PREFERRED STOCK PURCHASE AGREEMENT
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THIS PREFERRED STOCK PURCHASE AGREEMENT (this "Agreement") is made
September 29, 2005 (the "Effective Date") by and among Gift Liquidators, Inc.,
an Oklahoma corporation (the "Company"), and David Mladen, an individual, with
an address at c/o White Knight Management, Inc., 000 Xxxxxx Xxxxxx, 0xx Xxxxx
Office #A15, Xxxxxxxx, XX 00000 (the "Investor").
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. PURCHASE AND SALE OF SHARES.
1.1 Sale and Issuance of Series A Convertible Preferred Stock. (a) On
or before the Closing (as defined below), the Company shall adopt and file with
the Secretary of State of the State of Oklahoma, the Certificate of Designation
of Series A Convertible Preferred Stock concerning the Series A Convertible
Preferred Stock, $0.01 par value, of the Company (the "Series A Preferred
Stock"), substantially in the form attached hereto as Exhibit A (the
"Certificate of Designation").
(b) Subject to the terms and conditions of this Agreement, and
in reliance on the representations and warranties contained herein, the Investor
agrees to purchase at the Closing, and the Company agrees to sell and issue to
the Investor at the Closing, eleven thousand (11,000) shares of the Company's
Series A Preferred Stock (the "Shares"), for an aggregate purchase price of
$10,000.00. Each share of Series A Preferred Stock is convertible into
seventy-five (75) shares of common stock of the Company, $0.01 par value per
share (the "Common Stock").
1.2 Closing. Subject to the satisfaction (or waiver) of the conditions
thereto set forth in Section 4 and Section 5 below, the date and time of the
issuance and sale of the Series A Preferred Stock pursuant to this Agreement
(the "Closing Date") shall be 5:00 p.m. Eastern Standard Time on or before
September 30, 2005, or such other mutually agreed upon time. The closing of the
transaction contemplated by this Agreement (the "Closing") shall occur on the
Closing Date at the offices of Xxxxxxx Xxxx LLP, 00 Xxxx 00xx Xxxxxx, Xxx Xxxx,
Xxx Xxxx 00000, or at such other location as may be agreed to by the parties. At
the Closing, the Company shall deliver to the Investor, certificates
representing the Shares against payment of the purchase price by wire transfer
of immediately available funds payable to the Company, or such other means
acceptable to the Company, in the amount of $10,000.00.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and
warrants to the Investor, to the best of its knowledge, as of the date hereof,
as follows:
2.1 Organization, Good Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Oklahoma and has all requisite corporate power and authority to
own and operate its assets and properties and to carry on its current or
contemplated business. The Company is duly qualified to transact business and is
in good standing in each jurisdiction wherein the properties owned or leased or
the business transacted by the Company makes such qualification to do business
as a foreign corporation necessary, except where the failure to so qualify could
not reasonably be expected to have a material adverse effect on the condition
(financial or otherwise), results of operations, business, prospects or
properties of the Company (a "Material Adverse Effect").
2.2 Capitalization. (a) The number of outstanding shares of Common
Stock of the Company is as set forth on Schedule 2.2(a). The outstanding shares
of Common Stock of the Company have been duly authorized and validly issued and
are fully paid and non-assessable, have been issued and sold in compliance with
applicable securities laws of the United States and jurisdictions thereof and
any other applicable securities laws and were not issued in violation of any
preemptive rights, rights of first refusal or other similar rights granted by
the Company. The Company has no class or series of preferred stock issued or
outstanding, aside from the Series A Preferred Stock comprising the Shares, nor
has it authorized or issued any class or series of stock with rights or
preferences superior to those of the Series A Preferred Stock.
(b) There are no outstanding options, warrants, convertible
securities or other rights calling for the issuance of, and there are no
commitments or arrangements to issue, any shares of Common Stock of the Company
or any security convertible, exchangeable or exercisable for shares of Common
Stock of the Company. There are no shareholders agreements, voting agreements or
other similar agreements with respect to the outstanding shares of Common Stock
of the Company to which the Company is a party or, to the knowledge of the
Company (having undertaken no independent investigation), between or among any
of the Company's shareholders.
(c) The names of the officers, directors and all stockholders
of the Company beneficially owning five (5%) percent or more of the Company's
outstanding shares of Common Stock and the number of outstanding shares of
Common Stock held by them are set forth on Schedule 2.2(c) hereto.
2.3 Subsidiaries. The Company has no subsidiaries and does not own or
control, directly or indirectly, any interest in any corporation, association or
other business entity.
2.4 Power and Authority. All corporate action on the part of the
Company and its officers, directors and stockholders necessary for the
authorization, execution and delivery of this Agreement, the Registration Rights
Agreement (the "Registration Rights Agreement") and any other documents related
thereto (collectively, the "Transaction Agreements"), the performance of all
obligations of the Company hereunder and thereunder and the authorization,
issuance and delivery of the Shares being sold hereunder and the Common Stock
issuable upon conversion of the Shares (the "Underlying Shares"), have been
taken or will be taken prior to the Closing. The Transaction Agreements have
been duly executed and delivered by the Company and (assuming due authorization,
execution and delivery by the Investor) constitute the valid and legally binding
obligations of the Company, enforceable in accordance with their terms, subject
to (a) the laws of bankruptcy and the laws affecting creditors' rights
generally, (b) the availability of equitable remedies, and (c) the potential
unenforceability of the rights to indemnification contained in the Registration
Rights Agreement under public policy.
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2.5 Valid Issuance of Shares and Underlying Shares. (a) The Shares,
when issued, sold and delivered in accordance with the terms hereof for the
consideration expressed herein, will be duly and validly issued, fully paid and
non-assessable and free of any liens or encumbrances created by the Company, and
the Shares will have the rights, preferences and privileges described in the
Certificate of Designation. When the Shares are delivered in accordance with
this Agreement and paid for pursuant to this Agreement on the Closing, such
Shares will be convertible into and/or exercisable for the Underlying Shares
pursuant to the terms of the Certificate of Designation.
(b) The Underlying Shares initially issuable upon conversion
of the Shares have been duly and validly reserved for issuance upon such
conversion and/or exercise, and upon issuance in accordance with the terms of
the Certificate of Designation, will be fully paid and non-assessable and will
be free of restrictions on transfer other than restrictions on transfer under
the Registration Rights Agreement and under applicable state and federal
securities laws. No preemptive right, right of first refusal granted by the
Company or other similar right exists with respect to the Shares, the Underlying
Shares or the issuance and sale thereof.
(c) The Company understands and acknowledges the potentially
dilutive effect to the Common Stock upon the issuance of the Underlying Shares.
The Company further acknowledges that its obligation to issue the Shares and the
Underlying Shares in accordance with this Agreement, is absolute and
unconditional regardless of the dilutive effect that such issuance may have on
the ownership interests of other stockholders of the Company.
2.6 Governmental Consents. No consent, approval, order (the "Consents")
or authorization of, or registration, qualification, designation, declaration or
filing with, any federal, regional, state or local governmental authority on the
part of the Company (a "Governmental Entity") is required in connection with the
Company's authorization, issuance and sale of the Shares and the transaction
contemplated by the Transaction Agreements, except for filings, if any, required
pursuant to applicable state securities or Blue Sky laws, which filings will be
made within the required statutory or regulatory periods, and any filing
pursuant to Regulation D of the Securities and Exchange Commission (the "SEC"),
which filing, if made, will be made within 15 days of the Closing.
2.7 Litigation. There is no action, suit, claim, proceeding or
investigation pending or, to the Company's knowledge, threatened against the
Company which could reasonably be expected to have a Material Adverse Effect.
The Company is not, and to the Company's knowledge (having undertaken no
independent investigation), no founder, director, officer or key employee is, a
party or subject to the provisions of any order, writ, injunction, judgment or
decree of any court or government agency or instrumentality (collectively, the
"Judgments") that could reasonably be expected to have a Material Adverse
Effect. There is no action, proceeding or investigation by the Company currently
pending or which the Company intends to initiate.
