Exhibit 10.18
ALPHA VIRTUAL, INC.
Securities Purchase Agreement
November 6, 2002
10.18-1
ALPHA VIRTUAL, INC.
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (the "Agreement") is made and
entered into as of November 6, 2002, by and between ALPHA VIRTUAL, INC., a
Delaware corporation (the "Company"), and those parties set forth as a purchaser
on the signature page hereto (the "Purchasers").
RECITALS
WHEREAS, the Company has authorized the issuance and sale of three
hundred thousand dollars ($300,000) of its Common Stock, par value of $0.001 per
share (collectively, the "Shares"); and
WHEREAS, the Company desires to issue and sell such Shares to the
Purchasers on the terms and conditions set forth herein; and
WHEREAS, the Purchasers desire to purchase such Shares 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.
1.1 Sale and Purchase of Shares. Subject to the terms and
conditions set forth herein, upon execution of this Agreement
and receipt of the consideration set forth herein, the Company
hereby agrees to issue and sell to the Purchasers at the
Closing (as defined in Section 2.1 hereof) the Shares for
$300,000.00.
1.2 Issuance and Sale of Shares. At the Closing, (i) the
Purchasers shall deliver to the Company the aggregate sum of
Three Hundred Dollars ($300,000), and (ii) the Company shall
issue and deliver to the Purchasers stock certificates
representing Three Hundred Thousand Dollars ($300,000) of
shares of the Company's Common Stock. The number of shares of
Common Stock to be issued in exchange for $300,000 shall be
based upon the lower of (i) $0.10 or (ii) the average price
per share between the "bid" and "ask" price on the Over the
Counter Bulletin Board ("OTC:BB") at the close of business for
the five (5) business days preceding the Closing Date ("Price
Per Share"). For example: if the Price Per Share is $.10 then
the Company would issue 3,000,000 shares of common stock to
the Purchasers for $300,000. Upon receipt of the foregoing
consideration, the Shares shall be validly issued, fully paid
10.18-2
and non-assessable. The Company shall immediately commence the
payment of its outstanding liabilities, including payroll
taxes.
2. Closing, Delivery and Payment
2.1 Closing. The closing of the sale and purchase of the Shares
under this Agreement (the "Closing") shall take place the
later of (i) fourteen (14) days from the filing with the
Delaware Secretary of State of the amendment to the Company's
Certificate of Incorporation effecting a one-for-five reverse
stock split or (ii) December 15, 2002 at the offices of the
Company, or at such other time or place as the parties may
mutually agree (such date is hereinafter referred to as the
"Closing Date").
2.2 Delivery. At the Closing, subject to the terms and conditions
hereof, (i) the Company will deliver to the Purchasers stock
certificates representing the Shares and (ii) the Purchasers
shall deliver to the Company payment of the purchase price of
Three Hundred Thousand Dollars ($300,000) for the Shares by
cashiers check or wire transfer.
3. Representations And Warranties Of The Company. The Company hereby
represents and warrants to the Purchasers the following:
3.1 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 Delaware. The Company
has all requisite corporate power and authority to own and
operate its properties and assets, to execute and deliver this
Agreement, to issue and sell the Shares, and to carry out the
provisions of this Agreement 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 or 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.
3.2 Subsidiaries. Upon the Closing, the Company will not own or
control any equity security or other interest of any other
corporation, limited partnership or other business entity. In
addition, the Company is not a participant in any joint
venture, partnership or similar arrangement.
3.3 Capitalization.
(a) The authorized capital stock of the Company,
immediately prior to the Closing, consists of (i)
Sixty Million (60,000,000) Shares of Common Stock,
25,968,888 Shares of which are issued and
10.18-3
outstanding, and (ii) Two Million (2,000,000) Shares
of Preferred Stock, $0.001 par value, none of which
are issued and outstanding.
(b) 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.
3.4 Authorization; Binding Obligations. All corporate action on
the part of the Company, its officers, directors and
stockholders necessary for the authorization of this
Agreement, the performance of all obligations of the Company
hereunder at the Closing and the authorization, sale, issuance
and delivery of the Shares pursuant hereto has been taken.
This Agreement, when executed and delivered, will be a valid
and binding obligation of the Company enforceable in
accordance with its 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 Shares is not and will not be subject to any preemptive
rights or rights of first refusal that have not been properly
waived or complied with.
