Exhibit 99.1
PREFERRED STOCK PURCHASE AGREEMENT
BETWEEN
XXXXXXXXXX HOLDINGS II, INC.
AND
XXXXXX PARTNERS LP
DATED
February 24, 2006
PREFERRED STOCK PURCHASE AGREEMENT
This PREFERRED STOCK PURCHASE AGREEMENT (the "Agreement") is made and
entered into as of the 24th day of February, 2006 between Xxxxxxxxxx Holdings
II, Inc., a corporation organized and existing under the laws of the State of
Delaware (the "Company") and XXXXXX PARTNERS LP, a Delaware limited partnership
("Investor").
PRELIMINARY STATEMENT:
WHEREAS, the Investor wishes to purchase from the Company, upon the
terms and subject to the conditions of this Agreement, seven million seven
hundred nineteen thousand two hundred fifty (7,719,250) shares of Series A
Convertible Preferred Stock, par value $.0001 per share ("Series A Preferred
Stock"), of the Company, with such preferred stock being as described in the
Certificate of Designations, Rights and Preferences (the "Certificate of
Designations") in substantially the form attached hereto as Exhibit A for the
Purchase Price set forth in Section 1.3.23 hereof. Subject to the limitations
set forth herein and in the Certificate of Designation, the Series A Preferred
Stock shall be initially convertible into shares of common stock of the Company
at any time at a conversion rate (the "Conversion Rate") of one (1) share of
Common Stock, par value $.0001 per share ("Common Stock"), for each share of
Series A Preferred Stock, subject to adjustment as provided in the Certificate
of Designation. In addition, the Company will issue to the Investor two Common
Stock Purchase Warrants (the "Warrants") to purchase up to five million six
hundred ten thousand shares (5,610,000) of Common Stock of the Company at fifty
six cents ($0.57) per share and five million six ten thousand (5,610,000) shares
of Common Stock of the Company at eighty five cents ($0.855) per share; and
WHEREAS, as part of the transaction by which the Investor is purchasing
the Series A Preferred Stock and Warrants, the members of Ranor Acquisition LLC,
a Delaware limited liability company, the Company will issue an aggregate of
7,408,000 shares of Common Stock, in consideration for the assignment of the
agreement to acquire Ranor, Inc. and money advanced on behalf of the Company;
and
WHEREAS, the parties intend to memorialize the purchase and sale of
such Series A Preferred Stock and the Warrants.
NOW, THEREFORE, in consideration of the mutual covenants and premises
contained herein, and for other good and valuable consideration, the receipt and
adequacy of which are hereby conclusively acknowledged, the parties hereto,
intending to be legally bound, agree as follows:
ARTICLE I
INCORPORATION BY REFERENCE, SUPERSEDER AND DEFINITIONS
1.1. Incorporation by Reference. The foregoing recitals and the Exhibits and
Schedules attached hereto and referred to herein, are hereby
acknowledged to be true and accurate, and are incorporated herein by
this reference.
1.2. Superseder. This Agreement, to the extent that it is inconsistent with
any other instrument or understanding among the parties governing the
affairs of the Company, shall supersede such instrument or
understanding to the fullest extent permitted by law. A copy of this
Agreement shall be filed at the Company's principal office.
1.3. Certain Definitions. For purposes of this Agreement, the following
capitalized terms shall have the following meanings (all capitalized
terms used in this Agreement that are not defined in this Article 1
shall have the meanings set forth elsewhere in this Agreement):
1.3.1. "1933 Act" means the Securities Act of 1933, as amended.
1.3.2. "1934 Act" means the Securities Exchange Act of 1934, as amended.
1.3.3. "Affiliate" means a Person or Persons directly or indirectly, through
one or more intermediaries, controlling, controlled by or under common
control with the Person(s) in question. The term "control," as used in
the immediately preceding sentence, means, with respect to a Person
that is a corporation, the right to the exercise, directly or
indirectly, of more than 50% of the voting rights attributable to the
shares of such controlled corporation and, with respect to a Person
that is not a corporation, the possession, directly or indirectly, of
the power to direct or cause the direction of the management or
policies of such controlled Person.
1.3.4. "Articles" means the Certificate of Incorporation of the Company, as
the same may be amended from time to time.
1.3.5. "Closing" shall mean the Closing of the transactions contemplated by
this Agreement on the Closing Date.
1.3.6. "Closing Date" means the date on which the payment of the Purchase
Price (as defined herein) by the Investor to the Company is completed
pursuant to this Agreement to purchase the Series A Preferred Stock and
Warrants, which shall occur on or before February 15, 2006.
1.3.7. "Common Stock" means shares of common stock of the Company, par value
$0.0001 per share.
1.3.8. "EBITDA" shall mean earnings before interest, taxes, depreciation and
amortization, determined in accordance with U.S. GAAP plus any
deduction taken as a result of the issuance of the Restricted Shares.
1.3.9. "Escrow Agreement" shall mean the Escrow Agreement among the Company,
the Investor and Katsky Xxxxxx LLP, as Escrow Agent, attached hereto as
Exhibit E, it being acknowledged that the Escrow Agent is counsel for
the Company.
1.3.10. "Exempt Issuance" means the issuance of (a) shares of Common Stock or
options to employees, officers, directors of and consultants (other
than consultants whose services relate to the raising of funds) the
Company pursuant to the Company's 2006 Long-Term Incentive Plan or any
other stock or option plan duly adopted by a majority of the
non-employee members of the Board of Directors of the Company or a
majority of the members of a committee of non-employee directors
established for such purpose, (b) securities upon the exercise of or
conversion of any securities issued hereunder and pursuant to the
Registration Rights Agreement and any other options, warrants or
convertible securities which are outstanding on the Closing Date after
completion of the Closing, (c) the Restricted Shares, and (d)
securities issued pursuant to acquisitions, licensing agreements, or
other strategic transactions, provided any such issuance shall only be
to a Person which is, itself or through its subsidiaries, an operating
company in a business which the Company's board of directors believes
is beneficial to the Company and in which the Company receives benefits
in addition to the investment of funds, but shall not include a
transaction in which the Company is issuing securities primarily for
the purpose of raising capital or to an entity whose primary business
is investing in securities.
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1.3.11. "Material Adverse Effect" shall mean any adverse effect on the
business, operations, properties or financial condition of the Company
that is material and adverse to the Company and its subsidiaries and
affiliates, taken as a whole and/or any condition, circumstance, or
situation that would prohibit or otherwise materially interfere with
the ability of the Company to perform any of its material obligations
under this Agreement or the Registration Rights Agreement or to perform
its obligations under any other material agreement.
1.3.12. "Delaware Act" means the Delaware General Corporation Law, as amended.
1.3.13. "Person" means an individual, partnership, firm, limited liability
company, trust, joint venture, association, corporation, or any other
legal entity.
1.3.14. "Purchase Price" means the two million two hundred thousand dollars
($2,200,000) to be paid by the Investor to the Company for the Series A
Preferred Stock and the Warrants.
1.3.15. "Registration Rights Agreement" shall mean the registration rights
agreement between the Investor and the Company attached hereto as
Exhibit B.
1.3.16. "Registration Statement" shall mean the registration statement under
the 1933 Act to be filed with the Securities and Exchange Commission
for the registration of the Shares pursuant to the Registration Rights
Agreement attached hereto as Exhibit B.
1.3.17. "Restricted Shares" shall mean 143,000 shares of Common Stock issued by
the Company pursuant to restricted stock agreements with key employees.
1.3.18. "Securities" means the shares of Series A Preferred Stock, the Warrants
and the Shares.
1.3.19. "SEC" means the Securities and Exchange Commission.
1.3.20. "SEC Documents" shall mean the Company's latest Form10-SB, Form 10-K or
Form 10-KSB as of the time in question, all Forms 10-Q or 10-QSB and
8-K filed thereafter, and the Proxy Statement for its latest fiscal
year as of the time in question until such time as the Company no
longer has an obligation to maintain the effectiveness of a
Registration Statement as set forth in the Registration Rights
Agreement.
1.3.21. "Shares" shall mean, collectively, the shares of Common Stock of the
Company issued upon conversion of the Series A Preferred Stock
subscribed for hereunder and those shares of Common Stock issuable to
the Investor upon exercise of the Warrants.
