SECURED CONVERTIBLE NOTES PURCHASE
AGREEMENT
Dated as of November 3, 2000
among
VIRTUAL COMMUNITIES, INC.
and
THE PURCHASERS LISTED ON EXHIBIT A
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TABLE OF CONTENTS
Page
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ARTICLE I Purchase and Sale of Notes...........................................1
Section 1.1 Purchase and Sale of Stock..................................1
Section 1.2 The Shares..................................................1
Section 1.3 Purchase Price and Closing..................................1
ARTICLE II Representations and Warranties......................................2
Section 2.1 Representations and Warranties of the Company...............2
(a) Organization, Good Standing and Power.......................2
(b) Authorization; Enforcement..................................2
(c) Capitalization..............................................3
(d) Issuance of Shares..........................................4
(e) No Conflicts................................................4
(f) Commission Documents, Financial Statements..................4
(g) Subsidiaries................................................5
(h) No Material Adverse Change..................................6
(i) No Undisclosed Liabilities..................................6
(j) No Undisclosed Events or Circumstances......................6
(k) Indebtedness................................................6
(l) Title to Assets.............................................6
(m) Actions Pending.............................................7
(n) Compliance with Law.........................................7
(o) Taxes.......................................................7
(p) Certain Fees................................................7
(q) Disclosure..................................................8
(r) Operation of Business.......................................8
(s) Environmental Compliance....................................8
(t) Books and Record Internal Accounting Controls...............9
(u) Material Agreements.........................................9
(v) Transactions with Affiliates................................9
(w) Securities Act of 1933......................................9
(x) Governmental Approvals.....................................10
(y) Employees..................................................10
(z) Absence of Certain Developments............................10
(aa) Use of Proceeds............................................12
(bb) Public Utility Holding Company Act and Investment Company
Act Status...12
(cc) ERISA......................................................12
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(dd) Dilutive Effect............................................12
(ee) No "Directed Selling Efforts".
Section 2.2 Representations and Warranties of the Purchasers...........13
(a) Organization and Standing of the Purchasers................13
(b) Authorization and Power....................................13
(c) No Conflicts...............................................13
(d) Acquisition for Investment.................................13
(e) Non-U.S. Person............................................14
(f) Offshore Transaction.......................................14
(g) Rule 144...................................................14
(h) Transfer of Shares.........................................14
(i) No Broker-Dealer Affiliation...............................14
(j) General....................................................14
(k) Opportunities for Additional Information...................15
(l) No General Solicitation....................................15
(m) No Commissions or Similar Fees.............................15
(n) Reliance by the Company....................................15
ARTICLE III Covenants ........................................................15
Section 3.1 Securities Compliance......................................16
Section 3.2 Registration and Listing...................................16
Section 3.3 Inspection Rights..........................................16
Section 3.4 Compliance with Laws.......................................16
Section 3.5 Keeping of Records and Books of Account....................17
Section 3.6 Reporting Requirements.....................................17
Section 3.7 Amendments.................................................17
Section 3.8 Other Agreements...........................................17
Section 3.9 Distributions..............................................17
Section 3.10 Intentionally Omitted......................................17
Section 3.11 Regulation S...............................................18
Section 3.12 Right of First Refusal; Future Financings..................18
Section 3.13 Reservation of Shares......................................19
Section 3.14 Transfer Agent Instructions................................19
ARTICLE IV Conditions ........................................................20
Section 4.1 Conditions Precedent to the Obligation of the Company
to Sell the Notes .........................................20
(a) Accuracy of Each Purchaser's Representations and
Warranties.................................................20
(b) Performance by the Purchasers..............................20
(c) No Injunction..............................................20
(d) Cancellation of Bridge Note................................20
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Section 4.2 Conditions Precedent to the Obligation of the Purchasers
to Purchase the Notes......................................20
(a) Accuracy of the Company's Representations and Warranties...21
(b) Performance by the Company.................................21
(c) No Suspension, Etc.........................................21
(d) No Injunction..............................................21
(e) No Proceedings or Litigation...............................21
(f) Opinion of Counsel, Etc....................................21
(g) Registration Rights Agreement..............................22
(h) Pledge Agreement...........................................22
(i) Certificates...............................................22
(j) Resolutions................................................22
(k) Reservation of Shares......................................22
(l) Transfer Agent Instructions................................22
(m) Secretary's Certificate....................................22
(n) Intentionally Omitted......................................22
(o) Release and Amendment Agreement............................22
(p) Officer's Certificate......................................22
ARTICLE V Certificate Legend..................................................23
Section 5.1 Legend.....................................................23
ARTICLE VI Termination........................................................24
Section 6.1 Termination by Mutual Consent..............................24
Section 6.2 Effect of Termination......................................24
ARTICLE VII Indemnification...................................................24
Section 7.1 General Indemnity..........................................24
Section 7.2 Indemnification Procedure..................................25
ARTICLE VIII Miscellaneous....................................................26
Section 8.1 Fees and Expenses.
Section 8.2 Specific Enforcement, Consent to Jurisdiction..............26
Section 8.3 Entire Agreement; Amendment................................27
Section 8.4 Notices....................................................27
Section 8.5 Waivers....................................................28
Section 8.6 Headings...................................................28
Section 8.7 Successors and Assigns.....................................28
Section 8.8 No Third Party Beneficiaries...............................28
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Section 8.9 Governing Law..............................................28
Section 8.10 Survival...................................................28
Section 8.11 Counterparts...............................................29
Section 8.12 Publicity..................................................29
Section 8.13 Severability...............................................29
Section 8.14 Further Assurances.........................................29
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SECURED CONVERTIBLE NOTES PURCHASE
AGREEMENT
This SECURED CONVERTIBLE NOTES PURCHASE AGREEMENT is dated as of November
3, 2000 (this "Agreement") by and among Virtual Communities, Inc., a Delaware
corporation (the "Company"), and each of the entities whose names are set forth
on Exhibit A hereto (individually, a "Purchaser" and collectively, the
"Purchasers").
The parties hereto agree as follows:
ARTICLE I
Purchase and Sale of Notes
Section 1.1 Purchase and Sale of Stock. Upon the following terms and
conditions, the Company shall issue and sell to the Purchasers and each of the
Purchasers shall purchase from the Company, separate secured convertible
promissory notes in the aggregate principle amount of $1,745,000 bearing
interest at the rate of 10% per annum, due November 3, 2003, each convertible
into shares of the Company's Common Stock, par value $.01 per share (the "Common
Stock"), in substantially the form attached hereto as Exhibit B (the "Notes").
The Company and the Purchasers are executing and delivering this Agreement in
accordance with and in reliance upon the exemption from securities registration
afforded by Section 4(2) of the Securities Act, as amended, and the rules and
regulations promulgated thereunder (the "Securities Act"), including Rule 901 of
Regulation S ("Regulation S"), and/or upon such other exemption from the
registration requirements of the Securities Act as may be available with respect
to any or all of the investments to be made hereunder.
Section 1.2 The Shares. The Company has authorized and has reserved and
covenants to continue to reserve, free of preemptive rights and other similar
contractual rights of stockholders, a sufficient number of its authorized but
unissued shares of its Common Stock to effect the conversion of the Notes and
any interest accrued and outstanding thereon. Any shares of Common Stock
issuable upon conversion of the Notes and any interest accrued and outstanding
thereon (and such shares when issued) are herein referred to as the "Conversion
Shares". The Notes and the Conversion Shares are sometimes collectively referred
to herein as the "Shares".
Section 1.3 Purchase Price and Closing. The Company agrees to issue and
sell to the Purchasers and, in consideration of and in express reliance upon the
representations, warranties, covenants, terms and conditions of this Agreement,
the Purchasers, severally but not jointly, agree to purchase that amount of the
Notes set forth opposite their respective names on Exhibit A for an aggregate
purchase price equal to $1,745,000. The purchase and sale of the Notes (the
"Closing") to be acquired by the Purchasers from the Company under this
Agreement shall take place at the offices of Parker Chapin LLP at 10:00 a.m.
E.S.T. (i) on the date on which the last to be fulfilled
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or waived of the conditions set forth in Article IV hereof and applicable to
such Closing shall be fulfilled or waived in accordance herewith or (ii) at such
other time and place or on such date as the Purchasers and the Company may agree
upon (each, a "Closing Date" and the first such Closing Date, the "Closing
Date"). The Company acknowledges and agrees that the principal amount of
$1,745,000 and all interest accrued and outstanding thereon on the date hereof
pursuant to the amended and restated promissory note, dated as of October 16,
2000 (the "Bridge Note"), issued by the Company in favor of Gilston Corporation
Ltd. ("Gilston") shall constitute consideration for, and payment of, the
purchase price by Gilston (or its designees) for their respective pro rata
portion of the Notes. Gilston acknowledges and agrees that upon the Closing of
the sale of the Notes, the Amended and Restated Pledge Agreement dated as of
October 16, 2000 (the "Amended and Restated Pledge Agreement") between Gilston
and Roth Trust, a trust formed under the laws of Gibraltar (the "Trust"), and
the Amended and Restated Agreement of Guaranty dated as of October 16, 2000 (the
"Amended and Restated Agreement of Guaranty") by the Trust in favor of Gilston,
which were entered into in connection with the loans made under the Bridge Note
shall be terminated and canceled. At the Closing, the Company shall deliver to
the Purchasers certificates (in such denominations as Gilston shall request)
representing the Notes equal to the total amount of principal and interest
accrued and outstanding under the Bridge Note on the Closing.
