Exhibit 99.1
NOTE PURCHASE AGREEMENT
THIS NOTE PURCHASE AGREEMENT (the "Agreement") is made as of the 22nd
day of May, 2003, by and between xxxxxxxx.xxx, inc., a Delaware corporation (the
"Company"), and the each purchaser listed on Schedule A hereto (individually, an
"Investor" and collectively, the "Investors").
WHEREAS, the Investors are willing to lend the Company the aggregate
sum of One Million Seven Hundred Fifty Thousand Dollars ($1,750,000) pursuant to
the terms of this Agreement and a promissory note (a "Note") convertible into
shares of the Company's common stock, $.001 par value (the "Common Stock"), at
the blended rate of nine cents ($.09) per share (with the conversion price of
the Notes issued to the Investors other than E&C Capital Partners, LLLP ["E&C
Capital"] being at $.10 per share and the conversion price of the Note issued to
E&C Capital being at $.079412 per share) (the "Conversion Price"), all as more
particularly described in the form of Note attached hereto as Exhibit A; and
WHEREAS, the parties have agreed that the obligation to repay the Notes
shall be secured by a pledge of substantially all of the assets of the Company
and its subsidiaries pursuant to the terms of a Security Agreement in the form
attached hereto as Exhibit B; and
WHEREAS, as a material inducement to the Investors to purchase the
Notes and in recognition of the substantial benefit which the Company's
subsidiaries will receive from the proceeds of the Notes, the subsidiaries have
agreed to guaranty the Notes pursuant to the terms of a Guaranty in the form
attached hereto as Exhibit C;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and in consideration of the
premises and the mutual agreements, representations and warranties, provisions
and covenants contained herein, the parties hereto, intending to be legally
bound hereby, agree as follows:
1. Purchase and Sale of Notes and Warrants. On the applicable Closing
Date (as hereinafter defined), subject to the terms and conditions of this
Agreement, each Investor hereby agrees to purchase and the Company hereby agrees
to sell and issue a Note in the principal amount set forth opposite such
Investor's name on Schedule A hereto. In addition, in consideration of the
greater investment of E&C Capital, the Company shall issue to E&C Capital
warrants to acquire Three Million Eight Hundred Eighty Eight Thousand Eight
Hundred and Eighty Nine (3,888,889) shares of the Company's Common Stock (the
"Warrants"). The Warrants shall be exercisable, subject to certain adjustments,
at the price of Fifteen Cents ($.15) per share and shall be issued in the form
of Exhibit D hereof.
2. The Closing(s). Subject to the conditions set forth below, the
initial purchase and sale of the Notes and the Warrants shall take place at the
offices of Proskauer Rose LLP, 2255
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Xxxxxx Xxxx, Xxxx Xxxxx, Xxxxxxx, 00000, on or before May 23, 2003, or at such
other time and place as the Company and the Investors mutually agree (which
initial closing is hereinafter referred to as the "Initial Closing" and the
"Initial Closing Date"). If the Initial Closing does not occur prior to May 30,
2003, either party may terminate this Agreement by providing the other party
written notice of such termination. The parties acknowledge that one or more
closings (each a "Closing" and a "Closing Date") may occur as the Company
satisfies, or an Investor otherwise agrees to waive, any of the conditions set
forth in Section 3 hereof. At each Closing, the Company shall deliver to each
Investor (to the extent not delivered in a previous Closing): (i) an executed
counterpart of the Security Agreement; (ii) such Investor's original Note in the
amount set forth opposite such Investor's name on Schedule A; and (iii) with
respect to E&C, a warrant certificate representing the Warrants issueable to
such Investor. At the Closing each Investor shall fund his or her respective
Note by cashier's check or wire transfer of immediately available funds (to an
account designated by the Company).
3. Closing Conditions. The obligation of each Investor to purchase and
fund its Note at the applicable Closing is subject to the fulfillment, to the
Investor's reasonable satisfaction, prior to or at the Closing in question, of
each of the following conditions:
3.1 Representations and Warranties. The representations and
warranties of the Company contained in this Agreement shall be true and correct
in all material respects on the date hereof and on and as of the Closing Date as
if made on and as of such date.
3.2 Notes, Warrant Certificates. At the Closing, the Company
shall have tendered to the Investor the appropriate Note and Warrants.
3.3 No Actions. No action, proceeding, investigation,
regulation or legislation shall have been instituted, threatened or proposed
before any court, governmental agency or authority or legislative body to
enjoin, restrain, prohibit, or obtain substantial damages in respect of, this
Agreement or the consummation of the transactions contemplated by this
Agreement.
3.4 Proceedings and Documents. All proceedings in connection
with the transactions contemplated hereby and all documents and instruments
incident to such transactions shall be satisfactory in substance and form to the
Investor, and the Company shall have received all such counterpart originals or
certified or other copies of such documents as the Investors may reasonably
request.
