Exhibit 10.1
Form of Securities Purchase Agreement
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This Securities Purchase Agreement (this "Agreement"), dated as of
December , 2005 (the "Agreement Date"), is between Protocall Technologies
Incorporated, a Nevada corporation (the "Company"), and ______, an individual
residing at _____________ (the "Investor").
1. Subscription.
(a) Share Purchase. On the terms and subject to the conditions set forth in
this Agreement, at the Closing (as defined below), the Company shall sell, and
the Investor shall purchase, ________ (the "Shares") of Common Stock, par value
$0.001 per share, of the Company (the "Common Stock"), at a purchase price of $.
per share (the "Per Share Price").
(b) Warrant. In consideration of the Investor's purchase of the Shares, the
Company shall issue to the Investor a three-year warrant, in the form attached
hereto as Exhibit A, to purchase _________ shares of Common Stock, at an
exercise price of $.50 per share (the "Warrant").
2. Closing; Conditions to Closing.
(a) Closing. The closing of the purchase and sale of the Shares and the
issuance of the Warrant (the "Closing") will take place as promptly as
practicable, but no later than five business days after satisfaction or waiver
of all of the conditions set forth in Sections 2(c) and 2(d) (other than those
conditions which by their terms are not to be satisfied or waived until the
Closing), at the offices of ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, LLP, counsel to the Company,
MetLife Building, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇. The date on
which the Closing occurs is referred to herein as the "Closing Date."
(b) Delivery of Purchase Price. At the Closing, the Investor shall deliver or
cause to be delivered by wire transfer of immediately available funds the sum of
$_________ (the "Purchase Price"), to the Company.
(c) Conditions to Obligations of the Investor to Effect the Closing. The
obligations of the Investor to effect the Closing and the transactions
contemplated by this Agreement shall be subject to the satisfaction at or prior
to the Closing, of each of the following conditions, any of which may be waived,
in writing, by the Investor:
(i) The Company shall deliver or cause to be delivered to the
Investor the following:
(1) The Warrant executed by the Company;
(2) This Agreement executed by the Company; and
(ii) The representations and warranties of the Company contained in
this Agreement shall be true and correct as of the Closing, and the
covenants and agreements contained in this Agreement to be complied
with by the Company on or before the Closing shall have been complied
with; and
(iii) No governmental authority shall have enacted, issued,
promulgated, enforced or entered any law or governmental order (whether
temporary, preliminary or permanent) that has the effect of making the
transactions contemplated by this Agreement or any other Transaction
Document (defined below) illegal or otherwise restraining or
prohibiting the consummation of such transactions.
(d) Conditions to Obligations of the Company to Effect the Closing. The
obligations of the Company to effect the Closing and the transactions
contemplated by this Agreement shall be subject to the satisfaction at or prior
to the Closing of each of the following conditions, any of which may be waived,
in writing, by the Company:
(i) The Investor shall have executed and delivered to the Company
this Agreement;
(ii) The Investor shall have executed and delivered to the Company
the Subscription Letter (the "Subscription Letter" and, together with
this Agreement and the Warrant, the "Transaction Documents"), attached
hereto as Exhibit B, and the Company shall be reasonably satisfied,
through the responses of the Investor, that the sale of the Shares and
the Warrant shall not require registration thereof under the Securities
Act of 1933, as amended (the "Securities Act"), or under the "blue sky"
or securities laws of any jurisdiction;
(iii) The Investor shall have delivered the Purchase Price;
(iv) The representations and warranties of the Investor contained in
this Agreement shall be true and correct in all material respects as of
the Closing, and the covenants and agreements contained in this
Agreement to be complied with by the Investor on or before the Closing
shall have been complied with in all material respects; and
(v) No governmental authority shall have enacted, issued,
promulgated, enforced or entered any law or governmental order (whether
temporary, preliminary or permanent) that has the effect of making the
transactions contemplated by this Agreement or any other Transaction
Document illegal or otherwise restraining or prohibiting the
consummation of such transactions.
3. Representations and Warranties of the Company. The Company represents and
warrants as of the Agreement Date to the Investor that:
(a) Corporate Existence and Power; Subsidiaries. The Company is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of Nevada, and has all corporate powers required to carry on its business
as now conducted. The Company is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where the character of
the property owned or leased by it or the nature of its activities makes such
qualification necessary, except for those jurisdictions where the failure to be
so qualified would not have a Material Adverse Effect. For the purposes of this
Agreement, the term "Material Adverse Effect" means, with respect to the
Company, any circumstance, change in or effect on the Company that could
reasonably be expected to have a material adverse effect on the Company's
condition (financial or other), business, properties, assets, liabilities
(including contingent liabilities) or results of operations, taken as a whole.
For the purposes of this Agreement, the term "Subsidiary" or "Subsidiaries"
means, with respect to any entity, any corporation or other organization of
which securities or other ownership interests having ordinary voting power to
elect a majority of the board of directors or other persons performing similar
functions are directly or indirectly owned by such entity or of which such
entity is a partner or is, directly or indirectly, the beneficial owner of 50%
or more of any class of equity securities or equivalent profit participation
interests. The Company's only Subsidiaries are Protocall Software Delivery
Systems, Inc. and Precision Type, Inc. Each Subsidiary is a corporation duly
incorporated, validly existing and in good standing under the laws of its state
of incorporation, and has all corporate powers required to carry on its business
as now conducted. Each Subsidiary is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where the character of
the property owned or leased by it or the nature of its activities makes such
qualification necessary, except for those jurisdictions where the failure to be
so qualified would not have a Material Adverse Effect on such Subsidiary.
(b) Corporate Authorization. The execution, delivery and performance by the
Company of this Agreement and the other Transaction Documents to which it is a
party and the consummation of the transactions contemplated hereby and thereby
(including, but not limited to, the sale and delivery of the Shares and the
Warrant and the subsequent issuance of the Warrant Shares (defined below) upon
exercise of the Warrant) (the "Transactions") have been duly authorized, and no
additional corporate or stockholder action is required for the approval thereof.
