NATIONAL HOLDINGS CORPORATION SECURITIES PURCHASE AGREEMENT DATED AS OF FEBRUARY 22, 2007 WITH RESPECT TO 10% NOTES AND WARRANTS
NATIONAL
HOLDINGS CORPORATION
DATED
AS OF
FEBRUARY
22, 2007
WITH
RESPECT TO
10%
NOTES AND WARRANTS
This
SECURITIES PURCHASE AGREEMENT (the “Agreement”), dated as of February 22, 2007
by and among NATIONAL HOLDINGS CORPORATION, a Delaware corporation (the
“Company”) and the individuals listed on Exhibit
A
hereto
under the heading “Purchasers” (the “Purchasers”) who become parties to this
Agreement by executing and delivering a financing signature page in the form
attached hereto as Exhibit
B
(the
“Financing Signature Page”).
WHEREAS,
the Company desires to sell to the Purchasers, and the Purchasers desire to
purchase from the Company,
an
aggregate of up to (a) $1,000,000 principal
amount of the Company’s 10% Promissory Notes (the “Notes”) and (b) warrants (the
“Warrants”) to purchase up to 250,000 shares of the Company’s common stock,
$0.02 par value per share (the “Warrant Shares”),
at an
initial exercise price of $1.40 per share, pursuant to the provisions of this
Agreement.
NOW,
THEREFORE, in consideration of the mutual covenants and agreements set forth
in
this Agreement, and for other good and valuable consideration, the receipt
and
sufficiency of which are hereby acknowledged, the parties do hereby agree as
follows:
1. Authorization;
Sale of Notes and Warrants.
1.1 Authorization.
The
Company has duly authorized the sale and issuance, pursuant to the terms of
this
Agreement, of (i) the Notes and Warrants and (ii) the Warrant Shares
issuable
upon exercise of the Warrants.
1.2 Sale
of Notes and Warrants.
Subject
to the terms and conditions of this Agreement, at the Closing (as defined ion
Section 2.1), the Company will
sell
and each of the Purchasers will purchase (a) the Notes in the principal amounts
set forth on Exhibit
A
hereto
and (b) the Warrants. The
terms
and
provisions of the Notes and Warrants are more fully set forth in the form of
10%
Promissory Note, a true and correct copy of which is attached hereto as
Exhibit
C,
and in
the form of Warrant, a true and correct copy of which is attached hereto as
Exhibit
D,
respectively. This Agreement, the Notes, the Warrants and the Registration
Rights Agreement (as defined herein) are sometimes collectively referred to
as
the “Transaction Documents”.
2. Purchase
Price; Closing.
2.1 Purchase
Price.
The
aggregate
purchase price (the "Purchase Price") to be paid by the Purchasers to the
Company to acquire the Notes and Warrants shall be up to
$1,000,000.
2.2 The
Closing.
Subject
to the terms and conditions of this Agreement, the closing (the “Closing”) of
the sale and purchase of Notes and Warrants under this Agreement shall take
place at the offices of Xxxxxxx Xxxxxx LLP, 000 Xxxxx Xxxxxx, Xxx Xxxx XX 00000
(or remotely via the exchange of documents and signatures) on the date of this
Agreement (the “Closing Date”). At the Closing:
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(a) the
Company shall deliver to each of the Purchasers, a Note in the amount set forth
opposite such Purchaser’s name on Exhibit
A
attached
hereto, and a Warrant exercisable for the number of Warrant Shares set forth
opposite such Purchaser’s name on Exhibit
A
attached
hereto, registered in the name of such Purchaser;
(b) the
Company shall execute and deliver the Registration Rights Agreement in the
form
attached hereto as Exhibit E
(the
“Registration Rights Agreement”);
(c) each
Purchaser shall pay directly to the Company, by wire transfer of immediately
available funds, the Purchase Price for the Notes and Warrants being purchased;
and
(d) in
the
event of an Additional Closing as described in Section 2.3 below, the Company
shall have delivered to the Purchaser(s) at such Additional Closing a
certificate of the Company, executed by the Chief Executive Officer of the
Company, dated the Closing Date, and certifying to, among other things, the
fulfillment of the conditions specified in Sections 5.1, 5.2 and 5.3 of
this Agreement.
2.3 Additional
Closings.
Additional sales of Notes and Warrants not sold at the initial Closing may
be
made by the Company at one or more closings (each, an “Additional Closing”).
Each Additional Closing and the initial Closing are collectively referred to
as
the “Closings” and the date of each Additional Closing and the initial Closing
are collectively referred to as the “Closing Dates.” Each Additional Closing
shall take place at the offices of Xxxxxxx Krooks LLP, 000 Xxxxx Xxxxxx, Xxx
Xxxx, XX 00000 (or remotely via the exchange of documents and signatures).
The
Purchasers agree that any additional persons or entities that acquire Notes
and
Warrants at any “Additional Closing” shall become “Purchasers” under this
Agreement with all the rights and obligations attendant thereto, upon their
execution of this Agreement without further action by any other Purchaser.
For
purposes of this Agreement, the terms “Closing” and “Closing Date”, unless
otherwise indicated, refer to the applicable closing and closing date of the
Initial Closing or the Additional Closing(s), as the case may be.
3. Representations
of the Company.
The
Company hereby represents and warrants to each Purchaser that the statements
contained in this section 3 are complete and accurate as of the date of this
agreement. Such representations and warranties are supplemented by the Company's
filings under the pursuant to the Securities Act of 1933, as amended (the
“Securities Act”) and the Securities Exchange Act of 1934, as
amended,
made
prior to the date of this agreement (collectively, the "SEC Reports"), copies
of
which have been provided to the purchasers):
3.1 Organization
and Standing.