4. Representations and Warranties of the Company. The Company hereby
represents and warrants to Investor that:
4.1 Organization, Good Standing and Qualification. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. The Company is duly qualified to transact
business and is in good standing in each jurisdiction in which the failure to so
qualify would have a material adverse effect on its business or properties.
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4.2 Capitalization and Voting Rights. The authorized capital
of the Company as of the date hereof consists of:
(a) Preferred Stock. 3,000,000 shares of Preferred Stock, par
value $0.001 per share (the "Preferred Stock"), of which 425,000 shares have
been designated as Series F Preferred Stock, and 333,333 shares of which are
presently issued and outstanding.
(b) Common Stock. 100,000,000 shares of common stock, par
value $0.001 per share ("Common Stock"), of which 30,507,293 shares are issued
and outstanding.
4.3 Authorization. All corporate action on the part of the
Company, its officers, directors and stockholders necessary for the
authorization, execution and delivery of this Agreement, the Security Agreement,
the Warrant and the performance of all obligations of the Company hereunder and
thereunder, and the authorization (or reservation for issuance), sale and
issuance of the Notes and the Warrants, and the Common Stock into which the
Notes and Warrants are convertible or exercisable (the "Underlying Securities"),
have been taken on or prior to the date hereof.
4.4 Valid Issuance of the Underlying Securities. The
Underlying Securities when issued and delivered in accordance with the terms of
this Agreement, the Notes and the Warrants, as applicable, for the consideration
expressed herein and therein, will be duly and validly issued, fully paid and
nonassessable and will be free of restrictions on transfer, other than
restrictions on transfer under this Agreement and under applicable state and
federal securities laws.
4.5 Offering. Subject to the truth and accuracy of each
Investor's representations set forth in Section 5 of this Agreement, the offer
and issuance of the Notes and Warrants, together with the Underlying Securities,
as contemplated by this Agreement are exempt from the registration requirements
of the Securities Act of 1933, as amended (the "1933 Act") and the qualification
or registration requirements of state securities laws or other applicable blue
sky laws. Neither the Company nor any authorized agent acting on its behalf will
take any action hereafter that would cause the loss of such exemptions.
4.6 Public Reports. The Company is current in its filing
obligations under the Securities Act of 1934, as amended (the "1934 Act"),
including without limitation as to its filings of Annual Reports on Form 10-K
and Quarterly Reports on Form 10-Q (collectively, the "Public Reports"). The
Public Reports do not contain any untrue statement of a material fact or omit to
state any fact necessary to make any statement therein not misleading. The
financial statements included within the Public Reports for the fiscal year
ended December 31, 2001, for the fiscal year ended December 31, 2002, and for
each quarterly period thereafter (the "Financial Statements") have been prepared
in accordance with generally accepted accounting principles ("GAAP") applied on
a consistent basis throughout the periods indicated and with each other, except
that unaudited Financial Statements may not contain all footnotes required by
generally accepted accounting principles. The Financial Statements fairly
present, in all material respects,
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the financial condition and operating results of the Company as of the dates,
and for the periods, indicated therein, subject in the case of unaudited
Financial Statements to normal year-end audit adjustments.
4.7 Compliance With Laws. Neither the Company nor any
subsidiary has violated any law or any governmental regulation or requirement
which violation has had or would reasonably be expected to have a material
adverse effect on its business or prospects, and neither the Company nor any
subsidiary has received written notice of any such violation.
4.8 Violations. The consummation of the transactions
contemplated by this Agreement and all other documents and instruments required
to be delivered in connection herewith and therewith, including without
limitation, the Security Agreement, Notes and Warrants, will not result in or
constitute any of the following: (a) a violation of any provision of the
certificate of incorporation, bylaws or other governing documents of the
Company; (b) a violation of any provisions of any applicable law or of any writ
or decree of any court or governmental instrumentality; (c) a default or an
event that, with notice or lapse of time or both, would be a default, breach, or
violation of a lease, license, promissory note, conditional sales contract,
commitment, indenture, mortgage, deed of trust, or other agreement, instrument,
or arrangement to which the Company is a party or by which the Company or its
property is bound; (d) an event that would permit any party to terminate any
agreement or to accelerate the maturity of any indebtedness or other obligation
of the Company; or (e) the creation or imposition of any lien, pledge, option,
security agreement, equity, claim, charge, encumbrance or other restriction or
limitation on the capital stock or on any of the properties or assets of the
Company.