3.5 Financial Statements. The Company has made available to the
Purchasers (i) its audited consolidated balance sheet as of
March 31, 2002 and audited consolidated statements of income
and cash flows for the twelve months ending March 31, 2002,
and (ii) its unaudited consolidated balance sheet as of June
30, 2002 (the "Statement Date") and unaudited consolidated
statements of income and cash flows for the three-month period
ending on June 30, 2002, (collectively, the "Financial
Statements"). The Financial Statements, together with the
notes thereto, have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis
throughout the periods indicated, except as disclosed therein,
and present fairly the financial condition and position of the
Company as of March 31, 2002, and the Statement Date;
provided, however, that the unaudited financial statements are
subject to normal recurring year-end audit adjustments (which
are not expected to be material), and do not contain all
footnotes required under generally accepted accounting
principles.
3.6 Liabilities. Except as set forth on Schedule 3.6 attached
hereto, the Company is not aware of any contingent liabilities
of the Company or any of its subsidiaries which are not
disclosed in the Financial Statements, other than federal and
state payroll taxes and liabilities such as the cost of
telephone, salaries and rent incurred in the ordinary course
of business since the Statement Date.
10.18-4
3.7 Agreements; Action.
(a) Except as set forth on Schedule 3.7 hereto, there are
no agreements, understandings or proposed
transactions between the Company and any of its
officers, directors, affiliates or any affiliate
thereof.
(b) Except as set forth on Schedule 3.7 hereto, there are
no agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders,
writs or decrees to which the Company is a party or,
to the knowledge of the Company by which it is bound
(c) Except as set forth on Schedule 3.7 hereto, 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, (iii) made any loans or
advances to any person, or (iv) sold, exchanged or
otherwise disposed of any of its assets or rights.
3.8 Changes. Since the Statement Date, there has not been:
(a) Any change in the assets, liabilities, financial
condition, prospects or operations of the Company
from that reflected in the Financial Statements other
than changes in payroll taxes owed and liabilities
such as the cost of telephone, salaries and rent
incurred in the ordinary course of business since the
Statement Date;
(b) Any change in the contingent obligations of the
Company by way of guaranty, endorsement, indemnity,
warranty or otherwise;
(c) Any damage, destruction or loss, whether or not
covered by insurance, adversely affecting the
properties, business or prospects or financial
condition of the Company;
(d) Except as set forth in Schedule 3.8(d) any offer to
sell or transfer of any patents, trademarks,
copyrights, trade secrets or other intangible assets
of the Company; or
(e) Any change in any agreement to which the Company is a
party or by which it is bound which adversely affects
the business, assets, liabilities, financial
condition, operations or prospects of the Company.
3.9 Intellectual Property.
(a) The Company owns or possesses sufficient legal rights
to all patents, trademarks, service marks, trade
10.18-5
names, copyrights, trade secrets, licenses,
information and other proprietary rights and
processes necessary for its business as now conducted
and as presently proposed to be conducted, without
any known infringement of the rights of others.
Except as set forth on Schedule 3.9 hereto, there are
no outstanding offers to purchase, 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.
(b) The Company has not received any communications
alleging that the Company has violated or, by
conducting its business as presently proposed to be
conducted, would violate, 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.
3.10 Compliance With Other Instruments. The Company is not in
violation or default of any term of its Certificate of
Incorporation 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
issuance and sale of the Shares 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 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.
3.11 Litigation. Except as set forth on Schedule 3.11 hereto, there
is no action, suit, proceeding or investigation pending or, to
the knowledge of the Company, currently threatened against the
Company. The foregoing includes, without limitation, actions
pending or, to the knowledge of the Company, threatened or any
basis therefor known by the Company involving the prior
employment of any of the Company's employees, their use in
connection with the Company's business of any information or
techniques allegedly proprietary to any of their former
employers, or their obligations under any agreements with
prior employers.
10.18-6
3.12 Brokers' Fees. The Company (i) has not, directly or
indirectly, dealt with any broker or finder in connection with
this transaction and (ii) has not incurred or will not incur
any obligation for any broker's or finder's fee or commission
in connection with the transactions provided for in this
Agreement.
3.13 Offering Valid. Assuming the accuracy of the representations
and warranties of Purchasers contained in Section 4.2 hereof,
the offer, sale and issuance of the Shares 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 Shares to any person or
persons so as to bring the sale of such Shares by the Company
within the registration provisions of the Securities Act or
any state securities laws.
4. Representations and Warranties Of The Purchasers. Each Purchaser hereby
represents and warrants to the Company as follows:
4.1 Requisite Power and Authority. Each Purchaser has all
necessary power and authority under all applicable provisions
of law to execute and deliver this Agreement and to carry out
the provisions hereof and thereof. All action on Purchasers'
part necessary for the authorization, execution and delivery
of this Agreement has been taken. Upon Purchasers' execution
and delivery, this Agreement will be valid and binding
obligations of each 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.
4.2 Investment Representations. Each Purchaser understands that
the Shares have not been registered under the Securities Act.