The
Company and each of its subsidiaries (as defined below) is a corporation or
other legal entity duly organized, validly existing and in good standing under
the laws of its jurisdiction of existence, has all requisite corporate power
and
authority, and has been duly authorized by all necessary approvals and orders,
to own, lease and operate its assets and properties to the extent owned, leased
and operated and to carry on its business as it is now being conducted and
is
duly qualified and in good standing to do business in each jurisdiction in
which
the nature of its business or the ownership or leasing of its assets and
properties makes such qualification necessary, other than in such jurisdictions
where the failure to be so qualified and in good standing would not, when taken
together with all other such failures, reasonably be expected to have a material
adverse effect on the business, properties, condition (financial or otherwise),
prospects (other than effects that are the result of general economic changes
or
industry-specific risks) or results of operations of the Company and its
subsidiaries taken as a whole (any such material adverse effect being hereafter
referred to as a "Material Adverse Effect"). As used in this Agreement, the
term
"subsidiary" of a person shall mean any corporation or other entity (including
partnerships and other business associations) of which a majority of the
outstanding capital stock or other voting securities having voting power under
ordinary circumstances to elect directors or similar members of the governing
body of such corporation or entity shall at the time be held, directly or
indirectly, by such person.
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3.2 Subsidiaries.
Except
as disclosed in the SEC Reports,
the
Company has no subsidiaries and does not currently own or control, directly
or
indirectly, any equity interest, nor has any commitment to purchase or otherwise
acquire any equity interest, in any other corporation, partnership, limited
liability company, association, or other business entity. Except as set forth
in
the SEC Reports, the Company is not a participant in any joint venture,
partnership, or similar arrangement.
3.3 Capitalization. The
authorized and outstanding capital stock of the Company consists of the
following: (i) a total of Thirty Million (30,000,000) shares of Common Stock,
of
which 5,358,611 shares
are issued and outstanding; and (ii) a total of Two Hundred Thousand (200,000)
shares of preferred stock, $0.01 par value per share, of which 50,000 shares
are
designated as Series A 9% Cumulative Convertible Preferred Stock,
35,316
of which
are issued and outstanding, and 20,000 are designated as
Series B
10% Cumulative Convertible Preferred Stock, 10,000 of which are issued and
outstanding.
3.4 Issuance
of Notes and Warrants.
The
issuance, sale and delivery of the Notes and Warrants in accordance with this
Agreement, and the issuance and delivery of the Warrant Shares underlying the
Warrants have been duly authorized
by all necessary corporate action on the part of the Company, and all such
shares have been duly reserved for issuance. The Warrant Shares when so issued,
sold and delivered against payment therefor in accordance with the provisions
of
this Agreement and the Warrants, when issued upon such conversion, will be
duly
and validly issued, fully paid and nonassessable.
3.5 Corporate
Power; Authority for Agreement; No Conflict.
The
Company has all requisite legal and corporate power to execute and deliver
this
Agreement, to sell and issue the Notes and Warrants hereunder, to issue the
Warrant Shares (upon due exercise of the Warrants), to consummate the other
transactions contemplated by the terms of this Agreement and carry out and
perform its obligations under the terms of this Agreement. The execution,
delivery and performance by the Company of this Agreement, and the consummation
by the Company of the transactions contemplated hereby and thereby, have been
duly authorized by all necessary corporate action. This Agreement, and the
consummation of the transactions contemplated hereunder, has been duly executed
and delivered by the Company and constitute valid and binding obligations of
the
Company enforceable in accordance with their respective terms, subject as to
enforcement of remedies to applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting generally the enforcement of creditors’
rights and subject to a court’s discretionary authority with respect to the
granting of a decree ordering specific performance or other equitable remedies.
The execution
and delivery of this Agreement, the consummation of the transactions
contemplated hereby and thereby and the compliance with their respective
provisions by the Company will not (a)
conflict with or violate any provision of the Certificate of Incorporation
or
By-laws of the Company, (b) require on the part of the Company any filing with,
or any permit, order, authorization, consent or approval of, any court,
arbitrational tribunal, administrative agency or commission or other
governmental or regulatory authority or agency, other than notice filings
pursuant to applicable federal and state securities laws (each of the foregoing
is hereafter referred to as a “Governmental Entity”), (c) conflict with, result
in a breach of, constitute (with or without due notice or lapse of time or
both)
a default under, result in the acceleration of obligations under, create in
any
party the right to accelerate, terminate, modify or cancel, or require any
notice, consent or waiver under,
any contract, lease, sublease, license, sublicense, franchise, permit,
indenture, agreement or mortgage for borrowed money, instrument of
indebtedness, Security
Interest (as defined below) or other arrangement to which the Company is a
party
or by which the Company is bound or to which its assets are subject, other
than
any of the foregoing events listed in this clause (c) which do not and will
not,
individually or in the aggregate, have a Company Material Adverse Effect, (d)
result in the imposition of any Security Interest upon any assets of the Company
or (e) violate any order, writ, injunction, decree, statute, rule or
regulation applicable
to the Company or any of its properties or assets. For purposes of this
Agreement, “Security Interest” means any mortgage, pledge, security interest,
encumbrance, charge, or other lien (whether arising by contract or by operation
of law).
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3.6 Governmental
Consents.
No
consent, approval, order or authorization of, or registration, qualification,
designation, declaration or filing with, any Governmental Entity is required
on
the part of the Company in connection with the offer, issuance, sale and
delivery of the Notes and Warrants, the issuance and delivery of the Warrant
Shares or the other transactions to be consummated at the Closing, as
contemplated by this Agreement, except such filings required to be made after
the Closing under applicable federal and state securities laws. Based on the
representations made by each of the Purchasers in Section 4 of this
Agreement, the offer and sale of the Notes and Warrants to each of the
Purchasers will be in material compliance with applicable federal and state
securities laws.
3.7 Financial
Statements.
Each
Purchaser has
had
the opportunity to review the audited financial statements of the Company for
the fiscal year ended September 30, 2006 and the unaudited financial statements
of the Company for the quarter ended December 31, 2006, (all such financial
statements being collectively referred to herein as the “Financial Statements”).
The
Financial Statements present fairly, in all material respects, the consolidated
financial position of the Company as of the dates shown and its consolidated
results of operations and cash flows for the periods shown, and such financial
statements have been prepared in conformity with United States generally
accepted accounting principles applied on a consistent basis (“GAAP”) (except as
may be disclosed therein or in the notes thereto, and, in the case of quarterly
financial statements, as permitted by Form 10-Q under the 1934 Act). Except
as
set forth in the Financial Statements of the Company, neither the Company nor
any of its subsidiaries has incurred any liabilities, contingent or otherwise,
except those incurred in the ordinary course of business, consistent (as to
amount and nature) with past practices since the date of such financial
statements, none of which, individually or in the aggregate, have had or could
reasonably be expected to have a Material Adverse Effect.