1.3.22. "Subsequent Financing" shall mean any offer and sale of shares of
Series A Preferred Stock or debt that is initially convertible into
shares of Common Stock or otherwise senior or superior to the Series A
Preferred Stock.
1.3.23. "Transaction Documents" shall mean this Agreement, all Schedules and
Exhibits attached hereto and all other documents and instruments to be
executed and delivered by the parties in order to consummate the
transactions contemplated hereby, including, but not limited to the
documents listed in Sections 3.2 and 3.3 hereof.
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1.3.24. "Warrants" shall mean the Common Stock Purchase Warrants in the form
attached hereto Exhibit D.
ARTICLE II
SALE AND PURCHASE OF PREFERRED STOCK AND WARRANTS; PURCHASE PRICE
2.1. Sale of Series A Preferred Stock and Issuance of Warrants.
2.1.1. Upon the terms and subject to the conditions set forth herein, and in
accordance with applicable law, the Company agrees to sell to the
Investor, and the Investor agrees to purchase from the Company, on the
Closing Date seven million seven hundred nineteen thousand two hundred
fifty (7,719,250) shares of Series A Preferred Stock and the Warrants
for the (the "Purchase Price") of two million two hundred thousand
dollars ($2,200,000). The Purchase Price shall be paid by the Investor
to the Company on the Closing Date by a wire transfer or check of the
Purchase Price into escrow to be held by the escrow agent pursuant to
the terms of the Escrow Agreement. The Company shall cause the Series A
Preferred Stock and the Warrants to be issued to the Investor upon the
release of the Purchase Price to the Company by the escrow agent
pursuant to the terms of the Escrow Agreement. The Company shall
register the shares of Common Stock into which the Series A Preferred
Stock is convertible pursuant to the terms and conditions of a
Registration Rights Agreement attached hereto as Exhibit B.
2.1.2. Each share of Preferred stock shall initially be convertible by the
Investor into one (1) share of Common Stock; provided, however, that
the Investor shall not be entitled to convert the Series A Preferred
Stock into shares of Common Stock to the extent that such conversion
would result in beneficial ownership by the Investor and its affiliates
of more than 4.9% of the then outstanding number of shares of Common
Stock on such date. For the purposes of the immediately preceding
sentence, beneficial ownership shall be determined in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended, and
Regulation 13d-3 thereunder. The limitation set forth in this Section
2.1.2 is referred to as the "4.9% Limitation."
2.1.3. Upon execution and delivery of this Agreement and the Company's receipt
of the Purchase Price from the Escrow Agent pursuant to the terms of
the Escrow Agreement, the Company shall issue to the Investor the
Warrant to purchase an aggregate of 11,220,000 shares of Common Stock
at exercise prices as stated in the Warrants, all pursuant to the terms
and conditions of the form of Warrants attached hereto as Exhibit C;
provided, however, that the Investor shall not be entitled to exercise
the Warrants and receive shares of Common Stock that would result in
beneficial ownership by the Investor and its affiliates of more than
4.9% of the then outstanding number of shares of Common Stock on such
date. For the purposes of this Agreement, beneficial ownership shall be
determined in accordance with Section 13(d) of the Securities Exchange
Act of 1934, as amended, and Regulation 13d-3 thereunder.
2.2. Purchase Price. The Purchase Price shall be delivered by the Investor
in the form of a wire transfer in United States dollars from the
Investor to the escrow agent pursuant to the Escrow Agreement on the
Closing Date.
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ARTICLE III
CLOSING DATE AND DELIVERIES AT CLOSING
3.1. Closing Date. The closing of the transactions contemplated by this
Agreement (the "Closing"), unless expressly determined herein, shall be
held at the offices of the Company, at 5:00 P.M. local time, on the
Closing Date or on such other date and at such other place as may be
mutually agreed by the parties, including closing by facsimile with
originals to follow.
3.2. Deliveries by the Company. In addition to and without limiting any
other provision of this Agreement, the Company agrees to deliver, or
cause to be delivered, to the escrow agent under the Escrow Agreement,
the following:
(a) At or prior to Closing, an executed Agreement with all
exhibits and schedules attached hereto;
(b) At or prior to Closing, executed Warrants in the name of
the Investor in the form attached hereto as Exhibit C;
(c) The executed Registration Rights Agreement;
(d) Certifications in form and substance acceptable to the
Company and the Investor from any and all brokers or agents involved in
the transactions contemplated hereby as to the amount of commission or
compensation payable to such broker or agent as a result of the
consummation of the transactions contemplated hereby and from the
Company or Investor, as appropriate, to the effect that reasonable
reserves for any other commissions or compensation that may be claimed
by any broker or agent have been set aside;
(e) Evidence of approval of the board of directors of the
Company of the Transaction Documents and the transactions contemplated
hereby;
(f) Evidence of the completion of the acquisition of Ranor,
Inc., a Delaware corporation ("Ranor") contemporaneously with the
Closing.
(g) Certificate of the President and the Secretary of the
Company that the Certificate of Designation has been adopted and filed;
(h) Evidence that the Certificate of Amendment to the
Certificate of Incorporation of the Company adopting the provision
described in Section 6.19 has been approved by the Company's board of
directors subject to stockholder approval.
(i) Good standing certificates of the Company issued by the
Secretary of State of Delaware;
(j) An opinion from the Company's counsel concerning the
Transaction Documents and the transactions contemplated hereby in form
and substance reasonably acceptable to Investor;
(k) Stock Certificate in the name of Investor evidencing the
Series A Preferred Stock;
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(l) The executed Escrow Agreement; and
(m) Copies of all executive employment agreements, all past
and present financing documentation or other documentation where stock
could potentially be issued or issued as payment, all past and present
litigation documents and historical financials, not previously provided
to Investor.
(n) Such other documents or certificates as shall be
reasonably requested by Investor or its counsel.
3.3. Deliveries by Investor. In addition to and without limiting any other
provision of this Agreement, the Investor agrees to deliver, or cause
to be delivered, to the escrow agent under the Escrow Agreement, the
following:
(a) A deposit in the amount of the Purchase Price;
(b) The executed Agreement with all Exhibits and Schedules
attached hereto;
(c) The executed Registration Rights Agreement;
(d) The executed Escrow Agreement; and
(e) Such other documents or certificates as shall be
reasonably requested by the Company or its counsel.
In the event any document provided to the other party in Paragraphs 3.2 and 3.3
herein are provided by facsimile, the party shall forward an original document
to the other party within seven (7) business days.
3.4. Further Assurances. The Company and the Investor shall, upon request,
on or after the Closing Date, cooperate with each other (specifically,
the Company shall cooperate with the Investor, and the Investor shall
cooperate with the Company) by furnishing any additional information,
executing and delivering any additional documents and/or other
instruments and doing any and all such things as may be reasonably
required by the parties or their counsel to consummate or otherwise
implement the transactions contemplated by this Agreement.
3.5. Waiver. The Investor may waive any of the requirements of Section 3.2
of this Agreement or any of its rights under the Escrow Agreement, and
the Company at its discretion may waive any of its rights of Section
3.3 of this Agreement or any of its rights under the Escrow Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Investor as of the date
hereof and as of Closing (which warranties and representations shall survive the
Closing regardless of what examinations, inspections, audits and other
investigations the Investor has heretofore made or may hereinafter make with
respect to such warranties and representations) as follows:
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4.1. Organization and Qualification. Each of the Company and Ranor is a
corporation duly organized, validly existing and in good standing under
the laws of the state of its incorporation, and has the requisite
corporate power and authority to own, lease and operate its properties
and to carry on its business as it is now being conducted and is duly
qualified to do business in any other jurisdiction by virtue of the
nature of the businesses conducted by it or the ownership or leasing of
its properties, except where the failure to be so qualified will not,
when taken together with all other such failures, have a Material
Adverse Effect on the business, operations, properties, assets,
financial condition or results of operation of the Company and its
subsidiaries taken as a whole.
4.2. Articles of Incorporation and By-Laws. The complete and correct copies
of the Company's Articles and By-Laws, as in effect on the Closing
Date, has been delivered to the Investor.
