EXHIBIT 10.32
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE
AGREEMENT
DATED AS OF NOVEMBER 29, 2001
AMONG
X.X. XXXXXX GROUP INC.
AND
THE PURCHASERS LISTED ON EXHIBIT A
TABLE OF CONTENTS
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Page
ARTICLE I Purchase and Sale of Preferred
Stock............................................................................................................1
Section 1.1 Purchase and Sale of Stock............................................................1
Section 1.2 The Conversion Shares.................................................................1
Section 1.3 Purchase Price and Closing............................................................1
Section 1.4 Exchange of Series A Preferred Stock..................................................2
Section 1.5 Warrants..............................................................................2
ARTICLE II Representations and Warranties........................................................................2
Section 2.1 Representations and Warranties of the Company.........................................2
Section 2.2 Representations and Warranties of the Purchasers.....................................12
ARTICLE III Covenants 14
Section 3.1 Securities Compliance................................................................14
Section 3.2 Registration and Listing.............................................................15
Section 3.3 Inspection Rights....................................................................15
Section 3.4 Compliance with Laws.................................................................15
Section 3.5 Keeping of Records and Books of Account..............................................15
Section 3.6 Reporting Requirements...............................................................15
Section 3.7 Amendments...........................................................................16
Section 3.8 Other Agreements.....................................................................16
Section 3.9 Distributions........................................................................16
Section 3.10 Status of Dividends..................................................................16
Section 3.11 Intentionally Omitted................................................................17
Section 3.12 Future Financings; Right of First Offer and Refusal..................................17
Section 3.13 Reservation of Shares................................................................19
Section 3.14 Transfer Agent Instructions..........................................................19
ARTICLE IV Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . .20
Section 4.1 Conditions Precedent to the Obligation of the Company to Sell the Shares.............20
Section 4.2 Conditions Precedent to the Obligation of the Purchasers to Purchase the Shares......20
ARTICLE V Intentionally Omitted.................................................................................22
ARTICLE VI Stock Certificate Legend.............................................................................22
Section 6.1 Legend...............................................................................22
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ARTICLE VII Intentionally Omitted...............................................................................23
ARTICLE VIII Indemnification....................................................................................23
Section 8.1 General Indemnity....................................................................23
Section 8.2 Indemnification Procedure............................................................24
ARTICLE IX Miscellaneous....................................................................................... 25
Section 9.1 Fees and Expenses....................................................................25
Section 9.2 Specific Enforcement, Consent to Jurisdiction........................................25
Section 9.3 Entire Agreement; Amendment..........................................................26
Section 9.4 Notices..............................................................................26
Section 9.5 Waivers..............................................................................27
Section 9.6 Headings.............................................................................27
Section 9.7 Successors and Assigns...............................................................27
Section 9.8 No Third Party Beneficiaries.........................................................27
Section 9.9 Governing Law........................................................................27
Section 9.10 Survival.............................................................................27
Section 9.11 Counterparts.........................................................................28
Section 9.12 Publicity............................................................................28
Section 9.13 Severability.........................................................................28
Section 9.14 Further Assurances...................................................................28
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SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
This SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (the
"Agreement") is dated as of November 29, 2001 by and among X.X. Xxxxxx Group
Inc., a Delaware corporation (the "Company"), and each of the Purchasers of
shares of Series A Convertible Preferred Stock of the Company whose names are
set forth on Exhibit A hereto (individually, a "Purchaser" and collectively, the
"Purchasers").
The parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF PREFERRED STOCK
Section 1.1 PURCHASE AND SALE OF STOCK. Upon the following terms and
conditions, the Company shall issue and sell to the Purchasers and each of the
Purchasers shall purchase from the Company, the number of shares of the
Company`s Series A Convertible Preferred Stock, par value $.01 per share (the
"Preferred Shares"), at a purchase price of $10,000 per share, set forth with
respect to such Purchaser on Exhibit A hereto. Upon the following terms and
conditions, the Purchasers shall be issued Series A Warrants, in substantially
the form attached hereto as Exhibit B (the "Warrants"), to purchase the
Company`s Common Stock, par value $.001 per share (the "Common Stock"). The
aggregate purchase price for the Preferred Shares and the Warrants shall be
$6,300,000. A portion of the aggregate purchase price shall be paid with that
certain senior subordinated demand promissory note issued by the Company in
connection with the Note and Warrant Purchase Agreement dated August 30, 2001
(the "August Note"), in the amount set forth next to such Purchaser`s name on
SCHEDULE 1.1 attached hereto. The designation, rights, preferences and other
terms and provisions of the Series A Convertible Preferred Stock are set forth
in the Certificate of Designation of the Relative Rights and Preferences of the
Series A Convertible Preferred Stock attached hereto as Exhibit C (the
"Certificate of Designation"). The Company and the Purchasers are executing and
delivering this Agreement in accordance with and in reliance upon the exemption
from securities registration afforded by 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") or Section 4(2) of the Securities Act.
Section 1.2 THE CONVERSION SHARES. The Company has authorized and has
reserved and covenants to continue to reserve, free of preemptive rights and
other similar contractual rights of stockholders, a sufficient number of its
authorized but unissued shares of its Common Stock, to effect the conversion of
the Preferred Shares and exercise of the Warrants. Any shares of Common Stock
issuable upon conversion of the Preferred Shares and exercise of the Warrants
(and such shares when issued) are herein referred to as the "Conversion Shares"
and the "Warrant Shares", respectively. The Preferred Shares, the Conversion
Shares and the Warrant Shares are sometimes collectively referred to as the
"Shares".
Section 1.3 PURCHASE PRICE AND CLOSING. The Company agrees to issue and
sell to the Purchasers and, in consideration of and in express reliance upon the
representations, warranties, covenants, terms and conditions of this Agreement,
the Purchasers, severally but not jointly, agree to purchase that number of the
Preferred Shares and Warrants set forth opposite their respective names on
Exhibit A. The aggregate purchase price of the Preferred Shares and Warrants
being acquired by each Purchaser is set forth opposite such Purchaser`s name on
Exhibit A (for each such purchaser, the "Purchase Price" and collectively
referred to as the "Purchase Prices"). The Company acknowledges and agrees that
a portion of the Purchase Price for the Preferred Shares and Warrants will be
paid to the Company with the August Note, in the amount set forth on SCHEDULE
1.1 attached hereto. The closing of the purchase and sale of the Preferred
Shares and Warrants to be acquired by the Purchasers from the Company under this
Agreement shall take place at the offices of Jenkens & Xxxxxxxxx Xxxxxx Xxxxxx
LLP, The Chrysler Building, 000 Xxxxxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000 (the
"Closing") at 10:00 a.m., New York time on (i) the date on which the last to be
fulfilled or waived of the conditions set forth in Article IV hereof and
applicable to such Closing shall be fulfilled or waived in accordance herewith
or (ii) at such other time and place or on such date as the Purchasers and the
Company may agree upon (the "Closing Date").
Section 1.4 EXCHANGE OF AUGUST NOTE FOR SERIES A PREFERRED STOCK. Prior to
or at the Closing, a certain Purchaser shall surrender to the Company its August
Note in exchange for stock certificates representing its pro rata portion of the
Preferred Shares.
Section 1.5 WARRANTS. The Company agrees to issue to each of the Purchasers
Warrants to purchase the number of shares of Common Stock set forth opposite
such Purchaser`s name on Exhibit A hereto, such number of shares of Common Stock
determined as follows: the Purchasers shall receive a Warrant for the purchase
of approximately 2,542 shares of Common Stock for each Preferred Share. In
addition, Xxxx X. Xxxxxxxxx Limited Partnership and Riviera Xxxx Limited
Partnership shall receive Warrants for the purchase of 19,326 and 8,283 shares
of Common Stock, respectively. Such Warrants shall expire on the twentieth
(20th) day following the effective date of a registration statement of the
Company registering the Common Stock underlying the Warrants. The Warrants set
forth on Exhibit A shall expire on the fifth (5th) anniversary of the date of
issuance.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby makes the following representations and warranties to the Purchasers,
except as set forth in the Company`s disclosure schedule delivered with this
Agreement as follows:
(a) ORGANIZATION, GOOD STANDING AND POWER. The Company is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of Delaware and has the requisite corporate power to own, lease and
operate its properties and assets and to conduct its business as it is now being
conducted. The Company does not have any subsidiaries except as set forth in the
Company`s Form 10-KSB for the year ended September 30, 2000, including the
accompanying financial statements (the "Form 10-KSB"), or in the Company`s Form
10-Q for the fiscal quarters ended December 31, 2000, March 31, 2001 or June 30,
2001 (collectively, the "Form 10-Q"), or on SCHEDULE 2.1(A) hereto. The Company
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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 or which is likely to
materially hinder the performance by the Company of any of its obligations
hereunder and under the other Transaction Documents (as defined below).
