EXHIBIT 10.1
IDIAL NETWORKS, INC.
CONVERTIBLE NOTE PURCHASE AGREEMENT
July ____, 2001
TABLE OF CONTENTS
Page
1. Agreement to Sell and Purchase...........................................................................1
2. Fees and Warrants........................................................................................1
3. Closing, Delivery and Payment............................................................................2
3.1 Closing.........................................................................................2
3.2 Delivery........................................................................................2
4. Representations and Warranties of the Company............................................................3
4.1 Organization, Good Standing and Qualification...................................................3
4.2 Subsidiaries....................................................................................3
4.3 Capitalization; Voting Rights...................................................................3
4.4 Authorization; Binding Obligations..............................................................4
4.5 Liabilities.....................................................................................4
4.6 Agreements; Action..............................................................................4
4.7 Obligations to Related Parties..................................................................5
4.8 Changes.........................................................................................5
4.9 Title to Properties and Assets; Liens, Etc......................................................6
4.10 Intellectual Property...........................................................................7
4.11 Compliance with Other Instruments...............................................................7
4.12 Litigation......................................................................................7
4.13 Tax Returns and Payments........................................................................8
4.14 Employees.......................................................................................8
4.15 Registration Rights and Voting Rights...........................................................8
4.16 Compliance with Laws; Permits...................................................................8
4.17 Environmental and Safety Laws...................................................................9
4.18 Valid Offering..................................................................................9
4.19 Full Disclosure.................................................................................9
4.20 Insurance.......................................................................................9
4.21 SEC Reports....................................................................................10
4.22 No Market Manipulation.........................................................................10
4.23 Listing........................................................................................10
4.24 No Integrated Offering.........................................................................10
4.25 Stop Transfer..................................................................................10
4.26 Dilution.......................................................................................10
5. Representations and Warranties of the Purchasers........................................................11
5.1 Requisite Power and Authority..................................................................11
5.2 Investment Representations.....................................................................11
5.3 Purchaser Bears Economic Risk..................................................................11
5.4 Acquisition for Own Account....................................................................11
5.5 Purchaser Can Protect Its Interest.............................................................11
5.6 Accredited Investor............................................................................11
5.7 Legends........................................................................................11
6. Covenants of the Company................................................................................13
6.1 Stop-Orders....................................................................................13
6.2 Listing........................................................................................13
6.3 Market Regulations.............................................................................13
6.4 Reporting Requirements........................................................................13
6.5 Use of Funds...................................................................................14
6.6 Access to Facilities...........................................................................14
6.7 Taxes..........................................................................................14
6.8 Insurance......................................................................................14
6.9 Books and Records..............................................................................14
6.10 Intellectual Property..........................................................................14
6.11 Properties.....................................................................................14
6.12 Confidentiality................................................................................15
6.13 Required Approvals.............................................................................15
6.14 Reissuance of Securities.......................................................................16
6.15 Opinion........................................................................................16
6.16 Additional Shares..............................................................................16
7. Covenants of the Company and Purchasers Regarding Indemnification.......................................17
7.1 Company Indemnification........................................................................17
7.2 Purchaser's Indemnification....................................................................17
7.3 Procedures.....................................................................................17
8. Conversion of Convertible Notes.........................................................................17
8.1 Mechanics of Conversion........................................................................17
8.2 Mandatory Redemption...........................................................................18
8.3 Maximum Conversion.............................................................................19
8.4 Injunction - Posting of Bond...................................................................19
8.5 Buy-In.........................................................................................19
9. Registration Rights.....................................................................................20
9.1 Registration Rights Granted....................................................................20
9.2 Registration Procedures........................................................................21
9.3 Provision of Documents.........................................................................22
9.4 Non-Registration Events........................................................................23
9.5 Expenses.......................................................................................24
9.6 Indemnification and Contribution...............................................................24
10. Offering Restrictions...................................................................................26
11. Security Interest.......................................................................................27
12. Miscellaneous...........................................................................................26
12.1 Governing Law..................................................................................26
12.2 Survival.......................................................................................27
12.3 Successors and Assigns.........................................................................27
12.4 Entire Agreement...............................................................................27
12.5 Severability...................................................................................27
12.6 Amendment and Waiver...........................................................................27
12.7 Delays or Omissions............................................................................27
12.8 Notices........................................................................................28
12.9 Attorneys' Fees................................................................................28
12.10 Titles and Subtitles...........................................................................28
12.11 Counterparts...................................................................................28
12.12 Broker's Fees..................................................................................28
12.13 Indemnification................................................................................28
12.14 Construction...................................................................................29
IDIAL NETWORKS, INC.
CONVERTIBLE NOTE PURCHASE AGREEMENT
THIS CONVERTIBLE NOTE PURCHASE AGREEMENT (the "Agreement") is made and entered
into as of July __, 2001, by and among iDial Networks, Inc., a Nevada
corporation (the "Company"), and the Purchaser listed on Exhibit A hereto (the
"Purchaser").
RECITALS
WHEREAS, the Company has authorized the sale of 8% Convertible Notes in an
aggregate principle amount of $750,000 (the "Notes"), convertible into shares of
the Company's common stock, $0.005 par value per share (the "Common Stock");
WHEREAS, the Company wishes to issues warrants (the "Warrants") to the
Purchaser to purchase shares of the Company's Common Stock in connection with
Purchaser's purchase of the Notes;
WHEREAS, Purchaser desires to purchase the Notes and Warrants on the terms
and conditions set forth herein; and
WHEREAS, the Company desires to issue and sell the Notes and Warrants to
Purchaser on the terms and conditions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises, representations, warranties and covenants hereinafter set forth and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
1. AGREEMENT TO SELL AND PURCHASE. Pursuant to the terms and conditions set
forth in this Agreement, on the Closing Date (as defined in Section 3), the
Company agrees to sell to the Purchaser, and the Purchaser hereby agrees to
purchase from the Company Notes in the amount set forth next to the Purchaser's
name on Exhibit A under the column heading "Closing Date Notes," convertible in
accordance with the terms thereof into shares of the Company's Common Stock,
which amount shall be equal to $750,000. The Notes purchased on the Closing Date
shall be known as the "Offering." The form of Notes is annexed hereto as Exhibit
B. The Notes will have a Maturity Date (as defined in the Notes) two years from
the date of issuance. Collectively, the Notes and Warrants (as defined in
Section 2) and Common Stock issuable upon conversion of the Notes and exercise
of the Warrants are referred to as the "Securities."
2. FEES AND WARRANTS.
(a) The Company will issue and deliver to the persons listed on Exhibit A
under the column heading "Warrant Holders", or to such other persons as the
Purchaser shall otherwise designate (such named persons, as they may be so
otherwise designated, being referred to as the "Warrant Recipients"), Warrants
to purchase shares of Common Stock in the amounts designated on Exhibit A hereto
in connection with the Offering (the "Warrants") pursuant to Section 1 hereof.
The Warrants must be delivered on the Closing Date. The aggregate number of
shares of Common Stock purchasable upon exercise of the Warrants granted on the
Closing Date is set forth on Exhibit A hereto. A form of Warrant is annexed
hereto as Exhibit C. The per share "Purchase Price" of Common Stock as defined
in the Warrants shall be equal to the lesser of (i) 120% of the average of the
three lowest closing prices of the Common Stock as reported by Bloomberg
Financial for the Pink Sheets, the NASD OTC Bulletin Board, NASDAQ SmallCap
Market, NASDAQ National Market, American Stock Exchange, or New York Stock
Exchange (each of the foregoing the "Principal Market"), or such other principal
market or exchange where the Common Stock is listed or traded, for the ten (10)
trading days preceding but not including the Closing Date or (ii) 120% of the
average of the three lowest closing prices of the Common Stock as reported by
Bloomberg Financial on the Principal Market for the ten trading days prior to
but not including the date the Warrant is exercised. All the representations,
covenants, warranties, undertakings, and indemnification, and other rights made
or granted to or for the benefit of Purchaser are hereby also made and granted
to the holders of the Warrants in respect of the Warrants and shares of the
Company's Common Stock issuable upon exercise of the Warrants (the "Warrant
Shares").
(b) The Company shall pay to counsel to the Purchaser its reasonable legal
fees of $15,000 for services rendered to Purchaser in preparation of this
Agreement and the Related Agreements, and an additional amount not to exceed
$2,500 in connection with its due diligence review of the Company and relevant
matters. Amounts required to be paid hereunder will be paid at the Closing.
