SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT dated as of September 27, 2000, between
Xxxxxx.xxx, Inc., a Delaware corporation with principal executive offices
located at 000 Xxxxxxxx Xxxxx, Xxxxx 000, Xxxxxxxx, Xxxxxxxxxx 00000 (the
"Company"), and the persons signatory hereto (the "Buyers").
W I T N E S S E T H:
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WHEREAS, Buyers desires to purchase from the Company, and the Company
desires to issue and sell to the Buyers, upon the terms and subject to the
conditions of this Agreement, (i) 1,200 shares of Series B Convertible Preferred
Stock, $0.01 par value (the "Preferred Stock"), having the rights, preferences
and privileges set forth in the Certificate of Designations of Rights,
Preferences, Privileges and Restrictions of Series B Preferred Stock attached
hereto as ANNEX I (the "Certificate of Designations"), (ii) warrants to purchase
an aggregate of 545,450 shares (the "Warrants") of the Company's common stock
$0.01 par value (the "Common Stock"), 272,725 Warrants in the form attached
hereto as Annex II-A ("Class A Warrants") and 272,725 Warrants in the form
attached hereto as Annex II-B ("Class B Warrants").
WHEREAS, upon the terms and subject to the conditions set forth in the
Certificate of Designations, the Preferred Stock is convertible into shares of
Common Stock;
WHEREAS, the Warrants, upon the terms and subject to the conditions in
the Warrants, will for a period of five (5) years be exercisable to purchase
545,450 shares of Common Stock;
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties hereto, intending to be legally bound,
hereby agree as follows:
I. PURCHASE AND SALE OF PREFERRED STOCK AND WARRANTS
A. TRANSACTION. Each Buyer hereby agrees to purchase from the
Company, and the Company hereby agrees to issue and sell to each Buyer, in a
transaction exempt from the registration and prospectus delivery requirements of
the Securities Act of 1933, as amended (the "Securities Act"), the number of
shares of Preferred Stock and Warrants set forth on the signature page hereof.
B. PURCHASE PRICE; FORM OF PAYMENT. The purchase price for the
Preferred Stock and Warrants to be purchased by Buyer hereunder shall be equal
to one thousand dollars ($1,000) times the number of shares of Preferred Stock
purchased (the "Purchase Price"). Each Buyer shall pay the Purchase Price on the
date hereof by wire transfer of immediately available funds to the escrow agent
(the "Escrow Agent") identified in those certain Escrow Instructions of even
date herewith, a copy of which is attached hereto as ANNEX III (the "Escrow
Instructions").
Simultaneously against receipt by the Escrow Agent of the Purchase
Price, the Company shall deliver one or more duly authorized, issued and
executed certificates (I/N/O Buyer or, if the Company otherwise has been
notified, I/N/O Buyer's nominee) evidencing the Securities, to the Escrow Agent
or its designated depository. By executing and delivering this Agreement, Buyer
and the Company each
hereby agrees to observe the terms and conditions of the Escrow Instructions,
all of which are incorporated herein by reference as if fully set forth herein.
C. METHOD OF PAYMENT. Payment into escrow of the Purchase Price
shall be made by wire transfer of immediately available funds to:
Transfer Online Escrow 1
000 X X Xxxx, Xxxxx 000
Xxxxxxxx, Xxxxxx 00000
Account # 370591005548
For the account of Xxxxxx.xxx
Simultaneously with the execution of this Agreement, the Buyer shall deposit
with the Escrow Agent the Purchase Price and the Company shall deposit with the
Escrow Agent the Securities.
II. BUYER'S REPRESENTATIONS, WARRANTIES; ACCESS TO INFORMATION;
INDEPENDENT INVESTIGATION.
Buyer represents and warrants to and covenants and agrees with the
Company as follows:
A. Buyer is purchasing the Preferred Stock, the Warrants, the
Common Stock issuable upon exercise of the Warrants (the "Warrant Shares") and
the shares of Common Stock issuable upon conversion of the Preferred Stock,
including payment of the Additional Amounts, as defined in the Certificate of
Designations (the "Conversion Shares" and, collectively with the Preferred
Stock, the Warrants and the Warrant Shares, the "Securities") for its own
account, for investment purposes only and not with a view towards or in
connection with the public sale or distribution thereof in violation of the
Securities Act.
B. Buyer is (i) an "accredited investor" within the meaning of
Rule 501 of Regulation D under the Securities Act, (ii) experienced in making
investments of the kind contemplated by this Agreement, (iii) capable, by reason
of its business and financial experience, of evaluating the relative merits and
risks of an investment in the Securities, and (iv) able to afford the loss of
its investment in the Securities.
C. Buyer understands that the Securities are being offered and
sold by the Company in reliance on an exemption from the registration
requirements of the Securities Act and equivalent state securities and "blue
sky" laws, and that the Company is relying upon the accuracy of, and Buyer's
compliance with, Buyer's representations, warranties and covenants set forth in
this Agreement to determine the availability of such exemption and the
eligibility of Buyer to purchase the Securities;
D. Buyer has been furnished with or provided access to all
materials relating to the business, financial position and results of operations
of the Company, and all other materials requested by Buyer to enable it to make
an informed investment decision with respect to the Securities.
E. Buyer acknowledges that it has been furnished with, or had
access to through the XXXXX system of the Securities and Exchange Commission
(the "SEC"), copies of the Company's Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1999 and all other reports and documents heretofore
filed by the Company with the SEC pursuant to the Securities Act and the
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Securities Exchange Act of 1934, as amended (the "Exchange Act"), since December
31, 1999 (collectively the "SEC Filings").
F. Buyer acknowledges that in making its decision to purchase
the Securities it has been given an opportunity to ask questions of and to
receive answers from the Company's executive officers, directors and management
personnel concerning the terms and conditions of the private placement of the
Securities by the Company.
G. Buyer understands that the Securities have not been
approved or disapproved by the SEC or any state securities commission and that
the foregoing authorities have not reviewed any documents or instruments in
connection with the offer and sale to it of the Securities and have not
confirmed or determined the adequacy or accuracy of any such documents or
instruments.
H. This Agreement has been duly and validly authorized, executed
and delivered by Buyer and is a valid and binding agreement of Buyer enforceable
against it in accordance with its terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally.
I. Neither Buyer nor its affiliates, nor any person acting on
its or their behalf, has the intention of entering, or will enter into, prior to
the closing, or has entered within the past 30 days, any put option, short
position or other similar instrument or position with respect to the Common
Stock and neither Buyer nor any of its affiliates, nor any person acting on its
or their behalf, will use at any time shares of Common Stock acquired pursuant
to this Agreement to settle any put option, short position or other similar
instrument or position that may have been entered into prior to the execution of
this Agreement.
III. COMPANY'S REPRESENTATIONS
The Company represents and warrants to Buyer that except as disclosed
on Schedule III hereto:
A. CAPITALIZATION. 1. The authorized capital stock of the Company
consists of 50,000,000 shares of Common Stock, of which 17,617,506 shares are
outstanding on the date hereof and 5,000,000 shares of preferred stock, par
value $0.01, of which 195 shares of Series A Convertible Preferred Stock are
outstanding on the date hereof. All of the issued and outstanding shares of
Common Stock and Preferred Stock have been duly authorized and validly issued
and are fully paid and non-assessable. As of the date hereof, the Company has
outstanding stock options and warrants to purchase 7,585,952 shares of Common
Stock as set forth on Schedule III.A. The Conversion Shares and Warrant Shares
have been duly and validly authorized and reserved for issuance by the Company,
and when issued by the Company upon conversion of the Preferred Shares
(including payment of the Additional Amount), or on exercise of the Warrants,
will be duly and validly issued, fully paid and non-assessable and will not
subject the holder thereof to personal liability by reason of being such holder.