4.3. Capitalization.
4.3.1. The authorized and outstanding capital stock of the Company as of the
date of this Agreement and as adjusted to reflect issuances pursuant to
or contemplated by this Agreement is set forth in Schedule 4.3.1 to
this Agreement. Schedule 4.3.1 contains all shares and derivatives
currently and potentially outstanding. The Company hereby represents
that any and all shares and current potentially dilutive events have
been included in Schedule 4.3.1, including employment agreements,
acquisition, consulting agreements, debts, payments, financing or
business relationships that could be paid in equity, derivatives or
resulting in additional equity issuances.
4.3.2. All outstanding shares of capital stock have been duly authorized and
are validly issued, and are fully paid and non-assessable and free from
preemptive rights. All shares of capital stock described above to be
issued have been duly authorized and when issued, will be validly
issued, fully paid and non-assessable and free from preemptive rights.
4.3.3. Except pursuant to this Agreement and as set forth in Schedule 4.3.1
hereto, and as set forth in the Company's SEC Documents, filed with the
SEC, as of the date hereof and as of the Closing Date, there are not
now outstanding options, warrants, rights to subscribe for, calls or
commitments of any character whatsoever relating to, or securities or
rights convertible into or exchangeable for, shares of any class of
capital stock of the Company, or agreements, understandings or
arrangements to which the Company is a party, or by which the Company
is or may be bound, to issue additional shares of its capital stock or
options, warrants, scrip or rights to subscribe for, calls or
commitment of any character whatsoever relating to, or securities or
rights convertible into or exchangeable for, any shares of any class of
its capital stock. The Company agrees to inform the Investor in writing
of any additional warrants granted prior to the Closing Date.
4.3.4. The Company on the Closing Date (i) will have full right, power, and
authority to sell, assign, transfer, and deliver, by reason of record
and beneficial ownership, to the Investor, the Series A Preferred Stock
hereunder, free and clear of all liens, charges, claims, options,
pledges, restrictions, and encumbrances whatsoever; and (ii) upon
conversion of the Series A Preferred Stock or exercise of the Warrants,
the Investor will acquire title to such Shares, free and clear of all
liens, charges, claims, options, pledges, restrictions, and
encumbrances whatsoever, except as otherwise provided in this Agreement
as to the limitation on the voting rights of such Shares in certain
circumstances and except for any of the foregoing which results from
actions or omissions on the part of the Investor.
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4.4. Authority. The Company has all requisite corporate power and authority
to execute and deliver this Agreement, the Series A Preferred Stock,
and the Warrants, to perform its obligations hereunder and thereunder
and to consummate the transactions contemplated hereby and thereby. The
execution and delivery of this Agreement by the Company and the
consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action and no other corporate
proceedings on the part of the Company is necessary to authorize this
Agreement or to consummate the transactions contemplated hereby except
as disclosed in this Agreement. This Agreement has been duly executed
and delivered by the Company and constitutes the legal, valid and
binding obligation of the Company, enforceable against the Company in
accordance with its terms; provided, however, that no representation is
made with respect to the ability of the Investor to convert the Series
A Preferred Stock or exercise any Warrant if and to the extent that the
Conversion Price, as defined in the Certificate of Designation, of the
Series A Preferred Stock or the number of Shares issuable upon exercise
of the Warrants would result in the issuance of a number of shares of
Common Stock which is greater than the amount by which the authorized
Common Stock exceeds the sum of the outstanding Common Stock and the
shares of Common Stock reserved for issuance pursuant to outstanding
agreements and outstanding options, warrants, rights, convertible
securities and other securities upon the exercise or conversion of
which or pursuant to the terms of which additional shares of Common
Stock may be issuable (the foregoing proviso being referred to as the
"Authorized Stock Proviso").
4.5. No Conflict; Required Filings and Consents. The execution and delivery
of this Agreement by the Company does not, and the performance by the
Company of its obligations hereunder will not: (i) conflict with or
violate the Articles or By-Laws of the Company; (ii) conflict with,
breach or violate any federal, state, foreign or local law, statute,
ordinance, rule, regulation, order, judgment or decree (collectively,
"Laws") in effect as of the date of this Agreement and applicable to
the Company; or ---- (iii) result in any breach of, constitute a
default (or an event that with notice or lapse of time or both would
become a default) under, give to any other entity any right of
termination, amendment, acceleration or cancellation of, require
payment under, or result in the creation of a lien or encumbrance on
any of the properties or assets of the Company pursuant to, any note,
bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which the Company is a
party or by the Company or any of its properties or assets is bound.
Excluding from the foregoing are such violations, conflicts, breaches,
defaults, terminations, accelerations, creations of liens, or
incumbency that would not, in the aggregate, have a Material Adverse
Effect except to the extent that stockholder approval may be required
as a result of the Authorized Stock Proviso, in which event, the
Company will seek stockholder approval to an increase in the authorized
Common Stock sufficient to enable the Company to be in compliance with
this Section 4.5.
4.6. Report and Financial Statements. Schedule 4.6 sets forth the audited
balance sheet of Ranor as of March 31, 2005 and the audited statements
of operations, stockholders equity and cash flows for the years ended
March 31, 2005 and 2004, and the unaudited balance sheet as of
September 30, 2005 and unaudited statements of operations and cash
flows for the six months ended September 30, 2005 and 2004 and
stockholders' equity for the six months ended September 30, 2005, in
each cash including notes to the financial statements (collectively,
the "Financial Statements"). Each of the balance sheets contained in or
incorporated by reference into any such Financial Statements (including
the related notes and schedules thereto) fairly presented the financial
position of Ranor, as of its date, and each of the statements of
operations, stockholders' equity and cash flows in such Financial
Statements (including any related notes
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and schedules thereto) fairly presents, changes in stockholders' equity
and changes in cash flows, as the case may be, of Ranor, for the
periods to which they relate, in each case in accordance with United
States generally accepted accounting principles ("U.S. GAAP")
consistently applied during the periods involved, except in each case
as may be noted therein, subject to normal year-end audit adjustments
in the case of unaudited statements. The books and records of the
Company have been, and are being, maintained in all material respects
in accordance with U.S. GAAP and any other applicable legal and
accounting requirements and reflect only actual transaction.
4.7. Compliance with Applicable Laws. The Company is not in violation of,
or, to the knowledge of the Company is under investigation with respect
to or has been given notice or has been charged with the violation of
any Law of a governmental agency, except for violations which
individually or in the aggregate do not have a Material Adverse Effect.
4.8. Brokers. Except as set forth on Schedule 4.8, no broker, finder or
investment banker is entitled to any brokerage, finder's or other fee
or Commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of the Company.
4.9. SEC Documents. The Investor acknowledges that the Company is a publicly
held company and has made available to the Investor true and complete
copies of any requested SEC Documents. The Company has registered its
Common Stock pursuant to Section 12(g) of the 1934 Act. The Company has
not provided to the Investor any information that, according to
applicable law, rule or regulation, should have been disclosed publicly
prior to the date hereof by the Company, but which has not been so
disclosed.
4.10. Litigation. To the knowledge of the Company, no litigation, claim, or
other proceeding before any court or governmental agency is pending or
to the knowledge of the Company, threatened against the Company or
Ranor, the prosecution or outcome of which, if adversely determined, is
likely to have a Material Adverse Effect.
4.11. Exemption from Registration. Subject to the accuracy of the Investor's
representations in Article V, except as required pursuant to the
Registration Rights Agreement, the sale of the Series A Preferred Stock
and Warrants by the Company to the Investor will not require
registration under the 1933 Act, but may require registration or an
exemption from registration under New York state securities law if
applicable to the Investor. When validly converted in accordance with
the terms of the Series A Preferred Stock, and upon exercise of the
Warrants in accordance with their terms, the Shares underlying the
Series A Preferred Stock and the Warrants will be duly and validly
issued, fully paid, and non-assessable. The Company is issuing the
Series A Preferred Stock and the Warrants in accordance with and in
reliance upon the exemption from securities registration afforded,
inter alia, by Rule 506 under Regulation D as promulgated by the SEC
under the 1933 Act, and/or Section 4(2) of the 1933 Act; provided,
however, that certain filings and registrations may be required under
state securities "blue sky" laws depending upon the residency of the
Investor.
