748221_2
Exhibit 10.38
CONVERTIBLE NOTE PURCHASE
AGREEMENT
DATED AS OF NOVEMBER 19, 2001
AMONG
THE XXXXXX COMPANY, INC
AND
THE PURCHASER LISTED ON EXHIBIT A
TABLE OF CONTENTS (CONT'D)
PAGE
----
748221_2
TABLE OF CONTENTS
PAGE
----
ARTICLE I PURCHASE AND SALE OF NOTE 3
Section 1.1 Purchase and Sale of Note 3
Section 1.2 The Conversion Shares 3
Section 1.3 Purchase Price and Closing 3
Section 1.4 Warrant 4
ARTICLE II REPRESENTATIONS AND WARRANTIES 4
Section 2.1 Representations and Warranties of the Company 4
Section 2.2 Representations and Warranties of the Purchaser 14
ARTICLE III COVENANTS 16
Section 3.1 Securities Compliance. 16
Section 3.2 Registration and Listing 16
Section 3.3 Inspection Rights 16
Section 3.4 Compliance with Laws 16
Section 3.5 Keeping of Records and Books of Account 17
Section 3.6 Reporting Requirements 17
Section 3.7 Amendments 17
Section 3.8 Other Agreements 17
Section 3.9 Distributions. 17
Section 3.10 Intentionally Omitted. 17
Section 3.11 Regulation S. 18
Section 3.12 Future Financings 18
Section 3.13 Reservation of Shares 18
Section 3.14 Transfer Agent Instructions 18
ARTICLE IV CONDITIONS 19
Section 4.1 Conditions Precedent to the Obligation of the
Company to Sell the Note 19
ARTICLE V REGISTRATION RIGHTS 21
ARTICLE VI CERTIFICATE LEGEND 21
Section 6.1 Legend 21
ARTICLE VII TERMINATION 22
Section 7.1 Termination by Mutual Consent 22
Section 7.2 Other Termination 22
Section 7.3 Effect of Termination 22
ARTICLE VIII INDEMNIFICATION 23
Section 8.1 General Indemnity 23
Section 8.2 Indemnification Procedure 23
ARTICLE IX MISCELLANEOUS 24
Section 9.1 Fees and Expenses 24
Section 9.2 Specific Enforcement, Consent to Jurisdiction. 24
Section 9.3 Entire Agreement; Amendment 25
Section 9.4 Notices 25
Section 9.5 Waivers 26
Section 9.6 Headings 26
Section 9.7 Successors and Assigns 26
Section 9.8 No Third Party Beneficiaries 26
Section 9.9 Governing Law 26
Section 9.10 Survival 26
Section 9.11 Counterparts 27
Section 9.12 Publicity 27
Section 9.13 Severability 27
Section 9.14 Further Assurances 27
CONVERTIBLE NOTE PURCHASE AGREEMENT
This CONVERTIBLE NOTE PURCHASE AGREEMENT (the "Agreement") is dated as of
November 19, 2001 by and between THE XXXXXX COMPANY, INC. (the "Company"), a
Utah company, and the Purchaser of the Convertible Note of the Company whose
name is set forth on Exhibit A hereto (the "Purchaser").
The parties hereto agree as follows:
Purchase and Sale of Note
- Purchase and Sale of Note. Upon the following terms and conditions,
--------------------------
the Company shall issue and sell to the Purchaser and the Purchaser shall
purchase from the Company, (i) two convertible promissory notes in the aggregate
principal amount of $50,000 bearing interest at the rate of 8% per annum, due
November 19, 2004, convertible into shares of the Company's Common Stock, par
value $.01 per share (the "Common Stock"), in substantially the form attached
hereto as Exhibit B (the "Note"), and (ii) no Warrants to purchase shares of the
Company's Common Stock, in substantially the form attached hereto as Exhibit C
(the "Warrant"). The purchase price for the Note and the Warrant shall be
$50,000 (the "Purchase Price"). The Company and the Purchaser are executing and
delivering this Agreement in accordance with and in reliance upon the exemption
from securities registration afforded by Rule 506 of Regulation D ("Regulation
D") as promulgated by the United States Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Securities
Act"), Regulation S ("Regulation S") as promulgated by the Commission under the
Securities Act, or Section 4(2) of the Securities Act.
- The Conversion Shares. Immediately upon the filing of a Certificate
----------------------
of Amendment to the Company's Certificate of Incorporation with the Utah
Secretary of State increasing its authorized capital stock, the Company shall
authorize, reserve and maintain, free of preemptive rights and other similar
contractual rights of stockholders, no less than 150% of the aggregate number of
shares of Common Stock needed to effect the conversion of the Note at the Fixed
Conversion Price (as defined in the Note) and any interest accrued and
outstanding thereon and exercise of the Warrant. Any shares of Common Stock
issuable upon conversion of the Note and any interest accrued and outstanding
thereon and exercise of the Warrant (and such shares when issued) are herein
referred to as the "Conversion Shares" and the "Warrant Shares," respectively.
The Note, the Conversion Shares and the Warrant Shares are sometimes
collectively referred to herein as the "Shares."
- Purchase Price and Closing. The Company agrees to issue and sell to
---------------------------
the Purchaser and, in consideration of and in express reliance upon the
representations, warranties, covenants, terms and conditions of this Agreement,
the Purchaser agrees to purchase the Note set forth opposite its name on Exhibit
A for a purchase price equal to $50,000. The closing of the purchase and sale
of the Note and Warrant (the "Closing") to be acquired by the Purchaser from the
Company under this Agreement shall take place at the offices of Xxxxxxxxx &
Associates at 10:00 a.m. P.S.T. on the date on which the last to be fulfilled or
waived of the conditions set forth in Article IV hereof and applicable to the
Closing shall be fulfilled or waived in accordance herewith or such other time
and place or on such date as the Purchaser and the Company may agree upon (the
"Closing Date"). On the Closing Date, the Company shall deliver to the
Purchaser the Note and the Purchaser shall deliver to the Company the Purchase
Price. In addition, each party shall deliver all documents, instruments and
writings required to be delivered by such party pursuant to this Agreement at or
prior to the Closing. This Agreement shall become effective upon the date of
execution of this Agreement by each of the parties hereto, which date shall be
no later than November 19, 2001, unless otherwise agreed upon by the Purchaser
and the Company.
Warrant. The Company agrees to issue to the Purchaser a Warrant to
-------
purchase -0- shares of Common Stock on the Closing Date. The Warrant shall have
an exercise price equal to the Warrant Price (as defined in the Warrant) and
shall expire on the fifth anniversary of the issuance date of such Warrant.
Representations and Warranties
- Representations and Warranties of the Company. The Company hereby
------------------------------------------------
makes the following representations and warranties to the Purchaser:
(bb) -Organization, Good Standing and Power. The Company is a
-----------------------------------------
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Utah and has the requisite corporate power to own, lease
and operate its properties and assets and to conduct its business as it is now
being conducted. The Company does not have any subsidiaries except as set forth
on Schedule 2.1(g) hereto. The Company and each such subsidiary is duly
----------------
qualified as a foreign corporation to do business and is in good standing in
every jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary except for any jurisdiction(s)
(alone or in the aggregate) in which the failure to be so qualified will not
have a Material Adverse Effect. For the purposes of this Agreement, "Material
Adverse Effect" means any adverse effect on the business, operations,
properties, prospects, or financial condition of the Company or its subsidiaries
and which is material to such entity or other entities controlling or controlled
by such entity.
(cc) -Authorization; Enforcement. The Company has the requisite
---------------------------
corporate power and authority to enter into and perform this Agreement, the
Registration Rights Agreement attached hereto as Exhibit D (the "Registration
Rights Agreement"), the Transfer Agent Instructions (as defined in Section 3.14
hereof) and the Warrant (collectively, the "Transaction Documents") and to issue
and sell the Shares in accordance with the terms hereof and the Warrant, as
applicable. The execution, delivery and performance of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated hereby and thereby have been duly and validly authorized by all
necessary corporate action, and no further consent or authorization of the
Company or its Board of Directors or stockholders is required. This Agreement
has been duly executed and delivered by the Company. The Registration Rights
Agreement will have been duly executed and delivered by the Company at Closing.
Each of the Transaction Documents constitutes, or shall constitute when executed
and delivered, a valid and binding obligation of the Company enforceable against
the Company in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation, conservatorship, receivership or similar laws relating to, or
affecting generally the enforcement of, creditor's rights and remedies or by
other equitable principles of general application.