There are no preemptive, subscription, "call" or other similar rights to acquire
the Common Stock (including the Conversion Shares and Warrant Shares) that have
been issued or granted to any person.
2. The Company does not have any subsidiaries and does not
own or control, directly or indirectly, any interest in any other corporation,
partnership, limited liability company, unincorporated business organization,
association, trust or other business entity.
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B. ORGANIZATION; REPORTING COMPANY STATUS.
1. The Company is a corporation duly organized, validly existing
and in good standing under the laws of its jurisdiction of organization and is
duly qualified as a foreign corporation in all jurisdictions in which the
failure to so qualify would have a material adverse effect on the business,
properties, prospects, condition (financial or otherwise) or results of
operations of the Company or on the consummation of any of the transactions
contemplated by this Agreement (a "Material Adverse Effect").
2. The Company has registered the Common Stock pursuant to
Section 12 of the Exchange Act and has timely filed with the SEC all reports and
information required to be filed by it pursuant to all reporting obligations
under Section 13(a) or 15(d), as applicable, of the Exchange Act for the
12-month period immediately preceding the date hereof. The Common Stock is
listed and traded on the NASDAQ SmallCap Market ("NASDAQ") and the Company has
not received any notice regarding, and to its knowledge there is no threat, of
the termination or discontinuance of the eligibility of the Common Stock for
such listing.
C. AUTHORIZED SHARES. The Company has duly and validly authorized
and reserved for issuance shares of Common Stock sufficient in number for the
conversion of the Preferred Stock (assuming for purposes of this Section III.C.
a Conversion Price (as defined in the Certificate of Designations) of $.25 and
the exercise of the Warrants. The Company understands and acknowledges the
potentially dilutive effect to the Common Stock of the issuance of the
Conversion Shares upon conversion of the Preferred Stock and the Warrant Shares
upon exercise of the Warrants. The Company further acknowledges that its
obligation to issue Conversion Shares upon conversion of the Preferred Stock and
Warrant Shares upon exercise of the Warrants in accordance with this Agreement
is absolute and unconditional regardless of the dilutive effect that such
issuance may have on the ownership interests of other stockholders of the
Company, notwithstanding the commencement of any case under 11 U.S.C. ss. 101 et
seq. (the "Bankruptcy Code"). In the event the Company is a debtor under the
Bankruptcy Code, the Company hereby waives to the fullest extent permitted any
rights to relief it may have under 11 U.S.C. ss. 362 in respect of the
conversion of the Preferred Stock and the exercise of the Warrants. The Company
agrees, without cost or expense to the Buyer, to take or consent to any and all
action necessary to effectuate relief under 11 U.S.C. ss. 362.
D. AUTHORITY; VALIDITY AND ENFORCEABILITY. The Company has
the requisite corporate power and authority to enter into this Agreement, the
Certificate of Designations, the Registration Rights Agreement of even date
herewith between the Company and Buyer, a copy of which is annexed hereto as
Annex IV (the "Registration Rights Agreement") and the Warrants and to perform
all of its obligations hereunder and thereunder (including the issuance, sale
and delivery to Buyer of the Securities). The execution, delivery and
performance by the Company of this Agreement, the Certificate of Designations,
the Warrants and the Registration Rights Agreement, and the consummation by the
Company of the transactions contemplated hereby and thereby (the issuance of the
Preferred Stock, the Warrants and the issuance and reservation for issuance of
the Conversion Shares and Warrant Shares), has been duly authorized by all
necessary corporate action on the part of the Company and no further consent or
authorization of the Company or its Board of Directors or stockholders is
required, except to the extent stockholder approval is required under NASDAQ
rules. Each of this Agreement, the Certificate of Designations, the Warrants and
the Registration Rights Agreement has been duly validly executed and delivered
by the Company and each instrument constitutes a valid and binding obligation of
the Company enforceable against it in accordance with its terms, subject to
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and similar laws affecting creditors, rights and remedies generally.
The Securities have been duly and validly authorized for issuance by the Company
and, when executed and delivered by the Company, will be valid and binding
obligations of the Company
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enforceable against it in accordance with their terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
similar laws affecting creditors' rights and remedies generally.
E. NON-CONTRAVENTION. The execution and delivery by the Company
of this Agreement, the Certificate of Designations, the Warrants and the
Registration Rights Agreement, the issuance of the Securities, and the
consummation by the Company of the other transactions contemplated hereby and
thereby, do not and will not conflict with or result in a breach by the Company
of any of the terms or provisions of, or constitute a default (or an event
which, with notice, lapse of time or both, would constitute a default) under (i)
the Amended and Restated Certificate of Incorporation or by-laws of the Company,
(ii) except for such conflict, breach or default which would not have a Material
Adverse Effect, any indenture, mortgage, deed of trust or other material
agreement or instrument to which the Company is a party or by which their
respective properties or assets are bound, or (iii) any law, rule, regulation,
decree, judgment or order of any court or public or governmental authority
having jurisdiction over the Company or any of the Company's properties or
assets, nor is the Company otherwise in violation of, conflict with or in
default under any of the foregoing, except for such conflict, breach or default
which would not have a Material Adverse Affect.
F. APPROVALS. No authorization, approval or consent of any court
or public or governmental authority is required to be obtained by the Company
for the issuance and sale of the Preferred Stock and the Warrants (and the
Conversion Shares and Warrant Shares) to Buyer as contemplated by this
Agreement, except such authorizations, approvals and consents that have been
obtained by the Company prior to the date hereof.
G. SEC FILINGS. None of the SEC Filings contained at the time
they were filed any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the statements
made therein, in light of the circumstances under which they were made, not
misleading. The Company has not provided to Buyer any information that,
according to applicable law, rule or regulation, should have been disclosed
publicly prior to the date hereof by the Company, but which has not been so
disclosed.
H. ABSENCE OF CERTAIN CHANGES. Except as disclosed in the SEC
Filings or the Financial Statements (as defined in Section III.L. hereto), since
the Balance Sheet Date (as defined in Section III.L.), there has not occurred
any change, event or development in the business, financial condition, prospects
or results of operations of the Company, and there has not existed any condition
having or reasonably likely to have, a Material Adverse Effect.
I. FULL DISCLOSURE. There is no fact known to the Company (other
than general economic or industry conditions known to the public generally) that
has not been fully disclosed in writing to the Buyer that (i) reasonably would
be expected to have a Material Adverse Effect or (ii) reasonably would be
expected to materially and adversely affect the ability of the Company to
perform its obligations pursuant to this Agreement, the Certificate of
Designations, the Warrants or the Registration Rights Agreement.
J. ABSENCE OF LITIGATION. There is no action, suit, claim,
proceeding, inquiry or investigation pending or, to the Company's knowledge,
threatened, by or before any court or public or governmental authority which, if
determined adversely to the Company, would have a Material Adverse Effect.
5
K. ABSENCE OF EVENTS OF DEFAULT. No "Event of Default" (as
defined in any agreement or instrument to which the Company is a party) and no
event which, with notice, lapse of time or both, would constitute an Event of
Default (as so defined), has occurred and is continuing, which could have a
Material Adverse Effect.
