EXHIBIT 10.1
SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT (this "Agreement"), dated as of January 6,
2006, by and among VoIP, Inc., a Texas corporation (the "Company"), and the
subscribers identified on the signature page hereto (each a "Subscriber" and
collectively "Subscribers").
WHEREAS, the Company and the Subscribers are executing and delivering this
Agreement in reliance upon an exemption from securities registration afforded by
the provisions of Section 4(2), Section 4(6) and/or Regulation D ("Regulation
D") as promulgated by the United States Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "1933 Act").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the
Subscribers, as provided herein, and the Subscribers, in the aggregate, shall
subscribe to Four Million Five Hundred and Eighty-Five Thousand Eight Hundred
and Sixty-Seven Dollars ($4,585,867) (the "Purchase Price") of promissory notes
of the Company with an original discount of 12.121% ("Note" or "Notes")
convertible into shares of the Company's common stock, $.001 par value (the
"Common Stock") at a per share conversion price set forth in the Note
("Conversion Price"); and share purchase warrants (the "Warrants"), in the forms
attached hereto as Exhibits A1 and A2, to purchase shares of Common Stock (the
"Warrant Shares"). The Notes, shares of Common Stock issuable upon conversion of
the Notes (the "Shares"), the Warrants and the Warrant Shares are collectively
referred to herein as the "Securities"; and
WHEREAS, the aggregate proceeds of the sale of the Notes and the Warrants
contemplated hereby shall be held in escrow pursuant to the terms of a Funds
Escrow Agreement to be executed by the parties substantially in the form
attached hereto as Exhibit B (the "Escrow Agreement").
NOW, THEREFORE, in consideration of the mutual covenants and other
agreements contained in this Agreement the Company and the Subscribers hereby
agree as follows:
1. Closing. Subject to the satisfaction or waiver of the terms and
conditions of this Agreement, on the "Closing Date" (as defined in Section 13(b)
hereof), each Subscriber shall purchase and the Company shall sell to each
Subscriber a Note in the principal amount designated on the signature page
hereto and the amount of Warrants determined pursuant to Section 3 below. The
aggregate principal amount of the Notes to be purchased by the Subscribers on
the Closing Date shall, in the aggregate, be equal to the Purchase Price.
2. Security Interest. The Subscribers will be granted a security interest
in all the assets of the Company, including ownership of Subsidiaries as defined
in Section 5(a) of this Agreement, and the assets of the Subsidiaries to be
memorialized in "Security Agreements", forms of which are annexed hereto as
Exhibit C1 and C2. The Company will execute such other agreements, documents and
financing statements to be filed at the Company's expense with such
jurisdictions, states and counties designated by the Subscribers. The Company
will also execute all such documents reasonably necessary in the opinion of
Subscriber to memorialize and further protect the security interest described
herein. The Subscribers will appoint a Collateral Agent to represent them
collectively in connection with the security interest to be granted in the
assets of the Company and Subsidiaries. The appointment will be pursuant to a
"Collateral Agent Agreement", a form of which is annexed hereto as Exhibit D.
3. Warrants.
(a) Class A Warrants. On the Closing Date, the Company will issue
and deliver Class A Warrants to the Subscribers. Fifty (50) Class A Warrants
will be issued for each one hundred (100) Shares which would be issued on the
Closing Date assuming the complete conversion of the Note on the Closing Date at
the Conversion Price then in effect. The exercise price to acquire a Warrant
Share upon exercise of a Class A Warrant shall be 110% of the average of the
volume weighted average price (VWAP) of the Common Stock as reported by
Bloomberg LP for the OTC Bulletin Board ("Bulletin Board") for the five trading
days preceding the Closing Date, subject to reduction as described in the Class
A Warrant. The Class A Warrants shall be exercisable until five years after the
Closing Date.
(b) Class B Warrants. On the Closing Date, the Company will issue
and deliver Class B Warrants to the Subscribers. Fifty (50) Class B Warrants
will be issued for each one hundred (100) Shares which would be issued on the
Closing Date assuming the complete conversion of the Note on the Closing Date at
the Conversion Price then in effect. The exercise price to acquire a Warrant
Share upon exercise of a Class B Warrant shall be 120% of the average of the
volume weighted average price (VWAP) of the Common Stock as reported by
Bloomberg LP for the Bulletin Board for the five trading days preceding the
Closing Date, subject to reduction as described in the Class B Warrant. The
Class B Warrants shall be exercisable until the Registration Statement [defined
in Section 11.1(iv)] has been effective for the public unrestricted resale of
the Shares and Warrants for 365 days.
4. Subscriber's Representations and Warranties. Each Subscriber hereby
represents and warrants to and agrees with the Company only as to such
Subscriber that:
(a) Organization and Standing of the Subscribers. If the Subscriber
is an entity, such Subscriber is a corporation, partnership or other entity duly
incorporated or organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation or organization.
(b) Authorization and Power. Each Subscriber has the requisite power
and authority to enter into and perform this Agreement and to purchase the Notes
and Warrants being sold to it hereunder. The execution, delivery and performance
of this Agreement by such Subscriber and the consummation by it of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate or partnership action, and no further consent or
authorization of such Subscriber or its Board of Directors, stockholders,
partners, members, as the case may be, is required. This Agreement has been duly
authorized, executed and delivered by Subscriber and constitutes, or shall
constitute when executed and delivered, a valid and binding obligation of the
Subscriber enforceable against the Subscriber in accordance with the terms
thereof.
(c) No Conflicts. The execution, delivery and performance of this
Agreement and the consummation by Subscriber of the transactions contemplated
hereby or relating hereto do not and will not (i) result in a violation of such
Subscriber's charter documents or bylaws or other organizational documents or
(ii) conflict with, or constitute a default (or an event which with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of any agreement,
indenture or instrument or obligation to which such Subscriber is a party or by
which its properties or assets are bound, or result in a violation of any law,
rule, or regulation, or any order, judgment or decree of any court or
governmental agency applicable to such Subscriber or its properties (except for
such conflicts, defaults and violations as would not, individually or in the
aggregate, have a material adverse effect on such Subscriber). Such Subscriber
is not required to obtain any consent, authorization or order of, or make any
filing or registration with, any court or governmental agency in order for it to
execute, deliver or perform any of its obligations under this Agreement or to
purchase the Notes or acquire the Warrants in accordance with the terms hereof,
provided that for purposes of the representation made in this sentence, such
Subscriber is assuming and relying upon the accuracy of the relevant
representations and agreements of the Company herein.
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(d) Information on Company. The Subscriber has been furnished with
or has had access at the XXXXX Website of the Commission to the Company's Form
10-KSB for the year ended December 31, 2004 as filed with the Commission,
together with all subsequently filed Forms 10-QSB, 8-K, and filings made with
the Commission available at the XXXXX website (hereinafter referred to
collectively as the "Reports"). The Subscriber has had an opportunity to ask
questions and receive answers from representatives of the Company. In addition,
the Subscriber has received in writing from the Company such other information
concerning its operations, financial condition and other matters as the
Subscriber has requested in writing (such other information is collectively, the
"Other Written Information"), and considered all factors the Subscriber deems
material in deciding on the advisability of investing in the Securities.
(e) Information on Subscriber. The Subscriber is, and will be at the
time of the conversion of the Notes and exercise of the Warrants, an "accredited
investor", as such term is defined in Regulation D promulgated by the Commission
under the 1933 Act, is experienced in investments and business matters, has made
investments of a speculative nature and has purchased securities of United
States publicly-owned companies in private placements in the past and, with its
representatives, has such knowledge and experience in financial, tax and other
business matters as to enable the Subscriber to utilize the information made
available by the Company to evaluate the merits and risks of and to make an
informed investment decision with respect to the proposed purchase, which
represents a speculative investment. The Subscriber has the authority and is
duly and legally qualified to purchase and own the Securities. The Subscriber is
able to bear the risk of such investment for an indefinite period and to afford
a complete loss thereof. The information set forth on the signature page hereto
regarding the Subscriber is accurate.
(f) Purchase of Notes and Warrants. On the Closing Date, the
Subscriber will purchase the Notes, and Warrants as principal for its own
account for investment only and not with a view toward, or for resale in
connection with, the public sale or any distribution thereof.
(g) Compliance with Securities Act. The Subscriber understands and
agrees that the Securities have not been registered under the 1933 Act or any
applicable state securities laws, by reason of their issuance in a transaction
that does not require registration under the 1933 Act (based in part on the
accuracy of the representations and warranties of Subscriber contained herein),
and that such Securities must be held indefinitely unless a subsequent
disposition is registered under the 1933 Act or any applicable state securities
laws or is exempt from such registration.
(h) Shares Legend. The Shares, and the Warrant Shares shall bear the
following or similar legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED. THESE SHARES MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT OR ANY APPLICABLE STATE
SECURITIES LAW OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO VOIP,
INC. THAT SUCH REGISTRATION IS NOT REQUIRED."
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(i) Warrants Legend. The Warrants shall bear the following or
similar legend:
"THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT
MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID ACT
OR ANY APPLICABLE STATE SECURITIES LAW OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO VOIP, INC. THAT SUCH REGISTRATION IS NOT REQUIRED."
(j) Note Legend. The Note shall bear the following legend:
"THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE MAY
NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE UNDER SAID ACT OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO VOIP, INC. THAT SUCH
REGISTRATION IS NOT REQUIRED."
(k) Communication of Offer. The offer to sell the Securities was
directly communicated to the Subscriber by the Company. At no time was the
Subscriber presented with or solicited by any leaflet, newspaper or magazine
article, radio or television advertisement, or any other form of general
advertising or solicited or invited to attend a promotional meeting otherwise
than in connection and concurrently with such communicated offer.
(l) Authority; Enforceability. This Agreement and other agreements
delivered together with this Agreement or in connection herewith have been duly
authorized, executed and delivered by the Subscriber and are valid and binding
agreements enforceable in accordance with their terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights generally and
to general principles of equity; and Subscriber has full corporate power and
authority necessary to enter into this Agreement and such other agreements and
to perform its obligations hereunder and under all other agreements entered into
by the Subscriber relating hereto.
(m) Restricted Securities. Subscriber understands that the
Securities have not been registered under the 1933 Act and such Subscriber will
not sell, offer to sell, assign, pledge, hypothecate or otherwise transfer any
of the Securities unless pursuant to an effective registration statement under
the 1933 Act, or unless an exemption from registration is available.
Notwithstanding anything to the contrary contained in this Agreement, such
Subscriber may transfer (without restriction and without the need for an opinion
of counsel) the Securities to its Affiliates (as defined below) provided that
each such Affiliate is an "accredited investor" under Regulation D and such
Affiliate agrees to be bound by the terms and conditions of this Agreement. For
the purposes of this Agreement, an "Affiliate" of any person or entity means any
other person or entity directly or indirectly controlling, controlled by or
under direct or indirect common control with such person or entity. Affiliate
includes each subsidiary of the Company. For purposes of this definition,
"control" means the power to direct the management and policies of such person
or firm, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise.
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(n) No Governmental Review. Each Subscriber understands that no
United States federal or state agency or any other governmental or state agency
has passed on or made recommendations or endorsement of the Securities or the
suitability of the investment in the Securities nor have such authorities passed
upon or endorsed the merits of the offering of the Securities.
(o) Correctness of Representations. Each Subscriber represents as to
such Subscriber that the foregoing representations and warranties are true and
correct as of the date hereof and, unless a Subscriber otherwise notifies the
Company prior to the Closing Date shall be true and correct as of the Closing
Date.
(p) Restriction on Sales. From the time the Subscriber was made
aware of the Offering (as defined in Section 8(c) hereof) until such time as the
Offering is publicly announced, the Subscriber will not offer to sell, solicit
offers to buy, dispose of, loan, pledge or grant any right with respect to the
Common Stock.
(q) Survival. The foregoing representations and warranties shall
survive the Closing Date for a period of three years.
5. Company Representations and Warranties. The Company represents and
warrants to and agrees with each Subscriber that:
(a) Due Incorporation. The Company and each of its Subsidiaries is a
corporation or other entity duly incorporated or organized, validly existing and
in good standing under the laws of the jurisdiction of its incorporation or
organization and has the requisite corporate power to own its properties and to
carry on its business as presently conducted. The Company and each of its
Subsidiaries is duly qualified as a foreign corporation to do business and is in
good standing in each jurisdiction where the nature of the business conducted or
property owned by it makes such qualification necessary, other than those
jurisdictions in which the failure to so qualify would not have a Material
Adverse Effect. For purposes of this Agreement, a "Material Adverse Effect"
shall mean a material adverse effect on the financial condition, results of
operations, properties or business of the Company and its Subsidiaries taken as
a whole. For purposes of this Agreement, "Subsidiary" means, with respect to any
entity at any date, any corporation, limited or general partnership, limited
liability company, trust, estate, association, joint venture or other business
entity of which more than 50% of (i) the outstanding capital stock having (in
the absence of contingencies) ordinary voting power to elect a majority of the
board of directors or other managing body of such entity, (ii) in the case of a
partnership or limited liability company, the interest in the capital or profits
of such partnership or limited liability company or (iii) in the case of a
trust, estate, association, joint venture or other entity, the beneficial
interest in such trust, estate, association or other entity business is, at the
time of determination, owned or controlled directly or indirectly through one or
more intermediaries, by such entity. All the Company's Subsidiaries as of the
Closing Date are set forth on Schedule 5(a) hereto.
(b) Outstanding Stock. All issued and outstanding shares of capital
stock of the Company has been duly authorized and validly issued and are fully
paid and nonassessable.
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(c) Authority; Enforceability. This Agreement, the Note, the
Warrants, the Escrow Agreement, Security Agreement and Collateral Agent
Agreement, and any other agreements delivered together with this Agreement or in
connection herewith (collectively "Transaction Documents") have been duly
authorized, executed and delivered by the Company and are valid and binding
agreements enforceable in accordance with their terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights generally and
to general principles of equity. The Company has full corporate power and
authority necessary to enter into and deliver the Transaction Documents and to
perform its obligations thereunder.
(d) Additional Issuances. There are no outstanding agreements or
preemptive or similar rights affecting the Company's common stock or equity and
no outstanding rights, warrants or options to acquire, or instruments
convertible into or exchangeable for, or agreements or understandings with
respect to the sale or issuance of any shares of common stock or equity of the
Company or other equity interest in any of the Subsidiaries of the Company
except as described on Schedule 5(d).
(e) Consents. No consent, approval, authorization or order of any
court, governmental agency or body or arbitrator having jurisdiction over the
Company, or any of its Affiliates, the Bulletin Board nor the Company's
shareholders is required for the execution by the Company of the Transaction
Documents and compliance and performance by the Company of its obligations under
the Transaction Documents, including, without limitation, the issuance and sale
of the Securities.
(f) No Violation or Conflict. Assuming the representations and
warranties of the Subscribers in Section 4 are true and correct, neither the
issuance and sale of the Securities nor the performance of the Company's
obligations under this Agreement and all other agreements entered into by the
Company relating thereto by the Company will:
(i) violate, conflict with, result in a breach of, or
constitute a default (or an event which with the giving of notice or the lapse
of time or both would be reasonably likely to constitute a default) under (A)
the articles or certificate of incorporation, charter or bylaws of the Company,
(B) to the Company's knowledge, any decree, judgment, order, law, treaty, rule,
regulation or determination applicable to the Company of any court, governmental
agency or body, or arbitrator having jurisdiction over the Company or over the
properties or assets of the Company or any of its Affiliates, (C) the terms of
any bond, debenture, note or any other evidence of indebtedness, or any
agreement, stock option or other similar plan, indenture, lease, mortgage, deed
of trust or other instrument to which the Company or any of its Affiliates is a
party, by which the Company or any of its Affiliates is bound, or to which any
of the properties of the Company or any of its Affiliates is subject, or (D) the
terms of any "lock-up" or similar provision of any underwriting or similar
agreement to which the Company, or any of its Affiliates is a party except the
violation, conflict, breach, or default of which would not have a Material
Adverse Effect; or
(ii) result in the creation or imposition of any lien, charge
or encumbrance upon the Securities or any of the assets of the Company or any of
its Affiliates except as described herein; or
(iii) result in the activation of any anti-dilution rights or
a reset or repricing of any debt or security instrument of any other creditor or
equity holder of the Company, nor result in the acceleration of the due date of
any obligation of the Company; or
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(iv) result in the activation of any piggy-back registration
rights of any person or entity holding securities of the Company or having the
right to receive securities of the Company.
(g) The Securities. The Securities upon issuance:
(i) are, or will be, free and clear of any security interests,
liens, claims or other encumbrances, subject to restrictions upon transfer under
the 1933 Act and any applicable state securities laws;
(ii) have been, or will be, duly and validly authorized and on
the date of issuance of the Shares and upon exercise of the Warrants, the Shares
and Warrant Shares will be duly and validly issued, fully paid and nonassessable
or if registered pursuant to the 1933 Act, and resold pursuant to an effective
registration statement will be free trading and unrestricted);
(iii) will not have been issued or sold in violation of any
preemptive or other similar rights of the holders of any securities of the
Company;
(iv) will not subject the holders thereof to personal
liability by reason of being such holders; and
(v) assuming the representations warranties of the Subscribers
as set forth in Section 4 hereof are true and correct, will not result in a
violation of Section 5 under the 1933 Act.
(h) Litigation. There is no pending or, to the best knowledge of the
Company, threatened action, suit, proceeding or investigation before any court,
governmental agency or body, or arbitrator having jurisdiction over the Company,
or any of its Affiliates that would affect the execution by the Company or the
performance by the Company of its obligations under the Transaction Documents.
Except as disclosed in the Reports or in Schedule 5(h) hereto, there is no
pending or, to the best knowledge of the Company, basis for or threatened
action, suit, proceeding or investigation before any court, governmental agency
or body, or arbitrator having jurisdiction over the Company, or any of its
Affiliates which litigation if adversely determined would have a Material
Adverse Effect.
(i) Reporting Company. The Company is a publicly-held company
subject to reporting obligations pursuant to Section 13 of the 1934 Act and has
a class of common shares registered pursuant to Section 12(g) of the 1934 Act.
Pursuant to the provisions of the 1934 Act, the Company has filed all reports
and other materials required to be filed thereunder with the Commission during
the preceding twelve months.
(j) No Market Manipulation. The Company and its Affiliates have not
taken, and will not take, directly or indirectly, any action designed to, or
that might reasonably be expected to, cause or result in stabilization or
manipulation of the price of the Common Stock to facilitate the sale or resale
of the Securities or affect the price at which the Securities may be issued or
resold.
(k) Information Concerning Company. The Reports contain all material
information relating to the Company and its operations and financial condition
as of their respective dates which information is required to be disclosed
therein. Since the date of the financial statements included in the Reports, and
except as modified in the Other Written Information or in the Schedules hereto,
there has been no Material Adverse Event relating to the Company's business,
financial condition or affairs not disclosed in the Reports. The Reports do not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances when made.
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(l) Stop Transfer. The Company will not issue any stop transfer
order or other order impeding the sale, resale or delivery of any of the
Securities, except as may be required by any applicable federal or state
securities laws and unless contemporaneous notice of such instruction is given
to the Subscriber.
(m) Defaults. The Company is not in violation of its articles of
incorporation or bylaws. Except as described on Schedule 5(m), the Company is
(i) not in default under or in violation of any other material agreement or
instrument to which it is a party or by which it or any of its properties are
bound or affected, which default or violation would have a Material Adverse
Effect, (ii) not in default with respect to any order of any court, arbitrator
or governmental body or subject to or party to any order of any court or
governmental authority arising out of any action, suit or proceeding under any
statute or other law respecting antitrust, monopoly, restraint of trade, unfair
competition or similar matters, or (iii) to the Company's knowledge not in
violation of any statute, rule or regulation of any governmental authority which
violation would have a Material Adverse Effect.
(n) No Integrated Offering. Neither the Company, nor any of its
Affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would cause the offer of the
Securities pursuant to this Agreement to be integrated with prior offerings by
the Company for purposes of the 1933 Act or any applicable stockholder approval
provisions, including, without limitation, under the rules and regulations of
the Bulletin Board. Nor will the Company or any of its Affiliates take any
action or steps that would cause the offer or issuance of the Securities to be
integrated with other offerings. The Company will not conduct any offering other
than the transactions contemplated hereby that will be integrated with the offer
or issuance of the Securities, or which would impair the exemption relied upon
in this Offering.