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3.8
Use
of
Proceeds.
The net
proceeds of the sale of the Notes and the Warrants hereunder shall be used
by
the Company for (i) retirement of the following outstanding indebtedness:
Barcombe
Investments Limited ($250,000), Branscombe Investments Limited ($250,000),
Shampan Lamport Financial Holdings LLC ($300,000) and Xxxxxxx X. Xxxxxxxxxx
($50,000) and
(ii)
working capital and general corporate purposes.
3.9
No
Material Adverse Change.
Since
December 31, 2006, except as identified and described in the SEC Reports, there
has not been any change in the consolidated assets, liabilities, financial
condition or operating results of the Company from that reflected in the
financial statements included in the Company’s December 31, 2006 Quarterly
Report on Form 10-Q, except for changes in the ordinary course of business
which
have not had and could not reasonably be expected to have a Material Adverse
Effect, individually or in the aggregate.
3.10
SEC
Reports.
At the
time of filing thereof, the SEC Reports complied as to form in all material
respects with the requirements of the 1934 Act and did not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading.
3.11
No
Conflict, Breach, Violation or Default.
The
execution, delivery and performance of the Transaction Documents by the Company
and the issuance and sale of the Securities will not conflict with or result
in
a breach or violation of any of the terms and provisions of, or constitute
a
default under (i) the Company’s Certificate of Incorporation or the Company’s
Bylaws, both as in effect on the date hereof (true and complete copies of which
have been made available to the Purchasers through the XXXXX system), or (ii)(a)
any statute, rule, regulation or order of any governmental agency or body or
any
court, domestic or foreign, having jurisdiction over the Company, any subsidiary
or any of their respective assets or properties, or (b) any agreement or
instrument to which the Company or any subsidiary is a party or by which the
Company or a subsidiary is bound or to which any of their respective assets
or
properties is subject.
3.12
Tax
Matters.
The
Company and each subsidiary has prepared and filed all tax returns required
to
have been filed by the Company or such subsidiary with all appropriate
governmental agencies and timely paid all taxes shown thereon or otherwise
owed
by it. The charges, accruals and reserves on the books of the Company in respect
of taxes for all fiscal periods are adequate in all material respects, and
there
are no material unpaid assessments against the Company or any subsidiary nor,
to
the Company’s knowledge, any basis for the assessment of any additional taxes,
penalties or interest for any fiscal period or audits by any federal, state
or
local taxing authority except for any assessment which is not material to the
Company and its subsidiaries, taken as a whole. All taxes and other assessments
and levies that the Company or any Subsidiary is required to withhold or to
collect for payment have been duly withheld and collected and paid to the proper
governmental entity or third party when due. There are no tax liens or claims
pending or, to the Company’s knowledge, threatened against the Company or any
subsidiary or any of their respective assets or property. There are no
outstanding tax payments or tax sharing agreements or other such arrangements
between the Company and any subsidiary or other corporation or
entity.
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3.13
Title
to Properties.
Except
as disclosed in the SEC Reports, the Company and each of its subsidiaries has
good and marketable title to all properties and assets owned by it, in each
case
free from liens, encumbrances and defects that would materially affect the
value
thereof or materially interfere with the use made or currently planned to be
made thereof by them; and except as disclosed in the SEC Reports, the Company
and each of its subsidiaries holds any leased real or personal property under
valid and enforceable leases with no exceptions that would materially interfere
with the use made or currently planned to be made thereof by them.
3.14
Certificates,
Authorities and Permits.
Except
as disclosed in the SEC Filings, the Company and each of its subsidiaries
possess adequate certificates, authorities or permits issued by appropriate
governmental agencies or bodies necessary to conduct the business now operated
by it, and neither the Company nor any subsidiary has received any notice of
proceedings relating to the revocation or modification of any such certificate,
authority or permit that, if determined adversely to the Company or such
subsidiary, could reasonably be expected to have a Material Adverse Effect,
individually or in the aggregate.
3.15
Labor
Matters.
(a)
The
Company is not a party to or bound by any collective bargaining agreements
or
other agreements with labor organizations. The Company has not violated in
any
material respect any laws, regulations, orders or contract terms, affecting
the
collective bargaining rights of employees, labor organizations or any laws,
regulations or orders affecting employment discrimination, equal opportunity
employment, or employees’ health, safety, welfare, wages and hours.
(b)
The
Company is, and at all times has been, in compliance in all material respects
with all applicable laws respecting employment (including laws relating to
classification of employees and independent contractors) and employment
practices, terms and conditions of employment, wages and hours, and immigration
and naturalization.
3.16
Intellectual
Property.
All
Intellectual Property of the Company and its subsidiaries is currently in
compliance with all legal requirements (including timely filings, proofs and
payments of fees) and, to the Company’s knowledge, is valid and enforceable. No
Intellectual Property of the Company or its subsidiaries which is necessary
for
the conduct of Company’s and each of its subsidiaries’ respective businesses as
currently conducted or as currently proposed to be conducted has been or is
now
involved in any cancellation, dispute or litigation, and, to the Company’s
knowledge, no such action is threatened.
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3.17
Environmental
Matters.
Neither
the Company nor any subsidiary is in violation of any statute, rule, regulation,
decision or order of any governmental agency or body or any court, domestic
or
foreign, relating to the use, disposal or release of hazardous or toxic
substances or relating to the protection or restoration of the environment
or
human exposure to hazardous or toxic substances (collectively, “Environmental
Laws”), owns or operates any real property contaminated with any substance that
is subject to any Environmental Laws, is liable for any off-site disposal or
contamination pursuant to any Environmental Laws, and is subject to any claim
relating to any Environmental Laws, which violation, contamination, liability
or
claim has had or could reasonably be expected to have a Material Adverse Effect,
individually or in the aggregate; and there is no pending or, to the Company’s
knowledge, threatened investigation that might lead to such a
claim.
3.18
Litigation.