(c) The Company will pay (x) a cash fee in the amount of ten percent (10%)
of the aggregate gross purchase price to be paid to the Company from the sale of
Notes in the Offering and (y) a cash fee in the amount of ten percent (10%) of
the aggregate gross proceeds received by the Company upon exercise of the
Warrants (the "Warrant Exercise Compensation" and, collectively with the fees
referred to in subsection (x) above, the "Fund Manager's Fee") to the persons
listed on Exhibit A under the column heading "Fund Manager's Fee Recipient." The
Fund Manager's Fee must be paid on the Closing Date. The Warrant Exercise
Compensation must be paid by the Company within ten (10) days of the exercise of
a Warrant by the holder thereof. The aforementioned Fund Manager's Fee and legal
fees will be payable at the Closing out of funds held pursuant to a Funds Escrow
Agreement to be entered into by the Company, Purchaser and an Escrow Agent.
Failure to timely deliver the Fund Manager's Fee, Warrant Exercise Compensation
or the Warrants shall be deemed an Event of Default as defined in Article III of
the Notes.
3. CLOSING, DELIVERY AND PAYMENT.
3.1 Closing. Subject to the terms and conditions herein, the closing of the
transactions contemplated hereby (the "Closing"), which closing is
comprised of Purchaser's purchase of Notes in the aggregate principle
amount of $750,000, shall take place on the date hereof, at the offices of
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq. ▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇
▇▇▇▇▇, or at such other time or place as the Company and Purchaser may
mutually agree (such date is hereinafter referred to as the "Closing
Date").
3.2 Delivery. At the Closing, subject to the terms and conditions hereof, the
Company will deliver to the Purchaser an applicable Note representing the
aggregate principle amount borrowed by the Company at the Closing from the
Purchaser and a warrant certificate registered in the Purchaser's name
representing the number of Warrant Shares as to which the Warrant is
exercisable pursuant to this Agreement, against payment of the purchase
price therefor by certified funds or wire transfer made payable to the
order of the Company, cancellation of indebtedness or any combination of
the foregoing.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby represents and warrants to the Purchaser as of the date
of this Agreement as set forth below.
4.1 Organization, Good Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good
standing under the laws of the State of Nevada. The Company has all
requisite corporate power and authority to own and operate its properties
and assets, to execute and deliver this Agreement, the Warrants to be
issued in connection with this Agreement, the Funds Escrow Agreement, the
Security Agreement and all other agreements referred to herein
(collectively, the "Related Agreements"), to issue and sell the Notes and
the shares of Common Stock issuable upon conversion of the Notes (the
"Conversion Shares"), to issue and sell the Warrants and the Warrant
Shares, and to carry out the provisions of this Agreement and the Related
Agreements and to carry on its business as presently conducted and as
presently proposed to be conducted. The Company is duly qualified and is
authorized to do business and is in good standing as a foreign corporation
in all jurisdictions in which the nature of its activities and of its
properties (both owned and leased) makes such qualification necessary,
except for those jurisdictions in which failure to do so would not have a
material adverse effect on the Company or its business.
4.2 Subsidiaries. Except as disclosed on Schedule 4.2, the Company does not own
or control any equity security or other interest of any other corporation,
limited partnership or other business entity. If any entity is listed on
Schedule 4.2 and the Company owns a controlling interest in such entity,
each of the representations and warranties set forth in this Section 4 are
being hereby restated with respect to such entity (modified as appropriate
to the nature of such entity.)
4.3 Capitalization; Voting Rights.
(a) The authorized capital stock of the Company, immediately prior to the
Closing, consists of 100,000,000 shares of Common Stock, par value $0.005 per
share, 87,969,856 shares of which are issued and outstanding as of March 31,
2001.
(b) Other than (i) the shares reserved for issuance under the Company's
Employee Stock Option Plan; and (ii) shares which may be granted pursuant to
this Agreement and the Related Agreements, there are no outstanding options,
warrants, rights (including conversion or preemptive rights and rights of first
refusal), proxy or stockholder agreements, or arrangements or agreements of any
kind for the purchase or acquisition from the Company of any of its securities.
Neither the offer, issuance or sale of any of the Notes or Warrants, or the
issuance of any of the Conversion Shares or Warrant Shares, nor the consummation
of any transaction contemplated hereby will result in a change in the price or
number of any securities of the Company outstanding, under anti-dilution or
other similar provisions contained in or affecting any such securities.
(c) All issued and outstanding shares of the Company's Common Stock (i)
have been duly authorized and validly issued and are fully paid and
nonassessable and (ii) were issued in compliance with all applicable state and
federal laws concerning the issuance of securities.
(d) The rights, preferences, privileges and restrictions of the shares of
Common Stock are as stated in the Articles of Incorporation (the "Charter").
Upon obtaining the Approval as set forth in Section 6.17 below, the Conversion
Shares and Warrant Shares will be duly and validly reserved for issuance. When
issued in compliance with the provisions of this Agreement and the Company's
Charter, the Notes, Warrants, Conversion Shares and Warrant Shares (sometimes
collectively referred to herein as the "Securities") will be validly issued,
fully paid and nonassessable, and will be free of any liens or encumbrances;
provided, however, that the Securities may be subject to restrictions on
transfer under state and/or federal securities laws as set forth herein or as
otherwise required by such laws at the time a transfer is proposed.
4.4 Authorization; Binding Obligations. All corporate action on the part of the
Company, its officers, directors and stockholders necessary for the
authorization of this Agreement and the Related Agreements, the performance
of all obligations of the Company hereunder at each Closing and the
authorization, sale, issuance and delivery of the Securities pursuant
hereto and the Related Agreements has been taken or will be taken prior to
the Closing. The Agreement and the Related Agreements, when executed and
delivered, will be valid and binding obligations of the Company enforceable
in accordance with their terms, except (a) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application affecting enforcement of creditors' rights, and (b) general
principles of equity that restrict the availability of equitable remedies.
The sale of the Notes and the subsequent conversion of the Notes into
Conversion Shares are not and will not be subject to any preemptive rights
or rights of first refusal that have not been properly waived or complied
with. The sale of the Warrants and the subsequent exercise of the Warrants
for Warrant Shares are not and will not be subject to any preemptive rights
or rights of first refusal that have not been properly waived or complied
with. The Notes and the Warrants, when executed and delivered in accordance
with the terms of this Agreement, will be valid and binding obligations of
the Company, enforceable in accordance with their respective terms.
4.5 Liabilities. The Company has no material liabilities and, to the best of
its knowledge, knows of no material contingent liabilities, except current
liabilities incurred in the ordinary course of business which have not
been, either in any individual case or in the aggregate, materially
adverse.
4.6 Agreements; Action.
(a) There are no agreements, understandings, instruments, contracts,
proposed transactions, judgments, orders, writs or decrees to which the Company
is a party or to its knowledge by which it is bound which may involve (i)
obligations (contingent or otherwise) of, or payments to, the Company in excess
of $50,000 (other than obligations of, or payments to, the Company arising from
purchase or sale agreements entered into in the ordinary course of business), or
(ii) the transfer or license of any patent, copyright, trade secret or other
proprietary right to or from the Company (other than licenses arising from the
purchase of "off the shelf" or other standard products), or (iii) provisions
restricting the development, manufacture or distribution of the Company's
products or services, or (iv) indemnification by the Company with respect to
infringements of proprietary rights.
(b) The Company has not (i) declared or paid any dividends, or authorized
or made any distribution upon or with respect to any class or series of its
capital stock, (ii) incurred any indebtedness for money borrowed or any other
liabilities individually in excess of $50,000 or, in the case of indebtedness
and/or liabilities individually less than $50,000, in excess of $100,000 in the
aggregate, (iii) made any loans or advances to any person, other than ordinary
advances for travel expenses, or (iv) sold, exchanged or otherwise disposed of
any of its assets or rights, other than the sale of its inventory in the
ordinary course of business.
(c) For the purposes of subsections (a) and (b) above, all indebtedness,
liabilities, agreements, understandings, instruments, contracts and proposed
transactions involving the same person or entity (including persons or entities
the Company has reason to believe are affiliated therewith) shall be aggregated
for the purpose of meeting the individual minimum dollar amounts of such
subsections.
4.7 Obligations to Related Parties. There are no obligations of the Company to
officers, directors, stockholders or employees of the Company other than
(a) for payment of salary for services rendered, (b) reimbursement for
reasonable expenses incurred on behalf of the Company and (c) for other
standard employee benefits made generally available to all employees
(including stock option agreements outstanding under any stock option plan
approved by the Board of Directors of the Company). None of the officers,
directors or stockholders of the Company, or any members of their immediate
families, are indebted to the Company. None of the officers, directors or,
to the best of the Company's knowledge, key employees or stockholders of
the Company or any members of their immediate families, are indebted to the
Company or have any direct or indirect ownership interest in any firm or
corporation with which the Company is affiliated or with which the Company
has a business relationship, or any firm or corporation which competes with
the Company, other than passive investments in publicly traded companies
(representing less than 1% of such company) which may compete with the
Company. No officer, director or stockholder, or any member of their
immediate families, is, directly or indirectly, interested in any material
contract with the Company and no agreements, understandings or proposed
transactions are contemplated between the Company and any such person. The
Company is not a guarantor or indemnitor of any indebtedness of any other
person, firm or corporation.