(o) No General Solicitation. Neither the Company, nor any of its
Affiliates, nor to its knowledge, any person acting on its or their behalf, has
engaged in any form of general solicitation or general advertising (within the
meaning of Regulation D under the 0000 Xxx) in connection with the offer or sale
of the Securities.
(p) Listing. The Common Stock is quoted on the Bulletin Board. The
Company has not received any oral or written notice that the Common Stock is not
eligible nor will become ineligible for quotation on the Bulletin Board nor that
the Common Stock does not meet all requirements for the continuation of such
quotation and the Company satisfies all the requirements for the continued
quotation of the Common Stock on the Bulletin Board.
(q) No Undisclosed Liabilities. The Company has no liabilities or
obligations which are material, individually or in the aggregate, which are not
disclosed in the Reports and Other Written Information, other than those
incurred in the ordinary course of the Company's businesses since December 31,
2004 and which, individually or in the aggregate, would reasonably be expected
to have a Material Adverse Effect, except as disclosed on Schedule 5(q).
(r) No Undisclosed Events or Circumstances. Since December 31, 2004,
no event or circumstance has occurred or exists with respect to the Company or
its businesses, properties, operations or financial condition, that, under
applicable law, rule or regulation, requires public disclosure or announcement
prior to the date hereof by the Company but which has not been so publicly
announced or disclosed in the Reports.
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(s) Capitalization. The authorized and outstanding capital stock of
the Company as of the date of this Agreement and the Closing Date (not including
the Securities) are set forth on Schedule 5(d). Except as set forth on Schedule
5(d), there are no options, warrants, or rights to subscribe to, securities,
rights or obligations convertible into or exchangeable for or giving any right
to subscribe for any shares of capital stock of the Company or any of its
Subsidiaries. All of the outstanding shares of Common Stock of the Company have
been duly and validly authorized and issued and are fully paid and
nonassessable.
(t) Dilution. The Company's executive officers and directors
understand the nature of the Securities being sold hereby and recognize that the
issuance of the Securities will have a potential dilutive effect on the equity
holdings of other holders of the Company's equity or rights to receive equity of
the Company. The board of directors of the Company has concluded, in its good
faith business judgment that the issuance of the Securities is in the best
interests of the Company. The Company specifically acknowledges that its
obligation to issue the Shares upon conversion of the Notes, and the Warrant
Shares upon exercise of the Warrants is binding upon the Company and enforceable
regardless of the dilution such issuance may have on the ownership interests of
other shareholders of the Company or parties entitled to receive equity of the
Company.
(u) No Disagreements with Accountants and Lawyers. There are no
disagreements of any kind presently existing, or reasonably anticipated by the
Company to arise, between the Company and the accountants and lawyers formerly
or presently employed by the Company, including but not limited to disputes or
conflicts over payment owed to such accountants and lawyers.
(v) DTC Status. The Company's transfer agent is a participant in and
the Common Stock is eligible for transfer pursuant to the Depository Trust
Company Automated Securities Transfer Program.
(w) Investment Company. Neither the Company nor any Affiliate is an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
(x) Volo Communications Inc. Representations. The Company represents
that it has acquired and owns 100% of Volo Communications, Inc., a Delaware
corporation ("Volo") and neither the Company nor Volo is in default of any of
the terms and conditions in connection with the Company's acquisition, ownership
and operation of Volo, including but not limited to any agreements with Volo.
For purposes of this Agreement, Volo is a Subsidiary, as defined herein. The
Company further represents that there are no modifications or amendments to the
terms and conditions of the Acquisition Agreements and all agreements in
relation to the Company's acquisitions of Volo as filed with the SEC on Form 8-K
on June 6, 2005.
(y) Subsidiary Representations. The Company makes each of the
representations contained in Sections 5(a), (b), (d), (f), (h), (k), (m), (q)
through (s), (u) and (w) of this Agreement, as same relate to each Subsidiary of
the Company.
(z) Company Predecessor. All representations made by or relating to
the Company of a historical or prospective nature and all undertaking described
in Sections 9(g) through 9(l) shall relate and refer to the Company, its
predecessors, and the Subsidiaries.
(aa) Correctness of Representations. The Company represents that the
foregoing representations and warranties are true and correct as of the date
hereof in all material respects, and, unless the Company otherwise notifies the
Subscribers prior to the Closing Date, shall be true and correct in all material
respects as of the Closing Date.
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(bb) Employee Representations. The Company represents that there is
currently in effect a valid employment agreement with Xxxxx Xxxxx, a copy of
which is annexed hereto as Exhibit H, and that there are no disagreements nor
defaults of any of the terms or provisions of the employment agreement.
Furthermore, the Company undertakes to notify the Subscribers within three
trading days of the Company becoming aware of any change to the employment
agreement with Xx. Xxxxx, or any of the occurrence of any default by the Company
or Xx. Xxxxx in connection with his employment by the Company.
(cc) Survival. The foregoing representations and warranties shall
survive the Closing Date for a period of three years.
6. Regulation D Offering. The offer and issuance of the Securities to the
Subscribers is being made pursuant to the exemption from the registration
provisions of the 1933 Act afforded by Section 4(2) or Section 4(6) of the 1933
Act and/or Rule 506 of Regulation D promulgated thereunder. On the Closing Date,
the Company will provide an opinion reasonably acceptable to Subscriber from the
Company's legal counsel opining on the availability of an exemption from
registration under the 1933 Act as it relates to the offer and issuance of the
Securities and other matters reasonably requested by Subscribers. A form of the
legal opinion is annexed hereto as Exhibit E. The Company will provide, at the
Company's expense, such other legal opinions in the future as are reasonably
necessary for the issuance and/or resale of the Common Stock issuable upon
conversion of the Notes and exercise of the Warrants pursuant to an effective
registration statement.
7. Conversion Rights.
7.1 Conversion of Note.
(a) Upon the conversion of a Note or part thereof, the Company
shall, at its own cost and expense, take all necessary action, including
obtaining and delivering, an opinion of counsel to assure that the Company's
transfer agent shall issue stock certificates in the name of Subscriber (or its
nominee) or such other persons as designated by Subscriber and in such
denominations to be specified at conversion representing the number of shares of
Common Stock issuable upon such conversion. The Company warrants that no
instructions other than these instructions have been or will be given to the
transfer agent of the Company's Common Stock and that, unless waived by the
Subscriber, the Shares will be free-trading, and freely transferable, and will
not contain a legend restricting the resale or transferability of the Shares
provided the Shares are being sold pursuant to an effective registration
statement covering the Shares or are otherwise exempt from registration.
(b) Subscriber will give notice of its decision to exercise its
right to convert the Note, interest, any sum due to the Subscriber under the
Transaction Documents including Liquidated Damages, or part thereof by
telecopying an executed and completed Notice of Conversion (a form of which is
annexed as Exhibit A to the Note) to the Company via confirmed telecopier
transmission or otherwise pursuant to Section 13(a) of this Agreement. The
Subscriber will not be required to surrender the Note until the Note has been
fully converted or satisfied. Each date on which a Notice of Conversion is
telecopied to the Company in accordance with the provisions hereof shall be
deemed a Conversion Date. The Company will itself or cause the Company's
transfer agent to transmit the Company's Common Stock certificates representing
the Shares issuable upon conversion of the Note to the Subscriber via express
courier for receipt by such Subscriber within three (3) business days after
receipt by the Company of the Notice of Conversion (such third day being the
"Delivery Date"). In the event the Shares are electronically transferable, then
delivery of the Shares must be made by electronic transfer provided request for
such electronic transfer has been made by the Subscriber and the Subscriber has
complied with all applicable securities laws in connection with the sale of the
Common Stock, including, without limitation, the prospectus delivery
requirements. A Note representing the balance of the Note not so converted will
be provided by the Company to the Subscriber if requested by Subscriber,
provided the Subscriber delivers the original Note to the Company. In the event
that a Subscriber elects not to surrender a Note for reissuance upon partial
payment or conversion, the Subscriber hereby indemnifies the Company against any
and all loss or damage attributable to a third-party claim in an amount in
excess of the actual amount then due under the Note.
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(c) The Company understands that a delay in the delivery of the
Shares in the form required pursuant to Section 7.1 hereof, or the Mandatory
Redemption Amount described in Section 7.2 hereof, respectively after the
Delivery Date or the Mandatory Redemption Payment Date (as hereinafter defined)
could result in economic loss to the Subscriber. As compensation to the
Subscriber for such loss, the Company agrees to pay (as liquidated damages and
not as a penalty) to the Subscriber for late issuance of Shares in the form
required pursuant to Section 7.1 hereof upon Conversion of the Note in the
amount of $100 per business day after the Delivery Date for each $10,000 of Note
principal amount being converted of the corresponding Shares which are not
timely delivered. The Company shall pay any payments incurred under this Section
in immediately available funds upon demand. Furthermore, in addition to any
other remedies which may be available to the Subscriber, in the event that the
Company fails for any reason to effect delivery of the Shares by the Delivery
Date or make payment by the Mandatory Redemption Payment Date, the Subscriber
will be entitled to revoke all or part of the relevant Notice of Conversion or
rescind all or part of the notice of Mandatory Redemption by delivery of a
notice to such effect to the Company whereupon the Company and the Subscriber
shall each be restored to their respective positions immediately prior to the
delivery of such notice, except that the liquidated damages described above
shall be payable through the date notice of revocation or rescission is given to
the Company.
(d) Nothing contained herein or in any document referred to herein
or delivered in connection herewith shall be deemed to establish or require the
payment of a rate of interest or other charges in excess of the maximum
permitted by applicable law. In the event that the rate of interest or dividends
required to be paid or other charges hereunder exceed the maximum permitted by
such law, any payments in excess of such maximum shall be credited against
amounts owed by the Company to the Subscriber and thus refunded to the Company.
7.2 Mandatory Redemption at Subscriber's Election. In the event the
Company is prohibited from issuing Shares, or fails to timely deliver Shares on
a Delivery Date, or upon the occurrence of any other Event of Default (as
defined in the Note or in this Agreement) that is not cured during any
applicable cure period and an additional ten days thereafter, then at the
Subscriber's election, the Company must pay to the Subscriber ten (10) business
days after request by the Subscriber, at the Subscriber's election, a sum of
money determined by (i) multiplying up to the outstanding principal amount of
the Note designated by the Subscriber by 115%, or (ii) multiplying the number of
Shares otherwise deliverable upon conversion of an amount of Note principal
and/or interest designated by the Subscriber (with the date of giving of such
designation being a "Deemed Conversion Date") at the then Conversion Price that
would be in effect on the Deemed Conversion Date by the highest closing price of
the Common Stock on the Principal Market for the period commencing on the Deemed
Conversion Date until the day prior to the receipt of the Mandatory Redemption
Payment, whichever is greater, together with accrued but unpaid interest thereon
and any other sums arising and outstanding under the Transaction Documents
("Mandatory Redemption Payment"). The Mandatory Redemption Payment must be
received by the Subscriber on the same date as the Company Shares otherwise
deliverable or within ten (10) business days after request, whichever is sooner
("Mandatory Redemption Payment Date"). Upon receipt of the Mandatory Redemption
Payment, the corresponding Note principal and interest will be deemed paid and
no longer outstanding. Liquidated damages calculated pursuant to Section 7.1(c)
hereof, that have been paid or accrued for the twenty day period prior to the
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actual receipt of the Mandatory Redemption Payment by the Subscriber shall be
credited against the Mandatory Redemption Payment calculated pursuant to
subsections (i) and (ii) above of this Section 7.2. In the event of a "Change in
Control" (as defined below), the Subscriber may demand, and the Company shall
pay, a Mandatory Redemption Payment equal to 115% of the outstanding principal
amount of the Note designated by the Subscriber together with accrued but unpaid
interest thereon and any other sums arising and outstanding under the
Transaction Documents. For purposes of this Section 7.2, "Change in Control"
shall mean (i) the Company no longer having a class of shares publicly tradable
and listed on a Principal Market, (ii) the Company becoming a Subsidiary of
another entity or merging into or with another entity, (iii) a majority of the
board of directors of the Company as of the Closing Date no longer serving as
directors of the Company except for the addition or replacement of up to six
directors, other than due to natural causes, (iv) if the holders of the
Company's Common Stock as of the Closing Date beneficially owning at any time
after the Closing Date less than thirty-five percent of the Common stock owned
by them on the Closing Date, or (v) the sale, lease, license or transfer of
substantially all the assets of the Company or Subsidiaries.
7.3 Maximum Conversion. The Subscriber shall not be entitled to
convert on a Conversion Date that amount of the Note in connection with that
number of shares of Common Stock which would be in excess of the sum of (i) the
number of shares of common stock beneficially owned by the Subscriber and its
Affiliates on a Conversion Date, and (ii) the number of shares of Common Stock
issuable upon the conversion of the Note with respect to which the determination
of this provision is being made on a Conversion Date, which would result in
beneficial ownership by the Subscriber and its Affiliates of more than 4.99% of
the outstanding shares of common stock of the Company on such Conversion Date.
For the purposes of the provision to the immediately preceding sentence,
beneficial ownership shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended, and Regulation 13d-3 thereunder.
Subject to the foregoing, the Subscriber shall not be limited to aggregate
conversions of only 4.99% and aggregate conversions by the Subscriber may exceed
4.99%. The Subscriber may waive the conversion limitation described in this
Section 7.3, in whole or in part, or increase the permitted beneficial ownership
amount upon and effective after 61 days prior written notice to the Company. The
Subscriber may allocate which of the equity of the Company deemed beneficially
owned by the Subscriber shall be included in the 4.99% amount described above
and which shall be allocated to the excess above 4.99%.
7.4 Injunction Posting of Bond. In the event a Subscriber shall
elect to convert a Note or part thereof or exercise the Warrant in whole or in
part, the Company may not refuse conversion or exercise based on any claim that
such Subscriber or any one associated or affiliated with such Subscriber has
been engaged in any violation of law, or for any other reason, unless, an
injunction from a court, on notice, restraining and or enjoining conversion of
all or part of such Note or exercise of all or part of such Warrant shall have
been sought and obtained by the Company and the Company has posted a surety bond
for the benefit of such Subscriber in the amount of 120% of the amount of the
Note, or aggregate purchase price of the Warrant Shares which are sought to be
subject to the injunction, which bond shall remain in effect until the
completion of arbitration/litigation of the dispute and the proceeds of which
shall be payable to such Subscriber to the extent Subscriber obtains judgment.
7.5 Buy-In. In addition to any other rights available to the
Subscriber, if the Company fails to deliver to the Subscriber such shares
issuable upon conversion of a Note by the Delivery Date and if after seven (7)
business days after the Delivery Date the Subscriber purchases (in an open
market transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by such Subscriber of the Common Stock which the
Subscriber was entitled to receive upon such conversion (a "Buy-In"), then the
Company shall pay in cash to the Subscriber (in addition to any remedies
available to or elected by the Subscriber) the amount by which (A) the
Subscriber's total purchase price (including brokerage commissions, if any) for
the shares of Common Stock so purchased exceeds (B) the aggregate principal
and/or interest amount of the Note for which such conversion was not timely
honored, together with interest thereon at a rate of 15% per annum, accruing
until such amount and any accrued interest thereon is paid in full (which amount
shall be paid as liquidated damages and not as a penalty). For example, if the
Subscriber purchases shares of Common Stock having a total purchase price of
$11,000 to cover a Buy-In with respect to an attempted conversion of $10,000 of
note principal and/or interest, the Company shall be required to pay the
Subscriber $1,000, plus interest. The Subscriber shall provide the Company
written notice indicating the amounts payable to the Subscriber in respect of
the Buy-In.
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7.6 Adjustments. The Conversion Price, Warrant exercise price and amount
of Shares issuable upon conversion of the Notes and exercise of the Warrants
shall be equitably adjusted and as otherwise described in the Transaction
Documents.
7.7 Redemption. The Note shall not be redeemable or callable except as
described in the Note. The Warrants shall not be callable or redeemable.
8. Finder/Legal Fees.
(a) Finder's Fee. The Company on the one hand, and each Subscriber
(for himself only) on the other hand, agree to indemnify the other against and
hold the other harmless from any and all liabilities to any persons claiming
brokerage commissions or finder's fees on account of services purported to have
been rendered on behalf of the indemnifying party in connection with this
Agreement or the transactions contemplated hereby and arising out of such
party's actions. The Company represents that there are no other parties entitled
to receive fees, commissions, or similar payments in connection with the
Offering except as described on Schedule 8(a) hereto.
(b) Legal Fees. The Company shall pay to Grushko & Xxxxxxx, P.C., a
fee of $30,000 (of which $10,000 has been paid) ("Legal Fees") as reimbursement
for services rendered to the Subscribers in connection with this Agreement and
the purchase and sale of the Notes, and Warrants (the "Offering") and acting as
Escrow Agent for the Offering. The Legal Fees will be payable on the Closing
Date out of funds held pursuant to the Escrow Agreement. Grushko & Xxxxxxx, P.C.
will be reimbursed at the Closing Date for all UCC search and filing fees.
9. Covenants of the Company. The Company covenants and agrees with the
Subscribers as follows:
(a) Stop Orders. The Company will advise the Subscribers within two
hours after it receives notice of issuance by the Commission, any state
securities commission or any other regulatory authority of any stop order or of
any order preventing or suspending any offering of any securities of the
Company, or of the suspension of the qualification of the Common Stock of the
Company for offering or sale in any jurisdiction, or the initiation of any
proceeding for any such purpose.
(b) Listing. The Company shall promptly secure the listing of the
Shares and the Warrant Shares upon each national securities exchange, or
electronic or automated quotation system upon which they are or become eligible
for listing and shall maintain such listing so long as any Notes or Warrants are
outstanding. The Company will maintain the listing of its Common Stock on the
American Stock Exchange, Nasdaq SmallCap Market, Nasdaq National Market System,
Bulletin Board, or New York Stock Exchange (whichever of the foregoing is at the
time the principal trading exchange or market for the Common Stock (the
"Principal Market")), and will comply in all respects with the Company's
reporting, filing and other obligations under the bylaws or rules of the
Principal Market, as applicable. The Company will provide the Subscribers copies
of all notices it receives notifying the Company of the threatened and actual
delisting of the Common Stock from any Principal Market. As of the date of this
Agreement and the Closing Date, the Bulletin Board is and will be the Principal
Market.
13
(c) Market Regulations. The Company shall notify the Commission, the
Principal Market and applicable state authorities, in accordance with their
requirements, of the transactions contemplated by this Agreement, and shall take
all other necessary action and proceedings as may be required and permitted by
applicable law, rule and regulation, for the legal and valid issuance of the
Securities to the Subscribers and promptly provide copies thereof to Subscriber.
(d) Filing Requirements. From the date of this Agreement and until
the sooner of (i) three (3) years after the Closing Date, or (ii) until all the
Shares and Warrant Shares have been resold or transferred by all the Subscribers
pursuant to the Registration Statement or pursuant to Rule 144, without regard
to volume limitation, the Company will (A) cause its Common Stock to continue to
be registered under Section 12(b) or 12(g) of the 1934 Act, (B) comply in all
respects with its reporting and filing obligations under the 1934 Act, (C)
comply with all reporting requirements that are applicable to an issuer with a
class of shares registered pursuant to Section 12(b) or 12(g) of the 1934 Act,
as applicable, and (D) comply with all filing requirements related to any
registration statement filed pursuant to this Agreement. The Company will use
its best efforts not to take any action or file any document (whether or not
permitted by the 1933 Act or the 1934 Act or the rules thereunder) to terminate
or suspend such registration or to terminate or suspend its reporting and filing
obligations under said acts until three (3) years after the Closing Date. Until
the earlier of the resale of the Shares, and Warrant Shares by each Subscriber
or until three (3) years after the Warrants have been exercised, the Company
will use its best efforts to continue the listing or quotation of the Common
Stock on a Principal Market and will comply in all respects with the Company's
reporting, filing and other obligations under the bylaws or rules of the
Principal Market. The Company agrees to timely file a Form D with respect to the
Securities if required under Regulation D and to provide a copy thereof to each
Subscriber promptly after such filing.
(e) Use of Proceeds. The proceeds of the Offering must be employed
by the Company for the purposes set forth on Schedule 9(e) hereto. Except as set
forth on Schedule 9(e), the Purchase Price may not and will not be used for
accrued and unpaid officer and director salaries, payment of financing related
debt, redemption of outstanding notes or equity instruments of the Company nor
non-trade obligations outstanding on the Closing Date.