Except
as described in the SEC Reports or on Schedule
3.18,
there
are no pending actions, suits or proceedings against or affecting the Company,
its Subsidiaries or any of its or their properties; and to the Company’s
knowledge, no such actions, suits or proceedings are threatened or
contemplated.
3.19
Insurance
Coverage.
The
Company and each subsidiary maintains in full force and effect insurance
coverage that is customary for comparably situated companies for the business
being conducted and properties owned or leased by the Company and each
subsidiary, and the Company reasonably believes such insurance coverage to
be
adequate against all liabilities, claims and risks against which it is customary
for comparably situated companies to insure.
3.20
Brokers
and Finders.
No
Person will have, as a result of the transactions contemplated by the
Transaction Documents, any valid right, interest or claim against or upon the
Company, any subsidiary or an Investor for any commission, fee or other
compensation pursuant to any agreement, arrangement or understanding entered
into by or on behalf of the Company, other than the Closing Fee described in
Section 5.5 hereof.
3.21
No
Directed Selling Efforts or General Solicitation.
Neither
the Company nor any person acting on its behalf has conducted any general
solicitation or general advertising (as those terms are used in Regulation
D) in
connection with the offer or sale of any of the securities offered
hereby.
3.22
Private
Placement.
Subject
to the accuracy of the Purchasers’ representations in Section 4 of this
Agreement, the offer and sale of the Securities to the Purchasers as
contemplated hereby is exempt from the registration requirements of the 1933
Act.
7
3.23
Small
Business Matters.
(a)
The
Company acknowledges that St. Cloud Capital Partners, L.P., one of the
Purchasers of the securities being offered hereby (“St. Cloud”) is a federally
licensed Small Business Investment Company (“SBIC”) under the Small Business
Investment Act of 1958, as amended. Company, together with its “affiliates” (as
that term is defined in 13 C.F.R. Section 121.103), is a “small business
concern” within the meaning of the SBIC Regulations, including 13 C.F.R. Section
121.103. After giving effect to the transactions contemplated by the Transaction
Documents, Company will have 500 or fewer full-time equivalent employees. The
information regarding Company and its affiliates set forth in the SBA forms
Nos.
480, 652 and 1031 delivered at the Closing is accurate and complete. Copies
of
such forms have been completed and executed by Company and delivered to St.
Cloud at the Closing together with a written statement of Company regarding
its
planned use of the proceeds from the transactions contemplated by the
Transaction Documents. The Company does not presently engage in, and it shall
not hereafter engage in, any activities, nor shall it use directly or indirectly
the proceeds of the transactions contemplated by the Transaction Documents
for
any purpose, for which an SBIC is prohibited from providing funds by the SBIC
Regulations (including 13 C.F.R. Section 107.720).
(b)
The
primary business activity of Company does not involve, directly or indirectly,
providing funds to others, purchasing or discounting debt obligations, factoring
or long-term leasing of equipment with no provision for maintenance or repair,
and Company is not classified under Section 53 (Real Estate) of the North
American Industry Classification System manual. The assets of the business
of
Company (the “Business”) will not be reduced or consumed, generally without
replacement, as the life of the Business progresses, and the nature of the
Business does not require that a stream of cash payments be made to the
Business’s financing sources, on a basis associated with the continuing sale of
assets.
3.24
Sarbanes
Oxley Act.
The
Company is in compliance in all material respects with applicable requirements
of the Xxxxxxxx-Xxxxx Act of 2002 and applicable rules and regulations
promulgated by the SEC thereunder in effect as of the date of this Agreement,
except where such noncompliance could not be reasonably expected to have,
individually or in the aggregate, a Material Adverse Effect.
3.25
Disclosure.
The
Transaction Documents, including the Schedules to this Agreement, as the same
relate to the Company, are true and correct in all material respects and do
not
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements made therein, in the light of
the
circumstances under which they were made, not misleading; it being understood
that the Company has not provided the Purchasers, and the Purchasers are not
relying on, any information constituting a forecast or projection.
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4. Representations
of the Purchasers.
Each of
the Purchasers severally, and not jointly, represents and warrants to the
Company as follows:
4.1 Existence
and Power.
Such
Purchaser, if not an individual, is a corporation, partnership, limited duration
company or limited liability company, as the case may be, duly organized,
validly existing and in good standing under the laws of its jurisdiction of
organization. Each non-individual Purchaser has the corporate, partnership,
limited duration company or limited liability company, as the case may be,
power
and authority to own and operate its properties and assets, to execute and
deliver this Agreement to purchase the Notes, the Warrants and, upon exercise
of
the Warrants, the Warrant Shares, and to carry out the provisions of this
Agreement. Each non-individual Purchaser is duly qualified and is authorized
to
do business and is in good standing as a foreign corporation, partnership,
limited duration company or limited liability company, as the case may be,
in
such Purchaser’s jurisdictions of organization.
4.2 Authorization;
No Contravention.
The
execution, delivery and performance by each Purchaser of this Agreement and
the
transactions contemplated hereby, (a) have been duly authorized by all necessary
action, (b) do not contravene the terms of such Purchaser’s organizational
documents, or any amendment thereof, if any, and (c) do not violate, conflict
with or result in any breach or contravention of, or the creation of any lien
under, any material contractual obligation of such Purchaser or any requirement
of law applicable to such Purchaser, and (d) do not violate any orders of any
Governmental Entity against, or binding upon, such Purchaser.
4.3 Binding
Effect.
This
Agreement and the other documents to which each Purchaser is a party have been
duly executed and delivered by each Purchaser and constitute the legal, valid
and binding obligations of such Purchaser, enforceable against it in accordance
with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
generally the enforcement of creditors’ rights and subject to a court’s
discretionary authority with respect to granting a decree ordering specific
performance or other equitable remedies.
4.4 Purchase
for Own Account.
The
Notes and Warrants hereby acquired by each Purchaser pursuant to this Agreement
are being acquired for such Purchaser’s own account, not as nominee or agent,
and with no intention of distributing or reselling such securities in any
transaction that would be in violation of the securities laws of the United
States of America or any state, without prejudice. If such Purchaser should
in
the future decide to dispose of any of such Notes or Warrants or Warrant Shares,
such Purchaser understands and agrees that it may do so only in compliance
with
the Securities Act and applicable state securities laws, as then in effect.