(b) AUTHORIZATION; ENFORCEMENT. The Company has the requisite corporate
power and authority to enter into and perform this Agreement, the Registration
Rights Agreement attached hereto as Exhibit D (the "Registration Rights
Agreement"), the Irrevocable Transfer Agent Instructions (as defined in Section
3.14), the Certificate of Designation, and the Warrants (collectively, the
"Transaction Documents") and to issue and sell the Shares and the Warrants in
accordance with the terms hereof. 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 other Transaction Documents will have been duly executed and delivered by
the Company at the Closing. Each of the Transaction Documents constitutes, or
shall constitute when executed and delivered, a valid and binding obligation of
the Company enforceable against the Company in accordance with its terms, except
as such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation, conservatorship, receivership or
similar laws relating to, or affecting generally the enforcement of, creditor`s
rights and remedies or by other equitable principles of general application.
(c) CAPITALIZATION. The authorized capital stock of the Company and the
shares thereof currently issued and outstanding as of November __, 2001 are set
forth on SCHEDULE 2.1(C) hereto. All of the outstanding shares of the Company`s
Common Stock and Series A Convertible Preferred Stock have been duly and validly
authorized. Except as set forth in this Agreement and the Registration Rights
Agreement and as set forth in the Form 10-KSB, Form 10-Q or 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 in the Form 10-KSB, Form 10-Q or 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 in the Form 10-KSB, Form 10-Q or 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
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knowledge of, any agreement restricting the voting or transfer of any shares of
the capital stock of the Company. Except as set forth in the Form 10-KSB, Form
10-Q or 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 claim for damages with respect
thereto which would have a Material Adverse Effect. The Company has furnished or
made available to the Purchasers true and correct copies of the Company`s
Certificate of Incorporation, as amended, as in effect on the date hereof (the
"Certificate"), and the Company`s Bylaws as in effect on the date hereof (the
"Bylaws").
(d) ISSUANCE OF SHARES. The Preferred Shares and the Warrants to be issued
at the Closing have been duly authorized by all necessary corporate action and
the Preferred Shares, when paid for or issued in accordance with the terms
hereof, shall be validly issued and outstanding, fully paid and nonassessable
and entitled to the rights and preferences set forth in the Certificate of
Designation. When the Conversion Shares and the Warrant Shares are issued in
accordance with the terms of the Preferred Shares as set forth in the
Certificate of Designation and the Warrants, 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.
(e) NO CONFLICTS. Except as disclosed in SCHEDULE 2.1(E) hereto, 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 and will 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 or by which it or its properties or assets are bound, (iii) create or
impose a lien, mortgage, security interest, charge or encumbrance of any nature
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 clauses (i) and (iv) above, for such
conflicts, defaults, terminations, amendments, accelerations, 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
Preferred Shares, the Warrants, the Conversion Shares and the Warrant Shares in
accordance with the terms hereof or thereof (other than any filings which may be
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required to be made by the Company with the Commission or state securities
administrators subsequent to the Closing, any registration statement which may
be filed pursuant hereto, and the Certificate of Designation); 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 Purchasers herein.
(f) COMMISSION DOCUMENTS, FINANCIAL STATEMENTS. The Common Stock of the
Company is registered pursuant to Section 12(b) or 12(g) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, except as disclosed
in the Form 10-KSB, Form 10-Q or on SCHEDULE 2.1(F) hereto, since June 30, 2001,
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 each of
the Purchasers true and complete copies of the Commission Documents filed with
the Commission since June 30, 2001. The Company has not provided to the
Purchasers any material non-public information or other information which,
according to applicable law, rule or regulation, was required to have been
disclosed publicly by the Company but which has not been so disclosed, other
than with respect to the transactions contemplated by this Agreement. As of
their respective dates, the Form 10-KSB and 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, none of the Form 10-KSB and the Form 10-Q contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
financial statements of the Company included in the Commission Documents comply
as to form in all material respects with applicable accounting requirements and
the published rules and regulations of the Commission or other applicable rules
and regulations with respect thereto. Such financial statements have been
prepared in accordance with generally accepted accounting principles ("GAAP")
applied on a consistent basis during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto or (ii) in
the case of unaudited interim statements, to the extent they may not include
footnotes or may be condensed or summary statements), and fairly present in all
material respects the financial position of the Company and its subsidiaries as
of the dates thereof and the results of operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments).
(g) SUBSIDIARIES. The Form 10-KSB, Form 10-Q or 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
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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.
(h) 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, except as disclosed on SCHEDULE 2.1(H) hereto.
(i) NO UNDISCLOSED LIABILITIES. Except as disclosed in the Form 10-KSB,
Form 10-Q or on SCHEDULE 2.1(I) hereto, neither the Company nor any of its
subsidiaries has any liabilities, obligations, claims or losses (whether
liquidated or unliquidated, secured or unsecured, absolute, accrued, contingent
or otherwise) other than those incurred in the ordinary course of the Company`s
or its subsidiaries respective businesses since 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.
(j) 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.
(k) INDEBTEDNESS. The Form 10-KSB, Form 10-Q or 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 $100,000 (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 $100,000 due under leases required to be
capitalized in accordance with GAAP. Neither the Company nor any subsidiary is
in default with respect to any Indebtedness.
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(l) TITLE TO ASSETS. Each of the Company and the subsidiaries has good and
marketable title to all of its real and personal property reflected in the
Commission Documents, free and clear of any mortgages, pledges, charges, liens,
security interests or other encumbrances, except for those indicated in the Form
10-KSB, Form 10-Q or on SCHEDULE 2.1(L) hereto or such that, individually or in
the aggregate, do not cause a Material Adverse Effect on the Company`s financial
condition or operating results. All said leases of the Company and each of its
subsidiaries are valid and subsisting and in full force and effect.
(m) ACTIONS PENDING. There is no action, suit, claim, investigation,
arbitration, alternate dispute resolution proceeding or any other proceeding
pending or, to the knowledge of the Company, threatened against the Company or
any subsidiary which questions the validity of this Agreement or any of the
other Transaction Documents or the transactions contemplated hereby or thereby
or any action taken or to be taken pursuant hereto or thereto. Except as set
forth in the Form 10-KSB, Form 10-Q or on SCHEDULE 2.1(M) hereto, there is no
action, suit, claim, investigation, arbitration, alternate dispute resolution
proceeding or any other proceeding pending or, to the knowledge of the Company,
threatened, against or involving the Company, any subsidiary or any of their
respective properties or assets. Except as set forth in the Form 10-KSB, Form
10-Q or 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.
(n) COMPLIANCE WITH LAW. The business of the Company and the subsidiaries
has been and is presently being conducted in accordance with all applicable
federal, state and local governmental laws, rules, regulations and ordinances,
except as set forth in the Form 10-KSB, Form 10-Q, on SCHEDULE 2.1(N) hereto or
such that, individually or in the aggregate, do not cause a Material Adverse
Effect. The Company and each of its subsidiaries have all franchises, permits,
licenses, consents and other governmental or regulatory authorizations and
approvals necessary for the conduct of its business as now being conducted by it
unless the failure to possess such franchises, permits, licenses, consents and
other governmental or regulatory authorizations and approvals, individually or
in the aggregate, could not reasonably be expected to have a Material Adverse
Effect.
(o) TAXES. Except as set forth in the Form 10-KSB, Form 10-Q or on SCHEDULE
2.1(O) hereto, the Company and each of the subsidiaries has accurately prepared
and filed all federal, state and other tax returns required by law to be filed
by it, has paid or made provisions for the payment of all taxes shown to be due
and all additional assessments, and adequate provisions have been and are
reflected in the financial statements of the Company and the subsidiaries for
all current taxes and other charges to which the Company or any subsidiary is
subject and which are not currently due and payable. Except as disclosed on
SCHEDULE 2.1(O) hereto, none of the federal income tax returns of the Company or
any subsidiary have been audited by the Internal Revenue Service. The Company
has no knowledge of any additional assessments, adjustments or contingent tax
liability (whether federal or state) of any nature whatsoever, whether pending
or threatened against the Company or any subsidiary for any period, nor of any
basis for any such assessment, adjustment or contingency.
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(p) CERTAIN FEES. Except as set forth in this Agreement or 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.
(q) DISCLOSURE. To the best of the Company`s knowledge, neither this
Agreement or the Schedules hereto nor any other documents, certificates or
instruments furnished to the Purchasers by or on behalf of the Company or any
subsidiary in connection with the transactions contemplated by this Agreement
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made herein or therein, in the light
of the circumstances under which they were made herein or therein, not
misleading.
(r) OPERATION OF BUSINESS. The Company and each of the subsidiaries owns or
possesses all patents, trademarks, domain names (whether or not registered) and
any patentable improvements or copyrightable derivative works thereof, websites
and intellectual property rights relating thereto, service marks, trade names,
copyrights, licenses and authorizations as set forth in the Form 10-KSB, Form
10-Q and on SCHEDULE 2.1(R) hereto, and all rights with respect to the
foregoing, which are necessary for the conduct of its business as now conducted
without any conflict with the rights of others.
(s) ENVIRONMENTAL COMPLIANCE. 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. The Form 10-KSB or Form 10-Q sets forth all material permits, licenses and
other authorizations issued under any Environmental Laws to the Company or its
subsidiaries. "Environmental Laws" shall mean all applicable laws relating to
the protection of the environment including, without limitation, all
requirements pertaining to reporting, licensing, permitting, controlling,
investigating or remediating emissions, discharges, releases or threatened
releases of hazardous substances, chemical substances, pollutants, contaminants
or toxic substances, materials or wastes, whether solid, liquid or gaseous in
nature, into the air, surface water, groundwater or land, or relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of hazardous substances, chemical substances, pollutants,
contaminants or toxic substances, material or wastes, whether solid, liquid or
gaseous in nature. 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 Date 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
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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.