(f) Reservation. Prior to the Closing Date, the Company undertakes
to reserve, pro rata, on behalf of each holder of a Note or Warrant, from its
authorized but unissued common stock, a number of common shares equal to 120% of
the amount of Common Stock necessary to allow each holder of a Note to be able
to convert all such outstanding Notes and interest and reserve the amount of
Warrant Shares issuable upon exercise of the Warrants. After the Reservation
Approval (as described in Section 9(r) of this Agreement), the Company will
reserve pro-rata on behalf of the Subscribers from its authorized but unissued
Common Stock a number of common shares equal to 200% of the amount of Common
Stock necessary to allow each holder of a Note to be able to convert all such
outstanding Notes and interest and reserve the amount of Warrant Shares issuable
upon exercise of the Warrants. Failure to have sufficient shares reserved
pursuant to this Section 9(f) for three (3) consecutive business days or ten
(10) days in the aggregate shall be a material default of the Company's
obligations under this Agreement and an Event of Default under the Note.
14
(g) Taxes. From the date of this Agreement and until the sooner of
(i) three (3) years after the Closing Date, or (ii) until all the Shares, and
Warrant Shares have been resold or transferred by all the Subscribers pursuant
to the Registration Statement or pursuant to Rule 144, without regard to volume
limitations, the Company will promptly pay and discharge, or cause to be paid
and discharged, when due and payable, all lawful taxes, assessments and
governmental charges or levies imposed upon the income, profits, property or
business of the Company; provided, however, that any such tax, assessment,
charge or levy need not be paid if the validity thereof shall currently be
contested in good faith by appropriate proceedings and if the Company shall have
set aside on its books adequate reserves with respect thereto, and provided,
further, that the Company will pay all such taxes, assessments, charges or
levies forthwith upon the commencement of proceedings to foreclose any lien
which may have attached as security therefore.
(h) Insurance. From the date of this Agreement and until the sooner
of (i) three (3) years after the Closing Date, or (ii) until all the Shares, and
Warrant Shares have been resold or transferred by all the Subscribers pursuant
to the Registration Statement or pursuant to Rule 144, without regard to volume
limitations, the Company will keep its assets which are of an insurable
character insured by financially sound and reputable insurers against loss or
damage by fire, explosion and other risks customarily insured against by
companies in the Company's line of business, in amounts sufficient to prevent
the Company from becoming a co-insurer, and the Company will maintain, with
financially sound and reputable insurers, insurance against other hazards and
risks and liability to persons and property to the extent and in the manner
customary for companies in similar businesses similarly situated and to the
extent available on commercially reasonable terms.
(i) Books and Records. From the date of this Agreement and until the
sooner of (i) three (3) years after the Closing Date, or (ii) until all the
Shares, and Warrant Shares have been resold or transferred by all the
Subscribers pursuant to the Registration Statement or pursuant to Rule 144,
without regard to volume limitations, the Company will keep true records and
books of account in which full, true and correct entries will be made of all
dealings or transactions in relation to its business and affairs in accordance
with generally accepted accounting principles applied on a consistent basis.
(j) Governmental Authorities. From the date of this Agreement and
until the sooner of (i) three (3) years after the Closing Date, or (ii) until
all the Shares, and Warrant Shares have been resold or transferred by all the
Subscribers pursuant to the Registration Statement or pursuant to Rule 144,
without regard to volume limitations, the Company shall duly observe and conform
in all material respects to all valid requirements of governmental authorities
relating to the conduct of its business or to its properties or assets.
(k) Intellectual Property. From the date of this Agreement and until
the sooner of (i) three (3) years after the Closing Date, or (ii) until all the
Shares, and Warrant Shares have been resold or transferred by all the
Subscribers pursuant to the Registration Statement or pursuant to Rule 144,
without regard to volume limitations, the Company shall maintain in full force
and effect its corporate existence, rights and franchises and all licenses and
other rights to use intellectual property owned or possessed by it and
reasonably deemed to be necessary to the conduct of its business.
(l) Properties. From the date of this Agreement and until the sooner
of (i) three (3) years after the Closing Date, or (ii) until all the Shares, and
Warrant Shares have been resold or transferred by all the Subscribers pursuant
to the Registration Statement (as defined in Section 11.1(iv) hereof) or
pursuant to Rule 144, without regard to volume limitations, the Company will
keep its properties in good repair, working order and condition, reasonable wear
and tear excepted, and from time to time make all necessary and proper repairs,
renewals, replacements, additions and improvements thereto; and the Company will
at all times comply with each provision of all leases to which it is a party or
under which it occupies property if the breach of such provision could
reasonably be expected to have a Material Adverse Effect.
15
(m) Confidentiality/Public Announcement. From the date of this
Agreement and until the sooner of (i) three (3) years after the Closing Date, or
(ii) until all the Shares, and Warrant Shares have been resold or transferred by
all the Subscribers pursuant to the Registration Statement or pursuant to Rule
144, without regard to volume limitations, the Company agrees that except in
connection with a Form 8-K or the Registration Statement, it will not disclose
publicly or privately the identity of the Subscribers unless expressly agreed to
in writing by a Subscriber or only to the extent required by law and then only
upon five days prior notice to Subscriber. In any event and subject to the
foregoing, the Company shall file a Form 8-K or make a public announcement
describing the Offering not later than the first business day after the Closing
Date. In the Form 8-K or public announcement, the Company will specifically
disclose the amount of common stock outstanding immediately after the Closing. A
form of the proposed Form 8-K or public announcement to be employed in
connection with the Offering is annexed hereto as Exhibit F.
(n) Further Registration Statements. Except for a registration
statement filed on behalf of the Subscribers pursuant to Section 11 of this
Agreement or in connection with the registration of the Common Stock described
in Section 12(a)(vi), the Company will not file any registration statements or
amend any already filed registration statement, including but not limited to
Form S-8, with the Commission or with state regulatory authorities without the
consent of the Subscriber until the sooner of (i) the Registration Statement
shall have been current and available for use in connection with the resale of
the Registrable Securities (as defined in Section 11.1(i) for a period of 60
days, or (ii) until all the Shares and Warrant Shares have been resold or
transferred by the Subscribers pursuant to the Registration Statement or Rule
144, without regard to volume limitations. The Exclusion Period will be tolled
during the pendency of an Event of Default as defined in the Note.
(o) Blackout. The Company undertakes and covenants that until (i)
the sooner of the Registration Statement shall have been current and available
for use in connection with the resale of the Registrable Securities (as defined
in Section 11.1(i) for a period of 180 days, or (ii) all the Shares and Warrant
Shares have been resold or transferred by the Subscribers pursuant to the
Registration Statement or Rule 144 without regard to volume limitation (the
"Exclusion Period"), the Company will not enter into any acquisition, merger,
exchange or sale or other transaction that could have the effect of delaying the
effectiveness of any pending registration statement or causing an already
effective registration statement to no longer be effective or current for a
period twenty (20) or more days.
(p) Non-Public Information. The Company covenants and agrees that
neither it nor any other person acting on its behalf will provide any Subscriber
or its agents or counsel with any information that the Company believes
constitutes material non-public information, unless prior thereto such
Subscriber shall have agreed in writing to receive such information. The Company
understands and confirms that each Subscriber shall be relying on the foregoing
representations in effecting transactions in securities of the Company.
(q) Limited Standstill. The Company will deliver to the Subscribers
on or before the Closing Date and enforce the provisions of irrevocable
standstill agreements ("Limited Standstill Agreements") in the form annexed
hereto as Exhibit G, with the parties identified on Schedule 9(q) hereto.
(r) Shareholder Approval. The Company and Subscribers agree that
until the Company obtains shareholder approval of an increase in the authorized
Common Stock of the Company to not less than 250,000,000 Shares of Common Stock,
files an amendment to the Company's Articles of Incorporation and reserve 200%
of the amount of shares of Common Stock necessary to allow the conversion of the
entire Note principal and interest that may accrue thereon and 100% of the
Common Stock issuable upon exercise of all of the Warrants issued in connection
16
with this Agreement (collectively such shares of Common Stock being the "Reserve
Amount" and the shareholder approval, amendment and reservation being the
"Reservation"), each Subscriber may not convert the Note nor exercise any
Warrants in excess of each Subscriber's pro rata portion of 12,000,000 shares of
Common Stock. Each Subscriber's pro rata portion is equal to the Note principal
purchased by such Subscriber divided by the aggregate Note principal sold in the
Offering. The Company undertakes to file a preliminary proxy statement for a
meeting of the Company's shareholders relating to the Reservation with the
Commission not later than January 5, 2006 ("Proxy Filing Date"). The Company
covenants to use its best efforts to obtain the Reservation. Failure to file the
preliminary proxy on or before the Proxy Filing Date or to obtain the
Reservation (each a "Reservation Default") is an Event of Default under the Note
for which liquidated damages will accrue at the rate of two percent (2%) for
each thirty (30) days, or pro rata portion thereof during the pendency of such
Reservation Default. Liquidated damages for a Reservation Default that accrues
at the same time as a Non-Registration Event (as defined in Section 11.4 hereof)
shall be limited to the greater of the amount of such damages which may accrue.
10. Covenants of the Company and Subscriber Regarding Indemnification.
(a) The Company agrees to indemnify, hold harmless, reimburse and
defend the Subscribers, the Subscribers' officers, directors, agents,
Affiliates, control persons, and principal shareholders, against any claim,
cost, expense, liability, obligation, loss or damage (including reasonable legal
fees) of any nature, incurred by or imposed upon the Subscriber or any such
person which results, arises out of or is based upon (i) any material
misrepresentation by Company or breach of any warranty by Company in this
Agreement or in any Exhibits or Schedules attached hereto, or other agreement
delivered pursuant hereto; or (ii) after any applicable notice and/or cure
periods, any breach or default in performance by the Company of any covenant or
undertaking to be performed by the Company hereunder, or any other agreement
entered into by the Company and Subscriber relating hereto.
(b) Each Subscriber agrees to indemnify, hold harmless, reimburse
and defend the Company and each of the Company's officers, directors, agents,
Affiliates, control persons against any claim, cost, expense, liability,
obligation, loss or damage (including reasonable legal fees) of any nature,
incurred by or imposed upon the Company or any such person which results, arises
out of or is based upon (i) any material misrepresentation by such Subscriber in
this Agreement or in any Exhibits or Schedules attached hereto, or other
agreement delivered pursuant hereto; or (ii) after any applicable notice and/or
cure periods, any breach or default in performance by such Subscriber of any
covenant or undertaking to be performed by such Subscriber hereunder, or any
other agreement entered into by the Company and Subscribers, relating hereto.
(c) In no event shall the liability of any Subscriber or permitted
successor hereunder or under any Transaction Document or other agreement
delivered in connection herewith be greater in amount than the dollar amount of
the net proceeds actually received by such Subscriber upon the sale of
Registrable Securities (as defined herein).
(d) The procedures set forth in Section 11.6 shall apply to the
indemnification set forth in Sections 10(a) and 10(b) above.
11. Registration.
11.1 Registration Rights. The Company hereby grants the following
registration rights to holders of the Securities.
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(a) On one occasion, for a period commencing one hundred and six
(106) days after the Closing Date, but not later than two (2) years after the
Closing Date ("Request Date"), upon a written request therefor from any record
holder or holders of more than 50% of the Shares issued and issuable upon
conversion of the Notes and Warrant Shares actually issued upon exercise of the
Warrants, the Company shall prepare and file with the Commission a registration
statement under the 1933 Act registering the Shares issuable upon conversion of
all sums due under the Notes and Warrant Shares issuable upon exercise of the
Warrants and Finder's Warrants (collectively "Registrable Securities") which are
the subject of such request for unrestricted public resale by the holder
thereof. From the Closing Date until the Reservation (as defined in this
Agreement), Registrable Securities shall mean 120% of the Shares issuable upon
conversion of the Notes and exercise of the Warrants. Following the Reservation,
Registrable Securities shall mean 200% of all Shares issuable upon conversion of
the Notes and 100% of all Shares issuable upon exercise of the Warrants. For
purposes of Sections 11.1(i) and 11.1(ii), Registrable Securities shall not
include Securities (A) which are registered for resale in an effective
registration statement, (B) included for registration in a pending registration
statement, or (C) which have been issued without further transfer restrictions
after a sale or transfer pursuant to Rule 144 under the 1933 Act. Upon the
receipt of such request, the Company shall promptly give written notice to all
other record holders of the Registrable Securities that such registration
statement is to be filed and shall include in such registration statement
Registrable Securities for which it has received written requests within ten
(10) days after the Company gives such written notice. Such other requesting
record holders shall be deemed to have exercised their demand registration right
under this Section 11.1(i).
(b) If the Company at any time proposes to register any of its
securities under the 1933 Act for sale to the public, whether for its own
account or for the account of other security holders or both, except with
respect to registration statements on Forms X-0, X-0 or another form not
available for registering the Registrable Securities for sale to the public,
provided the Registrable Securities are not otherwise registered for resale by
the Subscribers or Holder pursuant to an effective registration statement, each
such time it will give at least fifteen (15) days' prior written notice to the
record holder of the Registrable Securities of its intention so to do. Upon the
written request of the holder, received by the Company within ten (10) days
after the giving of any such notice by the Company, to register any of the
Registrable Securities not previously registered, the Company will cause such
Registrable Securities as to which registration shall have been so requested to
be included with the securities to be covered by the registration statement
proposed to be filed by the Company, all to the extent required to permit the
sale or other disposition of the Registrable Securities so registered by the
holder of such Registrable Securities (the "Seller" or "Sellers"). In the event
that any registration pursuant to this Section 11.1(ii) shall be, in whole or in
part, an underwritten public offering of common stock of the Company, the number
of shares of Registrable Securities to be included in such an underwriting may
be reduced by the managing underwriter if and to the extent that the Company and
the underwriter shall reasonably be of the opinion that such inclusion would
adversely affect the marketing of the securities to be sold by the Company
therein; provided, however, that the Company shall notify the Seller in writing
of any such reduction. Notwithstanding the foregoing provisions, or Section 11.4
hereof, the Company may withdraw or delay or suffer a delay of any registration
statement referred to in this Section 11.1(ii) without thereby incurring any
liability to the Seller.
(c) If, at the time any written request for registration is received
by the Company pursuant to Section 11.1(i), the Company has determined to
proceed with the actual preparation and filing of a registration statement under
the 1933 Act in connection with the proposed offer and sale for cash of any of
its securities for the Company's own account and the Company actually does file
such other registration statement, such written request shall be deemed to have
been given pursuant to Section 11.1(ii) rather than Section 11.1(i), and the
rights of the holders of Registrable Securities covered by such written request
shall be governed by Section 11.1(ii).
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(d) The Company shall file with the Commission a Form SB-2 or Form
S-3 registration statement (the "Registration Statement") (or such other form
that it is eligible to use) in order to register the Registrable Securities for
resale and distribution under the 0000 Xxx) not later than thirty (30) days
after the date of this Agreement (the "Filing Date"), and cause it to be
declared effective not later than one hundred and five (105) days after the date
of this Agreement (the "Effective Date"). The Company will register not less
than a number of shares of Common Stock in the aforedescribed registration
statement that is equal to 200% of the Shares issuable upon conversion of the
Notes and all of the Warrant Shares issuable upon exercise of the Warrants. The
Registrable Securities shall be reserved and set aside exclusively for the
benefit of each Subscriber and Warrant holder, pro rata, and not issued,
employed or reserved for anyone other than each such Subscriber and Warrant
holder. The Registration Statement will immediately be amended or additional
registration statements will be immediately filed by the Company as necessary to
register additional shares of Common Stock to allow the public resale of all
Common Stock included in and issuable by virtue of the Registrable Securities.
Without the written consent of the Subscriber, no securities of the Company
other than the Registrable Securities will be included in the Registration
Statement except as described on Schedule 11.1, hereto. It shall be deemed a
Non-Registration Event if at any time after the date the Registration Statement
is declared effective by the Commission the Company has registered for
unrestricted resale on behalf of a Subscriber fewer than 125% of the amount of
Common Shares issuable upon full conversion of all sums due under the Notes and
100% of the Warrant Shares issuable upon exercise of the Warrants.
11.2 Registration Procedures. If and whenever the Company is required by
the provisions of Section 11.1(i), 11.1(ii), or (iv) to effect the registration
of any Registrable Securities under the 1933 Act, the Company will, as
expeditiously as possible:
(a) subject to the timelines provided in this Agreement, prepare and
file with the Commission a registration statement required by Section 11, with
respect to such securities and use its best efforts to cause such registration
statement to become and remain effective for the period of the distribution
contemplated thereby (determined as herein provided), promptly provide to the
holders of the Registrable Securities copies of all filings and Commission
letters of comment and notify Subscribers (by telecopier and by e-mail addresses
provided by Subscribers) and Grushko & Xxxxxxx, P.C. (by telecopier and by email
to Xxxxxxxxx@xxx.xxx) on or before 3:00 PM EST on the next business day that the
Company receives notice that (i) the Commission has no comments or no further
comments on the Registration Statement, and (ii) the registration statement has
been declared effective (failure to timely provide notice as required by this
Section 11.2(a) shall be a material breach of the Company's obligation and an
Event of Default as defined in the Notes and a Non-Registration Event as defined
in Section 11.4 of this Agreement);
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective
until such registration statement has been effective for a period of three (3)
years, and comply with the provisions of the 1933 Act with respect to the
disposition of all of the Registrable Securities covered by such registration
statement in accordance with the Sellers' intended method of disposition set
forth in such registration statement for such period;
(c) furnish to the Sellers, at the Company's expense, such number of
copies of the registration statement and the prospectus included therein
(including each preliminary prospectus) as such persons reasonably may request
in order to facilitate the public sale or their disposition of the securities
covered by such registration statement;
(d) use its commercially reasonable best efforts to register or
qualify the Registrable Securities covered by such registration statement under
the securities or "blue sky" laws of New York and such jurisdictions as the
Sellers shall request in writing, provided, however, that the Company shall not
for any such purpose be required to qualify generally to transact business as a
foreign corporation in any jurisdiction where it is not so qualified or to
consent to general service of process in any such jurisdiction;
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(e) if applicable, list the Registrable Securities covered by such
registration statement with any securities exchange on which the Common Stock of
the Company is then listed;
(f) notify the Subscribers within two hours of the Company's
becoming aware that a prospectus relating thereto is required to be delivered
under the 1933 Act, of the happening of any event of which the Company has
knowledge as a result of which the prospectus contained in such registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the circumstances then
existing or which becomes subject to a Commission, state or other governmental
order suspending the effectiveness of the registration statement covering any of
the Shares; and
(g) provided same would not be in violation of the provision of
Regulation FD under the 1934 Act, make available for inspection by the Sellers,
and any attorney, accountant or other agent retained by the Seller or
underwriter, all publicly available, non-confidential financial and other
records, pertinent corporate documents and properties of the Company, and cause
the Company's officers, directors and employees to supply all publicly
available, non-confidential information reasonably requested by the seller,
attorney, accountant or agent in connection with such registration statement.
11.3 Provision of Documents. In connection with each registration
described in this Section 11, each Seller will furnish to the Company in writing
such information and representation letters with respect to itself and the
proposed distribution by it as reasonably shall be necessary in order to assure
compliance with federal and applicable state securities laws.
11.4 Non-Registration Events. The Company and the Subscribers agree that
the Sellers will suffer damages if the Registration Statement is not filed by
the Filing Date and not declared effective by the Commission by the Effective
Date, and any registration statement required under Section 11.1(i) or 11.1(ii)
is not filed within 60 days after written request and declared effective by the
Commission within 120 days after such request, and maintained in the manner and
within the time periods contemplated by Section 11 hereof, and it would not be
feasible to ascertain the extent of such damages with precision. Accordingly, if
(A) the Registration Statement is not filed on or before the Filing Date, (B) is
not declared effective on or before the Effective Date, (C) the Registration
Statement is not declared effective within three (3) business days after receipt
by the Company or its attorneys of a written or oral communication from the
Commission that the Registration Statement will not be reviewed or that the
Commission has no further comments, (D) if the registration statement described
in Sections 11.1(i) or 11.1(ii) is not filed within 60 days after such written
request, or is not declared effective within 120 days after such written
request, or (E) any registration statement described in Sections 11.1(i),
11.1(ii) or 11.1(iv) is filed and declared effective but shall thereafter cease
to be effective (without being succeeded within fifteen (15) business days by an
effective replacement or amended registration statement) for a period of time
which shall exceed 20 days in the aggregate per year (defined as a period of 365
days commencing on the date the Registration Statement is declared effective)
(each such event referred to in clauses (A) through (E) of this Section 11.4 is
referred to herein as a "Non-Registration Event"), then the Company shall
deliver to the holder of Registrable Securities, as Liquidated Damages, an
amount equal to one and one-half percent (1.5%) for each thirty (30) days or
part thereof, thereafter of the Purchase Price of the Notes remaining
unconverted and purchase price of Shares issued upon conversion of the Notes
owned of record by such holder which are subject to such Non-Registration Event.