L. FINANCIAL STATEMENTS; NO UNDISCLOSED LIABILITIES. The Company
has delivered or made available to Buyer true and complete copies of its audited
balance sheet as at December 31, 1999 and the related audited statements of
operations and cash flows for the fiscal year ended December 31, 1999 including
the related notes and schedules thereto as well as the same unaudited financial
statements as of and for the six month period ended June 30, 2000 (collectively,
the "Financial Statements"), and all management letters, if any, from the
Company's independent auditors relating to the dates and periods covered by the
Financial Statements. Each of the Financial Statements has been prepared in
accordance with United States General Accepted Accounting Principles ("GAAP")
(subject, in the case of the interim Financial Statements, to normal year end
adjustments and the absence of footnotes) and in conformity with the practices
consistently applied by the Company without modification of the accounting
principles used in the preparation thereof, and fairly presents the financial
position, results of operations and cash flows of the Company as at the dates
and for the periods indicated. For purposes hereof, the audited balance sheet of
the Company as at December 31, 1999 is hereinafter referred to as the "Balance
Sheet" and December 31, 1999 is hereinafter referred to as the "Balance Sheet
Date". The Company has no indebtedness, obligations or liabilities of any kind
(whether accrued, absolute, contingent or otherwise, and whether due or to
become due) that would have been required to be reflected in, reserved against
or otherwise described in the Balance Sheet or in the notes thereto in
accordance with GAAP, which was not fully reflected in, reserved against or
otherwise described in the Balance Sheet or the notes thereto or was not
incurred in the ordinary course of business consistent with the Company's past
practices since the Balance Sheet Date.
M. COMPLIANCE WITH LAWS; PERMITS. The Company is in compliance
with all laws, rules, regulations, codes, ordinances and statutes (collectively
"Laws") applicable to it or to the conduct of its business, except for such
non-compliance which would not have a Material Adverse Effect. The Company
possesses all permits, approvals, authorizations, licenses, certificates and
consents from all public and governmental authorities which are necessary to
conduct its business, except for those the absence of which would not have a
Material Adverse Effect.
N. RELATED PARTY TRANSACTIONS. Neither the Company nor any of
its officers, directors or "Affiliates" (as such term is defined in Rule 12b-2
under the Exchange Act) has borrowed any moneys from or has outstanding any
indebtedness or other similar obligations to the Company. Neither the Company
nor any of its officers, directors or Affiliates (i) owns any direct or indirect
interest constituting more than a one percent equity (or similar profit
participation) interest in, or controls or is a director, officer, partner,
member or employee of, or consultant to or lender to or borrower from, or has
the right to participate in the profits of, any person or entity which is (x) a
competitor, supplier, customer, landlord, tenant, creditor or debtor of the
Company, (y) engaged in a business related to the business of the Company , or
(z) a participant in any transaction to which the Company is a party (other than
in the ordinary course of the Company's business) or (ii) is a party to any
contract, agreement, commitment or other arrangement with the Company.
O. INSURANCE. The Company maintains property and casualty,
general liability and workers' compensation, insurance with financially sound
and reputable insurers that is adequate in light of the Company's historical
claims experience. The Company has not received notice from, and has no
knowledge of any threat by, any insurer (that has issued any insurance policy to
the Company) that such
6
insurer intends to deny coverage under or cancel, discontinue or not renew any
insurance policy presently in force.
P. SECURITIES LAW MATTERS. Based, in part, upon the
representations and warranties of Buyer set forth in Section II hereof, the
offer and sale by the Company of the Securities is exempt from (i) the
registration and prospectus delivery requirements of the Securities Act and the
rules and regulations of the SEC thereunder and (ii) the registration and/or
qualification provisions of all applicable state securities and "blue sky" laws.
Other than pursuant to an effective registration statement under the Securities
Act, the Company has not issued, offered or sold Preferred Stock or any shares
of Common Stock (including for this purpose any securities of the same or a
similar class as the Preferred Stock or Common Stock, or any securities
convertible into or exchangeable or exercisable for Preferred Stock or Common
Stock or any such other securities) within the six-month period next preceding
the date hereof, except as previously disclosed in writing to Buyer, and the
Company shall not directly or indirectly take, and shall not permit any of its
directors, officers or Affiliates directly or indirectly to take, any action
(including, without limitation, any offering or sale to any person or entity of
Preferred Stock or shares of Common Stock), so as to make unavailable the
exemption from Securities Act registration being relied upon by the Company for
the offer and sale to Buyer of the Preferred Stock (and the Conversion Shares)
as contemplated by this Agreement. No form of general solicitation or
advertising has been used or authorized by the Company or any of its officers,
directors or Affiliates in connection with the offer or sale of the Preferred
Stock (and the Conversion Shares) as contemplated by this Agreement or any other
agreement to which the Company is a party.
Q. ENVIRONMENTAL MATTERS. 1. The operations of the Company are in
material compliance with all applicable Environmental Laws and all permits
issued pursuant to Environmental Laws or otherwise;
2. to its knowledge, the Company has obtained or applied for all
material permits required under all applicable Environmental Laws necessary to
operate their respective businesses;
3. to its knowledge, the Company is not the subject of any
outstanding written order of and the Company is not a party to any agreement
with, any governmental authority or person respecting (i) Environmental Laws,
(ii) Remedial Action or (iii) any Release or threatened Release of Hazardous
Materials;
4. the Company has not received, since the October 14, 1999, any
written communication alleging that it may be in violation of any Environmental
Law or any permit issued pursuant to any Environmental Law, or may have any
liability under any Environmental Law;
5. to its knowledge, the Company does not have any current
contingent liability in connection with any Release of any Hazardous Materials
into the indoor or outdoor environment (whether on-site or off-site);
6. to the Company's knowledge, there are no investigations of the
business, operations, or currently or previously owned, operated or leased
property of the Company pending or threatened which could lead to the imposition
of any liability pursuant to any Environmental Law;
7. to its knowledge, there is not located at any of the
properties of the Company any (A) underground storage tanks, (B)
asbestos-containing material or (C) equipment containing polychlorinated
biphenyls; and,
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8. the Company has provided to Buyer all environmentally related
audits, studies, reports, analyses, and results of investigations that have been
performed with respect to the currently or previously owned, leased or operated
properties of the Company.
For purposes of this Section III.Q.:
"Environmental Law" means any federal, state or local statute,
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regulation, ordinance, or rule of common law as now or hereafter in effect in
any way relating to the protection of human health and safety or the environment
including, without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act (42 U.S.C.ss.9601 et seq.), the Hazardous
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Materials Transportation Act (49 U.S.C. App.ss.1801 et seg.), the Resource
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Conservation and Recovery Act (42 U.S.C.ss.6901 et seq.), the Clean Water Act
(33 U.S.C.ss.1251 et seg.), the Clean Air Act (42 U.S.C.ss.7401 et seg.), the
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Toxic Substances Control Act (15 U.S.C.ss.2601 et seg.), the Federal
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Insecticide, Fungicide, and Rodenticide Act (7 U.S.C.ss.136 et seq.), and the
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Occupational Safety and Health Act (29 U.S.C.ss.651 et seg.), and the
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regulations promulgated pursuant thereto.