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2.8 Intellectual Property. The Company does not own or have valid
licenses with respect to any patents, applications for patents, inventions,
copyright registrations, know-how (including trade secrets and other unpatented
proprietary or confidential information, systems or procedures), registered
trademarks (including service marks), trade names, or other intellectual
property (collectively, "Intellectual Property")
2.9 Compliance With Other Instruments. The Company is not in violation
of (i) its Certificate of Incorporation or Bylaws, (ii) any statute or Consents
or Judgments of any Governmental Entity applicable to it, or (iii) any
contracts, mortgages, leases, indentures, agreements and instruments to which
the Company is currently bound which, other than contracts entered into in the
ordinary course of business, involve obligations of or payments to the Company
in excess of $25,000 (collectively, the "Material Contracts") or in material
violation or default of any provision of any orders or Judgments by which it is
bound or any provision of federal or state statute, rule or regulation
applicable to the Company, which violation or default, in the case of (i), (ii),
or (iii), could reasonably be expected to have a Material Adverse Effect. The
execution, delivery and performance of and compliance with the Transaction
Agreements and the consummation of the transaction contemplated hereby and
thereby will not (i) result in any such violation or default or result in the
creation of any mortgage, lien or encumbrance against any of the properties or
assets of the Company, or (ii) give rise to obligations under any Material
Contracts, that, in the case of either (i) or (ii), could reasonably be expected
to have a Material Adverse Effect.
2.10 Disclosure. The Company has provided the Investor with true and
complete copies of all documents and information reasonably requested by the
Investor in his due diligence review of the Company. As of the date hereof,
neither the Transaction Agreements, the Schedules and Exhibits attached hereto,
nor any certificate or other document prepared by the Company to be delivered at
the Closing contains or will contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements herein or
therein, in light of the circumstances under which they were made, not
misleading. To the Company's knowledge, there are no facts which (individually
or in the aggregate) materially and adversely affect the business, assets,
liabilities, financial condition, prospects or operations of the Company that
have not been set forth in the Agreement, the Schedules, the Exhibits hereto,
the other Transaction Agreements or in other documents delivered to the
Investor, his attorneys or agents in connection herewith.
2.11 Material Agreements; Actions. (a) Except as set forth on Schedule
2.11(a), there are no Material Contracts by which the Company is currently
bound. Except as set forth on Schedule 2.11(a), the Company is not currently
indebted for money borrowed or has any other liabilities individually in excess
of $25,000 or in the aggregate in excess of $50,000. No default exists under any
Material Contract to which the Company is a party that could reasonably be
expected to have a Material Adverse Effect. Each of the Material Contracts is
valid, binding, and in full force and effect in all material respects, subject
to (i) the laws of bankruptcy and the laws affecting creditors' rights generally
and (ii) the availability of equitable remedies.
(b) The Company has not (i) declared or paid any dividends or
authorized any distribution upon or with respect to any class or series of its
capital stock, (ii) made any loans or advances to any person, other than in the
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ordinary course of business except as provided on Schedule 2.11(b), or (iii)
sold, exchanged or otherwise disposed of any of its assets or rights other than
in the ordinary course of business.
2.12 Title to Property and Assets. The Company has all right, title and
interest to its assets free and clear of all material lien, claim, encumbrance,
security interest, option, charge or restriction of any kind (collectively, the
"Liens") except such as arise in the ordinary course of business and do not
impair the Company's use of such property or assets, including those reflected
in the Company's balance sheet (the "Balance Sheet") dated as of June 30, 2005,
(the "Balance Sheet Date") included in the Company's financial statements
attached hereto as Exhibit B and (ii) $180,000 of assets consisting of inventory
and approximately $40,000 of payables due to an affiliate of the Company which
assets the Company intends to sell to such affiliate in satisfaction of such
obligation prior to closing.
2.13 Brokers or Finders. There are no contracts, agreements or
understandings between or among the Company, on the one hand, and any person, on
the other, that would give rise to a claim against the Company or any Investor
for a brokerage commission, finder's fee or other like payment (the "Finder's
Fees") in connection with the issuance and sale of the Shares. To the extent
permitted by law, the Company will indemnify and hold harmless the Investor
against any losses, claims, damages or liabilities to which they may become
subject under any claims for such Finder's Fees in so far as such losses,
claims, damages or liabilities are based on the finding that the Company is
responsible for any such Finder's Fees.
2.14 Registration Rights; Voting Rights. Except as provided for in this
Agreement and the Registration Rights Agreement to be executed and delivered at
the Closing, the Company is currently not under any obligation to register under
the Securities Act of 1933, as amended (the "Securities Act"), any of its
currently outstanding securities or any of its securities which may hereafter be
issued. To the Company's knowledge (having undertaken no independent
investigation) no shareholder of the Company has entered into any agreement,
understanding or other arrangement with respect to the voting of common stock.
2.15 Employees. With the exception of the Company's exclusive contract
with Laid Back Enterprises Corporation ("Laid Back Enterprises"), through which
the Company contracts for personnel as well as other services under an
administrative services agreement (the "Laid Back Administrative Services
Agreement"), the Company is not a party to any employment or deferred
compensation agreements and does not have any bonus, incentive or profit-sharing
plans. The Company is not a party to any collective bargaining agreements and,
to its knowledge (having undertaken no independent investigation), no
organizational efforts are currently being made with respect to any of their
respective employees.
2.16 Stockholders, Directors and Officers; Indebtedness. The Company is
not currently indebted to its officers, directors or stockholders or any of
their respective relatives (and none of the same are indebted to the Company),
other than travel, relocation and other expenses which are advanced and
reimbursed in the ordinary course of business. Except as set forth on Schedule
2.16, none of the officers or directors or significant employees or consultants
of the Company has, individually or collectively, a material interest in any
entity which is a competitor, customer or supplier of (or has any existing
contractual relationship with) the Company.
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2.17 Employment Benefit Plans. The Company does not have any
employee benefit plans.
2.18 Tax Returns and Payments. The Company has accurately prepared and
timely filed all tax returns and reports as required by law. Such returns and
reports are true and correct in all material respects. The Company has paid all
taxes and other assessments due. All such taxes with respect to which the
Company has become obligated pursuant to elections made by the Company in
accordance with generally accepted practices have been paid and adequate
reserves have been established for all taxes accrued but not yet payable. The
federal income tax returns of the Company have never been audited by the
Internal Revenue Service. No deficiency or assessment with respect to or
proposed adjustment of the Company's federal, state, county or local taxes is
pending or, to the Company's knowledge (having undertaken no independent
investigation), threatened. There is no tax lien, whether imposed by any
federal, state, county or local taxing authority, outstanding against the
assets, properties or business of the Company.
2.19 Proprietary Information and Invention Agreements. Each material
employee, consultant and officer of the Company has executed, or will execute,
an agreement with the Company regarding confidentiality and proprietary
information. The Company (having undertaken no independent investigation) is not
aware that any of its employees or consultants is in violation thereof, and the
Company will use its best efforts to prevent any such violation.
2.20 Permits. The Company has all franchises, permits, licenses and any
similar authority necessary for the conduct of its business ("Permits") and is
not in default under such Permits, except where the failure to have such
Permits, or such default, would not reasonably be expected to result in a
Material Adverse Effect.
