Exhibit 10.03
VERSACOM INTERNATIONAL, INC.
SECURITIES PURCHASE AGREEMENT
October 17, 2001
TABLE OF CONTENTS
Page
1. AGREEMENT TO SELL AND PURCHASE...........................................................................1
2. FEES.....................................................................................................1
3. CLOSING, DELIVERY AND PAYMENT............................................................................2
3.1 Closing.........................................................................................2
3.2 Delivery........................................................................................2
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................................................2
4.1 Organization, Good Standing and Qualification...................................................2
4.2 Subsidiaries....................................................................................2
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...........................................................................6
4.11 Compliance with Other Instruments...............................................................7
4.12 Litigation......................................................................................7
4.13 Tax Returns and Payments........................................................................7
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.....................................................................................9
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
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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................................................................................12
6.1 Stop-Orders....................................................................................12
6.2 Listing........................................................................................12
6.3 Market Regulations.............................................................................13
6.4 Reporting Requirements........................................................................13
6.5 Use of Funds...................................................................................13
6.6 Access to Facilities...........................................................................13
6.7 Taxes..........................................................................................13
6.8 Insurance......................................................................................14
6.9 Books and Records..............................................................................14
6.10 Intellectual Property..........................................................................14
6.11 Properties.....................................................................................14
6.12 Confidentiality................................................................................14
6.13 Required Approvals.............................................................................14
6.14 Reissuance of Securities.......................................................................15
6.15 Opinion........................................................................................16
7. COVENANTS OF THE COMPANY AND PURCHASERS REGARDING INDEMNIFICATION.......................................16
7.1 Company Indemnification........................................................................16
7.2 Purchaser's Indemnification....................................................................16
7.3 Procedures.....................................................................................16
8. CONVERSION OF CONVERTIBLE NOTES.........................................................................17
8.1 Mechanics of Conversion........................................................................17
8.2 Mandatory Redemption...........................................................................18
8.3 Maximum Conversion.............................................................................18
8.4 Injunction - Posting of Bond...................................................................18
8.5 Buy-In.........................................................................................19
8.6 Optional Redemption............................................................................19
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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.......................................................................................23
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...................................................................................28
iii
VERSACOM INTERNATIONAL, INC.
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (the "Agreement") is made and
entered into as of October ___, 2001, by and among Versacom International, Inc.,
a Utah 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 principal amount of $300,000 (the "Notes"), convertible into shares
of the Company's common stock, $0.001 par value per share (the "Common Stock");
WHEREAS, the Company wishes to issue 50,000 shares (the "Shares") of
the Company's Common Stock to the Purchaser in connection with Purchaser's
purchase of the Notes;
WHEREAS, Purchaser desires to purchase the Notes and Shares on the
terms and conditions set forth herein; and
WHEREAS, the Company desires to issue and sell the Notes and Shares 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 (i) 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 $300,000 and (ii) 50,000 shares of
the Company's Common Stock. 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 Shares and Common Stock issuable
upon conversion of the Notes are referred to as the "Securities."
2. FEES.
(a) The Company shall reimburse Purchaser for its reasonable legal fees of
$12,500 for services rendered to Purchaser in preparation of this Agreement and
the Related Agreements. Amounts required to be paid hereunder will be paid at
the Closing.
(b) The Company will pay a cash fee in the amount of nine percent (9%) of the
aggregate gross purchase price to be paid to the Company from the sale of Notes
in the Offering (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 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.
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 principal amount of $300,000,
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 principal amount borrowed by the Company at the Closing from the
Purchaser and a stock certificate registered in the Purchaser's name
representing the Shares, 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 Utah. The Company has the corporate power and authority to own and
operate its properties and assets, to execute and deliver this Agreement, the
Shares 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 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 (i) __________ shares of Common Stock, par value $0.001 per
share, 15,867,212 shares of which are issued and outstanding as of August 13,
2001, and (ii) __________ shares of Preferred Stock, par value $0.001 per share,
_______ shares of which are issued and outstanding.
(b) Other than (i) the shares reserved for issuance under the Company's Stock
Option Plan; (ii) those shares of Common Stock which may be issued upon
conversion of the shares of Preferred Stock; and (iii) 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 Shares, or the issuance of any of the Conversion 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 and
Preferred Stock (to the extent Preferred Stock has been issued) (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
Preferred Stock and the Common Stock are as stated in the Articles of
Incorporation (the " Charter"). The Conversion Shares and Shares have been duly
and validly reserved for issuance. When issued in compliance with the provisions
of this Agreement and the Company's Charter, the Notes, Shares and Conversion
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.