"Hazardous Material" means any substance, material or waste which is
---------------------
regulated by the United States or any state or local governmental authority
including, without limitation, petroleum and its by-products, asbestos, and any
material or substance which is defined as a "hazardous waste," "hazardous
substance," "hazardous material," "restricted hazardous waste," "industrial
waste," "solid waste," "contaminant," "pollutant," "toxic waste" or toxic
substance" under any provision of any Environmental Law;
"Release" means any release, spill, filtration, emission, leaking,
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pumping, injection, deposit, disposal, discharge, dispersal, or leaching into
the indoor or outdoor environment, or into or out of any property, in each case
in violation of any Environmental law.
"Remedial Action" means all actions to (x) clean up, remove, treat or
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in any other way address any Hazardous Material; (y) prevent the Release of any
Hazardous Material in violation of any Environmental law so it does not endanger
or threaten to endanger public health or welfare or the indoor or outdoor
environment; or (z) perform pre-remedial studies and investigations or
post-remedial monitoring and care.
R. LABOR MATTERS. The Company is not party to any labor or
collective bargaining agreement and there are no labor or collective bargaining
agreements which pertain to employees of the Company. No employees of the
Company are represented by any labor organization and none of such employees has
made a pending demand for recognition, and there are no representation
proceedings or petitions seeking a representation proceeding presently pending
or, to the Company's knowledge, threatened to be brought or filed, with the
National Labor Relations Board or other labor relations tribunal. There is no
organizing activity involving the Company or pending or to the Company's
knowledge, threatened by any labor organization or group of employees of the
Company. There are no (i) strikes, work stoppages, slowdowns, lockouts or
arbitrations or (ii) material grievances or other labor disputes pending or, to
the knowledge of the Company, threatened against or involving the Company. There
are no unfair labor practice charges, grievances or complaints pending or, to
the knowledge of the Company, threatened by or on behalf of any employee or
group of employees of the Company.
S. ERISA MATTERS. The Company and its ERISA Affiliates are in
compliance in all material respects with all provisions of ERISA applicable to
it. Neither the Company nor any ERISA
8
Affiliate maintains, contributes, maintained or contributed to a plan subject to
the provisions of Title IV of ERISA or Section 412 of the Internal Revenue Code.
For purposes of this Section III.S.:
"ERISA" means the Employee Retirement Income Security Act of 1974, or
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any successor statute, together with the final regulations promulgated
thereunder, as the same may be amended from time to time.
"ERISA Affiliate" means any trade or business (whether or not
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incorporated) that is a member of a group of which the Company is a member and
which is treated as a single employer under ss. 414 of the Internal Revenue Code
of 1986, as amended (the "Internal Revenue Code").
T. TAX MATTERS. 1. The Company has filed all Tax Returns which it
is required to file under applicable Laws, except for such Tax Returns in
respect of which the failure to so file does not and could not have a Material
Adverse Effect; all such Tax Returns are true and accurate in all material
respects and have been prepared in compliance with all applicable Laws; the
Company has paid all Taxes due and owing by it (whether or not such Taxes are
required to be shown on a Tax Return) and have withheld and paid over to the
appropriate taxing authorities all Taxes which they are required to withhold
from amounts paid or owing to any employee, stockholder, creditor or other third
parties; and since December 31, 1999, the charges, accruals and reserves for
Taxes with respect to the Company (including any provisions for deferred income
taxes) reflected on the books of the Company are adequate to cover any Tax
liabilities of the Company if its current tax year were treated as ending on the
date hereof.
2. No claim has been made by a taxing authority in a jurisdiction
where the Company does not file tax returns that such corporation is or may be
subject to taxation by that jurisdiction. To the Company's knowledge, there are
no foreign, federal, state or local tax audits or administrative or judicial
proceedings pending or being conducted with respect to the Company; no
information related to Tax matters has been requested by any foreign, federal,
state or local taxing authority; and, except as disclosed above, no written
notice indicating an intent to open an audit or other review has been received
by the Company from any foreign, federal, state or local taxing authority. To
the Company's knowledge, there are no material unresolved questions or claims
concerning the Company's Tax liability. The Company (A) has not executed or
entered into a closing agreement pursuant to ss. 7121 of the Internal Revenue
Code or any predecessor provision thereof or any similar provision of state,
local or foreign law; or (B) has not agreed to or is required to make any
adjustments pursuant to ss. 481 (a) of the Internal Revenue Code or any similar
provision of state, local or foreign law by reason of a change in accounting
method initiated by the Company or has any knowledge that the IRS has proposed
any such adjustment or change in accounting method, or has any application
pending with any taxing authority requesting permission for any changes in
accounting methods that relate to the business or operations of the Company. The
Company has not been a United States real property holding corporation within
the meaning of ss. 897(c)(2) of the Internal Revenue Code during the applicable
period specified in ss. 897(c)(1)(A)(ii) of the Internal Revenue Code.
3. The Company has not made an election under ss. 341(f) of
the Internal Revenue Code. The Company is not liable for the Taxes of another
person that is not a subsidiary of the Company under (A) Treas. Reg. ss.
1.1502-6 (or comparable provisions of state, local or foreign law), (B) as a
transferee or successor, (C) by contract or indemnity or (D) otherwise. The
Company is not a party to any tax sharing agreement. The Company has not made
any payments, is obligated to make payments or is a party to an
9
agreement that could obligate it to make any payments that would not be
deductible under ss. 28OG of the Internal Revenue Code.
For purposes of this Section III.T.:
"IRS" means the United States Internal Revenue Service.
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"Tax" or "Taxes" means federal, state, county, local, foreign, or other
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income, gross receipts, ad valorem, franchise, profits, sales or use, transfer,
registration, excise, utility, environmental, communications, real or personal
property, capital stock, license, payroll, wage or other withholding,
employment, social security, severance, stamp, occupation, alternative or add-on
minimum, estimated and other taxes of any kind whatsoever (including, without
limitation, deficiencies, penalties, additions to tax, and interest attributable
thereto) whether disputed or not.
"Tax Return" means any return, information report or filing with
-------------
respect to Taxes, including any schedules attached thereto and including any
amendment thereof.
U. PROPERTY. The Company does not own any real property. The
Company has good and marketable title to all personal property owned by it, free
and clear of all liens, encumbrances and defects except such as do not
materially affect the value of such property and do not materially interfere
with the use made and proposed to be made of such property by the Company; and
any real property and buildings held under lease by the Company are held by it
under valid, subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made of such
property and buildings by the Company.
V. INTELLECTUAL PROPERTY. The Company owns or possesses adequate
and enforceable rights to use all patents, patent applications, trademarks,
trademark applications, trade names, service marks, copyrights, copyright
applications, licenses, know-how (including trade secrets and other unpatented
and/or unpatentable proprietary or confidential information, systems or
procedures) and other similar rights and proprietary knowledge (collectively,
"Intangibles") necessary for the conduct of its business as now being conducted.
To the Company's knowledge, the Company is not infringing upon or in conflict
with any right of any other person with respect to any Intangibles. No claims
have been asserted by any person to the ownership or use of any Intangibles and
the Company has no knowledge of any basis for such claim.
W. INTERNAL CONTROLS AND PROCEDURES. The Company maintains
accurate books and records and internal accounting controls which provide
reasonable assurance that (i) all transactions to which the Company is a party
or by which its properties are bound are executed with management's
authorization; (ii) the reported accountability of the Company's assets is
compared with existing assets at regular intervals; (iii) access to the
Company's assets is permitted only in accordance with management's
authorization; and (iv) all transactions to which the Company is a party or by
which its properties are bound are recorded as necessary to permit preparation
of the financial statements of the Company in accordance with U.S. generally
accepted accounting principles.
