Exhibit 10.1
BESTNET COMMUNICATIONS CORP.
(A NEVADA CORPORATION)
NOTE PURCHASE AGREEMENT
The parties to this Agreement are BestNet Communications Corp, a Nevada
corporation having its principal place of business at [address] ("the Company")
and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ ("▇▇▇▇▇▇") as Trustee of the ▇▇▇▇▇▇ Family 1998 Trust, who
se address is ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇, and ▇▇▇▇
▇▇▇▇▇▇▇▇ ("▇▇▇▇▇▇▇▇"), whose address is ▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇., ▇▇▇▇▇ ▇▇▇,
▇▇▇▇▇▇▇▇▇▇▇ .MN. 55403. ▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇ are sometimes each called herein a
"Lender" and collectively the "Lenders".
The parties have agreed as follows:
1. TRANSACTION
The Company, by due action of its Board of Directors, has authorized the offer
and sale to the Lenders, under this Agreement, of a series of Secured
Convertible Notes (collectively the "Notes", separately a "Note") in the
aggregate principal amount of $75,000, each convertible into Units, each Unit
consisting of (a) three (3) shares of the common stock of the Company, $0.001
par value ("the Common Stock"), (b) one (1) share of the Series A Preferred
Stock ("Preferred Stock") of the Company and a Warrant for the purchase of one
share of Common Stock as provided therein. The form of the Notes, the Statement
of Rights and Privileges of the Preferred Stock and the Warrant shall be as
respectively shown in Exhibits 1A, 1B and 1C, attached hereto.
2. PURCHASE AND SALE
2.1 Notes. Subject to all of the terms and conditions of this Agreement, the
Company will issue and sell to ▇▇▇▇▇▇ a Note in the principal amount of $25,000
and to ▇▇▇▇▇▇▇▇ a Note in the principal amount of $50,000 and each Lender will
purchase a respective Note from the Company at a price equal to the principal
amount of such Note; provided that all such terms and conditions are satisfied.
2.2 Closing. The purchase by and sale to the Lenders of the Notes (the
"Closing") shall take place at 11:00 AM, local time, on January 8, 2004 at the
offices of the Company at ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇, ▇▇▇▇▇ ▇, ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇
▇▇▇▇▇, or at such other time or place upon which the Company and the Lenders may
agree (such date being hereinafter called the "Closing Date"). At the Closing,
the Company shall deliver to the Lenders or their representative instruments
evidencing the Note and other items required to be delivered to the respective
Lenders pursuant to this Purchase Agreement.
3. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY
As an inducement to the Lenders to enter into this Agreement and to purchase and
pay for the respective Notes, the Company represents, warrants and agrees that:
3.1 Disclosure Documents. The Company has heretofore delivered to the Lenders a
copy of the Company's Annual Report on Form 10-KSB for the fiscal year ended
August 31, 2003, as filed with the Securities and Exchange Commission, every
Report filed with the said Commission subsequent thereto pursuant to the
Securities Exchange Act of 1934, together with all exhibits annexed thereto, and
each press release or other public announcement including without limitation all
shareholder communications (such Reports and the exhibits annexed thereto, press
releases, public announcements, shareholder communications are called
collectively herein the "Disclosure Documents", which term shall include any
additions or supplements thereto). The Company has carefully prepared the
Disclosure Documents or has caused them to be so prepared. When read as one
document, the Disclosure Documents are intended to provide all of the
information required to be contained in a registration statement under the 1933
Act, including without limitation, a prospectus as that term is defined in
Section 2(10) of the 1933 Act, except as such requirement is modified by
Regulation D. Except as disclosed in Schedule 3.1 attached hereto, the
Disclosure Documents are, and shall be on the Closing Date, true and correct and
shall not omit to state any material fact necessary to make the statements made
in the Disclosure Documents not misleading on and as of such date.
3.2 Valid Existence. The Company was duly organized and is validly existing as a
corporation under the laws of Nevada and is duly qualified to do business in
Michigan and in Ontario and in each other jurisdiction where qualification is
material to its business as presently conducted.
3.3 Authority for Agreement. This Agreement has been duly authorized by all
necessary corporate action of the Company and, when executed and delivered by
the Company, will be a legal, valid and binding obligation of the Company,
enforceable in accordance with its terms except to the extent that the
enforceability hereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other laws affecting creditors' rights generally or by general
principles of equity, and except that the indemnification provisions of the
Agreement may be held to be violative of public policy under either federal or
state laws in the context of the offer or sale of securities.