(e) No stock plan, stock purchase, stock option or other agreement or
understanding between the Company and any holder of any equity securities or
rights to purchase equity securities provides for acceleration or other changes
in the vesting provisions or other terms of such agreement or understanding as
the result of any merger, consolidated sale of stock or assets, change in
control or any other transaction(s) by the Company, including the transactions
contemplated hereunder.
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 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 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.
(d) The Company has not engaged in the past two years in any discussion (i) with
any representative of any corporation or corporations regarding the
consolidation or merger of the Company with or into any such corporation or
corporations, (ii) with any corporation, partnership, association or other
business entity or any individual regarding the sale, conveyance or disposition
of all or substantially all of the assets of the Company, or a transaction or
series of related transactions in which more than 50% of the voting power of the
Company is disposed of or (iii) regarding any other form of acquisition,
liquidation, dissolution or winding up of the Company.
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 June 30, 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 mortgage, 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.
(c) The Company does not believe it is or will be necessary to utilize any
inventions, trade secrets or proprietary information of any of its employees
made prior to their employment by the Company, except for inventions, trade
secrets or proprietary information that have been rightfully assigned to the
Company.
4.11 Compliance with Other Instruments. The Company is not in violation or
default of any term of its Amended 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 its decision to
purchase the Notes and Shares, 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 Reports on Form 10-K, (ii)
its Quarterly Reports on Form 10-Q and (iii) its Current Reports on Form 8-K
(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 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 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 VERSACOM INTERNATIONAL, INC. THAT
SUCH REGISTRATION IS NOT REQUIRED."
(b) The Shares and the Conversion 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 VERSACOM INTERNATIONAL, 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 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 two (2) 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 earlier of (y) two
(2) 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 two (2) years after the effectiveness of the
Registration Statement on Form SB-2, 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
from 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 at least 20% of the principal
amount of the Notes are outstanding, the Company, without the prior written
consent of the Purchaser, shall not:
(a) 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 to the Conversion
Shares;
(b) 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);
(c) 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;
(d) merge or consolidate with any entity or enter into an agreement to do so;
(e) 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;
(f) liquidate, dissolve or effect a recapitalization, reclassification 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 or a stock split or "reverse" stock split of the Common Stock);
(g) 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;
(h) create, incur, assume or suffer to exist indebtedness exceeding an
aggregate principal amount of $375,000 outstanding at any time;
(i) 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
(j) 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 C. 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.
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
principal 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 or upon an Event of Default under the Note. 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.