(dd) -Capitalization. The authorized capital stock of the Company and
--------------
the shares thereof currently issued and outstanding as of September 20, 2001 are
set forth on Schedule 2.1(c) hereto. All of the outstanding shares of the
----------------
Company's Common Stock have been duly and validly authorized. Except as set
forth in this Agreement and the Registration Rights Agreement and as set forth
on Schedule 2.1(c) hereto, no shares of Common Stock are entitled to preemptive
---------------
rights or registration rights and there are no outstanding options, warrants,
scrip, rights to subscribe to, call or commitments of any character whatsoever
relating to, or securities or rights convertible into, any shares of capital
stock of the Company. Furthermore, except as set forth in this Agreement and
the Registration Rights Agreement and as set forth on Schedule 2.1(c), there are
---------------
no contracts, commitments, understandings, or arrangements by which the Company
is or may become bound to issue additional shares of the capital stock of the
Company or options, securities or rights convertible into shares of capital
stock of the Company. Except for customary transfer restrictions contained in
agreements entered into by the Company in order to sell restricted securities or
as provided on Schedule 2.1 (c) hereto, the Company is not a party to any
------------------
agreement granting registration or anti-dilution rights to any person with
respect to any of its equity or debt securities. The Company is not a party to,
and it has no knowledge of, any agreement restricting the voting or transfer of
any shares of the capital stock of the Company. Except as set forth on Schedule
--------
2.1(c) hereto, the offer and sale of all capital stock, convertible securities,
------
rights, warrants, or options of the Company issued prior to the Closing complied
with all applicable Federal and state securities laws, and no stockholder has a
right of rescission or damages with respect thereto which would have a Material
Adverse Effect (as defined in Section 2.1(e) herein) on the Company's financial
condition or operating results. The Company has furnished or made available to
the Purchaser true and correct copies of the Company's Certificate of
Incorporation as in effect on the date hereof (the "Certificate"), and the
Company's Bylaws as in effect on the date hereof (the "Bylaws").
(ee) -Issuance of Note. The Note to be issued at the Closing has been
-----------------
duly authorized by all necessary corporate action and, when paid for or issued
in accordance with the terms hereof, the Note shall be validly issued and
outstanding, fully paid and nonassessable and free and clear of all liens,
encumbrances and rights of refusal of any kind. When the Conversion Shares and
the Warrant Shares are issued in accordance with the terms of the Note and the
Warrant, respectively, such shares will be duly authorized by all necessary
corporate action and validly issued and outstanding, fully paid and
nonassessable, and the holders shall be entitled to all rights accorded to a
holder of Common Stock.
(ff) -No Conflicts. The execution, delivery and performance of the
-------------
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated herein and therein do not (i) violate any provision of
the Company's Certificate or Bylaws, (ii) conflict with, or constitute a default
(or an event which with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, mortgage, deed of trust, indenture, note, bond,
license, lease agreement, instrument or obligation to which the Company is a
party, (iii) create or impose a lien, charge or encumbrance on any property of
the Company under any agreement or any commitment to which the Company is a
party or by which the Company is bound or by which any of its respective
properties or assets are bound, or (iv) result in a violation of any federal,
state, local or foreign statute, rule, regulation, order, judgment or decree
(including Federal and state securities laws and regulations) applicable to the
Company or any of its subsidiaries or by which any property or asset of the
Company or any of its subsidiaries are bound or affected, except, in all cases
other than violations pursuant to clause (i) above, for such conflicts,
defaults, terminations, amendments, acceleration, cancellations and violations
as would not, individually or in the aggregate, have a Material Adverse Effect.
The business of the Company and its subsidiaries is not being conducted in
violation of any laws, ordinances or regulations of any governmental entity,
except for possible violations which singularly or in the aggregate do not and
will not have a Material Adverse Effect. The Company is not required under
Federal, state or local law, rule or regulation to obtain any consent,
authorization or order of, or make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or perform any of its
obligations under the Transaction Documents or issue and sell the Note, the
Conversion Shares and the Warrant Shares in accordance with the terms hereof or
thereof (other than any filings which may be required to be made by the Company
with the Commission or state securities administrators subsequent to the Closing
or any registration statement which may be filed pursuant hereto); provided
that, for purposes of the representation made in this sentence, the Company is
assuming and relying upon the accuracy of the relevant representations and
agreements of the Purchaser herein.
(gg) -Commission Documents, Financial Statements. The Common Stock of
-------------------------------------------
the Company is registered pursuant to Section 12(b) or 12(g) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the Company has
timely filed all reports, schedules, forms, statements and other documents
required to be filed by it with the Commission pursuant to the reporting
requirements of the Exchange Act, including material filed pursuant to Section
13(a) or 15(d) of the Exchange Act (all of the foregoing including filings
incorporated by reference therein being referred to herein as the "Commission
Documents"). The Company has delivered or made available to the Purchaser true
and complete copies of the Commission Documents filed with the Commission since
June 30, 2001. The Company has not provided to the Purchaser any material
non-public information or other information which, according to applicable law,
rule or regulation, should have been disclosed publicly by the Company but which
has not been so disclosed, other than with respect to the transactions
contemplated by this Agreement. As of their respective dates, the audited
financial statements as presented in the Commission Documents for the year ended
September 30, 2000 (the "Financial Statement") and the Form 10-Q for the fiscal
quarter ended June 30, 2001 (the "Form 10-Q") complied in all material respects
with the requirements of the Exchange Act and the rules and regulations of the
Commission promulgated thereunder and other federal, state and local laws, rules
and regulations applicable to such documents, and, as of their respective dates,
neither the Financial Statement nor the Form 10-Q referred to above contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the Commission
Documents comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the Commission or other
applicable rules and regulations with respect thereto. Such financial
statements have been prepared in accordance with generally accepted accounting
principles ("GAAP") applied on a consistent basis during the periods involved
(except (i) as may be otherwise indicated in such financial statements or the
notes thereto or (ii) in the case of unaudited interim statements, to the extent
they may not include footnotes or may be condensed or summary statements), and
fairly present in all material respects the financial position of the Company
and its subsidiaries as of the dates thereof and the results of operations and
cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments).
(hh) -Subsidiaries. Schedule 2.1(g) hereto sets forth each subsidiary
------------ ----------------
of the Company, showing the jurisdiction of its incorporation or organization
and showing the percentage of each person's ownership of the outstanding stock
or other interests of such subsidiary. For the purposes of this Agreement,
"subsidiary" shall mean any corporation or other entity of which at least a
majority of the securities or other ownership interest having ordinary voting
power (absolutely or contingently) for the election of directors or other
persons performing similar functions are at the time owned directly or
indirectly by the Company and/or any of its other subsidiaries. All of the
outstanding shares of capital stock of each subsidiary have been duly authorized
and validly issued, and are fully paid and nonassessable. There are no
outstanding preemptive, conversion or other rights, options, warrants or
agreements granted or issued by or binding upon any subsidiary for the purchase
or acquisition of any shares of capital stock of any subsidiary or any other
securities convertible into, exchangeable for or evidencing the rights to
subscribe for any shares of such capital stock. Neither the Company nor any
subsidiary is subject to any obligation (contingent or otherwise) to repurchase
or otherwise acquire or retire any shares of the capital stock of any subsidiary
or any convertible securities, rights, warrants or options of the type described
in the preceding sentence. Neither the Company nor any subsidiary is party to,
nor has any knowledge of, any agreement restricting the voting or transfer of
any shares of the capital stock of any subsidiary.
(ii) -No Material Adverse Change. Since June 30, 2001, the date
-----------------------------
through which the most recent quarterly report of the Company on Form 10-Q has
been prepared and filed with the Commission, a copy of which is included in the
Commission Documents, the Company has not experienced or suffered any Material
Adverse Effect.
(jj) -No Undisclosed Liabilities. Neither the Company nor any of its
----------------------------
subsidiaries has any liabilities, obligations, claims or losses (whether
liquidated or unliquidated, secured or unsecured, absolute, accrued, contingent
or otherwise) other than those incurred in the ordinary course of the Company's
or its subsidiaries respective businesses since June 30, 2001 and which,
individually or in the aggregate, do not or would not have a Material Adverse
Effect on the Company or its subsidiaries.
(kk) -No Undisclosed Events or Circumstances. No event or circumstance
--------------------------------------
has occurred or exists with respect to the Company or its subsidiaries or their
respective businesses, properties, prospects, operations or financial condition,
which, under applicable law, rule or regulation, requires public disclosure or
announcement by the Company but which has not been so publicly announced or
disclosed.