The Company must pay the Liquidated Damages in cash. The Liquidated Damages must
be paid within ten (10) days after the end of each thirty (30) day period or
20
shorter part thereof for which Liquidated Damages are payable. In the event a
Registration Statement is filed by the Filing Date but is withdrawn prior to
being declared effective by the Commission, then such Registration Statement
will be deemed to have not been filed. All oral or written comments received
from the Commission relating to the Registration Statement must be
satisfactorily responded to within ten (10) business days after receipt of
comments from the Commission. Failure to timely respond to Commission comments
is a Non-Registration Event for which Liquidated Damages shall accrue and be
payable by the Company to the holders of Registrable Securities at the same rate
set forth above. Notwithstanding the foregoing, the Company shall not be liable
to the Subscriber under this Section 11.4 for any events or delays occurring as
a consequence of the acts or omissions of the Subscribers contrary to the
obligations undertaken by Subscribers in this Agreement.
11.5 Expenses. All expenses incurred by the Company in complying with
Section 11, including, without limitation, all registration and filing fees,
printing expenses, fees and disbursements of counsel and independent public
accountants for the Company, fees and expenses (including reasonable counsel
fees) incurred in connection with complying with state securities or "blue sky"
laws, fees of the National Association of Securities Dealers, Inc., transfer
taxes, fees of transfer agents and registrars, costs of insurance and fee of one
counsel for all Sellers are called "Registration Expenses." All underwriting
discounts and selling commissions applicable to the sale of Registrable
Securities, including any fees and disbursements of one counsel to the Seller,
are called "Selling Expenses." The Company will pay all Registration Expenses in
connection with the registration statement under Section 11. Selling Expenses in
connection with each registration statement under Section 11 shall be borne by
the Seller and may be apportioned among the Sellers in proportion to the number
of shares sold by the Seller relative to the number of shares sold under such
registration statement or as all Sellers thereunder may agree.
11.6 Indemnification and Contribution.
(a) In the event of a registration of any Registrable Securities
under the 1933 Act pursuant to Section 11, the Company will, to the extent
permitted by law, indemnify and hold harmless the Seller, each officer of the
Seller, each director of the Seller, each underwriter of such Registrable
Securities thereunder and each other person, if any, who controls such Seller or
underwriter within the meaning of the 1933 Act, against any losses, claims,
damages or liabilities, joint or several, to which the Seller, or such
underwriter or controlling person may become subject under the 1933 Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such Registrable Securities was registered under the 1933 Act
pursuant to Section 11, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading
in light of the circumstances when made, and will subject to the provisions of
Section 11.6(c) reimburse the Seller, each such underwriter and each such
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company shall not be liable to
the Seller to the extent that any such damages arise out of or are based upon an
untrue statement or omission made in any preliminary prospectus if (i) the
Seller failed to send or deliver a copy of the final prospectus delivered by the
Company to the Seller with or prior to the delivery of written confirmation of
the sale by the Seller to the person asserting the claim from which such damages
arise, (ii) the final prospectus would have corrected such untrue statement or
alleged untrue statement or such omission or alleged omission, or (iii) to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission so made in conformity with information furnished by any such Seller, or
any such controlling person in writing specifically for use in such registration
statement or prospectus.
21
(b) In the event of a registration of any of the Registrable
Securities under the 1933 Act pursuant to Section 11, each Seller severally but
not jointly will, to the extent permitted by law, indemnify and hold harmless
the Company, and each person, if any, who controls the Company within the
meaning of the 1933 Act, each officer of the Company who signs the registration
statement, each director of the Company, each underwriter and each person who
controls any underwriter within the meaning of the 1933 Act, against all losses,
claims, damages or liabilities, joint or several, to which the Company or such
officer, director, underwriter or controlling person may become subject under
the 1933 Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the registration statement under which such Registrable Securities were
registered under the 1933 Act pursuant to Section 11, any preliminary prospectus
or final prospectus contained therein, or any amendment or supplement thereof,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Company and each such
officer, director, underwriter and controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action, provided, however,
that the Seller will be liable hereunder in any such case if and only to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in reliance upon and in conformity with information pertaining to
such Seller, as such, furnished in writing to the Company by such Seller
specifically for use in such registration statement or prospectus, and provided,
further, however, that the liability of the Seller hereunder shall be limited to
the net proceeds actually received by the Seller from the sale of Registrable
Securities covered by such registration statement.
(c) Promptly after receipt by an indemnified party hereunder of
notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against the indemnifying party hereunder,
notify the indemnifying party in writing thereof, but the omission so to notify
the indemnifying party shall not relieve it from any liability which it may have
to such indemnified party other than under this Section 11.6(c) and shall only
relieve it from any liability which it may have to such indemnified party under
this Section 11.6(c), except and only if and to the extent the indemnifying
party is prejudiced by such omission. In case any such action shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate in
and, to the extent it shall wish, to assume and undertake the defense thereof
with counsel satisfactory to such indemnified party, and, after notice from the
indemnifying party to such indemnified party of its election so to assume and
undertake the defense thereof, the indemnifying party shall not be liable to
such indemnified party under this Section 11.6(c) for any legal expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation and of liaison with counsel
so selected, provided, however, that, if the defendants in any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be reasonable
defenses available to it which are different from or additional to those
available to the indemnifying party or if the interests of the indemnified party
reasonably may be deemed to conflict with the interests of the indemnifying
party, the indemnified parties, as a group, shall have the right to select one
separate counsel and to assume such legal defenses and otherwise to participate
in the defense of such action, with the reasonable expenses and fees of such
separate counsel and other expenses related to such participation to be
reimbursed by the indemnifying party as incurred.
22
(d) In order to provide for just and equitable contribution in the
event of joint liability under the 1933 Act in any case in which either (i) a
Seller, or any controlling person of a Seller, makes a claim for indemnification
pursuant to this Section 11.6 but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Section 11.6 provides for indemnification in such case, or (ii)
contribution under the 1933 Act may be required on the part of the Seller or
controlling person of the Seller in circumstances for which indemnification is
not provided under this Section 11.6; then, and in each such case, the Company
and the Seller will contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after contribution from others) in
such proportion so that the Seller is responsible only for the portion
represented by the percentage that the public offering price of its securities
offered by the registration statement bears to the public offering price of all
securities offered by such registration statement, provided, however, that, in
any such case, (y) the Seller will not be required to contribute any amount in
excess of the public offering price of all such securities sold by it pursuant
to such registration statement; and (z) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 0000 Xxx) will be
entitled to contribution from any person or entity who was not guilty of such
fraudulent misrepresentation.
11.7 Delivery of Unlegended Shares.
(a) Within three (3) business days (such third business day being
the "Unlegended Shares Delivery Date") after the business day on which the
Company has received (i) a notice that Shares, or Warrant Shares have been sold
pursuant to the Registration Statement or Rule 144 under the 1933 Act, (ii) a
representation that the prospectus delivery requirements, or the requirements of
Rule 144, as applicable and if required, have been satisfied, and (iii) the
original share certificates representing the shares of Common Stock that have
been sold, and (iv) in the case of sales under Rule 144, customary
representation letters of the Subscriber and/or Subscriber's broker regarding
compliance with the requirements of Rule 144, the Company at its expense, (y)
shall deliver, and shall cause legal counsel selected by the Company to deliver
to its transfer agent (with copies to Subscriber) an appropriate instruction and
opinion of such counsel, directing the delivery of shares of Common Stock
without any legends including the legend set forth in Section 4(h) above,
reissuable pursuant to any effective and current Registration Statement
described in Section 11 of this Agreement or pursuant to Rule 144 under the 1933
Act (the "Unlegended Shares"); and (z) cause the transmission of the
certificates representing the Unlegended Shares together with a legended
certificate representing the balance of the submitted certificates, if any, to
the Subscriber at the address specified in the notice of sale, via express
courier, by electronic transfer or otherwise on or before the Unlegended Shares
Delivery Date. Transfer fees shall be the responsibility of the Seller.
(b) In lieu of delivering physical certificates representing the
Unlegended Shares, if the Company's transfer agent is participating in the
Depository Trust Company ("DTC") Fast Automated Securities Transfer program,
upon request of a Subscriber, so long as the certificates therefor do not bear a
legend and the Subscriber is not obligated to return such certificate for the
placement of a legend thereon, the Company shall cause its transfer agent to
electronically transmit the Unlegended Shares by crediting the account of
Subscriber's prime Broker with DTC through its Deposit Withdrawal Agent
Commission system. Such delivery must be made on or before the Unlegended Shares
Delivery Date.
(c) The Company understands that a delay in the delivery of the
Unlegended Shares pursuant to Section 11 hereof later than the Unlegended Shares
Delivery Date could result in economic loss to a Subscriber. As compensation to
a Subscriber for such loss, the Company agrees to pay late payment fees (as
liquidated damages and not as a penalty) to the Subscriber for late delivery of
Unlegended Shares in the amount of $100 per business day after the Delivery Date
for each $10,000 of purchase price of the Unlegended Shares subject to the
delivery default. If during any 360 day period, the Company fails to deliver
Unlegended Shares as required by this Section 11.7 for an aggregate of thirty
(30) days, then each Subscriber or assignee holding Securities subject to such
default may, at its option, require the Company to redeem all or any portion of
the Shares, and Warrant Shares subject to such default at a price per share
equal to 115% of the purchase price or value described in Section 12(e) hereof,
of such Shares, and Warrant Shares ("Unlegended Redemption Amount"). The amount
of the aforedescribed liquidated damages that have accrued or been paid for the
twenty day period prior to the receipt by the Subscriber of the Unlegended
Redemption Amount shall be credited against the Unlegended Redemption Amount.
The Company shall pay any payments incurred under this Section in immediately
available funds upon demand.
23
(d) In addition to any other rights available to a Subscriber, if
the Company fails to deliver to a Subscriber Unlegended Shares as required
pursuant to this Agreement, within seven (7) business days after the Unlegended
Shares Delivery Date and the Subscriber purchases (in an open market transaction
or otherwise) shares of common stock to deliver in satisfaction of a sale by
such Subscriber of the shares of Common Stock which the Subscriber was entitled
to receive from the Company (a "Buy-In"), then the Company shall pay in cash to
the Subscriber (in addition to any remedies available to or elected by the
Subscriber) the amount by which (A) the Subscriber's total purchase price
(including brokerage commissions, if any) for the shares of common stock so
purchased exceeds (B) the aggregate purchase price of the shares of Common Stock
delivered to the Company for reissuance as Unlegended Shares together with
interest thereon at a rate of 15% per annum, accruing until such amount and any
accrued interest thereon is paid in full (which amount shall be paid as
liquidated damages and not as a penalty). For example, if a Subscriber purchases
shares of Common Stock having a total purchase price of $11,000 to cover a
Buy-In with respect to $10,000 of purchase price of shares of Common Stock
delivered to the Company for reissuance as Unlegended Shares, the Company shall
be required to pay the Subscriber $1,000, plus interest. The Subscriber shall
provide the Company written notice indicating the amounts payable to the
Subscriber in respect of the Buy-In.
(e) In the event a Subscriber shall request delivery of Unlegended
Shares as described in Section 11.7 and the Company is required to deliver such
Unlegended Shares pursuant to Section 11.7, the Company may not refuse to
deliver Unlegended Shares based on any claim that such Subscriber or any one
associated or affiliated with such Subscriber has been engaged in any violation
of law, or for any other reason, unless, an injunction or temporary restraining
order from a court, on notice, restraining and or enjoining delivery of such
Unlegended Shares or exercise of all or part of said Warrant shall have been
sought and obtained and the Company has posted a surety bond for the benefit of
such Subscriber in the amount of 120% of the amount of the aggregate purchase
price of the Common Stock and Warrant Shares which are subject to the injunction
or temporary restraining order, which bond shall remain in effect until the
completion of arbitration/litigation of the dispute and the proceeds of which
shall be payable to such Subscriber to the extent Subscriber obtains judgment in
Subscriber's favor.
12. Right of First Refusal.
(a) Until the Registration Statement has been effective for the
public unrestricted resale of the Registrable Securities for 365 days, the
Subscribers shall be given not less than seven (7) business days prior written
notice of any proposed sale by the Company of its common stock or other
securities or debt obligations, except in connection with (i) as a result of the
exercise of options or warrants or conversion of convertible Notes or amounts
which are granted, issued or accrue pursuant to this Agreement, (ii) as has been
described in the Reports or Other Written Information filed with the Commission
not later than three business days prior to the Closing Date, or delivered to
the Subscribers prior to the Closing Date, (iii) full or partial consideration
in connection with a strategic merger, consolidation or purchase of
substantially all of the securities or assets of corporation or other entity,
(iv) the Company's issuance of securities in connection with strategic license
agreements and other partnering arrangements so long as such issuances are not
for the purpose of raising capital, (v) the Company's issuance of Common Stock
or the issuance or grants of options to purchase Common Stock pursuant to the
24
Company's stock option plans and employee stock purchase plans as they now
exist, provided such options are granted with exercise prices at least equal to
the closing price of the Common Stock on the grant dates, which copies of such
plans have been delivered to the Subscribers, and (vi) Common Stock or
instruments convertible or exchangeable for Common Stock, provided the issue
price (or conversions, exchanges, or exercise prices, whichever is applicable)
of such Common stock or other instrument is not less than 150% of the Conversion
Price in effect at all times (collectively the foregoing are "Excepted
Issuances"). The Subscribers who exercise their rights pursuant to this Section
12(a) shall have the right during the seven (7) business days following receipt
of the notice to purchase in the aggregate all such offered common stock, debt
or other securities in accordance with the terms and conditions set forth in the
notice of sale in the same proportion to each other as their purchase of Notes
in the Offering. In the event such terms and conditions are modified during the
notice period, the Subscribers shall be given prompt notice of such modification
and shall have the right during the seven (7) business days following the notice
of modification, whichever is longer, to exercise such right.
(b) Offering Restrictions. Other than the Excepted Issuances, until
the Actual Effective Date and during the pendency of an Event of Default, or
when any compensatory or liquidated damages are accruing or are outstanding, the
Company will not enter into an agreement to nor issue any equity, convertible
debt or other securities convertible into common stock or equity of the Company
nor modify any of the foregoing which may be outstanding at anytime, without the
prior written consent of the Subscriber, which consent may be withheld for any
reason. For so long as 40% of the Notes and/or Common Stock issued and issuable
upon conversion of the Notes is held by the Subscribers or their permitted
assigns, the Company will not enter into any equity line of credit or similar
agreement, nor issue or agree to issue any floating or variable priced equity
linked instruments nor any of the foregoing or equity with price reset rights.
(c) Favored Nations Provision. Except for the Excepted Issuances,
for so long as 20% of the Note principal, Warrants or Common Stock issued and
issuable upon conversion of the Notes or Warrants is held by the Subscribers or
their permitted assigned is outstanding, the Company shall offer, issue or agree
to issue any common stock or securities convertible into or exercisable for
shares of common stock (or modify any of the foregoing which may be outstanding)
to any person or entity at a price per share or conversion or exercise price per
share which shall be less than the Conversion Price in respect of the Shares, or
if less than the Warrant exercise price in respect of the Warrant Shares,
without the consent of each Subscriber holding Notes, Shares, Warrants, or
Warrant Shares, then the Company shall issue, for each such occasion, additional
shares of Common Stock to each Subscriber so that the average per share purchase
price of the shares of Common Stock issued to the Subscriber (of only the Common
Stock or Warrant Shares still owned by the Subscriber) is equal to such other
lower price per share and the Conversion Price and Warrant Exercise Price shall
automatically be reduced to such other lower price per share. The average
Purchase Price of the Shares and average exercise price in relation to the
Warrant Shares shall be calculated separately for the Shares and Warrant Shares.
The foregoing calculation and issuance shall be made separately for Shares
received upon Note conversion and separately for Warrant Shares. The delivery to
the Subscriber of the additional shares of Common Stock shall be not later than
the closing date of the transaction giving rise to the requirement to issue
additional shares of Common Stock. The Subscriber is granted the registration
rights described in Section 11 hereof in relation to such additional shares of
Common Stock except that the Filing Date and Effective Date vis-a-vis such
additional common shares shall be, respectively, the thirtieth (30th) and
sixtieth (60th) date after the closing date giving rise to the requirement to
issue the additional shares of Common Stock. For purposes of the issuance and
adjustment described in this paragraph, the issuance of any security of the
Company carrying the right to convert such security into shares of Common Stock
or of any warrant, right or option to purchase Common Stock shall result in the
issuance of the additional shares of Common Stock upon the sooner of the
agreement to or actual issuance of such convertible security, warrant, right or
option and again at any time upon any subsequent issuances of shares of Common
Stock upon exercise of such conversion or purchase rights if such issuance is at
a price lower than the Conversion Price or Warrant exercise price in effect upon
such issuance. Additionally, if the Company shall offer, issue or agree to issue
any of the aforementioned services to any person, firm or corporation at terms
deemed by Subscriber to be more favorable to the other investor than the terms
or conditions of this Offering, then Subscriber is granted the right to modify
any such term or condition of the Offering to be the same as any such term or
condition of any subsequent offering. The rights of the Subscriber set forth in
this Section 12 are in addition to any other rights the Subscriber has pursuant
to this Agreement, the Note, any Transaction Document, and any other agreement
referred to or entered into in connection herewith.
25
(d) Option Plan Restrictions. The only officer, director and
employee stock option or stock incentive plan currently in effect or
contemplated by the Company has been submitted to the Subscribers or is
described with Reports. No other plan except substantially similar plans for the
benefit of only directors or full time employees will be adopted nor may any
options or equity not included in such plans be issued until after the Exclusion
Period.
(e) Paid In Kind. The Subscriber may demand that some or all of the
sums payable to the Subscriber pursuant to Sections 7.1(c), 7.2, 7.5, 11.4,
11.7(c), 11.7(d) and 11.7(e) that are not paid within ten business days of the
required payment date be paid in shares of Common Stock valued at the Conversion
Price in effect at the time Subscriber makes such demand or, at the Subscriber's
election, at such other valuation described in the Transaction Documents. In
addition to any other rights granted to the Subscriber herein, the Subscriber is
also granted the registration rights set forth in Section 11.1(ii) hereof in
relation to such shares of Common Stock and the Common Stock issuable pursuant
to this Section 12(e). For purposes only of determining any liquidated damages
pursuant to the Transaction Documents, the entire Purchase Price shall be
allocated to the Notes and none to the Warrants; and the Warrant Shares shall be
valued at the actual exercise price thereof.
(f) Maximum Exercise of Rights. In the event the exercise of the
rights described in Sections 12(a), 12(c) and 12(e) would result in the issuance
of an amount of common stock of the Company that would exceed the maximum amount
that may be issued to a Subscriber calculated in the manner described in Section
7.3 of this Agreement, then the issuance of such additional shares of common
stock of the Company to such Subscriber will be deferred in whole or in part
until such time as such Subscriber is able to beneficially own such common stock
without exceeding the maximum amount set forth calculated in the manner
described in Section 7.3 of this Agreement. The determination of when such
common stock may be issued shall be made by each Subscriber as to only such
Subscriber.
13. Miscellaneous.
(a) Notices. All notices, demands, requests, consents, approvals,
and other communications required or permitted hereunder shall be in writing
and, unless otherwise specified herein, shall be (i) personally served, (ii)
deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be: (i) if to the Company, to: VoIP, Inc., 00000 XX00
Xxxxxx, Xxxxx 000, Xxxxxx Xxxx Xxxxxxx 00000, Attn: Xxxxxx Xxxxxxx, President
and CEO, telecopier: (000) 000-0000, with a copy by telecopier only to: Xxxxxx
X. Xxxxx, Esq., Xxxxxxx Xxxxx LLP, 0000 Xxxx Xxxxxx, Xxxxx 0000, Xxxxxx, Xxxxx
00000, telecopier: (000) 000-0000, and (ii) if to the Subscribers, to: the one
or more addresses and telecopier numbers indicated on the signature pages
hereto, with an additional copy by telecopier only to: Grushko & Xxxxxxx, P.C.,
000 Xxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx 00000, telecopier number: (212)
697-3575.
