Exhibit 10.2
EXHIBIT C
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement"), dated as of March 30,
2003, is entered into by and among BestNet Communications Corp., a Nevada
corporation (the "Company"), and the undersigned investors (each individually an
"Investor" and collectively the "Investors"). Capitalized terms used but not
otherwise defined herein shall have the meaning assigning to such terms in that
certain Unit Purchase Agreement by and among the Company and the Investors of
even date herewith.
WHEREAS, the Company has entered into a Unit Purchase Agreement dated March
30, 2003, by and among the Company and the Investors (the "Purchase Agreement")
pursuant to which the Investors agreed to purchase from the Company a portion of
the 4,500,000 units (collectively, the "Units" and individually a "Unit")
offered by the Company, at a purchase price per Unit of $0.30, each unit
consisting of the following securities: (a) three shares of Common Stock, par
value $.001 per share, of the Company (the "Common Stock"); (b) one share of
Series A Preferred Stock, par value $.001 per share, of the Company (the
"Preferred Stock"); and (c) three-year warrants (the "Warrants") to purchase one
share of Common Stock at a per share exercise price of $0.30;
WHEREAS, the Preferred Stock is convertible into two shares of Common Stock
of the Company, pursuant to the terms of a Certificate of Designations attached
as Exhibit A to the Purchase Agreement; and
WHEREAS, pursuant to the terms of the Purchase Agreement, the Company has
agreed to provide the Investors with certain registration rights with respect to
the Units issued pursuant to the Purchase Agreement and the securities that
comprise the Units.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained in this Agreement, the parties hereto agree as follows:
1. REGISTRATION RIGHTS.
a. DEMAND REGISTRATION. One or more Investors holding a majority of the
Units (the "Initiating Investors") may elect to exercise the right to request a
Demand Registration pursuant to this Section 1 by furnishing the Company with
written notice thereof (a "Demand Notice"). Upon receipt by the Company of a
Demand Notice, the Company shall promptly notify each other Investor of the
Demand Notice received by the Company. Upon receipt of such notice from the
Company (the "Company Notice"), each such Investor may give the Company a
written request to register all or some of such Investor's Units and Registrable
Shares in the registration described in the Company Notice, provided that such
written request is received within twenty (20) days after the date on which the
Company Notice is given (with such request stating (i) the amount of Units and
Registrable Shares to be included, (ii) such Investor's intended method of
distribution of such Units and Registrable Shares and (iii) any other
information reasonably requested by the Company to properly effect the
registration of such Units and Registrable Shares). The Company shall as soon as
practicable after the date on which the Company Notice is given, but in no event
less than 30 days from receipt of the Company Notice and no more than 45 days
from receipt by the Company of the Demand Notice, file with the Commission and
use its commercially reasonable best efforts to promptly cause to become
effective no later than 120 days from filing a Registration Statement which
shall cover the Units and Registrable Shares specified in the Demand Notice and
in any written request from any other Investor received by the Company within
twenty (20) days from the date on which the Unconditional Company Notice is
received. In the event the Company is unable to file a Registration Statement to
register all of the Registrable Shares as a result of the failure to have
sufficient authorized capital stock with respect to the shares of Common Stock
issuable upon conversion of the Preferred Stock and upon exercise of the
Warrants, then one or more Investors holding a majority of the Units may request
a second Demand Registration with respect to such unregistered Registrable
Shares in the same manner as described in this Section 1(a).
b. INCLUSION OF OTHER SECURITIES IN REGISTRATION STATEMENT. The
Registration Statement filed pursuant to the request of the Initiating Investors
may, subject to the provisions of SECTION 1(c) below, include other securities
of the Company which are held by persons who, by virtue of agreements entered
into with the Company prior or subsequent to the date of this Agreement, are
entitled to include their securities in such registration.