4.8 Changes. Since March 31, 2001, there has not been:
(a) Any change in the assets, liabilities, financial condition, prospects
or operations of the Company, other than changes in the ordinary course of
business, none of which individually or in the aggregate has had or is
reasonably expected to have a material adverse effect on such assets,
liabilities, financial condition, prospects or operations of the Company;
(b) Any resignation or termination of any officer, key employee or group of
employees of the Company;
(c) Any material change, except in the ordinary course of business, in the
contingent obligations of the Company by way of guaranty, endorsement,
indemnity, warranty or otherwise;
(d) Any damage, destruction or loss, whether or not covered by insurance,
materially and adversely affecting the properties, business or prospects or
financial condition of the Company;
(e) Any waiver by the Company of a valuable right or of a material debt
owed to it;
(f) Any direct or indirect loans made by the Company to any stockholder,
employee, officer or director of the Company, other than advances made in the
ordinary course of business;
(g) Any material change in any compensation arrangement or agreement with
any employee, officer, director or stockholder;
(h) Any declaration or payment of any dividend or other distribution of the
assets of the Company;
(i) Any labor organization activity related to the Company;
(j) Any debt, obligation or liability incurred, assumed or guaranteed by
the Company, except those for immaterial amounts and for current liabilities
incurred in the ordinary course of business;
(k) Any sale, assignment or transfer of any patents, trademarks,
copyrights, trade secrets or other intangible assets;
(l) Any change in any material agreement to which the Company is a party or
by which it is bound which may materially and adversely affect the business,
assets, liabilities, financial condition, operations or prospects of the
Company;
(m) Any other event or condition of any character that, either individually
or cumulatively, has or may materially and adversely affect the business,
assets, liabilities, financial condition, prospects or operations of the
Company; or
(n) Any arrangement or commitment by the Company to do any of the acts
described in subsection (a) through (m) above.
4.9 Title to Properties and Assets; Liens, Etc. The Company has good and
marketable title to its properties and assets, and good title to its
leasehold estates, in each case subject to no pledge, lien, lease,
encumbrance or charge, other than (a) those resulting from taxes which have
not yet become delinquent, (b) minor liens and encumbrances which do not
materially detract from the value of the property subject thereto or
materially impair the operations of the Company, and (c) those that have
otherwise arisen in the ordinary course of business. All facilities,
machinery, equipment, fixtures, vehicles and other properties owned, leased
or used by the Company are in good operating condition and repair and are
reasonably fit and usable for the purposes for which they are being used.
The Company is in compliance with all material terms of each lease to which
it is a party or is otherwise bound.
4.10 Intellectual Property.
(a) The Company owns or possesses sufficient legal rights to all patents,
trademarks, service marks, trade names, copyrights, trade secrets, licenses,
information and other proprietary rights and processes necessary for its
business as now conducted and to the Company's knowledge as presently proposed
to be conducted (the "Intellectual Property"), without any known infringement of
the rights of others. There are no outstanding options, licenses or agreements
of any kind relating to the foregoing proprietary rights, nor is the Company
bound by or a party to any options, licenses or agreements of any kind with
respect to the patents, trademarks, service marks, trade names, copyrights,
trade secrets, licenses, information and other proprietary rights and processes
of any other person or entity other than such licenses or agreements arising
from the purchase of "off the shelf" or standard products.
(b) The Company has not received any communications alleging that the
Company has violated any of the patents, trademarks, service marks, trade names,
copyrights or trade secrets or other proprietary rights of any other person or
entity, nor is the Company aware of any basis therefor.
4.11 Compliance with Other Instruments. The Company is not in violation or
default of any term of its Charter or Bylaws, or of any provision of any
mortgage, indenture, contract, agreement, instrument or contract to which
it is party or by which it is bound or of any judgment, decree, order or
writ. The execution, delivery and performance of and compliance with this
Agreement and the Related Agreements, and the issuance and sale of
Securities pursuant hereto, will not, with or without the passage of time
or giving of notice, result in any such material violation, or be in
conflict with or constitute a default under any such term or provision, or
result in the creation of any mortgage, pledge, lien, encumbrance or charge
upon any of the properties or assets of the Company or the suspension,
revocation, impairment, forfeiture or nonrenewal of any permit, license,
authorization or approval applicable to the Company, its business or
operations or any of its assets or properties.
4.12 Litigation. There is no action, suit, proceeding or investigation pending
or, to the Company's knowledge, currently threatened against the Company
that questions the validity of this Agreement or the Related Agreements or
the right of the Company to enter into any of such agreements, or to
consummate the transactions contemplated hereby or thereby, or which might
result, either individually or in the aggregate, in any material adverse
change in the assets, condition, affairs or prospects of the Company,
financially or otherwise, or any change in the current equity ownership of
the Company, nor is the Company aware that there is any basis for any of
the foregoing. The Company is not a party or subject to the provisions of
any order, writ, injunction, judgment or decree of any court or government
agency or instrumentality. There is no action, suit, proceeding or
investigation by the Company currently pending or which the Company intends
to initiate.
4.13 Tax Returns and Payments. The Company has timely filed all tax returns
(federal, state and local) required to be filed by it. All taxes shown to
be due and payable on such returns, any assessments imposed, and to the
Company's knowledge all other taxes due and payable by the Company on or
before the Closing, have been paid or will be paid prior to the time they
become delinquent. The Company has not been advised (a) that any of its
returns, federal, state or other, have been or are being audited as of the
date hereof, or (b) of any deficiency in assessment or proposed judgment to
its federal, state or other taxes. The Company has no knowledge of any
liability of any tax to be imposed upon its properties or assets as of the
date of this Agreement that is not adequately provided for.
4.14 Employees. The Company has no collective bargaining agreements with any of
its employees. There is no labor union organizing activity pending or, to
the Company's knowledge, threatened with respect to the Company. The
Company is not a party to or bound by any currently effective employment
contract, deferred compensation arrangement, bonus plan, incentive plan,
profit sharing plan, retirement agreement or other employee compensation
plan or agreement. To the Company's knowledge, no employee of the Company,
nor any consultant with whom the Company has contracted, is in violation of
any term of any employment contract, proprietary information agreement or
any other agreement relating to the right of any such individual to be
employed by, or to contract with, the Company because of the nature of the
business to be conducted by the Company; and to the Company's knowledge the
continued employment by the Company of its present employees, and the
performance of the Company's contracts with its independent contractors,
will not result in any such violation. The Company is not aware that any of
its employees is obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject to
any judgment, decree or order of any court or administrative agency, that
would interfere with their duties to the Company. The Company has not
received any notice alleging that any such violation has occurred. No
employee of the Company has been granted the right to continued employment
by the Company or to any material compensation following termination of
employment with the Company. The Company is not aware that any officer, key
employee or group of employees intends to terminate his, her or their
employment with the Company, nor does the Company have a present intention
to terminate the employment of any officer, key employee or group of
employees.
4.15 Registration Rights and Voting Rights. The Company is presently not under
any obligation, and has not granted any rights, to register any of the
Company's presently outstanding securities or any of its securities that
may hereafter be issued. To the Company's knowledge, no stockholder of the
Company has entered into any agreement with respect to the voting of equity
securities of the Company.
4.16 Compliance with Laws; Permits. To its knowledge, the Company is not in
violation of any applicable statute, rule, regulation, order or restriction
of any domestic or foreign government or any instrumentality or agency
thereof in respect of the conduct of its business or the ownership of its
properties which violation would materially and adversely affect the
business, assets, liabilities, financial condition, operations or prospects
of the Company. No governmental orders, permissions, consents, approvals or
authorizations are required to be obtained and no registrations or
declarations are required to be filed in connection with the execution and
delivery of this Agreement and the issuance of any of the Securities,
except such as has been duly and validly obtained or filed, or with respect
to any filings that must be made after the Closing, as will be filed in a
timely manner. The Company has all franchises, permits, licenses and any
similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which could materially and adversely affect
the business, properties, prospects or financial condition of the Company.
4.17 Environmental and Safety Laws. The Company is not in violation of any
applicable statute, law or regulation relating to the environment or
occupational health and safety, and to its knowledge, no material
expenditures are or will be required in order to comply with any such
existing statute, law or regulation. No Hazardous Materials (as defined
below) are used or have been used, stored, or disposed of by the Company
or, to the Company's knowledge, by any other person or entity on any
property owned, leased or used by the Company. For the purposes of the
preceding sentence, "Hazardous Materials" shall mean (a) materials which
are listed or otherwise defined as "hazardous" or "toxic" under any
applicable local, state, federal and/or foreign laws and regulations that
govern the existence and/or remedy of contamination on property, the
protection of the environment from contamination, the control of hazardous
wastes, or other activities involving hazardous substances, including
building materials, or (b) any petroleum products or nuclear materials.