(ll) -Indebtedness. Schedule 2.1(k) hereto sets forth as of the date
------------ ----------------
hereof all outstanding secured and unsecured Indebtedness of the Company or any
subsidiary, or for which the Company or any subsidiary has commitments. For the
purposes of this Agreement, "Indebtedness" shall mean (a) any liabilities for
borrowed money or amounts owed in excess of $75,000 (other than trade accounts
payable incurred in the ordinary course of business), (b) all guaranties,
endorsements and other contingent obligations in respect of Indebtedness of
others, whether or not the same are or should be reflected in the Company's
balance sheet (or the notes thereto), except guaranties by endorsement of
negotiable instruments for deposit or collection or similar transactions in the
ordinary course of business; and (c) the present value of any lease payments in
excess of $75,000 due under leases required to be capitalized in accordance with
GAAP. Except as set forth on Schedule 2.1(k) hereto, neither the Company nor
---------------
any subsidiary is in default with respect to any Indebtedness.
(mm) -Title to Assets. Except as set forth on Schedule 2.1(k) hereto,
---------------- ---------------
each of the Company and the subsidiaries has good and marketable title to all of
its real and personal property, free of any mortgages, pledges, charges, liens,
security interests or other encumbrances, except for those such that,
individually or in the aggregate, do not cause a Material Adverse Effect on the
Company's financial condition or operating results. All said leases of the
Company and each of its subsidiaries are valid and subsisting and in full force
and effect.
(nn) -Actions Pending. There is no action, suit, claim, investigation
----------------
or proceeding pending or, to the knowledge of the Company, threatened against
the Company or any subsidiary which questions the validity of this Agreement or
the transactions contemplated hereby or any action taken or to be taken pursuant
hereto or thereto. Except as set forth in the Commission Documents, there is no
action, suit, claim, investigation or proceeding pending or, to the knowledge of
the Company, threatened, against or involving the Company, any subsidiary or any
of their respective properties or assets. Except as set forth on Schedule
--------
2.1(m) hereto, there are no outstanding orders, judgments, injunctions, awards
-
or decrees of any court, arbitrator or governmental or regulatory body against
the Company or any subsidiary or any officers or directors of the Company or
subsidiary in their capacities as such that would, individually or in the
aggregate, have a Material Adverse Effect.
(oo) -Compliance with Law. The business of the Company and the
---------------------
subsidiaries has been and is presently being conducted in accordance with all
applicable federal, state and local governmental laws, rules, regulations and
ordinances, except such that, individually or in the aggregate, do not cause a
Material Adverse Effect. The Company and each of its subsidiaries have all
franchises, permits, licenses, consents and other governmental or regulatory
authorizations and approvals necessary for the conduct of its business as now
being conducted by it unless the failure to possess such franchises, permits,
licenses, consents and other governmental or regulatory authorizations and
approvals, individually or in the aggregate, could not reasonably be expected to
have a Material Adverse Effect.
(pp) -Taxes. The Company and each of the subsidiaries has accurately
-----
prepared and filed all federal, state and other tax returns required by law to
be filed by it, has paid or made provisions for the payment of all taxes shown
to be due and all additional assessments, and adequate provisions have been and
are reflected in the financial statements of the Company and the subsidiaries
for all current taxes and other charges to which the Company or any subsidiary
is subject and which are not currently due and payable. None of the federal
income tax returns of the Company or any subsidiary have been audited by the
Internal Revenue Service. The Company has no knowledge of any additional
assessments, adjustments or contingent tax liability (whether federal or state)
pending or threatened against the Company or any subsidiary for any period, nor
of any basis for any such assessment, adjustment or contingency.
(qq) -Certain Fees. Except as set forth on Schedule 2.1(p) hereto, no
------------- ---------------
brokers, finders or financial advisory fees or commissions will be payable by
the Company or any subsidiary or any Purchaser with respect to the transactions
contemplated by this Agreement.
(rr) -Disclosure. To the best of the Company's knowledge, neither this
----------
Agreement or the Schedules hereto nor any other documents, certificates or
instruments furnished to the Purchaser by or on behalf of the Company or any
subsidiary in connection with the transactions contemplated by this Agreement
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made herein or therein, in the light
of the circumstances under which they were made herein or therein, not
misleading.
(ss) -Operation of Business. The Company and each of the subsidiaries
----------------------
owns or possesses all patents, trademarks, domain names (whether or not
registered) and any patentable improvements or copyrightable derivative works
thereof, websites and intellectual property rights relating thereto, service
marks, trade names, copyrights, licenses and authorizations and all rights with
respect to the foregoing, which are necessary for the conduct of its business as
now conducted without any conflict with the rights of others.
(tt) -Environmental Compliance. The Company and each of its
-------------------------
subsidiaries have obtained all material approvals, authorization, certificates,
consents, licenses, orders and permits or other similar authorizations of all
governmental authorities, or from any other person, that are required under any
Environmental Laws. No material permits, licenses and other authorizations have
been issued under any Environmental Laws to the Company or its subsidiaries.
"Environmental Laws" shall mean all applicable laws relating to the protection
of the environment including, without limitation, all requirements pertaining to
reporting, licensing, permitting, controlling, investigating or remediating
emissions, discharges, releases or threatened releases of hazardous substances,
chemical substances, pollutants, contaminants or toxic substances, materials or
wastes, whether solid, liquid or gaseous in nature, into the air, surface water,
groundwater or land, or relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of hazardous
substances, chemical substances, pollutants, contaminants or toxic substances,
material or wastes, whether solid, liquid or gaseous in nature. The Company has
all necessary governmental approvals required under all Environmental Laws and
used in its business or in the business of any of its subsidiaries. The Company
and each of its subsidiaries are also in compliance with all other limitations,
restrictions, conditions, standards, requirements, schedules and timetables
required or imposed under all Environmental Laws. Except for such instances as
would not individually or in the aggregate have a Material Adverse Effect, there
are no past or present events, conditions, circumstances, incidents, actions or
omissions relating to or in any way affecting the Company or its subsidiaries
that violate or may violate any Environmental Law after the Closing or that may
give rise to any environmental liability, or otherwise form the basis of any
claim, action, demand, suit, proceeding, hearing, study or investigation (i)
under any Environmental Law, or (ii) based on or related to the manufacture,
processing, distribution, use, treatment, storage (including without limitation
underground storage tanks), disposal, transport or handling, or the emission,
discharge, release or threatened release of any hazardous substance.
"Environmental Liabilities" means all liabilities of a person (whether such
liabilities are owed by such person to governmental authorities, third parties
or otherwise) whether currently in existence or arising hereafter which arise
under or relate to any Environmental Law.
(uu) -Books and Records Internal Accounting Controls. The records and
-----------------------------------------------
documents of the Company and its subsidiaries accurately reflect in all material
respects the information relating to the business of the Company and the
subsidiaries, the location and collection of their assets, and the nature of all
transactions giving rise to the obligations or accounts receivable of the
Company or any subsidiary. The Company and each of its subsidiaries maintain a
system of internal accounting controls sufficient, in the judgment of the
Company's board of directors, to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate actions is taken
with respect to any differences.
(vv) -Material Agreements. Except as set forth on Schedule 2.1(u)
-------------------- ---------------
hereto, neither the Company nor any subsidiary is a party to any written or oral
contract, instrument, agreement, commitment, obligation, plan or arrangement, a
copy of which would be required to be filed with the Commission as an exhibit to
a registration statement on Form S-1 or applicable form (collectively, "Material
Agreements") if the Company or any subsidiary were registering securities under
the Securities Act. The Company and each of its subsidiaries has in all
material respects performed all the obligations required to be performed by them
to date under the foregoing agreements, have received no notice of default and,
to the best of the Company's knowledge are not in default under any Material
Agreement now in effect, the result of which could cause a Material Adverse
Effect. No written or oral contract, instrument, agreement, commitment,
obligation, plan or arrangement of the Company or of any subsidiary limits or
shall limit the payment of dividends on the Company's Note, its preferred stock,
if any, or its Common Stock.
(ww) -Transactions with Affiliates. Except as set forth in the
------------------------------
Commission Documents and as set forth on Schedule 2.1(v) hereto, there are no
---------------
loans, leases, agreements, contracts, royalty agreements, management contracts
or arrangements or other continuing transactions exceeding $100,000 between (a)
the Company, any subsidiary or any of their respective customers or suppliers on
the one hand, and (b) on the other hand, any officer, employee, consultant or
director of the Company, or any of its subsidiaries, or any person owning any
capital stock of the Company or any subsidiary or any member of the immediate
family of such officer, employee, consultant, director or stockholder or any
corporation or other entity controlled by such officer, employee, consultant,
director or stockholder, or a member of the immediate family of such officer,
employee, consultant, director or stockholder.