ARTICLE II
Representations and Warranties
Section 2.1 Representations and Warranties of the Company. The Company
hereby makes the following representations and warranties to the Purchasers:
(a) Organization, Good Standing and Power. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware and has the requisite corporate power to own,
lease and operate its properties and assets and to conduct its business as it is
now being conducted. The Company does not have any Subsidiaries except as set
forth on Schedule 2.1(g) hereto. The Company and each such Subsidiary is duly
qualified as a foreign corporation to do business and is in good standing in
every jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary except for any jurisdiction(s)
(alone or in the aggregate) in which the failure to be so qualified will not
have a Material Adverse Effect. For the purposes of this Agreement, "Material
Adverse Effect" means any adverse effect on the business, operations,
properties, prospects, or financial condition of the Company or its Subsidiaries
and which is material to such entity or other entities controlling or controlled
by such entity.
(b) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and perform this Agreement, the
Registration Rights Agreement attached hereto as Exhibit C (the "Registration
Rights Agreement"), the Pledge Agreement
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attached hereto as Exhibit D (the "Pledge Agreement") and the Transfer Agent
Instructions (as defined in Section 3.14) (collectively, the "Transaction
Documents") and to issue and sell the Shares in accordance with the terms hereof
and the Notes. The execution, delivery and performance of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated thereby have been duly and validly authorized by all necessary
corporate action, and no further consent or authorization of the Company or its
Board of Directors or stockholders is required. This Agreement has been duly
executed and delivered by the Company. The other Transaction Documents will have
been duly executed and delivered by the Company at the Closing. Each of the
Transaction Documents constitutes, or shall constitute when executed and
delivered, a valid and binding obligation of the Company enforceable against the
Company in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation, conservatorship, receivership or similar laws relating to, or
affecting generally the enforcement of, creditor's rights and remedies or by
other equitable principles of general application.
(c) Capitalization. The authorized capital stock of the Company and
the shares thereof currently issued and outstanding as of the date hereof are
set forth on Schedule 2.1(c) hereto. All of the outstanding shares of the
Company's Common Stock and Series C Convertible Preferred Stock have been duly
and validly authorized. Except as set forth in this Agreement and the
Registration Rights Agreement and as set forth on Schedule 2.1(c) hereto, no
shares of Common Stock or Series C Convertible Preferred Stock are entitled to
preemptive rights or registration rights and there are no outstanding options,
warrants, scrip, rights to subscribe to, call or commitments of any character
whatsoever relating to, or securities or rights convertible into, any shares of
capital stock of the Company. Furthermore, except as set forth in this Agreement
and the Registration Rights Agreement and as set forth on Schedule 2.1(c) hereto
there are no contracts, commitments, understandings, or arrangements by which
the Company is or may become bound to issue additional shares of the capital
stock of the Company or options, securities or rights convertible into shares of
capital stock of the Company. Except for customary transfer restrictions
contained in agreements entered into by the Company in order to sell restricted
securities or as provided on Schedule 2.1 (c) hereto, the Company is not a party
to or bound by any agreement or understanding granting registration or
anti-dilution rights to any person with respect to any of its equity or debt
securities. The Company is not a party to, and it has no knowledge of, any
agreement or understanding restricting the voting or transfer of any shares of
the capital stock of the Company. Except as set forth on Schedule 2.1(c) hereto,
the offer and sale of all capital stock, convertible securities, rights,
warrants, or options of the Company issued prior to the Closing complied with
all applicable federal and state securities laws, and no holder of such
securities has a right of rescission or claim for damages with respect thereto
which could have a Material Adverse Effect (as defined in Section 2.1(e) herein)
on the Company's financial condition or operating results. The Company has
furnished or made available to the Purchasers true and correct copies of the
Company's Certificate of Incorporation as in effect on the date hereof (the
"Certificate"), and the Company's Bylaws as in effect on the date hereof (the
"Bylaws").
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(d) Issuance of Shares. The Notes to be issued at the Closing have
been duly authorized by all necessary corporate action and, when paid for or
issued in accordance with the terms hereof, the Notes shall be validly issued
and outstanding, fully paid and nonassessable free and clear of all liens,
encumbrances and rights of refusal of any kind. When the Conversion Shares are
issued in accordance with the terms of the Notes, such shares will be duly
authorized by all necessary corporate action and validly issued and outstanding,
fully paid and nonassessable, and the holders shall be entitled to all rights
accorded to a holder of Common Stock.
(e) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby do not and will not (i) violate any
provision of the Company's Certificate or Bylaws or any Subsidiary's comparable
charter documents, (ii) conflict with, or constitute a default (or an event
which with notice or lapse of time or both would become a default) under, or
give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, mortgage, deed of trust, indenture, note, bond,
license, lease agreement, instrument or obligation to which the Company or any
of its Subsidiaries is a party or by which it or any of its Subsidiaries or its
or any of its Subsidiaries properties or assets are bound, (iii) create or
impose a lien, mortgage, security interest, charge or encumbrance of any nature
on any property or asset of the Company or any of its Subsidiaries under any
agreement or any commitment to which the Company or any of its Subsidiaries is a
party or by which the Company or any of its Subsidiaries is bound or by which
any of their respective properties or assets are bound, or (iv) result in a
violation of any federal, state, local or foreign statute, rule, regulation,
order, judgment or decree (including federal and state securities laws and
regulations) applicable to the Company or any of its Subsidiaries or by which
any property or asset of the Company or any of its Subsidiaries are bound or
affected, except, in all cases other than violations pursuant to clauses (i) or
(iv) above, for such conflicts, defaults, terminations, amendments,
acceleration, cancellations and violations as would not, individually or in the
aggregate, have a Material Adverse Effect. The business of the Company and its
Subsidiaries is not being conducted in violation of any laws, ordinances or
regulations of any governmental entity, except for possible violations which
singularly or in the aggregate do not and will not have a Material Adverse
Effect. Neither the Company nor any of its Subsidiaries is required under
federal, state, foreign or local law, rule or regulation to obtain any consent,
authorization or order of, or make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or perform any of its
obligations under the Transaction Documents or issue and sell the Notes and the
Conversion Shares in accordance with the terms hereof or thereof (other than any
filings which may be required to be made by the Company with the Commission,
Nasdaq, or state securities administrators subsequent to the Closing, any
registration statement which may be filed pursuant hereto).
(f) Commission Documents, Financial Statements. The Common Stock of
the Company is registered pursuant to Section 12(b) or 12(g) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, except as disclosed
on Schedule 2.1(f) hereto, the Company has timely filed all reports, schedules,
forms, statements and other documents required
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to be filed by it with the Commission pursuant to the reporting requirements of
the Exchange Act, including material filed pursuant to Section 13(a) or 15(d) of
the Exchange Act (all of the foregoing including filings incorporated by
reference therein being referred to herein as the "Commission Documents"). The
Company has delivered or made available to each of the Purchasers true and
complete copies of the Commission Documents filed with the Commission since
December 31, 1999. The Company has not provided to the Purchasers any material
non-public information or other information which, according to applicable law,
rule or regulation, should have been disclosed publicly by the Company but which
has not been so disclosed, other than with respect to the transactions
contemplated by this Agreement. As of their respective dates, the Form SB-2, as
amended, including the accompanying financial statements (the "Form SB-2") and
the Form 10-QSB for the fiscal quarter ended June 30, 2000 (the "Form 10-QSB")
complied in all material respects with the requirements of the Exchange Act and
the rules and regulations of the Commission promulgated thereunder and other
federal, state and local laws, rules and regulations applicable to such
documents, and, as of their respective dates, none of the Form SB-2 and the Form
10-QSB referred to above contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The financial statements of the Company included
in the Commission Documents comply as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the Commission or other applicable rules and regulations with respect thereto.
Such financial statements have been prepared in accordance with generally
accepted accounting principles ("GAAP") applied on a consistent basis during the
periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto or (ii) in the case of unaudited interim
statements, to the extent they may not include footnotes or may be condensed or
summary statements), and fairly present in all material respects the financial
position of the Company and its Subsidiaries as of the dates thereof and the
results of operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit adjustments).
(g) Subsidiaries. Schedule 2.1(g) hereto sets forth each Subsidiary
of the Company, showing the jurisdiction of its incorporation or organization
and showing the percentage of each person's ownership of the outstanding stock
or other interests of such Subsidiary. For the purposes of this Agreement,
"Subsidiary" shall mean any corporation or other entity (including, but not
limited to, Cortext Ltd., an Israeli corporation ("Cortext")) of which at least
a majority of the securities or other ownership interest having ordinary voting
power (absolutely or contingently) for the election of directors or other
persons performing similar functions are at the time owned directly or
indirectly by the Company and/or any of its other Subsidiaries. All of the
outstanding shares of capital stock of each Subsidiary have been duly authorized
and validly issued, and are fully paid and nonassessable. There are no
outstanding preemptive, conversion or other rights, options, warrants or
agreements granted or issued by or binding upon any Subsidiary for the purchase
or acquisition of any shares of capital stock of any Subsidiary or any other
securities convertible into, exchangeable for or evidencing the rights to
subscribe for any shares of such capital stock. Neither the Company nor any
Subsidiary is subject to any obligation (contingent or otherwise) to repurchase
or otherwise acquire or retire any shares of the capital
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stock of any Subsidiary or any convertible securities, rights, warrants or
options of the type described in the preceding sentence except as set forth on
Schedule 2.1(g) hereto. Neither the Company nor any Subsidiary is party to, nor
has any knowledge of, any agreement restricting the voting or transfer of any
shares of the capital stock of any Subsidiary.
(h) No Material Adverse Change. Since September 7, 2000, the date
through which the most recent filing of the Company on Form SB-2, as amended has
been prepared and filed with the Commission, a copy of which is included in the
Commission Documents, the Company has not experienced or suffered any Material
Adverse Effect, except as disclosed on Schedule 2.1(h) hereto.
