Xxxxxxxx.xxx Incorporated
Series A Convertible Preferred Stock Purchase Agreement
This Series A Convertible Preferred Stock Purchase Agreement is made as of
this 2nd day of April, 1999, by and between XXXXXXXX.XXX INCORPORATED, a New
York corporation (the "Company"), and the persons listed on Exhibit 1 who are
signatories to this Agreement (the "Investors").
The Parties Hereby Agree as Follows:
1. Purchase and Sale.
1.1 Sale and Issuance of Series A Convertible Preferred Stock.
Subject to the terms and conditions of this Agreement, each of the
Investors agrees to purchase at the Closing, and the Company agrees to sell
and issue to each of the investors at the Closing, severally and not jointly,
against cash payment, the number of shares of Series A Convertible Preferred
Stock (the "Series A Preferred Shares") of the Company set forth opposite each
Investor's name in Exhibit 1 to this Agreement at a purchase price of $4.00
per share.
1.2 Closing.
The initial purchase and sale of the Series A Preferred Shares being
purchased by the Investors shall take place on April 2, 1999, or at such other
time and place as the Company and the Investors mutually agree upon (which
time and place are designated the "Closing"). At the Closing, the Company
shall deliver to each of the Investors a certificate representing the number
of Series A Preferred Shares which each such Investor is purchasing against
delivery to the Company by each such Investor of cash or a certified bank
cashier's or other check reasonably acceptable to the Company, or by wire
transfer to the Company's account, in the amounts set forth in Exhibit 1.
Additional closings, upon substantially identical terms and conditions as
those contained herein, may be held until Series A Preferred Shares having an
aggregate purchase price of $10,000,000 have been sold, provided that all of
such closings are held on or prior to June 30, 1999. Except as provided in
this subparagraph 1.2, the Company may not issue additional Series A Preferred
Shares or warrants, options or other rights to acquire Series A Preferred
Shares without the prior written approval of holders of at least two-thirds of
the outstanding Series A Preferred Shares purchased under this Agreement.
1.3 Use of Proceeds.
The Company agrees to use the proceeds from the sale of the Series A
Preferred Shares for working capital purposes, for the repayment of
outstanding obligations and for the reduction of trade debt.
2. Representations and Warranties of the Company.
The Company hereby represents and warrants to the Investors that:
2.1 Incorporation.
The Company is a corporation duly organized and validly existing, is in
good standing under the laws of the state or other place of its incorporation,
has all requisite corporate power and authority to carry on its business as
now conducted and as proposed to be conducted.
2.2 Capitalization.
The authorized capital of the Company consists of one hundred million
(100,000,000) shares of Common Stock, of which at Closing not more than eight
million seven hundred seventy-five thousand one hundred eighty-four
(8,775,184) shares will be issued and outstanding, and five million
(5,000,000) shares of preferred stock (the "Preferred Shares"), of which two
million five hundred thousand (2,500,000) shares have been designated Series A
Preferred Shares, none of which are issued and outstanding as of the Closing.
Immediately prior to the Closing, two million five hundred thousand
(2,500,000) shares of the Company's common stock, par value $.001 per share
("Common Stock"), will be reserved for issuance upon conversion of the Series
A Preferred Shares.
2.3 Subsidiaries.
The Company does not presently control, directly or indirectly, any other
corporation, association or business entity.
2.4 Authorization.
All corporate action on the part of the Company, its officers and
directors necessary for the authorization, execution, delivery and performance
of all obligations of the Company under this Agreement and for the
authorization, issuance and delivery of the Series A Preferred Shares being
sold hereunder has been or shall be taken prior to the Closing, and this
Agreement, when executed and delivered, shall constitute a valid and legally
binding obligation of the Company. Issuance of the Series A Preferred Shares
is not, and issuance of the Common Stock issuable upon conversion of the
Series A Preferred Shares will not be subject to preemptive rights or other
preferential rights of any present or future stockholders in the Company.
2.5 Validity of Securities.
The Series A Preferred Shares to be purchased and sold pursuant to this
Agreement, when issued, sold and delivered in accordance with its terms for
the consideration expressed herein, shall be duly and validly issued. The
Common Stock issuable upon conversion of the Series A Preferred Shares has
been duly and validly reserved and upon issuance will be duly and validly
issued, fully paid and nonassessable.
2.6 Governmental Consents.
All consents, approvals, orders, authorizations or registration,
qualification, designation and declaration or filing with and federal or state
governmental authority on the part of the Company required in connection with
the consummation of the transactions contemplated herein shall have been
obtained prior to, and be effective as of, the Closing or will be timely filed
thereafter.
2.7 Compliance With Other Instruments.
The Company is not in violation of any provisions of its respective
Articles of Incorporation, its Bylaws, any material mortgage, indenture,
lease, agreement or other instrument to which it is a party, or of any
provision of any federal or state judgment, writ, decree, order, statute, rule
or governmental regulation applicable to the Company. The execution, delivery
and performance of this Agreement will not result in any such violation or be
in conflict with or constitute a default under any such provision.