(xx) -Securities Act of 1933. The Company has complied and will comply
----------------------
with all applicable Federal and state securities laws in connection with the
offer, issuance and sale of the Note and the Warrant hereunder. Neither the
Company nor anyone acting on its behalf, directly or indirectly, has or will
sell, offer to sell or solicit offers to buy the Note, the Warrant or similar
securities to, or solicit offers with respect thereto from, or enter into any
preliminary conversations or negotiations relating thereto with, any person, or
has taken or will take any action so as to bring the issuance and sale of the
Note and the Warrant under the registration provisions of the Securities Act and
applicable state securities laws. Neither the Company nor any of its
affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the Securities Act) in connection with the offer or sale of
the Note and the Warrant.
(yy) -Governmental Approvals. Except for the filing of any notice
-----------------------
prior or subsequent to the Closing that may be required under applicable state
and/or Federal securities laws (which if required, shall be filed on a timely
basis), including the filing of a registration statement or statements pursuant
to the Registration Rights Agreement, no authorization, consent, approval,
license, exemption of, filing or registration with any court or governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, is or will be necessary for, or in connection with, the execution or
delivery of the Note, or for the performance by the Company of its obligations
under the Transaction Documents.
(zz) -Employees. Neither the Company nor any subsidiary has any
---------
collective bargaining arrangements or agreements covering any of its employees.
Neither the Company nor any subsidiary has any employment contract, agreement
regarding proprietary information, non-competition agreement, non-solicitation
agreement, confidentiality agreement, or any other similar contract or
restrictive covenant, relating to the right of any officer, employee or
consultant to be employed or engaged by the Company or such subsidiary. Since
March 31, 2001, no officer, consultant or key employee of the Company or any
subsidiary whose termination, either individually or in the aggregate, could
have a Material Adverse Effect, has terminated or, to the knowledge of the
Company, has any present intention of terminating his or her employment or
engagement with the Company or any subsidiary.
(aaa) -Absence of Certain Developments. Except as set forth on
----------------------------------
Schedule 2.1(z) hereto, since June 30, 2001, neither the Company nor any
---------
subsidiary has:
(i) issued any stock, bonds or other corporate securities or any
rights, options or warrants with respect thereto;
(ii) borrowed any amount or incurred or become subject to any
liabilities (absolute or contingent) except current liabilities incurred in the
ordinary course of business which are comparable in nature and amount to the
current liabilities incurred in the ordinary course of business during the
comparable portion of its prior fiscal year, as adjusted to reflect the current
nature and volume of the Company's or such subsidiary's business;
(iii) discharged or satisfied any material lien or encumbrance or paid
any material obligation or liability (absolute or contingent), other than
current liabilities paid in the ordinary course of business;
(iv) declared or made any payment or distribution of cash or other
property to stockholders with respect to its stock, or purchased or redeemed, or
made any agreements so to purchase or redeem, any shares of its capital stock;
(v) sold, assigned or transferred any other tangible assets, or
canceled any material debts or claims, except in the ordinary course of
business;
(vi) sold, assigned or transferred any patent rights, trademarks, trade
names, copyrights, trade secrets or other intangible assets or intellectual
property rights, or disclosed any proprietary confidential information to any
person except to customers in the ordinary course of business or to the
Purchaser or its representatives;
(vii) suffered any substantial losses or waived any rights of material
value, whether or not in the ordinary course of business, or suffered the loss
of any material amount of prospective business;
(viii) made any changes in employee compensation except in the ordinary
course of business and consistent with past practices;
(ix) made capital expenditures or commitments therefor that aggregate
in excess of $100,000;
(x) entered into any other transaction other than in the ordinary
course of business, or entered into any other material transaction, whether or
not in the ordinary course of business;
(xi) made charitable contributions or pledges in excess of $25,000;
(xii) suffered any material damage, destruction or casualty loss,
whether or not covered by insurance;
(xiii) experienced any material problems with labor or management in
connection with the terms and conditions of their employment;
(xiv) effected any two or more events of the foregoing kind which in
the aggregate would be material to the Company or its subsidiaries; or
(xv) entered into an agreement, written or otherwise, to take any of
the foregoing actions.
(bbb) -Use of Proceeds. The proceeds from the sale of the Note will be
---------------
used by the Company for working capital and general corporate purposes.
(ab) Public Utility Holding Company Act and Investment Company Act
------------------------------------------------------------------
Status. The Company is not a "holding company" or a "public utility company" as
such terms are defined in the Public Utility Holding Company Act of 1935, as
amended. The Company is not, and as a result of and immediately upon Closing
will not be, an "investment company" or a company "controlled" by an "investment
company," within the meaning of the Investment Company Act of 1940, as amended.
(ac) ERISA. No liability to the Pension Benefit Guaranty Corporation
-----
has been incurred with respect to any Plan by the Company or any of its
subsidiaries which is or would be materially adverse to the Company and its
subsidiaries. The execution and delivery of this Agreement and the issue and
sale of the Note will not involve any transaction which is subject to the
prohibitions of Section 406 of ERISA or in connection with which a tax could be
imposed pursuant to Section 4975 of the Internal Revenue Code of 1986, as
amended, provided that, if the Purchaser, or any person or entity that owns a
beneficial interest in the Purchaser, is an "employee pension benefit plan"
(within the meaning of Section 3(2) of ERISA) with respect to which the Company
is a "party in interest" (within the meaning of Section 3(14) of ERISA), the
requirements of Sections 407(d)(5) and 408(e) of ERISA, if applicable, are met.
As used in this Section 2.1(ac), the term "Plan" shall mean an "employee pension
benefit plan" (as defined in Section 3 of ERISA) which is or has been
established or maintained, or to which contributions are or have been made, by
the Company or any subsidiary or by any trade or business, whether or not
incorporated, which, together with the Company or any subsidiary, is under
common control, as described in Section 414(b) or (c) of the Code.
(ad) Dilutive Effect. The Company understands and acknowledges that
----------------
the number of Conversion Shares issuable upon conversion of the Note and the
Warrant Shares issuable upon exercise of the Warrant will increase in certain
circumstances. The Company further acknowledges that its obligation to issue
Conversion Shares upon conversion of the Note in accordance with this Agreement
and its obligations to issue the Warrant Shares upon the exercise of the Warrant
in accordance with this Agreement and the Warrant, is, in each case, absolute
and unconditional regardless of the dilutive effect that such issuance may have
on the ownership interest of other stockholders of the Company.
(ae) No "Directed Selling Efforts." In connection with the offer and sale
--------------------------------
of the Note and the Warrant, no distributor or any affiliates or any person
acting on behalf of the Company or any affiliate of the Company or any
distributor has engaged in any "directed selling efforts" (as such term is
defined under Regulation S) nor conducted any general solicitation relating to
the offer to persons residing within the United States or to "U.S. Persons" (as
that term is defined under Regulation S).
(af) Filings Under the Act and the Exchange Act. The Company has filed all
-------------------------------------------
reports and other documents required to be filed by it under the Act and the
Exchange Act, and no such document, at the time it was filed, contained any
untrue statement of a material fact or omitted to state a material fact
necessary to make the statements contained therein, in the light of the
circumstances under which they were made, not misleading. There has been no
material change in the Company since its last filing with the Commission except
for changes in senior management. The Company is a "reporting issuer" as
defined in Rule 902 of Regulation S and will remain a reporting issuer for at
least one year from the date hereof.
- Representations and Warranties of the Purchaser. The Purchaser
----------------------------------------------------
hereby makes the following representations and warranties to the Company:
(a) Organization and Standing of the Purchaser. The Purchaser is a
----------------------------------------------
corporation or partnership duly incorporated or organized, validly existing and
in good standing under the laws of the jurisdiction of its incorporation or
organization.
(b) Authorization and Power. The Purchaser has the requisite power and
-----------------------
authority to enter into and perform this Agreement and to purchase the Note
being sold to it hereunder. The execution, delivery and performance of this
Agreement and the Registration Rights Agreement by such Purchaser and the
consummation by it of the transactions contemplated hereby and thereby have been
duly authorized by all necessary corporate or partnership action (if the
Purchaser is an entity), and no further consent or authorization of such
Purchaser or its Board of Directors, stockholders, or partners, as the case may
be, is required. Each of this Agreement and the Registration Rights Agreement
has been duly authorized, executed and delivered by such Purchaser.