(i) No Undisclosed Liabilities. Except as disclosed on Schedule
2.1(i) hereto, neither the Company nor any of its Subsidiaries has any
liabilities, obligations, claims or losses (whether liquidated or unliquidated,
secured or unsecured, absolute, accrued, contingent or otherwise) other than
those incurred in the ordinary course of the Company's or its Subsidiaries
respective businesses since December 31, 1999 and which, individually or in the
aggregate, do not or would not have a Material Adverse Effect on the Company or
its Subsidiaries.
(j) No Undisclosed Events or Circumstances. Except as disclosed on
Schedule 2.1(j) hereto, no event or circumstance has occurred or exists with
respect to the Company or its Subsidiaries or their respective businesses,
properties, prospects, operations or financial condition, which, under
applicable law, rule or regulation, requires public disclosure or announcement
by the Company but which has not been so publicly announced or disclosed.
(k) Indebtedness. Schedule 2.1(k) hereto sets forth as of the date
hereof all outstanding secured and unsecured Indebtedness of the Company or any
Subsidiary, or for which the Company or any Subsidiary has commitments. For the
purposes of this Agreement, "Indebtedness" shall mean (a) any liabilities for
borrowed money or amounts owed in excess of $25,000 (other than trade accounts
payable incurred in the ordinary course of business), (b) all guaranties,
endorsements and other contingent obligations in respect of Indebtedness of
others, whether or not the same are or should be reflected in the Company's
balance sheet (or the notes thereto), except guaranties by endorsement of
negotiable instruments for deposit or collection or similar transactions in the
ordinary course of business; and (c) the present value of any lease payments in
excess of $25,000 due under leases required to be capitalized in accordance with
GAAP. Neither the Company nor any Subsidiary is in default with respect to any
Indebtedness other than the possible default under the $560,000 line of credit
with Israel General Bank.
(l) Title to Assets. Each of the Company and the Subsidiaries has
good and marketable title to all of its real and personal property, free and
clear of any mortgages, pledges, charges, liens, security interests or other
encumbrances of any nature whatsoever, except for those indicated on Schedule
2.1(l) hereto or such that, individually or in the aggregate, do not cause a
Material Adverse Effect on the Company's financial condition or operating
results. All said leases of the Company and each of its Subsidiaries are valid
and subsisting and in full force and effect.
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(m) Actions Pending. There is no action, suit, claim, investigation,
arbitration, alternate dispute resolution proceeding or other proceeding pending
or, to the knowledge of the Company, threatened against the Company or any
Subsidiary which questions the validity of this Agreement or any of the other
Transaction Documents or any of the transactions contemplated hereby or thereby
or any action taken or to be taken pursuant hereto or thereto. Except as set
forth in the Commission Filings or on Schedule 2.1(m) hereto, there is no
action, suit, claim, investigation, arbitration, alternate dispute resolution
proceeding or other proceeding pending or, to the knowledge of the Company,
threatened, against or involving the Company, any Subsidiary or any of their
respective properties or assets. There are no outstanding orders, judgments,
injunctions, awards or decrees of any court, arbitrator or governmental or
regulatory body against the Company or any Subsidiary or any officers or
directors of the Company or Subsidiary in their capacities as such.
(n) Compliance with Law. The business of the Company and the
Subsidiaries has been and is presently being conducted in accordance with all
applicable federal, state and local governmental laws, rules, regulations and
ordinances, except as set forth on Schedule 2.1(n) hereto or such that,
individually or in the aggregate, do not cause a Material Adverse Effect. The
Company and each of its Subsidiaries have all franchises, permits, licenses,
consents and other governmental or regulatory authorizations and approvals
necessary for the conduct of its business as now being conducted by it unless
the failure to possess such franchises, permits, licenses, consents and other
governmental or regulatory authorizations and approvals, individually or in the
aggregate, could not reasonably be expected to have a Material Adverse Effect.
(o) Taxes. Except as set forth on Schedule 2.1(o) hereto, the
Company and each of the Subsidiaries has accurately prepared and filed all
federal, state and other tax returns required by law to be filed by it, has paid
or made provisions for the payment of all taxes shown to be due and all
additional assessments, and adequate provisions have been and are reflected in
the financial statements of the Company and the Subsidiaries for all current
taxes and other charges to which the Company or any Subsidiary is subject and
which are not currently due and payable. Except as disclosed on Schedule 2.1(o)
hereto, none of the federal income tax returns of the Company or any Subsidiary
have been audited by the Internal Revenue Service. The Company has no knowledge
of any additional assessments, adjustments or contingent tax liability (whether
federal or state) of any nature whatsoever, whether pending or threatened
against the Company or any Subsidiary for any period, nor of any basis for any
such assessment, adjustment or contingency.
(p) Certain Fees. Except as set forth in this Agreement and on
Schedule 2.1(p) hereto, no brokers, finders or financial advisory fees or
commissions will be payable by the Company or any Subsidiary or any Purchaser
with respect to the transactions contemplated by this Agreement.
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(q) Disclosure. To the best of the Company's knowledge, neither this
Agreement or the Schedules hereto nor any other documents, certificates or
instruments furnished to the Purchasers by or on behalf of the Company or any
Subsidiary in connection with the transactions contemplated by this Agreement
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made herein or therein, in the light
of the circumstances under which they were made herein or therein, not
misleading.
(r) Operation of Business. The Company and each of the Subsidiaries
owns or possesses all patents, trademarks, domain names (whether or not
registered) and any patentable improvements or copyrightable derivative works
thereof, websites and intellectual property rights relating thereto, service
marks, trade names, copyrights, licenses and authorizations, including, but not
limited to, those listed on Schedule 2.1(r) hereto, and all rights with respect
to the foregoing, which are necessary for the conduct of its business as now
conducted without any conflict with the rights of others.
(s) Environmental Compliance. Except as disclosed on Schedule 2.1(s)
hereto, the Company and each of its Subsidiaries have obtained all material
approvals, authorization, certificates, consents, licenses, orders and permits
or other similar authorizations of all governmental authorities, or from any
other person, that are required under any Environmental Laws. Schedule 2.1(s)
hereto sets forth all material permits, licenses and other authorizations issued
under any Environmental Laws to the Company or its Subsidiaries. "Environmental
Laws" shall mean all applicable laws relating to the protection of the
environment including, without limitation, all requirements pertaining to
reporting, licensing, permitting, controlling, investigating or remediating
emissions, discharges, releases or threatened releases of hazardous substances,
chemical substances, pollutants, contaminants or toxic substances, materials or
wastes, whether solid, liquid or gaseous in nature, into the air, surface water,
groundwater or land, or relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of hazardous
substances, chemical substances, pollutants, contaminants or toxic substances,
material or wastes, whether solid, liquid or gaseous in nature. Except as set
forth on Schedule 2.1(s) hereto, the Company has all necessary governmental
approvals required under all Environmental Laws and used in its business or in
the business of any of its Subsidiaries. The Company and each of its
Subsidiaries are also in compliance with all other limitations, restrictions,
conditions, standards, requirements, schedules and timetables required or
imposed under all Environmental Laws. Except for such instances as would not
individually or in the aggregate have a Material Adverse Effect, there are no
past or present events, conditions, circumstances, incidents, actions or
omissions relating to or in any way affecting the Company or its Subsidiaries
that violate or may violate any Environmental Law after the Closing or that may
give rise to any environmental liability, or otherwise form the basis of any
claim, action, demand, suit, proceeding, hearing, study or investigation (i)
under any Environmental Law, or (ii) based on or related to the manufacture,
processing, distribution, use, treatment, storage (including without limitation
underground storage tanks), disposal, transport or handling, or the emission,
discharge, release or threatened release of any hazardous substance.
"Environmental Liabilities" means all liabilities of a person (whether such
liabilities are owed by such person to governmental authorities, third parties
or otherwise)
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whether currently in existence or arising hereafter which arise under or relate
to any Environmental Law.
(t) Books and Record Internal Accounting Controls. The records and
documents of the Company and its Subsidiaries accurately reflect in all material
respects the information relating to the business of the Company and the
Subsidiaries, the location and collection of their assets, and the nature of all
transactions giving rise to the obligations or accounts receivable of the
Company or any Subsidiary. The Company and each of its Subsidiaries maintain a
system of internal accounting controls sufficient, in the judgment of the
Company's board of directors, to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate actions is taken
with respect to any differences.
(u) Material Agreements. Except for the Transaction Documents and as
set forth on Schedule 2.1(u) hereto, neither the Company nor any Subsidiary is a
party to any written or oral contract, instrument, agreement, commitment,
obligation, plan or arrangement, a copy of which would be required to be filed
with the Commission as an exhibit to a registration statement on Form SB-2 or
applicable form (collectively, "Material Agreements") if the Company or any
Subsidiary were registering securities under the Securities Act. The Company and
each of its Subsidiaries has in all material respects performed all the
obligations required to be performed by them to date under the foregoing
agreements, have received no notice of default and, to the best of the Company's
knowledge are not in default under any Material Agreement now in effect, the
result of which could cause a Material Adverse Effect. No written or oral
contract, instrument, agreement, commitment, obligation, plan or arrangement of
the Company or of any Subsidiary limits or shall limit the payment of interest
on the Company's Notes, or dividends on its Common Stock.