2.21 Absence of Certain Changes. Except as set forth on Schedule 2.21,
since the Balance Sheet Date (as defined in Section 2.12), there have not been:
(a) any changes in the assets, liabilities, condition
(financial or otherwise), affairs, earnings, material contracts, business,
operating or prospects of the Company, except changes in the ordinary course of
business which could not reasonably be expected to have a Material Adverse
Effect;
(b) any change, except in the ordinary course of business, in
the contingent obligations of the Company by way of guaranty or any assurance of
performance or payment, endorsement, indemnity or warranty;
(c) any material transaction or commitment made, or any
material contract or material agreement entered into, by the Company relating to
its assets or business (including the acquisition or disposition of any assets)
or any relinquishment by the Company of any material contract or other material
right (direct or indirect, whether alleged, contingent or otherwise), other than
transaction and commitments in the ordinary course of business;
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(d) (i) any creation, incurrence or assumption of any debt
(including obligations in respect of capital leases); (ii) assumption,
guarantee, endorsement or other liability (whether directly, contingently or
otherwise) for the obligations of any other person or entity; or (iii) any
loans, advances or capital contributions to, or investments in, any other person
or entity, except in the ordinary course of business and not in excess of
$25,000 in the aggregate or $10,000 individually;
(e) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the properties or business or the
Company;
(f) any waiver by the Company of a valuable right or material
debt owed to it;
(g) any resignation or termination of employment of any
officer or key employee of the Company, or the threat of such resignation or
termination, or any material change in any compensation arrangement or agreement
(including salary, bonus, insurance or pension benefits) with any of the same;
(h) any sale, assignment or transfer of any material
Intellectual Property or tangible assets of the Company which would have a
Material Adverse Effect; or
(i) to the best of the Company's knowledge, any agreement to
do any of the foregoing, or any other event or condition of any character which
could reasonably be expected to have a Material Adverse Effect.
2.22 Financial Statements. The Company has provided to the Investor its
audited financial statements for the year ended December 31, 2004 and its
unaudited statements for the period ended June 30, 2005. The consolidated
financial statements of the Company and the related notes, including the Balance
Sheet, present fairly the financial position of the Company as of the dates
indicated and the statement of operations, changes in shareholders' equity and
cash flows for the periods specified; said financial statements have been
prepared in conformity with generally accepted accounting principles in the
United States ("GAAP") applied on a consistent basis throughout the periods
involved. Evans, Gaither, & Associates, PLLC, who have audited and reviewed
certain consolidated financial statements of the Company, are independent public
accountants as required under Rule 101 of the American Institute of Certified
Public Accountants Code of Professional Conduct, and its interpretations and
rulings. As reflected in the Company's financial statements, the Company has,
and as of the Closing Date shall have, no business, material assets or any
material liabilities other than cash and expenses payable in connection with the
transactions contemplated hereunder. The parties acknowledge that the Company
currently has approximately $180,000 of assets consisting of inventory and
approximately $40,000 of payables due to an affiliate of the Company which
assets the Company intends to sell to such affiliate in satisfaction of such
obligation prior to the Closing Date.
2.23 Accounting. The Company maintains a system of internal accounting
controls sufficient to provide assurances 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
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statements in conformity with GAAP and to maintain accountability for assets;
(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 existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
2.24 Insurance. The Company has adequately insured its properties
against loss or damage by fire or other casualty and maintains, in amounts which
it believes to be adequate, such other insurance, including but not limited to
liability insurance, as is usually maintained by companies in the same or
similar businesses. The Company has no reason to believe that it will not be
able to renew its existing insurance coverage as and when such coverage expires
or to obtain similar coverage from similar insurers as may be necessary to
continue its business at a cost that would not have a Material Adverse Effect.
2.25 Environmental Laws. The Company (i) is not in violation of any
applicable statute or Judgments of any Governmental Entity, relating to the use,
disposal or release of hazardous or toxic substances or relating to the
protection or restoration of the environment or human exposure to hazardous or
toxic substances (collectively, "Environmental Laws"), (ii) does not own or
operate, to the Company's knowledge, any real property contaminated with any
substance that is subject to any Environmental Laws, and (iii) is not liable for
any off-site disposal or contamination pursuant to any Environmental Laws, or is
subject to any pending, or to the knowledge of the Company, threatened
Proceeding relating to any Environmental Laws, in each instance which violation,
contamination, liability or claim, individually or in the aggregate, would
reasonably be expected to have a Material Adverse Effect.
2.26 No General Solicitation. 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 of the Securities Act ("Regulation D") in connection with the offer
or sale of the Shares.
2.27 No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of any of
the Shares or Underlying Securities under the Securities Act or cause this
offering of the Shares to be integrated with prior offerings by the Company for
purposes of the Securities Act.
2.28 Exemption from Registration. Neither the Company nor any agent
acting on its behalf shall take any action that would cause the loss of an
exemption from, the registration provisions of the Securities Act and any state
or foreign securities laws for the offer, sale and issuance of the Shares and
the conversion of the Shares into and/or for the Underlying Shares.
2.29 Transactions With Affiliates. Except as set forth on Schedule
2.29, none of the officers, directors, or employees of the Company is presently
a party to any material transaction with the Company or any of its affiliates
(other than in connection with services as employees, officers and directors),
including any contract, agreement or other arrangement providing for the
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furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any corporation,
partnership, trust or other entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner.
2.30 SEC Documents. Since at least September 1, 2005, the Company has
timely filed all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC pursuant to the reporting requirements
of the Exchange Act of 1934, as amended (the "1934 Act") (all of the foregoing
filed prior to the date hereof and all exhibits included therein and financial
statements and schedules thereto and documents (other than exhibits to such
documents) incorporated by reference therein, being hereinafter referred to
herein as the "SEC Documents"). As of their respective dates, the SEC Documents
complied in all material respects with the requirements of the 1934 Act and the
rules and regulations of the SEC promulgated thereunder applicable to the SEC
Documents, and none of the SEC Documents, at the time they were filed with the
SEC, 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. None of the statements made in any such SEC Documents is, or has
been, required to be amended or updated under applicable law (except for such
statements as have been amended or updated in subsequent filings prior to the
date hereof). As of their respective dates, the financial statements of the
Company included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Such financial statements have been
prepared in accordance with United States generally accepted accounting
principles, consistently applied, 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 as of the dates
thereof and the results of its operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to normal year-end audit
adjustments). Except as set forth in the financial statements of the Company
included in the SEC Documents, the Company has no material liabilities,
contingent or otherwise, other than (i) liabilities incurred in the ordinary
course of business subsequent to June 30, 2005 (ii) liabilities set forth on
Schedule 2.21 and (iii) obligations under contracts and commitments incurred in
the ordinary course of business and not required under generally accepted
accounting principles to be reflected in such financial statements, which,
individually or in the aggregate, are not material to the financial condition or
operating results of the Company.
2.31 Foreign Corrupt Practices. Neither the Company, nor any director,
officer, agent, employee or other person acting on behalf of the Company has, in
the course of his actions for, or on behalf of, the Company, used any corporate
funds for any unlawful contribution, gift, entertainment or other unlawful
expenses relating to political activity; made any direct or indirect unlawful
payment to any foreign or domestic government official or employee from
corporate funds; violated or is in violation of any provision of the U.S.
Foreign Corrupt Practices Act of 1977, as amended, or made any bribe, rebate,
payoff, influence payment, kickback or other unlawful payment to any foreign or
domestic government official or employee.
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2.32 No Investment Company. The Company is not, and upon the issuance
and sale of the Shares as contemplated by this Agreement will not be an
"investment company" required to be registered under the Investment Company Act
of 1940 (an "Investment Company"). The Company is not controlled by an
Investment Company.
2.33 Acknowledgment Regarding Investor's Purchase of Shares. The
Company acknowledges and agrees that the Investor is acting solely in the
capacity of an arm's length purchaser with respect to this Agreement and the
transaction contemplated hereby. The Company further acknowledges that the
Investor is not acting as a financial advisor or fiduciary of the Company (or in
any similar capacity) with respect to this Agreement and the transaction
contemplated hereby and any statement made by the Investor or any of his
representatives or agents in connection with this Agreement and the transaction
contemplated hereby is not advice or a recommendation and is merely incidental
to the Investor's purchase of the Shares. The Company further represents to the
Investor that the Company's decision to enter into this Agreement has been based
solely on the independent evaluation of the Investor and his representatives.
2.34 Minute Books. The minute books of the Company provided to the
Investor or his counsel contain a complete summary of all meetings and actions
by written consent of directors and shareholders since the time of incorporation
and reflect all transactions referred to in such minutes accurately in all
material respects.
