then 100% of the warrants issued and outstanding under the unit offering
immediately expire and are deemed to be forfeited by the warrant holder.
(n) agreement under which it has granted any Person any registration rights
-----------------------------------------------------------------------
(other than pursuant to or as contemplated by this Agreement or the Collateral
------------------------------------------------------------------------------
Agreements);
-----------
On November 23, 2001, the Company entered into an agreement with an unrelated
third party to provide certain financial related services. As compensation
under this agreement, the Company issued 144,513 shares of the Company's Common
Stock and warrants to purchase an aggregate of 289,027 shares of the Company's
Common Stock at $1.00 per share, exercisable for a period of five years. Such
Common Stock and warrants will be held in escrow and shall vest ratably over six
months. If the agreement is terminated by either party during the six month
term, then the shares of Common Stock and warrants not vested will be returned
to the Company and the Company shall have no further obligation for any equity
based incentive. The shares of the Company's Common Stock issued in connection
with this transaction and the shares of the Company's Common Stock underlying
the warrants are restricted and have piggyback registration rights when and if
the Company files a registration statement during the one-year period commencing
on May 22, 2002 and terminating on May 22, 2003. See also Form 10-KSB and Form
10-QSB.
SECTION 2.13 ~ INVESTMENTS IN OTHER PERSONS
$5,200 loan to Company's Chief Executive Officer as an advance for excessive
payroll withholding.
SECTION 2.20 ~ TRANSACTIONS WITH AFFILIATES
Deferred Compensation
---------------------
Certain executive officers of the Company such as the Chief Executive Officer,
the President and the Chief Financial Officer have agreed to defer drawing
payroll from the Company commencing in November 2001. Such payroll deferral is
scheduled to continue until the Company's cash flow is sufficient to support the
payment of payroll but shall continue no longer than through December 31, 2001.
Interest is accruing at a rate of prime plus 2%, per annum, calculated over the
time period that such deferred amounts are outstanding. At December 31, 2001,
the total amount due to the key executive officers is approximately $170,000 in
gross wages.
Due to Officers
---------------
From time to time, the Chief Executive Officer of the Company has directly paid
certain Company expenses. Interest is accruing at a rate of prime plus 2%, per
annum, calculated over the time period that such amounts are outstanding. At
December 31, 2001, the total amount Due to Officers is approximately $30,000.
Due to Directors
----------------
One of the Company's consultants who is also a Director has agreed to defer from
drawing payments for such consulting services commencing in November 2001. Such
deferral is scheduled to continue until the Company's cash flow is sufficient to
support the payment of consulting services, but shall
32
continue no longer than through December 31, 2001. At December 31, 2001, the
total amount due to this consultant is approximately $10,000.
SECTION 2.22 ~ LABOR RELATIONS
See employment agreement between the Company and ▇▇▇▇ ▇▇▇▇▇▇ previously provided
as a due diligence document.
33
SCHEDULES
Schedule 2.04 Capitalization Table - previously provided
Schedule 6.05 Use of Proceeds
Working capital and general corporate purposes, including accounts payable,
marketing and purchase of software for the Company's U.S. domestic call center
operations.
EXHIBITS
Exhibit A Form of Amended Articles of Incorporation
Exhibit B Forms of Warrants (6 forms)
Exhibit C Form of Registration Rights Agreement
Exhibit D Form of Shareholders' Agreement
Exhibit E Form of Consulting Agreement
Exhibit F Form of Lock-up Agreement
35
EXHIBIT A
Form of Amended Articles of Incorporation
EXHIBIT B
---------
Forms of Warrants
EXHIBIT C
---------
Form of Registration Rights Agreement
EXHIBIT D
---------
Form of Shareholders' Agreement
EXHIBIT E
---------
Form of Consulting Agreement
EXHIBIT F
---------
Form of Lock-up Agreement
C-41