26
(b) Closing. The consummation of the transactions contemplated
herein shall take place at the offices of Grushko & Xxxxxxx, P.C., 000 Xxxxx
Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx 00000, upon the satisfaction of all
conditions to Closing set forth in this Agreement. Each of the Closing Date and
Closing Date is referred to as a "Closing Date".
(c) Entire Agreement; Assignment. This Agreement and other documents
delivered in connection herewith represent the entire agreement between the
parties hereto with respect to the subject matter hereof and may be amended only
by a writing executed by both parties. Neither the Company nor the Subscribers
have relied on any representations not contained or referred to in this
Agreement and the documents delivered herewith. No right or obligation of the
Company shall be assigned without prior notice to and the written consent of the
Subscribers.
(d) Counterparts/Execution. This Agreement may be executed in any
number of counterparts and by the different signatories hereto on separate
counterparts, each of which, when so executed, shall be deemed an original, but
all such counterparts shall constitute but one and the same instrument. This
Agreement may be executed by facsimile signature and delivered by facsimile
transmission.
(e) Law Governing this Agreement. This Agreement shall be governed
by and construed in accordance with the laws of the State of New York without
regard to conflicts of laws principles that would result in the application of
the substantive laws of another jurisdiction. Any action brought by either party
against the other concerning the transactions contemplated by this Agreement
shall be brought only in the state courts of New York or in the federal courts
located in the state of New York. The parties and the individuals executing this
Agreement and other agreements referred to herein or delivered in connection
herewith on behalf of the Company agree to submit to the jurisdiction of such
courts and waive trial by jury. The prevailing party shall be entitled to
recover from the other party its reasonable attorney's fees and costs. In the
event that any provision of this Agreement or any other agreement delivered in
connection herewith is invalid or unenforceable under any applicable statute or
rule of law, then such provision shall be deemed inoperative to the extent that
it may conflict therewith and shall be deemed modified to conform with such
statute or rule of law. Any such provision which may prove invalid or
unenforceable under any law shall not affect the validity or enforceability of
any other provision of any agreement.
(f) Specific Enforcement, Consent to Jurisdiction. The Company and
Subscriber acknowledge and agree that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to one or more preliminary
and final injunctions to prevent or cure breaches of the provisions of this
Agreement and to enforce specifically the terms and provisions hereof, this
being in addition to any other remedy to which any of them may be entitled by
law or equity. Subject to Section 13(e) hereof, each of the Company, Subscriber
and any signator hereto in his personal capacity hereby waives, and agrees not
to assert in any such suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction in New York of such court, that the suit,
action or proceeding is brought in an inconvenient forum or that the venue of
the suit, action or proceeding is improper. Nothing in this Section shall affect
or limit any right to serve process in any other manner permitted by law.
27
(g) Independent Nature of Subscribers. The Company acknowledges that
the obligations of each Subscriber under the Transaction Documents are several
and not joint with the obligations of any other Subscriber, and no Subscriber
shall be responsible in any way for the performance of the obligations of any
other Subscriber under the Transaction Documents. The Company acknowledges that
each Subscriber has represented that the decision of each Subscriber to purchase
Securities has been made by such Subscriber independently of any other
Subscriber and independently of any information, materials, statements or
opinions as to the business, affairs, operations, assets, properties,
liabilities, results of operations, condition (financial or otherwise) or
prospects of the Company which may have been made or given by any other
Subscriber or by any agent or employee of any other Subscriber, and no
Subscriber or any of its agents or employees shall have any liability to any
Subscriber (or any other person) relating to or arising from any such
information, materials, statements or opinions. The Company acknowledges that
nothing contained in any Transaction Document, and no action taken by any
Subscriber pursuant hereto or thereto (including, but not limited to, the (i)
inclusion of a Subscriber in the Registration Statement and (ii) review by, and
consent to, such Registration Statement by a Subscriber) shall be deemed to
constitute the Subscribers as a partnership, an association, a joint venture or
any other kind of entity, or create a presumption that the Subscribers are in
any way acting in concert or as a group with respect to such obligations or the
transactions contemplated by the Transaction Documents. The Company acknowledges
that each Subscriber shall be entitled to independently protect and enforce its
rights, including without limitation, the rights arising out of the Transaction
Documents, and it shall not be necessary for any other Subscriber to be joined
as an additional party in any proceeding for such purpose. The Company
acknowledges that it has elected to provide all Subscribers with the same terms
and Transaction Documents for the convenience of the Company and not because
Company was required or requested to do so by the Subscribers. The Company
acknowledges that such procedure with respect to the Transaction Documents in no
way creates a presumption that the Subscribers are in any way acting in concert
or as a group with respect to the Transaction Documents or the transactions
contemplated thereby.
(h) As used in the Agreement, "consent of the Subscribers" or
similar language means the consent of holders of not less than 80% of the total
of the Shares issued and issuable upon conversion of outstanding Notes owned by
Subscribers on the date consent is requested.
(i) No consideration shall be offered or paid to any person to amend
or consent to a waiver or modification of any provision of the Transaction
Documents unless the same consideration is also offered to all the parties to
the Transaction Documents.
[THIS SPACE INTENTIONALLY LEFT BLANK]
28
SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT
Please acknowledge your acceptance of the foregoing Subscription Agreement
by signing and returning a copy to the undersigned whereupon it shall become a
binding agreement between us.
VOIP, INC.
a Texas corporation
By: /s/ B. Xxxxxxx Xxxxx
------------------------------------
Name:
Title:
Dated: January 6, 2006
-------------------------------------------------------------------------------------------------
SUBSCRIBER PURCHASE PAYMENT CLASS A CLASS B
PRICE AFTER WARRANTS WARRANTS
ORIGINAL
ISSUE
DISCOUNT
-------------------------------------------------------------------------------------------------
BRISTOL INVESTMENT FUND, LTD. $910,346.00 $800,000.00
Caledonian House, Xxxxxxx Xxxxxx
Xxxxxx Xxxx, Xxxxx Xxxxxx
Xxxxxx Xxxxxxx
Fax: (000) 000-0000
/s/ Xxxx Xxxxxxx
------------------------------
(Signature)
By: Xxxx Xxxxxxx
-------------------------------------------------------------------------------------------------
SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT
Please acknowledge your acceptance of the foregoing Subscription Agreement
by signing and returning a copy to the undersigned whereupon it shall become a
binding agreement between us.
VOIP, INC.
a Texas corporation
By: /s/ B. Xxxxxxx Xxxxx
------------------------------------
Name:
Title:
Dated: January 6, 2006
-------------------------------------------------------------------------------------------------
SUBSCRIBER PURCHASE PAYMENT CLASS A CLASS B
PRICE AFTER WARRANTS WARRANTS
ORIGINAL
ISSUE
DISCOUNT
-------------------------------------------------------------------------------------------------
XXXXX INTERNATIONAL LTD. $1,024,139.00 $900,000.00
00xx Xxxxxx Xxxxxxxxxxxx Xxxxxxx
Xxxxx Xxxxx, 00xx Xxxxx, Xxxxxx
Xxxxxxxx of Panama
Fax: (000) 000-0000
/s/ Xxxxx International, Ltd.
--------------------------------
(Signature)
By: Xxxxx International Ltd.
-------------------------------------------------------------------------------------------------
SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT
Please acknowledge your acceptance of the foregoing Subscription Agreement
by signing and returning a copy to the undersigned whereupon it shall become a
binding agreement between us.
VOIP, INC.
a Texas corporation
By: /s/ B. Xxxxxxx Xxxxx
------------------------------------
Name:
Title:
Dated: January 6, 2006
-------------------------------------------------------------------------------------------------
SUBSCRIBER PURCHASE PAYMENT CLASS A CLASS B
PRICE AFTER WARRANTS WARRANTS
ORIGINAL
ISSUE
DISCOUNT
-------------------------------------------------------------------------------------------------
ALPHA CAPITAL $910,346.00 $800,000.00
XXXXXXXXXXXXXXXXXX
Xxxxxxxxx 0
0000 Xxxxxxxxxxx
Xxxxx, Lichtenstein
Fax: 000-00-00000000
/s/ Xxxxxx Xxxxxxxxx
---------------------------
(Signature)
By: Xxxxxx Xxxxxxxxx
-------------------------------------------------------------------------------------------------
SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT
Please acknowledge your acceptance of the foregoing Subscription
Agreement by signing and returning a copy to the undersigned whereupon it shall
become a binding agreement between us.
VOIP, INC.
a Texas corporation
By: /s/ B. Xxxxxxx Xxxxx
------------------------------------
Name:
Title:
Dated: January 6, 2006
-------------------------------------------------------------------------------------------------
SUBSCRIBER PURCHASE PAYMENT CLASS A CLASS B
PRICE AFTER WARRANTS WARRANTS
ORIGINAL
ISSUE
DISCOUNT
-------------------------------------------------------------------------------------------------
WHALEHAVEN CAPITAL FUND $1,137,932.00 $1,000,000.00
LIMITED
0xx Xxxxx, 00 Xxx-Xxxxxxx Xxxx
Xxxxxxxx, Xxxxxxx XX00
Fax: (000) 000-0000
/s/ Xxxx Xxxxxxxxxxx
-----------------------------
(Signature)
By: Xxxx Xxxxxxxxxxx
-------------------------------------------------------------------------------------------------
SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT
Please acknowledge your acceptance of the foregoing Subscription Agreement
by signing and returning a copy to the undersigned whereupon it shall become a
binding agreement between us.
VOIP, INC.
a Texas corporation
By: /s/ B. Xxxxxxx Xxxxx
------------------------------------
Name:
Title:
Dated: January 6, 2006
-------------------------------------------------------------------------------------------------
SUBSCRIBER PURCHASE PAYMENT CLASS A CLASS B
PRICE AFTER WARRANTS WARRANTS
ORIGINAL
ISSUE
DISCOUNT
-------------------------------------------------------------------------------------------------
PLATINUM LONG TERM GROWTH $284,483.00 $250,000.00
II INC.
000 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxx Xxxxxxxxx
Fax: (212)
/s/ Xxxx Xxxxxxxxx
--------------------------
(Signature)
By: Xxxx Xxxxxxxxx
-------------------------------------------------------------------------------------------------
SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT
Please acknowledge your acceptance of the foregoing Subscription Agreement
by signing and returning a copy to the undersigned whereupon it shall become a
binding agreement between us.
VOIP, INC.
a Texas corporation
By: /s/ B. Xxxxxxx Xxxxx
------------------------------------
Name:
Title:
Dated: January 6, 2006
-------------------------------------------------------------------------------------------------
SUBSCRIBER PURCHASE PAYMENT CLASS A CLASS B
PRICE AFTER WARRANTS WARRANTS
ORIGINAL
ISSUE
DISCOUNT
-------------------------------------------------------------------------------------------------
CHESTNUT RIDGE PARTNERS LP $284,483.00 $250,000.00
00 Xxxx Xxxxxxxxx
Xxxxxxxxx Xxxx, XX 00000
Attn: Xxxxxxx Xxxxxxxxx, Managing
Member
Fax: (000) 000-0000
/s/ Xxxxxxx Xxxx
----------------------------
(Signature)
By: Xxxxxxx Xxxx, CFO
-------------------------------------------------------------------------------------------------
SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT
Please acknowledge your acceptance of the foregoing Subscription Agreement
by signing and returning a copy to the undersigned whereupon it shall become a
binding agreement between us.
VOIP, INC.
a Texas corporation
By: /s/ B. Xxxxxxx Xxxxx
------------------------------------
Name:
Title:
Dated: January 6, 2006
-------------------------------------------------------------------------------------------------
SUBSCRIBER PURCHASE PAYMENT CLASS A CLASS B
PRICE AFTER WARRANTS WARRANTS
ORIGINAL
ISSUE
DISCOUNT
-------------------------------------------------------------------------------------------------
GRUSHKO & XXXXXXX, P.C. $34,138.00 $30,000.00
000 Xxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxx, XX 00000
Fax: (000) 000-0000
/s/ Xxxxxxx Xxxxxxx
-----------------------------
(Signature)
By: Xxxxxxx Xxxxxxx
-------------------------------------------------------------------------------------------------
LIST OF EXHIBITS AND SCHEDULES
Exhibit A1 Form of Class A Warrant
Exhibit A2 Form of Class B Warrant
Exhibit B Escrow Agreement
Exhibit C1 Security Agreement (Company)
Exhibit C2 Security Agreement (Subsidiary)
Exhibit D Collateral Agent Agreement
Exhibit E Form of Legal Opinion
Exhibit F Form of Public Announcement or Form 8-K
Exhibit G Form of Limited Standstill Agreement
Exhibit H Employment Agreement
Schedule 5(a) Subsidiaries
Schedule 5(d) Additional Issuances / Capitalization
Schedule 5(h) Litigation
Schedule 5(m) Defaults
Schedule 5(q) Undisclosed Liabilities
Schedule 8(a) Finder
Schedule 9(e) Use of Proceeds
Schedule 9(q) Providers of Limited Standstill Agreements
Schedule 11.1 Other Securities to be Registered
EXHIBIT A-1
-----------
FORM OF CLASS A WARRANT
-----------------------
See Exhibit 10.3 to this Form 0-X
XXXXXXX X- 0
------------
FORM OF CLASS B WARRANT
-----------------------
See Exhibit 10.4 to this Form 8-K
---------------------------------
EXHIBIT B
---------
FORM OF FUNDS ESCROW AGREEMENT
------------------------------
This Agreement is dated as of the 6th day of January, 2006 among VoIP,
Inc., a Texas corporation (the "Company"), the parties identified on Schedule A
hereto (each a "Subscriber", and collectively "Subscribers"), and Grushko &
Xxxxxxx, P.C. (the "Escrow Agent"):
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company and Subscribers have entered into a Subscription
Agreement calling for the sale by the Company to the Subscriber of secured
Promissory Notes and Warrants for an aggregate purchase price of up to
$4,585,867; and
WHEREAS, the parties hereto require the Company to deliver the Notes and
Warrants against payment therefor, with such Notes, Warrants and the Escrowed
Funds to be delivered to the Escrow Agent to be held in escrow and released by
the Escrow Agent in accordance with the terms and conditions of this Agreement;
and
WHEREAS, the Escrow Agent is willing to serve as escrow agent pursuant to
the terms and conditions of this Agreement;
NOW THEREFORE, the parties agree as follows:
ARTICLE I
INTERPRETATION
1.1. Definitions. Capitalized terms used and not otherwise defined herein
that are defined in the Subscription Agreement shall have the meanings given to
such terms in the Subscription Agreement. Whenever used in this Agreement, the
following terms shall have the following respective meanings:
(a) "Agreement" means this Agreement and all amendments made hereto
and thereto by written agreement between the parties;
(b) "Closing Date" shall have the meaning set forth in Section 1 of
the Subscription Agreement;
(c) "Collateral Agent Agreement" shall have the meaning set forth in
Section 2 of the Subscription Agreement;
(d) "Escrowed Payment" means an aggregate cash payment of up to
$4,030,000;
(e) "Finder" shall have the meaning set forth in Section 8(a) of the
Subscription Agreement;
(f) "Finder's Fee" shall have the meaning set forth in Section 8(a)
of the Subscription Agreement;
(g) "Finder's Warrants" shall have the meaning set forth in Section
8(a) of the Subscription Agreement;
(h) "Guaranty" shall have the meaning set forth in Section 2 of the
Subscription Agreement;
(i) "Legal Fees" shall have the meaning set forth in Section 8(b) of
the Subscription Agreement;
(j) "Legal Opinion" means the original signed legal opinion referred
to in Section 6 of the Subscription Agreement;
(k) "Notes" shall have the meaning set forth in Section 1(a) of the
Subscription Agreement;
(l) "Purchase Price" shall mean up to $4,585,867;
(m) "Security Agreement" shall have the meaning set forth in Section
2 of the Subscription Agreement and shall refer to the Security Agreements to be
executed by the Company and include the certificates evidencing ownership of the
Subsidiaries as described on Annex 1 to the Security Agreement;
(n) "Subscription Agreement" means the Subscription Agreement (and
the exhibits thereto) entered into or to be entered into by the parties in
reference to the sale and purchase of the Notes and Warrants;
(o) "Warrants" " shall have the meaning set forth in Section 3 of
the Subscription Agreement;
(p) Collectively, the executed Subscription Agreement, Notes,
Warrants, Finder's Fees, Finder's Warrants, Legal Opinion, Security Agreement,
Guaranty and Collateral Agent Agreement are referred to as "Company Documents";
and
(q) Collectively, the Escrowed Payment and the executed Subscription
Agreement are referred to as "Subscriber Documents".
1.2. Entire Agreement. This Agreement along with the Company Documents and
the Subscriber Documents constitute the entire agreement between the parties
hereto pertaining to the Company Documents and Subscriber Documents and
supersedes all prior agreements, understandings, negotiations and discussions,
whether oral or written, of the parties. There are no warranties,
representations and other agreements made by the parties in connection with the
subject matter hereof except as specifically set forth in this Agreement, the
Company Documents and the Subscriber Documents.
1.3. Extended Meanings. In this Agreement words importing the singular
number include the plural and vice versa; words importing the masculine gender
include the feminine and neuter genders. The word "person" includes an
individual, body corporate, partnership, trustee or trust or unincorporated
association, executor, administrator or legal representative.
1.4. Waivers and Amendments. This Agreement may be amended, modified,
superseded, cancelled, renewed or extended, and the terms and conditions hereof
may be waived, only by a written instrument signed by all parties, or, in the
case of a waiver, by the party waiving compliance. Except as expressly stated
herein, no delay on the part of any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof, nor shall any waiver on
the part of any party of any right, power or privilege hereunder preclude any
other or future exercise of any other right, power or privilege hereunder.
1.5. Headings. The division of this Agreement into articles, sections,
subsections and paragraphs and the insertion of headings are for convenience of
reference only and shall not affect the construction or interpretation of this
Agreement.
1.6. Law Governing this Agreement. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without regard to
principles of conflicts of laws. Any action brought by either party against the
other concerning the transactions contemplated by this Agreement shall be
brought only in the state courts of New York or in the federal courts located in
the state of New York. Both parties and the individuals executing this Agreement
and other agreements on behalf of the Company agree to submit to the
jurisdiction of such courts and waive trial by jury. The prevailing party (which
shall be the party which receives an award most closely resembling the remedy or
action sought) shall be entitled to recover from the other party its reasonable
attorney's fees and costs. In the event that any provision of this Agreement or
any other agreement delivered in connection herewith is invalid or unenforceable
under any applicable statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed
modified to conform with such statute or rule of law. Any such provision which
may prove invalid or unenforceable under any law shall not affect the validity
or enforceability of any other provision of any agreement.
1.7. Specific Enforcement, Consent to Jurisdiction. The Company and
Subscriber acknowledge and agree that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injuction or
injunctions to prevent or cure breaches of the provisions of this Agreement and
to enforce specifically the terms and provisions hereof or thereof, this being
in addition to any other remedy to which any of them may be entitled by law or
equity. Subject to Section 1.6 hereof, each of the Company and Subscriber hereby
waives, and agrees not to assert in any such suit, action or proceeding, any
claim that it is not personally subject to the jurisdiction of such court, that
the suit, action or proceeding is brought in an inconvenient forum or that the
venue of the suit, action or proceeding is improper. Nothing in this Section
shall affect or limit any right to serve process in any other manner permitted
by law.
ARTICLE II
DELIVERIES TO THE ESCROW AGENT
2.1. Company Deliveries. On or before the Closing Date, the Company shall
deliver the Company Documents to the Escrow Agent.
2.2. Subscriber Deliveries. On or before the Closing Date, each Subscriber
shall deliver to the Escrow Agent such Subscriber's portion of the Purchase
Price and the executed Subscription Agreement. The Escrowed Payment will be
delivered pursuant to the following wire transfer instructions:
Citibank, N.A.
0000 0xx Xxxxxx
Xxx Xxxx, XX 00000, XXX
ABA Number: 0210-00089
For Credit to: Grushko & Xxxxxxx, XXXX Trust Account
Account Number: 00000000
2.3. Intention to Create Escrow Over Company Documents and Subscriber
Documents. The Subscriber and Company intend that the Company Documents and
Subscriber Documents shall be held in escrow by the Escrow Agent pursuant to
this Agreement for their benefit as set forth herein.
2.4. Escrow Agent to Deliver Company Documents and Subscriber Documents.
The Escrow Agent shall hold and release the Company Documents and Subscriber
Documents only in accordance with the terms and conditions of this Agreement.