X. PAYMENTS AND CONTRIBUTIONS. Neither the Company nor any of
its directors, officers or, to its knowledge, other employees has (i) used any
Company funds for any unlawful contribution, endorsement, gift, entertainment or
other unlawful expense relating to political activity; (ii) made any direct or
indirect unlawful payment of Company funds to any foreign or domestic government
official or employee; (iii) violated or is in violation of any provision of the
Foreign Corrupt Practices Act of 1977,
10
as amended; or (iv) made any bribe, rebate, payoff, influence payment, kickback
or other similar payment to any person with respect to Company matters.
Y. NO MISREPRESENTATION. No representation or warranty of the
Company contained in this Agreement, any schedule, annex or exhibit hereto or
any agreement, instrument or certificate furnished by the Company to Buyer
pursuant to this Agreement, contains any untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
Z. RIGHT OF FIRST REFUSAL. Except as provided in Section IV.K.,
the Company has not granted any right of first refusal to any person with
respect to the issuance of the Preferred Stock, Common Stock or securities
convertible into Common Stock.
IV. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
A. RESTRICTIVE LEGEND. Buyer acknowledges and agrees that, upon
issuance pursuant to this Agreement, the Securities (and any shares of Common
Stock issued upon conversion of the Preferred Stock or upon exercise of the
Warrants) shall have endorsed thereon a legend in substantially the following
form (and a stop-transfer order may be placed against transfer of the Preferred
Stock and the Conversion Shares:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE,
AND ARE BEING OFFERED AND SOLD PURSUANT TO AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS. THESE SECURITIES MAY NOT BE
SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT OR SUCH OTHER LAWS."
B. FILINGS. The Company shall make all necessary SEC and
"blue sky" filings required to be made by the Company in connection with the
sale of the Securities to the Buyer as required by all applicable Laws, and
shall provide a copy thereof to the Buyer promptly after such filing.
C. REPORTING STATUS. So long as the Buyer beneficially owns any
of the Securities, the Company shall use its best efforts to file all reports
required to be filed by it with the SEC pursuant to Section 13 or 15(d) of the
Exchange Act.
D. LISTING. So long as the Buyer beneficially owns any of the
Securities, except to the extent the Company lists its Common Stock on The New
York Stock Exchange, the Company shall use its best efforts to maintain its
listing of the Common Stock on the NASDAQ.
E. RESERVED CONVERSION SHARES. Subject to Section 5.11 of the
Certificate of Designations and Section 2(d) of the Registration Rights
Agreement, the Company at all times from and after the date hereof shall have a
sufficient number of shares of Common Stock duly and validly authorized and
reserved for issuance to satisfy the conversion, in full, of the Preferred
Stock, including payment of the Additional Amount (assuming for purposes of this
Section IV.E., a Conversion Price of $0.25), and upon the exercise of the
Warrants.
11
F. REGISTRATION RIGHTS AGREEMENT. The Company shall cause the
Registration Rights Agreement to remain in full force and effect and the Company
shall comply in all material respects with the terms thereof.
G. NOTICE OF CERTAIN EVENTS AFFECTING REGISTRATION. The Company
will immediately notify the Buyer upon the occurrence of any of the following
events in respect of a registration statement or related prospectus in respect
of an offering of the Securities; (i) receipt of any request for additional
information by the SEC or any other federal or state governmental authority
during the period of effectiveness of the Registration Statement to be supplied
by amendments or supplements to the registration statement or related
prospectus; (ii) the issuance by the SEC or any other federal or state
governmental authority of any stop order suspending the effectiveness of the
Registration Statement or the initiation of any proceedings for that purpose;
(iii) receipt of any notification with respect to the suspension of the
qualification or exemption from qualification of any of the Securities for sale
in any jurisdiction or the initiation or threatening of any proceeding for such
purpose; (iv) the happening of any event that makes any statement made in the
Registration Statement or related prospectus or any document incorporated or
deemed to be incorporated therein by reference untrue in any material respect or
that requires the making of any changes in the Registration Statement, related
prospectus or documents so that, in the case of the Registration Statement, it
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, and that in the case of the related prospectus, it will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; and (v) the Company's reasonable determination that a post-effective
amendment to the Registration Statement would be appropriate; and the Company
will promptly make available to Buyer any such supplement or amendment to the
related prospectus.
H. CONSOLIDATION; MERGER. The Company shall not, at any time
after the date hereof, effect any merger or consolidation of the Company with or
into, or a transfer of all or substantially all of the assets of the Company to,
another entity (a "Consolidation Event") unless the resulting successor or
acquiring entity (if not the Company) assumes by written instrument or by
operation of law the obligation to deliver to Buyer such shares of stock and/or
securities as Buyer is entitled to receive pursuant to this Agreement.
I. ISSUANCE OF PREFERRED SHARES AND WARRANT SHARES. The sale of
the Preferred Stock and the issuance of the Warrant Shares pursuant to exercise
of the Warrant and the Conversion Shares upon conversion of the Preferred Stock
shall be made in accordance with the provisions and requirements of Section 4(2)
of Regulation D and any applicable state securities law. The Company shall make
all necessary SEC and "blue sky" filings required to be made by the Company in
connection with the sale of the Securities to Buyer as required by all
applicable Laws, and shall provide a copy thereof to Buyer promptly after such
filing.
J. LIMITATION ON FUTURE FINANCING. The Company agrees that it
will not enter into any financing at a discount to Market Price (as defined in
the Certificate of Designations) which contains dividend, interest, payment,
liquidation, redemption, exchange, conversion or similar terms which may be
calculated by formulas based in part on the varying market price of the
Company's securities (a "Variable Rate Financing"), other than under a private
equity line of credit with X. X. Xxxxxxxx, LLC for not less than $5,000,000,
which provides for the issuance of convertible exchangeable term notes and other
than any equity line of credit with any other investor for not less than
$5,000,000 (an "Equity Line Financing"), until (i) six months from the effective
date of the Registration Statement, or (ii) Astor
12
Capital, Inc., as agent for Buyer, gives written approval for such additional
financing; provided, however, anything to the contrary appearing herein
notwithstanding, neither this Section nor any other provision hereof shall be
construed to restrict or prohibit the Company's right to restructure, amend or
modify any financing facility existing on the date hereof.
K. RIGHT OF FIRST REFUSAL. Except for Variable Rate Financings
and Equity Line Financings, the Company shall not enter into any financing at a
discount to Market Price with Persons other than the Buyers (a "Restricted
Financing") during the period commencing on the date hereof and ending six
months after the effective date of the Registration Statement, unless the
Company shall first have satisfied its obligations under this Section IV.K.
(a) If the Company receives a written offer from any
Person or group of Persons other than the Buyers, the
Company shall give the Buyers a written notice of
such offer stating the type, terms, and purchase
price of the securities offered as part of such
Restricted Financing and the other material terms and
conditions of the proposed Restricted Financing and
attaching a copy of the offer signed by the Person or
Persons making such offer.
(b) The Buyers shall have the right to purchase all or
any part of the securities offered as part of such
Restricted Financing on the same terms and conditions
as are set forth in the Company's written notice.