Each Purchaser also understands that the Shares are being
offered and sold pursuant to an exemption from registration
contained in the Securities Act based in part upon Purchasers'
representations contained in the Agreement. Each Purchaser
hereby represents and warrants as follows:
(a) 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 Purchaser is
capable of evaluating the merits and risks of its
investment in the Company and has the capacity to
protect Purchaser's own interests. Purchaser must
bear the economic risk of this investment
indefinitely unless and until the Shares are
10.18-7
registered pursuant to the Securities Act, or an
exemption from registration is available.
(b) Acquisition For Own Account. Purchaser is acquiring
the Shares for Purchaser's own account for investment
only, and not with a view towards their distribution.
(c) Purchaser Can Protect Its Interest. Purchaser
represents that by reason of Purchaser's business or
financial experience, Purchaser has the capacity to
protect Purchaser's own interests in connection with
the transactions contemplated in this Agreement.
Further, Purchaser is aware of no publication of any
advertisement in connection with the transactions
contemplated in the Agreement.
(d) Accredited Investor. Purchaser represents that
Purchaser is an "accredited investor" as that term is
defined in Rule 501(a) of Regulation D promulgated
under the Securities Act.
(e) Company Information. Purchaser has received and read
the Financial Statements and has had an opportunity
to discuss the Company's business, management and
financial affairs with directors, officers and
management of the Company and has had the opportunity
to review the Company's operations and facilities.
Purchaser has also had the opportunity to ask
questions of and receive answers from, the Company
and its management regarding the terms and conditions
of this investment.
(f) Rule 144. Purchaser acknowledges and agrees that the
Shares must be held indefinitely unless they are
subsequently registered under the Securities Act or
an exemption from such registration is available.
Purchaser has been advised or is aware of the
provisions of Rule 144 promulgated under the
Securities Act as in effect from time to time, which
permits limited resale of Shares purchased in a
private placement subject to the satisfaction of
certain conditions, including, among other things:
the availability of certain current public
information about the Company, the resale occurring
following the required holding period under Rule 144
and the number of Shares being sold during any
three-month period not exceeding specified
limitations.
5. Closing Conditions and Deliveries. The obligations of the Purchasers
to purchase the Shares and of the Company to sell the Shares shall be subject to
the following:
5.1 Representations and Warranties True; Performance of
Obligations. The representations and warranties made by the
Company in Section 3 hereof shall be true and correct as of
10.18-8
the Closing Date, and the Company shall have performed all
obligations and conditions herein required to be performed or
observed by it on or prior to the Closing.
5.2 Reverse Stock Split. Approval by the Company's Board of
Directors, consent of a majority of the Company's
stockholders, filing with the SEC of a Form 14C, distribution
to all shareholders of the Company of a definitive Form 14C
and filing with the Delaware Secretary of State of an
amendment to the Company's Certificate of Incorporation
effecting a one-for-five (1:5) reverse stock split.
5.3 Consulting Agreement. The Company shall have executed and
delivered to Manhattan Capital Partners, LLC a Consulting
Agreement in the form attached hereto as Exhibit "A."
5.4 Secretary's Certificate. The Purchasers shall have received
from the Company's Secretary, a certificate having attached
thereto (i) the Company's Certificate of Incorporation as in
effect at the time of the Closing, including an amendment
thereto effecting a one-for-five (1:5) reverse stock split,
(ii) the Company's Bylaws as in effect at the time of the
Closing, and (iii) resolutions approved by the Board of
Directors of the Company authorizing the transactions
contemplated hereby.
5.5 Stock Certificates. The stock certificates representing the
Shares shall have been delivered to the Purchasers.
5.6 Registration Rights. Prior to the Closing, the Company shall
have executed and delivered a Registration Rights Agreement to
Purchasers and Manhattan Capital Partners, LLC wherein the
Company has agreed to register the Common Stock issued to the
Purchasers and the underlying common stock of Warrants for
Manhattan Capital Partners, LLC.
5.7 Termination Date. The purchase of the Shares is completed by
December 30, 2002, unless extended by mutual written agreement
of the parties hereto.
5.8 Representations and Warranties True. The representations and
warranties made by Purchaser in Section 4 shall be true and
correct at the date of the Closing, and the Purchaser shall
have performed all obligations and conditions herein required
to be performed or observed by it on or prior to the Closing.
6. Miscellaneous.
6.1 Governing Law. This Agreement shall be governed by, construed
in accordance with, and enforced under, the laws of the state
of California, without regard to the principles of conflicts
of law of such state.
6.2 Survival. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by
10.18-9
any Purchaser and the Closing. 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.
6.3 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 Shares from time to time.
6.4 Entire Agreement. This Agreement, the exhibits and schedules
hereto, 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.
6.5 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.