(v) Transactions with Affiliates. Except as set forth on Schedule
2.1(v) hereto, there are no loans, leases, agreements, contracts, royalty
agreements, management contracts or arrangements or other continuing
transactions exceeding $100,000 between (a) the Company, any Subsidiary or any
of their respective customers or suppliers on the one hand, and (b) on the other
hand, any officer, employee, consultant or director of the Company, or any of
its Subsidiaries, or any person owning any capital stock of the Company or any
Subsidiary or any member of the immediate family of such officer, employee,
consultant, director or stockholder or any corporation or other entity
controlled by such officer, employee, consultant, director or stockholder, or a
member of the immediate family of such officer, employee, consultant, director
or stockholder.
(w) Securities Act of 1933. The Company has complied and will comply
with all applicable federal and state securities laws in connection with the
offer, issuance and sale of the
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Notes and the Conversion Shares hereunder. Neither the Company nor anyone acting
on its behalf, directly or indirectly, has or will sell, offer to sell or
solicit offers to buy any of the Shares, or similar securities to, or solicit
offers with respect thereto from, or enter into any preliminary conversations or
negotiations relating thereto with, any person, or has taken or will take any
action so as to bring the issuance and sale of any of the Shares under the
registration provisions of the Securities Act and applicable state securities
laws. Neither the Company nor any of its affiliates, nor any person acting on
its or their behalf, has engaged in any form of general solicitation or general
advertising (within the meaning of Regulation D under the Securities Act) in
connection with the offer or sale of any of the Shares.
(x) Governmental Approvals. Except as set forth on Schedule 2.1(x)
hereto, and except for the filing of any notice prior or subsequent to the
Closing that may be required under applicable state and/or federal securities
laws (which if required, shall be filed on a timely basis), including the filing
of a registration statement or statements pursuant to the Registration Rights
Agreement and the filing of a Notification Form for the Listing of Additional
Shares of Common Stock with the Nasdaq National Market (the "Listing
Application") no authorization, consent, approval, license, exemption of, filing
or registration with any court or governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, is or will be necessary
for, or in connection with, the execution or delivery of the Notes, or for the
performance by the Company of its obligations under the Transaction Documents.
(y) Employees. Neither the Company nor any Subsidiary has any
collective bargaining arrangements or agreements covering any of its employees.
Except as set forth on Schedule 2.1(y) hereto, neither the Company nor any
Subsidiary has any employment contract, agreement regarding proprietary
information, non-competition agreement, non-solicitation agreement,
confidentiality agreement, or any other similar contract or restrictive
covenant, relating to the right of any officer, employee or consultant to be
employed or engaged by the Company or such Subsidiary. Since September 7, 2000,
no officer, consultant or key employee of the Company or any Subsidiary whose
termination, either individually or in the aggregate, could have a Material
Adverse Effect, has terminated or, to the knowledge of the Company, has any
present intention of terminating his or her employment or engagement with the
Company or any Subsidiary.
(z) Absence of Certain Developments. Except as set forth on Schedule
2.1(z) hereto, since December 31, 1999, neither the Company nor any Subsidiary
has:
(i) issued any stock, bonds or other corporate securities or any
rights, options or warrants with respect thereto;
(ii) borrowed any amount or incurred or become subject to any
liabilities (absolute or contingent) except current liabilities incurred in the
ordinary course of business which are comparable in nature and amount to the
current liabilities incurred in the ordinary course of business during the
comparable portion of its prior fiscal year, as adjusted to reflect the current
nature and volume of the Company's or such Subsidiary's business;
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(iii) discharged or satisfied any lien or encumbrance or paid any
obligation or liability (absolute or contingent), other than current liabilities
paid in the ordinary course of business;
(iv) declared or made any payment or distribution of cash or other
property to stockholders with respect to its stock, or purchased or redeemed, or
made any agreements so to purchase or redeem, any shares of its capital stock;
(v) sold, assigned or transferred any other tangible assets, or
canceled any debts or claims, except in the ordinary course of business;
(vi) sold, assigned or transferred any patent rights, trademarks,
trade names, copyrights, trade secrets or other intangible assets or
intellectual property rights, or disclosed any proprietary confidential
information to any person except to customers in the ordinary course of business
or to the Purchasers or their representatives;
(vii) suffered any substantial losses or waived any rights of
material value, whether or not in the ordinary course of business, or suffered
the loss of any material amount of prospective business;
(viii) made any changes in employee compensation except in the
ordinary course of business and consistent with past practices;
(ix) made capital expenditures or commitments therefor that
aggregate in excess of $100,000;
(x) entered into any other transaction other than in the ordinary
course of business, or entered into any other material transaction, whether or
not in the ordinary course of business;
(xi) made charitable contributions or pledges in excess of $25,000;
(xii) suffered any material damage, destruction or casualty loss,
whether or not covered by insurance;
(xiii) experienced any material problems with labor or management in
connection with the terms and conditions of their employment;
(xiv) effected any two or more events of the foregoing kind which in
the aggregate would be material to the Company or its Subsidiaries; or
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(xv) entered into an agreement, written or otherwise, to take any of
the foregoing actions
(aa) Use of Proceeds. The proceeds from the sale of the Notes will
be used by the Company for working capital and general corporate purposes.
(bb) Public Utility Holding Company Act and Investment Company Act
Status. The Company is not a "holding company" or a "public utility company" as
such terms are defined in the Public Utility Holding Company Act of 1935, as
amended. The Company is not, and as a result of and immediately upon Closing
will not be, an "investment company" or a company "controlled" by an "investment
company," within the meaning of the Investment Company Act of 1940, as amended.
(cc) ERISA. No liability to the Pension Benefit Guaranty Corporation
has been incurred with respect to any Plan by the Company or any of its
Subsidiaries which is or would be materially adverse to the Company and its
Subsidiaries. The execution and delivery of this Agreement and the issue and
sale of the Notes will not involve any transaction which is subject to the
prohibitions of Section 406 of ERISA or in connection with which a tax could be
imposed pursuant to Section 4975 of the Internal Revenue Code of 1986, as
amended, provided that, if any of the Purchasers, or any person or entity that
owns a beneficial interest in any of the Purchasers, is an "employee pension
benefit plan" (within the meaning of Section 3(2) of ERISA) with respect to
which the Company is a "party in interest" (within the meaning of Section 3(14)
of ERISA), the requirements of Sections 407(d)(5) and 408(e) of ERISA, if
applicable, are met. As used in this Section 2.1(ac), the term "Plan" shall mean
an "employee pension benefit plan" (as defined in Section 3 of ERISA) which is
or has been established or maintained, or to which contributions are or have
been made, by the Company or any Subsidiary or by any trade or business, whether
or not incorporated, which, together with the Company or any Subsidiary, is
under common control, as described in Section 414(b) or (c) of the Code.
(dd) Dilutive Effect. The Company understands and acknowledges that
the number of Conversion Shares issuable upon conversion of the Notes will
increase in certain circumstances. The Company further acknowledges that its
obligation to issue Conversion Shares upon conversion of the Notes in accordance
with this Agreement, is absolute and unconditional regardless of the dilutive
effect that such issuance may have on the ownership interest of other
stockholders of the Company.
(ee) No "Directed Selling Efforts". In connection with the offer and
sale of the Notes and the Conversion Shares, no distributor or any affiliates or
any person acting on behalf of the Company or any affiliate of the Company or
any distributor has engaged in any "directed selling efforts" (as such term is
defined in Rule 902(c) of Regulation S) nor conducted any general solicitation
relating to the offer to persons residing within the United States or to "U.S.
Persons" as such term is defined in Rule 902(k) of Regulation S.
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Section 2.2 Representations and Warranties of the Purchasers. Each of the
Purchasers hereby makes the following representations and warranties to the
Company with respect solely to itself and not with respect to any other
Purchaser:
(a) Organization and Standing of the Purchasers. If the Purchaser is
an entity, such Purchaser is a corporation, limited liability company or
partnership duly incorporated or organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or
organization.
(b) Authorization and Power. The Purchaser has the requisite power
and authority to enter into and perform this Agreement and to purchase the Notes
being sold to it hereunder. The execution, delivery and performance of this
Agreement and the Registration Rights Agreement by such Purchaser and the
consummation by it of the transactions contemplated hereby and thereby have been
duly authorized by all necessary corporate or partnership action (if the
Purchaser is an entity), and no further consent or authorization of such
Purchaser or its Board of Directors, stockholders, or partners, as the case may
be, is required. Each of this Agreement and the Registration Rights Agreement
has been duly authorized, executed and delivered by such Purchaser.
(c) No Conflicts. The execution, delivery and performance of this
Agreement and the Registration Rights Agreement and the consummation by such
Purchaser of the transactions contemplated hereby and thereby or relating hereto
do not and will not (i) result in a violation of such Purchaser's charter
documents or bylaws or (ii) conflict with, or constitute a default (or an event
which with notice or lapse of time or both would become a default) under, or
give to others any rights of termination, amendment, acceleration or
cancellation of any agreement, indenture or instrument to which such Purchaser
is a party, or result in a violation of any law, rule, or regulation, or any
order, judgment or decree of any court or governmental agency applicable to such
Purchaser or its properties (except for such conflicts, defaults and violations
as would not, individually or in the aggregate, have a material adverse effect
on such Purchaser). Such Purchaser is not required to obtain any consent,
authorization or order of, or make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or perform any of its
obligations under this Agreement or the Registration Rights Agreement, or
relating hereto or thereto, or to purchase the Notes in accordance with the
terms hereof, provided that for purposes of the representation made in this
sentence, such Purchaser is assuming and relying upon the accuracy of the
relevant representations and agreements of the Company herein.