Each Buyer may exercise its right to purchase such
securities by giving a written notice of exercise to
the Company within three Trading Days after such
Buyer's receipt of the Company's notice. Each Buyer
shall have the right to purchase such securities pro
rata in accordance with their investment in the
Company as a result of their purchase of Preferred
Stock under this Agreement. Each Buyer may also
notify the Company that it will purchase its pro rata
share of any such securities not purchased by the
other Buyers.
(c) If the Buyers shall not have exercised their rights
to purchase all of such securities, then the Company
shall have the right to sell all securities not
subscribed by the Buyers on the same terms and
conditions as those set forth in the Company's
notice. If the Company shall not have sold all such
securities within 30 days after the expiration of the
three Trading Day period in paragraph (b) above, then
the Company shall not sell any such securities unless
it first offers to sell such securities to the Buyers
in accordance with the procedures set forth in this
Section IV.K.
V. TRANSFER AGENT INSTRUCTIONS.
A. The Company undertakes and agrees that no instruction other
than the instructions referred to in this Section V and customary stop transfer
instructions prior to the registration and sale of the Common Stock pursuant to
an effective Securities Act registration statement will be given to its transfer
agent for the Common Stock and that the Common Stock issuable upon conversion of
the Preferred Stock, including the payment of the Additional Amount, and upon
exercise of the Warrants otherwise shall be freely transferable on the books and
records of the Company as and to the extent provided in this Agreement, the
Registration Rights Agreement and applicable law. Nothing contained in this
Section V.A. shall affect in any way Buyer's obligations and agreement to comply
with all applicable
13
securities laws upon resale of such Common Stock. If, at any time, Buyer
provides the Company with an opinion of counsel reasonably satisfactory to the
Company that registration of the resale by Buyer of such Common Stock is not
required under the Securities Act and that the removal of restrictive legends is
permitted under applicable law, the Company shall permit the transfer of such
Common Stock and, promptly instruct the Company's transfer agent to issue one or
more certificates for Common Stock without any restrictive legends endorsed
thereon.
B. The Company shall permit Buyer to exercise its right to
convert the Preferred Stock by telecopying an executed and completed Notice of
Conversion to the Company. Each date on which a Notice of Conversion is
telecopied to and received by the Company in accordance with the provisions
hereof shall be deemed a Conversion Date. The Company shall transmit the
certificates evidencing the shares of Common Stock issuable upon conversion of
any Preferred Stock (together with certificates evidencing any Preferred Stock
not being so converted) to Buyer via express courier, by electronic transfer or
otherwise, within three business days after receipt by the Company of the Notice
of Conversion (the "Delivery Date"). Within 30 days after Buyer delivers the
Notice of Conversion to the Company, Buyer shall deliver to the Company the
Preferred Stock being converted. Buyer shall indemnify the Company for any
damages to third parties as a result of a claim by such third party to ownership
of the Preferred Stock converted prior to receipt of the Preferred Stock by the
Company.
C. The Company shall permit Buyer to exercise its right to
purchase shares of Common Stock pursuant to exercise of the Warrants in
accordance with its applicable terms of the Warrants. The last date that the
Company may deliver shares of Common Stock issuable upon any exercise of
Warrants is referred to herein as the "Warrant Delivery Date."
D. The Company understands that a delay in the issuance of the
shares of Common Stock issuable upon the conversion of the Preferred Stock
(including the payment of the Additional Amount) or upon exercise of the
Warrants beyond the applicable Delivery Date or Warrant Delivery Date could
result in economic loss to Buyer. As compensation to Buyer for such loss (and
not as a penalty), the Company agrees to pay to Buyer for late issuance of
Common Stock issuable upon conversion of the Preferred Stock or exercise of the
Warrants in accordance with the following schedule (where "No. Business Days" is
defined as the number of business days beyond three (3) days from the Delivery
Date or the Warrant Delivery Date, as applicable):
14
Compensation For Each
5 Shares of Preferred
Stock Not Converted
Timely or Shares of Common
Stock Issuable Upon Exercise
of Each 250 Warrants
No. Business Days Not Issued Timely
----------------- -----------------
1 $ 100
2 $ 200
3 $ 300
4 $ 400
5 $ 500
6 $ 600
7 $ 700
8 $ 800
9 $ 900
10 $1000
more than 10 $ 200 for each
Business Day Late
beyond 10 days
The Company shall pay to Buyer the compensation described above by the transfer
of immediately available funds upon Buyer's demand. Nothing herein shall limit
Buyer's right to pursue actual damages for the Company's failure to issue and
deliver Common Stock to Buyer (which actual damages shall be reduced by the
amount of any compensation paid by the Company as described above in this
Section V.D.), and in addition to any other remedies which may be available to
Buyer, in the event the Company fails for any reason to effect delivery of such
shares of Common Stock within five business days after the relevant Delivery
Date or the Warrant Delivery Date, as applicable, Buyer shall be entitled to
rescind the relevant Notice of Conversion or exercise of Warrants by delivering
a notice to such effect to the Company whereupon the Company and Buyer shall
each be restored to their respective original positions immediately prior to
delivery of such Notice of Conversion on delivery. The Company may pay the
compensation described above in additional shares of Common Stock based upon the
Market Price (as defined in the Certificate of Designations) as determined on
the date of payment.
E. Upon the execution and delivery hereof, the Company is issuing
to the transfer agent for its Common Stock (and to any substitute or replacement
transfer agent for its Common Stock upon the Company's appointment of any such
substitute or replacement transfer agent) instructions relating to the
Securities. Such instructions shall be irrevocable by the Company from and after
the date hereof or from and after the issuance thereof to any such substitute or
replacement transfer agent, as the case may be, except as otherwise expressly
provided in the Registration Rights Agreement. It is the intent and purpose of
such instructions, to require the transfer agent for the Common Stock from time
to time upon transfer of Securities by Buyer to issue certificates evidencing
such Registrable Securities free of legends and without consultation by the
transfer agent with the Company or its counsel and without the need for any
further advice or instruction or documentation to the transfer agent by or from
the Company or its counsel or Buyer.
15
VI. DELIVERY INSTRUCTIONS.
The Securities shall be delivered by the Company on a
"delivery-against-payment basis" at the Closing.
VII. CLOSING DATE.
The date and time of the issuance and sale of the Preferred Shares (the
"Closing Date") shall be the date hereof or such other as shall be mutually
agreed upon in writing. The issuance and sale of the Securities shall occur on
the Closing Date at the offices of the Escrow Agent.
VIII. CONDITIONS TO THE COMPANY'S OBLIGATIONS.
The Buyer understands that the Company's obligation to sell the
Securities on the Closing Date to Buyer pursuant to this Agreement is
conditioned upon:
A. Delivery by Buyer of the Purchase Price;
B. The accuracy in all material respects on the Closing Date of
the representations and warranties of Buyer contained in this Agreement as if
made on the Closing Date (except for representations and warranties which, by
their express terms, speak as of and relate to a specified date, in which case
such accuracy shall be measured as of such specified date) and the performance
by Buyer in all material respects on or before the Closing Date of all covenants
and agreements of Buyer required to be performed by it pursuant to this
Agreement on or before the Closing Date;
C. There shall not be in effect any Law or order, ruling,
judgment or writ of any court or public or governmental authority restraining,
enjoining or otherwise prohibiting any of the transactions contemplated by this
Agreement.