2.8 Litigation.
There are no actions, proceedings or investigations pending, or to the
knowledge of the Company threatened, which question the validity of this
Agreement or which might result, either individually or in the aggregate, in
any material adverse change in the assets, conditions, affairs or prospects of
the Company, nor, to the knowledge of the Company, has there occurred any
event or does there exist any condition which might properly be the basis
therefor.
2.9 Patents.
The Company owns or has a valid right to use the patents, patent rights,
licenses, trade secrets, trademarks, trademark rights, trade names or trade
name rights or franchises, copyrights, inventions, and intellectual property
rights being used to conduct their businesses as now operated and as now
proposed to be operated; and the conduct of business as now operated and as
now proposed to be operated does not and will not conflict with valid patents,
patent rights, licenses, trade secrets, trademarks, trademark rights, trade
names or trade name rights or franchises, copyrights, inventions, and
intellectual property rights of others. The Company has no obligation to
compensate any person or entity for the use of any such patents or rights and
have granted to no person or entity any license or other rights to use in any
manner any of the patents or rights of the Company, whether requiring the
payment of royalties or not.
2.10 Financial Statements.
The Company has previously furnished true and complete copies of the
following financial statements for the Company:
(a) Statements of financial condition as of June 30, 1998 and June
30, 1997, and the related statements of operations and statements of changes
in financial position for the years then ended, all certified by Xxxxxxx Xxxxx
& Co., P.C., independent accountants, and (b) unaudited statements of
financial condition as of December 31, 1998, and unaudited statements of
operations for the six-month period then ended. All such financial statements
have been prepared in conformity with generally accepted accounting principles
applied on a basis consistent with prior periods (except for the omission of
notes to the unaudited financial statements), fairly present the consolidated
financial condition of the Company as of dates thereof, and the consolidated
results of operations of the Company for the periods indicated, and, in the
case of unaudited statements, subject to normal and recurring year-end
adjustments. Specifically, without limitation, such financial statements
reflect, as of their respective dates, all material accrued liabilities and
adequate reserves for all material un-accrued liabilities and for all
reasonably anticipated material losses of the Company. The books of account
of the Company and fully and fairly reflect all of the transactions of such
companies and are complete and accurate. The Company is not subject to any
undisclosed material liability not (i) reflected in its December 31, 1998
unaudited financial statements referred to above or in the notes to the
December 31, 1998 financial statements or (ii) incurred in the ordinary course
of business since December 31, 1998. For purposes of this Agreement, all
financial statements of the Company shall be deemed to include any notes to
such financial statements.
2.11 Absence of Certain Changes.
Since December 31, 1998, whether or not in the ordinary course of
business, there has not occurred or arisen (a) any material adverse change in
the financial condition, operations, business or prospects of the Company, or
(b) any event, condition or state of facts of any character which materially
or adversely affects, or may materially or adversely affect, the financial
condition, operations, business or prospects of the Company.
2.12 Tax Returns and Reports.
All federal income tax and state franchise tax returns and tax reports
required to be filed by the Company have been filed with the appropriate
governmental agencies in all jurisdictions in which such returns or reports
are required to be filed. All such returns and reports constitute complete and
accurate representations, in all material respects, of the tax liabilities of
the Company. All federal income tax and state franchise and other taxes
(including interest and penalties) due from the Company have been fully paid
or adequately provided for on the books and financial statements of the
Company. None of the federal income tax returns of the Company have been
audited by the Internal Revenue Service. The Company knows of no additional
assessments or adjustments pending or threatened for any period, nor of any
basis for any such assessment or adjustment. The Company and its affiliates
have not entered into any agreements with federal and state taxing authorities
extending the statute of limitations with respect to the assessment of federal
and state taxes for any period.
2.13 Properties.
The Company has good and marketable title to its real and personal
properties and assets and valid leasehold interests in its leased properties
as and to the extent carried on its books, including those reflected on the
unaudited statements of financial condition as of December 31, 1998 referred
to in paragraph 2.10 above, except properties and assets disposed of in the
ordinary course of business since December 31, 1998, and none of such
properties or assets is subject to any mortgage, pledge, charge, lien,
security interest, encumbrance of joint ownership interest, except liens for
taxes, assessments, or governmental charges or levies if the same shall not at
the time be delinquent or thereafter can be paid without penalty, or are being
contested in good faith and by appropriate proceedings.
The use of any property of the Company for the purpose for which it was
acquired is not now, and, based upon the laws, regulations and ordinances in
effect on the date of Closing, in the future will not be, curtailed to a
material degree by any violations prior to the Closing by the Company of any
law, regulation or ordinance (including, without limitation, laws, regulations
or ordinances relating to zoning, environmental protection, city planning, or
similar matters). The Company enjoy peaceful and undisturbed possession under
all leases under which they are operating, and all said lease are valid and
subsisting and in full force and effect.