The shares issuable upon exercise of the Warrant (the "Warrant Shares") have
been duly reserved for issuance by the Company. The Transaction Documents to
which the Company is a party have been or, to the extent contemplated hereby or
by the Transaction Documents, will be duly executed and delivered and constitute
the legal, valid and binding agreement of the Company, enforceable against the
Company in accordance with their terms, except as may be limited by bankruptcy,
reorganization, insolvency, moratorium and similar laws of general application
relating to or affecting the enforcement of rights of creditors, and except as
enforceability of its obligations hereunder are
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subject to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
(c) Non-Contravention. The execution, delivery and performance by the Company
of the Transaction Documents to which it is a party, and the consummation by the
Company of the Transactions do not and will not (a) violate any term of its
Articles of Incorporation, as amended, or By-laws or any material agreement to
which the Company is a party or by which it is bound; (b) constitute a violation
of any provision of any law, regulation, judgment, injunction, order or decree
binding upon or applicable to the Company; (c) constitute a default (or would
constitute a default with notice or lapse of time or both) or breach under or
give rise to a right of termination, cancellation or acceleration or loss of any
benefit under any material agreement, contract or other instrument binding upon
the Company or under any material license, franchise, permit or other similar
authorization held by the Company; or (d) result in the creation or imposition
of any Lien (as defined below) on any asset of the Company. For purposes of this
Agreement, the term "Lien" means, with respect to any asset, any mortgage, lien,
pledge, charge, security interest, claim or encumbrance of any kind in respect
of such asset.
(d) Compliance with Law. The Company is in compliance and has conducted its
business so as to comply with all laws, rules and regulations, judgments,
decrees or orders of any court, administrative agency, commission, regulatory
authority or other governmental authority or instrumentality, domestic or
foreign, applicable to its operations, the violation of which would cause a
Material Adverse Effect. There are no judgments or orders, injunctions, decrees,
stipulations or awards (whether rendered by a court or administrative agency or
by arbitration) against the Company or against any of its properties or
businesses.
(e) Absence of Certain Changes. Since September 30, 2005, the Company has
conducted its business only in the ordinary course and there has not occurred
any event that would reasonably be expected to have a Material Adverse Effect on
the Company.
(f) Capitalization. The authorized capital stock of the Company consists of
100,000,000 shares of Common Stock, of which 40,943,266 shares are issued and
outstanding as of December 15, 2005. All issued and outstanding shares of the
Company's capital stock have been duly authorized and were validly issued, and
are fully paid and nonassessable. No securities issued by the Company from
January 1, 2003 to the date hereof were issued in violation of any statutory or
common law preemptive rights. Upon issuance pursuant to the terms of this
Agreement, all Shares and Warrant Shares shall be duly authorized, validly
issued and outstanding, and fully paid and nonassessable and such shares shall
not have been issued in violation of any statutory or contractual preemptive
rights. There are no dividends which have accrued or been declared but are
unpaid on the capital stock of the Company. All taxes required to be paid by
Company in connection with the issuance and any transfers of the Company's
capital stock have been paid. All permits or authorizations required to be
obtained from or registrations required to be effected with any person or entity
in connection with any and all issuances of securities of the Company from
January 1, 2003 to the Agreement Date have been obtained or effected, and all
securities of the Company have been issued and are held in accordance with the
provisions of all applicable securities or other laws. No shares of capital
stock of the Company are subject to preemptive rights or any other similar
rights of the stockholders of the Company or any Liens or encumbrances imposed
through the actions or failure to act of the Company. Except for (i) issued and
outstanding stock options to purchase 6,680,773 shares of Common Stock, (ii)
warrants to purchase 6,921,334 shares of Common Stock, and (iii) promissory
notes in the aggregate principal amount of $79,473 with aggregate accrued
interest of $3,787 as of September 30, 2005, which promissory notes and interest
are exchangeable for shares of Common Stock concurrent with a sale of equity
securities by the Company, on the same terms and conditions applicable to
purchasers of such equity securities, and except as contemplated by this
Agreement, as of December 15, 2005, there are no outstanding options, warrants,
rights to subscribe for, puts, calls, rights of first refusal, agreements,
understandings, claims or other commitments or rights of any character
whatsoever relating to, or securities or rights convertible into or exchangeable
for any shares of capital stock of the Company, or arrangements by which the
Company is or may become bound to issue additional shares of capital stock of
the Company. There are no agreements or arrangements under which the Company is
obligated to register the sale of any of its or their securities under the 1933
Act, except pursuant to the Company's reverse merger and private offering
transactions consummated on July 22, 2004, its private offering transactions
consummated in June, September and December 2005, and shares issued in a private
transaction in November 2005. Except pursuant to the Company's private offering
transactions consummated in June, September and December 2005, there are no
anti-dilution or price adjustment provisions contained in any security issued by
the Company (or in any agreement
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providing rights to security holders) that will be triggered by the issuance of
the Shares, the Warrant or the Warrant Shares.
(g) Government Authorizations. The Company holds all material authorizations,
consents, approvals, franchises, licenses and permits required under applicable
law or regulation for the operation of the business of the Company as presently
operated (the "Governmental Authorizations"). All the Governmental
Authorizations have been duly issued or obtained and are in full force and
effect, and the Company is in material compliance with the terms of all the
Governmental Authorizations. The Company has not engaged in any activity that,
to its knowledge, would cause revocation or suspension of any such Governmental
Authorizations. The Company has no knowledge of any facts which could reasonably
be expected to cause the Company to believe that the Governmental Authorizations
will not be renewed by the appropriate governmental authorities in the ordinary
course. Neither the execution, delivery nor performance of this Agreement shall
adversely affect the status of any of the Governmental Authorizations.