(d) Acquisition for Investment. Such Purchaser is purchasing the
Notes solely for its own account for the purpose of investment and not with a
view to or for sale in connection with distribution. Such Purchaser does not
have a present intention to sell the Notes, nor a present arrangement (whether
or not legally binding) or intention to effect any distribution of the Notes to
or through any person or entity; provided, however, that by making the
representations herein and subject to Section 2.2(f) below, such Purchaser does
not agree to hold the Notes for any minimum or other specific term and reserves
the right to dispose of the Notes at any time in accordance with
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federal and state securities laws applicable to such disposition. Such Purchaser
acknowledges that it (i) has such knowledge and experience in financial and
business matters such that Purchaser is capable of evaluating the merits and
risks of Purchaser's investment in the Company and is (ii) able to bear the
financial risks associated with an investment in the Notes and (iii) that it has
been given full access to such records of the Company and the Subsidiaries and
to the officers of the Company and the Subsidiaries as it has deemed necessary
or appropriate to conduct its due diligence investigation.
(e) Non-U.S. Person. Such Purchaser is not a "U.S. Person" (as
defined in Rule 902(k) of Regulation S) and is not acquiring any of the Notes
for the account or benefit of any U.S. Person.
(f) Offshore Transaction. The Notes were not offered to such
Purchaser in the United States and at the time of execution of this Agreement
and the time of any offer to such Purchaser to purchase the Notes, such
Purchaser was physically outside of the "United States" (as defined in Rule
902(l) of Regulation S). The offer leading to the sale evidenced hereby was made
in an "offshore transaction" (as defined in Rule 902(h) of Regulation S).
(g) Rule 144. Such Purchaser understands that the Shares must be
held indefinitely unless such Shares are registered under the Securities Act or
an exemption from registration is available. Such Purchaser acknowledges that
such person is familiar with Rule 144 of the rules and regulations of the
Commission, as amended, promulgated pursuant to the Securities Act ("Rule 144"),
and that such Purchaser has been advised that Rule 144 permits resales only
under certain circumstances. Such Purchaser understands that to the extent that
Rule 144 is not available, such Purchaser will be unable to sell any Shares
without either registration under the Securities Act or the existence of another
exemption from such registration requirement.
(h) Transfer of Shares. Such Purchaser will not sell, offer for
sale, transfer or otherwise convey the Shares to a U.S. Person or for the
account or benefit of a U.S. Person unless in accordance with the provisions of
Regulation S, pursuant to registration of the Notes or the Conversion Shares
under the Securities Act or pursuant to an exemption from registration.
(i) Restrictions on Shares. Such Purchaser agrees not to engage in
any hedging transactions with regard to the Shares unless in compliance with the
Securities Act.
(j) No Broker-Dealer Affiliation. None of the Purchasers is a
broker-dealer registered with the Commission or an affiliate (as such term is
defined in Rule 144(a) promulgated under the Securities Act) of a broker-dealer
registered with the Commission.
(k) General. Such Purchaser understands that the Shares are being
offered and sold in reliance on a transactional exemption from the registration
requirement of federal and state securities laws and the Company is relying upon
the truth and accuracy of the representations, warranties, agreements,
acknowledgments and understandings of such Purchaser set forth herein in
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order to determine the applicability of such exemptions and the suitability of
such Purchaser to acquire the Shares. Purchaser understands that no United
States federal or state agency or any government or governmental agency has
passed upon or made any recommendation or endorsement of the Shares.
(l) Opportunities for Additional Information. Such Purchaser
acknowledges that such Purchaser has had the opportunity to ask questions of and
receive answers from, or obtain additional information from, the executive
officers of the Company concerning the financial and other affairs of the
Company, and to the extent deemed necessary in light of such Purchaser's
personal knowledge of the Company's affairs, such Purchaser has asked such
questions and received answers to the full satisfaction of such Purchaser, and
such Purchaser desires to invest in the Company.
(m) No General Solicitation. Such Purchaser acknowledges that the
Notes were not offered to such Purchaser by means of any form of general or
public solicitation or general advertising, or publicly disseminated
advertisements or sales literature, including (i) any advertisement, article,
notice or other communication published in any newspaper, magazine, or similar
media, or broadcast over television or radio, or (ii) any seminar or meeting to
which such Purchaser was invited by any of the foregoing means of
communications.
(n) No Commissions or Similar Fees. In connection with the purchase
of the Notes by such Purchaser, such Purchaser has not and will not pay, and has
no knowledge of the payment of, any commission or other direct or indirect
remuneration to any person or entity for soliciting or otherwise coordinating
the purchase of such securities, except to such persons or entities as are duly
licensed and/or registered to engage in securities offering and selling
activities (or are exempt from such licensing and/or registration requirements)
under applicable federal laws and the laws of the state(s) in which such
activities have taken place in connection with the transaction contemplated by
this agreement.
(o) Reliance by the Company. Purchaser understands fully the meaning
and legal consequences of the provisions herein, and agrees to indemnify and
hold harmless the Company, and each other person, if any subject to liability
because of such person's connection with the Company, against all actions,
claims, losses, damages and liabilities arising out of or based upon any false
representation or warranty herein, or any breach by the undersigned of any
provision hereof, and to reimburse the Company and each such other person for
any legal and other expenses incurred by the Company and each such other person
in connection with investigating, defending, and, if appropriate, settling any
action, claim, loss, damage or liability.
ARTICLE III
Covenants
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The Company covenants with each of the Purchasers as follows, which
covenants are for the benefit of each of the Purchasers and their permitted
assignees (as defined herein).
Section 3.1 Securities Compliance.
(a) The Company shall notify the Commission in accordance with their
rules and regulations, of the transactions contemplated by any of the
Transaction Documents 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 Notes and the Conversion Shares to the Purchasers,
the placement advisor, as applicable, or their respective subsequent holders.
(b) The Company is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments and understandings of
such Purchasers set forth herein in order to determine the applicability of
federal and state securities laws exemptions and the suitability of such
Purchasers to acquire the Shares.
Section 3.2 Registration and Listing. The Company will cause its Common
Stock to continue to be registered under Sections 12(b) or 12(g) of the Exchange
Act, will comply in all respects with its reporting and filing obligations under
the Exchange Act, will comply with all requirements related to any registration
statement filed pursuant to this Agreement or the Registration Rights Agreement,
and will not take any action or file any document (whether or not permitted by
the Securities Act or the rules promulgated thereunder) to terminate or suspend
such registration or to terminate or suspend its reporting and filing
obligations under the Exchange Act or Securities Act, except as permitted
herein. The Company will take all action necessary to continue the listing or
trading of its Common Stock on the Nasdaq SmallCap Market or any successor
market. The Company will promptly file the Listing Application for, or in
connection with, the issuance and delivery of the Conversion Shares.
Section 3.3 Inspection Rights. The Company shall permit, during normal
business hours and upon reasonable request and reasonable notice, each Purchaser
or any employees, agents or representatives thereof, so long as such Purchaser
shall be obligated hereunder to purchase the Notes or shall beneficially own any
Notes, or shall own Conversion Shares which, in the aggregate, represent more
than 2% of the total combined voting power of all voting securities then
outstanding, to examine and make reasonable copies of and extracts from the
records and books of account of, and visit and inspect the properties, assets,
operations and business of the Company and any Subsidiary, and to discuss the
affairs, finances and accounts of the Company and any Subsidiary with any of its
officers, consultants, directors, and key employees.
Section 3.4 Compliance with Laws. The Company shall comply, and cause each
Subsidiary to comply, with all applicable laws, rules, regulations and orders,
noncompliance with which could have a Material Adverse Effect.
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Section 3.5 Keeping of Records and Books of Account. The Company shall
keep and cause each Subsidiary to keep adequate records and books of account, in
which complete entries will be made in accordance with GAAP consistently
applied, reflecting all financial transactions of the Company and its
Subsidiaries, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other
purposes in connection with its business shall be made.
Section 3.6 Reporting Requirements. The Company shall furnish the
following to each Purchaser so long as such Purchaser shall be obligated
hereunder to purchase the Notes or shall beneficially own any Notes, or shall
own Conversion Shares which, in the aggregate, represent more than 2% of the
total combined voting power of all voting securities then outstanding, provided,
however, that the Company shall not be obligated to furnish the following, if
the following reports have been filed by the Company with the Commission
pursuant to the Commission's "electronic data gathering and retrieval" (EDGAR)
service:
(a) Quarterly Reports filed with the Commission on Form 10-QSB as soon as
available, and in any event within forty-five (45) days after the end of each of
the first three (3) fiscal quarters of the Company;
(b) Annual Reports filed with the Commission on Form 10-KSB as soon as
available, and in any event within ninety (90) days after the end of each fiscal
year of the Company; and
(c) Copies of all notices and information, including without limitation
notices and proxy statements in connection with any meetings, that are provided
to holders of shares of Common Stock, contemporaneously with the delivery of
such notices or information to such holders of Common Stock.
Section 3.7 Amendments. The Company shall not amend or waive any provision
of the Certificate or Bylaws of the Company, or the Registration Rights
Agreement in any way that would adversely affect the conversion rights, voting
rights or redemption rights of the holders of the Notes.
Section 3.8 Other Agreements. The Company shall not enter into any
agreement in which the terms of such agreement would restrict or impair the
right or ability to perform of the Company or any Subsidiary under any
Transaction Document.
Section 3.9 Distributions. So long as any Notes remain outstanding, the
Company agrees that it shall not (i) declare or pay any dividends or make any
distributions to any holder(s) of Common Stock or (ii) purchase or otherwise
acquire for value, directly or indirectly, any Common Stock or other equity
security of the Company.