2.14 Agreements.
The Company has not breached and has not received oral or written notice
of any claim or threatened claim that the Company has breached any of the
terms or conditions of any agreement, contract, lease, commitment or
understanding, whether oral or written, the breach or breaches of which singly
or in the aggregate could materially or adversely affect the financial
condition, operations, business or prospects of the Company.
2.15 Pension Benefit Plan.
The Company does not have or make contributions to any pension, defined
benefit or defined contribution plans which are subject to the Federal
Employee Retirement Income Security Act of 1974, as amended ("ERISA").
2.16 Registration Rights.
Except as set forth in this Agreement, no person or entity has demand or
other rights to cause the Company to file any registration statement under the
Securities Act of 1933, as amended (the "Act") relating to any securities of
the Company or any right to participate in any such registration statement.
The Company intends to file a registration statement on or before April 30,
1999 in which it intends to register substantially all of the issued and
outstanding shares of Common Stock.
2.17 Disclosure.
To the best of the Company's knowledge and belief, neither this
Agreement, the financial statements referred in paragraph 2.10, nor any other
agreement, document, certificate or written statement furnished to the
Purchasers or their special counsel by or on behalf of the Company in
connection with the transactions contemplated hereby contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements contained herein or therein not misleading. Most
of the Company's executive officers have only been employed by the Company for
a very short period of time. To the best knowledge of the Company's executive
officers, but without having made any independent investigation, there is no
fact within the special knowledge of any of the executive officers of the
Company which has not been disclosed herein or in writing by them to the
Investors and which materially adversely affects, or in the future in their
opinion may, insofar as they can now foresee, materially adversely affect the
business, properties, assets or condition, financial or other, of the
Company. Without limiting the foregoing, the Company has no knowledge or
belief that there exists, or there is pending or planned, any patent,
invention, device, application or principle or any statute, rule, law,
regulation, standard or code which would materially adversely affect the
condition, financial or other, or the operations of the Company.
3. Representations and Warranties of the Investors.
Each of the Investors represents and warrants to the Company as follows:
3.1 Authorization.
When executed and delivered by such Investor, this Agreement will
constitute the valid and legally binding obligation of such Investor.
3.2 Accredited Investor.
Such investor (other than those identified in writing to counsel for the
Company prior to the Closing) is an "accredited investor" as that term is
defined in Rule 501 promulgated under the Act.
4. Securities Act of 1933.
4.1 Investment Representation.
(a) This Agreement is made with each of the Investors in reliance
upon their respective representations to the Company, which by its acceptance
hereof each of the Investors hereby confirms, that the Series A Preferred
Shares to be received will be acquired for investment for an indefinite period
for its own account and not with a view to the sale or distribution of any
part thereof, and that it has no present intention of selling or otherwise
distributing the same, but subject, nevertheless, to any requirement of law
that the disposition of its property shall at all times be within its
control. By executing this Agreement, each of the Investors further
represents that it does not have any contract, undertaking, agreement or
arrangement with any person to sell or transfer to such person any of the
Series A Preferred Shares or any Common Stock acquired on conversion of the
Series A Preferred Shares (all of such securities are hereinafter collectively
referred to as the "Securities").
(b) Each of the Investors understands that the Securities are not
registered under the Act on the ground that the sale provided for in this
Agreement and the issuance of securities is exempt pursuant to Section 4(2) of
the Act and Rule 506 of Regulation D thereunder, and that the Company's
reliance on such exemption is predicated on its representations set forth
herein.
(c) Each of the Investors agrees that in no event will it make a
disposition of any of the Securities, unless the Securities shall have been
registered under the Act, unless and until (i) it shall have notified the
Company with a statement of the circumstances surrounding the proposed
disposition and (ii) it shall have furnished the Company with an opinion of
counsel reasonably satisfactory to the Company to the effect that (A) such
disposition will not require registration of such securities under the Act,
and (B) that appropriate action necessary for compliance with the Act has been
taken. Notwithstanding the foregoing, each Investor may distribute any of the
Securities to the owners of its equity.
(d) Each of the Investors represents that it is able to fend for
itself in the transactions contemplated by this Agreement, has such knowledge
and experience in financial and business matters as to be capable of
evaluating the merits and risks of its investment, has the ability to bear the
economic risks of its investment and has been furnished with and has had
access to such information as would be made available in the form of a
registration statement together with such additional information as is
necessary to verify the accuracy of the information supplied and to have all
questions which have been asked by the Investors answered by the Company.
(e) Each of the investors understands that if a registration
statement covering the Securities under the Act is not in effect when it
desires to sell any of the Securities, it may be required to hold such
Securities for an indeterminate period. Each of the Investors also
acknowledges that it understands that any sale of the Securities which might
be made by it in reliance upon Rule 144 under the Act may be made only in
limited amounts in accordance with the terms and conditions of that Rule.