Each
Purchaser agrees to the imprinting, so long as required by law, of legends
on
certificates representing all of its Notes, Warrants and Warrant Shares to
the
following effect:
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THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR THE SECURITIES LAWS OF ANY
STATE. THE SECURITIES MAY NOT BE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS
OR
PURSUANT TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF
SUCH ACT AND SUCH LAWS.
4.5 Restricted
Securities.
The
Purchaser understands that the Notes and Warrants are characterized as
“restricted securities” under the U.S. 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 securities
may
be resold without registration under the 1933 Act only in certain limited
circumstances. The Purchaser understands that the Notes and Warrants are being
offered and sold to it in reliance upon specific exemptions from the
registration requirements of United States and state securities laws and that
the Company is relying upon the truth and accuracy of, and the Purchaser’s
compliance with, the representations, warranties, agreements, acknowledgments
and understandings of the Purchaser set forth herein in order to determine
the
availability of such exemption and the eligibility of the Purchaser to acquire
the Notes and Warrants.
4.6 Brokers,
Finder’s or Similar Fees.
The
Company has not incurred, and will not incur, directly or indirectly, as a
result of any action taken by such
Purchaser, any liability for brokerage or finders’ fees or agents’ commissions
or any similar charges in connection with this Agreement.
4.7 Accredited
Investor.
Each
Purchaser is an “accredited investor” within the meaning of Rule 501 of
Regulation D under the Securities Act, as presently in effect.
The
Purchaser understands that no United States federal or state agency or any
other
government or governmental agency has passed upon or made any recommendation
or
endorsement of the Notes or the Warrants.
4.8 Investment
Experience; Acknowledgment of Risk.
Each
Purchaser acknowledges that it can bear the economic risk and complete loss
of
its investment in the Securities and has such knowledge and experience in
financial or business matters that it is capable of evaluating the merits and
risks of the investment contemplated hereby. The
Purchaser understands that its investment in the Notes and the Warrants involves
a significant degree of risk.
4.9 Disclosure
of Information.
The
Purchaser has conducted its own due diligence examination of the Company’s
business, financial condition, results of operations, and prospects, and has
had
an opportunity to receive all information related to the Company and the Notes
and Warrants requested by it and to ask questions of and receive answers from
the Company regarding the Company, its business, finances and operations and
the
terms and conditions of the offering of the Securities. Neither such inquiries
nor any other due diligence investigation conducted by such Purchaser shall
modify, amend or affect the Purchaser’s right to rely on the Company’s
representations and warranties contained in this Agreement.
10
4.10 SEC
Reports.
Each
Purchaser acknowledges that it has had the opportunity to review the SEC Reports
filed with the SEC, including the information contained in the Company’s most
recently filed Annual Report on Form 10-K, Quarterly Report on Form 10-Q and
Proxy Statement on Schedule 14A. Each Purchaser acknowledges that it has read
the information in such reports, including the information under the caption
“Risk Factors” contained in the SEC Reports.
4.11 No
General Solicitation.
Each
Purchaser did not learn of the investment in the Notes and Warrants as a result
of any public advertising or general solicitation.
5. Conditions
of Closing of the Purchasers.
The
obligations of the Purchasers to purchase their respective Notes and Warrants
and transfer the Purchase Price for the Notes and Warrants being purchased
at
the Closing are subject to the fulfillment at or before the Closing, as
applicable, of the following conditions precedent, any one or more of which
may
be waived in whole or in part by the Purchasers, which waiver shall be at the
sole discretion of such Purchasers:
5.1 Representations
and Warranties.
The
representations and warranties made by the Company in this Agreement are true
and correct in all respects as of the date hereof, except for the
representations and warranties that are expressly made as of a particular
date
(which
shall remain true and correct as of such date).
5.2 Agreements.
All
agreements, and conditions contained in this Agreement to be performed or
complied with by the Company prior to Closing shall have been performed or
complied with by the Company prior to or at the Closing.
5.3 Registration
Rights Agreement.
The
Company shall have executed and delivered to the Purchasers the Registration
Rights Agreement.
5.4 Proceedings
and Documents.
All
corporate and other proceedings in connection with the transactions contemplated
by this Agreement and all documents and instruments incident to such
transactions shall be in a form and substance reasonably satisfactory to the
Purchasers and their counsel, and the Purchasers and their counsel shall have
received all such counterpart originals or certified or other copies of such
documents as the Purchasers or their counsel may reasonably
request.
5.5 Closing
Fee.
The
Company shall have paid a closing fee equal to $5,000 to St. Cloud Capital
Partners, L.P. and $5,000 to Bedford Oaks Partners, L.P.
6. Conditions
of Closing of the Company.
The
Company’s obligations to sell and issue the Notes and Warrants at the Closing
are subject to the fulfillment at or before the Closing of the following
conditions, which conditions may be waived in whole or in part by the Company,
and which waiver shall be at the sole discretion of the Company:
11
6.1 Representations
and Warranties.
The
representations and warranties made by the Purchasers in this Agreement shall
have been true and correct in all respects as of the date when made and as
of
the Closing Date, except for the representations and warranties that are
expressly made as of a particular date (which shall remain true and correct
as
of such date).
6.2 Agreements.
All
agreements, and conditions contained in this Agreement to be performed or
complied with by the Purchasers prior to the Closing shall have been performed
or complied with by the Company prior to or at the Closing.
6.3 Payment
of Purchase Price.
The
Purchasers shall have tendered the aggregate Purchase Price in exchange for
the
Notes and Warrants being issued hereunder in accordance with Section
2.1.
7.
Covenants
and Agreements of the Company.
7.1
Reservation
of Common Stock.
The
Company shall at all times reserve and keep available out of its authorized
but
unissued shares of Common Stock, solely for the purpose of providing for the
exercise of the Warrants, such number of shares of Common Stock as shall from
time to time equal the number of shares sufficient to permit the issuance of
the
Warrant Shares pursuant to the Transaction Documents in accordance with their
respective terms.
7.2
No
Conflicting Agreements.
The
Company will not take any action, enter into any agreement or make any
commitment that would conflict or interfere in any material respect with the
Company’s obligations to the Purchasers under the Transaction
Documents.
7.3
Insurance.