(h) Securities Laws. Assuming that all of the representations and warranties of
the Investor set forth in Section 4 are true and correct, the offer, sale and
issuance of the Shares and the Warrant in conformity with the terms of this
Agreement are exempt from the registration requirements of Section 5 of the
Securities Act.
(i) Issuance of Shares. The Shares are duly authorized and, upon issuance in
accordance with the terms of this Agreement will be validly issued, fully paid,
and non-assessable and free from all taxes, liens, claims and encumbrances with
respect to the issue thereof and shall not be subject to preemptive rights or
other similar rights of stockholders of the Company and will not impose personal
liability on the holder thereof. The Warrant Shares are duly authorized and
reserved for issuance, and, when issued upon exercise of or otherwise pursuant
to the Warrant, respectively, in accordance with the terms thereof, will be
validly issued, fully paid and non-assessable, and free from all taxes, liens,
claims and encumbrances and will not be subject to preemptive rights or other
similar rights of stockholders of the Company and will not impose personal
liability upon the holder thereof.
(j) No Investment Company. The Company is not, and upon the issuance and sale
of the Shares and the Warrant as contemplated by this Agreement will not be, an
"investment company" required to be registered under the Investment Company Act
of 1940, as amended (an "Investment Company"). The Company is not controlled by
an Investment Company.
(k) Patents, Trademarks, Copyrights. The Company has sufficient title and
ownership of or possesses adequate licenses or other rights to use all patents,
patent applications, trademarks, trademark applications, service marks, service
▇▇▇▇ applications, trade names, copyrights, processes, formulae, trade secrets,
customer lists, information, proprietary rights and know how (collectively,
"Intellectual Property") necessary to the conduct of its business as currently
conducted, and no claim is pending or, to the Company's knowledge, threatened to
the effect that the operations of the Company infringe upon or conflict with the
asserted rights of any other person under any Intellectual Property, and to the
Company's knowledge there is no basis for any such claim (whether or not pending
or threatened). The Company is not obligated to make any payments by way of
royalties, fees or otherwise to any owner or licensor of any patent, trademark,
trade name, copyright, trade secret or other intangible asset, with respect to
the use thereof or in connection with the conduct of its business, or otherwise.
The Company has not granted to any third party any option, license or other
right of any kind to its Intellectual Property. The Company has not received any
communications alleging that it has violated or, by conducting its business as
proposed, would violate any Intellectual Property rights of any other person or
entity. The Company is not aware of any violation or infringement by a third
party of any of its Intellectual Property.
(l) Litigation, Etc.
Upon his termination from employment, the Company's former CEO ▇▇▇▇
▇▇▇▇▇▇▇▇ asserted monetary claims under his Employment Agreement with the
Company, and by demand dated October 19, 2005, he has sought arbitration of
those claims which for purposes of the arbitration demand he has valued at
$366,978.96. Should arbitration occur, under the terms of the Employment
Agreement it must take place in Seattle, Washington under the rules of the
American Arbitration Association. Since the filing of the arbitration demand,
▇▇. ▇▇▇▇▇▇▇▇ has quantified his claims at $150,000 for settlement purposes as
follows: Two months' salary, $40,000; Two months' severance, $40,000;
out-of-pocket expenses, $10,000; legal fees and costs, $25,000 (if settlement
can be expedited);
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stock options, $35,000. Management believes the Company has good and sufficient
defenses to the majority of these claims, and in the interest of settlement has
indicated a willingness to reimburse verifiable out-of-pocket expenses,
allowance of receipt of stock options, together with a nominal additional
payment, conditioned upon such payments being scheduled out as appropriate.
Accordingly, the Company has recorded charges of $40,000 for two months'
severance and $10,000 for out of pocket expenses for which management believes
▇▇. ▇▇▇▇▇▇▇▇ is entitled to and will likely be paid.
On August 23, 2005, First Providence Financial Group, LLC filed a
Demand for Arbitration against us with the American Arbitration Association. The
Demand alleges that we breached a January 2000 placement agency agreement with
First Providence. The Demand seeks $5 million in damages, plus fees and costs.
The Demand alleges that First Providence had a right of first refusal and that
we disregarded it. We believe that First Providence was not then in business,
incapable of performing and failed to do so when requested to perform. We intend
to vigorously defend the claims in this arbitration.
The case of Code Ventures LLC v. Protocall Software Delivery Systems,
Inc., et al., case number GIC 853271, was filed in the Superior Court of the
State of California, San Diego Judicial District, on or about August 31, 2005.
The Complaint asserts claims for: (i) breach of a software development agreement
between the parties dated October 13,1999; (ii) quantum merit; and (iii) goods
sold, and seeks damages of $200,000, plus interest, attorneys' fees, and cost.
The plaintiff also seeks a judgment declaring that it is entitled to exercise
certain options for stock in Protocall Software Delivery Systems, Inc. The
Complaint was sent to the Company by U.S. mail but was not otherwise served upon
us. Management of the Company believes it is likely the Company will prevail and
accordingly, has not recorded any charges for any potential settlement.
With the exception of the three legal matters discussed above, there
is no action, suit, proceeding or investigation pending or, to the Company's
knowledge, threatened, against the Company, including any which questions the
validity of the Transaction Documents, or the right of the Company to enter into
any of them, or to consummate the transactions contemplated hereby or thereby.
The Company is not a party to 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. The Company is not in default with respect to any
order, writ, injunction or decree known to or served upon the Company of any
court or of any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign.
(m) SEC Documents. Since July 22, 2004, the Company has filed with the SEC all
reports required to be filed by companies registered pursuant to Section 12(g)
of the Securities Exchange Act of 1934, as amended. None of the Company's annual
reports on Form 10-KSB, quarterly reports on Form 10-QSB, current reports on
Form 8-K and other statements reports and filings (collectively, the "SEC
Documents") filed by the Company with the SEC since July 22, 2004, as of their
respective dates, contained any untrue statement of a material fact or omitted
to state a material fact necessary in order to make the statements contained
therein not misleading.