Section 3.10 Intentionally Omitted
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Section 3.11 Regulation S. The Company covenants and agrees that if the
Company fails to register the Conversion Shares within 120 days after the
Closing Date under the terms and conditions of the Registration Rights
Agreement, then for so long as any of the Notes or Conversion Shares remain
outstanding and continue to be "restricted securities" within the meaning of
Rule 144 under the Securities Act, the Company shall, in order to permit resales
of any of the Shares pursuant to Regulation S under the Securities Act, (a)
continue to file all material required to be filed pursuant to Section 13(a) or
15(d) of the Exchange Act, and (b) not knowingly engage in directed selling
efforts in connection with the resale of securities by any Purchaser under
Regulation S.
Section 3.12 Right of First Refusal; Future Financings.
(a) During the two (2) years immediately following the Effectiveness Date
(as defined in the Registration Rights Agreement), the Company covenants and
agrees that it will not, without the prior written consent of the Purchasers,
enter into any subsequent offer or sale to, or exchange with (or other type of
distribution to), any third party (a "Subsequent Financing"), of Common Stock or
any securities convertible or exchangeable into Common Stock, including debt
securities (collectively, the "Financing Securities") other than a Permitted
Financing (as defined hereinafter). For purposes of this Agreement, "Permitted
Financing" shall mean any transaction involving the Company's (i) issuance of
any Financing Securities (other than for cash) in connection with a merger
and/or acquisition, consolidation, sale or disposition of all or substantially
all of the Company's assets, (ii) the exchange of capital stock for assets,
(iii) issuance of any Financing Securities in connection with a public firm
commitment underwritten offering at market, (iv) issuance of Common Stock or the
issuance of options to purchase Common Stock as such is related to any employee
stock ownership plan and (v) entering into a Subsequent Financing with a
Strategic Business Partner (as defined below).
(b) During the two (2) year period immediately following the Effectiveness
Date, the Company covenants and agrees to promptly notify (in no event later
than five (5) days after making or receiving an applicable offer) in writing (a
"Rights Notice") a designee of the Purchasers of the terms and conditions of any
proposed Subsequent Financing. The Rights Notice shall describe, in reasonable
detail, the proposed Subsequent Financing, the proposed closing date of the
Subsequent Financing, which shall be within thirty (30) calendar days from the
date of the Rights Notice, including, without limitation, all of the terms and
conditions thereof. The Rights Notice shall provide the Purchasers an option
(the "Rights Option") during the ten (10) calendar day period following delivery
of the Rights Notice (the "Option Period") to purchase such amount as the
Company and the Purchasers may agree to, of the securities being offered in such
Subsequent Financing on the same, absolute terms and conditions as contemplated
by such Subsequent Financing (the "First Refusal Rights"). Delivery of any
Rights Notice constitutes a representation and warranty by the Company that
there are no other material terms and conditions, arrangements, agreements or
otherwise except for those disclosed in the Rights Notice, to provide additional
compensation to any party participating in any proposed Subsequent Financing,
including, but not limited to, additional compensation based on changes in the
Purchase Price or
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any type of reset or adjustment of a purchase or conversion price or to issue
additional securities at any time after the closing date of a Subsequent
Financing. If the Company does not receive notice of exercise of the Rights
Option from the Purchasers within the Option Period, the Company shall have the
right to close the Subsequent Financing on the scheduled closing date with a
third party; provided that all of the terms and conditions of such closing are
the same as those provided to the Purchasers in the Rights Notice. If the
closing of the proposed Subsequent Financing does not occur on that date, any
closing of the contemplated Subsequent Financing or any other Subsequent
Financing shall be subject to all of the provisions of this Section 3.12,
including, without limitation, the delivery of a new Rights Notice.
Notwithstanding the foregoing, this Section 3.12(b) shall not apply with respect
to any Subsequent Financing with a Strategic Business Partner.
(c) As used herein, "Strategic Business Partner" means an entity which
enters into a strategic alliance, joint venture, partnership or similar
arrangement with the Company, the primary purpose of which is not to raise
equity capital; provided, however, that in connection with a strategic alliance
the Company may issue equity securities to a Strategic Business Partner.
Section 3.13 Reservation of Shares. So long as any of the Notes remain
outstanding, the Company shall take all action necessary to at all times have
authorized, and reserved for the purpose of issuance, no less than 200% of the
aggregate number of shares of Common Stock needed to provide for the issuance of
the Conversion Shares.
Section 3.14 Transfer Agent Instructions. The Company shall issue
irrevocable instructions to its transfer agent, and any subsequent transfer
agent, to issue certificates, registered in the name of each Purchaser or its
respective nominee(s), for the Conversion Shares in such amounts as specified
from time to time by each Purchaser to the Company upon conversion of the Notes
in the form of Exhibit E attached hereto (the "Irrevocable Transfer Agent
Instructions"). Prior to registration of the Conversion Shares under the
Securities Act, all such certificates shall bear the restrictive legend
specified in Section 5.1 of this Agreement. The Company warrants that no
instruction other than the Irrevocable Transfer Agent Instructions referred to
in this Section 3.14 will be given by the Company to its transfer agent and that
the Shares shall otherwise be freely transferable on the books and records of
the Company as and to the extent provided in this Agreement and the Registration
Rights Agreement. Nothing in this Section 3.14 shall affect in any way each
Purchaser's obligations and agreements set forth in Section 5.1 to comply with
all applicable prospectus delivery requirements, if any, upon resale of the
Shares. If a Purchaser provides the Company with an opinion of counsel, in a
generally acceptable form, to the effect that a public sale, assignment or
transfer of the Shares may be made without registration under the Securities Act
or the Purchaser provides the Company with reasonable assurances that the Shares
can be sold pursuant to Rule 144 without any restriction as to the number of
securities acquired as of a particular date that can then be immediately sold,
the Company shall permit the transfer, and, in the case of the Conversion
Shares, promptly instruct its transfer agent to issue one or more certificates
in such name and in such denominations as specified by such Purchaser and
without any restrictive legend. The Company acknowledges that a breach by it of
its obligations under this Section 3.14 will cause irreparable harm to the
Purchasers by vitiating the intent and purpose of
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the transaction contemplated hereby. Accordingly, the Company acknowledges that
the remedy at law for a breach of its obligations under this Section 3.14 will
be inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section 3.14, that the Purchasers shall be
entitled, in addition to all other available remedies, to an order and/or
injunction restraining any breach and requiring immediate issuance and transfer,
without the necessity of showing economic loss and without any bond or other
security being required.
ARTICLE IV
Conditions
Section 4.1 Conditions Precedent to the Obligation of the Company to Sell
the Notes. The obligation hereunder of the Company to issue and sell the Notes
to the Purchasers is subject to the satisfaction or waiver, at or before each
Closing Date, of the of the conditions set forth below. These conditions are for
the Company's sole benefit and may be waived by the Company at any time in its
sole discretion.
(a) Accuracy of Each Purchaser's Representations and Warranties. The
representations and warranties of each Purchaser shall be true and correct in
all material respects as of the date when made and as of the Closing Date as
though made at that time, except for representations and warranties that are
expressly made as of a particular date, which shall be true and correct in all
material respects as of such date.
(b) Performance by the Purchasers. Each Purchaser shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by such Purchaser at or prior to the Closing Date.
(c) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
(d) Cancellation of Bridge Note. At the Closing, Gilston shall
deliver or cause the delivery to the Company of the original Bridge Note marked
"Canceled" and "Paid-in-Full" and the Amended and Restated Pledge Agreement and
the Amended and Restated Agreement of Guaranty marked "Canceled" and
"Terminated".
Section 4.2 Conditions Precedent to the Obligation of the Purchasers to
Purchase the Notes. The obligation hereunder of each Purchaser to acquire and
pay for the Notes is subject to the satisfaction or waiver, at or before the
Closing Date, of each of the conditions set forth below.
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These conditions are for each Purchaser's sole benefit and may be waived by such
Purchaser at any time in its sole discretion.
(a) Accuracy of the Company's Representations and Warranties. Each
of the representations and warranties of the Company shall be true and correct
in all material respects as of the date when made and as of the Closing Date as
though made at that time (except for representations and warranties that speak
as of a particular date), which shall be true and correct in all material
respects as of such date.
(b) Performance by the Company. The Company shall have performed,
satisfied and complied in all respects with all covenants, agreements and
conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to the Closing Date.
(c) No Suspension, Etc. From the date hereof to the Closing Date,
trading in the Company's Common Stock shall not have been suspended by the
Commission (except for any suspension of trading of limited duration agreed to
by the Company, which suspension shall be terminated prior to the Closing), and,
at any time prior to each Closing Date, trading in securities generally as
reported by Bloomberg Financial Markets ("Bloomberg") shall not have been
suspended or limited, or minimum prices shall not have been established on
securities whose trades are reported by Bloomberg, or on the New York Stock
Exchange, nor shall a banking moratorium have been declared either by the United
States or New York State authorities, nor shall there have occurred any material
outbreak or escalation of hostilities or other national or international
calamity or crisis of such magnitude in its effect on, or any material adverse
change in any financial market which, in each case, in the judgment of such
Purchaser, makes it impracticable or inadvisable to purchase the Notes.
(d) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
(e) No Proceedings or Litigation. No action, suit or proceeding
before any arbitrator or any governmental authority shall have been commenced,
and no investigation by any governmental authority shall have been threatened,
against the Company or any Subsidiary, or any of the officers, directors or
affiliates of the Company or any Subsidiary seeking to restrain, prevent or
change the transactions contemplated by this Agreement, or seeking damages in
connection with such transactions.
(f) Opinion of Counsel, Etc. At the Closing, the Purchasers shall
have received an opinion of counsel to the Company, dated the date of such
Closing, in the form of Exhibit F hereto, of Israeli counsel with respect to the
Pledge Agreement and the transactions contemplated
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thereby, and such other certificates and documents as the Purchasers or its
counsel shall reasonably require incident to such Closing.