4.9 Consents; Waivers. Other than the consent of the holders
of the Series F Preferred Stock, which consent has been obtained, no consent,
waiver, approval or authority of any nature, or other formal action, by any
person, firm or corporation, or any agency, bureau or department of any
government or any subdivision thereof, not already obtained, is required in
connection with the execution and delivery of this Agreement by the Company or
the consummation by the Company of the transactions provided for herein and
therein.
5. Representations and Warranties of the Investors. Each Investor
hereby represents, warrants and covenants, severally and not jointly, that:
5.1 Authorization. Investor has full power and authority to
enter into this Agreement, and such agreement constitutes the valid and legally
binding obligation of Investor, enforceable in accordance with its terms.
5.2 Purchase Entirely for Own Account. This Agreement is made
with Investor in reliance upon Investor's representation to the Company, which
by Investor's execution of this Agreement, Investor hereby confirms, that the
Notes, Warrants and Underlying Securities to be received by Investor will be
acquired for investment for Investor's own account, not as a nominee or agent,
and not with a view to the resale or distribution of any part thereof,
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and that Investor has no present intention of selling, granting any
participation in or otherwise distributing the same. By executing this
Agreement, Investor further represents that Investor does not have any contract,
undertaking, agreement or arrangement with any person to sell, transfer or grant
participations to such person or to any third person, with respect to any of the
Notes, Warrants or Underlying Securities.
5.3 Disclosure of Information. Investor believes it has
received all the information it considers necessary or appropriate for deciding
whether to purchase the Notes and Warrants. Investor further represents that he
has had an opportunity to ask questions and receive answers from the Company
regarding the terms and conditions of the offering of the Notes and Warrants and
the business, properties, prospects and financial condition of the Company. The
foregoing, however, does not limit or modify the representations and warranties
of the Company in Section 4 of this Agreement or the right of Investor to rely
thereon.
5.4 Investment Experience. Investor can bear the economic risk
of its investment, and has such knowledge and experience in financial or
business matters that it is capable of evaluating the merits and risks of the
investment in the Notes, Warrants and Underlying Securities.
5.5 Accredited Investor. Investor is an "accredited investor"
within the meaning of the Securities and Exchange Commission ("SEC") Rule 501 of
Regulation D, as presently in effect; by virtue of falling within one or more of
the following: (a) a natural person whose individual net worth (or joint net
worth with his spouse) at the time of purchase exceeds $1,000,000; or (b) a
natural person who had individual income in excess of $200,000 or joint income
with his spouse in excess of $300,000 in each of the two most recent years and
reasonably expects to have individual income in excess of $200,000 or joint
income with his spouse in excess of $300,000 in the current year; (c) an
executive officer or director of the Company; or (d) an entity in which all of
the equity owners thereof are natural persons whom are "accredited" by virtue of
falling within one or more of the foregoing categories.
5.6 Restricted Securities. Investor understands that the
Notes, Warrants and Underlying Securities it is purchasing are characterized as
"restricted securities" under the federal securities laws inasmuch as they are
being acquired from the Company in a transaction not involving a public offering
and that under such laws and applicable regulations such Shares may be resold
without registration under the 1933 Act only in certain limited circumstances.
In the absence of an effective registration statement covering the Notes,
Warrants or the Underlying Securities, as applicable, or an available exemption
from registration under the 1933 Act, the Notes, Warrants and Underlying
Securities must be held indefinitely. Investor represents that it is familiar
with SEC Rule 144, as presently in effect, and understands the resale
limitations imposed thereby and by the 1933 Act, including without limitation
the Rule 144 condition that current information about the Company be available
to the public.
5.7 Further Limitations on Disposition. Without in any way
limiting the
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representations set forth above, Investor shall not make any disposition of all
or any portion of the Notes, Warrants or Underlying Securities unless and until
the transferee has agreed in writing for the benefit of the Company to be bound
by this Section 5, and:
(a) there is then in effect a registration statement under the
1933 Act covering such proposed disposition and such disposition is made in
accordance with such registration statement; or
(b) Investor shall have notified the Company of the proposed
disposition and shall have furnished the Company with a detailed statement of
the circumstances surrounding the proposed disposition, and if requested by the
Company, the Investor shall have furnished the Company with an opinion of
counsel, reasonably satisfactory to the Company, that such disposition will not
require registration of the Note, Warrants or Underlying Securities, as
applicable, under the 1933 Act or any applicable state securities laws.
5.8 Legends. It is understood that the certificates evidencing
the Notes, Warrants and Underlying Securities may bear one or all of the
following legends:
(a) "These securities have not been registered under the
Securities Act of 1933, as amended. They may not be sold, offered for sale,
pledged or hypothecated in the absence of a registration statement in effect
with respect to the securities under such Act or an opinion of counsel
satisfactory to the Company that such registration is not required."
(b) Any legend required by state securities laws.