The
Company shall not materially reduce the insurance coverages described in Section
3.19.
7.4
Compliance
with Laws.
The
Company will comply in all material respects with all applicable laws, rules,
regulations, orders and decrees of all governmental authorities.
7.5
Certain
Negative Covenants.
From
and after the date of this Agreement and for so long as any Notes remain
outstanding, the Company shall not without first obtaining the approval (by
vote
or written consent, as provided by law) of the holders of at least 50% of the
outstanding principal face amount of the Notes, which consent shall not be
unreasonably withheld or delayed, take any of the following actions:
(a)
Incur
additional indebtedness, provided however that the Company may incur additional
indebtedness so long as the total indebtedness of the Company after taking
into
account such additional indebtedness does not exceed the sum of (i) the total
existing indebtedness of the Company as of the date hereof (inclusive of the
indebtedness represented by the Notes) and (ii) $500,000. In addition, the
foregoing restriction shall not preclude (i) additional debt that is expressly
subordinated to the Note, as evidenced by a subordination agreement reasonably
acceptable to the holder of the Notes and (ii) indebtedness under purchase
money
security interests incurred in the ordinary course of business;
12
(b)
Pay
or
authorize any dividend or make or authorize any distribution or payment upon
any
of its common stock equity securities;
(c)
Make
loans, advances to, guarantees for the benefit of, or investments in, any person
except investments made in the ordinary course of business in (A) obligations
of
the United States government or any agency thereof or obligations guaranteed
by
the United States government, (B) certificates of deposit of commercial banks
insured by the Federal Deposit Insurance Corporation, or (C) commercial paper
with a rating of at least Prime-l according to Xxxxx’x Investors Service, Inc.,
in each case having a maturity not in excess of one (1) year;
(d)
Enter
into the active management or operation of any business other than the business
currently conducted by Company and a similar business;
(e)
Enter
into any transaction with any shareholder, officer, or employee of Company
other
than in the ordinary course of business which shall in the aggregate exceed
twenty-five thousand dollars ($25,000) outstanding at any one time, except
that
Company may enter into "at-will" employment arrangements;
(f)
Enter
into employment agreements not terminable at will with new or existing employees
(other than employment agreements with senior management that are approved
by
the Board); or renew any existing employment agreements with non-senior
management (except those which are terminable at will) or establish or modify
equity options (unless approved by the Board), retirement allowances, pensions
and remuneration of Directors (unless approved by the Board), consultants or
strategic partners of Company;
(g)
Allow
any
officer of Company to use any assets of Company in such a manner as would
violate such person’s fiduciary duties to Company or its
shareholders;
(h)
Enter
or
consummate any off-balance sheet transactions other than operating
leases;
(i)
Change
the tax or accounting policies of Company, other than to comply with GAAP or
existing rules of the Internal Revenue Code;
(j)
Settle
claims, litigation or disputes (including tax claims or audits) involving an
amount in excess of one-hundred thousand dollars ($100,000), unless approved
by
the Board, other than any claims to the extent covered by Company’s errors and
omissions, worker’s compensation or general liability insurance;
13
(k)
File
any
petition for bankruptcy or similar action relating to Company or voluntarily
dissolve or terminate Company.
8.
Survival
and Indemnification.
8.1
Survival.
The
representations, warranties, covenants and agreements contained in this
Agreement shall survive the Closing of the transactions contemplated by this
Agreement; provided, however, that the representations and warranties contained
in this Agreement shall expire twelve (12) months after the
Closing.
8.2
Indemnification.
Subject
to the provisions of Section 8.1, the Company agrees to indemnify and hold
harmless each Purchaser and their respective directors, officers, employees,
affiliates and agents from and against any and all losses, claims, damages,
liabilities and expenses (including without limitation reasonable attorney
fees
and disbursements and other expenses incurred in connection with investigating,
preparing or defending any action, claim or proceeding, pending or threatened
and the costs of enforcement thereof) (collectively, “Losses”) to which such
person may become subject as a result of any breach of representation, warranty,
covenant or agreement made by or to be performed on the part of the Company
under the Transaction Documents, and will reimburse any such person for all
such
amounts as they are incurred by such Person.
8.3
Conduct
of Indemnification Proceedings.
Promptly
after receipt by any person (the “Indemnified
Person”) of notice of any demand, claim or circumstances which would or might
give rise to a claim or the commencement of any action, proceeding or
investigation in respect of which indemnity may be sought pursuant to Section
8.2, such Indemnified Person shall promptly notify the Company in writing and
the Company shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to such Indemnified Person, and shall assume
the
payment of all fees and expenses; provided,
however, that
the
failure of any Indemnified Person so to notify the Company shall not relieve
the
Company of its obligations hereunder except to the extent that the Company
is
materially prejudiced by such failure to notify. In any such proceeding, any
Indemnified Person shall have the right to retain its own counsel, but the
fees
and expenses of such counsel shall be at the expense of such Indemnified Person
unless: (i) the Company and the Indemnified Person shall have mutually agreed
to
the retention of such counsel; or (ii) in the reasonable judgment of counsel
to
such Indemnified Person representation of both parties by the same counsel
would
be inappropriate due to actual or potential differing interests between them.
The Company shall not be liable for any settlement of any proceeding effected
without its written consent, which consent shall not be unreasonably withheld,
but if settled with such consent, or if there be a final judgment for the
plaintiff, the Company shall indemnify and hold harmless such Indemnified Person
from and against any loss or liability (to the extent stated above) by reason
of
such settlement or judgment. Without the prior written consent of the
Indemnified Person, which consent shall not be unreasonably withheld, the
Company shall not effect any settlement of any pending or threatened proceeding
in respect of which any Indemnified Person is or could have been a party and
indemnity could have been sought hereunder by such Indemnified Party, unless
such settlement includes an unconditional release of such Indemnified Person
from all liability arising out of such proceeding.
14
9.
SBIC
Regulatory Provisions.
(a)
Use
of
Proceeds-Statements and Access.