ARTICLE III
RELEASE OF COMPANY DOCUMENTS AND SUBSCRIBER DOCUMENTS
3.1. Release of Escrow. Subject to the provisions of Section 4.2, the
Escrow Agent shall release the Company Documents and Subscriber Documents as
follows:
(a) On the Closing Date, the Escrow Agent will simultaneously
release the Company Documents to the Subscriber and release the Subscription
Agreement and the Purchase Price to the Company except that (i) the Legal Fees
will be released to the Subscriber's attorneys; (ii) the Finder's Fee and
Finder's Warrants will be released to the Finder, and (iii) the original
Security Agreements, Collateral Agent Agreement and Guaranty will be released to
the Collateral Agent.
(b) All funds to be delivered to the Company shall be delivered
pursuant to the wire instructions to be provided in writing by the Company to
the Escrow Agent.
(c) Notwithstanding the above, upon receipt by the Escrow Agent of
joint written instructions ("Joint Instructions") signed by the Company and the
Subscriber, it shall deliver the Company Documents and Subscriber Documents in
accordance with the terms of the Joint Instructions.
(d) Notwithstanding the above, upon receipt by the Escrow Agent of a
final and non-appealable judgment, order, decree or award of a court of
competent jurisdiction (a "Court Order"), the Escrow Agent shall deliver the
Company Documents and Subscriber Documents in accordance with the Court Order.
Any Court Order shall be accompanied by an opinion of counsel for the party
presenting the Court Order to the Escrow Agent (which opinion shall be
satisfactory to the Escrow Agent) to the effect that the court issuing the Court
Order has competent jurisdiction and that the Court Order is final and
non-appealable.
3.2. Acknowledgement of Company and Subscriber; Disputes. The Company and
the Subscriber acknowledge that the only terms and conditions upon which the
Company Documents and Subscriber Documents are to be released are set forth in
Sections 3 and 4 of this Agreement. The Company and the Subscriber reaffirm
their agreement to abide by the terms and conditions of this Agreement with
respect to the release of the Company Documents and Subscriber Documents. Any
dispute with respect to the release of the Company Documents and Subscriber
Documents shall be resolved pursuant to Section 4.2 or by agreement between the
Company and Subscriber.
ARTICLE IV
CONCERNING THE ESCROW AGENT
4.1. Duties and Responsibilities of the Escrow Agent. The Escrow Agent's
duties and responsibilities shall be subject to the following terms and
conditions:
(a) The Subscriber and Company acknowledge and agree that the Escrow
Agent (i) shall not be responsible for or bound by, and shall not be required to
inquire into whether either the Subscriber or Company is entitled to receipt of
the Company Documents and Subscriber Documents pursuant to, any other agreement
or otherwise; (ii) shall be obligated only for the performance of such duties as
are specifically assumed by the Escrow Agent pursuant to this Agreement; (iii)
may rely on and shall be protected in acting or refraining from acting upon any
written notice, instruction, instrument, statement, request or document
furnished to it hereunder and believed by the Escrow Agent in good faith to be
genuine and to have been signed or presented by the proper person or party,
without being required to determine the authenticity or correctness of any fact
stated therein or the propriety or validity or the service thereof; (iv) may
assume that any person believed by the Escrow Agent in good faith to be
authorized to give notice or make any statement or execute any document in
connection with the provisions hereof is so authorized; (v) shall not be under
any duty to give the property held by Escrow Agent hereunder any greater degree
of care than Escrow Agent gives its own similar property; and (vi) may consult
counsel satisfactory to Escrow Agent, the opinion of such counsel to be full and
complete authorization and protection in respect of any action taken, suffered
or omitted by Escrow Agent hereunder in good faith and in accordance with the
opinion of such counsel.
(b) The Subscriber and Company acknowledge that the Escrow Agent is
acting solely as a stakeholder at their request and that the Escrow Agent shall
not be liable for any action taken by Escrow Agent in good faith and believed by
Escrow Agent to be authorized or within the rights or powers conferred upon
Escrow Agent by this Agreement. The Subscriber and Company, jointly and
severally, agree to indemnify and hold harmless the Escrow Agent and any of
Escrow Agent's partners, employees, agents and representatives for any action
taken or omitted to be taken by Escrow Agent or any of them hereunder, including
the fees of outside counsel and other costs and expenses of defending itself
against any claim or liability under this Agreement, except in the case of gross
negligence or willful misconduct on Escrow Agent's part committed in its
capacity as Escrow Agent under this Agreement. The Escrow Agent shall owe a duty
only to the Subscriber and Company under this Agreement and to no other person.
(c) The Subscriber and Company jointly and severally agree to
reimburse the Escrow Agent for outside counsel fees, to the extent authorized
hereunder and incurred in connection with the performance of its duties and
responsibilities hereunder.
(d) The Escrow Agent may at any time resign as Escrow Agent
hereunder by giving five (5) days prior written notice of resignation to the
Subscriber and the Company. Prior to the effective date of the resignation as
specified in such notice, the Subscriber and Company will issue to the Escrow
Agent a Joint Instruction authorizing delivery of the Company Documents and
Subscriber Documents to a substitute Escrow Agent selected by the Subscriber and
Company. If no successor Escrow Agent is named by the Subscriber and Company,
the Escrow Agent may apply to a court of competent jurisdiction in the State of
New York for appointment of a successor Escrow Agent, and to deposit the Company
Documents and Subscriber Documents with the clerk of any such court.
(e) The Escrow Agent does not have and will not have any interest in
the Company Documents and Subscriber Documents, but is serving only as escrow
agent, having only possession thereof. The Escrow Agent shall not be liable for
any loss resulting from the making or retention of any investment in accordance
with this Escrow Agreement.
(f) This Agreement sets forth exclusively the duties of the Escrow
Agent with respect to any and all matters pertinent thereto and no implied
duties or obligations shall be read into this Agreement.
(g) The Escrow Agent shall be permitted to act as counsel for the
Subscriber in any dispute as to the disposition of the Company Documents and
Subscriber Documents, in any other dispute between the Subscriber and Company,
whether or not the Escrow Agent is then holding the Company Documents and
Subscriber Documents and continues to act as the Escrow Agent hereunder.
(h) The provisions of this Section 4.1 shall survive the resignation
of the Escrow Agent or the termination of this Agreement.
4.2. Dispute Resolution: Judgments. Resolution of disputes arising under
this Agreement shall be subject to the following terms and conditions:
(a) If any dispute shall arise with respect to the delivery,
ownership, right of possession or disposition of the Company Documents and
Subscriber Documents, or if the Escrow Agent shall in good faith be uncertain as
to its duties or rights hereunder, the Escrow Agent shall be authorized, without
liability to anyone, to (i) refrain from taking any action other than to
continue to hold the Company Documents and Subscriber Documents pending receipt
of a Joint Instruction from the Subscriber and Company, or (ii) deposit the
Company Documents and Subscriber Documents with any court of competent
jurisdiction in the State of New York, in which event the Escrow Agent shall
give written notice thereof to the Subscriber and the Company and shall
thereupon be relieved and discharged from all further obligations pursuant to
this Agreement. The Escrow Agent may, but shall be under no duty to, institute
or defend any legal proceedings which relate to the Company Documents and
Subscriber Documents. The Escrow Agent shall have the right to retain counsel if
it becomes involved in any disagreement, dispute or litigation on account of
this Agreement or otherwise determines that it is necessary to consult counsel.
(b) The Escrow Agent is hereby expressly authorized to comply with
and obey any Court Order. In case the Escrow Agent obeys or complies with a
Court Order, the Escrow Agent shall not be liable to the Subscriber and Company
or to any other person, firm, corporation or entity by reason of such
compliance.
ARTICLE V
GENERAL MATTERS
5.1. Termination. This escrow shall terminate upon the release of all of
the Company Documents and Subscriber Documents or at any time upon the agreement
in writing of the Subscriber and Company.
5.2. Notices. All notices, demands, requests, consents, approvals, and
other communications required or permitted hereunder shall be in writing and,
unless otherwise specified herein, shall be (i) personally served, (ii)
deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be:
(a) If to the Company, to:
VoIP, Inc.
00000 XX00 Xxxxxx, Xxxxx 000
Xxxxxx Xxxx Xxxxxxx 00000
Attn: Xxxxxx Xxxxxxx, President and CEO
Fax: (000) 000-0000
With a copy by telecopier only to:
Xxxxxx X. Xxxxx, Esq.
Xxxxxxx Xxxxx LLP
000 Xxxx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000
Fax: (000) 000-0000
(b) If to the Subscriber, to: the addresses and fax numbers listed on Schedule A
hereto.
(c) If to the Finder, to:
MZM Capital Management
000 X. Xxxxxxxx Xxxxxxxxx, Xxxxx 000
Xxxxxxxx, XX 00000
Attn: Xxxxxxx Xxxxx
Fax: (000) 000-0000
(d) If to the Escrow Agent, to:
Grushko & Xxxxxxx, P.C.
000 Xxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxx, Xxx Xxxx 00000
Fax: 000-000-0000
or to such other address as any of them shall give to the others by notice made
pursuant to this Section 5.2.
5.3. Interest. The Escrowed Payment shall not be held in an interest
bearing account nor will interest be payable in connection therewith. In the
event the Escrowed Payment is deposited in an interest bearing account, the
Subscriber shall be entitled to receive any accrued interest thereon, but only
if the Escrow Agent receives from the Subscriber the Subscriber's United States
taxpayer identification number and other requested information and forms.
5.4. Assignment; Binding Agreement. Neither this Agreement nor any right
or obligation hereunder shall be assignable by any party without the prior
written consent of the other parties hereto. This Agreement shall enure to the
benefit of and be binding upon the parties hereto and their respective legal
representatives, successors and assigns.
5.5. Invalidity. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal, or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions contained herein shall not be in any way impaired
thereby, it being intended that all of the rights and privileges of the parties
hereto shall be enforceable to the fullest extent permitted by law.
5.6. Counterparts/Execution. This Agreement may be executed in any number
of counterparts and by different signatories hereto on separate counterparts,
each of which, when so executed, shall be deemed an original, but all such
counterparts shall constitute but one and the same instrument. This Agreement
may be executed by facsimile transmission and delivered by facsimile
transmission.
5.7. Agreement. Each of the undersigned states that he has read the
foregoing Funds Escrow Agreement and understands and agrees to it.
VOIP, INC.
the "Company"
By:
-----------------------------------
-------------------------------------- -----------------------------------
BRISTOL INVESTMENT FUND, LTD. XXXXX INTERNATIONAL LTD.
"Subscriber" "Subscriber"
--------------------------------------- -----------------------------------
ALPHA CAPITAL AKTIENGESELLSCHAFT WHALEHAVEN CAPITAL FUND LIMITED
"Subscriber" "Subscriber"
--------------------------------------- -----------------------------------
PLATINUM LONG TERM GROWTH II INC. CHESTNUT RIDGE PARTNERS LP
"Subscriber" "Subscriber"
---------------------------------------
GRUSHKO & XXXXXXX, P.C.
"Subscriber"
ESCROW AGENT:
-----------------------------------
GRUSHKO & XXXXXXX, P.C.
SCHEDULE A TO FUNDS ESCROW AGREEMENT
------------------------------------
---------------------------------------------------- -------------------- ------------------- ------------------- -----------------
SUBSCRIBER NOTE PRINCIPAL ESCROWED PAYMENT CLASS A WARRANTS CLASS B WARRANTS
---------------------------------------------------- -------------------- ------------------- ------------------- -----------------
ALPHA CAPITAL AKTIENGESELLSCHAFT $910,346.00 $800,000.00 344,306 344,306
Xxxxxxxxx 0
0000 Xxxxxxxxxxx
Xxxxx, Xxxxxxxxxxxx
Fax: 000-00-00000000
---------------------------------------------------- -------------------- ------------------- ------------------- -----------------
BRISTOL INVESTMENT FUND, LTD. $910,346.00 $800,000.00 344,306 344,306
Caledonian House, Xxxxxxx Street
Xxxxxx Town, Grand Cayman
Cayman Islands
Fax: (000) 000-0000
---------------------------------------------------- -------------------- ------------------- ------------------- -----------------
WHALEHAVEN CAPITAL FUND LIMITED $1,137,932.00 $1,000,000.00 430,383 430,383
0xx Xxxxx, 00 Xxx-Xxxxxxx Xxxx
Xxxxxxxx, Xxxxxxx XX00
Fax: (000) 000-0000
---------------------------------------------------- -------------------- ------------------- ------------------- -----------------
XXXXX INTERNATIONAL LTD. $1,024,139.00 $900,000.00 387,345 387,345
53rd Street Urbanizacion Obarrio
Swiss Tower, 16th Floor, Panama
Republic of Panama
Fax: (000) 000-0000
---------------------------------------------------- -------------------- ------------------- ------------------- -----------------
PLATINUM LONG TERM GROWTH II INC. $284,483.00 $250,000.00 107,596 107,596
000 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxx Xxxxxxxxx
Fax: (212)
---------------------------------------------------- -------------------- ------------------- ------------------- -----------------
CHESTNUT RIDGE PARTNERS LP $284,483.00 $250,000.00 107,596 107,596
00 Xxxx Xxxxxxxxx
Xxxxxxxxx Xxxx, XX 00000
Attn: Xxxxxxx Xxxxxxxxx, Managing Member
Fax: (000) 000-0000
---------------------------------------------------- -------------------- ------------------- ------------------- -----------------
GRUSHKO & XXXXXXX, P.C. $34,138.00 $30,000.00 12,911 12,911
000 Xxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxx, XX 00000
Fax: (000) 000-0000
---------------------------------------------------- -------------------- ------------------- ------------------- -----------------
TOTAL $4,585,867.00 $4,030,000.00
---------------------------------------------------- -------------------- ------------------- ------------------- -----------------
EXHIBIT C-1
-----------
SECURITY AGREEMENT (COMPANY)
----------------------------
See Exhibit 10.7 to this Form 8-K
EXHIBIT C-2
-----------
SECURITY AGREEMENT (SUBSIDIARY)
-------------------------------
See Exhibit 10.8 to this Form 8-K
EXHIBIT D
---------
COLLATERAL AGENT AGREEMENT
--------------------------
COLLATERAL AGENT AGREEMENT (this "Agreement") dated as of January 6, 2006,
among Xxxxxxx X. Xxxxxxx (the "Collateral Agent"), and the parties identified on
Schedule A hereto (each, individually, a "Lender" and collectively, the
"Lenders"), who hold or will acquire convertible promissory notes issued and to
be issued by VoIP, Inc. ("Debtor"), a Texas corporation, at about or prior to
the date of this Agreement as described in the Security Agreements referred to
in Section 1(a) below (collectively herein the "Notes").
WHEREAS, the Lenders have made, are making and will be making loans to
Debtor to be secured by certain collateral; and
WHEREAS, it is desirable to provide for the orderly administration of such
collateral by requiring each Lender to appoint the Collateral Agent, and the
Collateral Agent has agreed to accept such appointment and to receive, hold and
deliver such collateral, all upon the terms and subject to the conditions
hereinafter set forth; and
WHEREAS, it is desirable to allocate the enforcement of certain rights of
the Lenders under the Notes for the orderly administration thereof.
NOW, THEREFORE, in consideration of the premises set forth herein and for
other good and valuable consideration, the parties hereto agree as follows:
1. Collateral.
(a) Contemporaneously with the execution and delivery of this
Agreement by the Collateral Agent and the Lenders, (i) the Collateral Agent has
or will have entered into a Security Agreement between the Collateral Agent and
Debtor and between the Collateral Agent and the subsidiaries of the Debtor
identified on Schedule B hereto (each a "Subsidiary") (each a "Security
Agreement"), regarding the grant of a security interest in assets owned by
Debtor and Subsidiary (such assets are referred to herein and in the Security
Agreement as the "Collateral") to the Collateral Agent, for the benefit of the
Lenders, (ii) Subsidiary will be delivering a Guaranty Agreement (the
"Guaranty") to the Collateral Agent with Subsidiary guaranteeing the obligations
of Debtor under the Notes, Subscription Agreement, such Guaranty, this Agreement
and all other agreements described in the foregoing agreements (collectively,
"Borrower Documents"), and (iii) Debtor is issuing the Notes and in the future
may issue additional Notes to the Lenders.
(b) For purposes solely of perfection of the security interests
granted to the Collateral Agent, as agent on behalf of the Lenders, and on its
own behalf under the Borrower Documents, the Collateral Agent hereby
acknowledges that any Collateral held by the Collateral Agent is held for the
benefit of the Lenders in accordance with this Agreement and the Borrower
Documents. No reference to the Borrower Documents or any other instrument or
document shall be deemed to incorporate any term or provision thereof into this
Agreement unless expressly so provided.
(c) The Collateral Agent is to distribute in accordance with the
Borrower Documents any proceeds received from the Collateral which are
distributable to the Lenders in proportion to their respective interests in the
Obligations as defined in the Borrower Documents.
2. Appointment of the Collateral Agent.
The Lenders hereby appoint the Collateral Agent (and the Collateral
Agent hereby accepts such appointment) to take any action including, without
limitation, the registration of any Collateral in the name of the Collateral
Agent or its nominees prior to or during the continuance of an Event of Default
(as defined in the Borrower Documents), the exercise of voting rights upon the
occurrence and during the continuance of an Event of Default, the application of
any cash collateral received by the Collateral Agent to the payment of the
Obligations, the making of any demand under the Borrower Documents, the exercise
of any remedies given to the Collateral Agent pursuant to the Borrower Documents
and the exercise of any authority pursuant to the appointment of the Collateral
Agent as an attorney-in-fact pursuant to the Security Agreement that the
Collateral Agent deems necessary or proper for the administration of the
Collateral pursuant to the Borrower Documents. Upon disposition of the
Collateral in accordance with the Borrower Documents, the Collateral Agent shall
promptly distribute any cash or Collateral in accordance with Section 10.4 of
the Security Agreement. Lenders must notify Collateral Agent in writing of the
issuance of Notes to Lenders by Debtor. The Collateral Agent will not be
required to act hereunder in connection with Notes the issuance of which was not
disclosed in writing to the Collateral Agent nor will the Collateral Agent be
required to act on behalf of any assignee of Notes without the written consent
of Collateral Agent.
3. Action by the Majority in Interest.
(a) Certain Actions. Each of the Lenders covenants and agrees that
only a Majority in Interest shall have the right, but not the obligation, to
undertake the following actions (it being expressly understood that less than a
Majority in Interest hereby expressly waive the following rights that they may
otherwise have under the Borrower Documents):
(i) Acceleration. If an Event of Default occurs, after the
applicable cure period, if any, a Majority in Interest may, on behalf of all the
Lenders, instruct the Collateral Agent to provide to Debtor and/or Subsidiary
notice to cure such default and/or declare the unpaid principal amount of the
Notes to be due and payable, together with any and all accrued interest thereon
and all costs payable pursuant to such Notes;
(ii) Enforcement. Upon the occurrence of any Event of Default
after the applicable cure period, if any, a Majority in Interest may instruct
the Collateral Agent to proceed to protect, exercise and enforce, on behalf of
all the Lenders, their rights and remedies under the Borrower Documents against
Debtor and Subsidiary, and such other rights and remedies as are provided by law
or equity;
(iii) Waiver of Past Defaults. A Majority in Interest may
instruct the Collateral Agent to waive any Event of Default by written notice to
Debtor and Subsidiary, and the other Lenders; and
(iv) Amendment. A Majority in Interest may instruct the
Collateral Agent to waive, amend, supplement or modify any term, condition or
other provision in the Notes or Borrower Documents in accordance with the terms
of the Notes or Borrower Documents so long as such waiver, amendment, supplement
or modification is made with respect to all of the Notes and with the same force
and effect with respect to each of the Lenders.
(b) Permitted Subordination. A Majority in Interest may instruct the
Collateral Agent to agree to subordinate any Collateral to any claim and may
enter into any agreement with Debtor and Subsidiary to evidence such
subordination; provided, however, that subsequent to any such subordination,
each Note shall remain pari passu with the other Notes held by the Lenders.
2
(c) Further Actions. A Majority in Interest may instruct the
Collateral Agent to take any action that it may take under this Agreement by
instructing the Collateral Agent in writing to take such action on behalf of all
the Lenders.
(d) Majority in Interest. For so long as any obligations remain
outstanding on the Notes, Majority in Interest shall mean Lenders who hold not
less than sixty-five percent (65%) of the outstanding principal amount of the
Notes.