4.2 Legends.
All certificates for the Securities shall bear substantially the
following legend:
"THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND HAVE BEEN ACQUIRED BY THE ISSUEE FOR
INVESTMENT PURPOSES. SAID SHARES MAY NOT BE SOLD OR TRANSFERRED UNLESS (A)
THEY HAVE BEEN REGISTERED UNDER SAID ACT, OR (B) THE TRANSFER AGENT (OR THE
COMPANY IF THEN ACTING AS ITS TRANSFER AGENT) IS PRESENTED WITH EITHER A
WRITTEN OPINION SATISFACTORY TO COUNSEL FOR THE COMPANY OR A "NO-ACTION' OR
INTERPRETIVE LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION TO THE EFFECT
THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE CIRCUMSTANCES OF SUCH SALE OR
TRANSFER."
4.3 Rule 144.
The Company covenants and agrees that: (i) at all times while it is
subject to the reporting requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934 it will use its best efforts to comply with the current
public information requirements of Rule 144(c)(1) under the Act; and (ii) it
will furnish the Investors upon request with all information about the Company
required for the preparation and filing of Form 144.
5. Conditions to Investors' Obligations at Closing.
The obligations of the Investors under paragraphs 1.1 and 1.2 of this
Agreement are subject to the fulfillment at or before the Closing of each of
the following conditions:
5.1 Representations and Warranties.
The representations and warranties contained in paragraph 2 hereof shall
be true on and as of the Closing.
5.2 Performance.
The Company shall have performed and complied with all agreements and
conditions contained herein required to be performed or complied with by it on
or before the Closing.
5.3 Reservation of Shares.
The Company shall have reserved two million five hundred thousand
(2,500,000) shares of its Common Stock for issuance upon the conversation of
the Series A Preferred Shares.
5.4 State Securities Laws.
The Company will have complied with all requirements under all applicable
state securities laws with respect to the offer and sale of the Series A
Preferred Shares and the Common Stock to be issued upon the conversion
thereto.
5.5 Compliance Certificate.
For each Closing subsequent to the date hereof, there shall have been
delivered to each of the Investors a certificate signed by the Company's
president certifying that the conditions specified in paragraphs 5.1, 5.2,
5.3, 5.4, and 5.8 have been fulfilled.
5.6 Opinion of Counsel.
There shall have been delivered to each of the Investors an opinion,
attached as Exhibit 2, of Xxxxxxx X. Xxxxxx, counsel for the Company, to the
effect that (i) the Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of New York, (ii) this
Agreement has been duly authorized, executed, and delivered by the Company and
constitutes a valid and enforceable obligation of the Company in accordance
with its terms and, after investigation deemed reasonable by such counsel
under the circumstances, such counsel has no knowledge of any breach by the
Company of its representations, warranties and covenants under this Agreement
, (iii) the Series A Preferred Shares have been duly authorized, issued and
delivered and are validly outstanding, (iv) upon issuance and sale of all of
the Series A Preferred Shares, the Company shall have outstanding an aggregate
of not more than eight million seven hundred seventy-five thousand one hundred
eighty-four (8,775,184) shares of Common Stock and two million five hundred
thousand (2,500,000) shares of Series A Preferred Shares, (v) immediately
prior to the Closing, the Company shall have reserved not more than two
million five hundred thousand (2,500,000) shares of Common Stock for issuance
upon conversion of Preferred Shares, (vi) such issue and sale is exempt, and
no approval or authorization of any other public body is necessary for the
issuance and sale by the Company of the Series A Preferred Shares, and (vii)
based in part upon the representations of the Investors, the offer, sale, and
delivery of the Series A Preferred Shares under the circumstances contemplated
by this Agreement constitutes an exempt transaction under the Act.
5.7 Minimum Purchase of Preferred Shares.
Counterparts of this Agreement shall have been signed by persons agreeing
to purchase Series A Preferred Shares having an aggregate purchase price of
not less than two hundred fifty thousand dollars ($250,000).
5.8 Proceedings and Documents.
All corporate and other proceedings in connection with the transactions
contemplated at the Closing hereby and all documents and instruments incident
to such transactions will be reasonably satisfactory in substance and form to
the Investors and their counsel, and the Investors and their counsel will have
received all such counterpart originals or certified or other copies of such
documents as they may reasonably request.
5.9 Adopted Designation of Rights and Preferences.
An adopted Designation of Rights and Preferences in substantially the
form attached hereto as Exhibit 3 shall have been adopted by the Board of
Directors of the Company and been filed with the New York Secretary of State.
6. Conditions of the Company's Obligations at Closing.
The obligations of the Company under paragraphs 1.1 and 1.2 of this
Agreement are subject to the fulfillment at or before the Closing of each of
the following conditions:
6.1 Warranties True on the Closing Date.
The representations and warranties of each of the Investors contained in
paragraphs 3 and 4 hereof shall be true on and as of the Closing with the same
effect as though said representations and warranties had been made on and as
of the Closing.