2.35 Labor Agreements and Actions; Employee Arrangements. The Company
has no employees other than its officers and thus is not bound by or subject to
(and none of its assets or properties is bound by or subject to) any written or
oral, express or implied, contract, commitment or arrangement with any labor
union, and no labor union has requested or, to the best of the Company's
knowledge, has sought to represent any of the employees, representatives or
agents of the Company. Also because the Company has no employees other than its
officers there is no strike or other labor dispute involving the Company
pending, or to the best of the Company's knowledge, threatened, that could have
a Material Adverse Affect on the assets, properties, financial condition,
operating results, or business of the Company (as such business is presently
conducted and as it is proposed to be conducted), nor is the Company aware of
any labor organization activity involving its employees.
2.36 Agreement of Merger. The Company agrees that there is no order,
ruling, judgment or decree in effect, including any regulatory agency, which
would enjoin or prohibit a reverse triangular merger that the Company will enter
into with a target company to be identified (the reverse triangular merger is
further described in Section 4.15 below).
3. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR. The Investor hereby
represents and warrants with respect to himself as of the date hereof as
follows:
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3.1 Authorization. The Investor has all the requisite power and is duly
authorized to execute and deliver the Transaction Agreements and has taken all
necessary action to consummate the transaction contemplated hereby and thereby.
The Transaction Agreements have been duly executed and delivered by the Investor
and constitute valid and binding obligations of the Investor, enforceable in
accordance with their respective terms, subject to, (a) the laws of bankruptcy
and the laws affecting creditors' rights generally, (b) the availability of
equitable remedies, and (c) the unenforceability of the rights to
indemnification contained in the Registration Rights Agreement under public
policy.
3.2 Sophistication and Suitability. (a) The Investor, either alone or
with the assistance of his professional advisor, is a sophisticated investor,
and has such knowledge and experience in financial and business matters that it
is capable of evaluating the merits and risks of the prospective investment in
the Shares. The investment in the Shares is suitable for the Investor based upon
the Investor's investment objectives and financial needs, and the Investor has
adequate net worth and means for providing for his current financial needs and
contingencies and has no need for liquidity of his investment with respect to
the Shares. The Investor has experience in investing in companies in the
start-up or early stages of development. The Investor is aware that there are
substantial risks incident to an investment in the Shares. The Investor is aware
that any financial projections contained in any document provided to the
Investor are forecasts only and do not contain any express or implied
representation that such projections will be achieved or are attainable. The
Investor also acknowledges that any estimates of market size or projected
expenses contained in any documents provided or to be provided to the Investor
do not contain any express or implied representation that such estimates will be
attained. The Investor acknowledges that the tax consequences to the Investor of
investing in the Shares will depend on the Investor's particular circumstances,
and neither the Company, nor its agents, officers, directors, employees,
affiliates or consultants or any of them will be responsible or liable for the
tax consequences to the Investor of an investment in the Company. The Investor
will look solely to, and rely solely upon, the Investor's own advisors with
respect to the tax consequences of this investment.
3.3 Access to Information. The Investor has received and carefully
reviewed the Transaction Agreements and all other documents requested by such
Investor, related to and to be executed in connection with the Investor's
investment in the Shares and other transactions contemplated hereby (the
"Additional Documents"). The Investor has either attended or been given
reasonable opportunity to attend a meeting with representatives of the Company
for the purpose of asking questions of, and receiving answers from, such
representatives concerning the business of the Company and the terms and
conditions of the offering of the Shares. Except as set forth in the Transaction
Agreements and the Additional Documents, no representations or warranties,
whether written or oral, have been made to the Investor by the Company or any
officer, employee or agent of the Company.
3.4 Purchase Entirely for Own Account. The Investor is acquiring the
Shares for investment purposes for the Investor's own account, not as a nominee
or agent, and not with a view to the distribution of any part thereof. The
Investor has no present intention of selling, granting any participation in or
otherwise distributing the Shares.
11
3.5 Restricted Securities. The Investor realizes that: (a) the Shares
have not been registered under the Securities Act or registered or qualified
under any state securities or "blue sky" laws, are characterized under the
Securities Act as "restricted securities" and, therefore, cannot be sold or
transferred unless they are subsequently registered under the Securities Act or
an exemption from such registration is available, and (b) there is presently no
public market for the Shares, and only a limited public market for the
Underlying Shares and no public market for the Shares is expected to develop
and, due to the limited public market for the Underlying Shares, the Investor
may not be able to liquidate his investment or pledge the Shares as collateral
security for loans. The Investor represents that he is familiar with Rule 144
under the Securities Act as presently in effect, and understands the resale
limitations imposed thereby and by the Securities Act including the requirement
that the Shares and/or Underlying Shares must be held for at least one year
after purchase thereof from the Company prior to resale (two years in the
absence of publicly available information about the Company) and the condition
that there be available to the public current information about the Company
under certain circumstances. Except as set forth in the Registration Rights
Agreement, the Investor acknowledges that the Company is under no obligation to
register or qualify the Shares and/or Underlying Shares under the Securities Act
or under any state or foreign securities law, or to assist the Investor in
complying with any exemption from registration and qualification, except as
provided in the Registration Rights Agreement. The Investor understands that the
Company will rely upon the accuracy and truth of the foregoing representations
and the Investor hereby consents to such reliance. The Investor is also aware
that sales or transfers of the Shares and/or Underlying Shares may be further
restricted by state and foreign securities laws and that the certificates for
the Shares and/or Underlying Shares will bear appropriate legends restricting
their transfer.
3.6 Residency. For purposes of the application of state securities
laws, the Investor represents that it is a bona fide resident of the state set
forth in such Investor's address on the signature pages hereof.
3.7 Legend. It is understood that the certificates evidencing the
Shares and/or the Underlying Shares may bear a legend such as the following:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR APPLICABLE
STATE LAW, AND NO INTEREST THEREIN MAY BE SOLD, DISTRIBUTED, ASSIGNED,
OFFERED, PLEDGED OR OTHERWISE TRANSFERRED UNLESS (i) THERE IS AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND APPLICABLE STATE
SECURITIES LAWS COVERING ANY SUCH TRANSACTION INVOLVING SAID
SECURITIES, (ii) GIFT LIQUIDATORS, INC. ("COMPANY") RECEIVES AN OPINION
OF LEGAL COUNSEL FOR THE HOLDER OF THESE SECURITIES SATISFACTORY TO THE
COMPANY STATING THAT SUCH TRANSACTION IS EXEMPT FROM REGISTRATION, OR
(iii) THE COMPANY OTHERWISE SATISFIES ITSELF THAT SUCH TRANSACTION IS
EXEMPT FROM REGISTRATION. TRANSFER OF THESE SECURITIES IS FURTHER
RESTRICTED AS PROVIDED IN THE PREFERRED STOCK PURCHASE AGREEMENT, A
COPY OF WHICH IS AVAILABLE AT THE COMPANY'S OFFICES."
12
3.8 Accreditation. The Investor represents and warrants that he is an
"accredited investor," as defined in Rule 501 of Regulation D promulgated by the
SEC under the Securities Act. Any and all accounts for which the Investor is
acting (including its own) is able to bear the economic risks of this investment
and to withstand a total loss of his investment. If the Investor is acquiring
the Shares as a fiduciary or agent for another investor's account, the Investor
has sole investment and voting discretion with respect to such account and has
full power to make the acknowledgments, representations and agreements contained
herein on behalf of such account.
3.9 Investor's Review. The Investor has relied on his own examination
of the Company and the terms of the offering, including the merits and risks
involved in making an investment in the Shares. The Investor acknowledges that
he has had the opportunity to review this Agreement, the Schedules and Exhibits
attached hereto, the Registration Rights Agreement and the other agreements
referred to herein and the transaction contemplated hereby with his own legal
counsel and tax and investment advisor. The Investor is relying solely on such
counsel and advisors for legal, tax and investment advice with respect to the
transaction contemplated by this Agreement and the Registration Rights Agreement
except that this Section 3.9 does not limit or modify the representations and
warranties of the Company set forth in Section 2 of this Agreement or the right
of the Investor to rely thereon. The Investor has been informed and understands
that the Company's offering documents and offering materials, if any, and any
statements made to the Investor have not been reviewed or passed upon by the
Company's counsel, accountants or other independent parties.