(n) Financial Statements. The balance sheets, and statements of operations,
statements of changes in shareholders' equity and statements of cash flows
contained in the SEC Documents (the "Financial Statements") (i) have been
prepared in accordance with GAAP applied on a basis consistent with prior
periods (and, in the case of unaudited financial information, on a basis
consistent with year-end audits), (ii) are in accordance with the books and
records of the Company, and (iii) present fairly in all material respects the
financial condition of the Company at the dates therein specified and the
results of its operations and changes in financial position for the periods
therein specified.
(o) Proceeds. The Company shall use the Purchase Price paid for the Shares
solely to finance the business of the Company and for general working capital
purposes.
(p) Brokers. The Company has not agreed or become obligated to pay, or has taken
any action that might result in any person or entity claiming to be entitled to
receive, any brokerage commission, finder's fee or similar commission or fee in
connection with the transactions contemplated by the Transaction Documents,
except that the Company may pay to ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ a transaction fee of no more
than ten percent (10%) of the cash received by
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the Company pursuant to this Agreement and a warrant to purchase no more than
twenty percent (20%) of the shares of Common Stock issuable upon exercise of the
Warrant.
(q) General Solicitation. Neither the Company nor any other person or entity
authorized by the Company to act on its behalf has engaged in a general
solicitation or general advertising (within the meaning of Regulation D of the
Securities Act) of investors with respect to offers or sales of the Shares or
the Warrant.
(r) No Integrated Offering. Neither the Company, nor any affiliate of the
Company, 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 this offering of the
Shares and the Warrant to be integrated with prior offerings by the Company for
purposes of the Securities Act which would cause the exemptions from the U.S.
Securities and Exchange Commission (the "SEC") registration upon which the
Company is relying for the sale of the Shares and the Warrant to be unavailable,
any applicable state securities laws or any applicable stockholder approval
provisions, nor will the Company take any action or steps that would cause the
offering of the Shares and the Warrant to be integrated with other offerings.
4. Representations and Warranties of the Investor. The Investor hereby
represents and warrants to the Company as follows:
(a) Exempt Transaction; Unregistered Shares and Warrant. The Investor
understands that the Shares and the Warrant are being offered and sold in
reliance on one or more exemptions from registration provided for under the
Securities Act, and that the Company's reliance upon such exemptions is
predicated, in part, upon the Investor's representations and warranties set
forth in this Agreement. The Investor understands that neither the SEC, nor any
governmental agency charged with the administration of the securities laws of
any jurisdiction nor any other governmental agency has passed upon or reviewed
the merits or qualifications of, or recommended or approved the offer and sale
of the Shares and the Warrant pursuant to the terms of this Agreement.
(b) Investment Intent; Accreditation; Authority. The Investor is acquiring the
Shares and the Warrant for investment for the Investor's own account, not as
nominee or agent, for investment and not with a view to, or for resale in
connection with, any distribution or public offering thereof within the meaning
of the Securities Act; provided, however, that by making the representations
herein, the Investor reserves the right to dispose of the Shares, the Warrant or
the Warrant Shares at any time in accordance with this Agreement or the Warrant,
as applicable, and in accordance with or pursuant to a registration statement or
an exemption under the Securities Act. The Investor is an "accredited investor"
within the meaning of the Securities Act. The Investor has the full right,
power, authority and capacity to enter into and perform this Agreement, the
terms of this Agreement constitute valid and binding obligations of the Investor
enforceable in accordance with their terms, except as the same may be limited by
equitable principles and by bankruptcy, insolvency, moratorium, and other laws
of general application affecting the enforcement of creditors' rights.
(c) Knowledge and Experience. The Investor (i) has such knowledge and experience
in financial and business matters as to be capable of evaluating the merits and
risks of the Investor's prospective investment in the Shares and the Warrant;
(ii) has the ability to bear the economic risks of the Investor's prospective
investment; (iii) has been furnished with and has had access to such information
as the Investor has considered necessary to make a determination as to the
purchase of the Shares and the Warrant together with such additional information
as is necessary to verify the accuracy of the information supplied; and (iv) has
had all questions which have been asked by the Investor satisfactorily answered
by the Company.
(d) Restricted Securities. The Investor understands that the Shares and the
Warrant are "restricted securities" as such term is defined in Rule 144 of
Regulation D promulgated under the Securities Act ("Rule 144") and, must be held
indefinitely unless they are subsequently registered or qualified under
applicable state and federal securities laws or an exemption from such
registration or qualification is available. The Investor understands that he,
she or it may resell the Shares and the Warrant Shares pursuant to Rule 144 only
after the satisfaction of certain requirements, including the requirement that
the Shares and the Warrant Shares be held for at least one year prior to resale.
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(e) No Obligation to Register. The Investor further acknowledges and understands
that, except for the Company's obligations under Section 7, the Company is under
no obligation to register the Shares, the Warrant or the Warrant Shares. The
Investor understands that the certificate evidencing the Shares, the Warrant and
the Warrant Shares will be imprinted with a legend which prohibits the transfer
of the Shares, the Warrant and the Warrant Shares unless they are registered or
such registration is not required in the opinion of counsel in form and
substance satisfactory to the Company.
(f) Domicile. The Investor is a bona fide resident and domiciliary (not a
temporary or transient resident) of the state or other jurisdiction indicated on
the first page hereto and he has no present intention of becoming a resident of
any other state or jurisdiction.
(g) No Need for Liquidity. The Investor's aggregate holding of securities that
are "restricted securities" or otherwise not readily marketable is not excessive
in view of the Investor's net worth and financial circumstances and the purchase
of the Shares and the Warrant will not cause such commitment to become
excessive.