IX. CONDITIONS TO BUYER'S OBLIGATIONS.
The Company understands that Buyer's obligation to purchase the
Securities on the Closing Date pursuant to this Agreement is conditioned upon:
A. Delivery by the Company of one or more certificates (I/N/O
Buyer) evidencing the Securities to be purchased by Buyer pursuant to this
Agreement;
B. The accuracy in all material respects on the Closing Date of
the representations and warranties of the Company contained in this Agreement as
if made on the Closing Date (except for representations and warranties which, by
their express terms, speak as of and relate to a specified date, in which case
such accuracy shall be measured as of such specified date) and the performance
by the Company in all material respects on or before the Closing Date of all
covenants and agreements of the Company required to be performed by it pursuant
to this Agreement on or before the Closing Date;
C. Buyer having received an opinion of counsel for the Company,
dated the Closing Date, in form, scope and substance reasonably satisfactory to
the Buyer.
D. There not having occurred (i) any general suspension of
trading in,
or limitation on prices listed for, the Common Stock on the NASDAQ, (ii) the
declaration of a banking moratorium or
16
any suspension of payments in respect of banks in the United States, (iii) the
commencement of a war, armed hostilities or other international or national
calamity directly or indirectly involving the United States or any of its
territories, protectorates or possessions, or (iv) in the case of the foregoing
existing at the date of this Agreement, a material acceleration or worsening
thereof.
E. There not having occurred any event or development, and there
being in existence no condition, having or which reasonably and foreseeably
would have a Material Adverse Effect.
F. The Company shall have delivered to Buyer reimbursement of
Buyer's out-of-pocket costs and expenses incurred in connection with the
transactions contemplated by the Preferred Stock and this Agreement (including
the fees and disbursements of legal counsel, which is being held in escrow by
the Escrow Agent).
G. There shall not be in effect any Law or order, ruling,
judgment or writ of any court or public or governmental authority restraining,
enjoining or otherwise prohibiting any of the transactions contemplated by this
Agreement.
H. Delivery of Irrevocable Instructions to the Transfer Agent.
X. TERMINATION.
A. TERMINATION BY MUTUAL WRITTEN CONSENT. This Agreement may be
terminated and the transactions contemplated hereby may be abandoned, for any
reason and at any time prior to the Closing Date, by the mutual written consent
of the Company and Buyer.
B. TERMINATION BY THE COMPANY OR BUYER. This Agreement may be
terminated and the transactions contemplated hereby may be abandoned by action
of the Company or Buyer if (i) the Closing shall not have occurred at or prior
to 5:00 p.m., New York City time, on September 30, 2000; provided, however, that
the right to terminate this Agreement pursuant to this Article X.B(i) shall not
be available to any party whose failure to fulfill any of its obligations under
this Agreement has been the cause of or resulted in the failure of the Closing
to occur at or before such time and date or (ii) any court or public or
governmental authority shall have issued an order, ruling, judgment or writ, or
there shall be in effect any Law, restraining, enjoining or otherwise
prohibiting the consummation of any of the transactions contemplated by this
Agreement.
C. TERMINATION BY BUYER. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned by Buyer at any time prior to
the Closing Date, if (i) the Company shall have failed to comply in any material
respect with any of its covenants or agreements contained in this Agreement,
(ii) there shall have been a breach by the Company with respect to any
representation or warranty made by it in this Agreement, or (iii) there shall
have occurred any event or development, or there shall be in existence any
condition, having or reasonably and foreseeably likely to have a Material
Adverse Effect.
D. TERMINATION BY THE COMPANY. This Agreement may be terminated
and the transactions contemplated hereby may be abandoned by the Company at any
time prior to the Closing Date, if (i) Buyer shall have failed to comply in any
material respect with any of its covenants or agreements contained in this
Agreement or (ii) there shall have been a breach by Buyer with respect to any
representation or warranty made by it in this Agreement.
17
XI. SURVIVAL; INDEMNIFICATION.
A. The representations, warranties and covenants made by each
of the Company and Buyer in this Agreement, the annexes, schedules and exhibits
hereto and in each instrument, agreement and certificate entered into and
delivered by them pursuant to this Agreement, shall survive the Closing and the
consummation of the transactions contemplated hereby. In the event of a breach
or violation of any of such representations, warranties or covenants, the party
to whom such representations, warranties or covenants have been made shall have
all rights and remedies for such breach or violation available to it under the
provisions of this Agreement or otherwise, whether at law or in equity,
irrespective of any investigation made by or on behalf of such party on or prior
to the Closing Date.
B. The Company hereby agrees to indemnify and hold harmless the
Buyer, its Affiliates and their respective officers, directors, partners and
members (collectively, the "Buyer Indemnitees"), from and against any and all
losses, claims, damages, judgments, penalties, liabilities and deficiencies
(collectively, "Losses"), and agrees to reimburse the Buyer Indemnitees for all
out-of-pocket expenses (including the reasonable fees and expenses of legal
counsel), in each case promptly as incurred by the Buyer Indemnitees and to the
extent arising out of or in connection with:
1. any misrepresentation,omission of fact or breach of any of
the Company's representations or warranties contained in this
Agreement, the annexes, schedules or exhibits hereto or any instrument,
agreement or certificate entered into or delivered by the Company
pursuant to this Agreement; or
2. any failure by the Company to perform in any material
respect any of its covenants, agreements, undertakings or obligations
set forth in this Agreement, the annexes, schedules or exhibits hereto
or any instrument, agreement or certificate entered into or delivered
by the Company pursuant to this Agreement.
C. Buyer hereby agrees to indemnify and hold harmless the
Company, its Affiliates and their respective officers, directors, partners and
members (collectively, the "Company Indemnitees"), from and against any and all
Losses, and agrees to reimburse the Company Indemnitees for all out-of-pocket
expenses (including the reasonable fees and expenses of legal counsel), in each
case promptly as incurred by the Company Indemnitees and to the extent arising
out of or in connection with:
1. any misrepresentation, omission of fact, or breach of any
of Buyer's representations or warranties contained in this Agreement,
the annexes, schedules or exhibits hereto or any instrument, agreement
or certificate entered into or delivered by Buyer pursuant to this
Agreement; or
2. any failure by Buyer to perform in any material respect
any of its covenants, agreements, undertakings or obligations set forth
in this Agreement or any instrument, certificate or agreement entered
into or delivered by Buyer pursuant to this Agreement.