4. Power of Attorney.
(a) To effectuate the terms and provisions hereof, the Lenders
hereby appoint the Collateral Agent as their attorney-in-fact (and the
Collateral Agent hereby accepts such appointment) for the purpose of carrying
out the provisions of this Agreement including, without limitation, taking any
action on behalf of, or at the instruction of, the Majority in Interest at the
written direction of the Majority in Interest and executing any consent
authorized pursuant to this Agreement and taking any action and executing any
instrument that the Collateral Agent may deem necessary or advisable (and
lawful) to accomplish the purposes hereof.
(b) All acts done under the foregoing authorization are hereby
ratified and approved and neither the Collateral Agent nor any designee nor
agent thereof shall be liable for any acts of commission or omission, for any
error of judgment, for any mistake of fact or law except for acts of gross
negligence or willful misconduct.
(c) This power of attorney, being coupled with an interest, is
irrevocable while this Agreement remains in effect.
5. Expenses of the Collateral Agent. The Lenders shall pay any and all
costs and expenses incurred by the Collateral Agent, all waivers, releases,
discharges, satisfactions, modifications and amendments of this Agreement, the
administration and holding of the Collateral, insurance expenses, and the
enforcement, protection and adjudication of the parties' rights hereunder by the
Collateral Agent, including, without limitation, the reasonable disbursements,
expenses and fees of the attorneys the Collateral Agent may retain, if any, each
of the foregoing in proportion to their holdings of the Notes.
6. Reliance on Documents and Experts. The Collateral Agent shall be
entitled to rely upon any notice, consent, certificate, affidavit, statement,
paper, document, writing or communication (which may be by telegram, cable,
telex, telecopier, or telephone) reasonably believed by it to be genuine and to
have been signed, sent or made by the proper person or persons, and upon
opinions and advice of its own legal counsel, independent public accountants and
other experts selected by the Collateral Agent.
7. Duties of the Collateral Agent; Standard of Care.
(a) The Collateral Agent's only duties are those expressly set forth
in this Agreement, and the Collateral Agent hereby is authorized to perform
those duties in accordance with commercially reasonable practices. The
Collateral Agent may exercise or otherwise enforce any of its rights, powers,
privileges, remedies and interests under this Agreement and applicable law or
perform any of its duties under this Agreement by or through its officers,
employees, attorneys, or agents.
(b) The Collateral Agent shall act in good faith and with that
degree of care that an ordinarily prudent person in a like position would use
under similar circumstances.
(c) Any funds held by the Collateral Agent hereunder need not be
segregated from other funds except to the extent required by law. The Collateral
Agent shall be under no liability for interest on any funds received by it
hereunder.
3
8. Resignation. The Collateral Agent may resign and be discharged of its
duties hereunder at any time by giving written notice of such resignation to the
other parties hereto, stating the date such resignation is to take effect.
Within five (5) days of the giving of such notice, a successor collateral agent
shall be appointed by the Majority in Interest; provided, however, that if the
Lenders are unable so to agree upon a successor within such time period, and
notify the Collateral Agent during such period of the identity of the successor
collateral agent, the successor collateral agent may be a person designated by
the Collateral Agent, and any and all fees of such successor collateral agent
shall be the joint and several obligation of the Lenders. The Collateral Agent
shall continue to serve until the effective date of the resignation or until its
successor accepts the appointment and receives the Collateral held by the
Collateral Agent but shall not be obligated to take any action hereunder. The
Collateral Agent may deposit any Collateral with the Supreme Court of the State
of New York for New York County or any such other court in New York State that
accepts such Collateral.
9. Exculpation. The Collateral Agent and its officers, employees,
attorneys and agents, shall not incur any liability whatsoever for the holding
or delivery of documents or the taking of any other action in accordance with
the terms and provisions of this Agreement, for any mistake or error in
judgment, for compliance with any applicable law or any attachment, order or
other directive of any court or other authority (irrespective of any conflicting
term or provision of this Agreement), or for any act or omission of any other
person engaged by the Collateral Agent in connection with this Agreement, unless
occasioned by the exculpated person's own gross negligence or willful
misconduct; and each party hereto hereby waives any and all claims and actions
whatsoever against the Collateral Agent and its officers, employees, attorneys
and agents, arising out of or related directly or indirectly to any or all of
the foregoing acts, omissions and circumstances.
10. Indemnification. The Lenders hereby agree to indemnify, reimburse and
hold harmless the Collateral Agent and its directors, officers, employees,
attorneys and agents, jointly and severally, from and against any and all
claims, liabilities, losses and expenses that may be imposed upon, incurred by,
or asserted against any of them, arising out of or related directly or
indirectly to this Agreement or the Collateral, except such as are occasioned by
the indemnified person's own gross negligence or willful misconduct.
11. Miscellaneous.
(a) Rights and Remedies Not Waived. No act, omission or delay by the
Collateral Agent shall constitute a waiver of the Collateral Agent's rights and
remedies hereunder or otherwise. No single or partial waiver by the Collateral
Agent of any default hereunder or right or remedy that it may have shall operate
as a waiver of any other default, right or remedy or of the same default, right
or remedy on a future occasion.
(b) Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York without regard
to conflicts of laws that would result in the application of the substantive
laws of another jurisdiction.
(c) Waiver of Jury Trial and Setoff; Consent to Jurisdiction; Etc.
(i) In any litigation in any court with respect to, in
connection with, or arising out of this Agreement or any instrument or document
delivered pursuant to this Agreement, or the validity, protection,
interpretation, collection or enforcement hereof or thereof, or any other claim
or dispute howsoever arising, between the Collateral Agent and the Lenders or
any Lender, then each Lender, to the fullest extent it may legally do so, (A)
waives the right to interpose any setoff, recoupment, counterclaim or
cross-claim in connection with any such litigation, irrespective of the nature
of such setoff, recoupment, counterclaim or cross-claim, unless such setoff,
recoupment, counterclaim or cross-claim could not, by reason of any applicable
federal or state procedural laws, be interposed, pleaded or alleged in any other
action; and (B) WAIVES TRIAL BY JURY IN CONNECTION WITH ANY SUCH LITIGATION AND
ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY SPECIAL,
EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN, OR IN
ADDITION TO, ACTUAL DAMAGES. EACH LENDER AGREES THAT THIS SECTION 11(c) IS A
SPECIFIC AND MATERIAL ASPECT OF THIS AGREEMENT AND ACKNOWLEDGE THAT THE
COLLATERAL AGENT WOULD NOT ENTER THIS AGREEMENT IF THIS SECTION 11(c) WERE NOT
PART OF THIS AGREEMENT.
4
(ii) Each Lender irrevocably consents to the exclusive
jurisdiction of any State or Federal Court located within the County of New
York, State of New York, in connection with any action or proceeding arising out
of or relating to this Agreement or any document or instrument delivered
pursuant to this Agreement or otherwise. In any such litigation, each Lender
waives, to the fullest extent it may effectively do so, personal service of any
summons, complaint or other process and agree that the service thereof may be
made by certified or registered mail directed to such Lender at its address for
notice determined in accordance with Section 11(e) hereof. Each Lender hereby
waives, to the fullest extent it may effectively do so, the defenses of forum
non conveniens and improper venue.
(d) Admissibility of this Agreement. Each of the Lenders agrees that
any copy of this Agreement signed by it and transmitted by telecopier for
delivery to the Collateral Agent shall be admissible in evidence as the original
itself in any judicial or administrative proceeding, whether or not the original
is in existence.
(e) Address for Notices. Any notice or other communication under the
provisions of this Agreement shall be given in writing and delivered in person,
by reputable overnight courier or delivery service, by facsimile machine
(receipt confirmed) with a copy sent by first class mail on the date of
transmissions, or by registered or certified mail, return receipt requested,
directed to such party's addresses set forth below (or to any new address of
which any party hereto shall have informed the others by the giving of notice in
the manner provided herein):
In the case of the Collateral Agent, to her at:
Xxxxxxx X. Xxxxxxx
000 Xxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxx, Xxx Xxxx 00000
Fax: (000) 000-0000
In the case of the Lenders, to:
To the address and telecopier number set forth on Schedule A hereto.
In the case of Debtor and Subsidiaries, to:
VoIP, Inc.
00000 XX00 Xxxxxx, Xxxxx 000
Xxxxxx Xxxx Xxxxxxx 00000
Attn: Xxxxxx Xxxxxxx, President and CEO
Fax: (000) 000-0000
With a copy by telecopier only to:
Xxxxxx X. Xxxxx, Esq.
Xxxxxxx Xxxxx LLP
000 Xxxx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000
Fax: (000) 000-0000
5
(f) Amendments and Modification; Additional Lender. No provision
hereof shall be modified, altered, waived or limited except by written
instrument expressly referring to this Agreement and to such provision, and
executed by the parties hereto. Any transferee of a Note who acquires a Note
after the date hereof will become a party hereto by signing the signature page
and sending an executed copy of this Agreement to the Collateral Agent and
receiving a signed acknowledgement from the Collateral Agent.
(g) Fee. Upon the occurrence of an Event of Default, the Lenders
collectively shall pay the Collateral Agent the sum of $10,000 to apply against
an hourly fee of $350 to be paid to the Collateral Agent by the Lenders for
services rendered pursuant to this Agreement. All payments due to the Collateral
Agent under this Agreement including reimbursements must be paid when billed.
The Collateral Agent may refuse to act on behalf of or make a distribution to
any Lender who is not current in payments to the Collateral Agent. Payments
required pursuant to this Agreement shall be pari passu to the Lenders'
interests in the Notes. The Collateral Agent is hereby authorized to deduct any
sums due the Collateral Agent from Collateral in the Collateral Agent's
possession.
(h) Counterparts/Execution. This Agreement may be executed in any
number of counterparts and by the different signatories hereto on separate
counterparts, each of which, when so executed, shall be deemed an original, but
all such counterparts shall constitute but one and the same instrument. This
Agreement may be executed by facsimile signature and delivered by facsimile
transmission.
(i) Successors and Assigns. Whenever in this Agreement reference is
made to any party, such reference shall be deemed to include the successors,
assigns, heirs and legal representatives of such party. No party hereto may
transfer any rights under this Agreement, unless the transferee agrees to be
bound by, and comply with all of the terms and provisions of this Agreement, as
if an original signatory hereto on the date hereof.
(j) Captions: Certain Definitions. The captions of the various
sections and paragraphs of this Agreement have been inserted only for the
purposes of convenience; such captions are not a part of this Agreement and
shall not be deemed in any manner to modify, explain, enlarge or restrict any of
the provisions of this Agreement. As used in this Agreement the term "person"
shall mean and include an individual, a partnership, a joint venture, a
corporation, a limited liability company, a trust, an unincorporated
organization and a government or any department or agency thereof.
(k) Severability. In the event that any term or provision of this
Agreement shall be finally determined to be superseded, invalid, illegal or
otherwise unenforceable pursuant to applicable law by an authority having
jurisdiction and venue, that determination shall not impair or otherwise affect
the validity, legality or enforceability (i) by or before that authority of the
remaining terms and provisions of this Agreement, which shall be enforced as if
the unenforceable term or provision were deleted, or (ii) by or before any other
authority of any of the terms and provisions of this Agreement.
(l) Entire Agreement. This Agreement contains the entire agreement
of the parties and supersedes all other agreements and understandings, oral or
written, with respect to the matters contained herein.
6
(m) Schedules. The Collateral Agent is authorized to annex hereto
any schedules referred to herein.
THIS COLLATERAL AGENT AGREEMENT MAY BE SIGNED BY FACSIMILE SIGNATURE AND
DELIVERED BY CONFIRMED FACSIMILE TRANSMISSION.
[THIS SPACE INTENTIONALLY LEFT BLANK]
7
IN WITNESS WHEREOF, the parties hereto have caused this Collateral Agent
Agreement to be signed, by their respective duly authorized officers or
directly, as of the date first written above.
"LENDERS"
---------
-------------------------------------- -------------------------------------
BRISTOL INVESTMENT FUND, LTD. XXXXX INTERNATIONAL LTD.
--------------------------------------- -------------------------------------
ALPHA CAPITAL AKTIENGESELLSCHAFT WHALEHAVEN CAPITAL FUND LIMITED
--------------------------------------- -------------------------------------
PLATINUM LONG TERM GROWTH II INC. CHESTNUT RIDGE PARTNERS LP
---------------------------------------
GRUSHKO & XXXXXXX, P.C.
-------------------------------------
XXXXXXX X. XXXXXXX - Collateral Agent
ACKNOWLEDGED:
-------------
VOIP, INC. VOICEONE COMMUNICATIONS, LLC
a Delaware Limited Liability corporation
By: By:
---------------------------------- -------------------------------------
Its: Its:
---------------------------------- ------------------------------------
VOIPSOLUTIONS EGLOBALPHONE
a Florida corporation a Florida corporation
By: By:
---------------------------------- -------------------------------------
Its: Its:
---------------------------------- ------------------------------------
CAERUS, INC VOX CONSULTING GROUP, INC.
a Delaware corporation a Florida corporation
By: By:
---------------------------------- -------------------------------------
Its: Its:
---------------------------------- ------------------------------------
VCG TECHNOLOGIES VOLO COMMUNICATIONS, INC.
a Florida corporation a Delaware corporation
By: By:
---------------------------------- -------------------------------------
Its: Its:
---------------------------------- ------------------------------------
CAERUS BILLING, INC. CAERUS NETWORKS, INC.
a Delaware corporation a Delaware corporation
By: By:
---------------------------------- -------------------------------------
Its: Its:
---------------------------------- ------------------------------------
8
SCHEDULE A TO COLLATERAL AGENT AGREEMENT
----------------------------------------
---------------------------------------------- -----------------------
LENDER NOTE PRINCIPAL
---------------------------------------------- -----------------------
ALPHA CAPITAL AKTIENGESELLSCHAFT $910,346.00
Xxxxxxxxx 0
0000 Xxxxxxxxxxx
Xxxxx, Xxxxxxxxxxxx
Fax: 000-00-00000000
---------------------------------------------- -----------------------
BRISTOL INVESTMENT FUND, LTD. $910,346.00
Caledonian House, Xxxxxxx Xxxxxx
Xxxxxx Xxxx, Xxxxx Xxxxxx
Xxxxxx Xxxxxxx
Fax: (000) 000-0000
---------------------------------------------- -----------------------
WHALEHAVEN CAPITAL FUND LIMITED $1,137,932.00
0xx Xxxxx, 00 Xxx-Xxxxxxx Xxxx
Xxxxxxxx, Xxxxxxx XX00
Fax: (000) 000-0000
---------------------------------------------- -----------------------
XXXXX INTERNATIONAL LTD. $1,024,139.00
53rd Street Xxxxxxxxxxxx Xxxxxxx
Xxxxx Xxxxx, 00xx Xxxxx, Xxxxxx
Xxxxxxxx of Panama
Fax: (000) 000-0000
---------------------------------------------- -----------------------
PLATINUM LONG TERM GROWTH II INC. $284,483.00
000 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxx Xxxxxxxxx
Fax: (212)
---------------------------------------------- -----------------------
CHESTNUT RIDGE PARTNERS LP $284,483.00
00 Xxxx Xxxxxxxxx
Xxxxxxxxx Xxxx, XX 00000
Attn: Xxxxxxx Xxxxxxxxx, Managing Member
Fax: (000) 000-0000
---------------------------------------------- -----------------------
GRUSHKO & XXXXXXX, P.C. $34,138.00
000 Xxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxx, XX 00000
Fax: (000) 000-0000
---------------------------------------------- -----------------------
TOTAL $4,585,867.00
---------------------------------------------- -----------------------
9
SCHEDULE B TO COLLATERAL AGENT AGREEMENT
----------------------------------------
Subsidiaries
------------
Voipsolutions, a Florida corporation
eGlobalphone, a Florida corporation
Caerus, Inc., a Delaware corporation
Vox Consulting Group, Inc. d/b/a Voipamericas, a Florida corporation
VCG Technologies d/b/a DTNet Technologies, Inc., a Florida corporation
Volo Communications, Inc., a Delaware corporation
Caerus Billing, Inc., a Delaware corporation
Caerus Networks, Inc., a Delaware corporation
VoiceOne Communications, LLC, a Delaware Limited Liability corporation
10
EXHIBIT E
FORM OF OPINION
January _, 2006
To: The Subscribers Listed on the Attached Schedule A
Re: Subscription Agreement by and among VoIP, Inc. and
the Subscribers Listed on the Attached Schedule A
Ladies and Gentlemen:
We have acted as counsel to VoIP, Inc., a Texas corporation (the
"Company"), Caerus, Inc., a Delaware corporation, Volo Communications, Inc., a
Delaware corporation, Caerus Billing, Inc., a Delaware corporation, Caerus
Networks, Inc., a Delaware corporation, VoiceOne Communications, LLC
("VoiceOne"), a Delaware limited liability corporation, VoIP Acquisition
Company, a Delaware corporation (collectively the "Delaware Subsidiaries"), VoIP
Solutions, a Florida corporation, eGlobalphone, Inc., a Florida corporation, Vox
Consulting Group, Inc., a Florida corporation, and VCG Technologies, a Florida
corporation (collectively the "Florida Subsidiaries" and together with the
Delaware Subsidiaries, the "Subsidiaries"), in connection with the offer and
sale by the Company of up to $4,585,867 principal amount of Convertible Notes
("Note" or "Notes"), and issuance by the Company of warrants to purchase shares
of the Company's $.001 par value Common Stock ("Warrants") to the subscribers
identified on Schedule A hereto (the "Subscribers"), pursuant to the exemption
from registration under the Securities Act of 1933, as amended (the "Act"), as
set forth in Regulation D promulgated thereunder. Capitalized terms used herein
and not otherwise defined shall have the meaning assigned to them in the
subscription agreement dated as of January 5, 2006 (the "Subscription
Agreement"), by and among the Company and the Subscribers signatory thereto.
As counsel to the Company and the Subsidiaries, we have reviewed the
following agreements, documents and instruments, in each case together with all
schedules and exhibits thereto, if any:
(1) Subscription Agreement.
(2) Form of Note.
(3) Class A Common Stock Purchase Warrant dated as of January 5, 2006 to
purchase shares of Common Stock.
(4) Class B Common Stock Purchase Warrant dated as of January 5, 2006 to
purchase shares of Common Stock.
The Subscribers on the Attached Schedule A
January 5, 2006
Page 2
(5) Funds Escrow Agreement dated as of January 5, 2006, by and among the
Company, Grushko & Xxxxxxx, PC, and the Subscribers signatory thereto.
(6) Security Agreement dated as of January 5, 2006 (the "Security
Agreement"), by and between the Company, and Xxxxxxx Xxxxxxx, as collateral
agent (the "Collateral Agent").
(7) Guaranty Agreement dated as of January 5, 2006 (the "Guaranty"), by
and among the Collateral Agent and the Subsidiaries.
(8) Collateral Agent Agreement dated as of January 5, 2006, by and among
the Collateral Agent and the parties identified on Schedule A thereto.
(9) A certificate of a senior officer of the Company and each of the
Delaware Subsidiaries in the form attached hereto as Annex I (the "Opinion
Support Certificates").
Items (1), (2), (3), (4), (5), (6), (7) and (8) above are sometimes
hereinafter referred to as the "Transaction Documents."
In addition, in connection with the matters described above, we have
examined originals or copies, certified or otherwise authenticated to our
satisfaction, of such records, agreements or other instruments of the Company
and the Subsidiaries, certificates of public officials and of officers of the
Company and the Subsidiaries, and other instruments and documents as we have
deemed necessary to require as a basis for the opinions hereinafter expressed.
Based upon the foregoing, and the consideration of such other matters as
we have deemed appropriate, and subject to the limitations, qualifications,
exceptions and assumptions set forth herein, we are of the opinion that:
(i) The Company is incorporated, validly existing and in good standing
under the laws of the State of Texas. The Delaware Subsidiaries are
incorporated (or in the case of VoiceOne, formed), validly existing
and in good standing under the laws of the State of Delaware.
(ii) The Company and the Delaware Subsidiaries have the requisite
corporate power (or in the case of VoiceOne, limited liability
company) and authority to execute, deliver and perform their
respective obligations under the Transaction Documents. The
Transaction Documents, the issuance of the Notes and Warrants, and
the reservation and issuance of Common Stock issuable upon
conversion of the Notes (the "Common Shares") and exercise of the
Warrants (the "Warrant Shares"), have been duly approved by the
Board of Directors of the Company, and no further consent or
authorization of the Company or its Board of Directors or
stockholders is required. When so issued, the Notes, the Warrants,
the Common Shares and the Warrant Shares will be duly and validly
issued, fully paid and nonassessable, and free of any preemptive or
similar rights contained in any material agreement listed as an
exhibit to the Company's filings with the Securities and Exchange
Commission.