3.4 Validity of Notes. The Notes, when issued and paid for at the Closing, will
be duly authorized, validly existing obligations of the Company, enforceable in
accordance with their terms.
3.5 Validity of Units. The Units issuable upon the due conversion of the Notes
and will, when issued in accordance with the terms of such Notes, constitute
duly authorized, legally and validly issued Units, fully paid and
non-assessable.
3.6 No Conflicting Rights. The holders of the outstanding Common Stock and
Preferred Stock of the Company are not entitled to pre-emptive or other rights
to subscribe for the Notes. This transaction does not give rise to any rights
relating to the registration of any shares of Common Stock.
4. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE LENDERS
Each Lender, for himself and not for the other Lender, hereby represents and
warrants to and agrees with the Company as follows (provided that such
representations, warranties and agreements do not diminish or obviate the
representations, warranties and agreements of the Company set forth in this
Agreement):
4.1 Authority. Such Lender has full power and authority to enter into this
Agreement, which, when executed and delivered, will constitute his valid and
legally binding obligation.
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4.2 Purchase for Own Account. The Notes and the common stock issuable upon the
due conversion of the Notes ("the Securities") will be acquired for investment
for the respective personal account of each Lender and not with a view to the
resale or distribution of any part thereof, and such Lender has no present
intention of selling, granting any participation in or otherwise distributing
the same; and has no contract, undertaking, agreement or arrangement with any
person to sell transfer or grant participations to such person or to any third
person, with respect to any of the Securities. Nothing in this paragraph 4.2,
however, limits the right of such Lender to have the Securities registered as
provided in Section 6 of this Agreement.
4.3 Accredited Investor. The net worth of each Lender, or joint net worth
together with his spouse, exceeds $1,000,000. The term "net worth" as used in
this paragraph means the excess of the Lender's assets over his liabilities and,
if included among his assets, his principal residence is valued at fair market
value. Each Lender is familiar with the definition of Accredited Investor under
the Securities Act of 1933 and the regulations promulgated thereunder and are an
Accredited Investor. ▇▇▇▇▇▇ separately represents and warrants that the ▇▇▇▇▇▇
Family 1998 Trust is a revocable "grantor trust" for the benefit of himself and
his spouse.
4.4 Restricted Securities. The Lenders understand that none of the Securities
may be sold, transferred, or otherwise disposed of without registration under
the Securities Act of 1933 (the "1933 Act") or an exemption therefrom and that
in the absence of an effective registration statement covering the Securities or
an available exemption from registration under the 1933 Act, the Securities must
be held indefinitely.
4.5 Legends. To the extent applicable, the Note and any certificate evidencing
any of the common stock issuable upon the due conversion thereof will be
endorsed with legends substantially in the following form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1993, AS AMENDED, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED, PLEDGED, OR HYPOTHECATED UNLESS
AND UNTIL REGISTERED UNDER SUCH ACT, OR UNLESS THE COMPANY HAS
RECEIVED AN OPINION OF COUNSEL, OR OTHER EVIDENCE SATISFACTORY
TO THE COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT
REQUIRED.
5. CONDITIONS TO THE OBLIGATIONS OF THE LENDERS
The respective obligations of the Lenders to purchase Notes under this Agreement
are subject to the fulfillment on or before each Closing of each of the
following conditions; provided that it shall be a separate condition to the
obligations of each Lender that the other Lender shall purchase a Note as
provided in Section 1 of this Agreement:
5.1 Representations and Warranties. The representations and warranties of the
Company contained in Section 3 shall be true as of and shall survive each
respective Closing.
5.2 No Deterioration. Except as described in Schedule 5.2 attached hereto,
nothing has occurred since the date of the Disclosure Documents that has or may
reasonably be expected to affect materially adversely the Company, its assets or
its business.
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5.3 No Security Interest. Except as described in Schedule 5.3 attached hereto,
there are no security interests in favor of any party in any material asset of
the Company.
5.4 Officer Certificates. The Chief Executive Officer and the Principle
Accounting Officer of the Company shall have delivered at the Closing a
certificate, substantially in the form shown by Exhibit 5.4 attached hereto, to
the effect that the Company has complied with all agreements, obligations and
conditions required of it pursuant to this Agreement.