4.12. No General Solicitation or Advertising in Regard to this Transaction.
Neither the Company nor any of its Affiliates nor, to the knowledge of
the Company, any Person acting on its or their behalf (i) has conducted
or will conduct any general solicitation (as that term is used in Rule
502(c) of Regulation D as promulgated by the SEC under the 0000 Xxx) or
general advertising with respect to the sale of the Series A Preferred
Stock or Warrants, or (ii) made any offers or sales of any security or
solicited any offers to buy any security under any circumstances that
would require registration of the Series A Preferred Stock or Warrants,
under the 1933 Act, except as required herein.
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4.13. No Material Adverse Effect. Except as set forth in Schedule 4.13
attached hereto, since September 30, 2005, no event or circumstance
resulting in a Material Adverse Effect has occurred or exists with
respect to Ranor. To the knowledge of the Company, no material supplier
or customer has given notice, oral or written, that it intends to cease
or reduce the volume of its business with Ranor from historical levels.
4.14. Material Non-Public Information. The Company has not disclosed to the
Investor any material non-public information that (i) if disclosed,
would reasonably be expected to have a material effect on the price of
the Common Stock or (ii) according to applicable law, rule or
regulation, should have been disclosed publicly by the Company prior to
the date hereof but which has not been so disclosed; provided, however,
that the Company has disclosed to the Investor matters relating to the
Company's acquisition of Ranor and the financing of such acquisition.
4.15. Internal Controls And Procedures. To the knowledge of the Company,
Ranor maintains books and records and internal accounting controls
which provide reasonable assurance that (i) all transactions to which
Ranor or any subsidiary is a party or by which its properties are bound
are executed with management's authorization; (ii) the recorded
accounting of Ranor's consolidated assets is compared with existing
assets at regular intervals; (iii) access to Ranor's consolidated
assets is permitted only in accordance with management's authorization;
and (iv) all transactions to which Ranor or any subsidiary is a party
or by which its properties are bound are recorded as necessary to
permit preparation of the financial statements of the Company in
accordance with standards of the Public Company Accounting Oversight
Board; it being understood that Ranor has not conducted an internal
controls audit and that no such audit has been required under
applicable law.
4.16. Full Disclosure. No representation or warranty made by the Company in
this Agreement and no certificate or document furnished or to be
furnished to the Investor pursuant to this Agreement contains or will
contain any untrue statement of a material fact, or omits or will omit
to state a material fact necessary to make the statements contained
herein or therein not misleading.
4.17. Independent Board. At the Closing, the board of directors of the
Company shall consist of five directors, three of whom shall be
independent, as defined under the regulation of the Nasdaq Stock
Market, and a majority of the members of the audit and compensation
committees of the board of directors of the Company will be comprised
of independent directors.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE INVESTORS
The Investor represents and warrants to the Company that:
5.1. Organization and Standing of the Investor. The Investor is a limited
partnership duly formed, validly existing and in good standing under
the laws of the State of Delaware. The state in which any offer to
purchase shares hereunder was made or accepted by such Investor is the
state shown as such Investor's address. The Investor was not formed for
the purpose of investing solely in the Series A Preferred Stock, the
Warrants or the shares of Common Stock which are the subject of this
Agreement.
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5.2. Authorization and Power. The Investor has the requisite power and
authority to enter into and perform this Agreement and to purchase the
securities being sold to it hereunder. The execution, delivery and
performance of this Agreement by the Investor and the consummation by
the Investor of the transactions contemplated hereby have been duly
authorized by all necessary partnership action where appropriate. This
Agreement and the Registration Rights Agreement have been duly executed
and delivered by the Investor and at the Closing shall constitute valid
and binding obligations of the Investor enforceable against the
Investor in accordance with their 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, creditors'
rights and remedies or by other equitable principles of general
application.
5.3. No Conflicts. The execution, delivery and performance of this Agreement
and the consummation by the Investor of the transactions contemplated
hereby or relating hereto do not and will not (i) result in a violation
of such Investor's charter documents or bylaws where appropriate 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 the
Investor 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 the Investor 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 Investor). The Investor 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 such Investor's obligations under this Agreement or to
purchase the securities from the Company in accordance with the terms
hereof, provided that for purposes of the representation made in this
sentence, the Investor is assuming and relying upon the accuracy of the
relevant representations and agreements of the Company herein.
5.4. Financial Risks. The Investor acknowledges that such Investor is able
to bear the financial risks associated with an investment in the
securities being purchased by the Investor from the Company and that it
has been given full access to such records of the Company and the
subsidiaries and to the officers of the Company and the subsidiaries as
it has deemed necessary or appropriate to conduct its due diligence
investigation. The Investor is capable of evaluating the risks and
merits of an investment in the securities being purchased by the
Investor from the Company by virtue of its experience as an investor
and its knowledge, experience, and sophistication in financial and
business matters and the Investor is capable of bearing the entire loss
of its investment in the securities being purchased by the Investor
from the Company.
5.5. Accredited Investor. The Investor is (i) an "accredited investor" as
that term is defined in Rule 501 of Regulation D promulgated under the
1933 Act by reason of Rule 501(a)(3) and (6), (ii) experienced in
making investments of the kind described in this Agreement and the
related documents, (iii) able, by reason of the business and financial
experience of its officers (if an entity) and professional advisors
(who are not affiliated with or compensated in any way by the Company
or any of its affiliates or selling agents), to protect its own
interests in connection with the transactions described in this
Agreement, and the related documents, and (iv) able to afford the
entire loss of its investment in the securities being purchased by the
Investor from the Company. The Investor is acquiring the Securities for
investment and not with a view to the sale or distribution thereof and
understands that such Securities are restricted securities, as defined
in the 1933 Act, and may not be sold or otherwise distributed except
pursuant to an effective registration statement or an exemption from
the registration requirements of the 1933 Act and that the certificates
for such securities shares and Warrants will bear an investment legend.
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5.6. Brokers. Except as set forth in Schedule 4.8, no broker, finder or
investment banker is entitled to any brokerage, finder's or other fee
or Commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of the Investor.
5.7. Knowledge of Company. The Investor and such Investor's advisors, if
any, have been, upon request, furnished with all materials relating to
the business, finances and operations of the Company and materials
relating to the offer and sale of the securities being purchased by the
Investor from the Company. The Investor and such Investor's advisors,
if any, have been afforded the opportunity to ask questions of the
Company and have received complete and satisfactory answers to any such
inquiries.
5.8. Risk Factors. The Investor understands that such Investor's investment
in the securities being purchased by the Investor from the Company
involves a high degree of risk. The Investor understands that no United
States federal or state agency or any other government or governmental
agency has passed on or made any recommendation or endorsement of the
securities being purchased by the Investor from the Company. The
Investor warrants that such Investor is able to bear the complete loss
of such Investor's investment in the securities being purchased by the
Investor from the Company. In acquiring the Securities, the Investor is
not relying upon any projections of the future financial condition,
results of operations or cash flows relating to the Company.
5.9. Full Disclosure. No representation or warranty made by the Investor in
this Agreement and no certificate or document furnished or to be
furnished to the Company pursuant to this Agreement contains or will
contain any untrue statement of a material fact, or omits or will omit
to state a material fact necessary to make the statements contained
herein or therein not misleading. Except as set forth or referred to in
this Agreement, (a) the Investor does not have any agreement or
understanding with any person relating to acquiring, holding, voting or
disposing of any equity securities of the Company. and (b) during the
past five years there has not occurred any event listed in Item 401(f)
of Regulation S-K or any investigation relating to any such event with
respect to the Investor nor any of its managing partners.
ARTICLE VI
COVENANTS OF THE COMPANY
6.1. Registration Rights. The Company shall cause the Registration Rights
Agreement to remain in full force and effect according to the
provisions of the Registration Rights Agreement and the Company shall
comply in all material respects with the terms thereof.