(h) Independent Advice. The Investor understands that the Company urges the
Investor to seek independent advice from professional advisors relating to the
suitability for the Investor of an investment in the Company in view of the
Investor's overall financial needs and with respect to legal and tax
implications of such an investment.
5. Reliance. The Investor understands that the Company may rely on the
representations and warranties in Section 4 in determining whether to permit the
Investor to purchase the Shares and the Warrant. If for any reason any
representations and warranties are no longer true and accurate prior to the
Closing Date, the Investor will give the Company prompt written notice of the
inaccuracy. By signing below, the Investor represents that the Investor has read
and confirmed the truth and accuracy of each of the foregoing representations
and warranties.
6. Anti-Dilution Provisions; Preemptive Rights.
(a) Anti-Dilution Adjustment for Sale of Discounted Common Stock.
(i) Subject to Section 6(a)(iii), if the Company shall,
following the Closing Date, sell shares of its Common Stock for a
consideration per share less than the Per Share Price, then the Per
Share Price shall be adjusted immediately thereafter so that it shall
equal the price per share of the Common Stock in such offering.
Whenever any adjustment is made pursuant to this Section 6(a)(i), the
number of shares of Common Stock issuable pursuant to this Agreement
shall be adjusted pursuant to Section 6(c) hereof, and such additional
shares shall be delivered to the Investor pursuant to Section 6(e)
hereof.
(ii) Adjustments to the Per Share Price pursuant to this
Section 6(a) shall be made successively whenever an issuance of shares
triggering such an adjustment is made, subject to Section 6(f) hereof.
(iii) Notwithstanding anything to the contrary in this Section
6(a), no adjustment to the Per Share Price shall be made pursuant to
this Section 6(a) in the case of shares issued: (i) in connection with
any dividend or distribution on, or subdivision, reclassification or
combination of, the outstanding shares of Common Stock of the Company;
(ii) upon the exercise of options granted to the Company's officers,
directors, employees and consultants under a plan or plans adopted by
the Company's Board of Directors and approved by its stockholders, if
such shares would otherwise be included in this Section 6(a); (iii)
upon the exercise of stock options, warrants, convertible securities
and convertible debentures outstanding as of the date hereof; (iv) to
shareholders of any corporation which merges into the Company in
proportion to their stock holdings of such corporation immediately
prior to such merger, upon such merger; (v) pursuant to any other
anti-dilution provision affecting the Company securities; or (vi) in
connection with acquisitions and acquisition financing.
(b) Anti-Dilution Adjustment for Sale of Discounted Convertible Stock.
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(i) Subject to Section 6(b)(iii), if the Company shall,
following the Closing Date, issue any equity or debt securities
convertible or exercisable into or exchangeable for its Common Stock (a
"Convertible Stock Issuance") for a consideration per share of Common
Stock initially deliverable upon conversion or exchange of such
securities (as determined as provided in Section 6(d) below, the
"Convertible Stock Per Share Price") less than the Per Share Price,
then the Per Share Price shall be adjusted immediately thereafter so
that it shall equal the Convertible Stock Per Share Price. Whenever any
adjustment is made pursuant to this Section 6(b)(i), the number of
shares of Common Stock issuable pursuant to this Agreement shall be
adjusted pursuant to Section 6(c) hereof, and such additional shares
shall be delivered to the Investor pursuant to Section 6(e) hereof.
(ii) Adjustments to the Per Share Price pursuant to this
Section 6(b) shall be made successively whenever an issuance of shares
triggering such an adjustment is made, subject to Section 6(f) hereof.
(iii) Notwithstanding anything to the contrary in this Section
6(b), no adjustment to the Per Share Price shall be made pursuant to
this Section 6(b) in the case of securities issued: (i) in transactions
where the Company has fixed a record date for the issuance of rights or
warrants to all holders of its Common Stock entitling them to subscribe
for or purchase shares of Common Stock (or securities convertible into
Common Stock) at a price (or having a conversion price per share) less
than the Per Share Price on such record dates; (ii) in transactions
where has the Company distributed to the holders of its Common Stock
evidences of its indebtedness or assets (excluding cash dividends or
distributions and dividends or distributions or subscription rights or
warrants); or (iii) any of the transactions described in Section
6(a)(iii) hereof (with any reference in Section 6(a)(iii) to price or
quantity of shares issued being understood, for purposes of this
Section 6(b)(iii), to refer to the aggregate price or quantity, as
applicable, of the shares of Common Stock into which such securities
are convertible or exchangeable).
(c) Adjustment of Securities. Whenever the Per Share Price is adjusted pursuant
to Sections 6(a) and 6(b) above, the number of shares of Common Stock issuable
pursuant to this Agreement shall simultaneously be adjusted by multiplying the
number of shares of Common Stock issuable hereunder by the Per Share Price and
dividing the product so obtained by the Per Share Price, as adjusted.
(d) Computation of Certain Consideration. For purposes of any computation with
respect to the consideration received pursuant to Sections 6(a) and 6(b) above,
the following shall apply:
(i) in the case of the issuance of shares of Common Stock for
cash, the consideration shall be the amount of such cash, provided that
in no case shall any deduction be made for any commissions, discounts
or other expenses incurred by the Company for any underwriting of the
issue or otherwise in connection therewith;
(ii) in the case of the issuance of shares of Common Stock for
a consideration in whole or in part other than cash, the consideration
other than cash shall be deemed to be the fair market value thereof as
determined in good faith by the Board of Directors of the Company
(irrespective of the accounting treatment thereof), whose determination
shall be conclusive; and
(iii) in the case of a Convertible Stock Issuance, the
aggregate consideration received therefor shall be deemed to be the
consideration received by the Company for the issuance of such
securities plus the additional minimum consideration, if any, to be
received by the Company upon the conversion or exchange thereof (the
consideration in each case to be determined in the same manner as
provided in clauses (i) and (ii) of this Section 6(d)).