5.9 Tax Advisors. Investor has reviewed with Investor's own
tax advisors the federal, state and local tax consequences of this investment,
where applicable, and the transactions contemplated by this Agreement. Investor
is relying solely on such advisors and not on any statements or representations
of the Company (except the representations and statements of the Company set
forth in this Agreement) or any of its agents and understands that Investor (and
not the Company) shall be responsible for Investor's own tax liability that may
arise as a result of this investment or the transactions contemplated by this
Agreement, except where such liability arises as a result of a failure of a
representation of the Company set forth in this Agreement to be true or a breach
by the Company of a covenant of the Company set forth in this Agreement.
5.10 Investor Counsel. Investor acknowledges that it has had
the opportunity to review this Agreement, the exhibits and the schedules
attached hereto and the transactions contemplated by this Agreement with
Investor's own legal counsel. Investor is relying solely on its legal counsel
and not on any statements or representations of the Company or any of the
Company's agents for legal advice with respect to this investment or the
transactions contemplated by this Agreement.
6. Registration Rights.
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6.1 Demand Registration; Limitation. At any time after May 22,
2004, the holders (the "Holders") of a majority of the shares of Common Stock
issued or issuable upon conversion of the Notes shall be entitled to deliver
written notice to the Company demanding the registration of all Registerable
Securities (as hereinafter defined) or such lesser number as the Holders may
elect. Upon the written request of such Holders, the Company shall use its
commercial reasonable best efforts to cause to be registered under the 1933 Act
all of such Registerable Shares. The Holders whom elect to participate in the
registration (or a registration pursuant to Section 6.2 below) are called
"Participating Holders." The term "Registrable Securities" shall mean shares of
the Common Stock issuable upon conversion of the Notes, issued in lieu of cash
interest payments under the Notes and all shares of Common Stock issuable upon
exercise of the Warrants, together with any shares of Common Stock issued or
issuable by way of a stock dividend or stock split or in connection with any
recapitilization, merger, consolidation or other reorganization; provided that
the term "Registrable Securities" shall not include shares of Common Stock
issued or issuable with respect to the Notes which have been either: (i)
publicly resold pursuant to Rule 144 promulgated under the 1933 Act or (ii) are
eligible for sale under Rule 144(k) of the 1933 Act. The Holders of the
Registrable Securities may exercise the rights described in this Section 6.1 a
total of two times. Notwithstanding any demand by the Holders hereunder, the
Company shall not be required to effect any such registration, and may delay any
such registration, at anytime during which: (i) the Company has pending, or
reasonably anticipates filing within forty five (45) days of receipt of a demand
for registration hereunder, its own registration statement for the public
offering of shares of Common Stock by the Company; (ii) has pending, or has
received a notice of demand registration relating to, a registration statement
for the offer and sale of Common Stock by selling shareholders pursuant to
registration rights outstanding prior to the date hereof; or (iii) the Company's
Board of Directors determines, in its good faith discretion, that such
registration may have a material adverse effect on the Company or its plans or
prospects; provided that, in any of such events, the Holders shall continue to
have a demand right and the Company shall promptly notify the Holders of the
foregoing and provide the Holders with an estimate of when they may exercise
such demand registration again; and provided further that solely in the event of
clause (iii) above, (x) the Company's ability to delay such registration shall
be limited to durations of not longer than ninety (90) days and (y) the Company
shall not delay more than once during any twelve month period.
6.2 Piggy-Back Registration Rights. If at any time hereafter,
the Company shall prepare and file one or more registration statements under the
1933 Act, with respect to a public offering of equity or debt securities of the
Company, or of any such securities of the Company held by its security holders,
other than registration statements on forms S-4 or S-8 (or their successor
forms), the Company will include in any such registration statement such
information as is required, and such number of Registrable Securities held by
the Participating Holders thereof as may be requested by them, to permit a
public offering of the Registrable Securities so requested; provided, however,
that in the case of an underwritten offering, if, in the written opinion of the
Company's or, if pursuant to a demand registration by selling security holders,
such selling holder's, managing underwriter for such offering, the inclusion of
the Registrable Securities requested to be registered, when added to the
securities being registered by
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the Company or any other selling security holder(s), would exceed the maximum
amount of the Company's securities that can be marketed without otherwise
materially and adversely affecting the entire offering, then such managing
underwriter may exclude from such offering that portion of the Registrable
Securities requested to be so registered, so that the total number of securities
to be registered is within the maximum number of shares that, in the opinion of
the managing underwriter, may be marketed without otherwise materially and
adversely affect the entire offering, provided that at least a pro rata amount
of the securities that otherwise were proposed to be registered for other
stockholders (but not the Company and other than with respect to securities
registered pursuant to demand registration rights if such securities are
otherwise included in the underwriting) is also excluded. In the event of such a
proposed registration, the Company shall furnish the then registered holders of
Registrable Securities with not less than twenty (20) days' written notice prior
to the proposed date of filing of such registration statement. Such notice shall
continue to be given by the Company to registered holders of Registrable
Securities, with respect to subsequent registration statements filed by the
Purchaser, until such time as all of the Registrable Securities have been
registered or may be sold without registration under the Act or applicable state
securities laws and regulations, and without limitation as to volume pursuant to
Rule 144 of the 1933 Act. The holders of Registrable Securities shall exercise
the rights provided for herein by giving written notice to the Company, within
fifteen (15) days of receipt of the Company's notice of its intention to file a
registration statement. In the event the offering involves an underwritten
offering, the Participating Holders shall also execute, and be a party to, the
underwriting agreement of the Company or other selling security holders.