5.5 Satisfaction with Inquiries, etc. The Lenders shall be satisfied with the
results of their inquiries into the Company and its business and affairs,
including without limitation the status of all executive employment agreements
to which the Company is a party and the status, as outstanding or terminated, of
all rights, options and warrants for the purchase of any of the Company's
securities that were in the past awarded or purported to be awarded to any
executive employee of the Company.
6. REGISTRATION RIGHTS
The Company covenants and agrees as follows:
6.1 Definitions. For purposes of this Section 6:
(a) The term "Holder" means any person owning or having the right to
acquire Registrable Securities pursuant to the Note or upon the conversion
thereof.
(b) The term "1934 Act" shall mean the Securities Exchange Act of
1934, as amended.
(c) The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the 1933 Act, and such registration
statement or document becoming effective.
(e) The term "Registrable Securities" means the (i) Units, and their
underlying securities issuable or issued upon the conversion of any Note and
(ii) any Common Stock issued as (or issuable) upon the conversion or exercise of
any warrant, right or other security which is issued as a dividend or other
distribution with respect to, or in exchange for or in replacement of shares
referenced in (i) and (ii) above, but excluding in all cases, however, any
Registrable Securities sold by a person in a transaction in which his rights
under this Section 6 are not assigned.
(f) The number of shares of "Registrable Securities then outstanding"
shall be determined by the number of shares of Common Stock outstanding which
are, and the number of shares of Common Stock issuable pursuant to then
exercisable or convertible securities which are, Registrable Securities.
(g) The term "SEC" means the United States Securities and Exchange
Commission.
All other capitalized terms used in this Section, which are not defined herein,
shall have the meaning otherwise given in this Agreement.
6.2 Request for Registration.
(a) If the Company shall receive at any time after the date of this agreement, a
written request from the Holders of forty-nine percent (49%) or greater of the
Registrable Securities then outstanding that the Company file a registration
statement under the Act covering the registration of any part of the Registrable
Securities then outstanding, then the Company shall:
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(i) within ten (10) calendar days of the receipt thereof; give written
notice of such request to all Holders; and
(ii) use its best efforts to effect as soon as practicable, and in any
event within sixty (60) calendar days of the receipt of such request, the filing
of a registration statement under the Act covering all Registrable Securities
which the Holders request to be registered, subject to the limitations of
subsection 5.2(b), within two hundred ten (210) business days of the mailing of
such notice by the Company.
(b) If the Holders initiating the registration request hereunder ("Initiating
Holders") intend to distribute the Registrable Securities covered by their
request by means of an underwriting, they shall so advise the Company as a part
of their request made pursuant to subsection 6.2(a) and the Company shall
include such information in the written notice referred to in sub section
6.2(a). The underwriter will be selected by a majority in interest of the
Initiating Holders and shall be reasonably acceptable to the Company. In such
event, the right of any Holder to include his Registrable Securities in such
registration shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting (unless otherwise mutually agreed by a majority in interest of the
Initiating Holders and such Holder) to the extent provided herein. All Holders
proposing to distribute their securities through such underwriting shall
(together with the Company as provided in subsection 1.4(e)) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting.
(c) Notwithstanding the foregoing, if the Company shall furnish to Holders
requesting a registration statement pursuant to this Section 6.2, a certificate
signed by the Chief Executive Officer of the Company stating that in the good
faith judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company and its shareholders for such registration statement
to be filed and it is therefore essential to defer the filing of such
registration statement, the Company shall have the right to defer taking action
with respect to such filing for a period of not more than sixty(60) calendar
days after receipt of the request of the Initiating Holders; provided, however,
that the Company may not utilize this right more than once in any twelve-month
period.
(d) In addition, the Company shall not be obligated to effect, or to take any
action to effect, any registration pursuant to this Section 6.2:
(i) After the Company has effected one registration pursuant to this
Section 6.2 and such registration has been declared or ordered effective; or
(ii) After the First Effective Date, if the Company has filed and had
declared effective a registration statement with respect to the sale of all of
the Registrable Securities and has kept such registration statement effective
until the later of: (A) December 31, 2006, or two hundred ten (210) calendar
days after the effective date of such registration statement. Notwithstanding
the foregoing, the above period for maintenance of effectiveness of the 210-day
period set forth in subsection 6.2(d)(ii)(B) above shall be extended for a
period of time equal to the period a Holder refrains from selling any securities
included in such registration at the request of an underwriter of Common Stock
(or other securities) of the Company.