If, by virtue of agreements with the Company, the holders of other
securities of the Company (the "Other Holders") request and are entitled to
inclusion in such registration, the Company shall, on behalf of all Investors,
offer to the Other Holders that such other securities be included in the
underwriting and may condition such offer on the acceptance by such Other
Holders of the further provisions of this Section 1.
c. REGISTRATION LIMITATION. Except as otherwise provided in SECTION 1(a),
the Company shall be obligated to register Investor stock pursuant to SECTION
1(a) on one occasion only, provided, however, that such obligation shall be
deemed satisfied only when a registration statement covering all shares of
Investor stock specified in notices received as aforesaid, for sale in
accordance with the method of disposition specified by the requesting holders,
shall have (i) become effective, or (ii) been withdrawn at the request of the
Investors requesting such registration (other than solely as a result of
material information concerning the business or financial condition of the
Company which is made known to such Investors after the date on which
registration was requested). In addition, the Company shall not be required to
effect any registration within 180 days after the effective date of any other
Registration Statement of the Company.
d. COMPANY'S RIGHT TO DELAY REGISTRATION. If at the time of any request to
register Units and Registrable Shares pursuant to SECTION 1(a), the Company is
engaged or has fixed plans to engage within 30 days of the time of the Demand
Notice in a registered public offering as to which the Investors may include
Units and Registrable Shares, then the Company may at its option direct that
such request be delayed for a period not in excess of 120 days from the
effective date of such offering or 120 days from the date of commencement of
such other material activity, as the case may be, such right to delay a request
to be exercised by the Company not more than once.
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2. REGISTRATION PROCEDURES. If and whenever the Company is required by the
provisions of SECTION 1 of this Agreement to use its reasonable best efforts to
effect the registration of any of the Units and Registrable Shares under the
Securities Act, the Company shall:
a. prepare and file with the Commission a Registration Statement with
respect to such Units and Registrable Shares and use its reasonable best efforts
to cause that Registration Statement to become and remain effective;
b. as expeditiously as possible prepare and file with the Commission any
amendments and supplements to the Registration Statement and the prospectus
included in the Registration Statement as may be necessary to keep the
Registration Statement effective, in the case of a firm commitment underwritten
public offering, until each underwriter has completed the distribution of all
securities purchased by it but not more than one year after the effective date
and, in the case of any other offering, until the earlier of the sale of all
Units and Registrable Shares covered thereby or one year after the effective
date thereof;
c. as expeditiously as possible furnish to each Selling Investor such
reasonable numbers of copies of the prospectus, including a preliminary
prospectus, in conformity with the requirements of the Securities Act, and such
other documents as the Selling Investor may reasonably request in order to
facilitate the public sale or other disposition of the Units and Registrable
Shares owned by the selling Investor;
d. as expeditiously as possible use its reasonable best efforts to register
or qualify the Units and Registrable Shares covered by the Registration
Statement under the securities or blue sky laws of such states as the Selling
Investors shall reasonably request, and do any and all other acts and things
that may be necessary or desirable to enable the Selling Investors to consummate
the public sale or other disposition in such states of the Units and Registrable
Shares owned by the selling Investor; and
e. keep the Registration Statement effective for a period ending on the
earlier of the sale by the Selling Investors of all Units and Registrable Shares
covered by the Registration Statement or one year from the effective date of the
Registration Statement.
If the Company has delivered preliminary or final prospectuses to the
Selling Investors and after having done so the prospectus is amended to comply
with the requirements of the Securities Act, the Company shall promptly notify
the Selling Investors and, if requested, the Selling Investors shall immediately
cease making offers of Units and Registrable Shares and return all prospectuses
to the Company at the Company's sole cost and expense. The Company shall
promptly provide the Selling Investors with revised prospectuses and, following
receipt of the revised prospectuses, the Selling Investors shall be free to
resume making offers of the Units and Registrable Shares.
3. COMPANY REGISTRATION.
a. "PIGGY-BACK" RIGHTS. If the Company proposes to register (including for
this purpose a registration effected by the Company for its stockholders) any of
its stock or other securities under the Securities Act, in connection with the
public offering of such securities, on a registration form that would also allow
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the registration of the Units and Registrable Shares (other than a registration
relating solely to the sale of securities to participants in a Company stock
plan, a registration relating to corporate reorganization or other transaction
under Rule 145 of the Securities Act, or a registration in which the only Common
Stock being registered is Common Stock issuable upon conversion of debt
securities which are also being registered), the Company shall, prior to filing
the registration statement with the Commission, promptly give each Investor
written notice of such proposed registration (the "Registration Notice"). Upon
receipt of such notice from the Company, each such Investor may give the Company
a written request (the "Piggy-back Request") to include all or some of such
Investor's Units and Registrable Shares in the registration described in the
Registration Notice, provided that such written request is received within
twenty (20) days after the date on which the Registration Notice is given (with
such request stating (i) the amount of Units and Registrable Shares to be
included, (ii) such Investor's intended method of distribution of such Units and
Registrable Shares and (iii) any other information reasonably requested by the
Company to properly effect the registration of such Units and Registrable
Shares). Upon the timely receipt by the Company of the Piggy-back Request, the
Company shall, subject to the provisions of Section 3(c), use its good faith
best efforts to cause to be registered under the Act all of the Units and
Registrable Shares that each such Investor has requested.