6.3 Furnish Information. It shall be a condition precedent to
the obligations of the Company to take any action pursuant to this Agreement
with respect to the Registrable Securities that each of the Participating
Holders furnish to the Company such information regarding itself, the
Registrable Securities held by it, and the intended method of disposition of
such securities as shall be required to effect the registration of the
Registrable Securities.
6.4 Expenses of Registration. The Company shall bear and pay
all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the registrations
pursuant to Section 6.1 and 6.2 for the Investors, including without limitation
all registration, filing and qualification fees, printers' and accounting fees
relating or apportionable thereto, and, if connection with a demand registration
pursuant to Section 6.1 hereof, the fees and disbursements of one counsel
appointed by the Participating Holders. The Participating Holders shall be
responsible for payment of any underwriter's or broker's fee or commission with
respect to the sale of their Registerable Securities.
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6.5 Registration Procedures. Whenever the Holders of
Registrable Securities have requested that any Registrable Securities be
registered pursuant to this Agreement, the Company shall use its best efforts in
good faith to effect the registration and the sale of such Registrable
Securities in accordance with the intended method of disposition thereof, and in
furtherance hereof, the Company shall as expeditiously as possible:
(a) prepare and file with the Securities and Exchange
Commission a registration statement with respect to such Registrable Securities
and use its best efforts in good faith to cause such registration statement to
become and remain effective; provided, that before filing a registration
statement or prospectus or any amendments or supplements thereto, the Company
shall furnish to the counsel selected by the Participating Holders of a majority
of the Registrable Securities covered by such registration statement copies of
all such documents proposed to be filed, which documents shall be subject to the
review and comment of such counsel;
(b) notify each Participating Holder of the effectiveness of
each registration statement filed hereunder and prepare and file with the
Securities and Exchange Commission such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective for a period of not less
than 180 days and comply with the provisions of the 1933 Act with respect to the
disposition of all securities covered by such registration statement during such
period in accordance with the intended methods of disposition by the sellers
thereof set forth in such registration statement;
(c) furnish to each Participating Holder such number of copies
of such registration statement, each amendment and supplement thereto (in each
case including all exhibits thereto), the prospectus included in such
registration statement (including each preliminary prospectus) and such other
documents as such seller may reasonably request in order to facilitate the
disposition of the Registrable Securities owned by such Holder;
(d) use its best efforts in good faith to register or qualify
such Registrable Securities under such other securities or blue sky laws of such
jurisdictions as any Participating Holder reasonably requests and do any and all
other acts and things which may be reasonably necessary or advisable to enable
such seller to consummate the disposition in such jurisdictions of the
Registrable Securities owned by such Holder (provided that the Company shall not
be required to (i) qualify generally to do business in any jurisdiction where it
would not otherwise be required to qualify but for this subsection, (ii) subject
itself to taxation in any such jurisdiction or (iii) consent to general service
of process in any such jurisdiction);
(e) notify each Participating Holder, at any time when a
prospectus relating thereto is required to be delivered under the 1933 Act, of
the happening of any event as a result of which the prospectus included in such
registration statement contains an untrue statement of a material fact or omits
any fact necessary to make the statements therein not misleading, and, at the
request of any such seller or by its own initiative, the Company shall
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prepare a supplement or amendment to such prospectus so that, as thereafter
delivered to the purchasers of such Registrable Securities, such prospectus
shall not contain an untrue statement of a material fact or omit to state any
fact necessary to make the statements therein not misleading;
(f) cause all such Registrable Securities to be listed or
admitted to trading on each securities exchange on which securities issued by
the Company are then listed or admitted for trading or, if not so listed or
admitted for trading, then on at least one securities exchange or quotation
system on which securities of companies similar to the Company are then listed
or admitted for trading, and, if admitted for trading on the Over the Counter
Bulletin Board or BBX, use its best efforts in good faith to secure designation
of all such Registrable Securities covered by such registration statement as a
NASDAQ "national market system security" within the meaning of Rule 11Aa2-1 of
the Securities and Exchange Commission or, failing that, to secure trading on
the NASDAQ "SmallCap" market and, without limiting the generality of the
foregoing, to arrange for at least two market makers to register as such with
respect to such Registrable Securities with the NASD;
(g) furnish to each Participating Holder a signed counterpart,
addressed to such Participating Holder, of (i) an opinion of counsel for the
Company, dated the effective date of the registration statement, and (ii) a
"comfort" letter signed by the independent public accountants who have certified
the Company's financial statements included in the registration statement,
covering substantially the same matters with respect to the registration
statement (and the prospectus included therein) and (in the case of the comfort
letter, with respect to events subsequent to the date of the financial
statements), as are customarily covered (at the time of such registration) in
opinions of issuer's counsel and in comfort letters delivered to the
underwriters in underwritten public offerings of securities. If and to the
extent that any registration relates to an underwritten public offering, such
opinion and comfort letter shall be sufficient if it is in the form acceptable
to the managing underwriter thereof.