6.3 Company ("Piggyback") Registration. If at any time commencing on the Closing
Date (but without any obligation to do so) the Company proposes to register
(including for this purpose a registration effected by the Company for
shareholders other than the Holders) any of its stock or other securities under
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the 1933 Act in connection with the public offering of such securities solely
for cash (other than a registration of securities to be offered by employees
pursuant on employee benefit plan on Form S-8, or a registration in connection
with an exchange offer or any acquisition or a registration on any form which
does not include substantially the same information as would be required to be
included in a registration statement covering the sale of the Registrable
Securities), the Company shall, each such time, give each Holder written notice
of such proposed registration at least thirty (30) days prior to filing the
registration statement respecting such proposed registration. Upon the written
request of any Holder given within twenty (20) days after mailing of such notice
by the Company in accordance with this Agreement, the Company shall cause to be
registered under the 1933 Act all of the Registrable Securities that each such
Holder has requested to be registered, subject to paragraph 6.1, hereof.
6.4 Obligations of the Company. Whenever required under this Section 6 to effect
the registration of any Registrable Securities, the Company shall use its best
efforts to, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, keep such registration
statement current and effective for a period of up to the earlier of two hundred
seventy (270) calendar days or until the distribution contemplated in the
Registration Statement has been completed; provided, however, that such period
shall be extended for a period of time equal to the period a Holder refrains
from selling any securities included in such registration at the request of an
underwriter of Common Stock (or other securities) of the Company.
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
1933 Act with respect to the disposition of all securities covered by such
registration statement.
(c) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
1933 Act, and such other documents as they may reasonably request in order to
facilitate the disposition of Registrable Securities owned by them.
(d) Register and qualify the securities covered by such registration
statement under such other securities or blue sky laws of such jurisdictions as
shall be reasonably requested by the Holders; provided that in no event shall
the Company be required to qualify to do business in any state or to take any
action which would subject it to general or unlimited service of process in any
state where it is not now so subject.
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement with terms generally
satisfactory to the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a result
of which the prospectus included 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 the light of the circumstances then existing.
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(g) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange on which similar securities
issued by the Company are then listed.
(h) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration.
(i) Furnish, at the request of any Holder requesting registration of
Registrable Securities pursuant to this Section 5, on the date that such
Registrable Securities are delivered to the underwriters for sale in connection
with a registration pursuant to this Section 6, if such securities are being
sold through underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to such
securities becomes effective, (i) an opinion, dated on such date, of the counsel
representing the Company for the purposes of such registration, in form and
substance as is customarily given to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to the Holders requesting
registration of Registrable Securities and (ii) a letter dated such date, from
the independent certified public accountants of the Company, in form and
substance as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the underwriters,
if any, and to the Holders requesting registration of Registrable Securities.
6.5 Furnish Information. It shall be a condition precedent to the obligations of
the Company to take any action pursuant to this Section 6, that the selling
Holders shall furnish to the Company such information regarding themselves, the
Registrable Securities held by them, and on the intended method of disposition
of such securities as shall be required to effect the registration of their
Registrable Securities.
6.6 Expenses Of Registration. All expenses incurred in connection with any
registration, filing or qualification pursuant to this Section 6, including
without limitation all registration, filing and qualification fees, printers'
and accounting fees, and fees and disbursements of counsel for the Company, and
the reasonable fees and disbursements of one counsel for the selling Holders,
but excluding underwriter's commissions and fees and any fees of others employed
by a selling Holder other than the one counsel for the selling Holders
referenced above, shall be borne by the Company.