b. RIGHT TO TERMINATE REGISTRATION. The Company shall have the right to
terminate or withdraw any registration initiated by it under this SECTION 3
prior to the effectiveness of such registration whether or not any Holder has
elected to include securities in such registration. The expenses of such
withdrawn registration shall be borne by the Company in accordance with SECTION
4 hereof.
c. UNDERWRITING REQUIREMENTS. In connection with any offering involving an
underwriting of shares of the Company's capital stock, the Company shall not be
required under this SECTION 3 to include any of the Investors' shares in such
underwriting unless they accept the terms of the underwriting as agreed upon
between the Company and the underwriters selected by it (or by other persons
entitled to select the underwriters) and to enter into any underwriting
agreement in customary form with an underwriter or underwriters selected by the
Company, and then only in such quantity as the underwriters determine will not
jeopardize the success of the offering by the Company. If the total amount of
securities, including Units and Registrable Shares, requested to be included in
such offering exceeds the amount of securities that the underwriters determine
is compatible with the success of the offering, then the Units and Registrable
Shares of the Investors and the securities held by any other stockholders
distributing their securities through such underwriting shall be excluded from
the underwriting by reason of the underwriter's marketing limitation to the
extent so required by such limitation as follows: the Units and Registrable
Shares held by the Investors and such other stockholders distributing their
securities through such underwriting shall be excluded in a manner such that the
number of any Units and Registrable Shares and such other securities that may be
included by such holders are allocated in proportion, as nearly as practicable
to the amounts of registrable securities held by such holders. For purposes of
apportionment, for any selling stockholder that is an Investor holding Units and
Registrable Shares, and that is a partnership or corporation, the partners,
retired partners and stockholders of such Investor, or the estates and family
members of any such partners and retired partners and any trusts for the benefit
of any of the foregoing persons shall be deemed to be a single Investor, and any
pro rata reduction with respect to such Investor shall be based upon the
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aggregate amount of Units and Registrable Shares owned by all such related
entities and individuals.
4. ALLOCATION OF EXPENSES. The Company will pay all Registration Expenses of all
registrations under this Agreement. For purposes of this SECTION 4, the term
"Registration Expenses" shall mean all expenses to be incurred by the Company in
complying with this Agreement, including, without limitation, all registration
and filing fees, exchange listing fees, printing and shipping expenses, fees and
expenses of counsel for the Company, state blue sky fees and expenses.
Notwithstanding the foregoing, "Registration Expenses" shall not include any and
all underwriting discounts and selling commissions applicable to the sale of the
Units and the Registrable Securities.
5. INDEMNIFICATION AND CONTRIBUTION.
a. In the event of any registration of any of the Units and Registrable
Shares under the Securities Act pursuant to this Agreement, the Company will
indemnify and hold harmless the Selling Investor of such Units and Registrable
Shares, each underwriter of such Units and Registrable Shares, if any, and each
other person, if any, who controls such Selling Investor or underwriter within
the meaning of the Securities Act or the Exchange Act against any losses,
claims, damages or liabilities, joint or several, to which such Selling
Investor, underwriter or controlling person may become subject under the
Securities Act, the Exchange Act, state securities or blue sky laws or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any Registration Statement
under which such Units and Registrable Shares were registered under the
Securities Act, any preliminary prospectus or final prospectus contained in the
Registration Statement, or any amendment or supplement to such Registration
Statement, or arise out of or are based upon the omission or alleged omission to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading; provided, however, that the Company will not be liable in any
such case to the extent that any such loss, claim, damage or liability arises
out of or is based upon any untrue statement or omission made in such
Registration Statement, preliminary prospectus or final prospectus, or any such
amendment or supplement, (i) in reliance upon and in conformity with information
furnished to the Company, in writing, by or on behalf of such Selling Investor,
underwriter or controlling person specifically for use in the preparation
thereof or (ii) which untrue statement was corrected by the Company and
delivered to the Selling Investor prior to consummation of the sale by the
Selling Investor resulting in such loss, claim, damage or liability.