(t) 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 action is taken with
respect to any differences.
(u) MATERIAL AGREEMENTS. Except as set forth in the Form 10-KSB, Form 10-Q
or 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-3 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 Preferred
Shares, other Preferred Stock, if any, or its Common Stock.
(v) TRANSACTIONS WITH AFFILIATES. Except as set forth in the Form 10-KSB,
Form 10-Q or on SCHEDULE 2.1(V) hereto, there are no loans, leases, agreements,
contracts, royalty agreements, management contracts or arrangements or other
continuing transactions between (a) the Company, any subsidiary or any of their
respective customers or suppliers on the one hand, and (b) on the other hand,
any officer, employee, consultant or director of the Company, or any of its
subsidiaries, or any person owning any capital stock of the Company or any
subsidiary or any member of the immediate family of such officer, employee,
consultant, director or stockholder or any corporation or other entity
controlled by such officer, employee, consultant, director or stockholder, or a
member of the immediate family of such officer, employee, consultant, director
or stockholder.
(w) SECURITIES ACT OF 1933. Based in material part upon the representations
herein of the Purchasers, the Company has complied and will comply with all
applicable federal and state securities laws in connection with the offer,
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issuance and sale of the Shares and the Warrants hereunder. Neither the Company
nor anyone acting on its behalf, directly or indirectly, has sold or will sell,
offer to sell or solicit offers to buy any of the Shares, the Warrants or
similar securities to, or solicit offers with respect thereto from, or enter
into any preliminary conversations or negotiations relating thereto with, any
person, or has taken or will take any action so as to bring the issuance and
sale of any of the Shares and the Warrants under the registration provisions of
the Securities Act and applicable state securities laws, and neither the Company
nor any of its affiliates, nor any person acting on its or their behalf, has
engaged in any form of general solicitation or general advertising (within the
meaning of Regulation D under the Securities Act) in connection with the offer
or sale of any of the Shares and the Warrants.
(x) GOVERNMENTAL APPROVALS. Except as set forth in the Form 10-KSB or Form
10-Q, and except for the filing of any notice prior or subsequent to the Closing
Date that may be required under applicable state and/or Federal securities laws
(which if required, shall be filed on a timely basis), including the filing of a
registration statement or statements pursuant to the Registration Rights
Agreement, and the filing of the Certificate of Designation with the Secretary
of State for the State of Delaware, 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 Preferred Shares and the Warrants, or for the performance by the
Company of its obligations under the Transaction Documents.
(y) EMPLOYEES. Neither the Company nor any subsidiary has any collective
bargaining arrangements or agreements covering any of its employees, except as
set forth in the Form 10-KSB, Form 10-Q or on SCHEDULE 2.1(Y) hereto. Except as
set forth in the Form 10-KSB, Form 10-Q or on SCHEDULE 2.1(Y) hereto, neither
the Company nor any subsidiary has any employment contract, agreement regarding
proprietary information, non-competition agreement, non-solicitation agreement,
confidentiality agreement, or any other similar contract or restrictive
covenant, relating to the right of any officer, employee or consultant to be
employed or engaged by the Company or such subsidiary. Since June 30, 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.
(z) ABSENCE OF CERTAIN DEVELOPMENTS. Except as provided in Form 10-KSB,
10-Q or in 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
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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 lien or encumbrance or paid any
obligation or liability (absolute or contingent), other than current liabilities
paid in the ordinary course of business;
(iv) declared or made any payment or distribution of cash or other
property to stockholders with respect to its stock, or purchased or redeemed, or
made any agreements so to purchase or redeem, any shares of its capital stock;
(v) sold, assigned or transferred any other tangible assets, or
canceled any debts or claims, except in the ordinary course of business;
(vi) sold, assigned or transferred any patent rights, trademarks,
trade names, copyrights, trade secrets or other intangible assets or
intellectual property rights, or disclosed any proprietary confidential
information to any person except to customers in the ordinary course of business
or to the Purchasers or their representatives;
(vii) suffered any substantial losses or waived any rights of material
value, whether or not in the ordinary course of business, or suffered the loss
of any material amount of prospective business;
(viii) made any changes in employee compensation except in the
ordinary course of business and consistent with past practices;
(ix) made capital expenditures or commitments therefor that aggregate
in excess of $100,000;
(x) entered into any other transaction other than in the ordinary
course of business, or entered into any other material transaction, whether or
not in the ordinary course of business;
(xi) made charitable contributions or pledges in excess of $25,000;
(xii) suffered any material damage, destruction or casualty loss,
whether or not covered by insurance;
(xiii) experienced any material problems with labor or management in
connection with the terms and conditions of their employment;
(xiv) effected any two or more events of the foregoing kind which in
the aggregate would be material to the Company or its subsidiaries; or
(xv) entered into an agreement, written or otherwise, to take any of
the foregoing actions.
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(aa) USE OF PROCEEDS. The proceeds from the sale of the Preferred Shares
will be used by the Company for working capital and general corporate purposes.
(bb) PUBLIC UTILITY HOLDING COMPANY ACT AND INVESTMENT COMPANY ACT STATUS.
The Company is not a "holding company" or a "public utility company" as such
terms are defined in the Public Utility Holding Company Act of 1935, as amended.
The Company is not, and as a result of and immediately upon the Closing will not
be, an "investment company" or a company "controlled" by an "investment
company," within the meaning of the Investment Company Act of 1940, as amended.
(cc) ERISA. No liability to the Pension Benefit Guaranty Corporation has
been incurred with respect to any Plan by the Company or any of its subsidiaries
which is or would be materially adverse to the Company and its subsidiaries. The
execution and delivery of this Agreement and the issue and sale of the Preferred
Shares 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 (the "Code"),
provided that, if any of the Purchasers, or any person or entity that owns a
beneficial interest in any of the Purchasers, is an "employee pension benefit
plan" (within the meaning of Section 3(2) of ERISA) with respect to which the
Company is a "party in interest" (within the meaning of Section 3(14) of ERISA),
the requirements of Sections 407(d)(5) and 408(e) of ERISA, if applicable, are
met. As used in this Section 2.1(cc), the term "Plan" shall mean an "employee
pension benefit plan" (as defined in Section 3 of ERISA) which is or has been
established or maintained, or to which contributions are or have been made, by
the Company or any subsidiary or by any trade or business, whether or not
incorporated, which, together with the Company or any subsidiary, is under
common control, as described in Section 414(b) or (c) of the Code.
(dd) DILUTIVE EFFECT. The Company understands and acknowledges that the
number of Conversion Shares issuable upon conversion of the Preferred Shares and
the Warrant Shares issuable upon exercise of the Warrants will increase in
certain circumstances. The Company further acknowledges that its obligation to
issue Conversion Shares upon conversion of the Preferred Shares in accordance
with this Agreement and the Certificate of Designation and its obligations to
issue the Warrant Shares upon the exercise of the Warrants in accordance with
this Agreement and the Warrants, 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.
Section 2.2 REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. Each of the
Purchasers hereby makes the following representations and warranties to the
Company with respect solely to itself and not with respect to any other
Purchaser:
(a) ORGANIZATION AND STANDING OF THE PURCHASERS. If the Purchaser is an
entity, such Purchaser is a corporation, partnership or limited liability
company duly incorporated or organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation or organization.
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(b) AUTHORIZATION AND POWER. The Purchaser has the requisite power and
authority to enter into and perform this Agreement and to purchase the Preferred
Shares 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, limited liability company or
partnership action (if the Purchaser is an entity), and no further consent or
authorization of such Purchaser or its board of directors, stockholders,
managers, members 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 to purchase the
Preferred Shares or acquire the Warrants in accordance with the terms hereof,
provided that for purposes of the representation made in this sentence, such
Purchaser is assuming and relying upon the accuracy of the relevant
representations and agreements of the Company herein.
(d) ACQUISITION FOR INVESTMENT. Such Purchaser is acquiring the Preferred
Shares and the Warrants solely for its own account for the purpose of investment
and not with a view to or for sale in connection with distribution. Such
Purchaser does not have a present intention to sell the Preferred Shares or the
Warrants, nor a present arrangement (whether or not legally binding) or
intention to effect any distribution of the Preferred Shares or the Warrants 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 Shares or the Warrants for any minimum or other specific
term and reserves the right to dispose of the Shares or the Warrants at any time
in accordance with Federal and state securities laws applicable to such
disposition. Such Purchaser acknowledges that it is able to bear the financial
risks associated with an investment in the Preferred Shares and the Warrants 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 and
received such information as it has deemed necessary or appropriate to conduct
its due diligence investigation.
(e) ACCREDITED PURCHASERS. Such Purchaser is an "accredited investor" as
defined in Regulation D promulgated under the Securities Act.