6.7 Underwriting Requirements. In connection with any offering involving an
underwriting of securities being issued by the Company, the Company shall not be
required under paragraph 6.3 to include any of the Holders' securities in such
underwriting unless they accept the terms of the underwriting as agreed upon
between the Company and the underwriters selected by it, and then only in such
quantity, if any, as will not, in the opinion of the underwriters, jeopardize or
in any way reduce the success of the offering by the Company. If the total
amount of securities, including Registrable Securities, requested by
shareholders to be included in such offering exceeds the amount of securities
sold other than by the Company that the underwriters determine in their sole
discretion is compatible with the success of the offering, then the Company
shall be required to include in the offering only that number of such
securities, including Registrable Securities, which the underwriters determine
in their sole discretion will not jeopardize the success of the offering (the
securities so included to be apportioned pro rata among the selling shareholders
according to the total amount of securities entitled to be included therein
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owned by each selling Shareholder or in such other proportions as shall mutually
be agreed to by such selling shareholders) but in no event shall the amount of
securities of the selling Holders included in the offering be reduced below
twenty percent (20%) of the total amount of securities included in such
offering, unless such offering is the initial public offering of the Company's
securities in which case the selling shareholders may be excluded if the
underwriters make the determination described above and no other shareholder's
securities are included. For purposes of the preceding parenthetical concerning
apportionment, for any selling shareholder which is a holder of Registrable
Securities and which is a partnership or corporation, the partners, retired
partners and shareholders of such holder, or the estates and family members of
any such partners and retired partners and any trusts for the benefit of any of
the foregoing persons shall be deemed to be a single "selling shareholder", and
any pro rata reduction with respect to such "selling shareholder" shall be based
upon the aggregate amount of shares carrying registration rights owned by all
entities and individuals included in such "selling shareholder", as defined in
this sentence.
6.8 Indemnification. In the event any Registrable Securities are included in a
registration statement under this Section 6:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, the officers and directors of each Holder, any
underwriter (as defined in the ▇▇▇▇ ▇▇▇) for such Holder and each person, if
any, who controls such Holder or underwriter within the meaning of the 1933 Act
or the 1934 Act against any losses, claims, damages, or liabilities (joint or
several) to which they may become subject under the 1933 Act, the 1934 Act or
any state securities law or regulation, insofar as such losses, claims, damages,
or liabilities (or actions in respect thereof) arise out of or are based upon
any of the following statements, omissions or violations (collectively a
"Violation"): (i) any untrue statement or alleged untrue statement of a material
fact contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto, (ii) 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, or (iii) any violation or alleged violation by the
Company of the 1933 Act, the 1934 Act, any state securities law or any rule or
regulation promulgated under the 1933 Act, the 1934 Act or any state securities
law; and the Company will reimburse each such Holder, officer or director,
underwriter or controlling person for any legal or other expenses reasonably
incurred by them in a connection with investigating or defending any such loss,
claim, damage, liability, or action; provided, however, that the indemnity
agreement contained in this subparagraph 6.8(a) shall not apply to amounts paid
in settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be liable in any such case
for any such loss, claim, damage, liability, or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by any such Holder, underwriter or controlling person or
his or their representative or agent.
(b) To the extent permitted by law, each selling Holder will indemnify
and hold harmless the Company, each of its directors and officers, any
underwriter (as defined in the ▇▇▇▇ ▇▇▇) for the Company, each person, if any,
who controls the Company or any such underwriter within the meaning of the 1933
Act or the 1934 Act, and any other holder selling securities in such
registration statement or any of its directors or officers or any person who
controls such Holder, against any losses, claims, damages, or liabilities (or
actions in respect thereto) which arise out of or are based upon any Violation,
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in each case to the extent (and only to the extent) that such Violation occurs
in reliance upon and in conformity with written information furnished by such
Holder or his representative or agent expressly for use in connection with such
registration; and each such Holder will reimburse any legal or other expenses
reasonably incurred by the Company or any such director, officer, any person who
controls the Company, any underwriter or controlling person of any such
underwriter, any other such Holder, officer, director, or controlling person in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained
in this subparagraph 6.8(b) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Holder (which consent shall not be unreasonably
withheld), and provided further that the obligations of each selling Holder
hereunder shall be limited to an amount equal to the proceeds of each such
selling Holder of the shares sold by such selling Holder pursuant to such
registration.
(c) Promptly after receipt by an indemnified party under this
paragraph 6.8 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this paragraph 5.7, notify
the indemnifying party in writing of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential differing interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to notify an
indemnifying party within a reasonable time of the commencement of any such
action shall not relieve such indemnifying party of any liability that it may
have to any indemnified party otherwise than under this paragraph 6.8.