7. Registration Rights.
7.1 Shares Included in First Registration Statement.
The Company covenants and agrees with each Investor to include all of the
Investor's shares of Common Stock ("Registrable Shares") receivable upon
conversion by such Investor of the Series A Preferred Shares in its first
registration statement under the Act filed after the date hereof
("Registration Statement"). The Company covenants and agrees with each
Investor that the Registration Statement will be filed no later than April 30,
1999.
7.2 Obligations of the Company.
In connection with the Registration Statement, the Company shall:
(a) Use its best efforts to cause such Registration Statement to
become and remain effective.
(b) Prepare and file with the SEC such amendments and supplements to
the Registration Statement and the prospectus used in connection therewith as
may be necessary to permit the disposition of all of the Registrable Shares.
(c) Furnish to the Investors such number of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Act, and such other documents as they may reasonably request in order to
facilitate the disposition of the Registrable Shares owned by them.
(d) Use its best efforts to register and qualify the Registrable
Shares under such other securities or Blue Sky laws of such jurisdictions (not
exceeding ten unless otherwise agreed upon by the Company) as shall be
reasonably appropriate for the distribution of the securities covered by the
Registration Statement, provided that the Company shall not be required in
connection therewith or as a condition thereto to qualify to do business or to
file a general consent to service of process in any such states or
jurisdictions, and further provided that (anything herein to the contrary
notwithstanding with respect to the bearing of expenses) if any jurisdiction
in which the securities shall be qualified shall require that expenses
incurred in connection with the qualification therein of the securities be
borne by selling shareholders, then such expenses shall be payable by selling
shareholders pro rata, to the extent required by such jurisdiction.
7.3 Furnish Information.
It shall be a condition precedent to the obligations of the Company to
take any action pursuant to this paragraph 7 that the Investors shall furnish
to the Company such information regarding them, the Registrable Shares held by
them, and the intended method of disposition thereof as the Company shall
reasonably request and as shall be required in connection with the action to
be taken by the Company.
7.4 Expenses.
All expenses incurred in connection with the Registration Statement,
including without limitation all registration and qualification fees, printing
and accounting fees, fees and disbursements of counsel for the Company, but
excluding underwriting discounts and commissions shall be borne by the
Company. Each selling shareholder shall bear the fees and costs of its own
counsel (if different from counsel for the Company).
7.5 Indemnification.
In the event any of the Registrable Shares are included in the
Registration Statement under this paragraph 7:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Investor against any losses, claims, damages or
liabilities, joint or several, to which they may become subject under the Act
or otherwise, insofar as such losses, claims, damages or liabilities or
actions in respect thereof arise out of or are based upon any untrue or
alleged untrue statement of any material fact contained in such registration
statement, including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto, or arise out of or are based
upon the omission or alleged omission to state therein, or allegedly necessary
to make the statements therein not misleading; and will reimburse each such
Investor, such underwriter or controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided,
however, that the indemnity agreement contained in this subparagraph 7.5(a)
shall not apply to amounts paid in settlement of any such loss, claim, damage,
liability, or action if such settlement is effected without the consent of the
Company nor shall the Company be liable in any such case for any such loss,
claim, damage, liability, or action to the extent that it arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in connection with such registration statement
preliminary prospectus, final prospectus, or amendments or supplements
thereto, in reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by any such Investor,
such underwriter or controlling person.
(b) To the extent permitted by law, each such Investor will
indemnify and hold harmless the Company, each of its directors, each of its
officers who have signed such registration statement, each person, if any, who
controls the Company within the meaning of the Act, and any underwriter for
the Company (within the meaning of the Act) against any losses, claims,
damages, or liabilities to which the Company or any such director, officer,
controlling person, or underwriter may become subject, under the Act or
otherwise, insofar as such losses, claims, damages, or liabilities (or actions
in respect thereto) arise out of or are based upon any untrue or alleged
untrue statement of any material fact contained in such registration
statement, including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact
required to be stated therein or allegedly necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent,
that such untrue statement or alleged untrue statement or omission or alleged
omission was made in such registration statement, preliminary prospectus, or
amendments or supplements thereto, in reliance upon and in conformity with
written information furnished by such Investor expressly for use in connection
with such registration; and each such Investor will reimburse any legal or
other expenses reasonably incurred by the Company or any such director,
officer, controlling person or underwriter in connection with investigating or
defending any such loss, claim, damage, liability or action if it is
judicially determined that there were material misstatements or omissions.
(c) Promptly after receipt by an indemnified party under this
subparagraph 7.5 of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against any
indemnifying party under this subparagraph 7.5, notify the indemnifying party
in writing of the commencement thereof and the indemnifying party shall have
the right to participate in and to assume the defense thereof with counsel
mutually satisfactory to the parties. The failure to notify an indemnifying
party promptly of the commencement of any such action, if prejudicial to the
ability to defend such action, shall relieve such indemnifying party under
this subparagraph 7.5, but the omission so to notify the indemnifying party
will not relieve such party of any liability which such party may have to any
indemnified party otherwise other than under this subparagraph 7.5.