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(f) RULE 144. Such Purchaser understands that the Shares must be held
indefinitely unless such Shares are registered under the Securities Act or an
exemption from registration is available. Such Purchaser acknowledges that such
Purchaser 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 Purchaser will be unable to sell any Shares without
either registration under the Securities Act or the existence of another
exemption from such registration requirement.
(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) RESIDENCE. Such Purchaser`s permanent domicile is as set forth in
Exhibit A.
ARTICLE III
COVENANTS
The Company covenants with each of the Purchasers as follows, which
covenants are for the benefit of the Purchasers and their permitted assignees
(as defined herein).
Section 3.1 SECURITIES COMPLIANCE.
(a) The Company shall notify the Commission in accordance with their rules
and regulations, of the transactions contemplated by any of the Transaction
Documents, including filing a Form D with respect to the Preferred Shares,
Warrants, Conversion Shares and Warrant Shares as required under Regulation D,
and shall take all other necessary action and proceedings as may be required and
permitted by applicable law, rule and regulation, for the legal and valid
issuance of the Preferred Shares, the Warrants, the Conversion Shares and the
Warrant Shares to the Purchasers or subsequent holders.
(b) The Company is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments and understandings of
such Purchasers set forth herein in order to determine the applicability of
Federal and state securities laws exemptions and the suitability of such
Purchasers to acquire the Preferred Shares.
(c) Reserved.
(d) Unless waived by a Purchaser by means of providing sixty (60) days
notice to the Company, the Company covenants and agrees that the number of
Conversion Shares issuable upon conversion of the Preferred Shares and the
number of Warrant Shares issuable upon any exercise of such Warrant by a
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Purchaser shall not exceed the number of such shares that, when aggregated with
all other shares of Common Stock then owned by a Purchaser beneficially or
deemed beneficially owned by a Purchaser, would result in a Purchaser owning
more than 4.95% of all of such Common Stock as would be outstanding on such date
of conversion or such date of exercise of the Warrant, as determined in
accordance with Section 16 of the Exchange Act and the regulations promulgated
thereunder.
Section 3.2 REGISTRATION AND LISTING. The Company will cause its Common
Stock to continue to be registered under Sections 12(b) or 12(g) of the Exchange
Act, will comply in all respects with its reporting and filing obligations under
the Exchange Act, will comply with all requirements related to any registration
statement filed pursuant to this Agreement or the Registration Rights Agreement,
and will not take any action or file any document (whether or not permitted by
the Securities Act or the rules promulgated thereunder) to terminate or suspend
such registration or to terminate or suspend its reporting and filing
obligations under the Exchange Act or Securities Act, except as permitted
herein. The Company will take all action necessary to continue the listing or
trading of its Common Stock on Nasdaq or any successor market.
Section 3.3 INSPECTION RIGHTS. The Company shall permit, during normal
business hours and upon reasonable request and reasonable notice, each Purchaser
or any employees, agents or representatives thereof, so long as such Purchaser
shall be obligated hereunder to purchase the Preferred Shares or shall
beneficially own any Preferred Shares, 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, for purposes reasonably related to such
Purchaser`s interests as a stockholder to examine and make reasonable copies of
and extracts from the records and books of account of, and visit and inspect the
properties, assets, operations and business of the Company and any subsidiary,
and to discuss the affairs, finances and accounts of the Company and any
subsidiary with any of its officers, consultants, directors, and key employees.
Section 3.4 COMPLIANCE WITH LAWS. The Company shall comply, and cause each
subsidiary to comply, with all applicable laws, rules, regulations and orders,
noncompliance with which could have a Material Adverse Effect.
Section 3.5 KEEPING OF RECORDS AND BOOKS OF ACCOUNT. The Company shall keep
and cause each subsidiary to keep adequate records and books of account, in
which complete entries will be made in accordance with GAAP consistently
applied, reflecting all financial transactions of the Company and its
subsidiaries, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other
purposes in connection with its business shall be made.
Section 3.6 REPORTING REQUIREMENTS. If the Company ceases to file its
periodic reports with the Commission, or if the Commission ceases making these
periodic reports available via the Internet without charge, then the Company
shall furnish the following to each Purchaser so long as such Purchaser shall be
obligated hereunder to purchase the Preferred Shares or shall beneficially own
any Preferred Shares, or shall own Conversion Shares which, in the aggregate,
represent more than 2% of the total combined voting power of all voting
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securities then outstanding:
(a) Quarterly Reports filed with the Commission on Form 10-Q as soon as
available, and in any event within forty-five (45) days after the end of each of
the first three 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 ninety (90) days after the end of each fiscal
year of the Company; and
(c) Copies of all notices and information, including, without limitation,
notices and proxy statements in connection with any meetings, that are provided
to holders of shares of Common Stock, contemporaneously with the delivery of
such notices or information to such holders of Common Stock.
Section 3.7 AMENDMENTS. The Company shall not amend or waive any provision
of the Certificate or Bylaws of the Company, or 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 Preferred Shares.
Section 3.8 OTHER AGREEMENTS. The Company shall not enter into any
agreement in which the terms of such agreement would restrict or impair the
right or ability to perform of the Company or any subsidiary under any
Transaction Document or the Certificate of Designation.
Section 3.9 DISTRIBUTIONS. So long as any Preferred Shares or Warrants
remain outstanding, the Company agrees that it shall not (i) declare or pay any
dividends or make any distributions to any holder(s) of Common Stock or (ii)
purchase or otherwise acquire for value, directly or indirectly, any Common
Stock or other equity security of the Company.
Section 3.10 STATUS OF DIVIDENDS. The Company covenants and agrees that (i)
no Federal income tax return or claim for refund of Federal income tax or other
submission to the Internal Revenue Service (the "Service") will adversely affect
the Preferred Shares, any other series of its Preferred Stock, or the Common
Stock, and any deduction shall not operate to jeopardize the availability to
Purchasers of the dividends received deduction provided by Section 243(a)(1) of
the Code or any successor provision with the exception of such purported
dividends being construed as a return of stockholder`s capital because of
insufficient earnings and profits, (ii) in no report to shareholders or to any
governmental body having jurisdiction over the Company or otherwise will it
treat the Preferred Shares other than as equity capital or the dividends paid
thereon other than as dividends paid on equity capital unless required to do so
by a governmental body having jurisdiction over the accounts of the Company or
by a change in generally accepted accounting principles required as a result of
action by an authoritative accounting standards setting body, and (iii) other
than pursuant to this Agreement or the Certificate of Designation, it will take
no action which would result in the dividends paid by the Company on the
Preferred Shares out of the Company`s current or accumulated earnings and
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profits being ineligible for the dividends received deduction provided by
Section 243(a)(1) of the Code. The preceding sentence shall not be deemed to
prevent the Company from designating the Preferred Stock as "Convertible
Preferred Stock" in its annual and quarterly financial statements in accordance
with its prior practice concerning other series of preferred stock of the
Company. Notwithstanding the foregoing, the Company shall not be required to
restate or modify its tax returns for periods prior to the Closing Date. In the
event that the Purchasers have reasonable cause to believe that dividends paid
by the Company on the Preferred Shares out of the Company`s current or
accumulated earnings and profits will not be treated as eligible for the
dividends received deduction provided by Section 243(a)(1) of the Code, or any
successor provision, the Company will, at the reasonable request of the
Purchasers of 51% of the outstanding Preferred Shares, join with the Purchasers
in the submission to the Service of a request for a ruling that dividends paid
on the Shares will be so eligible for Federal income tax purposes, at the
Purchasers` expense. In addition, the Company will reasonably cooperate with the
Purchasers (at Purchasers` expense) in any litigation, appeal or other
proceeding challenging or contesting any ruling, technical advice, finding or
determination that earnings and profits are not eligible for the dividends
received deduction provided by Section 243(a)(1) of the Code, or any successor
provision to the extent that the position to be taken in any such litigation,
appeal, or other proceeding is not contrary to any provision of the Code or
incurred in connection with any such submission, litigation, appeal or other
proceeding. Notwithstanding the foregoing, nothing herein contained shall be
deemed to preclude the Company from claiming a deduction with respect to such
dividends if (i) the Code shall hereafter be amended, or final Treasury
regulations thereunder are issued or modified, to provide that dividends on the
Preferred Shares or Conversion Shares should not be treated as dividends for
Federal income tax purposes or that a deduction with respect to all or a portion
of the dividends on the Shares is allowable for Federal income tax purposes, or
(ii) in the absence of such an amendment, issuance or modification and after a
submission of a request for ruling or technical advice, the service shall rule
or advise that dividends on the shares should not be treated as dividends for
Federal income tax purposes. If the Service determines that the Preferred Shares
or Conversion Shares constitute debt, the Company may file protective claims for
refund.
Section 3.11 INTENTIONALLY OMITTED.