At such
times as St. Cloud reasonably requests, Company shall deliver to St. Cloud
a
written statement certified by Company’s chief financial officer describing in
reasonable detail the use of the proceeds from the transactions contemplated
by
the Transaction Documents by Company. In addition to any other rights granted
hereunder, Company shall grant St. Cloud and the SBA access to Company’s books
and records for the purpose of verifying the use of such proceeds and verifying
the certifications made by Company in SBA forms Nos. 480, 652 and 1031,
delivered pursuant to Section 3.1.6 and for the purpose of determining whether
the principal business activity of Company and its Subsidiaries continues to
constitute an eligible business activity (within the meaning of the SBIC
Regulations).
(b)
Use
of
Proceeds - Foreign Operations.
The
Company shall not, and shall not permit its subsidiaries to, use any proceeds
from the transactions contemplated by the Transaction Documents substantially
for a foreign operation, and no more than forty-nine percent (49%) of the
employees or tangible assets of Company and its subsidiaries will be outside
the
United States (unless Company can show to the SBA’s satisfaction, that proceeds
from the transactions contemplated by the Transaction Documents will be used
for
a specific domestic purpose).
(c)
Use
of
Proceeds - Public Interest.
The
Company shall not, and shall not permit its subsidiaries to, use any proceeds
from the transactions contemplated by the Transaction Documents for any purpose
contrary to public interest (including, but not limited to, activities which
are
in violation of law) or inconsistent with free enterprise, in each case, within
the meaning of 13 C.F.R. Section 107.720
(d)
Regulatory
Violation.
Upon
the occurrence of a Regulatory Violation or in the event that St. Cloud
determines in its good faith judgment that a Regulatory Violation has occurred,
in addition to any other rights and remedies to which it may be entitled as
a
holder of the Securities under any of the Transaction Documents, St. Cloud
shall
have the right to the extent required under the SBIC Regulations to demand
the
immediate repayment of the principal balance of the Note, plus all accrued
interest on the applicable Note, by delivering written notice of such demand
to
the Company. The Company shall make such payment by a cashier’s or certified
check or by wire transfer of immediately available funds to St. Cloud within
thirty (30) days after the Company’s receipt of the demand notice.
(e)
Regulatory
Violation Cooperation.
In the
event that a Purchaser believes that it has a regulatory problem with the SBIC,
such Purchaser shall have the right to transfer its Notes and Warrants without
regard to any restrictions on transfer set forth in this Agreement or any of
the
Transaction Documents other than the restrictions under applicable securities
law, and the Company shall take all such actions as are reasonably requested
by
such Purchaser in order to effectuate and facilitate any transfer by such
Purchaser of the Notes and Warrants then held by such Purchaser to any person
designated by such Purchaser.
15
(f)
Economic
Impact Information.
Promptly after the end of each calendar year (but in any event prior to February
28 of each year), the Company shall deliver to St. Cloud a written assessment
of
the economic impact of St. Cloud’s investment in the Company, specifying the
full-time equivalent jobs created or retained in connection with the investment,
the impact of the investment on the businesses of the Company and its
subsidiaries and on taxes paid by Company and its employees.
(g)
Business
Activity.
For
a
period of one (1) year following the date hereof, neither the Company nor any
of
its subsidiaries will change its business activity if such change would render
the Company ineligible to receive financial assistance from St. Cloud (within
the meanings of 13 C.F.R. Sections 107.720 and 107.760(b)).
(h)
Compliance
with Non-Discrimination Requirements.
The
Company shall comply at all times with the non-discrimination requirements
of 13
C.F.R. Parts 112, 113 and 117.
10.
Miscellaneous.
10.1
Successors
and Assigns.
This
Agreement, and the rights and obligations of each Purchaser hereunder, may
be
assigned by such Purchaser to (a) any person or entity to which Notes and
Warrants are transferred by such Purchaser, or (b) to any Affiliated Party
(as hereinafter defined), and, in each case, such transferee shall be deemed
a
“Purchaser” for purposes of this Agreement; provided that such assignment of
rights shall be contingent upon the transferee providing a written instrument
to
the Company notifying the Company of such transfer and assignment and agreeing
in writing to be bound by the terms of this Agreement. The Company may not
assign its rights under this Agreement.
For
purposes of this Agreement, “Affiliated Party” shall mean, with respect to any
Purchaser, any person or entity which, directly or indirectly, controls, is
controlled by or is under common control with such Purchaser, including, without
limitation, any general partner, officer or director of such Purchaser and
any
venture capital fund now or hereafter existing which is controlled by one or
more general partners of, or shares the same management company as, such
Purchaser.
10.2
Expenses.
Each
party hereto shall pay its or his own expenses relating to the transactions
contemplated by this Agreement, including, without limitation, the fees and
expenses of their respective counsel, financial advisors and
accountants.
10.3
Severability.
The
invalidity or unenforceability of any provision of this Agreement shall not
affect the validity or enforceability of any other provision of this
Agreement.
10.4
Specific
Performance.
In
addition to any and all other remedies that may be available at law in the
event
of any breach of this Agreement, each Purchaser shall be entitled to specific
performance of the agreements and obligations of the Company hereunder and
to
such other injunctive or other equitable relief as may be granted by a court
of
competent jurisdiction.
16
10.5
Governing
Law.
This
Agreement shall be governed by and construed in accordance with the internal
laws of the State of New York (without reference to the conflicts of law
provisions thereof).
10.6
Notices.
All
notices, requests, consents, and other communications under this Agreement
shall
be in writing and shall be deemed delivered (i) three business days after
being sent by registered or certified mail, return receipt requested, postage
prepaid or (ii) one business
day after being sent via a reputable nationwide overnight courier service
guaranteeing next business day delivery, in each case to the intended recipient
as set forth below:
If
to the
Company, to National Holdings Corporation, 000 Xxxxxxxx, 00xx
Xxxxx,
Xxx Xxxx, XX 00000, Attention: Chief Executive Officer, or at such other address
as may have been furnished in writing by the Company to the other parties
hereto, with a copy to Xxxxxxx Xxxxxx LLP, 000 Xxxxx Xxxxxx, Xxx Xxxx, XX 00000,
Attention: Xxxxxxxx X. Xxxxxxx, Esq.; or
If
to a
Purchaser, at its address set forth on Exhibit A,
or at
such other address as may have been furnished in writing by such Purchaser
to
the other parties hereto.