(d) If the indemnification provided for in this Section 6.8 is held by
a court of competent jurisdiction to be unavailable to an indemnified party with
respect to any loss, liability, claim, damage, or expense referred to therein,
then the indemnifying party, in lieu of indemnifying such indemnified party
hereunder, shall contribute to the amount paid or payable by such indemnified
party as a result of such loss, liability, claim, damage, or expense in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party on the one hand and of the indemnified party on the other in connection
with the statements or omissions that resulted in such loss, liability, claim,
damage, or expense as well as any other relevant equitable considerations. The
relative fault of the indemnifying party and of the indemnified party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission to state a material fact
relates to information supplied by the indemnifying party or by the indemnified
party.
(e) Notwithstanding the foregoing, to the extent that the provisions
on indemnification and contribution contained in the underwriting agreement
entered into in connection with the underwritten public offering are in conflict
with the foregoing provisions, the provisions in the underwriting agreement
shall control.
(f) The obligations of the Company and Holders under this Section
shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 6, or otherwise.
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6.9 Reports Under the 1934 Act. With a view to making available to the Holders
the benefits of Rule 144 promulgated under the 1933 Act and any other rule or
regulation of the SEC that may at any time permit a Holder to sell securities of
the Company to the public without registration or pursuant to a registration
form which permits inclusion or incorporation of substantial information by
reference to other documents filed by the Company with the SEC, the Company
agrees to for up to three (3) years:
(a) Make and keep public information available, as those terms are
understood and defined in SEC Rule 144, at all times after the Company is a
Public Corporation.
(b) File with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act; and
(c) Furnish to any Holder, so long as the Holder owns any Registrable
Securities, forthwith upon reasonable request (i) a written statement by the
Company that it has complied with the reporting requirements of the 1934 Act (at
any time after it has become subject to such reporting requirements), (ii) a
copy of the most recent annual or quarterly report of the Company and such other
reports and documents so filed by the Company, and (iii) such other information
as may be reasonably requested in availing any Holder of any rule or regulation
of the SEC permitting the selling of any such securities without registration or
pursuant to such form.
The utilization of Rule 144 by any Holder to sell any securities of the Company,
including without limitation any Registrable Securities, shall not affect the
Company's obligations to register any Registrable Securities pursuant to this
Agreement.
6.10 Delay of Registration. No holder shall have any right to obtain or seek an
injunction restraining or otherwise delaying any such registration as the result
of any controversy that might arise with respect to the interpretation or
implementation of this Section 6.
6.11 Assignment of Registration Rights. The rights to cause the Company to
register Registrable Securities pursuant to this Section 6 may be assigned (but
only with all related obligations) by a Holder to a transferee or assignee of
such securities who, after such assignment or transfer, holds at least ten
percent (10%) of the Registrable Securities (subject to appropriate adjustment
for stock splits, stock dividends, combinations and other recapitalizations),
provided: (a) the Company is, within a reasonable time after such transfer,
furnished with written notice of the name and address of such transferee or
assignee and the securities with respect to which such registration rights are
being assigned; (b) such transferee or assignee agrees in writing to be bound by
and subject to the terms and conditions of this Agreement, including without
limitation, the provisions of Section 5.13 below; and (c) such assignment shall
be effective only if immediately following such transfer the further disposition
of such securities by the transferee or assignee is restricted under the Act.
For the purposes of determining the number of shares of Registrable Securities
held by a transferee or assignee, the holdings of transferees and assignees of a
partnership who are partners or retired partners of such partnership (including
spouses and ancestors, lineal descendants and siblings of such partners or
spouses who acquire Registrable Securities by gift, will or intestate
succession) shall be aggregated together and with the partnership; provided that
all assignees and transferees who would not qualify individually for assignment
of registration rights shall have a single attorney-in-fact for the purpose of
exercising any rights, receiving notices or taking any action under this Section
5.
6.12 Limitations on Subsequent Registration Rights. From and after the date of
this Agreement, the Company shall not, without the prior written consent of the
Holders of a majority of the outstanding Registrable Securities, enter into any
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agreement with any holder or prospective holder of any securities of the Company
which would allow such holder or prospective holder (a) to include such
securities in any registration filed hereunder, unless under the terms of such
agreement, such holder or prospective holder may include such securities in any
such registration only to the extent that the inclusion of his securities will
not reduce the amount of the Registrable Securities of the Holders which is
included or (b) to make a demand registration which could result in such
registration statement being declared effective prior to or within one hundred
twenty (120) days of the effective date of any registration effected pursuant to
this Agreement.