4.18 Valid Offering. Assuming the accuracy of the representations and warranties
of the Purchaser contained in this Agreement, the offer, sale and issuance
of the Securities will be exempt from the registration requirements of the
Securities Act of 1933, as amended (the "Securities Act"), and will have
been registered or qualified (or are exempt from registration and
qualification) under the registration, permit or qualification requirements
of all applicable state securities laws. Neither the Company nor any agent
on its behalf has solicited or will solicit any offers to sell or has
offered to sell or will offer to sell all or any part of the Securities to
any person or persons so as to bring the sale of such Securities by the
Company within the registration provisions of the Securities Act or any
state securities laws.
4.19 Full Disclosure. The Company has provided the Purchaser with all
information requested by the Purchaser in connection with their decision to
purchase the Notes and Warrants, including all information the Company
believes is reasonably necessary to make such investment decision. Neither
this Agreement, the exhibits and schedules hereto, the Related Agreements
nor any other document delivered by the Company to Purchaser or its
attorneys or agents in connection herewith or therewith or with the
transactions contemplated hereby or thereby, contain any untrue statement
of a material fact nor omit to state a material fact necessary in order to
make the statements contained herein or therein not misleading. To the
Company's knowledge, there are no facts which (individually or in the
aggregate) materially adversely affect the business, assets, liabilities,
financial condition, prospects or operations of the Company that have not
been set forth in the Agreement, the exhibits and schedules hereto, the
Related Agreements or in other documents delivered to Purchaser or its
attorneys or agents in connection herewith.
4.20 Insurance. The Company has general commercial, product liability, fire and
casualty insurance policies with coverage customary for companies similarly
situated to the Company.
4.21 SEC Reports. The Company has filed all proxy statements, reports and other
documents required to be filed by it under the Exchange Act. The Company
has furnished the Purchaser with copies of (i) its Annual Report on Form
10-K for the fiscal year ended December 31, 2000 and (ii) its Quarterly
Report on Form 10-Q for the fiscal quarter ended March 31, 2001
(collectively, the "SEC Reports"). Each SEC Report was in substantial
compliance with the requirements of its respective form and none of the SEC
Reports, nor the financial statements (and the notes thereto) included in
the SEC Reports, as of their respective dates, contained any untrue
statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading.
4.22 No Market Manipulation. The Company has 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 of the Company to facilitate the sale or resale of any
of the Securities being offered hereby or affect the price at which any of
the Securities being offered hereby may be issued.
4.23 Listing. The Company's Common Stock is listed for trading on the NASD OTC
Bulletin Board and satisfies all requirements for the continuation of such
listing. The Company has not received any notice that its Common Stock will
be delisted from the NASD OTC Bulletin Board or that the Common Stock does
not meet all requirements for the continuation of such listing.
4.24 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 offering of the
Securities pursuant to this Agreement to be integrated with prior offerings
by the Company for purposes of the 1933 Act which would prevent the Company
from selling the Securities pursuant to Rule 506 under the 1933 Act, or any
applicable exchange-related stockholder approval provisions. Nor will the
Company or any of its affiliates or subsidiaries take any action or steps
that would cause the offering of the Securities to be integrated with other
offerings.
4.25 Stop Transfer. The Securities are restricted securities as of the date of
this Agreement. The Company will not issue any stop transfer order or other
order impeding the sale and delivery of any of the Securities at such time
as the Securities are registered for public sale or an exemption from
registration is available, except as required by federal securities laws.
4.26 Dilution. The number of shares of Common Stock issuable upon conversion of
the Notes and exercise of the Warrants may increase substantially in
certain circumstances, including, but not necessarily limited to, the
circumstance wherein the trading price of the Common Stock declines prior
to conversion or exercise of such securities. The Company's executive
officers and directors have studied and fully understand the nature of the
Securities being sold hereby and recognize that they have a potential
dilutive effect. The Board of Directors of the Company has concluded, in
its good faith business judgment, that such issuance is in the best
interests of the Company. The Company specifically acknowledges that its
obligation to issue the shares of Common Stock upon conversion of the Notes
and 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.
5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.
The Purchaser hereby represents and warrants to the Company with respect to
itself or himself as follows (such representations and warranties do not lessen
or obviate the representations and warranties of the Company set forth in this
Agreement):
5.1 Requisite Power and Authority. Purchaser has all necessary power and
authority under all applicable provisions of law to execute and deliver
this Agreement and the Related Agreements and to carry out their
provisions. All action on Purchaser's part required for the lawful
execution and delivery of this Agreement and the Related Agreements have
been or will be effectively taken prior to the Closing. Upon their
execution and delivery, this Agreement and the Related Agreements will be
valid and binding obligations of Purchaser, enforceable in accordance with
their terms, except (a) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application affecting
enforcement of creditors' rights, and (b) as limited by general principles
of equity that restrict the availability of equitable remedies.
5.2 Investment Representations. Purchaser understands that the Securities are
being offered and sold pursuant to an exemption from registration contained
in the Securities Act based in part upon Purchaser's representations
contained in the Agreement.
5.3 Purchaser Bears Economic Risk. Purchaser has substantial experience in
evaluating and investing in private placement transactions of securities in
companies similar to the Company so that it is capable of evaluating the
merits and risks of its investment in the Company and has the capacity to
protect its own interests. Purchaser must bear the economic risk of this
investment until the Securities are registered pursuant to the Securities
Act, or an exemption from registration is available.
5.4 Acquisition for Own Account. Purchaser is acquiring the Notes for
Purchaser's own account for investment only, and not with a view towards
their distribution.
5.5 Purchaser Can Protect Its Interest. Purchaser represents that by reason of
its, or of its management's, business or financial experience, Purchaser
has the capacity to protect its own interests in connection with the
transactions contemplated in this Agreement, and the Related Agreements.
Further, Purchaser is aware of no publication of any advertisement in
connection with the transactions contemplated in the Agreement.
5.6 Accredited Investor. Purchaser represents that it is an accredited
investor within the meaning of Regulation D under the Securities Act.
5.7 Legends.
(a) The Notes shall bear the following legend until the Notes and
Conversion Shares are covered by an effective registration statement filed with
the SEC:
"THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF
THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR, IF APPLICABLE, STATE SECURITIES LAWS.
THIS NOTE AND THE COMMON STOCK 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 OR SUCH SHARES UNDER SAID ACT AND
APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO IDIAL NETWORKS, INC. THAT SUCH
REGISTRATION IS NOT REQUIRED."
(b) The Conversion Shares and the Warrant Shares shall bear a legend which
shall be in substantially the following form until such shares are covered by an
effective registration statement filed with the SEC:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR IF
APPLICABLE, STATE SECURITIES LAWS. THESE SHARES MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH SECURITIES
ACT AND APPLICABLE STATE LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO IDIAL NETWORKS, INC. THAT SUCH
REGISTRATION IS NOT REQUIRED."
(c) The Warrants shall bear the following 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, OR APPLICABLE STATE SECURITIES LAWS. 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 OR THE UNDERLYING SHARES OF
COMMON STOCK UNDER SAID ACT AND APPLICABLE STATE SECURITIES
LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO IDIAL
NETWORKS, INC. THAT SUCH REGISTRATION IS NOT REQUIRED."
6. COVENANTS OF THE COMPANY. The Company covenants and agrees with the
Purchaser as follows:
6.1 Stop-Orders. The Company will advise the Purchaser, promptly after it
receives notice of issuance by the Securities and Exchange Commission (the
"SEC"), 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.
6.2 Listing. The Company shall promptly secure the listing of the shares of
Common Stock issuable upon conversion of the Notes and upon the exercise of
the Warrants upon the Principal Market upon which shares of Common Stock
are then listed (subject to official notice of issuance) and shall maintain
such listing so long as any other shares of Common Stock shall be so
listed. The Company will maintain the listing of its 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
National Association of Securities Dealers ("NASD") and such exchanges, as
applicable. The Company will provide the Purchaser copies of all notices it
receives notifying the Company of the threatened and actual delisting of
the Common Stock from any Principal Market.
6.3 Market Regulations. The Company shall notify the SEC, NASD 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 Purchaser and promptly provide copies thereof to
Purchaser.
6.4 Reporting Requirements. (a) Until at least four (4) years after the
effectiveness of the Registration Statement on Form SB-2 or such other
Registration Statement described in Section 9.1(d) hereof, the Company will
(i) cause its Common Stock to continue to be registered under Sections
12(b) or 12(g) of the Exchange Act, (ii) comply in all respects with its
reporting and filing obligations under the Exchange Act, (iii) comply with
all reporting requirements that is applicable to an issuer with a class of
shares registered pursuant to Section 12(g) of the Exchange Act, and (iv)
comply with all requirements related to any registration statement filed
pursuant to this Agreement. The Company will not take any action or file
any document (whether or not permitted by the Securities Act or the
Exchange 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 the later of (y) four (4) years after the
effective date of the Registration Statement on Form SB-2 or such other
Registration Statement described in Section 9.1(d) hereof, or (z) the sale
by the Purchaser of all the Securities issuable by the Company pursuant to
this Agreement. Until at least four (4) years after the Warrants have been
exercised, the Company will use its commercial best efforts to continue the
listing of the Common Stock on the NASD OTC Bulletin Board and will comply
in all respects with the Company's reporting, filing and other obligations
under the bylaws or rules of the NASD and NASDAQ.