6.6 Amendment and Waiver.
(a) This Agreement may be amended or modified only upon
the written consent of the Company and a majority in
interest of Shares held by Purchasers.
(b) The obligations of the Company and the rights of the
holders of the Shares under the Agreement may be
waived only with the written consent of a majority in
interest of Shares held by the Purchasers.
6.7 Publicity. All press releases, announcements or other
publicity pertaining to the transactions contemplated hereby
must be approved by Manhattan Capital LLC and the Company
prior to release, provided that such approvals may not be
unreasonably withheld. Each Purchaser and the Company
understand and agree that the Company will be required to file
copies of this Agreement with the SEC in connection with
filing a Form 8-K immediately after the execution of such
agreements.
6.8 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 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
10.18-10
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 any
Purchaser's part of any breach, default or noncompliance under
this Agreement or any waiver on such party's part of any
provisions or conditions of the Agreement must be in writing
and shall be effective only to the extent specifically set
forth in such writing. All remedies, either under this
Agreement, by law, or otherwise afforded to any party, shall
be cumulative and not alternative.
6.9 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,
or two (2) business days 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 or a Purchaser at the address as set
forth on the signature page hereof, or at such other address
as the Company or any Purchaser may designate by ten (10) days
advance written notice to the other party hereto.
6.10 Expenses. Each party hereto shall pay all costs and expenses
incurred by it, respectively, with respect to the negotiation,
execution, delivery and performance of the Agreement.
6.11 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.
6.12 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.
6.13 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.
6.14 Confidentiality. Each party hereto agrees that, except with
the prior written consent of the other party, it shall at all
times keep confidential and not divulge, furnish or make
accessible to anyone any confidential information, knowledge
or data concerning or relating to the business or financial
affairs of the other parties to which such party has been or
shall become privy by reason of this Agreement, discussions or
negotiations relating to this Agreement, the performance of
10.18-11
its obligations hereunder or the ownership of the Shares
purchased hereunder. The provisions of this Section 6.14 shall
be in addition to, and not in substitution for, the provisions
of any separate nondisclosure agreement executed by the
parties hereto.
6.15 Pronouns. All pronouns contained herein, and any variations
thereof, shall be deemed to refer to the masculine, feminine
or neutral, singular or plural, as to the identity of the
parties hereto may require.
6.16 Further Assurances. At any time and from time to time after
the Closing Date, each party will execute such additional
instruments and take such actions as may be reasonably
requested by the other party to carry out the intent and
purposes of this Agreement.
[SIGNATURE PAGE FOLLOWS ON NEXT PAGE]
10.18-12
[SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the parties hereto have executed this SECURITIES
PURCHASE AGREEMENT as of the date set forth in the first paragraph hereof.
"COMPANY" ALPHA VIRTUAL, INC.,
a Delaware corporation
By: ________________________________
▇▇▇▇ ▇▇▇▇▇▇▇
Title: President
Address:
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▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
10.18-13
[SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT]
Purchasers Number of Shares
Being Purchased
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10.18-15
EXHIBIT A
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CONSULTING AGREEMENT
10.18-16
SCHEDULE 3.6
LIABILITIES
The following approximate liabilities of the Company are in addition to the
liabilities set forth in the Company's Form 10-QSB for the period ended June 30,
2002:
1. Payroll Taxes $ 50,000
2. Note Payable-GAC $500,000
▇▇▇▇ ▇▇▇▇▇▇▇▇▇, a former employee and consultant, is seeking approximately
$15,000.
Pursuant to an employment contract with the Company, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, a current
employee, is demanding severance of approximately $80,000 if he is laid-off.
10.18-17
SCHEDULE 3.7
AGREEMENTS; ACTIONS
1. Proposed License Agreement between the Company and Global Alpha
Corporation ("GAC") wherein all of the Company's technology will be
licensed to GAC in exchange for a royalty on gross sales.
2. The Company is entertaining a proposal from Global Alpha Corporation to
terminate its proposed license agreement and purchase all of the
technology of the Company.
3. The Company has an employment agreement with ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ which
provides for six-month's severance pay if he is terminated for any
reason other than cause.
10.18-18
SCHEDULE 3.9
INTELLECTUAL PROPERTY
1. Proposed License Agreement between the Company and Global Alpha
Corporation ("GAC") wherein all of the Company's technology will be
licensed to GAC in exchange for a royalty on gross sales.
2. The Company is entertaining a proposal from Global Alpha Corporation to
terminate its proposed license agreement and purchase all of the
technology of the Company.
10.18-19
SCHEDULE 3.11
LITIGATION
The Company currently owes in excess of $160,000 in trade payables, several of
which have threatened lawsuits. The Company is currently reviewing its options
to settle all of its liabilities.
10.18-20