(g) Registration Rights Agreement. At the Closing, the Company shall
have executed and delivered the Registration Rights Agreement to each Purchaser.
(h) Pledge Agreement. At the Closing, the Company shall have
executed and delivered the Pledge Agreement to each Purchaser.
(i) Certificates. The Company shall have executed and delivered to
each Purchaser the Notes (in such denominations as such Purchaser shall request)
being purchased by such Purchaser at such Closing and the certificates
representing the Ordinary Shares (as defined in the Pledge Agreement) of Cortext
Ltd. being pledged pursuant to the Pledge Agreement.
(j) Resolutions. Prior to the Closing Date, the Board of Directors
of the Company shall have adopted resolutions consistent with Section 2.1(b)
above in a form reasonably acceptable to such Purchaser (the "Resolutions").
(k) Reservation of Shares. As of the Closing Date, the Company shall
have reserved out of its authorized and unissued Common Stock, solely for the
purpose of effecting the conversion of the Notes, a number of shares of Common
Stock equal to at least 200% of the aggregate number of Conversion Shares
issuable upon conversion of the Notes outstanding on such Closing Date (assuming
all such Notes were fully convertible or exercisable on such date regardless of
any limitation on the timing or amount of such conversions or exercises).
(l) Transfer Agent Instructions. The Irrevocable Transfer Agent
Instructions, in the form of Exhibit E attached hereto, shall have been
delivered to and acknowledged in writing by the Company's transfer agent.
(m) Secretary's Certificate. The Company shall have delivered to
such Purchaser a secretary's certificate, dated as of the Closing Date, as to
(i) the Resolutions, (ii) the Certificate, (iii) the Bylaws, each as in effect
at the Closing, and (iv) the authority and incumbency of the officers of the
Company executing the Transaction Documents and any other documents required to
be executed or delivered in connection therewith.
(n) Intentionally Omitted.
(o) Release and Amendment Agreement. At the Closing, the Company
shall have executed and delivered the Release and Amendment Agreement in the
form of Exhibit G attached hereto and the Release in the form of Exhibit H
attached hereto.
(p) Officer's Certificate. At the Closing, the Company shall have
delivered to the Purchasers a certificate of an executive officer of the
Company, dated as of the Closing Date,
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confirming the accuracy of the Company's representations, warranties and
covenants as of the Closing Date and confirming the compliance by the Company
with the conditions precedent set forth in this Section 4.2 as of the Closing
Date.
ARTICLE V
Certificate Legend
Section 5.1 Legend. Each certificate representing the Notes and, if
appropriate, securities issued upon conversion thereof, shall be stamped or
otherwise imprinted with a legend substantially in the following form (in
addition to any legend required by applicable state securities or "blue sky"
laws):
THESE SECURITIES REPRESENTED BY THIS CERTIFICATE (THE "SECURITIES") HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS IN ACCORDANCE WITH REGULATION
S OF THE SECURITIES ACT, REGISTERED UNDER THE SECURITIES ACT AND UNDER
APPLICABLE STATE SECURITIES LAWS OR VIRTUAL COMMUNITIES, INC. SHALL HAVE
RECEIVED AN OPINION OF ITS COUNSEL THAT REGISTRATION OF SUCH SECURITIES
UNDER THE SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE
SECURITIES LAWS IS NOT REQUIRED.
HEDGING TRANSACTIONS INVOLVING THE SECURITIES REPRESENTED HEREBY MAY NOT
BE CONDUCTED UNLESS IN COMPLIANCE WITH THE SECURITIES ACT.
The Company agrees to reissue certificates representing the Notes, without
the legend set forth above if at such time, prior to making any transfer of any
Notes or Conversion Shares, such holder thereof shall give written notice to the
Company describing the manner and terms of such transfer and removal as the
Company may reasonably request. Such proposed transfer will not be effected
until: (a) the Company has notified such holder that either (i) in the opinion
of Company counsel, the registration of such Notes or Conversion Shares under
the Securities Act is not required in connection with such proposed transfer; or
(ii) a registration statement under the Securities Act covering such proposed
disposition has been filed by the Company with the Commission and has become
effective under the Securities Act; and (b) the Company has notified such holder
that either: (i) in the opinion of Company counsel, the registration or
qualification under the securities or "blue sky" laws of any state is not
required in connection with such proposed disposition, or (ii) compliance with
applicable state securities or "blue sky" laws has been effected. The Company
will use its best efforts to respond to any such notice from a holder
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within ten (10) days. In the case of any proposed transfer under this Section 5,
the Company will use reasonable efforts to comply with any such applicable state
securities or "blue sky" laws, but shall in no event be required, in connection
therewith, to qualify to do business in any state where it is not then qualified
or to take any action that would subject it to tax or to the general service of
process in any state where it is not then subject. The restrictions on transfer
contained in Section 5.1 shall be in addition to, and not by way of limitation
of, any other restrictions on transfer contained in any other section of this
Agreement.
ARTICLE VI
Termination
Section 6.1 Termination by Mutual Consent. This Agreement may be
terminated at any time prior to the Closing Date by the mutual written consent
of the Company and the Purchasers.
Section 6.2 Effect of Termination. In the event of termination by the
Company or any one or more of the Purchasers, written notice thereof shall
forthwith be given to the other party and the transactions contemplated by this
Agreement and the Registration Rights Agreement shall be terminated without
further action by either party. If this Agreement is terminated as provided in
Section 6.1 herein, this Agreement shall become void and of no further force and
effect, except for Sections 8.1 and 8.2, and Article VIII herein. Nothing in
this Section 6.3 shall be deemed to release the Company or any Purchaser from
any liability for any breach under this Agreement or the Registration Rights
Agreement, or to impair the rights of the Company and the Purchasers to compel
specific performance by the other party of its obligations under this Agreement
and the Registration Rights Agreement.
ARTICLE VII
Indemnification
Section 7.1 General Indemnity. The Company agrees to indemnify and hold
harmless each Purchaser and any placement advisor (and their respective
directors, officers, affiliates, agents, successors and assigns) from and
against any and all losses, liabilities, deficiencies, costs, damages and
expenses (including, without limitation, reasonable attorney's fees, charges and
disbursements) incurred by the Purchasers as a result of any inaccuracy in or
breach of the representations, warranties or covenants made by the Company
herein. Each Purchaser severally but not jointly agrees to indemnify and hold
harmless the Company and its directors, officers, affiliates, agents, successors
and assigns from and against any and all losses, liabilities, deficiencies,
costs, damages and expenses (including, without limitation, reasonable attorneys
fees, charges and disbursements) incurred by the Company as result of any
inaccuracy in or breach of the representations, warranties or covenants made by
such Purchaser herein.
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Section 7.2 Indemnification Procedure. Any party entitled to
indemnification under this Article VII (an "indemnified party") will give
written notice to the indemnifying party of any matters giving rise to a claim
for indemnification; provided, that the failure of any party entitled to
indemnification hereunder to give notice as provided herein shall not relieve
the indemnifying party of its obligations under this Article VII except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any action, proceeding or claim is brought against an
indemnified party in respect of which indemnification is sought hereunder, the
indemnifying party shall be entitled to participate in and, unless in the
reasonable judgment of the indemnified party a conflict of interest between it
and the indemnifying party may exist with respect of such action, proceeding or
claim, to assume the defense thereof with counsel reasonably satisfactory to the
indemnified party. In the event that the indemnifying party advises an
indemnified party that it will contest such a claim for indemnification
hereunder, or fails, within thirty (30) days of receipt of any indemnification
notice to notify, in writing, such person of its election to defend, settle or
compromise, at its sole cost and expense, any action, proceeding or claim (or
discontinues its defense at any time after it commences such defense), then the
indemnified party may, at its option, defend, settle or otherwise compromise or
pay such action or claim. In any event, unless and until the indemnifying party
elects in writing to assume and does so assume the defense of any such claim,
proceeding or action, the indemnified party's costs and expenses arising out of
the defense, settlement or compromise of any such action, claim or proceeding
shall be losses subject to indemnification hereunder. The indemnified party
shall cooperate fully with the indemnifying party in connection with any
negotiation or defense of any such action or claim by the indemnifying party and
shall furnish to the indemnifying party all information reasonably available to
the indemnified party which relates to such action or claim. The indemnifying
party shall keep the indemnified party fully apprised at all times as to the
status of the defense or any settlement negotiations with respect thereto. If
the indemnifying party elects to defend any such action or claim, then the
indemnified party shall be entitled to participate in such defense with counsel
of its choice at its sole cost and expense. The indemnifying party shall not be
liable for any settlement of any action, claim or proceeding effected without
its prior written consent. Notwithstanding anything in this Article VII to the
contrary, the indemnifying party shall not, without the indemnified party's
prior written consent, settle or compromise any claim or consent to entry of any
judgment in respect thereof which imposes any future obligation on the
indemnified party or which does not include, as an unconditional term thereof,
the giving by the claimant or the plaintiff to the indemnified party of a
release from all liability in respect of such claim. The indemnification
required by this Article VII shall be made by periodic payments of the amount
thereof during the course of investigation or defense, as and when bills are
received or expense, loss, damage or liability is incurred, so long as the
indemnified party irrevocably agrees to refund such moneys if it is ultimately
determined by a court of competent jurisdiction that such party was not entitled
to indemnification. The indemnity agreements contained herein shall be in
addition to (a) any cause of action or similar rights of the indemnified party
against the indemnifying party or others, and (b) any liabilities the
indemnifying party may be subject to pursuant to the law.
