NOTE PURCHASE AGREEMENT
THIS
NOTE PURCHASE AGREEMENT
is made
this 10th day of July, 2007 (the “Effective
Date”)
by and
between Xxxxxxx Industries, Inc., a Delaware corporation (the “Company”),
and
Whitebox Xxxxxxx Ltd., a British Virgin Islands corporation (“WSL”).
SECTION
1. AGREEMENT
TO SELL AND PURCHASE
1.1. Sale
and Purchase at the Closing.
Subject
to the terms and conditions of this Agreement, at the Closing, the Company
hereby agrees to issue and sell to WSL, and WSL agrees to purchase from the
Company, a promissory note in the form of Exhibit
A
(the
“Convertible
Promissory Note”)
for a
purchase price of $2,000,000 and a warrant registered in WSL’s name (the
“Warrant”)
pursuant to which WSL will have the right to acquire an aggregate 400,000 shares
of the Company’s Common Stock, par value $.001 per share (the “Warrant
Shares”).
The
Warrant will be in the form of Exhibit
B
and the
purchase price for the Warrant will be $100.00. The Convertible Promissory
Note
will be convertible at the option of WSL into shares of the Company’s Common
Stock (the “Conversion
Shares”).
1.2. Authorization
of Transactions.
On or
prior to the closing of the transactions contemplated in this Agreement (the
“Closing”),
the
Company shall have authorized the issuance and sale of the Convertible
Promissory Note (including the Conversion Shares) and the Warrant (including
the
Warrant Shares underlying the Warrant).
SECTION
2. CLOSING,
DELIVERY AND PAYMENT
2.1. Closing.
The
Closing shall take place at 10:00 a.m. on the Effective Date at the offices
of
WSL’s legal counsel, Xxxxxxxx & Xxxxxx P.A., in Minneapolis, Minnesota, or
at such other time or place as the Company and WSL may mutually agree (the
“Closing
Date”).
At
the Closing, subject to the terms and conditions of this Agreement, the Company
and WSL will deliver the following documents and instruments:
(a) Company’s
Closing Deliveries.
(i) The
Company will issue, sell and deliver the Convertible Promissory Note and the
Warrant to WSL.
(ii) The
Company will execute and deliver to WSL the Registration Rights Agreement in
the
form of the attached Exhibit
C (the
“Registration
Rights Agreement”).
(iii) The
Company will cause to be delivered the legal opinion of its counsel, in agreed
upon form, as to those matters set forth in Section 5(d).
-1-
(iv) The
Company will pay to Xxxxxxxx & Xxxxxx P.A., counsel to WSL, legal fees and
expenses in the amount of $10,000 for representing WSL in connection with the
transactions contemplated by this Agreement.
(v) The
Company will execute and/or deliver to WSL any other agreement or document
as
reasonably requested by WSL to consummate the transactions contemplated by
this
Agreement, including all third party consents required in connection with this
Agreement.
(b) WSL’s
Closing Deliveries.
(i) WSL
will
deliver $2,000,000 by certified check or wire transfer of immediately available
funds as and for payment of the Convertible Promissory Note.
(ii) WSL
will
deliver $100.00 by certified check or wire transfer of immediately available
funds as and for payment of the Warrant.
(iii) WSL
shall
execute and deliver the Registration Rights Agreement.
SECTION
3. REPRESENTATIONS,
WARRANTIES AND COVENANTS OF THE COMPANY
The
Company hereby makes the following representations, warranties and covenants
to
WSL as of the Closing Date:
3.1. 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’s only subsidiaries are (i)
Xxxxxxx Machine Works, Inc., a Texas corporation and (ii) Hemiwedge Valve
Corporation, a Texas corporation (each a “Subsidiary”
and,
together, the “Subsidiaries”).