Any
party
may give any notice, request, consent or other communication under this
Agreement using any other means (including, without limitation, personal
delivery, messenger service, telecopy, first class mail or electronic mail),
but
no such notice, request, consent or other communication shall be deemed to
have
been duly given unless and until it is actually received by the party for whom
it is intended. Any party may change the address to which notices, requests,
consents or other communications hereunder are to be delivered by giving the
other parties notice in the manner set forth in this Section.
10.8
Complete
Agreement.
This
Agreement (including its exhibits) constitutes the entire agreement and
understanding of the parties hereto with
respect to the subject matter hereof and supersedes all prior agreements and
understandings relating to such subject matter.
10.9
Amendments
and Waivers.
This
Agreement may not be amended or terminated without the prior written consent
of
the Company.
10.10
Pronouns.
Whenever the context may require, any pronouns used in this Agreement shall
include the corresponding masculine, feminine or neuter forms, and the singular
form of nouns and pronouns shall include the plural, and vice
versa.
10.11
Counterparts;
Signatures.
This
Agreement may be executed in any number of counterparts (including, in the
case
of the Purchasers, Financing Signature Pages), each of which shall be deemed
to
be an original, and all of which shall constitute
one and the same document. In the event that any signature (including a
Financing Signature Page) is
delivered by facsimile transmission or by e-mail delivery of a “.pdf” format
data file, such signature shall create a valid and binding obligation of the
party executing (or on whose behalf such signature is executed) with the same
force and effect as if such facsimile or “.pdf” signature page were an original
thereof.
17
10.12
Section
Headings and References.
The
section headings are for the convenience of the parties and in no way alter,
modify, amend, limit or restrict the contractual obligations
of the parties. Any reference in this agreement to a particular section or
subsection shall refer to a section or subsection of this Agreement, unless
specified otherwise.
10.13
Confidentiality.
Each
Purchaser acknowledges and agrees not to use the Confidential Information (as
hereafter defined) disclosed to him by the Company for any purpose except as
set
forth in this Agreement. Each Purchaser will not disclose any Confidential
Information to any third party except those directors, officers, employees,
consultants and agents who are required to have the information in order to
carry out the purpose of this Agreement. Each Purchaser also
understands that certain of the Confidential Information may constitute material
non-public information and that trading in the Company’s securities while in
possession of Confidential Information, recommending trading in the Company’s
securities based upon Confidential Information or providing Confidential
Information to others who may trade in the Company’s securities could constitute
a violation of federal securities laws and expose the Purchaser to civil and
criminal liability. Each Purchaser specifically acknowledges that the
Confidential Information is subject to the public disclosure requirements of
Regulation FD promulgated under the Securities Exchange Act of 1934, as amended,
and that the Company is specifically relying on each Purchaser’s execution of,
and performance under, this Agreement in providing each Purchaser with the
Confidential Information in compliance with Regulation FD.“Confidential
Information” means any the information herein and any information, financial
data, research, technical data, or know-how disclosed to the Purchaser by the
Company, including, but not limited to, that which relates to services,
products, plans for future products and services, clients, markets, operational
methods, plans for future development, research, software, inventions,
processes, designs, drawings, engineering, hardware configuration information,
marketing, financial information, know-how and other trade secrets. Confidential
Information does not include information, technical data or know-how that the
Purchaser can show: (i) was rightfully in the possession of the Purchaser at
the
time of disclosure; (ii) becomes a matter of public knowledge, not as a result
of any inaction or action of the Purchaser; or (iii) was received from a third
party without a duty or confidentiality.
Executed
as of the date first written above.
|
COMPANY:
NATIONAL
HOLDINGS CORPORATION
|
||
| |
|
|
| By: | /s/ XXXX XXXXXXXXXX | |
|
Xxxx
Xxxxxxxxxx
Chief
Executive Officer
|
||
18
EXHIBIT
A
LIST
OF PURCHASERS AND NOTES AND WARRANTS PURCHASED
|
Name
and Address
of
Purchasers
|
Principal
Amount of Notes
|
No.
of Shares of Common Stock into which
Warrants
are Exercisable
|
|||||
|
Xxxxxxxxxxx
X. Xxxxx
XX
Xxx 00
Xxxxxxx,
XX 00000
|
$
|
500,000
|
125,000
|
||||
|
St.
Cloud Capital Partners, L.P.
00000
Xxxxxxxx Xxxx.
Xxxxx
0000
Xxx
Xxxxxxx, XX 00000
|
$
|
250,000
|
62,500
|
||||
|
Bedford
Oaks Partners, L.P.
000
Xxxxx Xxxxxxx Xxxx
Xx.
Xxxxx, XX 00000
|
$
|
250,000
|
62,500
|
||||
A-1
EXHIBIT
B
FINANCING
SIGNATURE PAGE
By
execution and delivery of this signature page, the undersigned hereby agrees
to
become a Purchaser, as defined in that certain Securities Purchase Agreement
(the “Purchase Agreement”) by and among National Holdings Corporation, a
Delaware corporation (the “Company”), and the Purchasers (as defined in the
Purchase Agreement), dated as of the Closing Date (as defined in the Purchase
Agreement), acknowledges having read the representations in the Purchase
Agreement section entitled “Representations of the Purchasers,” and hereby
represents that the statements contained therein are complete and accurate
with
respect to the undersigned as a Purchaser. The undersigned further hereby agrees
to be bound by the terms and conditions of the Purchase Agreement as a
“Purchaser” thereunder and authorizes this signature page to be attached to the
Purchase Agreement.
Executed,
in counterpart, as of the date set forth below.
| PURCHASER: | ||
| |
|
|
| By: | St. Cloud Capital Partners, L.P. | |
|
Name of Purchaser |
||
| By: | SCGP, LLC, its General Partner |
| By: | /s/ XXXXXXXX X. XXXXXX | |
|
|
||
| Title: | Senior Managing Member | |
|
|
||
| Date: | February 22, 2007 | |
|
|
||
| Contact Person: Xxxxxxxx Xxx | ||
| Telephone No: 000-000-0000 Ext. 106 | ||
|
Fax No:
000-000-0000
E-mail Address: xxxx@xxxxxxxxxxxxxx.xxx
|
||
B-1