8.6 Optional Redemption. Except as provided for in the Factoring Agreement,
the Company will have the option of redeeming any outstanding Notes ("Optional
Redemption") by paying to the Purchaser a sum of money as follows:
from the Closing Date through 30 days after the Closing Date - 120%
from 31 days through 90 days after the Closing Date - 135%
from 91 days through 180 days after the Closing Date - 150%
after 180 days following the Closing Date - 200%
of the principal amount of the Note together with accrued but unpaid interest
thereon and any and all other sums due, accrued or payable to the Purchaser
arising under this Agreement, Note or any other document delivered herewith
("Redemption Amount") outstanding on the day notice of redemption ("Notice of
Redemption) is given to a Purchaser ("Redemption Date"). A Notice of Redemption
may not be given in connection with any portion of Note for which notice of
conversion has been given by the Purchaser at any time before receipt of a
Notice of Redemption. The Purchaser may elect within five (5) business days
after receipt of a Notice of Redemption to give the Company Notice of Conversion
in connection with some or all of the Note principal and interest which was the
subject of the Notice of Redemption. A Notice of Redemption must be accompanied
by a certificate signed by the chief executive officer or chief financial
officer of the Company stating that the Company has on deposit and segregated
ready funds equal to the Redemption Amount. The Redemption Amount must be paid
in good funds to the Purchaser no later than the seventh (7th) business day
after the Redemption Date ("Optional Redemption Payment Date"). In the event the
Company fails to pay the Redemption Amount by the Optional Redemption Payment
Date, then the Redemption Notice will be null and void and the Company will
thereafter have no further right to effect an Optional Redemption, and at the
Purchaser's election, the Redemption Amount will be deemed a Mandatory
Redemption Payment and the Optional Redemption Payment Date will be deemed a
Mandatory Redemption Payment Date. Such failure will also be deemed an Event of
Default under the Note. Any Notice of Redemption must be given to all holders of
Notes issued in connection with the Offering, in proportion to their holdings of
Note principal on a Redemption Date. A Notice of Redemption may be given by the
Company, provided (i) no Event of Default, as described in the Note shall have
occurred or be continuing; and (ii) the Conversion Shares issuable upon
conversion of the full outstanding Note principal are included for unrestricted
resale in a registration statement effective as of the Redemption Date. Note
proceeds may not be used to effect an Optional Redemption.
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 Shares and the Conversion Shares, 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 use its reasonable commercial efforts to file with the SEC
within 45 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 135 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 135 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 Conversion Shares issuable
at the Conversion Prices set forth in the Notes, 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. The Registrable Securities shall be reserved and set aside
exclusively for the benefit of the Purchaser, and not issued, employed or
reserved for anyone other than the Purchaser. 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)
twelve months after the Maturity Date of the last maturing Notes or (ii) 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, (i) 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 and (ii) the Conversion Price
as defined in Section 2.1 of the Notes shall be reduced by 10% for each 30-day
period following the Effective Date that the Registration Statement is not
declared effective by the SEC. 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 (i) deliver
to the Purchaser Common Shares of the Company owned by certain shareholders of
the Company, together with signature guaranteed stock powers pursuant to a
Security Agreement; and (ii) grant the Purchaser a security interest in its
accounts receivable pursuant to a Factoring 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 SECURITIES
PURCHASE AGREEMENT as of the date set forth in the first paragraph hereof.
COMPANY: PURCHASER:
VERSACOM INTERNATIONAL, INC. LAURUS MASTER FUND, LTD.
By:
By: Name:
Name: Address:
Title: c/o Onshore Corporate Services Ltd.
Address: ▇.▇. ▇▇▇ ▇▇▇▇ ▇.▇., ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇
1515 North Federal Highway, Suite ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇ Grand Cayman, Cayman Islands
LIST OF EXHIBITS
Schedule of Purchasers Exhibit A
Form of Offering Convertible Note Exhibit B
Form of Opinion Exhibit C
EXHIBIT A
SCHEDULE OF PURCHASERS
--------------------------------------------- ---------------------------------------------------
Closing Date Notes
Purchaser
--------------------------------------------- ---------------------------------------------------
Laurus Master Fund, Ltd. $300,000
TOTAL $300,000
--------------------------------------------- ---------------------------------------------------
SCHEDULE OF FUND MANAGER'S FEE RECIPIENTS
--------------------------------------------- ---------------------------------------------------
Fund Manager Closing Date Fund Manager's Fees
--------------------------------------------- ---------------------------------------------------
Laurus Master Fund, Ltd. $27,000
--------------------------------------------- ---------------------------------------------------
TOTAL $27,000 (9% of Closing)
--------------------------------------------- ---------------------------------------------------
A-1
EXHIBIT B
FORM OF CONVERTIBLE NOTE
B-1
EXHIBIT C
FORM OF OPINIoN
1. The Company is a corporation validly existing and in good
standing under the laws of the State of Utah 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 Shares and the Conversion 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 Shares is 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
C-1
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.
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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