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6.2. Reservation of Common Stock. As of the date hereof, the Company has
reserved and the Company shall continue to reserve and keep available
at all times, free of preemptive rights, shares of Common Stock for the
purpose of enabling the Company to issue the Shares underlying the
Series A Preferred Stock and Warrants; provided, however, that if, as a
result of the Authorized Stock Proviso, there are not sufficient shares
reserved as required in this Section 6.2, the Company shall, within
thirty (30) days after the Company becomes aware of such deficiency,
prepare and file with the Commission a proxy statement pursuant to
which the Company will seek stockholder approval for an increase in the
authorized Common Stock sufficient to enable the Company to be in
compliance with this Section 6.2. The Investor agrees to vote in favor
of such proposal.
6.3. Compliance with Laws. The Company hereby agrees to comply in all
material respects with the Company's reporting, filing and other
obligations under the Laws.
6.4. Exchange Act Registration. The Company will use its best efforts to
comply in all respects with its reporting and filing obligations under
the 1934 Act, and will not take any action or file any document
(whether or not permitted by the 1934 Act or the rules thereunder) to
terminate or suspend any such registration or to terminate or suspend
its reporting and filing obligations under the 1934 until the Investors
have disposed of all of their Shares.
6.5. Corporate Existence; Conflicting Agreements. The Company will take all
steps necessary to preserve and continue the corporate existence of the
Company. The Company shall not enter into any agreement, the terms of
which agreement would restrict or impair the right or ability of the
Company to perform any of its obligations under this Agreement or any
of the other agreements attached as exhibits hereto.
6.6. Preferred Stock. Until the earlier of (a) three years from the Closing
or (b) such date as the Investor shall have converted not less than 90%
of the shares of Series A Preferred Stock and sold the underlying
Shares or (c) such date as the Investor shall have transferred not less
than 90% of the shares of Series A Preferred Stock or (d) such date as
the total number of shares of Preferred Stock which the Investor shall
have either transferred or converted and sold the underlying Shares
shall represent not less than 90% of the shares of Series A Preferred
Stock issued to the Investor, the Company will not issue any preferred
stock of the Company with the exception of Series A Preferred Stock
issued to the Investor.
6.7. Convertible Debt. On or prior to the Closing Date, the Company will
cause to be cancelled all convertible debt in the Company. Until the
earlier of (a) three years from the Closing or (b) such date as the
Investor shall have converted not less than 90% of the shares of Series
A Preferred Stock and sold the underlying Shares or (c) such date as
the Investor shall have transferred not less than 90% of the shares of
Series A Preferred Stock or (d) such date as the total number of shares
of Preferred Stock which the Investor shall have either transferred or
converted and sold the underlying Shares shall represent not less than
90% of the shares of Series A Preferred Stock issued to the Investor,
the Company will not issue any convertible debt.
6.8. Debt Limitation. The Company agrees for two years after Closing not to
enter into any new borrowings of more than three times the sum of the
EBITDA from recurring operations over the trailing four quarters.
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6.9. Reset Equity Deals. On or prior to the Closing Date, the Company will
cause to be cancelled any and all reset features related to any shares
outstanding that could result in additional shares being issued. For a
period of three years from the closing the Company will not enter into
any transactions that have any reset features that could result in
additional shares being issued. For purposes of this Section 6.9, a
reset provision for a convertible security or derivative security shall
mean a provision whereby the issuance of securities at a lower price or
having a lower conversion or exercise price will result in the
conversion or exercise price of the security being reduced to the lower
price or lower conversion or exercise price or more shares being
issued, as the case may be or which have a conversion or exercise price
that is based on the market price at the time of conversion or exercise
or any other device which results in an adjustment to the exercise
price or conversion price of the above mentioned securities in section
6.9 other than stock dividends, stock splits, stock distributions,
combination of shares, reverse splits, and other recapitalizations, as
long as they effect all stockholders appropriately.
6.10. Independent Directors.
6.10.1. The Company shall have caused the appointment of the majority of the
board of directors to be independent directors, as defined by the rules
of the Nasdaq Stock Market, before Closing.
6.10.2. If, at any time from the Closing and until the earlier of (a) three
years from the Closing or (b) such date as the Investor shall have
converted not less than 90% of the shares of Series A Preferred Stock
and sold the underlying Shares or (c) such date as the Investor shall
have transferred not less than 90% of the shares of Series A Preferred
Stock, the board of directors shall not be composed of a majority of
independent directors:
6.10.2.1. for a reason other than for an excused reason, the Company shall have
75 days, to take such steps as are necessary so that a majority of the
Company's directors are independent directors, and
6.10.2.2. for an excused reason, the Company shall have 75 days from the date
that the Company becomes aware of the event (or the last event if
there are more than one such event) giving rise to the excused reason,
to take such steps as are necessary so that a majority of the
Company's directors are independent directors.
6.10.3. For purposes of this Section 6.10, an excused reason shall mean the
death or resignation of an independent director or the occurrence of an
event whereby an independent director ceases to be independent.
6.10.4. If, during the period referred to in Section 6.10.2 of this Agreement,
the Company shall have failed to have a board of directors composed of
a majority of independent directors after the date by which such
situation was to have been cured pursuant to Section 6.10.2.1 or
Section 6.10.2.2 of this Agreement, whichever shall apply, the Company
shall pay to the Investor, as liquidated damages and not as a penalty,
an amount equal to twelve percent (12%) per annum of the Purchase Price
of the then outstanding Series A Preferred Stock, payable monthly in
cash or Series A Preferred Stock at the option of the Investor, based
on the number of days that such condition exists. The parties agree
that the only damages payable for a violation of such provisions shall
be such liquidated damages. Nothing shall preclude the Investor from
pursuing or obtaining specific performance or other equitable relief
with respect to this Agreement. The parties hereto agree that the
liquidated damages provided for in this Section 6.10.4 constitute a
reasonable estimate of the damages that may be incurred by the Investor
by reason of the failure of the Company to have a majority of directors
as independent directors.
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6.10.5. In no event shall the total payments made pursuant to this Section 6.10
and Section 6.11, whether in cash or Series A Preferred Stock exceed in
the aggregate eighteen percent (18%) of the Purchase Price of the then
outstanding Series A Preferred Stock.
6.11. Independent Directors Become Majority of Audit and Compensation
Committees. The Company will cause the appointment of a majority of
independent directors to the audit and compensation committees of the
board of directors before or at Closing. If at any time after Closing
independent directors do not compose the majority of the audit and
compensation committees, the Company shall pay to the Investors, pro
rata, as liquidated damages and not as a penalty, an amount equal to
twelve percent (12%) of the Purchase Price per annum, payable monthly
in cash or Series A Preferred Stock at the option of the Investor, such
payment shall be based on the number of days that such condition
exists. The parties agree that the only damages payable for a violation
of the terms of this Agreement with respect to which liquidated damages
are expressly provided shall be such liquidated damages. Nothing shall
preclude the Investor from pursuing other remedies or obtaining
specific performance or other equitable relief with respect to this
Agreement. Notwithstanding the foregoing, no liquidated damages shall
be payable pursuant to this Section 6.11 during any period for which
liquidated damages are payable pursuant to Section 6.10.
6.12. Use of Proceeds. The Company will use the proceeds from the sale of the
Series A Preferred Stock and the Warrants (excluding amounts paid by
the Company for legal and administrative fees in connection with the
sale of such securities) for the acquisition of Ranor and working
capital.
6.13. Right of First Refusal
6.13.1. In the event that the Company seeks to raise additional funds through a
private placement of its securities (a "Proposed Financing"), other
than Exempt Issuances, the Investor shall have the right to participate
in any subsequent funding by the Company of the offering price on a pro
rata basis, based on the percentage that (a) the number of Shares held
by the Investor plus the number of Shares issuable upon conversion of
the Series A Preferred Stock then owned by the Investor, without regard
to the 4.9% Limitation, bears to (b) the total number of shares of
Common Stock outstanding plus the number of Shares issuable upon
conversion of the Series A Preferred Stock and any other series of
convertible preferred stock or debt securities, without regard to the
4.9% Limitations any other limitations on exercise such other
convertible preferred stock or debt securities.
6.13.2. The terms on which the Investor shall purchase securities pursuant to
Proposed Financing shall be the same as such securities are purchased
by other investors. The Company shall give the Investor not less than
ten (10) days notice setting forth the terms of the Proposed Financing.