3.10 Brokers or Finders. The Investor has not employed or made any
agreement with any broker, finder or similar agent or any person or firm, which
will result in the obligation of the Company to pay any finder's fee in
connection with the Agreement or the transaction contemplated hereby.
4. CONDITIONS OF THE INVESTOR'S OBLIGATIONS AT THE CLOSING. The obligations of
the Investor under subsection 1.1(b) is subject to the fulfillment by the
Company at or before the Closing, of each of the following conditions, the
waiver of which shall not be effective against the Investor without his consent
in writing thereto:
4.1 Representations and Warranties. The representations and warranties
of the Company contained in Section 2 shall be true and correct on and as of the
Closing with the same effect as though such representations and warranties had
been made as of the date of the Closing.
4.2 Performance. The Company shall have performed and complied in all
material respects with all agreements, covenants, obligations and conditions
contained in this Agreement that are required to be performed or complied with
by it on or before the Closing.
4.3 Registration Rights Agreement. The Company shall have entered into
a Registration Rights Agreement substantially in the form of Exhibit C hereto.
13
4.4 Certificate of Designation. The Certificate of Designation shall
have been filed with the Secretary of State of the State of Oklahoma on or prior
to the Closing Date.
4.5 Compliance Certificate. The Company shall have delivered to the
Investor a certificate of the Chief Executive Officer and the Chief Financial
Officer of the Company, dated as of the Closing, certifying as to the
fulfillment, as applicable, of the conditions specified in Sections 4.1, 4.2 and
4.4 hereof, and such other matters as the Investor may reasonably request.
4.6 Officer's Certificate. The Investor shall have received a
certificate of the Chief Financial Officer of the Company certifying as to the
Certificate of Incorporation and Certificate of Designation, the Bylaws of the
Company and the resolutions of the Board of Directors of the Company (the
"Board"), in form and substance reasonably satisfactory to counsel for the
Investor, and the stockholders of the Company with respect to the subject matter
hereof and the incumbency of certain officers of the Company.
4.7 Qualifications. The Company shall have obtained all necessary
authorizations, approvals, permits and qualifications, if any, or have the
availability of exemptions or waivers therefrom, for the offer and sale of the
Shares.
4.8 Stock Certificates. The Company delivers to the Investor a
certificate or certificates, duly executed on behalf of the Company, for the
shares of Series A Preferred Stock purchased by such Investor.
4.9 Additional Documents. At the Closing Date, such ancillary
certificates and documents required for closing the transaction contemplated
hereby, as the Investor may reasonably request, shall have been delivered to
such Investor including, but not limited to, a good standing certificate, any
necessary waivers or consents, proprietary information and inventions agreements
and key man life insurance.
4.10 The New Board. Upon the Closing Date, all of the Company's
officers and directors shall have resigned and appointed successors (the "New
Board") to be named by the Investor.
4.11 Asset Sale. The Company shall have divested itself of all non-cash
assets, including $180,000 of assets consisting of inventory, and paid all of
its liabilities other than in connection with the Closing including the payment
of approximately $40,000 due to an affiliate of the Company. The new Board will
immediately upon its appointment, review and ratify the sale of the assets and
payment of affiliated liabilities to Laid Back Enterprises Corp. pursuant to the
terms of the Inventory Sale Agreement substantially in the form of Exhibit D
hereto.
4.12 Approval of Reverse Split.The Company's Board of Directors prior
to their resignation at the Closing Date shall have approved a reverse split of
its common stock. The Company shall prior to the Closing Date take all actions
necessary to effect a reverse stock split, whereby each fifteen (15) shares of
common stock shall automatically be combined into one (1) share of common stock.
14
4.13 Reverse Triangular Merger. The Company's Board of Directors shall
have approved the terms and conditions of, or entered into a definitive
agreement to effect, a reverse triangular merger with a target company to be
identified, whereby the Company shall issue that number of shares of common
stock and retire the preferred stock so that following such merger the
shareholders of the target company shall beneficially own approximately 95% of
the Company's common stock.
4.14 Termination of the Laid Back Administrative Services Agreement.
Under the Laid Back Administrative Services Agreement, the Company contracts
with Laid Back Enterprises for providing personnel, sales, marketing, and
accounting, under an administrative services agreement. The Company shall
terminate the Laid Back Administrative Services Agreement prior to the Closing
Date.
4.15 Termination of Company's Tax Sharing Agreement with Laid Back
Enterprises. Under the Company's Tax Sharing Agreement with Laid Back
Enterprises (the "Laid Back Tax Sharing Agreement"), the Company contracts with
Laid Back Enterprises in relation to federal and state income tax liabilities.
The Company shall terminate the Laid Back Tax Sharing Agreement prior to the
Closing Date.
5. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT THE CLOSING. The obligations of
the Company to the Investor under this Agreement are subject to the fulfillment
by the Investor on or before the Closing of the following conditions:
5.1 Representations and Warranties. The representations and warranties
of the Investor contained in Section 3 shall be true and correct in all material
respects on and as of the Closing with the same effect as though such
representations and warranties had been made as of the Closing.
5.2 Payment of Purchase Price. The Investor shall have delivered the
purchase price specified in subsection 1.1(b) to be delivered at the Closing, in
the form specified in Section 1.2.
5.3 Securities Laws Qualification. The offer and sale to the Investor
of the Shares shall be qualified or exempt from registration or qualification
under all applicable federal securities laws and Blue Sky laws.
5.4 Performance. The Investor shall have performed and complied in all
material respects with all agreements, obligations and conditions contained in
the Transaction Agreements that are required to be performed or complied with by
it on or before the Closing.
6. COVENANTS OF THE COMPANY.
6.1 Corporate Existence. The Company will maintain its corporate
existence in good standing. The Company will comply with all applicable laws and
regulations of the United States or any state or states thereof or of any
political subdivisions thereof and of any governmental authority where failure
to so comply could reasonably be expected to have a Material Adverse Effect.
15
6.2 Inspection. The Company will permit the Investor, or any outside
representatives designated by the Investor and reasonably satisfactory to the
Company, to visit and inspect at the expense of the Investor any of the
properties of the Company upon ten business days prior notice and during regular
business hours without disruption of the Company's operations, including their
books and records (and to make photocopies thereof or extracts therefrom), and
to discuss their affairs, finances and accounts with their officers, except with
respect to trade secrets and similar confidential information. This right shall
not exclude any right of inspection of any stockholders of the Company under
applicable Oklahoma law.
6.3 Payment of Taxes and Maintenance of Property.
The Company will:
(a) pay and discharge promptly, or cause to be paid and
discharged promptly when due and payable, all taxes, assessments and
governmental charges or levies imposed upon it or upon its income or upon any of
its property, real, personal or mixed, or upon any part thereof, as well as all
material claims of any kind (including claims for labor, material and supplies)
which, if unpaid, might by law become a lien or charge upon its property;
provided, however, that the Company shall not be required to pay any such tax,
assessment, charge, levy or claim while the amount, applicability or validity
thereof is being contested in good faith by appropriate proceedings, provided
that the Company shall have set aside on its books reserves (segregated to the
extent required by generally accepted accounting principles) deemed adequate by
it with respect thereto; and
(b) maintain and keep, or cause to be maintained and kept, its
properties in good repair, working order and condition, and from time to time
make, or cause to be made, all repairs and renewals and replacements which in
the opinion of the Company are necessary and proper so that the business carried
on in connection therewith may be properly and advantageously conducted at all
times.