(c) -No Conflicts. The execution, delivery and performance of this
-------------
Agreement and the Registration Rights Agreement and the consummation by such
Purchaser of the transactions contemplated hereby and thereby or relating hereto
do not and will not (i) result in a violation of such Purchaser's charter
documents or bylaws or (ii) conflict with, or constitute a default (or an event
which with notice or lapse of time or both would become a default) under, or
give to others any rights of termination, amendment, acceleration or
cancellation of any agreement, indenture or instrument to which such Purchaser
is a party, or result in a violation of any law, rule, or regulation, or any
order, judgment or decree of any court or governmental agency applicable to such
Purchaser or its properties (except for such conflicts, defaults and violations
as would not, individually or in the aggregate, have a Material Adverse Effect
on such Purchaser). Such Purchaser is not required to obtain any consent,
authorization or order of, or make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or perform any of its
obligations under this Agreement or the Registration Rights Agreement, or
relating hereto or thereto, or to purchase the Note in accordance with the terms
hereof, provided that for purposes of the representation made in this sentence,
such Purchaser is assuming and relying upon the accuracy of the relevant
representations and agreements of the Company herein.
(d) Acquisition for Investment. The Purchaser is purchasing the Note
----------------------------
and acquiring the Warrant solely for its own account for the purpose of
investment and not with a view to or for sale in connection with distribution.
The Purchaser does not have a present intention to sell the Note or the Warrant,
nor a present arrangement (whether or not legally binding) or intention to
effect any distribution of the Note or the Warrant to or through any person or
entity; provided, however, that by making the representations herein and subject
-------- -------
to Section 2.2(f) below, such Purchaser does not agree to hold the Note or the
Warrant for any minimum or other specific term and reserves the right to dispose
of the Note or the Warrant at any time in accordance with Federal securities
laws applicable to such disposition. Such Purchaser acknowledges that it is
able to bear the financial risks associated with an investment in the Note or
the Warrant and that it has been given full access to such records of the
Company and the subsidiaries and to the officers of the Company and the
subsidiaries as it has deemed necessary or appropriate to conduct its due
diligence investigation.
(e) Accredited Purchaser. The Purchaser is an "accredited investor" as
--------------------
defined in Regulation D promulgated under the Securities Act and is a resident
of the jurisdiction indicated on Exhibit A hereto.
(f) Rule 144. The Purchaser understands that the Shares must be held
---------
indefinitely unless such Shares are registered under the Securities Act or an
exemption from registration is available. Such Purchaser acknowledges that such
person is familiar with Rule 144 of the rules and regulations of the Commission,
as amended, promulgated pursuant to the Securities Act ("Rule 144"), and that
such person has been advised that Rule 144 permits resales only under certain
circumstances. Such Purchaser understands that to the extent that Rule 144 is
not available, such person will be unable to sell any Shares without either
registration under the Securities Act or the existence of another exemption from
such registration requirement.
(g) General. Such Purchaser understands that the Shares are being
-------
offered and sold in reliance on a transactional exemption from the registration
requirement of Federal and state securities laws and the Company is relying upon
the truth and accuracy of the representations, warranties, agreements,
acknowledgments and understandings of such Purchaser set forth herein in order
to determine the applicability of such exemptions and the suitability of such
Purchaser to acquire the Shares.
(h) Foreign Purchaser. The Purchaser is not a "U.S. person" as defined
------------------
under Rule 902(o) of Regulation S under the Securities Act. The Purchaser is
not acquiring the Note and Warrant for the account or benefit of any U.S.
person.
(i) Offshore Transaction. The document effecting this purchase and sale has
--------------------
been executed by the Purchaser outside the "United States" (as defined in Rule
902(p) of Regulation S). The Purchaser is acquiring the Note and Warrant in an
"offshore transaction" (as defined in Rule 902(i) of Regulation S). The Note
and Warrant were not offered to the Purchaser in the United States and at the
time of execution of this Agreement and the time of any offer to the Purchaser
to purchase the Note and Warrant hereunder, the Purchaser was physically outside
of the United States.
(j) Independent Investigation; Advertisements. The Purchaser, in offering
-------------------------------------------
to purchase the Note and Warrant hereunder, has relied solely upon an
independent investigation made by such Purchaser and its representatives, if
any, and has, prior to the date hereof, been given access to and the opportunity
to examine all books and records of the Company, and all material contracts and
documents of the Company. In making its investment decision to purchase the
Note and Warrant, the Purchaser is not relying on any oral or written
representations or assurances from the Company or any other person or any
representation of the Company or any other person other than as set forth in
this Agreement, or on any information other than contained in the Company's
public filings required under the Act and the Exchange Act. The Purchaser is
not subscribing for the Note and Warrant as a result of or subsequent to any
advertisement, article, notice or other communication published in any
newspaper, magazine or similar media or broadcast over television or radio or
presented at any seminar.
Covenants
The Company covenants with the Purchaser as follows, which covenants are
for the benefit of the Purchaser and its permitted assignees (as defined
herein).
-Securities Compliance.
----------------------
(a) The Company shall notify the Commission in accordance with their
rules and regulations, of the transactions contemplated by any of the
Transaction Documents, and shall take all necessary action and proceedings as
may be required and permitted by applicable law, rule and regulation, for the
legal and valid issuance of the Note and the Warrant Shares to the Purchaser or
subsequent holders.
(b) The Company is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments and understandings of
the Purchaser set forth herein in order to determine the applicability of
Federal and state securities laws exemptions and the suitability of the
Purchaser to acquire the Note.
-Registration and Listing. The Company will cause its Common Stock to
------------------------
continue to be registered under Sections 12(b) or 12(g) of the Exchange Act,
will comply in all respects with its reporting and filing obligations under the
Exchange Act, will comply with all requirements related to any registration
statement filed pursuant to this Agreement or the Registration Rights Agreement,
and will not take any action or file any document (whether or not permitted by
the Securities Act or the rules promulgated thereunder) to terminate or suspend
such registration or to terminate or suspend its reporting and filing
obligations under the Exchange Act or Securities Act, except as permitted
herein. The Company will take all action necessary to continue the listing or
trading of its Common Stock on the over-the-counter electronic bulletin board or
any successor market.
-Inspection Rights. The Company shall permit, during normal business
------------------
hours and upon reasonable request and reasonable notice, each Purchaser or any
employees, agents or representatives thereof, so long as such Purchaser shall be
obligated hereunder to purchase the Note or shall beneficially own any Note, or
shall own Conversion Shares which, in the aggregate, represent more than 2% of
the total combined voting power of all voting securities then outstanding, to
examine and make reasonable copies of and extracts from the records and books of
account of, and visit and inspect the properties, assets, operations and
business of the Company and any subsidiary, and to discuss the affairs, finances
and accounts of the Company and any subsidiary with any of its officers,
consultants, directors, and key employees.
-Compliance with Laws. The Company shall comply, and cause each
----------------------
subsidiary to comply, with all applicable laws, rules, regulations and orders,
noncompliance with which could have a Material Adverse Effect.
-Keeping of Records and Books of Account. The Company shall keep and
----------------------------------------
cause each subsidiary to keep adequate records and books of account, in which
complete entries will be made in accordance with GAAP consistently applied,
reflecting all financial transactions of the Company and its subsidiaries, and
in which, for each fiscal year, all proper reserves for depreciation, depletion,
obsolescence, amortization, taxes, bad debts and other purposes in connection
with its business shall be made.
-Reporting Requirements. The Company shall furnish the following to
-----------------------
each Purchaser so long as such Purchaser shall be obligated hereunder to
purchase the Note or shall beneficially own any Note, or shall own Conversion
Shares which, in the aggregate, represent more than 2% of the total combined
voting power of all voting securities then outstanding, provided, however, that
-------- -------
the Company shall not be obligated to furnish the following, if the following
reports have been filed by the Company with the Commission pursuant to the
Commission's "electronic data gathering and retrieval" (XXXXX) service:
(a) Quarterly Reports filed with the Commission on Form 10-Q as soon as
available, and in any event within 45 days after the end of each of the first
three (3) fiscal quarters of the Company;
(b) Annual Reports filed with the Commission on Form 10-K as soon as
available, and in any event within 90 days after the end of each fiscal year of
the Company; and
(c) Copies of all notices and information, including without limitation
notices and proxy statements in connection with any meetings, that are provided
to holders of shares of Common Stock, contemporaneously with the delivery of
such notices or information to such holders of Common Stock.
-Amendments. The Company shall not amend or waive any provision of
----------
the Certificate or Bylaws of the Company, or Registration Rights Agreement in
any way that would adversely affect the liquidation preferences, dividends
rights, conversion rights, voting rights or redemption rights of the holders of
the Note.