(e) Notice of Adjustment. Whenever the Per Share Price is adjusted as herein
provided, the Company shall promptly, but no later than 10 days after any
request for such an adjustment by the Investor, cause a notice setting forth the
adjusted Per Share Price and adjusted number of shares of Common Stock issuable
hereunder, and, if requested, information describing the transactions giving
rise to such adjustments, to be mailed to the Investor at its address set forth
above, and shall cause a certified copy thereof to be mailed to its transfer
agent, if any. The
8
Company may retain a firm of independent certified public accountants selected
by its Board of Directors (who may be the regular accountants employed by the
Company) to make any computation required by this Section 6, and a certificate
signed by such firm shall be conclusive evidence of the correctness of such
adjustment. The Company shall, within thirty (30) days of any anti-dilution
adjustment pursuant to this Section 6, issue and deliver to the Investor a
certificate evidencing the shares of Common Stock to be issued pursuant to this
Section 6.
(f) Termination of Anti-Dilution Provisions. The provisions of Sections 6(a)
through 6(e) shall terminate and be of no further force or effect on December
19, 2006.
(g) Anti-Dilution Provisions for Warrant Shares. The Warrant Shares shall be
entitled to the anti-dilution protections set forth in Section 3 of the Warrant.
(h) Preemptive Rights Generally. In order to enable the Investors who invest
$500,000 or more in this offering to maintain their fully-diluted ownership
position in the Company, if the Company proposes to issue, sell or exchange,
agree to issue, sell or exchange, or reserves or sets aside for issuance, sale,
or exchange, in a private transaction (i) any equity security of the Company,
(ii) any debt security of the Company which by its terms is convertible into or
exchangeable for any equity security of the Company or (iii) any option, warrant
or other right to subscribe for, purchase or otherwise acquire any equity
security or any debt security referred to in clause (i) or (ii) above
(collectively, "Securities") to any person or entity at any time, the Company
shall, before such proposal, deliver to the Investor an offer (the "Preemptive
Offer") to issue such number of Securities to the Investor to enable the
Investor to retain the ownership position in the Company that it held
immediately prior to the proposed issuance, sale, or exchange (the "Offered
Securities") upon the terms set forth in this Section 6. The Preemptive Offer
shall state that the Company proposes to issue such Securities and specify their
number and terms (including purchase price). The Preemptive Offer shall remain
open for a period of seven days (the "Preemptive Period") from the date of its
delivery unless earlier withdrawn by the Company.
(i) Response to Preemptive Offer. The Investor may accept the Preemptive Offer
by delivering to the Company a written notice (the "Purchase Notice") within the
Preemptive Period. The Purchase Notice shall state the amount (the "Preemptive
Amount") of Offered Securities the Investor desires to purchase. If the Investor
fails to send the Purchase Notice within the Preemptive Period, the Investor
shall forfeit the right to participate in the purchase of the Offered
Securities.
(j) Funding of Purchase. The Investor, if exercising its preemptive rights,
shall fund such purchase at the time of the first closing of such transaction
for any other parties to such transaction.
(k) Exceptions to Preemptive Rights. Notwithstanding anything to the contrary in
this Section 6, the Company shall not be required to extend a Preemptive Offer
to the Investor with respect to an issuance of Securities described in Section
6(a)(iii).
(l) Termination of Preemptive Rights. The provisions of Sections 6(h) through
6(k) shall terminate and be of no further force or effect on December 19, 2006.
7. Restrictive Legends and Stop-Transfer Orders.
(a) Legend. The instruments representing the Shares, the Warrant and, if
applicable, the Warrant Shares shall bear the following legend or similar legend
(as well as any legends required by applicable state and federal corporate and
securities laws):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR
HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN
THE OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO
THE ISSUER OF THESE SECURITIES,
9
SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN
COMPLIANCE WITH AN EXEMPTION THEREWITH.
(b) Removal of Legend and Transfer Restrictions. Any legend endorsed on a
certificate pursuant to this Section 7 shall be removed, and the Company shall
issue a certificate without such legend to the holder of such Shares or the
Warrant Shares if (i) such Shares or the Warrant Shares are resold pursuant to a
registration statement under the Securities Act, and a prospectus meeting the
requirements of Section 11 of the Securities Act is delivered or deemed
delivered to the purchaser of such Shares or the Warrant Shares, (ii) if such
holder satisfies the requirements of Rule 144(k) or (iii) if such holder
provides the Company with an opinion of counsel for such holder of the Shares or
the Warrant Shares, reasonably satisfactory to the Company, to the effect that a
sale, transfer or assignment of such Shares or Warrant Shares may be made
without registration.
8. Registration Rights.
(a) If the Company proposes, at any time that the Investor owns Shares or
Warrant Shares, to file a registration statement on a general form for
registration under the Securities Act and relating to securities issued or to be
issued by it, then it shall give written notice of such proposal to the
Investor. If, within 30 days after the giving of such notice, the Investor shall
request in writing that all or any Shares or Warrant Shares (including any
shares of Common Stock issued or issuable thereon upon any stock split, stock
combination, stock dividend or the like or as a result of any anti-dilution
adjustments under the Warrant) owned by or issuable to the Investor be included
in such proposed registration, the Company will also register such securities as
shall have been requested in writing; provided, however, that:
(i) the Company shall not be required to include any of such
securities if, by reason of such inclusion, the Company shall be
required to prepare and file a registration statement on a form
promulgated by the SEC different from that which the Company otherwise
would use;
(ii) the Investor shall cooperate with the Company in the
preparation of such registration statement to the extent required to
furnish information concerning such owners therein; and
(iii) the Company shall have the right at any such time after
it shall have given written notice pursuant to this Section 8(a)
(irrespective of whether a written request for inclusion of any Shares
or Warrant Shares shall have been made) to elect not to file any such
proposed registration statement, or to withdraw the same after the
filing but prior to the effective date thereof. In such event, the
Investor shall retain the piggyback registration rights set forth in
this Section 8(a).