6.5 Use of Funds. The Company undertakes to use the proceeds of the Purchaser's
funds for the purposes set forth on Schedule 6.5 attached hereto. A
deviation form the use of proceeds set forth on Schedule 6.5 of more than
10% per item or more than 20% in the aggregate shall be deemed a material
breach of the Company's obligations hereunder.
6.6 Access to Facilities. The Company will permit any representatives
designated by the Purchaser (or any transferee of the Purchaser), so long
as such person holds any Securities upon reasonable notice and during
normal business hours, at such person's expense and accompanied by a
representative of the Company, to (a) visit and inspect any of the
properties of the Company, (b) examine the corporate and financial records
of the Company (unless such examination is not permitted by federal, state
or local law or by contract) and make copies thereof or extracts therefrom
and (c) discuss the affairs, finances and accounts of any such corporations
with the directors, officers and independent accountants of the Company.
6.7 Taxes. 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
therefor.
6.8 Insurance. 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 not in any event less
than 100% of the insurable value of the property insured; 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.
6.9 Books and Records. 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.
6.10 Intellectual Property. 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.
6.11 Properties. 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 needful 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.
6.12 Confidentiality. The Company agrees that it will not disclose, and will not
include in any public announcement, the name of the Purchaser, unless
expressly agreed to by the Purchaser or unless and until such disclosure is
required by law or applicable regulation, and then only to the extent of
such requirement.
6.13 Required Approvals. For so long as 20% of the principal amount of the
Notes are outstanding, the Company, without the prior written consent of
the Purchaser, shall not:
(a) enter into any transaction or series of transactions with any
stockholder director, officer or employee which would require disclosure
pursuant to Rule 404 of the Regulation S-K under the Securities Act;
(b) authorize, create or issue any securities (or any rights or securities
directly or indirectly convertible into or exercisable or exchangeable for
securities) having rights, preferences or privileges superior the Conversion
Shares;
(c) directly or indirectly declare or pay any dividends or make any
distributions upon any of its capital stock or other equity securities (or any
securities directly or indirectly convertible into or exercisable or
exchangeable for equity securities);
(d) directly or indirectly redeem, purchase or otherwise acquire any of the
Corporation's capital stock or other equity securities (including, without
limitation, the Securities or any warrants, options and other rights to acquire
such capital stock or other equity securities) or directly or indirectly redeem,
purchase or make any payments with respect to any stock appreciation rights,
phantom stock plans or similar rights or plans;
(e) merge or consolidate with any entity or enter into an agreement to do
so;
(f) sell, lease or otherwise dispose of more than 10% of the assets of the
Company (computed on the basis of book value, determined in accordance with GAAP
consistently applied, or fair market value, determined by the Board of Directors
in its reasonable good faith judgment) in any transaction or series of related
transactions (other than sales of inventory in the ordinary course of business)
or sell or permanently dispose of any of its intellectual property;
(g) liquidate, dissolve or effect a recapitalization or reorganization in
any form of transaction (including, without limitation, any reorganization into
a limited liability company, a partnership or any other non-corporate entity
which is treated as a partnership for federal income tax purposes);
(h) acquire any interest in any company or business (whether by a purchase
of assets, purchase of stock, merger or otherwise), enter into any joint venture
or make any investments in any other entity;
(i) become subject to (including, without limitation, by way of amendment
to or modification of) any agreement or instrument which by its terms would
(under any circumstances) restrict the Company's right to perform the provisions
of this Agreement or any of the agreements contemplated thereby;
(j) create, incur, assume or suffer to exist indebtedness exceeding an
aggregate principal amount of $150,000 outstanding at any time;
(k) amend, alter or repeal the Company's Bylaws or Restated Certificate as
to increase the number of authorized shares of the Common Stock or any series of
preferred stock, or materially affect the rights or other powers of the
Conversion Shares, or otherwise take any action which is designed to, or could
have the effect of, adversely affecting the rights or other powers of the
Conversion Shares; or
(l) materially alter or change the business of the Company.
6.14 Reissuance of Securities. The Company agrees to reissue certificates
representing the Securities without the legends set forth in Section 5.7
above at such time as (a) the holder thereof is permitted to dispose of
such Securities pursuant to Rule 144(k) under the Act, or (b) upon resale
subject to an effective registration statement after such Securities are
registered under the Act. The Company agrees to cooperate with the
Purchaser in connection with all resales pursuant to Rule 144(d) and Rule
144(k) and provide legal opinions necessary to allow such resales provided
the Company and its counsel receive reasonably requested representations
from the selling Purchaser and broker, if any.
6.15 Opinion. On the Closing Date, the Company will deliver to the Purchaser an
opinion acceptable to the Purchaser from the Company's legal counsel in the
form annexed hereto as Exhibit D. The Company will provide, at the
Company's expense, such other legal opinions in the future as are
reasonably necessary for the conversion of the Notes and exercise of the
Warrants.
6.16 Additional Shares. The Company and Purchaser agree that until the Company
obtains the approval of its shareholders to increase the authorized Common
Stock of the Company to 500,000,000 shares of Common Stock (the
"Approval"), the Company shall have no obligation to issue upon conversion
or exercise, as applicable, of the Notes and Warrants more than the number
of shares of Common Stock presently unissued and unreserved. The Company
covenants to obtain the Approval to allow conversion of all the Notes and
exercise of all the Warrants. The Company covenants to file the preliminary
proxy statement or information statement relating to the Approval with the
SEC on or before ten days after the Closing Date. The Company further
covenants to obtain the Approval no later than forty five days after the
Closing Date (the "Approval Date"). The Company's failure to file the proxy
or information statement as set forth in this section or the Company's
failure to obtain the Approval on or before the Approval Date (either being
an "Approval Default") shall be deemed an Event of Default pursuant to the
Note.
7. COVENANTS OF THE COMPANY AND PURCHASER REGARDING
INDEMNIFICATION.
7.1 Company Indemnification. The Company agrees to indemnify, hold harmless,
reimburse and defend Purchaser, each of Purchaser's 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
Purchaser which results, arises out of or is based upon (i) any
misrepresentation by Company or breach of any warranty by Company in this
Agreement or in any exhibits or schedules attached hereto or any Related
Agreement, or (ii) any breach or default in performance by Company of any
covenant or undertaking to be performed by Company hereunder, or any other
agreement entered into by the Company and Purchaser relating hereto.
7.2 Purchaser's Indemnification. Purchaser agrees to indemnify, hold harmless,
reimburse and defend the Company at all times against any claim, cost,
expense, liability, obligation, loss or damage (including reasonable legal
fees) of any nature, incurred by or imposed upon the Company which results,
arises out of or is based upon (a) any misrepresentation by Purchaser in
this Agreement or in any exhibits or schedules attached hereto or any
Related Agreement; or (b) any breach or default in performance by Purchaser
of any covenant or undertaking to be performed by Purchaser hereunder, or
any other agreement entered into by the Company and Purchaser relating
hereto.
7.3 Procedures. The procedures and limitations set forth in Section
9.6 shall apply to the indemnifications set forth in Sections 7.1 and
7.2 above.
8. CONVERSION OF CONVERTIBLE NOTES.
8.1 Mechanics of Conversion.
(a) Upon the conversion of the Notes or part thereof, the Company shall, at
its own cost and expense, take all necessary action (including the issuance of
an opinion of counsel) to assure that the Company's transfer agent shall issue
stock certificates in the name of the Purchaser (or its nominee) or such other
persons as designated by the Purchaser and in such denominations to be specified
representing the number of Conversion Shares 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 the
Conversion Shares issued will be unlegended, free-trading, and freely
transferable, and will not contain a legend restricting the resale or
transferability of the Conversion Shares, provided the Purchaser has notified
the Company of the Purchaser's intention to sell the Conversion Shares and the
Conversion Shares are included in an effective registration statement or are
otherwise exempt from registration when sold.