The Subscribers on the Attached Schedule A
January 5, 2006
Page 3
(iii) The execution, delivery and performance of the Transaction Documents
by the Company and the Delaware Subsidiaries and the consummation of
the transactions contemplated thereby did not and will not (a)
result in a violation or breach of any of the terms, conditions or
provisions of the Articles of Incorporation or Bylaws of the Company
or the Delaware Subsidiaries (or in the case of VoiceOne, its
limited liability company operating agreement) or (b) result in a
material default (or an event that with notice or lapse of time or
both would become a default) under, require a consent under, or give
to others any rights of termination, amendment, acceleration or
cancellation of, any material agreement to which the Company or the
Delaware Subsidiaries is a party and listed as an exhibit to the
Company's filings with the Securities and Exchange Commission.
(iv) The Transaction Documents constitute the valid and legally binding
obligations of the Company and the Subsidiaries under the laws of
the State of New York and are enforceable against the Company and
the Subsidiaries in accordance with their respective terms under the
laws of the State of New York.
(v) Assuming compliance with the Subscription Agreement and upon receipt
of consideration therefore as described in the Subscription
Agreement, the Notes, the Warrants, the Common Shares issuable upon
the conversion of the Notes and the Warrant Shares issuable upon the
exercise of the Warrants, have not been registered under the Act and
are or will be issued pursuant to a valid exemption from
registration.
(vi) The Security Agreement is effective to create in favor of the
Collateral Agent a valid security interest under the Uniform
Commercial Code as in effect in the State of New York (the "New York
UCC") in all of the right, title and interest of the Company in and
to that portion of the collateral (as defined in the New York UCC)
described in the Security Agreement as "Collateral" in which a
security interest can be created pursuant to Article 9 of the New
York UCC (the "Article 9 Collateral").
(vii) By virtue of the filing of a duly completed financing statement
naming the Company as debtor and the Collateral Agent as secured
party in the office of the Secretary of State of the State of Texas,
the Collateral Agent will have a perfected security interest in all
of the Company's right, title and interest in and to such portion of
the Article 9 Collateral described in such financing statement that
may be perfected by filing a financing statement pursuant to Chapter
9 of the Uniform Commercial Code as in effect in the State of Texas
(the "Texas UCC") (the "Filing Collateral").
The opinions expressed above are subject to the following assumptions and
qualifications:
The Subscribers on the Attached Schedule A
January 5, 2006
Page 4
(a) General Laws. The opinions set forth in paragraph (iv) above as to the
enforceability of the Transaction Documents may be limited (i) by applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, or
transfer or other similar laws relating to or affecting the rights of creditors
generally, (ii) by general principles of equity (including, without limitation,
concepts of materiality, reasonableness, good faith and fair dealing, and the
award of injunctive relief or other equitable remedies being in the discretion
of the court to which application for such relief is made (in which regard we
express no opinion as to Section 13(f) of the Subscription Agreement and like
provisions set forth in the Transaction Documents)), regardless whether
enforceability of such Transaction Documents is considered in a proceeding in
equity or at law, and (iii) by applicable securities and other laws with respect
to rights to indemnification, exculpation and contribution. We wish to point out
that the obligations of the Company and the Subsidiaries, and the rights and
remedies of the parties other than the Company and the Subsidiaries under, the
Transaction Documents may be subject to possible limitations upon the exercise
of remedial or procedural provisions contained in the Transaction Documents;
provided, that such limitations do not, in our opinion, make the remedies and
procedures that will be afforded to such parties inadequate for the practical
realization of the substantive benefits purported to be provided to such parties
by the Transaction Documents (but subject to the other comments and
qualifications set forth in this opinion letter). We also note that certain of
the guaranty and surety waivers set forth in the Transaction Documents, and
provisions therein purporting to maintain in full force and effect obligations
notwithstanding the occurrence or non-occurrence of any other event or
circumstance, may be unenforceable in whole or in part.
(b) Matters of Fact; Reliance. As to all matters of fact relevant to our
conclusions and not independently investigated, we have relied solely upon (i)
the representations and warranties of the Company set forth in the Subscription
Agreement, (ii) certificates or statements of officers of the Company and the
Subsidiaries set forth in the Opinion Support Certificates, (iii) certificates
or statements of officers of all parties (other than the Company and the
Subsidiaries) to the Transaction Documents, and (iv) the certificates of public
officials and public records. With respect to certain of our opinions above, we
have relied on the Opinion Support Certificate. Except as expressly set forth
herein, we have made no independent investigation as to the accuracy,
completeness or fairness of any representation, warranty, data or other
information written or oral, made or furnished in or in connection with the
Transaction Documents. We have made no independent examination of the laws of
the State of Florida.
(c) General Assumptions. We have assumed that (i) each document submitted
to us for review is accurate and complete, each such document that is an
original is authentic, each such document that is a copy conforms to an
authentic original, and all signatures on each document are genuine, (ii) each
certificate from governmental officials reviewed by us is accurate, complete and
authentic as of the date of this opinion and all official public records are
accurate and complete, (iii) except as expressly set forth in this opinion, no
Transaction Document has been amended, modified, terminated or supplemented in
any respect and remains in full force and effect, and (iv) the value of
consideration received by the Company pursuant to the Transaction Documents will
not be less than the par value of the shares of Common Stock ultimately issued
by the Company.
The Subscribers on the Attached Schedule A
January 5, 2006
Page 5
(d) Binding Effect on Other Parties. We have assumed that (other than the
Company and the Subsidiaries to the extent we express our opinion above) (i)
each of the Transaction Documents constitutes the legal, valid and binding
obligation of each party thereto, and that each such party thereto has all
necessary power and authority to enter into and perform its respective
obligations under the Transaction Documents and we have also assumed the due
authorization by all requisite action (corporate, partnership, limited liability
company or other), and the due execution and delivery, by or on behalf of such
parties of such documents, (ii) the execution and delivery of the Transaction
Documents, and the performance of the obligations of the parties thereto under
the Transaction Documents, do not and will not conflict with, contravene,
violate or constitute a default under (a) the charter or bylaws or other
organizational documents of any such party, (b) any lease, indenture, instrument
or other agreement to which any party to the Transaction Documents or its
property is subject, (c) any law, rule or regulation, in each case, to which any
party (other than the Company and the Subsidiaries to the extent we express our
opinion above) to the Transaction Documents is subject or any obligations
thereunder are to be performed or (d) any judicial or administrative order or
decree of any executive, legislative, judicial, administrative or regulatory
body of the State of Texas, the State of New York or the United States of
America to which any party to the Transaction Documents is subject (other than
the Company and the Subsidiaries to the extent we express our opinion above),
and (iii) except as and to the extent we express our opinions above, no
authorization, consent or other approval of, notice to or registration,
recording or filing with any court, governmental authority or regulatory body is
required to authorize or is required in connection with the execution or
delivery of the Transaction Documents or the performance of any obligations
thereunder or the consummation of any transactions contemplated thereby. In
addition, we have assumed the legal capacity of all natural persons, the
genuineness of all signatures, the authenticity of all documents submitted to us
as originals, the conformity to original documents of all documents submitted to
us as certified copies, conformed copies or photocopies and the authenticity of
the originals of such latter documents.
(e) Choice of Law Matters. Our opinion in paragraph (iv) above with
respect to the enforceability of the New York choice of law provisions set forth
in the Transaction Documents is rendered solely in reliance upon New York
General Obligations Law ss.ss.5-1401 and 5-1402, and ss.327(b) of the New York
Civil Practice Law and Rules ("CPLR"), and is expressly conditioned upon the
assumption that the legality, validity, binding effect and enforceability of
said provisions will be determined by a court of the State of New York or (in
the case of said choice of law provisions) a United States Federal court sitting
in New York and applying New York choice of law rules, including said ss.5-1401.
We express no opinion as to any such provision if such legality, validity,
binding effect or enforceability is determined by any other court, and we call
your attention to the decision of the United States District Court for the
Southern District of New York in Xxxxxx Brothers Commercial Corp. v. Minmetals
Int'l Non-Ferrous Metals Trading Co., 179 F. Supp. 2d 118 (S.D.N.Y. 2000),
which, among other things, contains dictum relating to possible constitutional
limitations upon said ss.5-1401 in both domestic and international transactions.
We advise you that said ss.5-1402 by its terms applies only to actions or
proceedings arising out of or relating to a contract for which a choice of New
York law has been made in whole or in part pursuant to said ss.5-1401, and that
said CPLR ss.327(b) by its terms applies only to contracts, agreements and
undertakings to which said ss.5-1402 applies. We express no opinion as to any
such constitutional limitations upon said ss.5-1401 or their effect, if any,
upon any opinion herein expressed.
The Subscribers on the Attached Schedule A
January 5, 2006
Page 6
(f) Arbitration Matters. With respect to our opinion in paragraph (iv)
above, we note that under applicable law, for various reasons, including the
public policy of the applicable jurisdiction, certain claims may not be found to
be legally arbitrable. Accordingly, for purposes of this opinion, we have
assumed (a) that any claim sought to be arbitrated does not involve a matter of
public policy or illegality that would preclude the arbitrability of such claim,
and (b) that, to the extent an action to compel arbitration is brought in a
court other than a court of the State of New York or a federal court of the
United States, the public policy of the applicable jurisdiction is to favor
compelling the parties to arbitrate. We further wish to note that we have based
our opinion upon an assessment of legal authorities which would be applicable to
judicial proceedings, and we call to your attention the existence of differences
between arbitral and judicial processes and there can be no assurance that
arbitrators will correctly apply New York law in resolving any dispute.
(g) Compliance with Regulations. We express no opinion as to the
compliance of the Transaction Documents or the transactions contemplated thereby
with any regulations or governmental requirements applicable to the parties
thereto (other than the Company and the Subsidiaries to the extent we express
our opinion above).
(h) Security Interests. With respect to the opinions set forth in
paragraphs (vi) and (vii), we note that: (i) we have assumed that the Company
has rights in the Article 9 Collateral purported to be pledged by it pursuant to
the Security Agreement to which it is a party and that value has been given
requisite for attachment of the security interests referred to therein; (ii) the
security interests granted by the Security Agreement in proceeds of the Article
9 Collateral is subject to Section 9-315 of the New York UCC; (iii) any such
security interest in any portion of the Article 9 Collateral in which the
Company acquires rights after the commencement of a case under the United States
Bankruptcy Code (11 U.S.C. ss.101, et. Seq.) (the "Bankruptcy Code") may be
limited by Section 552 of the Bankruptcy Code; and (iv) we express no opinion as
to the nature or extent of the Company's rights in, or title to, the Article 9
Collateral purported to be pledged by it. Furthermore, with respect to our
opinions in said paragraphs (vi) and (vii), we express no opinion as to the
creation, perfection or priority of any security interest in (or other lien on)
Article 9 Collateral consisting of fixtures, consumer goods, timber to be cut,
minerals or the like (including oil and gas), accounts arising from the sale of
minerals or the like (including oil and gas), equipment used in farming
operations, farm products, accounts or general intangibles arising from or
relating to the sale of farm products by a xxxxxx or consumer goods, in Article
9 Collateral covered by a certificate of title, or in Article 9 Collateral
consisting of commercial tort claims (as defined in the New York UCC). We have
assumed that a duly completed financing statement will be filed in the filing
office with respect to the Company no later than 10 days after the effectiveness
of the Security Agreement. We also wish to point out that the acquisition by the
Company after the date of the Security Agreement of any interest in any property
that becomes subject to the lien of the Security Agreement may constitute a
voidable preference under Section 547 of the Bankruptcy Code.
The Subscribers on the Attached Schedule A
January 5, 2006
Page 7
(i) Future Attachment of Security Interest. With respect to the opinions
set forth in paragraph (vi) above, we call to your attention that to the extent
any portion of the Article 9 Collateral is not in existence on the date hereof
or is transferred to the Company subsequent to the date hereof, the security
interest of the Collateral Agent will not attach until the Company's rights in
the Article 9 Collateral are sufficient for a security interest to attach.
(j) Maintaining Perfection. We express no opinion as to any actions, steps
or filing requirements after the date of this opinion required to maintain
perfection of the security interest of the Collateral Agent in the Filing
Collateral.
(k) No Priority Opinion. We express no opinion with respect to the
priority of the security interest of the Collateral Agent or any other Person in
the Filing Collateral, any other Property or proceeds thereof.
(l) Exclusions from Opinion. In rendering the opinions expressed with
respect to the enforceability of the Transaction Documents, we express no
opinion as to the enforceability of provisions (i) relating to liquidated
damages or the payment of penalties, (ii) purporting to prohibit oral amendments
to or waivers of provisions of such documents or limiting the effect of a course
of dealing between the parties thereto, (iii) purporting to indemnify or
exculpate a party from its own negligence, gross negligence or misconduct, (iv)
purporting to exclude mandatory choice of law principles, (v) relating to
severability or separability, (vi) purporting to set forth obligations of any
party by reference to and/or incorporation of any provision of any other
agreement or instrument, or any rule, regulation or guideline, or that consist
of or employ provisions (whether operative or definitional) contained in any
such other agreement or instrument, or rule, regulation or guideline, (vii)
setting forth an agreement to agree, (viii) purporting to provide for equitable
adjustments or modify rules of construction, (ix) relating to the waiver of
inconvenient forum, or (x) relating powers of attorney or the appointment of
attorneys in fact.
(m) Federal Courts. We express no opinion as to any provision of the
Transaction Documents which purports to confer subject matter jurisdiction in
respect of bringing suit, enforcement of judgments or otherwise on any Federal
court, to the extent such court does not have such jurisdiction, or (ii) Section
11 of the Security Agreement.
(n) Applicable Law. Our opinions above are limited in all respects to the
laws of the State of Texas, the State of New York, the laws of the United States
of America, the General Corporation Law of the State of Delaware and the Limited
Liability Company Act of the State of Delaware (without regard to the decisional
law of Delaware) which are in our experience normally applicable to transactions
of the type contemplated by the Transaction Documents, without our having made
any special investigation as to the applicability of any specific law, rule or
regulation, and which are not the subject of a specific opinion herein referring
expressly to a particular law or laws; provided that the foregoing does not
include any municipal or other local law, rule or regulation, or any other law,
rule or regulation relating to (i) labor, employee rights or benefits, (ii)
utilities; (iii) antitrust or competition; (iv) taxes; (v) securities (except to
the extent we expressly opine in paragraph (v) above) or blue sky matters; or
(vi) any party by virtue of the particular nature of the business conducted by
it or any goods or services produced by it or property owned or leased by it.
Except as provided in the preceding sentence, we assume no responsibility as to
the applicability thereto, or the effect thereon, of the laws of any other
jurisdiction.
The Subscribers on the Attached Schedule A
January 5, 2006
Page 8
We are furnishing this opinion letter to you solely for your benefit, and
this opinion letter shall not be relied upon by any other person and, without
our prior consent, this opinion may not be furnished to any other person or
entity, and may not be quoted in whole or in part or otherwise referred to in
any legal opinion, document or other report. This opinion letter is delivered as
of the date hereof and we disclaim any responsibility to update this opinion
letter at any time following the date hereof.
Sincerely yours,
ANNEX I
-------
(begins on following page)
SCHEDULE A
----------
Alpha Capital
Aktiengesellschaft
Pradafant 7
9490 Furstentums
Vaduz, Lichtenstein
Bristol Investment Fund, Ltd.
Caledonian House, Xxxxxxx Street
Xxxxxx Town, Grand Cayman
Cayman Islands
Xxxxx International Ltd.
00xx Xxxxxx Xxxxxxxxxxxx
Xxxxxxx
Xxxxx Tower, 16th Floor
Panama, Republic of Panama
Whalehaven Capital Fund Ltd.
0xx Xxxxx, 00 Xxx-Xxxxxxx Xxxx
Xxxxxxxx, Xxxxxxx XX00
Platinum Long Term Growth II, Inc.
000 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Chestnut Ridge Partners LP
00 Xxxx Xxxxxxxxx
Xxxxxxxxx Xxxx, Xxx Xxxxxx 00000
Grushko & Xxxxxxx
000 0xx Xxxxxx, Xxxxx 0000
Xxx Xxxx, Xxx Xxxx 00000
EXHIBIT G
LIMITED STANDSTILL AGREEMENT
This AGREEMENT (the "Agreement") is made as of the ___ day of January,
2006, by the signatories hereto (each a "Holder"), in connection with his
ownership of shares of VoIP, Inc., a Texas corporation (the "Company").
NOW, THEREFORE, for good and valuable consideration, the sufficiency and
receipt of which consideration are hereby acknowledged, Holder agrees as
follows:
1. Background.
a. Holder is the beneficial owner of the amount of shares of the
Common Stock, $0.01 par value, of the Company ("Common Stock") and rights to
purchase Common Stock designated on the signature page hereto.
x. Xxxxxx acknowledges that the Company has entered into or will
enter into an agreement with each subscriber ("Subscription Agreement") to the
Company's secured convertible promissory notes and warrants (the "Subscribers"),
for the sale to the Subscribers of an aggregate of up to $6,827,586 of principal
amount of secured convertible promissory notes and warrants (the "Offering").
Holder understands that, as a condition to proceeding with the Offering, the
Subscribers have required, and the Company has agreed to assist the Subscribers
in obtaining, an agreement from the Holder to refrain from selling any
securities of the Company from the date of the Subscription Agreement until the
Registration Statement described in Section 11.1(iv) of the Subscription
Agreement has been effective for 180 days (the "Restriction Period").
2. Share Restriction.
a. Holder hereby agrees that during the Restriction Period, the
Holder will not sell or otherwise dispose of any shares of Common Stock or any
options, warrants or other rights to purchase shares of Common Stock or any
other security of the Company which Holder owns or has a right to acquire as of
the date hereof or acquires hereafter during the Restriction Period, other than
in connection with an offer made to all shareholders of the Company or any
merger, consolidation or similar transaction involving the Company. Holder
further agrees that the Company is authorized to and the Company agrees to place
"stop orders" on its books to prevent any transfer of shares of Common Stock or
other securities of the Company held by Holder in violation of this Agreement.
b. Any subsequent issuance to and/or acquisition of shares or the
right to acquire shares by Holder will be subject to the provisions of this
Agreement.
c. Notwithstanding the foregoing restrictions on transfer, the
Holder may, at any time and from time to time during the Restriction Period,
transfer the Common Stock (i) as bona fide gifts or transfers by will or
intestacy, (ii) to any trust for the direct or indirect benefit of the
undersigned or the immediate family of the Holder, provided that any such
transfer shall not involve a disposition for value, (iii) to a partnership which
is the general partner of a partnership of which the Holder is a general
partner, provided, that, in the case of any gift or transfer described in
clauses (i), (ii) or (iii), each donee or transferee agrees in writing to be
bound by the terms and conditions contained herein in the same manner as such
terms and conditions apply to the undersigned. For purposes hereof, "immediate
family" means any relationship by blood, marriage or adoption, not more remote
than first cousin.
3. Miscellaneous.
a. At any time, and from time to time, after the signing of this
Agreement Holder will execute such additional instruments and take such action
as may be reasonably requested by the Subscribers to carry out the intent and
purposes of this Agreement.
b. This Agreement shall be governed, construed and enforced in
accordance with the laws of the State of New York without regard to conflicts of
laws principles that would result in the application of the substantive laws of
another jurisdiction, except to the extent that the securities laws of the state
in which Holder resides and federal securities laws may apply. Any proceeding
brought to enforce this Agreement may be brought exclusively in courts sitting
in New York County, New York.
c. This Agreement contains the entire agreement of the Holder with
respect to the subject matter hereof.
d. This Agreement shall be binding upon Holder, its legal
representatives, successors and assigns.
e. This Agreement may be signed and delivered by facsimile and such
facsimile signed and delivered shall be enforceable.
f. The Company agrees not to take any action or allow any act to be
taken which would be inconsistent with this Agreement.
IN WITNESS WHEREOF, and intending to be legally bound hereby, Holder has
executed this Agreement as of the day and year first above written.
HOLDER:
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(Signature of Holder)
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(Print Name of Holder)
----------------------------------------
Number of Shares of Common Stock
Beneficially Owned
COMPANY:
VOIP, INC.
By:
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