6.4 Insurance. The Company will:
(a) keep or cause all of its insurable property or properties
to be kept insured against loss or damage or fire and other risks;
(b) maintain general liability insurance against claims for
personal injury, death or property damage suffered by others upon or in or about
the premises occupied by the Company or occurring as a result of the Company's
maintenance or operation of any automobiles, trucks or other vehicles or other
facilities;
(c) maintain all such worker's compensation or similar
insurance as may be required under the laws of any state or jurisdiction in
which it may be engaged in business; and
All insurance for which provision has been made in this Section 6.4
shall be maintained in the amounts and to the extent determined to be reasonable
by the Board. All such insurance shall be effected and maintained in force under
16
a policy or policies issued by insurers of recognized responsibility, except
that the Company may effect worker's compensation or similar insurance in
respect of operations in any state or other jurisdiction either through an
insurance fund operated by such state or other jurisdiction or by causing to be
maintained a system or systems of self insurance which is in accord with
applicable laws.
6.5 Compliance with Laws. The Company shall conduct its business in
compliance, in all material respects, with all laws, rules, regulations,
statutes, ordinances and other legal requirements.
6.6 Form D; Blue Sky Laws. The Company agrees to file a Form D with
respect to the Shares as required under Regulation D and to provide a copy
thereof to the Investor promptly after such filing. The Company shall, on or
before the Closing, take such action as the Company shall reasonably determine
is necessary to qualify the Shares for sale to the Investor at the applicable
closing pursuant to this Agreement under applicable securities or "blue sky"
laws of the states of the United States (or to obtain an exemption from such
qualification), and shall provide evidence of any such action so taken to the
Investor on or prior to the Closing Date.
6.7 Reporting Status; Eligibility to Use Form S-3. So long as any
Investor beneficially owns any of the shares and/or Underlying Shares, the
Company shall timely file all reports required to be filed with the SEC pursuant
to the 1934 Act, and the Company shall not terminate its status as an issuer
required to file reports under the 1934 Act even if the 1934 Act or the rules
and regulations thereunder would permit such termination. Henceforth, the
Company will take all necessary action to meet, the "registrant requirements"
set forth in the general instructions to Form S-3.
6.8 Use of Proceeds. The Company shall use the proceeds from the sale
of the Shares in the manner set forth in Schedule 6.8 attached hereto and made a
part hereof.
6.9 Reservation of Shares. The Company shall at all times have
authorized, and reserved for the purpose of issuance, a sufficient number of
shares of Common Stock to provide for the full conversion or exercise of the
outstanding Shares and issuance of the Underlying Shares in connection therewith
(based on the Conversion Price of the Shares in effect from time to time) and as
otherwise required by the Shares. The Company shall not reduce the number of
shares of Common Stock reserved for issuance upon conversion of the Shares
without the consent of the Investor. The Company shall use its best efforts at
all times to maintain the number of shares of Common Stock so reserved for
issuance at no less than the greater of (a) 1,650,000, or (b) two (2) times the
number that is then actually issuable upon full conversion of the Shares (based
on the Conversion Price of the Shares in effect from time to time). If at any
time the number of shares of Common Stock authorized and reserved for issuance
is below the number of Underlying Shares issued and issuable upon conversion of
the Shares (based on the Conversion Price of the Shares then in effect), the
Company will promptly take all corporate action necessary to authorize and
reserve a sufficient number of shares, including, without limitation, calling a
special meeting of stockholders to authorize additional shares to meet the
Company's obligations under this Section 6.9, in the case of an insufficient
number of authorized shares, and using its best efforts to obtain stockholder
approval of an increase in such authorized number of shares.
17
6.10 No Further Issuances of Additional Securities. Until such time as
the Registration Statement is declared effective by the SEC and 100% of the
Shares are either converted, the Company shall not, without the Investor's
written consent, issue, or cause the issuance of, any securities of the Company.
6.11 Listing. The Company shall and, so long as any Investor owns any
of the Shares, maintain the listing and trading of its Common Stock on the
OTCBB, the Nasdaq National Market ("Nasdaq"), the Nasdaq SmallCap Market
("Nasdaq SmallCap"), the New York Stock Exchange ("NYSE"), or the American Stock
Exchange ("AMEX") and will comply in all respects with the Company's reporting,
filing and other obligations under the bylaws or rules of the National
Association of Securities Dealers ("NASD") and such exchanges, as applicable.
The Company shall promptly provide to the Investor copies of any notices it
receives from the OTCBB and any other exchanges or quotation systems on which
the Common Stock is then listed regarding the continued eligibility of the
Common Stock for listing on such exchanges and quotation systems.
6.12 Corporate Existence. Subject to the Certificate of Designation,
until such date as 100% of the Shares are either redeemed or converted, the
Company shall maintain its corporate existence and shall not sell all or
substantially all of the Company's assets, except in the event of a merger or
consolidation or sale of all or substantially all of the Company's assets, where
the surviving or successor entity in such transaction assumes the Company's
obligations hereunder and under the agreements and instruments entered into in
connection herewith.
6.13 No Integration. The Company shall not make any offers or sales of
any security (other than the Shares) under circumstances that would require
registration of the Shares being offered or sold hereunder under the 1933 Act or
cause the offering of the Shares to be integrated with any other offering of
securities by the Company for the purpose of any stockholder approval provision
applicable to the Company or its securities.
6.14 Binding Agreement. By execution of this Agreement, Investor and
Company shall be entitled to any and all benefits, and subject to any and all
obligations, of the Transaction Agreements.
7. TRANSFER AGENT INSTRUCTIONS. The Company shall issue irrevocable instructions
to its transfer agent to issue certificates, registered in the name of the
Investor or his nominee, for the Underlying Shares in such amounts as specified
from time to time by the Investor to the Company upon conversion of the Shares
in accordance with the terms thereof (the "Irrevocable Transfer Agent
Instructions"), in the form of Exhibit E attached hereto. Prior to registration
of the Underlying Shares under the Securities Act or the date on which the
Underlying Shares (and the Shares) may be sold pursuant to Rule 144 without any
restriction as to the number of Securities as of a particular date that can then
18
be immediately sold, all such certificates shall bear the restrictive legend
specified in Section 3.7 of this Agreement. The Company warrants that no
instruction other than the Irrevocable Transfer Agent Instructions referred to
in this Section 7, and stop transfer instructions to give effect to Section 3.5
hereof (in the case of the Underlying Shares, prior to registration of the
Underlying Shares under the Securities Act or the date on which the Underlying
Shares may be sold pursuant to Rule 144 without any restriction as to the number
of Shares as of a particular date that can then be immediately sold), 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 shall affect in any way the Investor's obligations to comply
with all applicable prospectus delivery requirements, if any, upon re-sale of
the Shares. If an Investor provides the Company with (i) an opinion of counsel
in form, substance and scope customary for opinions in comparable transactions,
to the effect that a public sale or transfer of such Shares may be made without
registration under the 1933 Act and such sale or transfer is effected or (ii)
the Investor provides reasonable assurances that the Shares can be sold pursuant
to Rule 144, the Company shall permit the transfer, and, in the case of the
Underlying Shares, promptly instruct its transfer agent to issue one or more
certificates, free from restrictive legend, in such name and in such
denominations as specified by such Investor. The Company acknowledges that a
breach by it of its obligations hereunder will cause irreparable harm to the
Investor, 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 7 will be inadequate and agrees, in
the event of a breach or threatened breach by the Company of the provisions of
this Section, that the Investor shall be entitled, in addition to all other
available remedies, to an injunction restraining any breach and requiring
immediate transfer, without the necessity of showing economic loss and without
any bond or other security being required.
8. MISCELLANEOUS.
8.1 Amendments and Waivers. After the Closing, any provision of this
Agreement may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or prospectively)
only with the written consent of the Company and the holders of eighty percent
(80%) of the aggregate shares of Series A Preferred Stock then outstanding. Any
amendment or waiver effected in accordance with this Section 8.1 shall be
binding upon each holder of Series A Preferred Stock, each future holder of
Series A Preferred Stock and the Company.