- Other Agreements. The Company shall not enter into any agreement in
-----------------
which the terms of such agreement would restrict or impair the right or ability
to perform of the Company or any subsidiary under any Transaction Document.
- Distributions. So long as any Note remain outstanding, the Company
-------------
agrees that it shall not (i) declare or pay any dividends or make any
distributions to any holder(s) of Common Stock or (ii) purchase or otherwise
acquire for value, directly or indirectly, any Common Stock or other equity
security of the Company.
-Intentionally Omitted.
----------------------
Regulation S. The Company covenants and agrees that if the Company
-------------
fails to register the Conversion Shares within 60 days from the Closing Date
under the terms and conditions of the Registration Rights Agreement attached
hereto as Exhibit D, then for so long as such registration statement is not
effective and as any of the Shares remain outstanding and continue to be
"restricted securities" within the meaning of Rule 144 under the Securities Act,
the Company shall, in order to permit resales of any of the Shares pursuant to
Regulation S under the Securities Act, (a) continue to file all material
required to be filed pursuant to Section 13(a) or 15(d) of the Exchange Act, and
(b) not knowingly engage in directed selling efforts in connection with the
resale of securities by any Purchaser under Regulation S.
-Future Financings. The Company covenants and agrees that during the
------------------
period from the Closing Date through the 180th day immediately following the
effective date of the Registration Statement (as such term is defined in the
Registration Rights Agreement), the Company shall not, without the written
consent of the Purchaser, offer, sell or issue: (i) any shares of Common Stock
or (ii) any securities convertible or exchangeable into Common Stock other than
a Permitted Financing. For purposes of this Section 3.12, a "Permitted
Financing" shall mean shares of Common Stock to be issued pursuant to the
Convertible Note Purchase Agreement, dated November 19, 2001, by and among
certain investors and the Company.
- Reservation of Shares. Immediately upon the filing of a Certificate
----------------------
of Amendment to the Company's Certificate of Incorporation with the Utah
Secretary of State increasing its authorized capital stock and so long as any of
the Notes or Warrants remain outstanding, the Company shall take all action
necessary to at all times have authorized, and reserved for the purpose of
issuance, no less than 150% of the aggregate number of shares of Common Stock
needed to provide for the issuance of the Conversion Shares and the Warrant
Shares.
- Transfer Agent Instructions. The Company shall issue irrevocable
-----------------------------
instructions to its transfer agent, and any subsequent transfer agent, to issue
certificates, registered in the name of each Purchaser or its respective
nominee(s), for the Conversion Shares and the Warrant Shares in such amounts as
specified from time to time by each Purchaser to the Company upon conversion of
the Note or exercise of the Warrant in the form of Exhibit E attached hereto
(the "Irrevocable Transfer Agent Instructions"). Prior to registration of the
Conversion Shares and the Warrant Shares under the Securities Act, all such
certificates shall bear the restrictive legend specified in Section 6.1 of this
Agreement. The Company warrants that no instruction other than the Irrevocable
Transfer Agent Instructions referred to in this Section 3.14 will be given by
the Company to its transfer agent and that the Shares shall otherwise be freely
transferable on the books and records of the Company as and to the extent
provided in this Agreement and the Registration Rights Agreement. Nothing in
this Section 3.14 shall affect in any way each Purchaser's obligations and
agreements set forth in Section 6.1 to comply with all applicable prospectus
delivery requirements, if any, upon resale of the Shares. If a Purchaser
provides the Company with an opinion of counsel, in a generally acceptable form,
to the effect that a public sale, assignment or transfer of the Shares may be
made without registration under the Securities Act or the Purchaser provides the
Company with reasonable assurances that the Shares can be sold pursuant to Rule
144 without any restriction as to the number of securities acquired as of a
particular date that can then be immediately sold, the Company shall permit the
transfer, and, in the case of the Conversion Shares and the Warrant Shares,
promptly instruct its transfer agent to issue one or more certificates in such
name and in such denominations as specified by such Purchaser and without any
restrictive legend. The Company acknowledges that a breach by it of its
obligations under this Section 3.14 will cause irreparable harm to the Purchaser
by vitiating the intent and purpose of the transaction contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach of its
obligations under this Section 3.14 will be inadequate and agrees, in the event
of a breach or threatened breach by the Company of the provisions of this
Section 3.14, that the Purchaser shall be entitled, in addition to all other
available remedies, to an order and/or injunction restraining any breach and
requiring immediate issuance and transfer, without the necessity of showing
economic loss and without any bond or other security being required.
Conditions
- Conditions Precedent to the Obligation of the Company to Sell the
---------------------------------------------------------------------
Note. The obligation hereunder of the Company to issue and sell the Note and
the Warrant to the Purchaser is subject to the satisfaction or waiver, at or
before the Closing Date, of each of the conditions set forth below. These
conditions are for the Company's sole benefit and may be waived by the Company
at any time in its sole discretion.
(a) Accuracy of Each Purchaser's Representations and Warranties. The
-------------------------------------------------------------
representations and warranties of each Purchaser shall be true and correct in
all material respects as of the date when made and as of the Closing Date as
though made at that time, except for representations and warranties that are
expressly made as of a particular date, which shall be true and correct in all
material respects as of such date.
(b) Performance by the Purchaser. The Purchaser shall have performed,
-----------------------------
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Purchaser at or prior to the Closing Date.
(c) No Injunction. No statute, rule, regulation, executive order,
--------------
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
Section 4.2 Conditions Precedent to the Obligation of the Purchaser to
----------------------------------------------------------
Purchase the Note. The obligation hereunder of the Purchaser to acquire and pay
-----------------
for the Note and the Warrant is subject to the satisfaction or waiver, at or
before the Closing Date, of each of the conditions set forth below. These
conditions are for the Purchaser's sole benefit and may be waived by the
Purchaser at any time in its sole discretion.
(a) Accuracy of the Company's Representations and Warranties. Each of
---------------------------------------------------------
the representations and warranties of the Company shall be true and correct in
all material respects as of the date when made and as of the Closing Date as
though made at that time (except for representations and warranties that speak
as of a particular date), which shall be true and correct in all material
respects as of such date.
(b) Performance by the Company. The Company shall have performed,
-----------------------------
satisfied and complied in all respects with all covenants, agreements and
conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to the Closing Date.
(c) No Suspension, Etc. From the date hereof to the Closing Date,
---------------------
trading in the Company's Common Stock shall not have been suspended by the
Commission (except for any suspension of trading of limited duration agreed to
by the Company, which suspension shall be terminated prior to the Closing Date),
and, at any time prior to the Closing Date, trading in securities generally as
reported by Bloomberg Financial Markets ("Bloomberg") shall not have been
suspended or limited, or minimum prices shall not have been established on
securities whose trades are reported by Bloomberg, or on the New York Stock
Exchange, nor shall a banking moratorium have been declared either by the United
States or New York State authorities, nor shall there have occurred any material
outbreak or escalation of hostilities or other national or international
calamity or crisis of such magnitude in its effect on, or any material adverse
change in any financial market which, in each case, in the judgment of such
Purchaser, makes it impracticable or inadvisable to purchase the Note.
(d) No Injunction. No statute, rule, regulation, executive order,
--------------
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
(e) No Proceedings or Litigation. No action, suit or proceeding before
----------------------------
any arbitrator or any governmental authority shall have been commenced, and no
investigation by any governmental authority shall have been threatened, against
the Company or any subsidiary, or any of the officers, directors or affiliates
of the Company or any subsidiary seeking to restrain, prevent or change the
transactions contemplated by this Agreement, or seeking damages in connection
with such transactions.
(f) Opinion of Counsel, Etc. At the Closing, the Purchaser shall have
-------------------------
received an opinion of counsel to the Company, dated the date of the Closing, in
the form of Exhibit F hereto, and such other certificates and documents as the
Purchaser or its counsel shall reasonably require incident to the Closing.
(g) Registration Rights Agreement. At the Closing, the Company shall
-------------------------------
have executed and delivered the Registration Rights Agreement to each Purchaser.
(h) Certificates. The Company shall have executed and delivered to
------------
each Purchaser, the certificates (in such denominations as such Purchaser shall
request) for the Note and the Warrant being purchased by such Purchaser at the
Closing.
(i) Resolutions. Prior to the Closing Date, the Board of Directors of
-----------
the Company shall have adopted resolutions consistent with Section 2.1(b) above
in a form reasonably acceptable to such Purchaser (the "Resolutions").