Section 3.12 FUTURE FINANCINGS; RIGHT OF FIRST OFFER AND REFUSAL. (a)
During the period commencing on the Closing Date and ending on the one year
anniversary after the Effectiveness Date (as defined in the Registration Rights
Agreement), the Company covenants and agrees that it will not, without the prior
written consent of the Purchasers, enter into any subsequent offer or sale to,
or exchange with (or other type of distribution to), any third party (a
"Subsequent Financing"), of Common Stock or any securities convertible,
exercisable or exchangeable into Common Stock, including convertible and
non-convertible debt securities (collectively, the "Financing Securities") other
than a Permitted Financing (as defined hereinafter). For purposes of this
Agreement, "Permitted Financing" shall mean any transaction involving (i) the
issuance of any Financing Securities (other than for cash) in connection with a
Major Transaction (as defined in Section 8(c) of the Certificate of
Designation), (ii) the issuance of any Financing Securities in connection with
acquisitions of the common stock or assets of unaffiliated entities in arm`s
length transactions in which the Company receives securities or assets of the
entities, provided, however, that if any such securities received by the Company
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or any securities held by the entities or attached to the assets received by the
Company, rank senior to or pari passu with the Preferred Shares, the aggregate
value of such securities in all such transactions may not exceed $5,000,000 in
the aggregate, (iii) the issuance of Common Stock or the issuance of options to
purchase Common Stock as such is related to any employee stock ownership plan,
(iv) the issuance of Common Stock in an underwritten public offering, or (v) any
transaction where the first use of proceeds from such transaction would be used
to redeem all of the Preferred Shares in accordance with Section 8(h) of the
Certificate of Designation.
(b) Notwithstanding anything in the foregoing to the contrary, the Company
covenants and agrees that so long as any Preferred Shares are outstanding, the
Company will not, without the prior written consent of 75% of the holders of the
outstanding Preferred Shares, enter into any subsequent offer or sale to, or
exchange with (or other type of distribution to), any third party, of any
Financing Securities whether or not convertible or exchangeable into Common
Stock, ranking senior or pari passu to the Preferred Shares, except that the
Company may enter into a Permitted Financing.
(c) During the period commencing on the Closing Date and ending on the
first (1st) anniversary of the Effectiveness Date, the Company covenants and
agrees to promptly notify (in no event later than five (5) days after making or
receiving an applicable offer) in writing (a "Rights Notice") the Purchasers of
the terms and conditions of any proposed Subsequent Financing. The Rights Notice
shall describe, in reasonable detail, the proposed Subsequent Financing, the
proposed closing date of the Subsequent Financing, which shall be within thirty
(30) calendar days from the date of the Rights Notice, including, without
limitation, all of the terms and conditions thereof. The Rights Notice shall
provide the Purchasers an option (the "Rights Option") during the ten (10)
trading days following delivery of the Rights Notice (the "Option Period") to
inform the Company whether the Purchasers will purchase all or part of the
securities being offered in such Subsequent Financing on the same, absolute
terms and conditions as contemplated by such Subsequent Financing (the "First
Refusal Rights"). Delivery of any Rights Notice constitutes a representation and
warranty by the Company that there are no other material terms and conditions,
arrangements, agreements or otherwise except for those disclosed in the Rights
Notice, to provide additional compensation to any party participating in any
proposed Subsequent Financing, including, but not limited to, additional
compensation based on changes in the Purchase Price or any type of reset or
adjustment of a purchase or conversion price or to issue additional securities
at any time after the closing date of a Subsequent Financing. If the Company
does not receive notice of exercise of the Rights Option from the Purchasers
within the Option Period, the Company shall have the right to close the
Subsequent Financing on the scheduled closing date with a third party; PROVIDED
that all of the terms and conditions of the closing are the same as those
provided to the Purchasers in the Rights Notice. If the closing of the proposed
Subsequent Financing does not occur on that date, any closing of the
contemplated Subsequent Financing or any other Subsequent Financing shall be
subject to all of the provisions of this Section 3.12, including, without
limitation, the delivery of a new Rights Notice. The provisions of this Section
3.12(c) shall not apply to issuances of Financing Securities in connection with
strategic partnerships, a merger or consolidation of the Company with or into
any other corporation or corporations and firm commitment underwritten public
offerings.
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(d) During the period commencing on the Closing Date and ending on the
second (2nd) anniversary of the Closing Date, if the Company enters into any
Subsequent Financing on terms more favorable than the terms governing the
Preferred Shares, then the Purchasers in their sole discretion may exchange the
Preferred Shares together with accrued but unpaid dividends (which dividends
shall be payable, at the sole option of the Purchasers, in cash or in the form
of the new securities to be issued in the Subsequent Financing) for the
securities issued or to be issued in the Subsequent Financing. The Company
covenants and agrees to promptly notify in writing the Purchasers of the terms
and conditions of any such proposed Subsequent Financing.
Section 3.13 RESERVATION OF SHARES. So long as any of the Preferred Shares
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, except as provided in Section
3(f) of the Warrant, the Warrant Shares.
Section 3.14 TRANSFER AGENT INSTRUCTIONS. The Company shall issue
irrevocable instructions to its transfer agent, and any subsequent transfer
agent, to issue certificates, registered in the name of each Purchaser or its
respective nominee(s), for the Conversion Shares and the Warrant Shares in such
amounts as specified from time to time by each Purchaser to the Company upon
conversion of the Preferred Shares or exercise of the Warrants 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 Purchasers 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 Purchasers shall be entitled, in
addition to all other available remedies, to an order and/or injunction
restraining any breach and requiring immediate issuance and transfer, without
the necessity of showing economic loss and without any bond or other security
being required.
-19-
ARTICLE IV
CONDITIONS
Section 4.1 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE COMPANY TO SELL
THE SHARES. The obligation hereunder of the Company to issue and sell the
Preferred Shares and the Warrants to the Purchasers is subject to the
satisfaction or waiver, at or before the Closing, 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 PURCHASERS. Each Purchaser shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by such Purchaser at or prior to the Closing.
(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 PURCHASERS TO
PURCHASE THE SHARES. The obligation hereunder of each Purchaser to acquire and
pay for the Preferred Shares and the Warrants is subject to the satisfaction or
waiver, at or before the Closing, of each of the conditions set forth below.
These conditions are for each Purchaser`s sole benefit and may be waived by such
Purchaser at any time in its sole discretion.
(a) ACCURACY OF THE COMPANY`S REPRESENTATIONS AND WARRANTIES. Each of the
representations and warranties of the Company shall be true and correct in all
material respects as of the date when made and as of the Closing Date as though
made at that time (except for representations and warranties that speak as of a
particular date), which shall be true and correct in all material respects as of
such date.
(b) PERFORMANCE BY THE COMPANY. The Company shall have performed, satisfied
and complied in all respects with all covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by the
Company at or prior to the Closing.
(c) NO SUSPENSION, ETC. From the date hereof to the Closing Date, trading
in the Company`s Common Stock shall not have been suspended by the Commission
(except for any suspension of trading of limited duration agreed to by the
Company, which suspension shall be terminated prior to the Closing), and, at any
-20-
time prior to the Closing, 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 Preferred Shares.
(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) CERTIFICATE OF DESIGNATION OF RIGHTS AND PREFERENCES. Prior to the
Closing, the Certificate of Designation in the form of Exhibit C attached hereto
shall have been filed with the Secretary of State of Delaware.
(g) OPINION OF COUNSEL, ETC. At the Closing, the Purchasers 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
Purchasers or its counsel shall reasonably require incident to the Closing.
(h) REGISTRATION RIGHTS AGREEMENT. At the Closing, the Company shall have
executed and delivered the Registration Rights Agreement to each Purchaser.
(i) CERTIFICATES. The Company shall have executed and delivered to the
Purchasers the certificates (in such denominations as such Purchaser shall
request) for the Preferred Shares and Warrants being acquired by such Purchaser
at the Closing.
(j) RESOLUTIONS. The board of directors of the Company shall have adopted
resolutions consistent with Section 2.1(b) above in a form reasonably acceptable
to such Purchaser (the "Resolutions").
(k) RESERVATION OF SHARES. As of the Closing Date, the Company shall have
reserved out of its authorized and unissued Common Stock, solely for the purpose
of effecting the conversion of the Preferred Shares and the exercise of the
Warrants, a number of shares of Common Stock equal to at least 150% of the
-21-
aggregate number of Conversion Shares issuable upon conversion of the Preferred
Shares outstanding on the Closing Date and the number of Warrant Shares issuable
upon exercise of the number of Warrants assuming such Warrants were granted on
the Closing Date (after giving effect to the Preferred Shares and the Warrants
to be issued on the Closing Date and assuming all such Preferred Shares and
Warrants were fully convertible or exercisable on such date regardless of any
limitation on the timing or amount of such conversions or exercises).
(l) TRANSFER AGENT INSTRUCTIONS. The Irrevocable Transfer Agent
Instructions, in the form of Exhibit E attached hereto, shall have been
delivered to and acknowledged in writing by the Company`s transfer agent.
(m) SECRETARY`S CERTIFICATE. The Company shall have delivered to such
Purchaser a secretary`s certificate, dated as of the Closing Date, as to (i) the
Resolutions, (ii) the Certificate, (iii) the Bylaws, (iv) the Certificate of
Designation, each as in effect at the Closing, and (v) the authority and
incumbency of the officers of the Company executing the Transaction Documents
and any other documents required to be executed or delivered in connection
therewith.