(h) provide a transfer agent and registrar for all such
Registrable Securities not later than the effective date of such registration
statement;
(i) enter into such customary agreements (including
underwriting agreements in customary form) and take all such other actions as
the Participating Holders of a majority of the Registrable Securities being sold
or the underwriters, if any, reasonably request in order to expedite or
facilitate the disposition of such Registrable Securities;
(j) in the event of the issuance of any stop order suspending
the effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the qualification of
any Common Stock included in such registration statement for sale in any
jurisdiction, the Company shall use its best efforts in good faith promptly to
obtain the withdrawal of such order.
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6.6 Selection of Underwriter. In the event of a demand
registration pursuant to Section 6.1 hereof, the holders of a majority of the
Registrable Securities initially requesting registration hereunder shall have
the right to select the investment banker(s) and manager(s) to administer the
offering, subject to the Company's approval which shall not be unreasonably
withheld or delayed.
6.7 Indemnification. In the event any Registrable Securities
are included in a registration statement under this Section 6:
(a) The Company will indemnify and hold harmless the
Participating Holders, the partners or officers, directors and shareholders of
the Participating Holders, legal counsel and accountants for the Participating
Holders, against any losses, claims, damages or liabilities (joint or several)
to which they may become subject under the 1933 Act, the 1934 Act or any state
securities laws, insofar as such losses, claims, damages, or liabilities (or
actions in respect thereof) arise out of or are based upon any of the following
statements, omissions or violations (collectively a "Violation"): (i) any untrue
statement or alleged untrue statement of a material fact contained in such
registration statement, including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto, (ii) the omission or
alleged omission to state therein a material fact required to be stated therein,
or necessary to make the statements therein not misleading, or (iii) any
violation or alleged violation by the Company of the 1933 Act, the 1934 Act, any
state securities laws or any rule or regulation promulgated under the 1933 Act,
the 1934 Act or any state securities laws. The Company will reimburse each
Participating Holder for any legal or other expenses reasonably incurred by it
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the indemnity agreement contained
in this subsection 6.7 (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 (which consent shall not be unreasonably
withheld), nor shall the Company be liable for any such loss, claim, damage,
liability or action to the extent that it arises out of or is based upon a
Violation that occurs in reliance upon and in conformity with written
information furnished expressly for use in connection with such registration by
such Participating Holder; provided further, however, that the foregoing
indemnity agreement with respect to any preliminary prospectus shall not inure
to the benefit a Participating Holder, from whom the person asserting any such
losses, claims, damages or liabilities purchased shares in the offering, if a
copy of the prospectus (as then amended or supplemented if the Company shall
have furnished any amendments or supplements thereto) was not sent or given by
or on behalf of such Participating Holder to such person, if required by law so
to have been delivered, at or prior to the written confirmation of the sale of
the shares to such person, and if the prospectus (as so amended or supplemented)
would have cured the defect giving rise to such loss, claim, damage or
liability.
(b) Each Participating Holder will indemnify and hold harmless
the Company, each of its directors, each of its officers who has signed the
registration statement, each person, if any, who controls the Company within the
meaning of the 1933 Act, legal counsel and accountants for the Company and any
underwriter, against any losses, claims, damages or
11
liabilities (joint or several) to which any of the foregoing persons may become
subject under the 1933 Act, the 1934 Act or any state securities laws, insofar
as such losses, claims, damages or liabilities (or actions in respect thereto)
arise out of or are based upon any Violation, in each case to the extent (and
only to the extent) that such Violation occurs in reliance upon and in
conformity with written information furnished by such Participating Holder
expressly for use in connection with such registration; and such Participating
Holder will reimburse any person intended to be indemnified pursuant to this
subsection, for any legal or other expenses reasonably incurred by such person
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the indemnity agreement contained
in this subsection 6.7(b) 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 such Participating Holder (which consent shall not be
unreasonably withheld).