D. Promptly after receipt by either party hereto seeking
indemnification pursuant to this Section XI (an "Indemnified Party") of written
notice of any investigation, claim, proceeding or other action in respect of
which indemnification is being sought (each, a "Claim"), the Indemnified Party
promptly shall notify the party against whom indemnification pursuant to this
Section XI is being sought (the "Indemnifying Party") of the commencement
thereof; but the omission to so notify the Indemnifying Party shall not relieve
it from any liability that it otherwise may have to the Indemnified Party,
except to
18
the extent that the Indemnifying Party is materially prejudiced and forfeits
substantive rights and defenses by reason of such failure. In connection with
any Claim, the Indemnifying Party shall be entitled to assume the defense
thereof. Notwithstanding the assumption of the defense of any Claim by the
Indemnifying Party, the Indemnified Party shall have the right to employ
separate legal counsel (together with appropriate local counsel) and to
participate in the defense of such Claim, and the Indemnifying Party shall bear
the reasonable fees, out-of-pocket costs and expenses of such separate legal
counsel to the Indemnified Party if (and only if): (x) the Indemnifying Party
shall have agreed to pay such fees, out-of-pocket costs and expenses, (y) the
Indemnified Party and the Indemnifying Party reasonably shall have concluded
that representation of the Indemnified Party and the Indemnifying Party by the
same legal counsel would not be appropriate due to actual or, as
reasonably-determined by legal counsel to the Indemnified Party, (i) potentially
differing interests between such parties in the conduct of the defense of such
Claim, or (ii) if there may be legal defenses available to the Indemnified Party
that are in addition to or disparate from those available to the Indemnifying
Party and which can not be presented by counsel to the Indemnifying Party, or
(z) the Indemnifying Party shall have failed to employ legal counsel reasonably
satisfactory to the Indemnified Party within a reasonable period of time after
notice of the commencement of such Claim. If the Indemnified Party employs
separate legal counsel in circumstances other than as described in clauses (x),
(y) or (z) above, the fees, costs and expenses of such legal counsel shall be
borne exclusively by the Indemnified Party. Except as provided above, the
Indemnifying Party shall not, in connection with any Claim in the same
Jurisdiction, be liable for the fees and expenses of more than one firm of legal
counsel for the Indemnified Party (together with appropriate local counsel). The
Indemnifying Party shall not, without the prior written consent of the
Indemnified Party (which consent shall not unreasonably be withheld), settle or
compromise any Claim or consent to the entry of any judgment that does not
include an unconditional release of the Indemnified Party from all liabilities
with respect to such Claim or judgment.
E. In the event one party hereunder should have a claim
for indemnification that does not involve a claim or demand being asserted by a
third party, the Indemnified Party promptly shall deliver notice of such claim
to the Indemnifying Party. If the Indemnified Party disputes the claim, such
dispute shall be resolved by mutual agreement of the Indemnified Party and the
Indemnifying Party or by binding arbitration in San Francisco, California
conducted in accordance with the commercial procedures and rules of the American
Arbitration Association. Judgment upon any award rendered by any arbitrators may
be entered in any court having competent jurisdiction thereof.
19
XII. GOVERNING LAW: MISCELLANEOUS.
This Agreement shall be governed by and interpreted in accordance with
the laws of the State of California, without regard to the conflicts of law
principles of such state. Each of the parties consents to the jurisdiction of
the federal courts whose districts encompass any part of the City of San
Francisco or the state courts of the State of California sitting in the City of
San Francisco in connection with any dispute arising under this Agreement and
hereby waives, to the maximum extent permitted by law, any objection, including
any objection based on forum non conveniens, to the bringing of any such
proceeding in such jurisdictions. A facsimile transmission of this signed
Agreement shall be legal and binding on all parties hereto. This Agreement may
be signed in one or more counterparts, each of which shall be deemed an
original. The headings of this Agreement are for convenience of reference and
shall not form part of, or affect the interpretation of, this Agreement. If any
provision of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement or the validity or
enforceability of this Agreement in any other jurisdiction. This Agreement may
be amended only by an instrument in writing signed by the party to be charged
with enforcement. This Agreement supersedes all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof.
XIII. NOTICES. Except as may be otherwise provided herein, any
notice or other communication or delivery required or permitted hereunder shall
be in writing and shall be delivered personally or sent by certified mail,
postage prepaid, or by a nationally recognized overnight courier service, and
shall be deemed given when so delivered personally or by overnight courier
service, or, if mailed, three (3) days after the date of deposit in the United
States mails, as follows:
(1) if to the Company, to:
Xxxxxx.xxx, Inc.
000 Xxxxxxxx Xxxxx, Xxxxx 000
Xxxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxxx Xxxxxx
with a copy to:
Xxxxx X. Xxxxx, Xx., Esq.
McCutchen, Doyle, Xxxxx & Xxxxxxx, LLP
0 Xxxxxxxxxxx Xxxxxx
Xxx Xxxxxxxxx, Xxxxxxxxxx 00000-0000
(2) if to Buyer, to the address set forth on the signature page
hereof.
with a copy to:
Snow Xxxxxx Xxxxxx P.C.
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxx Xxxxxxxxx, Esq.
The Company or Buyer may change the foregoing address by notice given pursuant
to this Section XVIII.
20
XIV. CONFIDENTIALITY. Each of the Company and Buyer agrees to keep
confidential and not to disclose to or use for the benefit of any third party
the terms of this Agreement or any other information which at any time is
communicated by the other party as being confidential without the prior written
approval of the other party; provided, however, that this provision shall not
apply to information which, at the time of disclosure, is already part of the
public domain (except by breach of this Agreement) and information which is
required to be disclosed by law (including, without limitation, pursuant to Item
10 of Rule 601 of Regulation S-K under the Securities Act and the Exchange Act).
XV. ASSIGNMENT. This Agreement shall not be assignable by either
of the parties hereto prior to the Closing without the prior written consent of
the other party, and any attempted assignment contrary to the provisions hereby
shall be null and void; provided, however, that Buyer may assign its rights and
-------- -------
obligations hereunder, in whole or in part, to any affiliate of Buyer who
furnishes to the Company the representations and warranties set forth in Section
II hereof and otherwise agrees to be bound by the terms of this Agreement.
XVI. BROKERS. Each of the parties hereto represents that it has
had no dealings in connection with this transaction with any finder or broker
who will demand payment of any fee or commission from the other party, except
for Astor Capital who is the agent of the Company and whose fee shall be paid by
the Company. The Company on the one hand, and Buyer, on the other hand, agree to
indemnify the other against and hold the other harmless from any and all
liabilities to any person claiming brokerage commissions or finder's fees on
account of services purported to have been rendered on behalf of the
indemnifying party in connection with this Agreement or the transactions
contemplated hereby.
21
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement on the date first above written.
XXXXXX.XXX, INC.
By:/s/XXXXXXX X. XXXXXX
------------------------------------
Name: Xxxxxxx X. Xxxxxx
Title: President and CEO
BUYER
Name:Alborz Select Opportunities Fund
By:/s/Xxx Xxxxxxxx
------------------------------------
Name: Xxx Xxxxxxxx
Title: Investment Manager
BUYER
Name:Xxxxxx Moustaffa
----------------------------------
By:/s/Xxxxxx Moustaffa
------------------------------------
Name:
Title:
BUYER
Name:Target Growth Fund Ltd.
----------------------------------
By:/s/Xxxxxx Xxxxxxx
------------------------------------
Name: Xxxxxx Xxxxxxx
Title: President
BUYER
Name:IIG Equity Opportunities Fund Ltd.
----------------------------------
22
By:/s/Xxxxxx XxXxxxxxx
------------------------------------
Name: Xxxxxx XxXxxxxxx
Title: Senior Director
BUYER
Name:/s/Xxxxx Xxxxx
----------------------------------
By:Xxxxx Xxxxx
------------------------------------
Name: Xxxxx Xxxxx
Title:
BUYER
Name:/s/Xxxxxx Xxxxxxx
----------------------------------
By:
------------------------------------
Name: Xxxxxx Xxxxxxx
Title:
BUYER
Name:/s/Magnolia Drive Investment Corp.
------------------------------------
By:/s/Xxxxxxx Xxxxxx
------------------------------------
Name: Xxxxxxx Xxxxxx
Title: President
Jurisdiction of Incorporation:
Address:
--------------------
--------------------
Telephone No. --------------------
Fax No. --------------------
e-mail --------------------
23
Amount of Investment:
Number of Preferred Shares to be Purchased:
Number of Class A Warrants to be Purchased:
Number of Class B Warrants to be Purchased:
24