(b)
(i) Notwithstanding the provisions of Section 8(a) hereof, if
in the written opinion of the Company's managing underwriter, if any,
for the offering contemplated by such registration statement, the
inclusion of all or a portion of the Shares or the Warrant Shares
requested to be registered, when added to the securities being
registered by the Company or any selling security holder, will exceed
the maximum amount of the Company's securities which can be marketed
(i) at a price reasonably related to their then current market value,
or (ii) without otherwise materially adversely affecting the entire
offering, then the Company may exclude from such offering all or a pro
rata portion of the Shares or the Warrant Shares requested to be
registered as required by the managing underwriter.
(ii) If securities are proposed to be offered for sale
pursuant to such registration statement by other security holders of
the Company and the total number of securities to be offered by the
holders of all the Shares and Warrant Shares and such other selling
security holders is required to be reduced pursuant to a request from
the managing underwriter (which request shall be made only for the
reasons and in the manner set forth above) the aggregate number of
Shares and Warrant Shares to be offered by the Investor pursuant to
such registration statement shall equal the number which bears the same
ratio to the maximum number of securities that the underwriter believes
may be included for all the selling security holders as the original
number of Shares or Warrant Shares proposed to be sold by the Investor
bears to the total original number of securities proposed to be offered
by the Investor and the other selling security holders.
10
(c) In connection with the filing of a registration statement pursuant to
Section 8(a), the Company shall:
(i) notify the Investor as to the filing thereof and of all
amendments thereto filed prior to the effective date of said
registration statement;
(ii) notify the Investor promptly after it shall have received
notice of the time when the registration statement becomes effective or
any supplement to any prospectus forming a part of the registration
statement has been filed;
(iii) prepare and file without expense to the Investor any
necessary amendment or supplement to such registration statement or
prospectus as may be necessary to comply with Section 10(a)(3) of the
Securities Act or advisable in connection with the proposed
distribution of the securities by the Investor;
(iv) take all reasonable steps to qualify the Shares or
Warrant Shares for sale under the securities or "blue sky" laws of such
reasonable number of states as the Investor of all of the Shares or
Warrant Shares may designate in writing and to register or obtain the
approval of any federal or state authority which may be required in
connection with the proposed distribution, except, in each case, in
jurisdictions in which the Company must either qualify to do business
or file a general consent to service of process as a condition to the
qualification of such securities;
(v) notify the Investor of any stop order suspending the
effectiveness of the registration statement and use its reasonable best
efforts to remove such stop order;
(vi) undertake to keep such registration statement and
prospectus effective for a period of 12 months after its effective
date; and
(vii) furnish to the Investor as soon as available, copies of
any such registration statement and each preliminary or final
prospectus and any supplement or amendment required to be prepared
pursuant to the foregoing provisions of this Section 8(a), all in such
quantities as the Investor may from time to time reasonably request.
(d) The Investor holding the Shares or the Warrant Shares being so registered
agrees to pay all applicable underwriting discounts and commissions, brokerage
commissions, transfer taxes, and its own counsel fees with respect to the
Investor's securities being registered. The Company will pay all other costs and
expenses in connection with a registration statement to be filed pursuant to
Section 8(a) hereof including, without limitation, the fees and expenses of
counsel for the Company, the fees and expenses of its accountants and all other
costs and expenses incident to the preparation, printing and filing under the
Securities Act of any such registration statement, each prospectus and all
amendments and supplements thereto, the costs incurred in connection with the
qualification of such securities for sale in such reasonable number of states as
the Investor has designated, including fees and disbursements of counsel for the
Company, and the costs of supplying a reasonable number of copies of the
registration statement, each preliminary prospectus, final prospectus and any
supplements or amendments thereto to such Investor.
(e) The Company agrees to enter into an appropriate cross-indemnity agreement
with any underwriter (as defined in the Securities Act) for the Investor in
connection with the filing of a registration statement pursuant to Section 8(a)
hereof.
(f) The Company hereby indemnifies and holds harmless the Investor against any
losses, claims, damages or liabilities (or actions in respect thereof) arising
out of or based upon any untrue statement or alleged untrue statement of any
material fact contained in a registration statement filed under Section 8(a)
hereof, or any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make statements therein not
misleading unless such statement or omission was made in reliance upon and in
conformity with written information furnished or required to be furnished by the
Investor, and the Investor hereby indemnifies and holds harmless the Company,
each of its directors and officers who have signed the registration statement
and each person, if any, who controls the Company, within the meaning of the
Securities Act against any losses, claims, damages or
11
liabilities (or actions in respect thereof) arising out of or based upon any
untrue statement or alleged untrue statement of any material fact contained in
such registration statement, or any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
statements therein not misleading, if the statement or omission was made in
reliance upon and in conformity with written information furnished or required
to be furnished by the Investor expressly for use in such registration
statement.
(g) Notwithstanding the provisions of Sections 8(a) hereof, if the Shares or the
Warrant Shares held by the Investor may be sold by the Investor thereof in a
transaction pursuant to Regulation S or Rule 144 promulgated under the
Securities Act, the Investor shall not be entitled to require the Company to
register such securities pursuant to any registration statement filed under the
Securities Act.
9. Miscellaneous.
(a) Governing Law. This Agreement, all acts and transactions pursuant hereto and
the rights and obligations of the parties hereto shall be governed, construed
and interpreted in accordance with the laws of the State of New York, without
giving effect to principles of conflicts of law.