(b) Purchaser will give notice of its decision to exercise its right to
convert the Notes or part thereof by telecopying or otherwise delivering an
executed and completed notice of the number of shares to be converted to the
Company (the "Notice of Conversion"). The Purchaser will not be required to
surrender the Notes until the Purchaser receives a certificate or certificates,
as the case may be, representing the Conversion Shares or until the Note has
been fully satisfied. Each date on which a Notice of Conversion is telecopied or
delivered to the Company in accordance with the provisions hereof shall be
deemed a "Conversion Date." The Company will or will cause the transfer agent to
transmit the Company's Common Stock certificates representing the shares
issuable upon conversion of the Notes (and a certificate representing the
balance of the Notes not so converted, if requested by Purchaser) to the
Purchaser via express courier for receipt by such Purchaser within three
business days after receipt by the Company of the Notice of Conversion (the
"Delivery Date").
(c) The Company understands that a delay in the delivery of the Conversion
Shares in the form required pursuant to Section 8 hereof, or the Mandatory
Redemption Payment described in Section 8.2 hereof, beyond the Delivery Date or
Mandatory Redemption Payment Date (as defined in Section 8.2) could result in
economic loss to the Purchaser. As compensation to the Purchaser for such loss,
the Company agrees to pay late payments to the Purchaser for late issuance of
the Conversion Shares in the form required pursuant to Section 8 hereof upon
conversion of the Notes or late payment of the Mandatory Redemption Payment, in
the amount of $100 per business day after the Delivery Date or Mandatory
Redemption Payment Date, as the case may be, for each $10,000 Note principal
being converted or redeemed. 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 Purchaser, in the
event that the Company fails for any reason to effect delivery of the Conversion
Shares by the Delivery Date or make payment by the Mandatory Redemption Payment
Date, the Purchaser 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 Purchaser shall each be restored to their respective positions
immediately prior to the delivery of such notice, except that late payment
charges 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 amount
permitted by such law, any payments in excess of such maximum shall be credited
against amounts owed by the Company to a Purchaser and thus refunded to the
Company.
8.2 Mandatory Redemption. In the event the Company is unable to issue
Conversion Shares on a Delivery Date or at any time when a Note is
convertible, for any reason, then at the Purchaser's election, the Company
must pay to the Purchaser five (5) business days after request by the
Purchaser or on the Delivery Date (if requested by the Purchaser) a sum of
money determined by multiplying the principle of the Note required to be
converted and not so converted (or otherwise not convertible, as
applicable) by 130%, together with accrued but unpaid interest thereon
("Mandatory Redemption Payment"). The Mandatory Redemption Payment must be
received by the Purchaser on the same date as the Conversion Shares are
otherwise deliverable or within five (5) 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.
8.3 Maximum Conversion. The Purchaser shall not be entitled to convert on a
Conversion Date that amount of a Note or Notes 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 Purchaser on
a Conversion Date, and (ii) the number of shares of Common Stock issuable
upon the conversion of the Notes with respect to which the determination of
this proviso is being made on a Conversion Date, which would result in
beneficial ownership by the Purchaser of more than 4.99% of the outstanding
shares of Common Stock of the Company on such Conversion Date. For the
purposes of the proviso to the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of the
Exchange Act and Regulation 13d-3 thereunder. Subject to the foregoing, a
Purchaser shall not be limited to aggregate conversions of only 4.99%. A
Purchaser may void the conversion limitation described in this Section 8.3
upon 75 days prior notice to the Company. A Purchaser may allocate which of
the equity of the Company deemed beneficially owned by such Purchaser shall
be included in the 4.99% amount described above and which shall be
allocated to the excess above 4.99%.
8.4 Injunction - Posting of Bond. In the event a Purchaser shall elect to
convert a Note or part thereof, the Company may not refuse conversion for
any reason, unless an injunction from a court, on notice, restraining and
or enjoining conversion of all or part of said Note shall have been sought
and obtained and the Company posts a surety bond for the benefit of such
Purchaser in the amount of 130% of the amount of the Note, which is 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 Purchaser to the extent it obtains judgment.
8.5 Buy-In. In addition to any other rights available to the Purchaser, if the
Company fails to deliver to the Purchaser Conversion Shares by the Delivery
Date and if after the Delivery Date the Purchaser purchases (in an open
market transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by such Purchaser of the Common Stock which the
Purchaser anticipated receiving upon such conversion (a "Buy-In"), then the
Company shall pay in cash to the Purchaser (in addition to any remedies
available to or elected by such Purchaser) the amount by which (A) the
Purchaser'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 Purchaser 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 Purchaser $1,000, plus interest. The
Purchaser shall provide the Company written notice indicating the amounts
payable to the Purchaser in respect of the Buy-In.
9. REGISTRATION RIGHTS.
9.1 Registration Rights Granted. The Company hereby grants the following
registration rights to holders of the securities purchased hereby.
(a) On two occasions, for a period commencing 90 days after the Closing
Date, but not later than four (4) years after the Closing Date (the "Request
Date"), the Company, upon a written request therefor from holders of more than
50% of the aggregate of the Company's Securities then outstanding, on an as
converted basis (the Conversion Shares and Warrant Shares issued or issuable
with respect to all Notes or Warrants issued or to be issued hereunder, being,
the "Registrable Securities"), shall prepare and file with the SEC a
registration statement under the Securities Act covering the Registrable
Securities which are the subject of such request, unless such Registrable
Securities are the subject of an effective registration statement. In addition,
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 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 9.1. As a condition precedent to the inclusion of Registrable
Securities, the holder thereof shall provide the Company with such information
as the Company reasonably requests. The obligation of the Company under this
Section 9.1 shall be limited to two registration statements.
(b) If the Company at any time proposes to register any of its securities
under the 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 ▇-▇, ▇-▇ 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 Purchaser or
subsequent holder pursuant to an effective registration statement, each such
time it will give at least 30 days' prior written notice to the record holder of
any Securities of its intention so to do. Upon the written request of the
holder, received by the Company within 30 days after the giving of any such
notice by the Company, to register any of the Registrable Securities, 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"). In
the event that any registration pursuant to this Section 9.1(b) 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 forgoing
provisions, or Section 9.1(a) hereof, the Company may withdraw or delay or
suffer a delay of any registration statement referred to in this Section 9.1(b)
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 9.1(a), the Company has determined to proceed with
the actual preparation and filing of a registration statement under the
Securities Act in connection with the proposed offer and sale for cash of any of
its securities for the Company's own account, such written request shall be
deemed to have been given pursuant to Section 9.1(b) rather than Section 9.1(a),
and the rights of the holders of Registrable Securities covered by such written
request shall be governed by Section 9.1(b) except that the Company or
underwriter, if any, may not withdraw such registration or limit the amount of
Registrable Securities included in such registration.
(d) The Company shall file with the SEC within 30 days of the Closing Date
(the "Filing Date"), and use its reasonable commercial efforts to cause to be
declared effective a Form SB-2 registration statement (or such other form that
it is eligible to use) within 90 days of the Closing Date in order to register
the Registrable Securities for resale and distribution under the Securities Act.
The registration statement described in this paragraph must be declared
effective by the SEC within 120 days of the Closing Date (as defined herein)
("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
300% of the Warrant Shares and Conversion Shares issuable at the Conversion
Prices set forth in the Warrants and Notes, respectively, that would be in
effect on the Closing Date or the date of filing of such registration statement
(employing the conversion price which would result in the greater number of
Shares), assuming the conversion of 100% of the Notes which are then outstanding
or issuable hereunder, and at least one share of common stock for each common
share issuable upon exercise of the Warrants which are then outstanding or
issuable hereunder (employing the Conversion Price that would result in the
greater number of shares). The Registrable Securities shall be reserved and set
aside exclusively for the benefit of the Purchaser and the holders of the
Warrants, as the case may be, and not issued, employed or reserved for anyone
other than the Purchaser and the holders of the Warrants. Such registration
statement will be promptly amended or additional registration statements will be
promptly filed by the Company as necessary to register additional Company Shares
to allow the public resale of all Common Stock included in and issuable by
virtue of the Registrable Securities. No securities of the Company other than
the Registrable Securities will be included in the registration statement
described in this Section 9.1(d).
9.2 Registration Procedures. If and whenever the Company is required by the
provisions hereof to effect the registration of any shares of Registrable
Securities under the Act, the Company will, as expeditiously as possible:
(a) prepare and file with the SEC a registration statement 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), and promptly provide to the holders of
Registrable Securities copies of all filings and SEC letters of comment;
(b) prepare and file with the SEC 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 the later of: (i)
six months after the latest exercise period of the Warrants; (ii) twelve months
after the Maturity Date of the last maturing Notes or (iii) four years after the
Closing Date, and comply with the provisions of the Securities Act with respect
to the disposition of all of the Registrable Securities covered by such
registration statement in accordance with the Seller's intended method of
disposition set forth in such registration statement for such period;
(c) furnish to the Seller, and to each underwriter if any, such number of
copies of the registration statement and the prospectus included therein
(including each preliminary prospectus) as such persons reasonably may request
to facilitate the public sale or their disposition of the securities covered by
such registration statement;
(d) use its best efforts to register or qualify the Seller's Registrable
Securities covered by such registration statement under the securities or "blue
sky" laws of such jurisdictions as the Seller and in the case of an underwritten
public offering, the managing underwriter shall reasonably request, 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;
(e) 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) immediately notify the Seller and each underwriter under such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities 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; and
(g) make available for inspection by the Seller, any underwriter
participating in any distribution pursuant to such registration statement, 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, underwriter,
attorney, accountant or agent in connection with such registration statement.