8.2 Notices. Any notice or other communications required or permitted
hereunder shall be deemed to be sufficient if contained in a written instrument
delivered in person or duly sent by first class certified mail, postage prepaid,
by reputable overnight courier or such other address as may hereafter be
designated in writing by the addressee to the other parties:
if to the Company, to:
Gift Liquidators, Inc.
0000 Xxxx Xxxxxx Xxxx, Xxxxx 000
Xxxxxxxx Xxxx, XX 00000
Attn.: Xxx Xxxxxxxxxx
19
with a copy to:
Xxxxxxxxx & Xxxxxxxx
0000 X.X. 00xx Xxxxxx, Xxxxx 000
Xxxxxxxx Xxxx, XX 00000-0000
Attn.: Xxxx X. Xxxxxxxxx, Esq.
if to the Investor, at the address listed below:
David Mladen
c/o White Knight Management, Inc.
000 Xxxxxx Xxxxxx
1st Floor Office #A15
Xxxxxxxx, XX 00000
with a copy to:
Xxxxxxx Xxxx LLP
00 Xxxx 00xx Xx., 00xx Xxxxx
Xxx Xxxx, XX 00000
Attn.: Xxxxxxx X. Xxxxx, Esq.
or, in any case, at such other address or addresses as shall have been furnished
in writing by such party to the other parties hereto. All such notices,
requests, consents and other communications shall be deemed to have been
received (a) in the case of personal delivery, on the date of such delivery, (b)
in the case of mailing, on the fifth business day following the date of such
mailing and (c) in the case of overnight courier, on the second next business
day.
8.3 Confidentiality. Each party hereto agrees to and shall keep
strictly confidential and will not disclose or divulge (a) the information
required to be delivered by one party to the other party hereunder and (b) any
other confidential, proprietary or secret information which a party may obtain
from the other party hereto unless required to be disclosed by law or regulation
or pursuant to any judgment, order, subpoena or decree of any court having
competent jurisdiction, or unless such information is already known to such
party or is or becomes publicly known, or unless the other party hereto gives
its written consent to such party's release of such information, except that no
such written consent shall be required (and such party shall be free to release
such information) if such information is to be provided to such party's lawyer
or accountant, or to an officer or director of such party if such person is made
aware of the confidential nature of such information and agrees to maintain the
confidentiality of such information as required by this Section 8.3.
8.4 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Oklahoma as they apply to contracts
entered into and to be wholly performed within such state, without regard to
conflicts of laws principles.
20
8.5 Submission to Jurisdiction. (a) The Investor hereby irrevocably
submits to the nonexclusive jurisdiction of any federal or state court sitting
in Oklahoma City, Oklahoma or Hartford, Connecticut in any action or proceeding
arising out of or relating to this Agreement, and the Investor hereby
irrevocably agrees that all claims in respect of such action or proceeding may
be heard and determined in any such court. The Investor irrevocably consents to
the service of any and all process in any such action by proceeding by the
mailing via registered or certified mail of copies of such process to the
Investor at his addresses specified above.
(b) The Investor hereby irrevocably waives any objection which
he may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement brought in any federal
or state court sitting in the State of Oklahoma or Connecticut and hereby
further irrevocably waives any claim that any such suit, action or proceeding
brought in any such court has been brought in any inconvenient forum.
8.6 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together constitute one and the same instrument.
8.7 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
8.8 Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the respective successors and assigns of the parties.
Nothing in this Agreement, express or implied, is intended to confer upon any
party other than the parties hereto or their respective successors and assigns
any rights, remedies, obligations or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement.
8.9 Future Expenses; Attorneys' Fees. If any action at law or in equity
is necessary, to enforce or interpret the terms of this Agreement, the
prevailing party shall be entitled to reasonable attorneys' fees, costs and
necessary disbursements in addition to any other relief to which such party may
be entitled.
8.10 Finders' Fees. The Investor agrees to indemnify and hold harmless
the Company from any liability for any commission or compensation in the nature
of a finder's fee (and the costs and expenses of defending against such
liability or asserted liability) for which such Investor is responsible. The
Company agrees to indemnify and hold harmless the Investor from any liability
for any commission or compensation in the nature of a finder's fee (and the
costs and expenses of defending against such liability or asserted liability)
for which the Company or any of its officers, employees or representatives is
responsible.
8.11 Severability. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, such provision shall be excluded from
this Agreement, and the balance of this Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
21
8.12 Survival of Representations and Warranties. The representations
and warranties contained herein shall survive the Closing until the second
anniversary of the date hereof, as applicable.
8.13 Currency. Unless otherwise indicated, all dollar denominations
specified herein shall be in United States dollars.
8.14 Waiver of Jury Trial. THE COMPANY AND THE INVESTORS HEREBY
IRREVOCABLY WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR
RELATING TO THIS AGREEMENT. THE EXCLUSIVE FORUM FOR ANY ACTION BETWEEN THE
COMPANY AND INVESTORS ARISING OUT OF OR RELATED TO THIS AGREEMENT SHALL BE THE
STATE OR FEDERAL COURTS LOCATED IN OKLAHOMA CITY, OKLAHOMA OR HARTFORD,
CONNECTICUT AND EACH PARTY AGREES THAT SUCH COURTS HAVE JURISDICTION AND ARE A
PROPER VENUE AND CONVENIENT FORUM FOR ANY SUCH ACTION.
8.15 Entire Agreement. This Agreement and the other documents delivered
at the Closing constitute the full and entire understanding and agreement
between the parties with respect to the subject matter hereof and supersede all
prior agreements with respect to the subject matter hereof.
[THE REMAINDER OF THIS PAGE IS LEFT BLANK INTENTIONALLY]
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COUNTERPART SIGNATURE PAGE TO THE PREFERRED STOCK PURCHASE AGREEMENT, DATED
SEPTEMBER 29, 2005
IN WITNESS WHEREOF, the parties have executed this Agreement on
the date first above written.
GIFT LIQUIDATORS, INC.