(n) OFFICER`S CERTIFICATE. The Company shall have delivered to the
Purchasers a certificate of an executive officer of the Company, dated as of the
Closing Date, confirming the accuracy of the Company`s representations,
warranties and covenants as of the Closing Date and confirming the compliance by
the Company with the conditions precedent set forth in this Section 4.2 as of
the Closing Date.
(o) PAYMENT OF LEGAL FEES. The Company shall have paid all fees and
expenses owing by the Company to counsel to the Purchasers in connection with
all prior transactions, including, without limitation, the transactions
contemplated hereby and the August Note.
ARTICLE V
INTENTIONALLY OMITTED
ARTICLE VI
STOCK CERTIFICATE LEGEND
Section 6.1 LEGEND. Each certificate representing the Preferred Shares and
the Warrants, and, if appropriate, securities issued upon conversion thereof,
shall be stamped or otherwise imprinted with a legend substantially in the
following form (in addition to any legend required by applicable state
securities or "blue sky" laws):
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
-22-
DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND
UNDER APPLICABLE STATE SECURITIES LAWS OR X.X. XXXXXX GROUP
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 Shares without
the legend set forth above if at such time, prior to making any transfer of any
Shares or 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 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 ten (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.
ARTICLE VII
INTENTIONALLY OMITTED.
ARTICLE VIII
INDEMNIFICATION
Section 8.1 GENERAL INDEMNITY. The Company agrees to indemnify and hold
harmless the Purchasers and any finder (and their respective directors,
officers, affiliates, agents, successors and assigns) from and against any and
all losses, liabilities, deficiencies, costs, damages and expenses (including,
without limitation, reasonable attorneys` fees, charges and disbursements)
incurred by the Purchasers as a result of any inaccuracy in or breach of the
representations, warranties or covenants made by the Company herein. Each
Purchaser severally but not jointly agrees to indemnify and hold harmless the
Company and its directors, officers, affiliates, agents, successors and assigns
from and against any and all losses, liabilities, deficiencies, costs, damages
-23-
and expenses (including, without limitation, reasonable attorneys` fees, charges
and disbursements) incurred by the Company as result of any inaccuracy in or
breach of the representations, warranties or covenants made by such Purchaser
herein.
Section 8.2 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 thirty (30) days of receipt of any indemnification
notice to notify, in writing, such person of its election to defend, settle or
compromise, at its sole cost and expense, any action, proceeding or claim (or
discontinues its defense at any time after it commences such defense), then the
indemnified party may, at its option, defend, settle or otherwise compromise or
pay such action or claim. In any event, unless and until the indemnifying party
elects in writing to assume and does so assume the defense of any such claim,
proceeding or action, the indemnified party`s costs and expenses arising out of
the defense, settlement or compromise of any such action, claim or proceeding
shall be losses subject to indemnification hereunder. The indemnified party
shall cooperate fully with the indemnifying party in connection with any
negotiation or defense of any such action or claim by the indemnifying party and
shall furnish to the indemnifying party all information reasonably available to
the indemnified party which relates to such action or claim. The indemnifying
party shall keep the indemnified party fully apprised at all times as to the
status of the defense or any settlement negotiations with respect thereto. If
the indemnifying party elects to defend any such action or claim, then the
indemnified party shall be entitled to participate in such defense with counsel
of its choice at its sole cost and expense. The indemnifying party shall not be
liable for any settlement of any action, claim or proceeding effected without
its prior written consent. Notwithstanding anything in this Article 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. 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.
-24-
ARTICLE IX
MISCELLANEOUS
Section 9.1 FEES AND EXPENSES. Except as otherwise set forth in this
Agreement, the Registration Rights Agreement or the Certificate of Designation,
each party shall pay the fees and expenses of its advisors, counsel, accountants
and other experts, if any, and all other expenses, incurred by such party
incident to the negotiation, preparation, execution, delivery and performance of
this Agreement, provided that the Company shall pay, at the Closing, (i) all
actual attorneys` fees and expenses (exclusive of disbursements and
out-of-pocket expenses) incurred by the Purchasers up to $50,000 in connection
with the preparation, negotiation, execution and delivery of this Agreement, the
Registration Rights Agreement and the transactions contemplated thereunder and
(ii) consulting fees and fees in connection with the preparation of documents
incurred by the Purchasers in connection with the preparation, negotiation,
execution and delivery of this Agreement, the Registration Rights Agreement and
the transactions contemplated thereunder. In addition, the Company shall pay all
reasonable fees and expenses incurred by the Purchasers in connection with the
filing and declaration of effectiveness by the Commission of the Registration
Statement (as defined in the Registration Rights Agreement), any amendments,
modifications or waivers of this Agreement or any of the other Transaction
Documents, or incurred in connection with the enforcement of this Agreement or
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
Preferred Shares pursuant hereto.
Section 9.2 SPECIFIC ENFORCEMENT, CONSENT TO JURISDICTION.
(a) The Company and the Purchasers acknowledge and agree that irreparable
damage would occur in the event that any of the provisions of this Agreement,
the Certificate of Designation 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 Purchasers (i) hereby irrevocably submits
to the exclusive jurisdiction of the United States District Court sitting in the
Southern District of New York and the courts of the State of New York located in
New York county for the purposes of any suit, action or proceeding arising out
of or relating to this Agreement or any of the other Transaction Documents or
the transactions contemplated hereby or thereby and (ii) hereby waives, and
agrees not to assert in any such suit, action or proceeding, any claim that it
is not personally subject to the jurisdiction of such court, that the suit,
action or proceeding is brought in an inconvenient forum or that the venue of
the suit, action or proceeding is improper. Each of the Company and the
Purchasers consents to process being served in any such suit, action or
proceeding by mailing a copy thereof to such party at the address in effect for
notices to it under this Agreement and agrees that such service shall constitute
good and sufficient service of process and notice thereof. Nothing in this
-25-
Section 9.2 shall affect or limit any right to serve process in any other manner
permitted by law.
Section 9.3 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 any of the Purchasers makes any representations, warranty,
covenant or undertaking with respect to such matters and they supersede all
prior understandings and agreements with respect to said subject matter, all of
which are merged herein. No provision of this Agreement may be waived or amended
other than by a written instrument signed by the Company and the holders of at
least two-thirds (2/3) of the Preferred Shares then outstanding, and no
provision hereof may be waived other than by an a written instrument signed by
the party against whom enforcement of any such amendment or waiver is sought. No
such amendment shall be effective to the extent that it applies to less than all
of the holders of the Preferred Shares then outstanding. No consideration shall
be offered or paid to any person to amend or consent to a waiver or modification
of any provision of any of the Transaction Documents unless the same
consideration is also offered to all of the parties to the Transaction Documents
or holders of Preferred Shares, as the case may be.
Section 9.4 NOTICES. Any notice, demand, request, waiver or other
communication required or permitted to be given hereunder shall be in writing
and shall be effective (a) upon hand delivery, by telex (with correct answer
back received), telecopy or facsimile at the address or number designated below
(if delivered on a business day during normal business hours where such notice
is to be received), or the first business day following such delivery (if
delivered other than on a business day during normal business hours where such
notice is to be received) or (b) on the second business day following the date
of mailing by express courier service, fully prepaid, addressed to such address,
or upon actual receipt of such mailing, whichever shall first occur. The
addresses for such communications shall be:
If to the Company: X.X. Xxxxxx Group Inc.
00 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx X. Xxxxx, Xx., Chief
Financial Officer
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
with copies to: Xxxxxxx & Xxxxxx LLP
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxx X. Xxxxx, Esq.
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
-26-
Agreement, with copies to
Purchaser`s counsel as set
forth on Exhibit A or as
specified in writing by such
Purchaser with copies to:
Xxxxxxxxxxx X. Xxxxxxx, Esq.
Jenkens & Xxxxxxxxx Xxxxxx Xxxxxx LLP
The Chrysler Building
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
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.
Section 9.5 WAIVERS. No waiver by any party of any default with respect to
any provision, condition or requirement of this Agreement shall be deemed to be
a continuing waiver in the future or a waiver of any other provisions, condition
or requirement hereof, nor shall any delay or omission of any party to exercise
any right hereunder in any manner impair the exercise of any such right accruing
to it thereafter.
Section 9.6 HEADINGS. The article, section and subsection headings in this
Agreement are for convenience only and shall not constitute a part of this
Agreement for any other purpose and shall not be deemed to limit or affect any
of the provisions hereof.
Section 9.7 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of the parties and their successors and assigns. After
the Closing, the assignment by a party to this Agreement of any rights hereunder
shall not affect the obligations of such party under this Agreement.
Section 9.8 NO THIRD PARTY BENEFICIARIES. This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
Section 9.9 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York, without
giving effect to the choice of law provisions. This Agreement shall not
interpreted or construed with any presumption against the party causing this
Agreement to be drafted.
Section 9.10 SURVIVAL. The representations and warranties of the Company
and the Purchasers contained in Sections 2.1(o) and (s) should survive
indefinitely and those contained in Article II, with the exception of Sections
2.1(o) and (s), shall survive the execution and delivery hereof and the Closing
until the date three (3) years from the Closing Date, and the agreements and
covenants set forth in Articles I, III, V, VIII and IX of this Agreement shall
survive the execution and delivery hereof and the Closing hereunder until the
Purchasers in the aggregate beneficially own (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, 3.10, 3.12, 3.13 and 3.14 shall not expire until the
-27-
Registration Statement required by Section 2 of the Registration Rights
Agreement is no longer required to be effective under the terms and conditions
of Registration Rights Agreement.