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ARTICLE VIII
Miscellaneous
Section 8.1 Fees and Expenses. Except as set forth in Schedule 2.1 (p)
hereto, this Agreement or the other Transaction Documents, each party shall pay
the fees and expenses of its advisors, counsel, accountants and other experts,
if any, and all other expenses, incurred by such party incident to the
negotiation, preparation, execution, delivery and performance of this Agreement,
provided that the Company shall pay from the aggregate purchase price, at the
Closing, all attorneys' fees and expenses (exclusive of disbursements and
out-of-pocket expenses) incurred by the Purchasers up to $55,000 in connection
with the preparation, negotiation, execution and delivery of this Agreement, and
the other Transaction Documents and the transactions contemplated thereunder. In
addition, the Company shall pay all reasonable fees and expenses incurred by the
Purchasers in connection with the filing and declaration of effectiveness by the
Commission of the Registration Statement (as defined in the Registration Rights
Agreement), any amendments, modifications or waivers of this Agreement or any of
the other Transaction Documents or incurred in connection with the enforcement
of this Agreement and any of the other Transaction Documents, including, without
limitation, all reasonable attorneys' fees, disbursements and expenses.
Section 8.2 Specific Enforcement, Consent to Jurisdiction.
(a) The Company and each of the Purchasers acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement or the other Transaction Documents were not performed in accordance
with their specific terms or were otherwise breached. It is accordingly agreed
that the parties shall be entitled to an injunction or injunctions to prevent or
cure breaches of the provisions of this Agreement or the other Transaction
Documents and to enforce specifically the terms and provisions hereof or
thereof, this being in addition to any other remedy to which any of them may be
entitled by law or equity.
(b) Each of the Company and the Purchasers (i) hereby irrevocably submits
to the jurisdiction of the United States District Court sitting in the Southern
District of New York and the courts of the State of New York located in New York
county for the purposes of any suit, action or proceeding arising out of or
relating to this Agreement or any of the other Transaction Documents or the
transactions contemplated hereby or thereby and (ii) hereby waives, and agrees
not to assert in any such suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of such court, that the suit, action or
proceeding is brought in an inconvenient forum or that the venue of the suit,
action or proceeding is improper. Each of the Company and the Purchasers
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address in effect for notices to it
under this Agreement and agrees that such service shall constitute good and
sufficient service of process and notice thereof. Nothing in this Section 8.2
shall affect or limit any right to serve process in any other manner permitted
by law.
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Section 8.3 Entire Agreement; Amendment. This Agreement contains the
entire understanding and agreement of the parties with respect to the matters
covered hereby and, except as specifically set forth herein or in the other
Transaction Documents, neither the Company nor any of the Purchasers makes any
representations, warranty, covenant or undertaking with respect to such matters,
and they supersede all prior understandings and agreements with respect to said
subject matter, all of which are merged herein. No provision of this Agreement
may be waived or amended other than by a written instrument signed by the
Company and the holders of at least two-thirds (2/3) of the Notes then
outstanding, and no provision hereof may be waived other than by an a written
instrument signed by the party against whom enforcement of any such amendment or
waiver is sought. No such amendment shall be effective to the extent that it
applies to less than all of the holders of the Notes then outstanding. No
consideration shall be offered or paid to any person to amend or consent to a
waiver or modification of any provision of any of the Transaction Documents
unless the same consideration is also offered to all of the parties to the
Transaction Documents or holders of Notes, as the case may be.
Section 8.4 Notices. Any notice, demand, request, waiver or other
communication required or permitted to be given hereunder shall be in writing
and shall be effective (a) upon hand delivery by telex (with correct answer back
received), telecopy or facsimile at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be:
If to the Company: Virtual Communities, Inc.
589 Eighth Avenue, 7th Floor
New York, NY 10018
Attn: Avi Moskowitz
Facsimile No: (212) 214-0550
with copies (which copies
shall not constitute notice
to the Company) to: Wuersch & Gering LLP
11 Hanover Square, 21st Floor
New York, NY 10005
Attn: Travis Gering, Esq.
Facsimile No: (212) 509-9559
If to any Purchaser: At the address of such Purchaser set forth on
Exhibit A to this Agreement, with copies to
Purchaser's counsel as set forth on Exhibit A or
as
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specified in writing by such Purchaser with
copies to:
Martin Eric Weisberg, Esq.
Parker Chapin LLP
The Chrysler Building
405 Lexington Ave., 9th Floor
Telephone Number: (212) 704-6000
Fax: (212) 704-6288
Any party hereto may from time to time change its address for notices by
giving at least ten (10) days written notice of such changed address to the
other party hereto.
Section 8.5 Waivers. No waiver by either party of any default with respect
to any provision, condition or requirement of this Agreement shall be deemed to
be a continuing waiver in the future or a waiver of any other provisions,
condition or requirement hereof, nor shall any delay or omission of any party to
exercise any right hereunder in any manner impair the exercise of any such right
accruing to it thereafter.
Section 8.6 Headings. The article, section and subsection headings in this
Agreement are for convenience only and shall not constitute a part of this
Agreement for any other purpose and shall not be deemed to limit or affect any
of the provisions hereof.
Section 8.7 Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties and their successors and assigns. After
the Closing, the assignment by a party to this Agreement of any rights hereunder
shall not affect the obligations of such party under this Agreement.
Section 8.8 No Third Party Beneficiaries. This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
Section 8.9 Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York, without
giving effect to the choice of law provisions. This Agreement shall not be
interpreted or construed with any presumption against the party causing this
Agreement to be drafted.
Section 8.10 Survival. The representations and warranties of the Company
and the Purchasers contained in Sections 2.1(o) and (s) should survive
indefinitely and those contained in Article II, with the exception of Sections
2.1(o) and (s), shall survive the execution and delivery hereof and the Closings
until the date three (3) years from the Final Closing Date, and the agreements
and covenants set forth in Articles I, III, V, VI, VII and VIII of this
Agreement shall survive the execution and delivery hereof and the Closings
hereunder until the Purchasers in the aggregate beneficially own (determined in
accordance with Rule 13d-3 under the Exchange Act)
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less than 2% of the total combined voting power of all voting securities then
outstanding, provided, that Sections 3.1, 3.2, 3.4, 3.5, 3.7, 3.8, 3.9, 3.10,
3.11, 3.12, 3.13, and 3.14 shall not expire until the Registration Statement
required by Section 2 of the Registration Rights Agreement is no longer required
to be effective under the terms and conditions of Registration Rights Agreement.
Section 8.11 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and shall become effective when counterparts have been signed by each
party and delivered to the other parties hereto, it being understood that all
parties need not sign the same counterpart. In the event any signature is
delivered by facsimile transmission, the party using such means of delivery
shall cause four (4) additional executed signature pages to be physically
delivered to the other parties within five (5) days of the execution and
delivery hereof.
Section 8.12 Publicity. The Company agrees that it will not disclose, and
will not include in any public announcement, the name of the Purchasers without
the consent of the Purchasers, which consent shall not be unreasonably withheld,
or unless and until such disclosure is required by law or applicable regulation,
and then only to the extent of such requirement.
Section 8.13 Severability. The provisions of this Agreement and the
Registration Rights Agreement are severable and, in the event that any court of
competent jurisdiction shall determine that any one or more of the provisions or
part of the provisions contained in this Agreement or the Registration Rights
Agreement shall, for any reason, be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not affect
any other provision or part of a provision of this Agreement or the Registration
Rights Agreement shall be reformed and construed as if such invalid or illegal
or unenforceable provision, or part of such provision, had never been contained
herein, so that such provisions would be valid, legal and enforceable to the
maximum extent possible.
Section 8.14 Further Assurances. From and after the date of this
Agreement, upon the request of any Purchaser or the Company, each of the Company
and the Purchasers shall execute and deliver such instrument, documents and
other writings as may be reasonably necessary or desirable to confirm and carry
out and to effectuate fully the intent and purposes of this Agreement, the
Notes, the Pledge Agreement and the Registration Rights Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officer as of the date first above
written.
VIRTUAL COMMUNITIES, INC.
By:______________________________________
Name:
Title:
GILSTON CORPORATION, LTD.
By:______________________________________
Name: Deirdre M. McCoy
Title: Director
WARWICK CORPORATION LTD.
By:______________________________________
Name:
Title:
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ACQUA WELLINGTON VALUE FUND, LTD.
By:______________________________________
Name: Anthony L.M. Inder Rieden
Title: Director
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EXHIBIT A to the
SECURED CONVERTIBLE NOTES PURCHASE AGREEMENT
FOR VIRTUAL COMMUNITIES, INC.
Names and Residence Amount of Notes Purchase
of Purchasers to be Purchased Price
------------------- --------------- --------
Gilston Corporation, Ltd. Notes: $ $
Charlotte House
Charlotte Street
Nassau, Bahamas
Tel. no.: 242-323-8884
Fax no.: 242-323-7918
Attn: Deirdre M. McCoy
Warwick Corporation Ltd. Notes: $ $
[Address]
Tel. no.:
Fax no.:
Attn:
Acqua Wellington Value Fund, Ltd. Notes: $ $
c/o MeesPierson Fund Services
(Bahamas) Limited
Montague Sterling Centre
P.O. Box SS-6238
East Bay Street
Nassau, Bahamas
Tel. no.: 242-394-2700
Fax no.: 242-394-8348
Attn: Anthony L.M. Inder Rieden
<PAGE>
Exhibit F
[FORM OR OPINION]
[TO BE DISCUSSED]
<PAGE>
Exhibit G
[FORM OF RELEASE AND AMENDMENT AGREEMENT]
[TO BE SUPPLIED]
<PAGE>
Exhibit H
[FORM OF RELEASE]
[TO BE SUPPLIED]