By: /s/ Xxx Xxxxxxxxxx
----------------------------
Name: Xxx Xxxxxxxxxx
Title: Chief Executive Officer and
President
INVESTOR:
/s/David Mladen
-----------------------
David Mladen
Aggregate Principal Amount of Shares: 11,000
--------
Aggregate Purchase Price: $10,000
--------
23
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PREFERRED STOCK PURCHASE AGREEMENT
DATED:
September 29, 2005
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TABLE OF CONTENTS
Page
1. PURCHASE AND SALE OF SHARES.....................................................................1
1.1 Sale and Issuance of Series A Shares.................................................1
1.2 Closing..............................................................................1
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY...................................................1
2.1 Organization, Good Standing and Qualification........................................1
2.2 Capitalization.......................................................................2
2.3 Subsidiaries.........................................................................2
2.4 Power and Authority..................................................................2
2.5 Valid Issuance of Shares and Underlying Shares.......................................3
2.6 Governmental Consents................................................................3
2.7 Litigation...........................................................................3
2.8 Intellectual Property................................................................4
2.9 Compliance With Other Instruments....................................................4
2.10 Disclosure...........................................................................4
2.11 Material Agreements; Actions.........................................................4
2.12 Title to Property and Assets.........................................................5
2.13 Brokers or Finders...................................................................5
2.14 Registration Rights, Voting Rights...................................................5
2.15 Employees............................................................................5
2.16 Stockholders, Directors and Officers; Indebtedness...................................5
2.17 Employment Benefit Plans.............................................................6
2.18 Tax Returns and Payments.............................................................6
2.19 Proprietary Information and Invention Agreements.....................................6
2.20 Permits..............................................................................6
2.21 Absence of Certain Changes...........................................................6
2.22 Financial Statements.................................................................7
2.23 Accounting...........................................................................7
2.24 Insurance............................................................................8
2.25 Environmental Laws...................................................................8
2.26 No General Solicitation..............................................................8
2.27 No Integrated Offering...............................................................8
2.28 Exemption from Registration..........................................................8
2.29 Transactions With Affiliates.........................................................8
2.30 SEC Documents........................................................................9
2.31 Foreign Corrupt Practices............................................................9
2.32 No Investment Company...............................................................10
2.33 Acknowledgment Regarding Investor's Purchase of Securities..........................10
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2.34 Minute Books........................................................................10
2.35 Labor Agreements and Actions; Employee Arrangements.................................10
2.36 Agreement of Merger.................................................................10
3. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR.................................................10
3.1 Authorization.......................................................................11
3.2 Sophistication and Suitability......................................................11
3.3 Access to Information...............................................................11
3.4 Purchase Entirely for Own Account...................................................11
3.5 Restricted Securities...............................................................12
3.6 Residency...........................................................................12
3.7 Legend..............................................................................12
3.8 Accreditation.......................................................................13
3.9 Investor's Review...................................................................13
3.10 Brokers or Finders..................................................................13
4. CONDITIONS OF THE INVESTOR'S OBLIGATIONS AT THE CLOSING........................................13
4.1 Representations and Warranties......................................................13
4.2 Performance.........................................................................13
4.3 Registration Rights Agreement.......................................................13
4.4 Certificate of Designation..........................................................14
4.5 Compliance Certificate..............................................................14
4.6 Officer's Certificate...............................................................14
4.7 Qualifications......................................................................14
4.8 Stock Certificates..................................................................14
4.9 Additional Documents................................................................14
4.10 The New Board.......................................................................14
4.11 Asset Sale..........................................................................14
4.12 Approval of Reverse Split...........................................................14
4.13 Reverse Triangular Merger...........................................................15
4.14 Termination of the Laid Back Administrative Services Agreement......................15
4.15 Termination of the Company's Tax Sharing Agreement with Laid Back
Enterprises........................................................................15
5. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT THE CLOSING.........................................15
5.1 Representations and Warranties......................................................15
5.2 Payment of Purchase Price...........................................................15
5.3 Securities Laws Qualification.......................................................15
5.4 Performance.........................................................................15
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6. COVENANTS OF THE COMPANY.......................................................................15
6.1 Corporate Existence.................................................................15
6.2 Inspection..........................................................................16
6.3 Payment of Taxes and Maintenance of Property........................................16
6.4 Insurance...........................................................................16
6.5 Compliance with Laws................................................................17
6.6 Form D; Blue Sky Laws...............................................................17
6.7 Reporting Status; Eligibility to Use Form S-3.......................................17
6.8 Use of Proceeds.....................................................................17
6.9 Reservations of Shares..............................................................17
6.10 No Further Issuance of Additional Securities........................................18
6.11 Listing.............................................................................18
6.12 Corporate Existence.................................................................18
6.13 No Integration......................................................................18
6.14 Binding Agreement...................................................................18
7. TRANSFER AGENT INSTRUCTIONS....................................................................18
8. MISCELLANEOUS..................................................................................19
8.1 Amendments and Waivers..............................................................19
8.2 Notices.............................................................................19
8.3 Confidentiality.....................................................................20
8.4 Governing Law.......................................................................20
8.5 Submission to Jurisdiction..........................................................21
8.6 Counterparts........................................................................21
8.7 Titles and Subtitles................................................................21
8.8 Successors and Assigns..............................................................21
8.9 Future Expenses; Attorneys' Fees....................................................21
8.10 Finders' Fees.......................................................................21
8.11 Severability........................................................................21
8.12 Survival of Representations and Warranties..........................................22
8.13 Currency............................................................................22
8.14 Waiver of Jury Trial................................................................22
8.15 Entire Agreement....................................................................22
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APPENDICES
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SCHEDULE A Company Disclosure Schedule to Preferred Stock Purchase Agreement dated
as of September 28, 2005 between Gift Liquidators, Inc. and David Mladen
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EXHIBIT A Certificate of Designation
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EXHIBIT B Financial Statements
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EXHIBIT C Registration Rights Agreement
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EXHIBIT D Inventory Sale Agreement
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EXHIBIT E Irrevocable Transfer Agent Instructions
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SCHEDULE A
COMPANY DISCLOSURE SCHEDULE
to
PREFERRED STOCK PURCHASE AGREEMENT
Dated as of September __, 2005
Between
Gift Liquidators, Inc.
and
David Mladen
This Disclosure Schedule is annexed to and made a part of the
above-referenced Preferred Stock Purchase Agreement (the "Agreement"). The
numbered paragraphs set forth below correspond to the numbered paragraphs set
forth in the Agreement. Capitalized terms used herein shall have the same
meaning ascribed to such terms in the Agreement.
2.2 Capitalization
(a) The Company currently has 1,770,717 shares of Common Stock
outstanding.
(b) There are no outstanding options, warrants, convertible securities
or other rights calling for the issuance of, and there are no commitments or
arrangements to issue, any shares of Common Stock of the Company or any security
convertible, exchangeable or exercisable for shares of Common Stock of the
Company. There are no shareholders agreements, voting agreements or other
similar agreements with respect to the outstanding shares of Common Stock of the
Company to which the Company is a party or, to the knowledge of the Company,
between or among any of the Company's shareholders.
(c) The names of officers, directors, and all stockholders of the
Company beneficially owning five (5%) percent or more of the Company's
outstanding shares of Common Stock and the number of outstanding shares of
Common Stock held by them are as follows:
------------------------------------------------------------------------
Amount and
Nature of
Beneficial
Name of Beneficial Owners Ownership
-----------------------------------
------------------------------------------------------------------------
Max (Chief Executive Officer and Director) and Xxxxxx 447,052
Xxxxxxxxxx
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Xxxxxx X. Xxxx, PhD. 11,000
Director
------------------------------------------------------------------------
Xxxx and Xxxxx Xxxxxxxxxx 108,235
------------------------------------------------------------------------
Xxxxx X. Xxxxxx 95,000
------------------------------------------------------------------------
Xxxx Xxxxxxxxx 95,000
------------------------------------------------------------------------
All Executive Officers 458,104
and Directors as a
Group (4 persons)
------------------------------------------------------------------------
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2.3 Subsidiaries
None.
2.5 Valid Issuance of Shares, Warrants and Underlying Shares
(b) No preemptive rights, right of first refusal, or similar rights
exist with respect to the Shares or the Underlying Shares, or the issuance and
sale thereof.
2.7 Litigation
None.
2.8 Intellectual Property
None.
2.9 Compliance with Other Instruments
The execution, delivery and performance of and compliance with the
Transaction Agreements and the consummation of the transactions contemplated
hereby and thereby will not: (i) result in any such violation or default or
result in the creation of any mortgage, lien or encumbrance against any of the
properties or assets of the Company or (ii) give rise to obligations under any
Material Contracts, that, in the case of either (i) or (ii), could reasonably be
expected to have a Material Adverse Effect.
2.11 Material Agreements; Actions
(a) Material Agreements.
1. Tax Sharing Agreement dated December 20, 2002 between the Company
and LBE Transition, Inc., now Laid Back Enterprises Corp.
2. Administrative Services Agreement dated December 20, 2002 between
the Company and LBE Transition, Inc., now Laid Back Enterprises Corp.
3. The Company has approximately $40,000 of payables due to an
affiliate of the Company. The Company intends to sell certain of its assets to
such affiliate in satisfaction of such obligation prior to closing.
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2.12 Title to Property and Assets
The Company has good title to its properties and assets, in each case
free and clear of all material liens, claims, encumbrances, security interests,
options, charges or restrictions of any kind. (See Balance Sheet attached as
Exhibit B.)
2.16 Stockholders, Directors and Officers; Indebtedness.
Xxx Xxxxxxxxxx (CEO and Director of the Company) and Xxxxxx Xxxx (CFO
and Director of the Company) own Laid Back Enterprises, a company with which the
Company has an existing contractual relationship.
2.21 Absence of Certain Changes
None.
2.29 Transactions With Affiliates
The Company has an exclusive contract with Laid Back Enterprises,
through which it contracts for personnel as well as other services under the
Laid Back Administrative Services Agreement.
6.8 Use of Proceeds
The Company shall use the proceeds from the sale of the Shares for
working capital and general corporate purposes.
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