(j) Reservation of Shares. Immediately upon the filing of a Certificate
---------------------
of Amendment to the Company's Certificate of Incorporation with the Utah
Secretary of State increasing its authorized capital stock, the Company shall
authorize, reserve and maintain out of its authorized and unissued Common Stock,
solely for the purpose of effecting the conversion of the Note and the exercise
of the Warrant, a number of shares of Common Stock equal to at least 150% of the
aggregate number of Conversion Shares issuable upon conversion of the Note
outstanding on the Closing Date and the number of Warrant Shares issuable upon
exercise of the Warrant assuming such Warrant was granted on the Closing Date
(after giving effect to the Note and the Warrant to be issued on the Closing
Date and assuming such Note and Warrant were fully convertible or exercisable on
such date regardless of any limitation on the timing or amount of such
conversions or exercises).
(k) Transfer Agent Instructions. The Irrevocable Transfer Agent
-----------------------------
Instructions, in the form of Exhibit E attached hereto, shall have been
delivered to and acknowledged in writing by the Company's transfer agent.
(l) Secretary's Certificate. The Company shall have delivered to such
------------------------
Purchaser a secretary's certificate, dated as of the Closing Date, as to (i) the
Resolutions, (ii) the Certificate, (iii) the Bylaws, each as in effect at the
Closing, and (iv) the authority and incumbency of the officers of the Company
executing the Transaction Documents and any other documents required to be
executed or delivered in connection therewith.
Registration Rights
At the Closing, the Company and the Purchaser shall enter into a
Registration Rights Agreement in the form attached hereto as Exhibit D.
Certificate Legend
- Legend. Each certificate representing the Note and the Warrant and,
------
if appropriate, securities issued upon conversion and exercise thereof, shall be
stamped or otherwise imprinted with a legend substantially in the following form
(in addition to any legend required by applicable state securities or "blue sky"
laws):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE (THE "SECURITIES") HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT")
OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER APPLICABLE
STATE SECURITIES LAWS OR PEN INTERCONNECT INC. SHALL HAVE RECEIVED AN OPINION OF
ITS COUNSEL THAT REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND
UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.
The Company agrees to reissue certificates representing the Note and the
Warrant, without the legend set forth above if at such time, prior to making any
transfer of any Note, Warrant, Conversion Shares or Warrant Shares, such holder
thereof shall give written notice to the Company describing the manner and terms
of such transfer and removal as the Company may reasonably request. Such
proposed transfer will not be effected until: (a) the Company has notified such
holder that either (i) in the opinion of Company counsel, the registration of
such Note, Warrant, Conversion Shares or Warrant Shares under the Securities Act
is not required in connection with such proposed transfer; or (ii) a
registration statement under the Securities Act covering such proposed
disposition has been filed by the Company with the Commission and has become
effective under the Securities Act; and (b) the Company has notified such holder
that either: (i) in the opinion of Company counsel, the registration or
qualification under the securities or "blue sky" laws of any state is not
required in connection with such proposed disposition, or (ii) compliance with
applicable state securities or "blue sky" laws has been effected. The Company
will use its best efforts to respond to any such notice from a holder within 10
days. In the case of any proposed transfer under this Section 6, the Company
will use reasonable efforts to comply with any such applicable state securities
or "blue sky" laws, but shall in no event be required, in connection therewith,
to qualify to do business in any state where it is not then qualified or to take
any action that would subject it to tax or to the general service of process in
any state where it is not then subject. The restrictions on transfer contained
in Section 6.1 shall be in addition to, and not by way of limitation of, any
other restrictions on transfer contained in any other section of this Agreement.
Termination
-Termination by Mutual Consent. This Agreement may be terminated at
-------------------------------
any time prior to the Closing Date by the mutual written consent of the Company
and the Purchaser.
-Other Termination. This Agreement may be terminated by the action of
-----------------
the Board of Directors of the Company or by the Purchaser at any time if the
Closing shall not have been consummated by October 31, 2001, as long as the
failure to so consummate is not the fault of the terminating party.
- Effect of Termination. In the event of termination by the Company or
---------------------
the Purchaser, written notice thereof shall forthwith be given to the other
party and the transactions contemplated by this Agreement and the Registration
Rights Agreement shall be terminated without further action by either party. If
this Agreement is terminated as provided in Section 7.1 or 7.2 herein, this
Agreement shall become void and of no further force and effect, except for
Sections 9.1 and 9.2, and Article VIII herein. Nothing in this Section 7.3
shall be deemed to release the Company or any Purchaser from any liability for
any breach under this Agreement or the Registration Rights Agreement, or to
impair the rights of the Company and the Purchaser to compel specific
performance by the other party of its obligations under this Agreement and the
Registration Rights Agreement.
Indemnification
- General Indemnity. The Company agrees to indemnify and hold harmless
-----------------
the Purchaser (and its respective directors, officers, affiliates, agents,
successors and assigns) from and against any and all losses, liabilities,
deficiencies, costs, damages and expenses (including, without limitation,
reasonable attorney's fees, charges and disbursements) incurred by the Purchaser
as a result of any inaccuracy in or breach of the representations, warranties or
covenants made by the Company herein. The Purchaser agrees to indemnify and
hold harmless the Company and its directors, officers, affiliates, agents,
successors and assigns from and against any and all losses, liabilities,
deficiencies, costs, damages and expenses (including, without limitation,
reasonable attorneys fees, charges and disbursements) incurred by the Company as
result of any inaccuracy in or breach of the representations, warranties or
covenants made by the Purchaser herein.
-Indemnification Procedure. Any party entitled to indemnification
--------------------------
under this Article VIII (an "indemnified party") will give written notice to the
indemnifying party of any matters giving rise to a claim for indemnification;
provided, that the failure of any party entitled to indemnification hereunder to
give notice as provided herein shall not relieve the indemnifying party of its
obligations under this Article VIII except to the extent that the indemnifying
party is actually prejudiced by such failure to give notice. In case any
action, proceeding or claim is brought against an indemnified party in respect
of which indemnification is sought hereunder, the indemnifying party shall be
entitled to participate in and, unless in the reasonable judgment of the
indemnified party a conflict of interest between it and the indemnifying party
may exist with respect of such action, proceeding or claim, to assume the
defense thereof with counsel reasonably satisfactory to the indemnified party.
In the event that the indemnifying party advises an indemnified party that it
will contest such a claim for indemnification hereunder, or fails, within 30
days of receipt of any indemnification notice to notify, in writing, such person
of its election to defend, settle or compromise, at its sole cost and expense,
any action, proceeding or claim (or discontinues its defense at any time after
it commences such defense), then the indemnified party may, at its option,
defend, settle or otherwise compromise or pay such action or claim. In any
event, unless and until the indemnifying party elects in writing to assume and
does so assume the defense of any such claim, proceeding or action, the
indemnified party's costs and expenses arising out of the defense, settlement or
compromise of any such action, claim or proceeding shall be losses subject to
indemnification hereunder. The indemnified party shall cooperate fully with the
indemnifying party in connection with any negotiation or defense of any such
action or claim by the indemnifying party and shall furnish to the indemnifying
party all information reasonably available to the indemnified party which
relates to such action or claim. The indemnifying party shall keep the
indemnified party fully apprised at all times as to the status of the defense or
any settlement negotiations with respect thereto. If the indemnifying party
elects to defend any such action or claim, then the indemnified party shall be
entitled to participate in such defense with counsel of its choice at its sole
cost and expense. The indemnifying party shall not be liable for any settlement
of any action, claim or proceeding effected without its prior written consent.
Notwithstanding anything in this Article VIII to the contrary, the indemnifying
party shall not, without the indemnified party's prior written consent, settle
or compromise any claim or consent to entry of any judgment in respect thereof
which imposes any future obligation on the indemnified party or which does not
include, as an unconditional term thereof, the giving by the claimant or the
plaintiff to the indemnified party of a release from all liability in respect of
such claim. The indemnification required by this Article VIII shall be made by
periodic payments of the amount thereof during the course of investigation or
defense, as and when bills are received or expense, loss, damage or liability is
incurred, so long as the indemnified party irrevocably agrees to refund such
moneys if it is ultimately determined by a court of competent jurisdiction that
such party was not entitled to indemnification. Notwithstanding anything in
this Article VIII to the contrary, the Purchaser shall be liable under this
Article VIII for only that amount of indemnification as does not exceed the
proceeds to such Purchaser as a result of the sale of the Conversion Shares by
the Purchaser. The indemnity agreements contained herein shall be in addition
to (a) any cause of action or similar rights of the indemnified party against
the indemnifying party or others, and (b) any liabilities the indemnifying party
may be subject to pursuant to the law.