b. In the event of any registration of any of the Units and Registrable
Shares under the Securities Act pursuant to this Agreement, each Selling
Investor of Units and Registrable Shares, severally and not jointly, will
indemnify and hold harmless the Company, each of its directors and officers and
each underwriter (if any) and each person, if any, who controls the Company or
any such underwriter within the meaning of the Securities Act or the Exchange
Act, against any losses, claims, damages or liabilities, joint or several, to
which the Company, such directors and officers, underwriter or controlling
person may become subject under the Securities Act, Exchange Act, state
securities or blue sky laws or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of a material fact
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contained in any Registration Statement under which such Units and Registrable
Shares were registered under the Securities Act, any preliminary prospectus or
final prospectus contained in the Registration Statement, or any amendment or
supplement to the Registration Statement, or arise out of or are based upon any
omission or alleged omission to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, provided that such
statement or omission was made in reliance upon and in conformity with
information relating to such Selling Investor furnished in writing to the
Company by and on behalf of such Selling Investor specifically for use in
connection with the preparation of such Registration Statement, prospectus,
amendment or supplement; PROVIDED, HOWEVER, that the obligations of such Selling
Investors hereunder shall be limited to an amount equal to the proceeds to each
Selling Investor of Units and Registrable Shares sold in connection with such
registration.
c. Each party entitled to indemnification under this SECTION 5 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; PROVIDED, HOWEVER, that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (whose approval shall not be
unreasonably withheld); and, PROVIDED, FURTHER, that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this SECTION 5, except to the extent
that such delay prejudices such indemnifying party. The Indemnified Party may
participate in such defense at such party's expense; PROVIDED, HOWEVER, that the
Indemnifying Party shall pay such expense if representation of such Indemnified
Party by the counsel retained by the Indemnifying Party would be inappropriate
due to actual or potential differing interests between the Indemnified Party and
any other party represented by such counsel in such proceeding. No Indemnifying
Party, in the defense of any such claim or litigation shall, except with the
consent of each Indemnified Party, consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party of a release from
all liability in respect of such claim or litigation, and no Indemnified Party
shall consent to entry of any judgment or settle such claim or litigation
without the prior written consent of the Indemnifying Party.
d. If the indemnification provided for under this SECTION 5 is unavailable
to or insufficient to hold the Indemnified Party harmless under subparagraphs
(a) or (b) above in respect of any losses, claims, damages or liabilities (or
actions in respect thereof) referred to therein for any reason other than as
specified therein, then the Indemnifying Party shall contribute to the amount
paid or payable by such Indemnified Party as a result of such losses, claims,
damages or liabilities (or actions in respect thereof) (i) in such proportion as
is appropriate to reflect the relative benefits received by the Indemnifying
Party on the one hand and such Indemnified Party on the other from the subject
offering or distribution or (ii) if the allocation provided by clause (i) above
is not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above but also
the relative fault of the Indemnifying Party on the one hand and such
Indemnified Party on the other in connection with the statements or omissions
which resulted in such losses, claims, damages or liabilities (or actions in
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respect thereof) as well as any other relevant equitable considerations. The
relative benefits received by the Indemnifying Party on the one hand and the
Indemnified Party on the other hand shall be deemed to be in the same proportion
as the net proceeds of the offering or other distribution (after deducting
expenses) received by the Indemnifying Party bears to the net proceeds of the
offering or other distribution (after deducting expenses) received by the
Indemnified Party. The relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by (or omitted to be supplied by) the Company or the
Selling Investor, the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission, the relative
benefits received by each party from the sale of the Units and Registrable
Shares and any other equitable considerations appropriate under the
circumstances. The amount paid or payable by an Indemnified Party as a result of
the losses, claims, damages or liabilities (or actions in respect thereof)
referred to above in this subsection (d) shall be deemed to include any legal or
other expenses reasonably incurred by such Indemnified Party in connection with
investigating or defending any such action or claim. No person guilty of
fraudulent misrepresentation (within the meaning of SECTION 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
6. INFORMATION BY INVESTOR. Each Investor including Units and Registrable Shares
in any registration shall furnish to the Company such information regarding such
Investor and the distribution proposed by such Investor as the Company may
reasonably request in writing and as shall be required in connection with any
registration, qualification or compliance referred to in this Agreement. The
Investors shall perform all acts reasonably necessary to effect the registration
of the Units and Registrable Shares.