6.13 Termination of Registration Rights. No Holder shall be entitled to exercise
any right provided for in this Section 6 after six (6) years following the date
after which Holders may request registration of the Registrable Securities
pursuant to Section 6.2(a) nor at any time when the Holder has the right to sell
all of his Registrable Securities pursuant to SEC Rule 144(k).
6.14 Amendments and Waivers. Any term or provision of the registration rights
stated in this Agreement may be amended and the observance of any term of such
rights may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and the holders of at least sixty-seven percent (67%) of the Registrable
Securities then outstanding. Any amendment or waiver effected in accordance with
this paragraph shall be binding upon each holder of any Registrable Securities
then outstanding, each future holder of all such Registrable Securities, and the
Company.
7. FURTHER AGREEMENTS
7.1 Successors and Assigns. This Agreement shall be binding upon the successors
and assigns, if any, of each Lender, except as provided by certain state laws.
7.2 Indemnification. Each Lender shall indemnify, hold harmless and defend the
Company and its affiliates and agents with respect to any and all loss, damage,
expense, claim, action or liability any of them may incur as a result of the
breach or untruth of any representations or warranties made by such Lender
herein, and each Lender agrees that in the event of any breach or untruth of any
representations or warranties made by him herein, the Company may, at its
option, forthwith rescind the sale of the Notes and Common Stock to such Lender.
7.3 Operating Statements. For as long as any of the Notes remain outstanding,
the Company shall furnish to the Lenders, forthwith upon the preparation
thereof, correct copies of its monthly operating statements, press releases and
other public announcements, and its quarterly, annual and other Reports filed
with the Securities and Exchange Commission
7.4 Legal Fees and Expenses. At the Closing, the Company shall, in consideration
of this Agreement, reimburse the Lenders in the amount of $5,000 as and for
their legal fees and other expenses in connection with this transaction.
8. GENERAL AND MISCELLANEOUS
8.1 Survival Of Warranties. The warranties, representations and covenants of the
parties contained in or made pursuant to this Agreement shall survive the
execution and delivery of this Agreement and the Closing and any inquiries by
any party.
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8.2 Entire Agreement. This Agreement constitutes the entire agreement among the
parties, and no party shall be liable or bound to any other party in any manner
by any warranties, representations, guarantees or covenants except as
specifically set forth in this Agreement. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties. Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
8.3 Governing Law. This Agreement shall be governed by and construed under the
internal laws of the State of Arizona without regard to conflicts of law.
8.4 Counterparts. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Note Purchase Agreement as of
this _____ day of January, 2004.
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▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-----------------------------------
▇▇▇▇ ▇▇▇▇▇▇▇▇
BESTNET COMMUNICATIONS CORP.
by , President
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ATTEST: , Secretary
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Exhibit 1A - Form of Convertible Promissory Note
Exhibit 1A - Form of Convertible Promissory Note
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Exhibit 1B - Statement of Rights, Preferences and Privileges of Series A
Preferred Stock
Exhibit 1B - Statement of Rights, Preferences and Privileges of Series A
Preferred Stock
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Exhibit 1C - Form of Warrant
Exhibit 1C - Form of Warrant
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Schedule 3.1 - Additional Disclosures
Schedule 3.1 - Additional Disclosures
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Exhibit 5.4 Officer Certificate
The undersigned, _______________________, hereby certifies that he is the [Chief
Executive Officer] [Chief Financial Officer] of Best Net Communications Corp, a
Nevada corporation ("the Company") and further certifies as follows to the
purchasers of the Company's 2004 Convertible Promissory Notes:
1. As such officer he is familiar with the business, affairs and assets
of the Company and with the provisions of a certain Note Purchase
Agreement ("Agreement") between the Company on the one hand and Messrs
▇▇▇▇ ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ on the other and acknowledges that
the making, delivery and accuracy of this Certificate is a condition
to the performance of the Purchasers under the Agreement.
2. To the best of his knowledge, after careful inquiry, the
representations and warranties of the Company contained in the
Agreement are true and correct on and all conditions required to be
fulfilled as a condition to the obligations of the Purchasers have
been fulfilled and as of the date of this Certificate.
3. Nothing in the Agreement or any attachment thereto or document
delivered in connection therewith contains any untrue statement of a
material fact or omits to make a statement necessary to make the
statements made therein not misleading.
Signed at Grand Rapids, Michigan on the day of January 2004
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By
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[Name and Title]
Exhibit 5.4 Officer Certificate
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