Miscellaneous
- Fees and Expenses. Each party shall pay the fees and expenses of its
-----------------
advisors, counsel, accountants and other experts, if any, and all other
expenses, incurred by such party incident to the negotiation, preparation,
execution, delivery and performance of this Agreement. In addition, the Company
shall pay all reasonable fees and expenses incurred by the Purchaser in
connection with the filing and declaration of effectiveness by the Commission of
the Registration Statement (as defined in the Registration Rights Agreement),
any amendments, modifications or waivers of this Agreement or any of the other
Transaction Documents or incurred in connection with the enforcement of this
Agreement and any of the other Transaction Documents, including, without
limitation, all reasonable attorneys fees and expenses. The Company shall pay
all stamp or other similar taxes and duties levied in connection with issuance
of the Note pursuant hereto.
-Specific Enforcement, Consent to Jurisdiction.
-------------------------------------------------
(a) The Company and the Purchaser acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement or the Registration Rights Agreement were not performed in accordance
with their specific terms or were otherwise breached. It is accordingly agreed
that the parties shall be entitled to an injunction or injunctions to prevent or
cure breaches of the provisions of this Agreement or the Registration Rights
Agreement and to enforce specifically the terms and provisions hereof or
thereof, this being in addition to any other remedy to which any of them may be
entitled by law or equity.
(b) Each of the Company and the Purchaser (i) hereby irrevocably
submits to the exclusive jurisdiction of the United States District Court
sitting in the Southern District of New York for the purposes of any suit,
action or proceeding arising out of or relating to this Agreement or the
Registration Rights Agreement and (ii) hereby waives, and agrees not to assert
in any such suit, action or proceeding, any claim that it is not personally
subject to the jurisdiction of such court, that the suit, action or proceeding
is brought in an inconvenient forum or that the venue of the suit, action or
proceeding is improper. Any suit, action or proceeding arising out of or
relating to this Agreement or the Registration Rights Agreement brought by
either the Company or the Purchaser shall be brought in the jurisdiction of the
United States District Court sitting in the Southern District of New York. Each
of the Company and the Purchaser consents to process being served in any such
suit, action or proceeding by mailing a copy thereof to such party at the
address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing in this Section 9.2 shall affect or limit any right to serve
process in any other manner permitted by law.
-Entire Agreement; Amendment. This Agreement contains the entire
-----------------------------
understanding of the parties with respect to the matters covered hereby and,
except as specifically set forth herein or in the Transaction Documents, neither
the Company nor the Purchaser makes any representations, warranty, covenant or
undertaking with respect to such matters. No provision of this Agreement may be
waived or amended other than by a written instrument signed by the Company and
the Purchaser, and no provision hereof may be waived other than by an a written
instrument signed by the party against whom enforcement of any such amendment or
waiver is sought. No consideration shall be offered or paid to any person to
amend or consent to a waiver or modification of any provision of any of the
Transaction Documents unless the same consideration is also offered to all of
the parties to the Transaction Documents or holder of the Note, as the case may
be.
-Notices. Any notice, demand, request, waiver or other communication
-------
required or permitted to be given hereunder shall be in writing and shall be
effective (a) upon hand delivery by telex (with correct answer back received),
telecopy or facsimile at the address or number designated below (if delivered on
a business day during normal business hours where such notice is to be
received), or the first business day following such delivery (if delivered other
than on a business day during normal business hours where such notice is to be
received) or (b) on the second business day following the date of mailing by
express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be:
If to the Company: THE XXXXXX COMPANY, INC
00000 Xxxxx Xxxxxxx, Xxxxx X
Xxxxxx, Xxxxxxxxxx 00000
Attention: Chief Executive Officer
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
If to any Purchaser: At the address of such Purchaser set forth on
Exhibit A to this Agreement.
with copies (which copies
shall not constitute notice
to the Company) to: Xxxxxxxxx & Associates
00000 Xxxxxxxxx, Xxxxx 000
Xxxxxx, Xxxxxxxxxx 00000
Attention: Xxxx X. Xxxxxxxxx, Esq.
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
Any party hereto may from time to time change its address for notices by
giving at least ten (10) days written notice of such changed address to the
other party hereto.
- Waivers. No waiver by either party of any default with respect to
-------
any provision, condition or requirement of this Agreement shall be deemed to be
a continuing waiver in the future or a waiver of any other provisions, condition
or requirement hereof, nor shall any delay or omission of any party to exercise
any right hereunder in any manner impair the exercise of any such right
accruing to it thereafter.
-Headings. The article, section and subsection headings in this
--------
Agreement are for convenience only and shall not constitute a part of this
Agreement for any other purpose and shall not be deemed to limit or affect any
of the provisions hereof.
-Successors and Assigns. This Agreement shall be binding upon and
------------------------
inure to the benefit of the parties and their successors and assigns. After the
Closing, the assignment by a party to this Agreement of any rights hereunder
shall not affect the obligations of such party under this Agreement.
-No Third Party Beneficiaries. This Agreement is intended for the
-------------------------------
benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
-Governing Law. This Agreement shall be governed by and construed in
--------------
accordance with the internal laws of the State of New York, without giving
effect to the choice of law provisions.
Survival. The representations and warranties of the Company and the
--------
Purchaser contained in Sections 2.1(o) and (s) should survive indefinitely and
those contained in Article II, with the exception of Sections 2.1(o) and (s),
shall survive the execution and delivery hereof and the Closing until the date
three (3) years from the Closing Date, and the agreements and covenants set
forth in Article I, III, V, VII, VIII and IX of this Agreement shall survive the
execution and delivery hereof and the Closing hereunder until the Purchaser
beneficially owns (determined in accordance with Rule 13d-3 under the Exchange
Act) less than 2% of the total combined voting power of all voting securities
then outstanding, provided, that Sections 3.1, 3.2, 3.4, 3.5, 3.7, 3.8, 3.9,
3.12, 3.13, and 3.14 shall not expire until the Registration Statement required
by Section 2 of the Registration Rights Agreement is no longer required to be
effective under the terms and conditions of Registration Rights Agreement.
-Counterparts. This Agreement may be executed in any number of
------------
counterparts, all of which taken together shall constitute one and the same
instrument and shall become effective when counterparts have been signed by each
party and delivered to the other parties hereto, it being understood that all
parties need not sign the same counterpart. In the event any signature is
delivered by facsimile transmission, the party using such means of delivery
shall cause four (4) additional executed signature pages to be physically
delivered to the other parties within five (5) days of the execution and
delivery hereof.
-Publicity. The Company agrees that it will not disclose, and will
---------
not include in any public announcement, the name of the Purchaser without the
consent of the Purchaser, which consent shall not be unreasonably withheld, or
unless and until such disclosure is required by law or applicable regulation,
and then only to the extent of such requirement.
-Severability. The provisions of this Agreement and the Registration
------------
Rights Agreement are severable and, in the event that any court of competent
jurisdiction shall determine that any one or more of the provisions or part of
the provisions contained in this Agreement or the Registration Rights Agreement
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision or part of a provision of this Agreement or the Registration
Rights Agreement shall be reformed and construed as if such invalid or illegal
or unenforceable provision, or part of such provision, had never been contained
herein, so that such provisions would be valid, legal and enforceable to the
maximum extent possible.
-Further Assurances. From and after the date of this Agreement, upon
-------------------
the request of the Purchaser or the Company, each of the Company and the
Purchaser shall execute and deliver such instruments, documents and other
writings as may be reasonably necessary or desirable to confirm and carry out
and to effectuate fully the intent and purposes of this Agreement, the Note, the
Conversion Shares, the Warrant, the Warrant Shares and the Registration Rights
Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officer as of the date first above
written.
THE XXXXXX COMPANY, INC
By /s/ Xxxx Xxxxxx
-----------------
Name: Xxxx Xxxxxx
Title: Chief Executive Officer
AMRO INTERNATIONAL SA
By: /s/ X. X. Xxxxxxxx
Name: X. X. Xxxxxxxx
Title:
EXHIBIT A
Purchaser / Number of Notes and Warrants
Name and Residence Number of Notes Dollar Amount
of Purchaser and Warrants Purchased of Investment
---------------------- ------------------------ --------------
Alpha Capital AG Note: $50,000.00 Note. $50,000.00
----
EXHIBIT B
Form of Convertible Promissory Note
EXHIBIT C
Form of Warrant
EXHIBIT D
Form of Registration Rights Agreement
EXHIBIT E
Form of Transfer Agent Instructions
EXHIBIT F
Form of Opinion