Section 9.11 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and shall become effective when counterparts have been signed by each
party and delivered to the other parties hereto, it being understood that all
parties need not sign the same counterpart. In the event any signature is
delivered by facsimile transmission, the party using such means of delivery
shall cause four additional executed signature pages to be physically delivered
to the other parties within five days of the execution and delivery hereof.
Section 9.12 PUBLICITY. The Company agrees that it will not disclose, and
will not include in any public announcement, the name of the Purchasers without
the consent of the Purchasers unless and until such disclosure is required by
law or applicable regulation, and then only to the extent of such requirement.
Section 9.13 SEVERABILITY. The provisions of this Agreement, the
Certificate of Designation 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, the Certificate of Designation 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, the Certificate of
Designation or the Registration Rights Agreement shall be reformed and construed
as if such invalid or illegal or unenforceable provision, or part of such
provision, had never been contained herein, so that such provisions would be
valid, legal and enforceable to the maximum extent possible.
Section 9.14 FURTHER ASSURANCES. From and after the date of this Agreement,
upon the request of any Purchaser or the Company, each of the Company and the
Purchasers shall execute and deliver such instrument, documents and other
writings as may be reasonably necessary or desirable to confirm and carry out
and to effectuate fully the intent and purposes of this Agreement, the Preferred
Shares, the Conversion Shares, the Warrants, the Warrant Shares, the Certificate
of Designation, and the Registration Rights Agreement.
-28-
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.
X.X. XXXXXX GROUP INC.
By:
------------------------------------
Name:
Title:
SDS MERCHANT FUND, L.P.
By:
------------------------------------
Name:
Title:
DMG LEGACY INTERNATIONAL LTD.
By:
------------------------------------
Name:
Title:
DMG LEGACY INSTITUTIONAL FUND
LLC
By:
-------------------------------------
Name:
Title:
DMG LEGACY FUND LLC
By:
-------------------------------------
Name:
Title:
-29-
XXXX X. XXXXXXXXX LIMITED PARTNERSHIP
By:
------------------------------------
Name:
Title:
RIVIERA XXXX LIMITED PARTNERSHIP
By:
--------------------------------------
Name:
Title:
-30-
EXHIBIT A to the
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
FOR X.X. XXXXXX GROUP INC.
NAMES AND ADDRESSES NUMBER OF PREFERRED SHARES DOLLAR AMOUNT VALUE OF AUGUST
OF PURCHASERS & WARRANTS PURCHASED OF INVESTMENT NOTE EXCHANGED
------------- -------------------- ------------- --------------
SDS Merchant Fund, L.P. Preferred Shares: 345 $3,450,000 $2,791,709
a Delaware limited partnership Warrants: 876,990
c/o SDS Capital Partners
Xxx Xxxxx Xxxxx Xxxxx
Xxxxxxxxx, XX 00000
Attention: Xxxxx Xxxxx
Fax no.: (000) 000-0000
DMG Legacy International Ltd. Preferred Shares: 141 $1,410,000 $0
a British Virgin Islands company Warrants: 358,422
c/o DMG Advisors LLC
Xxx Xxxxx Xxxxx Xxxxx
Xxxxxxxxx, XX 00000
Attention: General Counsel
Fax no.: (000) 000-0000
DMG Legacy Institutional Fund LLC Preferred Shares: 84 $840,000 $0
a Delaware limited liability company Warrants: 213,528
c/o DMG Advisors LLC
Xxx Xxxxx Xxxxx Xxxxx
Xxxxxxxxx, XX 00000
Attention: General Counsel
Fax no.: (000) 000-0000
DMG Legacy Fund LLC Preferred Shares: 10 $100,000 $0
a Delaware limited liability company Warrants: 25,420
c/o DMG Advisors LLC
Xxx Xxxxx Xxxxx Xxxxx
Xxxxxxxxx, XX 00000
Attention: General Counsel
Fax no.: (000) 000-0000
Xxxx X. Xxxxxxxxx Limited Preferred Shares: 35 $350,000 $0
Partnership Warrants: 88,970
a New York Limited Partnership
0000 Xxxxxx Xxxxxx, Xxxxx 000
Xxxxx Xxxxxx, XX 00000
Attention: Xxxx Xxxxxxx
Fax no.: (000) 000-0000
Riviera Xxxx Limited Partnership Preferred Shares: 15 $150,000 $0
a Florida Limited Partnership Warrants: 38,130
0000 Xxxxxx Xxxxxx, Xxxxx 000
Xxxxx Xxxxxx, XX 00000
Attention: Xxxx Xxxxxxx
Fax no.: (000) 000-0000
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EXHIBIT B TO THE
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
X.X. XXXXXX GROUP INC.
FORM OF SERIES A WARRANT
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EXHIBIT C TO THE
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
X.X. XXXXXX GROUP INC.
FORM OF CERTIFICATE OF DESIGNATION
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EXHIBIT D TO THE
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
X.X. XXXXXX GROUP INC.
FORM OF REGISTRATION RIGHTS AGREEMENT
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EXHIBIT E TO THE
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
X.X. XXXXXX GROUP INC.
FORM OF IRREVOCABLE TRANSFER AGENT INSTRUCTIONS
X.X. XXXXXX GROUP INC.
as of November __, 2001
American Stock Transfer & Trust Company
00 Xxxx Xxxxxx
Xxx Xxxx, XX 00000
Attn: _____________
LADIES AND GENTLEMEN:
Reference is made to that certain Series A Convertible Preferred Stock
Purchase Agreement, dated as of November __, 2001, by and among X.X. Xxxxxx
Group Inc., a Delaware corporation (the "COMPANY"), and the purchasers named
therein (collectively, the "PURCHASERS") pursuant to which the Company is
issuing to the Purchasers shares of its Series A Convertible Preferred Stock,
par value $.01 per share (the "PREFERRED SHARES"), and warrants (the "WARRANTS")
to purchase shares of the Company`s common stock, par value $.001 per share (the
"COMMON STOCK"), in connection with the sale and issuance of Preferred Shares
and Warrants to the Purchasers. This letter shall serve as our irrevocable
authorization and direction to you (provided that you are the transfer agent of
the Company at such time) to issue shares of Common Stock upon conversion of the
Preferred Shares (the "CONVERSION SHARES") and exercise of the Warrants (the
"WARRANT SHARES") to or upon the order of a Purchaser from time to time upon (i)
surrender to you of a properly completed and duly executed Conversion Notice or
Exercise Notice, as the case may be, in the form attached hereto as Exhibit I
and Exhibit II, respectively, (ii) in the case of the conversion of Preferred
Shares, a copy of the certificates (with the original certificates delivered to
the Company) representing Preferred Shares being converted or, in the case of
Warrants being exercised, a copy of the Warrants (with the original Warrants
delivered to the Company) being exercised (or, in each case, an indemnification
undertaking with respect to such share certificates or the warrants in the case
of their loss, theft or destruction), and (iii) delivery of a treasury order or
other appropriate order duly executed by a duly authorized officer of the
Company. So long as you have previously received (x) written confirmation from
counsel to the Company that a registration statement covering resales of the
Conversion Shares or Warrant Shares, as applicable, has been declared effective
by the Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "1933 ACT"), and no subsequent notice by the Company or
its counsel of the suspension or termination of its effectiveness and (y) a copy
of such registration statement, and if the Purchaser represents in writing that
the Conversion Shares or the Warrant Shares, as the case may be, were sold
pursuant to the Registration Statement, then certificates representing the
Conversion Shares and the Warrant Shares, as the case may be, shall not bear any
legend restricting transfer of the Conversion Shares and the Warrant Shares, as
the case may be, thereby and should not be subject to any stop-transfer
restriction. Provided, however, that if you have not previously received (i)
written confirmation from counsel to the Company that a registration statement
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covering resales of the Conversion Shares or Warrant Shares, as applicable, has
been declared effective by the SEC under the 1933 Act, and (ii) a copy of such
registration statement, then the certificates for the Conversion Shares and the
Warrant Shares shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE 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 OR APPLICABLE STATE
SECURITIES LAWS, OR X.X. XXXXXX GROUP 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."
and, provided further, that the Company may from time to time notify you to
place stop-transfer restrictions on the certificates for the Conversion Shares
and the Warrant Shares in the event a registration statement covering the
Conversion Shares and the Warrant Shares is subject to amendment for events then
current.
A form of written confirmation from counsel to the Company that a
registration statement covering resales of the Conversion Shares and the Warrant
Shares has been declared effective by the SEC under the 1933 Act is attached
hereto as Exhibit III.
Please execute this letter in the space indicated to acknowledge your
agreement to act in accordance with these instructions. Should you have any
questions concerning this matter, please contact me at ___________.
Very truly yours,
X.X. XXXXXX GROUP INC.