(d) If recovery is not available under the foregoing indemnification
provisions of this paragraph, for any reason other than as specified therein,
the parties entitled to indemnification by the terms thereof shall be entitled
to contribution to liabilities and expenses, except to the extent that
contribution is not permitted under Section 11(f) of the Act. In determining
the amount of contribution to which the respective parties are entitled, there
shall be considered the relative benefits received by each party from the
offering of the securities (taking into account the portion of the proceeds of
the offering realized by each), the parties' relative knowledge and access to
information concerning the matter with respect to which the claim was
asserted, the opportunity to correct and prevent any statement of omission,
and any other equitable considerations appropriate under the circumstances;
provided that in no event will any Investor be required to contribute an
amount in excess of the original cost that Investor of its Shares included in
that offering. The Company and the Underwriters agree that it would not be
equitable if the amount of such contribution were determined by pro rata or
per capita allocation.
7.6 Reports under the Securities Exchange Act of 1934.
With a view to making available to the Investors the benefits of Rule 144
promulgated under the Act, the Company agrees to use its best efforts (i) to
file with the SEC in a timely manner all reports and other documents required
to be filed by an issuer of securities registered under the Act or the
Securities Exchange Act of 1934, as amended, (ii) to maintain in effect the
registration of its Common Stock under Section 12 of the Securities Exchange
Act of 1934, as amended, and (iii) so long as any Investor owns any of the
Shares, to furnish in writing upon such Investor's request the following
information: (A) the Company's name, address and telephone number, (B) the
Company's Internal Revenue Service identification number; (C) the Company's
SEC file number, (D) the number of shares of Common Stock outstanding as shown
by the most recent report or statement published by the Company (E) the
average weekly volume of trading in such shares reported on all national
securities exchanges during the four calendar weeks preceding the date of
receipt of request by the Investor, and (F) whether the Company has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding twelve months. With respect to a rule or
regulation of the SEC (other than Rule 144) which may at any time permit a
Investor to sell Common Stock to the public without registration, the Company
agrees to take such action as is reasonable to enable utilization of such
rule.
7.7 Definitions.
(a) A person shall be deemed an "Investors" if such person then holds
any Series A Preferred Shares or Common Stock received upon conversion of
Series A Preferred Shares.
(b) "Registrable Shares" shall mean and include any shares of Common
Stock issuable or issued upon conversion of the Series A Preferred Shares
issued pursuant to this Agreement.
8. Covenants.
8.1 Financial Statements.
The Company promptly shall deliver to each holder of Series A Preferred
Shares annual and quarterly financial statements.
8.2 Reservation of Shares.
The Company shall reserve sufficient additional shares of Common Stock
for issuance upon conversion of all Series A Preferred Shares then
outstanding.
8.3 Cumulative Dividends.
The holders of the Series A Preferred Shares shall be entitled to
cumulative dividends which shall accrue annually (and retroactively) at the
rate of six percent (6%). Dividends shall be paid quarterly in arrears and
shall be cumulative if not paid when due. No dividends on the Company's
common stock shall be paid until all outstanding dividends on the Series A
Preferred Shares are paid. At the Company's election, the dividends may be
paid in registered shares of the Company's Common Stock valued at $4.00 per
share.
8.4 Adoption of Certificate of Determination of Preferences.
The Company shall adopt and file a Designation of Rights and Preferences
attached hereto as Exhibit 3 with respect to the Series A Preferred Shares,
and the Investors hereby authorize, approve and consent to all actions taken
or to be taken by the Company in connection with the adoption and filing of
such Designation of Rights and Preferences.
8.5 Optional Conversion.
The Investor shall have the right at any time from time to time at such
Investor's option to convert all or any portion of the Series A Preferred
Shares into such number of fully paid and nonassessable shares of Common Stock
as provided in paragraph 8.6.
The Investor may exercise the conversion right provided in this paragraph
8.5 by giving written notice (the "Conversion Notice") to the Company of the
exercise of such right and stating the name or names in which the stock
certificate or stock certificates for the Common Stock are to be issued and
the address to which such certificates shall be delivered. The Conversion
Notice shall be accompanied by the Series A Preferred Shares.
Conversion shall be deemed to have been effected on the date the
Conversion Notice is given by the Investor to the Company. Within 10 business
days after receipt of the Conversion Notice by the Company, the Company shall
issue and deliver by hand against a signed receipt therefor or by United
States registered mail, return receipt requested, or by overnight delivery
service, to the address designated by the Investor in the Conversion Notice, a
stock certificate or stock certificates of the Company representing the number
of Common Stock to which such Investor is entitled and a check or cash in
payment of all accrued and unpaid dividends.
8.6 Mandatory Conversion.
The Company may require mandatory conversion of all, but not less than
all, of the Series A Preferred Shares on or after the first anniversary of the
initial purchase and sale of the Series A Preferred Shares the ("Conversion
Date"), provided that:
(i) The average closing bid price of the Company on the
Over-the-Counter Bulletin Board ("OTCBB") or the Nasdaq Stock Exchange, as
applicable, for the twenty (20) consecutive trading days immediately preceding
the Conversion Date has exceeded $6.00 per share, or;
(ii) If there is a reorganization of the Company involving an
exchange of Company's Common Stock for shares of a United States domiciled
corporation the shares of which are trading on a national exchange or on the
Nasdaq National Market System.