In the event that the terms of the Proposed Financing are changed, the
Company shall provide the Investor with the same notice of the revised
terms that are provided to the other investors.
6.13.3. In the event that the Investor does not exercise its right to
participate in the Proposed Financing, the Company may sell the
securities in the Proposed Financing at a price and on terms which are
no more favorable to the investors than the terms provided to the
Investor. If the Company subsequently changes the price or terms so
that the terms are at a price or more favorable to the investors, the
Company shall reoffer the securities to the Investor as provided in
Section 6.12.2 of this Agreement.
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6.14. Price Adjustment. The Certificate of Designation shall include the
following provision: If, within the 36 months following the Closing
Date, the Company closes on the sale of a note or notes, shares of
Common Stock, or shares of any class of Preferred Stock at a price per
share of Common Stock, or with a conversion right to acquire Common
Stock at a price per share of Common Stock (other than (x) an Exempt
Issuance or (y) an issuance covered by the [Section of the Certificate
of Designation relating to stock dividends, distributions and reverse
splits] and [Section of the Certificate of Designation relating to pro
rata distributions] or (z) an issuance of Common Stock upon exercise or
upon conversion of warrants, options or other convertible securities
for which an adjustment has already been made pursuant to this Section
[Section no. of Certificate of Designation]), that is less than the
Conversion Price in effect at the time of such sale (such lower price
being referred to as the "Lower Price"), the conversion rate shall be
adjusted as follows. The "Conversion Price" shall mean the price paid
for one share of Series A Preferred Stock divided by the number of
shares of Common Stock issuable upon conversion of one share of Series
A Preferred Stock. The "Conversion Rate" is the number of shares of
Common Stock issuable upon conversion of one (1) share of Series A
Preferred Stock. The initial Conversion Rate is one share of Common
Stock per share of Series A Preferred Stock and the initial Conversion
Price is $.285. The Conversion Rate shall be adjusted by multiplying
the Conversion Rate in effect immediately prior to such issuance by a
fraction, the numerator of which shall be the number of shares of
Common Stock outstanding immediately after the issuance of such
additional shares (including the exercise or conversion of all options,
warrants and other convertible securities issued in connection
therewith) and the denominator of which shall be the sum of the number
of shares of Common Stock outstanding immediately prior to the issuance
of such additional shares and the number of shares of Common Stock
which the aggregate consideration received or receivable for the
issuance of such additional shares at the Lower Price would purchase at
the Conversion Price then in effect. Such adjustment shall be made
successively whenever such an issuance is made.
6.15. Price Adjustment Based on EBITDA Per Share.
6.15.1. In the event the Company's EBITDA per share of Common Stock is between
$0.06591 and $0.04613 per share (where such EBITDA per share is defined
as EBITDA as reported for the audited fiscal year ended March 31, 2006
from recurring operations before any charges relating to the
transaction contemplated by this Agreement and any other non recurring
items, including warrants, but excluding options or stock grants issued
to management and key employees), the conversion price shall be reduced
proportionately by 0% if the EBITDA is $0.06591 per share and by 15% if
EBITDA is $0.04613 per share or lower. Fully-diluted EBITDA Per Share
shall be based on the number of outstanding shares of Common Stock plus
all shares of Common Stock issuable upon conversion of all outstanding
convertible securities and upon exercise of all outstanding warrants,
options and rights, regardless of whether (i) such shares would be
included in determining diluted earnings per share and (ii) such
convertible securities are subject to a restriction or limitation on
exercise. Thus, for purpose of determining fully-diluted Pre-Tax Income
Per Share, the 4.9% Limitation shall be disregarded. For example, if
the Company's EBITDA is $0.052728 per share, or 20% below $0.06591 per
share, then the Conversion Price shall be reduced by 10%. Such
reduction shall be made at the time the Company files its Form 10-K or
Form 10-KSB for the year ended March 31, 2006. In the event that EBITDA
per share is less than $0.04613, or the Company has a loss, the
Conversion Price shall be reduced by a maximum of 15%. This Section
6.15.1 shall apply to the all of the Series A Preferred Stock which is
outstanding on the date the Form 10-KSB or 10-K is filed, or, if not
filed on time, on the date that filing was required.
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6.15.2. In the event the Company's EBITDA per share of Common Stock, determined
as provided in Section 6.15.1 of this Agreement, for the fiscal year
ended March 31, 2007 is between $0.08568 and $0.05997, the Conversion
Price then in effect shall be reduced proportionately by 0% if EBITDA
is $0.08568 or greater and 15% if EBITDA is $0.05997 or less, with a
proportionate reduction if EBITDA is between $0.08568 and $0.05997.
Such reduction shall be made at the time the Company files its Form
10-K or Form 10-KSB for the year ended March 31, 2007. In the event
that EBITDA per share is less than $0.05997, or the Company has a loss,
the Conversion Price shall be reduced by a maximum of 15%. In
determining the EBITDA per share of Common Stock pursuant to this
Section 6.15.2, there shall be excluded any shares of Common Stock
issuable as a result of an adjustment to the Conversion Price pursuant
to Section 6.15.1
6.16. Insider Selling. The earliest any "Insiders" can start selling their
shares in the public market shall be twelve months from Closing. After
twelve months following the Closing (the "Lock-up Period"), no Insider
shall sell more than 10% of his or her shares in the Company in the
public market in the twelve-month period following the expiration of
the Lock-up Period or more than an additional 10% of his or her shares
(based on shares owned on the Closing Date) during the following
twelve-month period, and such shares may be sold pursuant to either
Rule 144 or any registration statement which may cover such shares.
Insiders shall include all persons who are officers and directors of
the Company at the Closing or who become officers and directors during
the fiscal year ended March 31, 2006. Xxxxxx Xxxxxx Xxxxxx and the
Investor shall not be considered "Insiders." The restrictions in this
Section 6.16 shall not apply to shares issued pursuant to a stock
option or long-term incentive plans which may be approved by the
Compensation Committee provided that such committee is comprises of a
majority of independent directors. The Company may include in the
registration statement filed pursuant to the Registration Rights
Agreement all of the shares of Common Stock which are outstanding
immediately prior to the Closing, none of which shall be owned by
Affiliates of the Company.
6.17. Employment and Consulting Contracts. For three years after the Closing
Company must have a unanimous opinion from the Compensation Committee
of the Board of Directors that any awards other than salary are usual,
appropriate and reasonable for any officer, director or consultants
whose compensation is more than $100,000 per annum holding a similar
position in other public companies with independent majority boards
with similar market capitalizations in the same industry with
securities listed on the OTCBB, ASE, NYSE or Nasdaq.
6.18. Subsequent Equity Sales. From the date hereof until such time as the
Investor holds no more than 5% of the Shares (determined as if the
Series A Preferred Stock were fully converted and the Warrants fully
exercised), the Company shall be prohibited from effecting or entering
into an agreement to effect any Subsequent Financing involving a
"Variable Rate Transaction" or an "MFN Transaction" (each as defined
below). The term "Variable Rate Transaction" shall mean a transaction
in which the Company issues or sells (i) any debt or equity securities
that are convertible into, exchangeable or exercisable for, or include
the right to receive additional shares of Common Stock either (A) at a
conversion, exercise or exchange rate or other price that is based upon
and/or varies with the trading prices of or quotations for the shares
of Common Stock at any time after the initial issuance of such debt or
equity securities, or (B) with a conversion, exercise or exchange price
that is subject to being reset at some future date after the initial
issuance of such debt or equity security or upon the occurrence of
specified or contingent events directly or indirectly related to the
business of the Company or the market for the Common Stock. The term
"MFN Transaction" shall mean a transaction in which the Company issues
or sells any securities in a capital raising transaction or series of
related transactions which grants to an investor the right to receive
additional shares based upon future transactions of the Company on
terms which are more favorable to such investor than the terms granted
to the Investor in this Agreement. Any Purchaser shall be entitled to
obtain injunctive relief against the Company to preclude any such
issuance, which remedy shall be in addition to any right to collect
damages. Notwithstanding the foregoing, this Section 6.17 shall not
apply in respect of an Exempt Issuance, except that no Variable Rate
Transaction or MFN Transaction shall be an Exempt Issuance.