7. CERTAIN DEFINITIONS. As used in this Agreement, the following terms shall
have the following respective meanings:
"COMMISSION" means the Securities and Exchange Commission, or any other
federal agency at the time administering the Securities Act.
"COMMON STOCK" means the common stock, par value $.001 per share, of the
Company.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, or
any similar federal statute, and the rules and regulations promulgated
thereunder, all as the same shall be in effect at the time.
"REGISTRATION EXPENSES" means the expenses described in Section 4.
"REGISTRABLE SHARES" shall mean shares of Common Stock issued to the
Investors pursuant to the Purchase Agreement and any other shares of capital
stock of the Company issued to the Investors in respect of such shares as a
result of stock splits, stock dividends, reclassification, recapitalizations,
mergers, consolidations or similar events. Registrable Shares shall also mean
all shares of Common Stock issued to the Investors pursuant to the conversion of
the Preferred Stock and upon exercise of the Warrants and any other shares of
capital stock of the Company issued to the Investors in respect of such shares
as a result of stock splits, stock dividends, reclassification,
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recapitalizations, mergers, consolidations or similar events. References in this
Agreement to amounts or percentages of Registrable Shares as of or on any
particular date shall be deemed to refer to amounts or percentages after giving
effect to any applicable events contemplated by the preceding sentences.
"REGISTRATION STATEMENT" shall mean any registration statement of the
Company, including, without limitation, an initial Registration Statement, on
any form (to be selected by the Company) for which the Company then qualifies
and which permits the secondary resale thereunder of the Units and the
Registrable Shares. The term Registration Statement shall also include all
exhibits and financial statements and schedules and documents incorporated by
reference in such Registration Statement when it becomes effective under the
Securities Act, and in the case of the references to the Registration Statement
as of a date subsequent to the effective date, as amended or supplemented as of
such date.
"SECURITIES ACT" means the Securities Act of 1933, as amended, or any
similar federal statute, and the rules and regulations promulgated thereunder,
all as the same shall be in effect at the time.
"SELLING INVESTOR" shall mean any Investor whose Registrable Shares are
included at the request of such Investor in any Registration Statement filed
pursuant to this Agreement.
"INVESTOR" shall mean a Investor (as defined in the preamble to this
Agreement) or any transferee of Registrable Shares, if such transferee has
executed a counterpart hereof at the time of the transfer to such transferee,
unless the Registrable Shares held by such transferee are acquired in a public
distribution pursuant to a registration statement under the Securities Act.
8. GENERAL.
a. NOTICES. All notices, requests, claims, demands and other communications
hereunder shall be in writing and shall be deemed to have been given if sent by
registered or certified mail, first class postage prepaid, return receipt
requested, to the address of such parties set forth on the signature pages of
this Agreement or such other future address as may be specified by any party by
notice to all of the other parties. Such communications may also be given by
personal delivery, by facsimile or by regular mail, but shall be effective only
if and when actually received.
b. ENTIRE AGREEMENT. This Agreement embodies the entire agreement and
understanding between the parties hereto with respect to the subject matter
hereof and supersedes all prior agreements and understandings relating to such
subject matter.
c. AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended with
the written consent of the Company and each of the Investors. No waivers of or
exceptions to any term, condition or provision of this Agreement, in any one or
more instances, shall be deemed to be, or construed as, a further or continuing
waiver of any such term, condition or provision. A party hereto may waive the
performance of any covenant for its benefit (either generally or in a particular
instance and either retroactively or prospectively), PROVIDED, HOWEVER, that no
such waiver shall be effective unless in writing and signed by such party.
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d. SEVERABILITY. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
e. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Nevada without regard to its principals
of conflicts of law.
f. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same instrument.
g. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of,
and be binding upon, the successors, assigns and transferees of each of the
parties hereto.
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IN WITNESS WHEREOF, the Company and the Investors have executed this
Agreement as of the _____ day of ________, 2003.
COMPANY
BESTNET COMMUNICATIONS CORP.
By:
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ADDRESS FOR NOTICE:
5075 Cascade Road SE, Suite A
Grand Rapids, Michigan 49546
Telecopy: (616) 977-9955
WITH A COPY TO:
Squire, Sanders & Dempsey L.L.P.
Attn: Gregory R. Hall, Esq.
Two Renaissance Square
40 North Central Avenue, Suite 2700
Phoenix, Arizona 85004
Telecopy: (602) 253-8129
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INVESTORS
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Address for Notice:
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[Investor Signature Page]