Conversion shall be deemed to have been effected on the date the
Conversion Notice is given to Investors (the "Conversion Date"). Within 10
business days after receipt of the Conversion Notice, the Company shall issue
and deliver by hand against a signed receipt therefor or by United States
registered mail, return receipt requested, or by overnight delivery service,
to the address designated by the Investor in the Conversion Notice, a stock
certificate or stock certificates of the Company representing the number of
Common Stock to which such Investor is entitled and a check or cash in payment
of all accrued and unpaid dividends. Conversion of the Series A Preferred
Shares to Common Stock shall be deemed to have occurred on the Conversion Date
whether or not an Investor returns to the Company its certificate or
certificates for the Series A Preferred Shares.
8.7 Conversion Ratio.
On the date hereof, the conversion ration ("Conversion Ratio") shall
equal one Series A Preferred Share for one (1) share of Common Stock,
provided, however, that the Conversion Ratio shall be subject to adjustment in
accordance with and at the times provided in this paragraph, as follows:
(a) In case issued and outstanding shares of Common Stock shall be
subdivided or split up into a greater number of shares of the Common Stock,
the Conversion Ratio in effect at the opening of business on the business day
immediately preceding the date fixed for the determination of the stockholders
whose shares of Common Stock shall be subdivided or split up (the "Split
Record Date") shall be proportionately increased, and in case issued and
outstanding shares of Common Stock shall be combined into a smaller number of
shares of Common Stock, the Conversion Ratio in effect at the opening of
business on the business day immediately preceding the date fixed for the
determination of the stockholders whose shares of Common Stock shall be
combined (the "Combination Record Date") shall be proportionately decreased,
such increase or decrease, as the case may be, becoming effective immediately
after the opening of business on the business day immediately after the Split
Record Date or the Combination Record Date, as the case may be.
(b) In case of any capital reorganization, any reclassification of the
stock of the Company (other than as a result of a stock dividend or
subdivision, split up or combination of shares), or the merger of the Company
with or into another person or entity (other than a merger in which the
Company is the continuing corporation and which does not result in any change
in the Common Stock) or of the sale, exchange, lease, transfer or other
disposition of all or substantially all of the properties and assets of the
Company as an entirety or the participation by the Company in a share exchange
as the corporation the stock of which is to be acquired, the Series A
Preferred Shares shall (effective on the opening of business on the date after
the effective date of such reorganization, reclassification, merger, sale or
exchange, lease, transfer or other disposition or share exchange) be
convertible into the kind and number of shares of stock or other securities or
property of the Company or of the corporation resulting from surviving such
merger or to which such properties and assets shall have been sold, exchanged,
leased, transferred or otherwise disposed or which was the corporation whose
securities were exchanged for those of the Company to which the holder of the
number of shares of Common Stock deliverable (at the close of business on the
date immediately preceding the effective date of such reorganization,
reclassification, merger, sale, exchange, lease, transfer or other disposition
or share exchange) upon conversion of Series A Preferred Shares would have
been entitled upon such reorganization, reclassification, merger, sale,
exchange, lease, transfer or other disposition or share exchange. The
provisions of this paragraph 8.7(b)shall similarly apply to successive
reorganizations, reclassifications, mergers, sales, exchanges, leases,
transfers or other dispositions or other share exchanges.
(c) Whenever the Conversion Ratio shall be adjusted as provided in
paragraph 8.6 hereof, the Company shall prepare and send to the holders of the
Series A Preferred Shares a statement, signed by the chief financial officer
of the Company, showing in detail the facts requiring such adjustment and the
Conversion Ratio that shall be in effect after such adjustment.
(d) No adjustment of the conversion rate shall be made in any of the
following cases:
(i) upon the grant or exercise of stock options hereafter
granted, or under any employee stock option plan now or hereafter authorized,
to the extent that the aggregate of the number of shares which may be
purchased under such options and the number of shares issued under such
employee stock purchase plan is less than or equal to ten percent (10%) of the
number of shares of Common Stock outstanding on January 1 of the year of the
grant or exercise;
(ii) shares of Common Stock issued upon the conversion of
Preferred Stock;
(iii) shares issued in connection with the acquisition by the
Company or by any subsidiary of the Company of 80% or more of the assets of
another corporation, and shares issued in connection with the acquisition by the
Company or by any subsidiary of the Company of 80% or more of the voting
shares of another corporation (including shares issued in connection with such
acquisition of voting shares of such other corporation subsequent to the
acquisition of an aggregate of 80% of such voting shares), shares issued in a
merger of the Company or a subsidiary of the Company with another corporation
in which the Company or the Company's subsidiary is the surviving corporation,
and shares issued upon the conversion of other securities issued in connection
with any such acquisition or in any such merger;
(iv) shares issued by way of dividend or other distribution on
Common Stock excluded from the calculation of the adjustment under this
subparagraph 8.7(d) or on Common Stock resulting from any subdivision or
combination of Common Stock so excluded; or
(v) shares issued pursuant to all stock options and warrants
outstanding on the date of the filing of these Articles.