(c) Promptly after receipt by an indemnified party under this
Section 6.7 of notice of the commencement of any action (including any action by
a governmental authority), such indemnified party (the "Indemnified Party")
will, if a claim in respect thereof is to be made against any indemnifying party
(the "Indemnifying Party") under this Section 6.7, deliver to the Indemnifying
Party a written notice of the commencement thereof and the Indemnifying Party
shall have the right to participate in, and, to the extent the Indemnifying
Party so desires, jointly with any other indemnifying party similarly noticed,
to assume the defense thereof with counsel mutually satisfactory to the parties;
provided, however, that an Indemnified Party (together with all other
indemnified parties that may be represented without conflict by one counsel)
shall have the right to retain one separate counsel, with the fees and expenses
to be paid by the Indemnifying Party, if representation of such Indemnified
Party by the counsel retained by the Indemnifying Party would be inappropriate
due to actual or potential differing interests between such Indemnified Party
and any other party represented by such counsel in such proceeding. No
Indemnifying Party shall, without the consent of the Indemnified Party, consent
to entry of any judgment or enter into any settlement of any such action which
does not include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a complete and full release from all
liability in respect of such claim or litigation. No Indemnified Party shall
consent to entry of any judgment or enter into any settlement of any such action
the defense of which has been assumed by an Indemnifying Party without the
consent of such Indemnifying Party.
(d) If the indemnification provided for in this Section 6.7 is
held by a court of competent jurisdiction to be unavailable to an Indemnified
Party with respect to any loss, liability, claim, damage or expense referred to
herein, then the Indemnifying Party, in lieu of indemnifying such Indemnified
Party hereunder, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such loss, liability, claim, damage or expense
in such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party on the one hand and of the indemnified party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage or expense, as well as any other relevant equitable
considerations. The relative fault of the Indemnifying Party and of the
Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue
12
statement of a material fact or the omission to state a material fact relates to
information supplied by the Indemnifying Party or by the Indemnified Party and
the parties' relative intent, knowledge, access to information, and opportunity
to correct or prevent such statement or omission.
(e) No Person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the 0000 Xxx) shall be entitled to contribution
from any person who was not guilty of such fraudulent misrepresentation.
Notwithstanding anything to the contrary in this Section 6.7, no indemnified
party shall be required, pursuant to this Section 6.7, to contribute any amount
in excess of the net proceeds received by such indemnifying party from the sale
of securities in the offering to which the losses, claims, damages, liabilities
or expenses of the indemnified party relate.
6.8 Successors and Assigns. The covenants and agreements in
this Section 6 by or on behalf of any of the parties hereto shall bind and inure
to the benefit of the respective successors and assigns of the parties hereto
whether so expressed or not. In addition, whether or not any express assignment
has been made, the provisions of this Agreement which are for the benefit of
purchasers or holders of Registrable Securities are also for the benefit of, and
enforceable by, any subsequent holder of Registrable Securities.
7. Miscellaneous
7.1 Successors and Assigns. Except as otherwise provided
herein, 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
(including transferees of the Shares). Nothing in this Agreement, express or
implied, is intended to confer upon any party, other than the parties hereto or
their respective successors and assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
7.2 Governing Law. This Agreement shall be governed by and
construed under the laws of the State of Delaware without giving effect to its
conflict of laws provisions.
7.3 Titles and Subtitles. The titles and subtitles used in
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
7.4 Notices. All notices required or permitted hereunder shall
be in writing and shall be deemed effectively given: (a) upon personal delivery
to the party to be notified, (b) when sent by confirmed telex or facsimile if
sent during normal business hours of the recipient; if not, then on the next
business day, (c) five (5) business days after having been sent by registered or
certified mail, return receipt requested, postage prepaid, or (d) one (1) day
after deposit with a nationally recognized overnight courier, specifying next
day delivery, with written verification of receipt. All communications shall be
sent to the party to be notified at the address as set forth on the signature
page or exhibit pages hereof or at such other address as such party
13
may designate by ten (10) days advance written notice to the other parties
hereto.
7.5 Finder's Fees. Each party represents that it neither is
nor will be obligated for any finders' fee or commission in connection with this
transaction. Each Investor, severally and not jointly, shall indemnify and hold
harmless the Company from any liability for any commission or compensation in
the nature of a finders' fee (and the costs and expenses of defending against
such liability or asserted liability) for which Investor or any of its officers,
partners, employees or representatives is responsible. The Company shall
indemnify and hold harmless each Investor from any liability for any commission
or compensation in the nature of a finders' fee (and the costs and expenses of
defending against such liability or asserted liability) for which the Company or
any of its officers, employees or representatives is responsible.