By:
-------------------------------------
Name:
-----------------------------
Title:
---------------------------
ACKNOWLEDGED AND AGREED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
By:
-----------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
Date:
------------------
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EXHIBIT I
---------
X.X. XXXXXX GROUP INC.
CONVERSION NOTICE
Reference is made to the Certificate of Designation of the Relative Rights and
Preferences of the Series A Preferred Stock of X.X. Xxxxxx Group Inc. (the
"Certificate of Designation"). In accordance with and pursuant to the
Certificate of Designation, the undersigned hereby elects to convert the number
of shares of Series A Preferred Stock, par value $.01 per share (the "Preferred
Shares"), of X.X. Xxxxxx Group Inc., a Delaware corporation (the "Company"),
indicated below into shares of Common Stock, par value $.001 per share (the
"Common Stock"), of the Company, by tendering the stock certificate(s)
representing the share(s) of Preferred Shares specified below as of the date
specified below.
Date of Conversion:
--------------------------
Number of Preferred Shares to be converted:
--------------------------
Stock certificate no(s). of Preferred Shares to be converted:
--------
The shares of Common Stock have been sold pursuant to the Registration
Statement (as defined in the Registration Rights Agreement): YES ____ NO____
Please confirm the following information:
Conversion Price:
--------------------------
Number of shares of Common Stock
to be issued:
--------------------------
Please issue the Common Stock into which the Preferred Shares are being
converted and, if applicable, any check drawn on an account of the Company in
the following name and to the following address:
Issue to:
--------------------------
--------------------------
Facsimile Number:
--------------------------
Authorization:
--------------------------
By:
------------------------
Title:
--------------------
Dated:
PRICES ATTACHED
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EXHIBIT II
FORM OF EXERCISE NOTICE
EXERCISE FORM
X.X. XXXXXX GROUP INC.
The undersigned _______________, pursuant to the provisions of the within
Warrant, hereby elects to purchase _____ shares of Common Stock of X.X. Xxxxxx
Group Inc. covered by the within Warrant.
Dated: _________________ Signature ___________________________
Address _____________________
_____________________
ASSIGNMENT
FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto
__________________ the within Warrant and all rights evidenced thereby and does
irrevocably constitute and appoint _____________, attorney, to transfer the said
Warrant on the books of the within named corporation.
Dated: _________________ Signature ___________________________
Address _____________________
_____________________
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto
__________________ the right to purchase _________ shares of Warrant Stock
evidenced by the within Warrant together with all rights therein, and does
irrevocably constitute and appoint ___________________, attorney, to transfer
that part of the said Warrant on the books of the within named corporation.
Dated: _________________ Signature ___________________________
Address _____________________
_____________________
FOR USE BY THE ISSUER ONLY:
This Warrant No. W-_____ canceled (or transferred or exchanged) this _____ day
of ___________, _____, shares of Common Stock issued therefor in the name of
_______________, Warrant No. W-_____ issued for ____ shares of Common Stock in
the name of _______________.
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EXHIBIT III
-----------
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
American Stock Transfer & Trust Company
00 Xxxx Xxxxxx
Xxx Xxxx, XX 00000
Attn: _____________
Re: X.X. XXXXXX GROUP INC.
---------------------
Ladies and Gentlemen:
We are counsel to X.X. Xxxxxx Group Inc., a Delaware corporation (the
"COMPANY"), and have represented the Company in connection with that certain
Series A Convertible Preferred Stock Purchase Agreement (the "PURCHASE
AGREEMENT"), dated as of November __, 2001, by and among the Company and the
purchasers named therein (collectively, the "PURCHASERS") pursuant to which the
Company issued to the Purchasers shares of its Series A Convertible Preferred
Stock, par value $.01 per share (the "PREFERRED SHARES"), and warrants (the
"WARRANTS") to purchase shares of the Company`s common stock, par value $.001
per share (the "COMMON STOCK"). Pursuant to the Purchase Agreement, the Company
has also entered into a Registration Rights Agreement with the Purchasers (the
"REGISTRATION RIGHTS AGREEMENT"), dated as of November __, 2001, pursuant to
which the Company agreed, among other things, to register the Registrable
Securities (as defined in the Registration Rights Agreement), including the
shares of Common Stock issuable upon conversion of the Preferred Shares and
exercise of the Warrants, under the Securities Act of 1933, as amended (the
"1933 ACT"). In connection with the Company`s obligations under the Registration
Rights Agreement, on ________________, 2001, the Company filed a Registration
Statement on Form S-3 (File No. 333-________) (the "REGISTRATION STATEMENT")
with the Securities and Exchange Commission (the "SEC") relating to the resale
of the Registrable Securities which names each of the present Purchasers as a
selling stockholder thereunder.
In connection with the foregoing, we advise you that a member of the SEC`s
staff has advised us by telephone that the SEC has entered an order declaring
the Registration Statement effective under the 1933 Act at [ENTER TIME OF
EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge, after
telephonic inquiry of a member of the SEC`s staff, that any stop order
suspending its effectiveness has been issued or that any proceedings for that
purpose are pending before, or threatened by, the SEC and accordingly, the
Registrable Securities are available for resale under the 1933 Act pursuant to
the Registration Statement.
Very truly yours,
[COMPANY COUNSEL]
By:
-------------------------------
cc: [LIST NAMES OF PURCHASERS]
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EXHIBIT F TO THE
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
X.X. XXXXXX GROUP INC.
FORM OF OPINION OF COUNSEL
1. The Company is a corporation duly incorporated, validly existing and in
good standing under the laws of the state of Delaware and has the requisite
corporate power to own, lease and operate its properties and assets, and to
carry on its business as presently conducted. The Company 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.
2. The Company has the requisite corporate power and authority to enter
into and perform its obligations under the Transaction Documents and to issue
the Preferred Stock, the Warrants and the Common Stock issuable upon conversion
of the Preferred Stock and exercise of the Warrants. The execution, delivery and
performance of each of the Transaction Documents by the Company and the
consummation by it of the transactions contemplated thereby have been duly and
validly authorized by all necessary corporate action and no further consent or
authorization of the Company or its board of directors or stockholders is
required. Each of the Transaction Documents have been duly executed and
delivered, and the Preferred Stock and the Warrants have been duly executed,
issued and delivered by the Company and each of the Transaction Documents
constitutes a legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its respective terms. The Common Stock
issuable upon conversion of the Preferred Stock and exercise of the Warrants are
not subject to any preemptive rights under the Certificate of Incorporation, as
amended, or the Bylaws.
3. The Preferred Stock and the Warrants have been duly authorized and, when
delivered against payment in full as provided in the Purchase Agreement, will be
validly issued, fully paid and nonassessable. The shares of Common Stock
issuable upon conversion of the Preferred Stock and exercise of the Warrants,
have been duly authorized and reserved for issuance, and, when delivered upon
conversion or against payment in full as provided in the Certificate of
Designation and the Warrants, as applicable, will be validly issued, fully paid
and nonassessable.
4. The execution, delivery and performance of and compliance with the terms
of the Transaction Documents and the issuance of the Preferred Stock, the
Warrants and the Common Stock issuable upon conversion of the Preferred Stock
and exercise of the Warrants do not (i) violate any provision of the Certificate
of Incorporation, as amended, 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 material agreement, mortgage, deed of
trust, indenture, note, bond, license, lease agreement, instrument or obligation
to which the Company is a party and which is known to us, (iii) create or impose
a lien, charge or encumbrance on any property of the Company under any agreement
or any commitment known to us 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, injunction or decree (including
Federal and state securities laws and regulations) applicable to the Company or
by which any property or asset of the Company is bound or affected, except, in
all cases other than violations pursuant to clause (i) above, for such
conflicts, default, terminations, amendments, acceleration, cancellations and
violations as would not, individually or in the aggregate, have a Material
Adverse Effect.
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5. No consent, approval or authorization of or designation, declaration or
filing with any governmental authority on the part of the Company is required
under Federal, state or local law, rule or regulation in connection with the
valid execution and delivery of the Transaction Documents, or the offer, sale or
issuance of the Preferred Stock, the Warrants or the Common Stock issuable upon
conversion of the Preferred Stock and exercise of the Warrants other than the
Certificate of Designation and the Registration Statement.
6. There is no action, suit, claim, investigation or proceeding pending or,
to our knowledge, threatened against the Company which questions the validity of
this Agreement or the transactions contemplated hereby or any action taken or to
be taken pursuant hereto or thereto. There is no action, suit, claim,
investigation or proceeding pending, or to our knowledge, threatened, against or
involving the Company or any of its properties or assets and which, if adversely
determined, is reasonably likely to result in a Material Adverse Effect. There
are no outstanding orders, judgments, injunctions, awards or decrees of any
court, arbitrator or governmental or regulatory body against the Company or any
officers or directors of the Company in their capacities as such.
7. The offer, issuance and sale of the Preferred Stock and the Warrants and
the offer, issuance and sale of the shares of Common Stock issuable upon
conversion of the Preferred Stock and exercise of the Warrants pursuant to the
Purchase Agreement, the Certificate of Designation and the Warrants, as
applicable, are exempt from the registration requirements of the Securities Act.
8. 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.
Very truly yours,
XXXXXXX & XXXXXX LLP
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