(e) In the event the Company shall propose to take any action of the
types described in paragraph 8.6 hereof, the Company shall give notice to the
holder of the Series A Preferred Shares, which notice shall specify the record
date, if any, with respect to any such action and the date on which such
action is to take place. Such notice shall be given on or prior to the earlier
of 30 days prior to the record date or the date which such action shall be
taken. Such notice shall also set forth such facts with respect thereto as
shall be reasonably necessary to indicate the effect of such action (to the
extent such effect may be known at the date of such notice) on the Conversion
Ratio and the number, kind or class of shares or other securities or property
which shall be deliverable or purchasable upon the occurrence of such action
or deliverable upon conversion of the Series A Preferred Shares. Failure to
give notice in accordance with this paragraph 8.7(d) shall not render such
action ultra xxxxx, illegal or invalid.
8.8 Board of Directors.
For as long as at least 50% of the Series A Preferred Shares are
outstanding, the holders of a majority of the shares of Series A Preferred
Shares shall have the right (as set forth in the Designation of Rights and
Preferences of the Series A Preferred Shares attached hereto as Exhibit 3) to
elect one (1) member to the Company's Board of Directors. The Board of
Directors shall consist of not fewer than five and not more than seven
members. The director elected by the majority of the holders of the Series A
Preferred Shares shall receive the same compensation as all other outside
directors and shall be reimbursed for all out of pocket expenses incurred in
connection with attending meetings of the Board of Directors. The Board of
Directors shall meet in person no less frequently than semi-annually and
telephonically or personally no less frequently than quarterly.
8.9 Advisory Fees.
Should the Company enter into an agreement with an Investor introduced by
an advisor/finder, Company shall, at its discretion, pay to finder
compensation as follows in accordance with the Xxxxxx Formula advisory fee:
(a) Five percent (5%) of the first million dollars, plus
(b) Four percent (4%) of the second million dollars, plus
(c) Three percent (3%) of the third million dollars, plus
(d) Two percent (2%) of the fourth million dollars, plus
(e) One percent (1%) of the balance over four million dollars.
8.10 Right of Company.
The Company reserves the right in its sole discretion to refuse to accept
an investment of any prospective investor. The Company reserves the right to
place up to $10 million of Series A Preferred Shares.
9. Miscellaneous.
9.1 Agreement is Entire Contract.
Except as specifically referenced herein, this Agreement constitutes the
entire contract between the parties hereto concerning the subject matter
hereof and no party shall be liable or bound to the other in any manner by any
warranties, representations or covenants except as specifically set forth
herein. Any previous agreement among the parties related to the transactions
described herein is superseded hereby. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties hereto. Nothing in this Agreement,
express or implied, is intended to confer upon any party, other than the
parties hereto, and their respective successors and assigns, any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided herein.
9.2 Governing Law.
This Agreement shall be governed by and construed under the laws of the
State of New York.
9.3 Counterparts.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one
and the same instrument.
9.4 Title and Subtitles.
The titles of the paragraphs and subparagraphs of this Agreement are for
convenience and are not to be considered in construing this Agreement.
9.5 Notices.
Any notice required or permitted hereunder shall be given in writing and
shall be deemed effectively given upon personal delivery or upon deposit in
the United States Post Office, by registered or certified mail, addressed to a
party at its address hereinafter shown below its signature or at such other
address as such party may designate by ten (10) days advance written notice to
the other party.
9.6 Survival of Warranties.
The warranties and representations of the Company contained in or made
pursuant to this Agreement shall survive the execution and delivery of this
Agreement and the Closing hereunder.
9.7 Amendment of Agreement.
Except as expressly provided herein, any provision of this Agreement may
be amended or waived on behalf of all Investors by a written instrument signed
by the Company and by Investors holding at least a majority of the aggregate
of the shares of Common Stock issuable and issued upon conversion of the
Series A Preferred Shares.
[SIGNATURES ON FOLLOWING PAGE]
In Witness Whereof, the undersigned have executed this Agreement as of
the day and year first written above.
XXXXXXXX.XXX INCORPORATED
By: _________________________
Authorized Signature
Chairman of the Board of Directors ________________________,
Secretary
Title Attest
SEAL
PROVIDENT LIFE AND ACCIDENT INSURANCE COMPANY
By: _________________________
Authorized Signature
Exhibit 1
LIST OF INVESTORS
Name Number of Shares
The Provident Companies, Inc. 750,000
0 Xxxxxxxx Xxxxxx
Xxxxxxxxxxx, XX 00000
Attn: Xxxxx X. Xxxxxx