7.6 Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and Investor. Any
amendment or waiver effected in accordance with this paragraph shall be binding
upon Investor, each future holder of the Shares and the Company, provided that
no such amendment shall be binding on a holder that does not consent thereto to
the extent such amendment treats such party differently than any party that does
consent thereto.
7.7 Severability. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, such provision shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
7.8 Entire Agreement. This Agreement and the documents
referred to herein constitute the entire agreement among the parties and no
party shall be liable or bound to any other party in any manner by any
warranties, representations or covenants except as specifically set forth herein
or therein.
7.9 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.
7.10 Interpretation. Unless the context of this Agreement
clearly requires otherwise, (a) references to the plural include the singular,
the singular the plural, the part the whole, (b) references to any gender
include all genders, (c) "including" has the inclusive meaning frequently
identified with the phrase "but not limited to" and (d) references to
"hereunder" or "herein" relate to this Agreement.
14
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the date provided above.
xxxxxxxx.xxx, inc.
By _______________________________
Name:
Title:
INVESTORS:
The Xxxxxxx X. Xxxx Grantor Retained Annuity Trust
F/B/O Xxxxx Xxxx Xxxxxx
By ______________________________
Name: Xxxxxxx X. Xxxx
Title: Trustee
The Xxxxxxx X. Xxxx Grantor Retained Annuity Trust
F/B/O Xxxxx Xxxxxxxx Xxxx
By ______________________________
Name: Xxxxxxx X. Xxxx
Title: Trustee
The Xxxxxxx X. Xxxx Grantor Retained Annuity Trust
F/B/O Xxxxxxxxx Xxxxx Xxxx
By ______________________________
Name: Xxxxxxx X. Xxxx
Title: Trustee
The Xxxxxxx X. Xxxx Grantor Retained Annuity Trust
F/B/O Xxxxxx Xxxxxxx Xxxxxx Xxxx
By ______________________________
Name: Xxxxxxx X. Xxxx
Title: Trustee
15
The Xxxxxxx X. Xxxx Grantor Retained Annuity Trust
F/B/O Xxxxx Xxxxxx Xxxxxxx Xxxx
By ______________________________
Name: Xxxxxxx X. Xxxx
Title: Trustee
E&C Capital Partners LLLC
By ______________________________
Name: Xxxxxxx X. Xxxx
Title: Member
16
SCHEDULE A1
INVESTORS AT INITIAL CLOSING
Name of Purchaser/Address Principal Amount of Note
------------------------- ------------------------
The Xxxxxxx x. Xxxx Grantor Retained Annuity Trust $200,000
F/B/O Xxxxx Xxxx Xxxxxx, Xxxxxxx X. Xxxx, Trustee
000 X. Xxxxxxx Xxxxxxxxx, 00xx Xxxxx
Xxxx Xxxxxxxxxx, XX 00000
The Xxxxxxx X. Xxxx Grantor Retained Annuity Trust $200,000
F/B/O Xxxxx Xxxxxxxx Xxxx, Xxxxxxx X. Xxxx, Trustee
000 X. Xxxxxxx Xxxxxxxxx, 00xx Xxxxx
Xxxx Xxxxxxxxxx, XX 00000
The Xxxxxxx X. Xxxx Grantor Retained Annuity Trust $200,000
F/B/O Xxxxxxxxx Xxxxx Xxxx, Xxxxxxx X. Xxxx, Trustee
000 X. Xxxxxxx Xxxxxxxxx, 00xx Xxxxx
Xxxx Xxxxxxxxxx, XX 00000
The Xxxxxxx X. Xxxx Grantor Retained Annuity Trust $200,000
F/B/O Xxxxxx Xxxxxxx Xxxxxx Xxxx, Xxxxxxx X. Xxxx, Trustee
000 X. Xxxxxxx Xxxxxxxxx, 00xx Xxxxx
Xxxx Xxxxxxxxxx, XX 00000
The Xxxxxxx X. Xxxx Grantor Retained Annuity Trust $200,000
F/B/O Xxxxx Xxxxxx Xxxxxxx Xxxx, Xxxxxxx X. Xxxx, Trustee
000 X. Xxxxxxx Xxxxxxxxx, 00xx Xxxxx
Xxxx Xxxxxxxxxx, XX 00000
E&C Capital Partners, LLLP $750,000
000 X. Xxxxxxx Xxxxxxxxx, 00xx Xxxxx
Xxxx Xxxxxxxxxx, XX 00000
17
EXHIBIT A
FORM OF CONVERTIBLE PROMISSORY NOTE
18
EXHIBIT B
FORM OF SECURITY AGREEMENT
19
EXHIBIT C
FORM OF GUARANTY
20
EXHIBIT D
FORM OF WARRANT
21