(b) Jurisdiction and Venue. Any legal action or other legal proceeding relating
to this Agreement or the enforcement of any provision of this Agreement shall be
brought or otherwise commenced in any state or federal court located in the City
of New York, State of New York. Each party to this Agreement: (i) expressly and
irrevocably consents and submits to the jurisdiction of each state and federal
court located in New York, New York and each appellate court located in the
state of New York, in connection with any such legal proceeding; (ii) agrees
that each state and federal court located in New York, New York shall be deemed
to be a convenient forum; and (iii) agrees not to assert, by way of motion, as a
defense or otherwise, in any such legal proceeding commenced in any state or
federal court located in New York, New York any claim that such party is not
subject personally to the jurisdiction of such court, that such legal proceeding
has been brought in an inconvenient forum, that the venue of such proceeding is
improper or that this Agreement or the subject matter of this Agreement may not
be enforced in or by such court.
(c) Entire Agreement. This Agreement embodies the entire agreement and
understanding between the parties hereto with respect to the subject matter
hereof and supersedes all prior oral or written agreements and understandings
relating to the subject matter hereof. No statement, representation, warranty,
covenant or agreement of any kind not expressly set forth in this Agreement
shall affect, or be used to interpret, change or restrict, the express terms and
provisions of this Agreement.
(d) Notices. All notices and other communications hereunder shall be in writing
and shall be given (and shall be deemed to have been duly given upon receipt) by
delivery in person or facsimile transmission (received at the facsimile machine
to which it is transmitted prior to 5:00 p.m., local time, on a business day in
the State of New York, for the party to which it is sent), by courier or express
delivery service or by registered or certified mail (postage prepaid, return
receipt requested) to the respective parties at the following addresses (or at
such other address for a party as shall be specified in a notice given in
accordance with this Section):
if to the Company:
Protocall Technologies Incorporated
▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Chief Executive Officer
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to (not to constitute notice):
▇▇▇▇▇▇▇▇▇ Traurig, LLP
The MetLife Building
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
if to the Investor:
Fax: __________________
(e) Amendments and Waivers. Any term of this Agreement may be amended, waived or
departed from only with the written consent of the Company and the Investor. No
such waiver or consent shall be deemed to be or shall constitute a waiver or
consent with respect to any other terms or provisions of this Agreement, whether
or not similar. Each such waiver or consent shall be effective only in the
specific instance and for the purpose for which it was given, and shall not
constitute a continuing waiver or consent.
(f) Successors and Assigns. This Agreement is personal to each of the parties
and may not be assigned without the written consent of the other parties;
provided, however, that the Investor shall be permitted to assign this Agreement
to any person to whom it assigns or transfers securities issued or issuable
pursuant to this Agreement in compliance with applicable securities laws and
this Agreement. Any assignee must be an "accredited investor" as defined in Rule
501(a) promulgated under the Securities Act.
(g) Severability. In the event that any court of competent jurisdiction shall
determine that any provision, or any portion thereof, contained in this
Agreement shall be unenforceable in any respect, then such provision shall be
deemed limited to the extent that such court deems it enforceable, and as so
limited shall remain in full force and effect. In the event that such court
shall deem any such provision, or portion thereof, wholly unenforceable, the
remaining provisions of this Agreement shall nevertheless remain in full force
and effect.
(h) Interpretation. The parties hereto acknowledge and agree that: (i) each
party and such party's counsel has reviewed the terms and provisions of this
Agreement; (ii) the rule of construction to the effect that any ambiguities are
resolved against the drafting party shall not be employed in the interpretation
of this Agreement; and (iii) the terms and provisions of this Agreement shall be
construed fairly as to the parties hereto and not in favor of or against any
party, regardless of which party was generally responsible for the preparation
of this Agreement. Whenever used herein, the singular number shall include the
plural, the plural shall include the singular, the use of any gender shall
include all persons.
(i) No Waiver of Rights, Powers and Remedies. No failure or delay by a party
hereto in exercising any right, power or remedy under this Agreement, and no
course of dealing between the parties hereto, shall operate as a waiver of any
such right, power or remedy of the party. No single or partial exercise of any
right, power or remedy under this Agreement by a party hereto, nor any
abandonment or discontinuance of steps to enforce any such right, power or
remedy, shall preclude such party from any other or further exercise thereof or
the exercise of any other right, power or remedy hereunder. The election of any
remedy by a party hereto shall not constitute a waiver of the right of such
party to pursue other available remedies. No notice to or demand on a party not
expressly required under this Agreement shall entitle the party receiving such
notice or demand to any other or further notice or demand in similar or other
circumstances or constitute a waiver of the rights of the party giving such
notice or demand to any other or further action in any circumstances without
such notice or demand.
(j) Survival of Representations and Warranties. All representations and
warranties made by the parties hereto in this Agreement, shall survive (i) the
execution and delivery hereof, (ii) any investigations made by or on behalf of
the parties and (iii) the closing of the transaction contemplated hereby.
(k) Expenses. The Company shall be responsible for the payment of and bear their
own expenses and legal fees relating to the preparation and negotiation of the
Transaction Documents and the consummation of the transactions contemplated
hereby and thereby, including the fees and expenses of counsel to the Investor,
which
13
may be deducted from the Purchase Price if the Company and the Investor have
agreed upon the amount of such fees and expenses prior to the Closing Date.
(l) Counterparts and Facsimile Delivery. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. Any signature page
delivered by facsimile or other electronic image transmission shall be binding
to the same extent as an original signature page, with regard to any agreement
subject to the terms hereof or any amendment thereto. Any party who delivers
such a signature page agrees to later deliver an original counterpart to any
party who requests it.
(m) Further Assurances. Each party shall execute or cause to be delivered to
each other party hereto such instruments and other documents, and shall take
such other actions, as such other party may reasonably request for the purpose
of carrying out or evidencing any of the transactions contemplated by the
Transaction Documents.
[Remainder of the page intentionally left blank]
14
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
COMPANY:
PROTOCALL TECHNOLOGIES INCORPORATED
By:
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▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Chief Executive Officer
INVESTOR:
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