9.3 Provision of Documents.
(a) At the request of the Seller, provided a demand for registration has
been made pursuant to Section 9.1(a) or a request for registration has been made
pursuant to Section 9.1(b), the Registrable Securities will be included in a
registration statement filed pursuant to this Section 9.
(b) In connection with each registration hereunder, the 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. In connection with each registration pursuant to Section 9
covering an underwritten public offering, the Company and the Seller agree to
enter into a written agreement with the managing underwriter in such form and
containing such provisions as are customary in the securities business for such
an arrangement between such underwriter and companies of the Company's size and
investment stature.
9.4 Non-Registration Events. The Company and the Purchaser agree that the
Seller will suffer damages if any registration statement required under
Section 9.1(a) above is not filed within 30 days after written request by
the holder and not declared effective by the SEC within 90 days after such
request, and maintained in the manner and within the time periods
contemplated by Section 9 hereof, and it would not be feasible to ascertain
the extent of such damages with precision. Accordingly, if (i) the
Registration Statement described in Section 9.1(a) is not filed within 30
days of such written request, or is not declared effective by the SEC on or
prior to the date that is 90 days after such request, or (ii) the
registration statement on Form SB-2 or such other form as described in
Section 9.1(d) is not filed on or before the Filing Date or not declared
effective on or before the sooner of the Effective Date, or within five
days of receipt by the Company of a communication from the SEC that the
registration statement described in Section 9.1(d) will not be reviewed, or
(iii) any registration statement described in Section 9.1(a) or (d) is
filed and declared effective but shall thereafter cease to be effective
(without being succeeded immediately by an additional registration
statement filed and declared effective) for a period of time which shall
exceed 30 days in the aggregate per year but not more than 20 consecutive
calendar days (defined as a period of 365 days commencing on the date the
Registration Statement is declared effective) (each such event referred to
in this Section 9.4 is referred to herein as a "Non-Registration Event"),
then, for so long as such Non-Registration Event shall continue, the
Company shall pay in cash as Liquidated Damages to each holder of any
Registrable Securities an amount equal to two percent (2%) per month or
part thereof during the pendency of such Non-Registration Event of the
principal of the Notes issued in connection with the Offering, whether or
not converted, then owned of record by such holder or issuable as of or
subsequent to the occurrence of such Non-Registration Event. Payments to be
made pursuant to this Section shall be due and payable immediately upon
demand in immediately available funds. In the event a Mandatory Redemption
Payment is demanded from the Company by the holder pursuant to Section 8.2
of this Agreement, then the Liquidated Damages described in this Section
9.4 shall no longer accrue on the portion of the purchase price underlying
the Mandatory Redemption Payment, from and after the date the holder
receives the Mandatory Redemption Payment. It shall be deemed a
Non-Registration Event to the extent that all the Common Stock included in
the Registrable Securities and underlying the Securities is not included in
an effective registration statement as of and after the Effective Date at
the conversion prices in effect from and after the Effective Date.
9.5 Expenses. All expenses incurred by the Company in complying with Section 9,
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 NASD, transfer taxes, fees of transfer
agents and registrars, fees of, and disbursements incurred by, one counsel
for the Seller, and costs of insurance are called "Registration Expenses".
All underwriting discounts and selling commissions applicable to the sale
of Registrable Securities, including any fees and disbursements of any
special counsel to the Seller beyond those included in Registration
Expenses, are called "Selling Expenses."
The Company will pay all Registration Expenses in connection with the
registration statement under Section 9. All Selling Expenses in connection with
each registration statement under Section 9 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. 9.6 Indemnification and
Contribution.
(a) In the event of a registration of any Registrable Securities under the
Securities Act pursuant to Section 9, the Company will indemnify and hold
harmless each Seller, each officer of each Seller, each director of each Seller,
each underwriter of such Registrable Securities thereunder and each other
person, if any, who controls any such Seller or underwriter within the meaning
of the Securities 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 Securities 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 Act pursuant to Section 9, 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 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 will not be liable in any such case if and 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, the underwriter or any
such controlling person in writing specifically for use in such registration
statement or prospectus.
(b) In the event of a registration of any of the Registrable Securities
under the Act pursuant to Section 9, the Seller will indemnify and hold harmless
the Company, and each person, if any, who controls the Company within the
meaning of the Securities Act, each officer of the Company who signs the
registration statement and each director of the Company, against all losses,
claims, damages or liabilities, joint or several, to which the Company or such
officer or director may become subject under the Securities 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 Securities Act
pursuant to Section 9, 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 or director 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 proportion of any such loss, claim, damage, liability or expense
which is equal to the proportion that the public offering price of the
Registrable Securities sold by the Seller under such registration statement
bears to the total public offering price of all securities sold thereunder, but
not in any event to exceed the net proceeds 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 9.6(c) and shall only
relieve it from any liability which it may have to such indemnified party under
this Section 9.6(c) 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 9.6(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
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.
(d) In order to provide for just and equitable contribution in the event of
joint liability under the Act in any case in which either (i) the Seller, or any
controlling person of the Seller, makes a claim for indemnification pursuant to
this Section 9.6 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 9.6 provides for indemnification in such case, or (ii) contribution
under the Securities Act may be required on the part of the Seller or
controlling person of the Seller in circumstances for which indemnification is
provided under this Section 9.6; 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, (A) the Seller will not be required to contribute any amount in
excess of the public offering price of all such securities offered by it
pursuant to such registration statement; and (B) no person or entity guilty of
fraudulent misrepresentation (within the meaning of Section 10(f) of the Act)
will be entitled to contribution from any person or entity who was not guilty of
such fraudulent misrepresentation.
10. OFFERING RESTRICTIONS. Except as previously disclosed in the SEC Reports or
stock or stock options granted to employees or directors of the Company; or
equity or debt issued in connection with an acquisition of a business or assets
by the Company; or the issuance by the Company of stock in connection with the
establishment of a joint venture partnership or licensing arrangement (these
exceptions hereinafter referred to as the "Excepted Issuances"), the Company
will not issue any equity, convertible debt or other securities which are or
could be (by conversion or registration) free-trading securities prior to the
expiration of 12 months from the actual effective date of the registration
statement described in Section 9.1(d) above (the "Exclusion Period"). This
restriction shall not prohibit the Company from issuing any equity, convertible
debt or other securities prior to the expiration of the Exclusion Period,
provided that such equity, convertible debt or other securities are restricted
securities when issued and remain restricted until the expiration of the
Exclusion Period. Notwithstanding the above, if the Purchaser elects not to
further fund the Company following the transaction contemplated hereby, the
Purchaser shall waive the provisions of this Section 10.
11. SECURITY INTEREST. As a condition of Closing, the Company will deliver to
the Purchaser Common Shares of the Company owned by certain shareholders of the
Company, together with signature guaranteed stock powers. Collectively, the
foregoing stock is referred to as "Security Shares." The Security Shares will be
held by the Purchaser pursuant to a Security Agreement. The Company will also
execute all such documents reasonably necessary to memorialize and further
protect the security interest described above.
12. MISCELLANEOUS.
12.1 Governing Law. 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 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.
12.2 Survival. The representations, warranties, covenants and agreements made
herein shall survive any investigation made by the Purchaser and the
closing of the transactions contemplated hereby. All statements as to
factual matters contained in any certificate or other instrument delivered
by or on behalf of the Company pursuant hereto in connection with the
transactions contemplated hereby shall be deemed to be representations and
warranties by the Company hereunder solely as of the date of such
certificate or instrument.
12.3 Successors and Assigns. Except as otherwise expressly provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties
hereto and shall inure to the benefit of and be enforceable by each person
who shall be a holder of the Securities from time to time.
12.4 Entire Agreement. This Agreement, the exhibits and schedules hereto, the
Related Agreements and the other documents delivered pursuant hereto
constitute the full and entire understanding and agreement between the
parties with regard to the subjects hereof and no party shall be liable or
bound to any other in any manner by any representations, warranties,
covenants and agreements except as specifically set forth herein and
therein.
12.5 Severability. In case any provision of the Agreement shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
12.6 Amendment and Waiver.
(a) This Agreement may be amended or modified only upon the written consent
of the Company and the Purchaser.
(b) The obligations of the Company and the rights of the holders of the
Securities under the Agreement may be waived only with the written consent of
such holders of Securities. The rights of the holder of a Note may be waived
only with the written consent of the holder of such Note.