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6.19. Amendment to Certificate of Incorporation. At or before the next annual
meeting of the stockholders of the Company, the Board of Directors
shall propose and submit to the holders of the Common Stock for
approval, an amendment to the Certificate of Incorporation that
provides substantially as follows:
"The terms and conditions of any rights, options and warrants
approved by the Board of Directors may provide that any or all of such
terms and conditions may be waived or amended only with the consent of
the holders of a designated percentage of a designated class or classes
of capital stock of the Corporation (or a designated group or groups of
holders within such class or classes, including but not limited to
disinterested holders), and the applicable terms and conditions of any
such rights, options or warrants so conditioned may not be waived or
amended absent such consent."
6.20. Stock Splits. All forward and reverse stock splits shall effect all
equity and derivative holders proportionately.
6.21. Payment of Due Diligence Expenses. At Closing the Escrow Agent shall
disperse to the Investor Fifty Thousand Dollars ($50,000.00) for due
diligence, legal and any other expenses which the Investor may incur in
connection with this Agreement.
ARTICLE VII
COVENANTS OF THE INVESTOR
7.1. Compliance with Law. The Investor's trading activities with respect to
shares of the Company's Common Stock will be in compliance with all
applicable state and federal securities laws, rules and regulations and
rules and regulations of any public market on which the Company's
Common Stock is listed.
7.2. Transfer Restrictions. The Investor's acknowledge that (1) the Series A
Preferred Stock, Warrants and shares underlying the Series A Preferred
Stock and Warrants have not been registered under the provisions of the
1933 Act, and may not be transferred unless (A) subsequently registered
thereunder or (B) the Investor shall have delivered to the Company an
opinion of counsel, reasonably satisfactory in form, scope and
substance to the Company, to the effect that the Series A Preferred
Stock, Warrants and shares of Common Stock underlying the Series A
Preferred Stock and Warrants to be sold or transferred may be sold or
transferred pursuant to an exemption from such registration; and (2)
any sale of the Series A Preferred Stock, Warrants and shares
underlying the Series A Preferred Stock and Warrants made in reliance
on Rule 144 promulgated under the 1933 Act may be made only in
accordance with the terms of said Rule and further, if said Rule is not
applicable, any resale of such securities under circumstances in which
the seller, or the person through whom the sale is made, may be deemed
to be an underwriter, as that term is used in the 1933 Act, may require
compliance with some other exemption under the 1933 Act or the rules
and regulations of the SEC thereunder.
7.3. Restrictive Legend. The Investor acknowledges and agrees that the
Series A Preferred Stock, the Warrants and the Shares underlying the
Series A Preferred Stock and Warrants, and, until such time as the
Shares underlying the Series A Preferred Stock and Warrants have been
registered under the 1933 Act and sold in accordance with an effective
Registration Statement, certificates and other instruments representing
any of the Shares, shall bear a restrictive legend in substantially the
following form (and a stop-transfer order may be placed against
transfer of any such securities):
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"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 NEITHER SUCH SHARES NOR ANY INTEREST THEREIN MAY BE OFFERED,
SOLD, PLEDGED, ASSIGNED OR OTHERWISE TRANSFERRED UNLESS (1) A REGISTRATION
STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE SECURITIES ACT, OR (2) IN
ACCORDANCE WITH THE PROVISIONS OF REGULATION S, OR (3) AN EXEMPTION FROM
REGISTRATION IS AVAILABLE UNDER THE SECURITIES ACT AND APPLICABLE STATE
SECURITIES LAWS AND THE HOLDER HAS PROVIDED THE COMPANY WITH AN OPINION OF
COUNSEL TO SUCH EFFECT."
7.4. Amendment to Certificate of Incorporation. Investor hereby agrees to
vote any shares of capital stock that it may own directly or
beneficially, for the amendment to the Certificate of Incorporation
referenced in Section 6.19. Pending adoption of such amendment,
Investor hereby agrees for itself and its successors and assigns that
neither this Section 7.4 or Section 6.19 above, or any restriction on
exercise of the Warrant shall be amended, modified or waived without
the consent of the holders of a majority of the shares of Common Stock
held by Persons who are not Affiliates of the Company, or the Investor
or Affiliates of the Investor.
ARTICLE VIII
CONDITIONS PRECEDENT TO THE COMPANY'S OBLIGATIONS
The obligation of the Company to consummate the transactions
contemplated hereby shall be subject to the fulfillment, on or prior to Closing
Date, of the following conditions:
8.1. No Termination. This Agreement shall not have been terminated pursuant
to Article X hereof.
8.2. Representations True and Correct. The representations and warranties of
the Investor contained in this Agreement shall be true and correct in
all material respects on and as of the Closing Date with the same force
and effect as if made on as of the Closing Date.
8.3. Compliance with Covenants. The Investor shall have performed and
complied in all material respects with all covenants, agreements, and
conditions required by this Agreement to be performed or complied by it
prior to or at the Closing Date.
8.4. No Adverse Proceedings. On the Closing Date, no action or proceeding
shall be pending by any public authority or individual or entity before
any court or administrative body to restrain, enjoin, or otherwise
prevent the consummation of this Agreement or the transactions
contemplated hereby or to recover any damages or obtain other relief as
a result of the transactions proposed hereby.
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ARTICLE IX
CONDITIONS PRECEDENT TO INVESTOR'S OBLIGATIONS
The obligation of the Investors to consummate the transactions
contemplated hereby shall be subject to the fulfillment, on or prior to Closing
Date unless specified otherwise, of the following conditions:
9.1. No Termination. This Agreement shall not have been terminated pursuant
to Article X hereof.
9.2. Representations True and Correct. The representations and warranties of
the Company contained in this Agreement shall be true and correct in
all material respects on and as of the Closing Date with the same force
and effect as if made on as of the Closing Date.
9.3. Compliance with Covenants. The Company shall have performed and
complied in all material respects with all covenants, agreements, and
conditions required by this Agreement to be performed or complied by it
prior to or at the Closing Date.
9.4. No Adverse Proceedings. On the Closing Date, no action or proceeding
shall be pending by any public authority or individual or entity before
any court or administrative body to restrain, enjoin, or otherwise
prevent the consummation of this Agreement or the transactions
contemplated hereby or to recover any damages or obtain other relief as
a result of the transactions proposed hereby.
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
10.1. Termination. This Agreement may be terminated at any time prior to the
Closing Date
10.1.1. by mutual written consent of the Investor and the Company;
10.1.2. by the Company upon a material breach of any representation, warranty,
covenant or agreement on the part of the Investor set forth in this
Agreement, or the Investor upon a material breach of any
representation, warranty, covenant or agreement on the part of the
Company set forth in this Agreement, or if any representation or
warranty of the Company or the Investor, respectively, shall have
become untrue, in either case such that any of the conditions set forth
in Article VIII or Article IX hereof would not be satisfied (a
"Terminating Breach"), and such breach shall, if capable of cure, not
have been cured within five (5) business days after receipt by the
party in breach of a notice from the non-breaching party setting forth
in detail the nature of such breach.
10.2. Effect of Termination. Except as otherwise provided herein, in the
event of the termination of this Agreement pursuant to Section 10.1
hereof, there shall be no liability on the part of the Company or the
Investor or any of their respective officers, directors, agents or
other representatives and all rights and obligations of any party
hereto shall cease.
10.3. Amendment. This Agreement may be amended by the parties hereto any time
prior to the Closing Date by an instrument in writing signed by the
parties hereto; provided, however that the 4.9% Limitation may not be
amended or waived.
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10.4. Waiver. At any time prior to the Closing Date, the Company or the
Investor, as appropriate, may: (a) extend the time for the performance
of any of the obligations or other acts of other party or; (b) waive
any inaccuracies in the representations and warranties contained herein
or in any document delivered pursuant hereto which have been made to it
or them; or (c) waive compliance with any of the agreements or
conditions contained herein for its or their benefit other than the
4.9% Limitation which may not be waived. Any such extension or waiver
shall be valid only if set forth in an instrument in writing signed by
the party or parties to be bound hereby.