12.7 Delays or Omissions. It is agreed that no delay or omission to exercise any
right, power or remedy accruing to any party, upon any breach, default or
noncompliance by another party under this Agreement or the Related
Agreements, shall impair any such right, power or remedy, nor shall it be
construed to be a waiver of any such breach, default or noncompliance, or
any acquiescence therein, or of or in any similar breach, default or
noncompliance thereafter occurring. It is further agreed that any waiver,
permit, consent or approval of any kind or character on the Purchaser's
part of any breach, default or noncompliance under this Agreement, the
Notes or the Related Agreements or any waiver on such party's part of any
provisions or conditions of the Agreement, a Note or the Related Agreements
must be in writing and shall be effective only to the extent specifically
set forth in such writing. All remedies, either under this Agreement, the
Notes or the Related Agreements, by law or otherwise afforded to any party,
shall be cumulative and not alternative.
12.8 Notices. All notices required or permitted hereunder shall be in writing
and shall be deemed effectively given: (a) upon personal delivery to the
party to be notified, (b) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient, if not, then on the next
business day, (c) five days after having been sent by registered or
certified mail, return receipt requested, postage prepaid, or (d) one day
after deposit with a nationally recognized overnight courier, specifying
next day delivery, with written verification of receipt. All communications
shall be sent to the Company at the address as set forth on the signature
page hereof and to the Purchaser at the address set forth on the signature
page hereto for such Purchaser, with a copy in the case of the Purchaser to
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq. ▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇
▇▇▇▇▇, facsimile number (▇▇▇) ▇▇▇-▇▇▇▇, or at such other address as the
Company or the Purchaser may designate by ten days advance written notice
to the other parties hereto.
12.9 Attorneys' Fees. In the event that any suit or action is instituted to
enforce any provision in this Agreement, the prevailing party in such
dispute shall be entitled to recover from the losing party all fees, costs
and expenses of enforcing any right of such prevailing party under or with
respect to this Agreement, including, without limitation, such reasonable
fees and expenses of attorneys and accountants, which shall include,
without limitation, all fees, costs and expenses of appeals.
12.10 Titles and Subtitles. The titles of the sections and subsections of the
Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
12.11 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
12.12 Broker's Fees. Each party hereto represents and warrants that no agent,
broker, investment banker, person or firm acting on behalf of or under the
authority of such party hereto is or will be entitled to any broker's or
finder's fee or any other commission directly or indirectly in connection
with the transactions contemplated herein, except as specified herein with
respect to the Purchaser. Each party hereto further agrees to indemnify
each other party for any claims, losses or expenses incurred by such other
party as a result of the representation in this Section 12.12 being untrue.
12.13 Indemnification. The Company shall indemnify the Purchaser for any losses
or expenses incurred by the Purchaser in connection with any claims brought
against the Purchaser by any third party (including any other stockholder
of the Company) as a result of the transactions contemplated by this
Agreement, other than for a breach of representation or warranty made by
the Purchaser herein.
12.14 Construction. Each party acknowledges that its legal counsel participated
in the preparation of this Agreement and, therefore, stipulates that the
rule of construction that ambiguities are to be resolved against the
drafting party shall not be applied in the interpretation of this Agreement
to favor any party against the other.
IN WITNESS WHEREOF, the parties hereto have executed the CONVERTIBLE NOTE
PURCHASE AGREEMENT as of the date set forth in the first paragraph hereof.
COMPANY: PURCHASER:
IDIAL NETWORKS, INC. LAURUS MASTER FUND, LTD.
By:
By: Name:
Name: Address: LAURUS MASTER FUND, LTD.
Title: c/o Onshore Corporate Services Ltd.
Address: ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇ P.O. Box 1234 G.T., Queensgate House,
Dallas, Texas 75252 ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
[Convertible Note Purchase Agreement Signature Page]
LIST OF EXHIBITS
Schedule of Purchasers Exhibit A
Form of Offering Convertible Note Exhibit B
Form of Warrant Exhibit C
Form of Opinion Exhibit D
EXHIBIT A
SCHEDULE OF PURCHASERS
--------------------------------------------- ---------------------------------------------------
Closing Date Notes
Purchaser
--------------------------------------------- ---------------------------------------------------
Laurus Master Fund, Ltd. $750,000
TOTAL $750,000
--------------------------------------------- ---------------------------------------------------
SCHEDULE OF WARRANT HOLDERS
--------------------------------------------- ---------------------------------------------------
Name of Warrant Holder Number of Warrant Shares
--------------------------------------------- ---------------------------------------------------
Laurus Master Fund, Ltd. 166,666
--------------------------------------------- ---------------------------------------------------
SCHEDULE OF FUND MANAGER'S FEE RECIPIENTS
--------------------------------------------- ---------------------------------------------------
Fund Manager Closing Date Finder's Fees
--------------------------------------------- ---------------------------------------------------
Laurus Capital Management, L.L.C. $75,000
--------------------------------------------- ---------------------------------------------------
TOTAL $75,000 (10% of Closing)
--------------------------------------------- ---------------------------------------------------
WARRANT EXERCISE COMPENSATION
--------------------------------------------- ---------------------------------------------------
Warrant Holder PROPORTIONATE SHARE OF 10% CASH COMMISSIONS
PAYABLE ON WARRANT EXERCISE
--------------------------------------------- ---------------------------------------------------
Laurus Master Fund, Ltd. 100%
--------------------------------------------- ---------------------------------------------------
TOTAL 100%
--------------------------------------------- ---------------------------------------------------
A-1
FORM OF CONVERTIBLE NOTE
B-1
EXHIBIT C
Form of warrant
C-1
EXHIBIT D
FORM OF OPINION
1. The Company is a corporation validly existing and in good
standing under the laws of the State of Nevada and has all requisite corporate
power and authority to own, operate and lease its properties and to carry on its
business as it is now being conducted.
2. The Company has the requisite corporate power and authority
to execute, deliver and perform its obligations under the Agreement and Related
Agreements. All corporate action on the part of the Company, its officers,
directors and stockholders necessary for (i) the authorization of the Agreement
and Related Agreements, and the performance of all obligations of the Company
thereunder at each Closing, and (ii) the authorization, sale, issuance and
delivery of the Securities pursuant to the Agreement and the Related Agreements
has been taken. The Conversion Shares and the Warrant Shares, when issued
pursuant to and in accordance with the terms of the Agreement and upon delivery,
shall be validly issued and outstanding, fully paid and non assessable.
3. The execution, delivery and performance of the Agreement,
the Notes or the Related Agreements by the Company and the consummation of the
transactions contemplated by any thereof, will not, with or without the giving
of notice or the passage of time or both:
(a) Violate the provisions of the Restated Articles
or bylaws of the Company; or
(b) To the best of such counsel's knowledge, violate
any judgment, decree, order or award of any court binding upon
the Company.
4. The Agreement and Related Agreements constitute and the
Notes, upon their issuance will constitute, valid and legally binding
obligations of the Company, and are enforceable against the Company in
accordance with their respective terms.
5. The sale of the Notes and the subsequent conversion of the
Notes into Conversion Shares are not and will not be subject to any preemptive
rights or, to such counsel's knowledge, rights of first refusal that have not
been properly waived or complied with. The sale of the Warrants and the
subsequent exercise of the Warrants for Warrant Shares are not and will not be
subject to any preemptive rights or, to such counsel's knowledge, rights of
first refusal that have not been properly waived or complied with.
6. Assuming the accuracy of the representations and warranties
of the Purchasers contained in the Agreement, the offer, sale and issuance of
the Securities will be exempt from the registration requirements of the
Securities Act, and will have been registered or qualified (or are exempt from
registration and qualification) under the registration, permit or qualification
requirements of all applicable state securities laws. To the best of such
counsel's knowledge, 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 and security under
circumstances that would cause the offering of the Securities pursuant to this
Agreement to be integrated with prior offerings by the Company for purposes of
the Securities Act which would prevent the Company from selling the Securities
pursuant to Rule 506 under the Securities Act, or any applicable
exchange-related stockholder approval provisions.
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7. There is no action, suit, proceeding or investigation pending or, to
the best of such counsel's knowledge, currently threatened against the Company
that questions the validity of the Agreement or the Related Agreements or the
right of the Company to enter into any of such agreements, or to consummate the
transactions contemplated thereby, or which might result, either individually or
in the aggregate, in any material adverse change in the assets, condition,
affairs or prospects of the Company, financially or otherwise, or any change in
the current equity ownership of the Company. To the best of such counsel's
knowledge, the Company is not a party or subject to the provisions of any order,
writ, injunction, judgment or decree of any court or government agency or
instrumentality; nor is there any action, suit, proceeding or investigation by
the Company currently pending or which the Company intends to initiate.
8. The holding period of the Company shares deposited as
security pursuant to the Security Agreement in the hands of the Purchasers for
purposes of Rule 144 of the Act will combine with and date back to the
acquisition date of such security shares by the depositing Shareholders.
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