ARTICLE XI
GENERAL PROVISIONS
11.1. Transaction Costs. Except as otherwise provided herein, each of the
parties shall pay all of his or its costs and expenses (including
attorney fees and other legal costs and expenses and accountants' fees
and other accounting costs and expenses) incurred by that party in
connection with this Agreement; provided, the Company shall pay
Investor for its expenses as provided in Section 6.21.
11.2. Indemnification. The Investor agrees to indemnify, defend and hold the
Company (following the Closing Date) and its officers and directors
harmless against and in respect of any and all claims, demands, losses,
costs, expenses, obligations, liabilities or damages, including
interest, penalties and reasonable attorney's fees, that it shall incur
or suffer, which arise out of or result from any breach of this
Agreement by such Investor or failure by such Investor to perform with
respect to the representations, warranties or covenants contained in
this Agreement or in any exhibit or other instrument furnished or to be
furnished under this Agreement. The Company agrees to indemnify, defend
and hold the Investor (following the Closing Date) harmless against and
in respect of any and all claims, demands, losses, costs, expenses,
obligations, liabilities or damages, including interest, penalties and
reasonable attorney's fees, that it shall incur or suffer, which arise
out of, result from or relate to any breach of this Agreement or
failure by the Company to perform with respect to the representations,
warranties or covenants contained in this Agreement or in any exhibit
or other instrument furnished or to be furnished under this Agreement.
In no event shall the Company or the Investors be entitled to recover
consequential or punitive damages resulting from a breach or violation
of this Agreement nor shall any party have any liability hereunder in
the event of gross negligence or willful misconduct of the indemnified
party. In the event of the failure of the Company to issue the Series A
Preferred Stock and Warrants in violation of the provisions of this
Agreement, the Investor, as its sole remedy, shall be entitled to
pursue a remedy of specific performance upon tender into the Court an
amount equal to the Purchase Price hereunder. The indemnification by
the Investor shall be limited to $50,000.00. This Section 11.2 shall
not relate to indemnification under the Registration Rights Agreement.
11.3. Headings. The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
11.4. Entire Agreement. This Agreement (together with the Schedule, Exhibits,
Warrants and documents referred to herein) constitute the entire
agreement of the parties and supersede all prior agreements and
undertakings, both written and oral, between the parties, or any of
them, with respect to the subject matter hereof.
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11.5. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed to have been given (i) on the date they are
delivered if delivered in person; (ii) on the date initially received
if delivered by facsimile transmission followed by registered or
certified mail confirmation; (iii) on the date delivered by an
overnight courier service; or (iv) on the on the date of delivery as
shown on the return receipt, if mailed by registered or certified mail,
return receipt requested with postage and other fees prepaid as
follows:
If to the Company:
Xx. Xxxxx X. Xxxxxx, President
Techprecision, LLC
X.X. Xxx 0000
Xxxxxxxxxx, XX 00000
With a copy to:
--------------
Katsky Xxxxxx LLP
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxx X. Xxxxxxxx P.C.
Facsimile No.: (000) 000-0000
If to the Investor:
Xxxxxx Partners L.P.
c/o Barron Capital Advisors, LLC
000 Xxxxx Xxxxxx, 0xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxxx Xxxxxx Xxxxxx
11.6. Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or
public policy, all other conditions and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the
economic or legal substance of the transactions contemplated hereby is
not affected in any manner materially adverse to any party. Upon such
determination that any such term or other provision is invalid, illegal
or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent
of the parties as closely as possible in an acceptable manner to the
end that the transactions contemplated hereby are fulfilled to the
extent possible.
11.7. Binding Effect. All the terms and provisions of this Agreement whether
so expressed or not, shall be binding upon, inure to the benefit of,
and be enforceable by the parties and their respective administrators,
executors, legal representatives, heirs, successors and assignees.
11.8. Preparation of Agreement. This Agreement shall not be construed more
strongly against any party regardless of who is responsible for its
preparation. The parties acknowledge each contributed and is equally
responsible for its preparation.
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11.9. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York, without giving
effect to applicable principles of conflicts of law.
11.10. Jurisdiction. This Agreement shall be exclusively governed by and
construed in accordance with the laws of the State of New York. If any
action is brought among the parties with respect to this Agreement or
otherwise, by way of a claim or counterclaim, the parties agree that in
any such action, and on all issues, the parties irrevocably waive their
right to a trial by jury. Exclusive jurisdiction and venue for any such
action shall be the federal and state courts situated in the City,
County and State of New York. In the event suit or action is brought by
any party under this Agreement to enforce any of its terms, or in any
appeal therefrom, it is agreed that the prevailing party shall be
entitled to reasonable attorneys fees to be fixed by the arbitrator,
trial court, and/or appellate court if such party prevails on
substantially all issues in dispute.
11.11. Preparation and Filing of Securities and Exchange Commission filings.
The Investor shall reasonably assist and cooperate with the Company in
the preparation of all filings with the SEC after the Closing Date due
after the Closing Date.
11.12. Further Assurances, Cooperation. Each party shall, upon reasonable
request by the other party, execute and deliver any additional
documents necessary or desirable to complete the transactions herein
pursuant to and in the manner contemplated by this Agreement. The
parties hereto agree to cooperate and use their respective best efforts
to consummate the transactions contemplated by this Agreement.
11.13. Survival. The representations, warranties, covenants and agreements
made herein shall survive the Closing of the transaction contemplated
hereby.
11.14. Third Parties. Except as disclosed in this Agreement, nothing in this
Agreement, whether express or implied, is intended to confer any rights
or remedies under or by reason of this Agreement on any persons other
than the parties hereto and their respective administrators, executors,
legal representatives, heirs, successors and assignees. Nothing in this
Agreement is intended to relieve or discharge the obligation or
liability of any third persons to any party to this Agreement, nor
shall any provision give any third persons any right of subrogation or
action over or against any party to this Agreement.
11.15. Failure or Indulgence Not Waiver; Remedies Cumulative. No failure or
delay on the part of any party hereto in the exercise of any right
hereunder shall impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty, covenant
or agreement herein, nor shall nay single or partial exercise of any
such right preclude other or further exercise thereof or of any other
right. All rights and remedies existing under this Agreement are
cumulative to, and not exclusive of, any rights or remedies otherwise
available.
11.16. Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate
counterparts, each of which when executed shall be deemed to be an
original, but all of which taken together shall constitute one and the
same agreement. A facsimile transmission of this signed Agreement shall
be legal and binding on the party who delivered the Agreement by
facsimile transmission; provided, that such party shall promptly
deliver the signed Agreement by overnight courier services.
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[SIGNATURES ON FOLLOWING PAGE]
-24-
IN WITNESS WHEREOF, the Investors and the Company have as of the date
first written above executed this Agreement.
THE COMPANY:
XXXXXXXXXX HOLDINGS II, INC.
----------------------------
Xxxxx X. Xxxxxx, Chairman
INVESTOR:
XXXXXX PARTNERS LP
By: Xxxxxx Capital Advisors, LLC, its General Partners
----------------------------
Xxxxxx Xxxxxx Xxxxxx
President
000 Xxxxx Xxxxxx, 0xx Xxxxx
Xxx Xxxx XX 00000
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Schedule A
NUMBER OF SHARES
OF COMMON STOCK NUMBER OF SHARES
AMOUNT OF INTO WHICH PREFERRED UNDERLYING "A" AND
NAME AND ADDRESS INVESTMENT STOCK IS CONVERTIBLE "B" WARRANTS
---------------- ---------- -------------------- --------------------
Xxxxxx Partners LP
000 Xxxxx Xxxxxx, 0xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000 $2,200,000 7,719,250 5,610,000/5,610,000
Attn: Xxxxxx Xxxxxx Xxxxxx
-26-
Schedule 4.3.1 - Capitalization
-27-
Schedule 4.8 - List of Brokers
None
-28-
Exhibit A
Form of Certificate of Deisgnation of Preferences, Rights and Limitations
-29-
Exhibit B
Registration Rights Agreement
-30-
Exhibit C
Warrants
-31-
Exhibit D
Escrow Agreement
-32-