The
Company has all requisite corporate power and authority to own and operate
its
properties and assets, to execute and deliver this Agreement, the Convertible
Promissory Note, the Warrant and the Registration Rights Agreement (together,
the “Transaction
Documents”),
to
issue and sell the Conversion Shares upon conversion of the Convertible
Promissory Note and the Warrant Shares upon exercise of the Warrant, to carry
out the provisions of the Transaction Documents and to carry on its business
as
presently conducted and as presently proposed to be conducted. The Company
is
duly qualified to do business and is in good standing in each jurisdiction
in
which the nature of its activities and of its properties (both owned and leased)
makes such qualification necessary, except for those jurisdictions in which
failure to be so qualified would not have a material
adverse effect on the Company, or its business or properties, taken as a
whole.
3.2. Capitalization. The
authorized capital stock of the Company consists of 50,000,000 shares of Common
Stock, par value $0.001 per share, of which 20,283,045 shares are issued and
outstanding as of the date hereof, and 10,000,000 shares of Preferred Stock,
par
value $0.001 per share, of which no shares are issued and outstanding as of
the
date hereof. As of the Closing Date, and except as disclosed on Schedule 3.2
or
in the annual, quarterly or periodic reports or information filed or furnished
by the Company within the twelve (12) months prior to the Closing Date (the
“Recent
SEC Filings”)
with
the U.S. Securities and Exchange Commission (the “SEC”)
pursuant to either the Securities Act of 1933, as amended (the “Securities
Act”)
or the
Securities Exchange Act of 1934, as amended (the “Exchange
Act”),
the
Company has no outstanding options, warrants or other rights to acquire any
capital stock, or securities convertible or exchangeable for capital stock
or
for securities themselves convertible or exchangeable for capital stock
(together, “Convertible
Securities”).
As of
the Closing Date, and except pursuant to the Convertible Promissory Note or
the
Warrant, as disclosed on Schedule 3.2 or in the Recent SEC Filings, the Company
has no agreement or commitment to sell or issue any shares of capital stock
or
Convertible Securities. All issued and outstanding shares of the Company’s
capital stock (i) have been duly authorized and validly issued, (ii) are fully
paid and nonassessable, (iii) except as set forth in the Recent SEC Filings,
are
free from any preemptive and cumulative voting rights and (iv) were issued
pursuant to valid registrations, qualifications or exemptions under federal
and
state securities laws. As of the Closing Date, and except as disclosed on
Schedule 3.2 or in the Recent SEC Filings, there are no outstanding rights
of
first refusal or proxy or shareholder agreements of any kind relating to any
of
the Company’s securities to which the Company or any of its executive officers
or directors is a party or as to which the Company otherwise has knowledge.
The
Conversion Shares and the Warrant Shares when and if issued, sold and delivered
in accordance with the terms of the Convertible Promissory Note and the Warrant,
will be validly issued, fully paid, nonassessable and free of any liens or
encumbrances, other than restrictions on transfer under applicable federal
and
state securities laws.
-2-
3.3. Authorization;
Binding Obligations. All
corporate action on the part of the Company, its officers, directors and
shareholders necessary for the authorization of the Transaction Documents and
the performance of all obligations of the Company under this Agreement at the
Closing, has been taken or will be taken prior to the Closing. The Transaction
Documents, when executed and delivered, will be valid and binding obligations
of
the Company enforceable in accordance with their terms, except (i) as limited
by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws
of
general application affecting enforcement of creditors’ rights generally,
(ii) as limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies and (iii) to the
extent that the enforceability of the indemnification provisions of the
Registration Rights Agreement may be limited by applicable laws. The sale of
the
Convertible Promissory Note, (upon conversion of the Convertible Promissory
Note) the Conversion Shares, the Warrant and (upon exercise of the Warrant)
the
Warrant Shares is not (and will not be) subject to any preemptive rights or
rights of first refusal, except as set forth in the Recent SEC Filings (none
of
which third party rights will cause a reduction in the principal amount of
the
Convertible Promissory Note or the number of shares purchasable under the
Warrant being acquired by WSL hereunder).
3.4. Financial
Statements.
The
Company’s unaudited consolidated balance sheet, and the consolidated statements
of operations and cash flow as of and for the three months ended March 31,
2007,
and the audited consolidated balance sheet as of December 31, 2006 and the
audited consolidated statements of operations, cash flows and changes in
stockholders’ equity (deficit) of the Company for the years ended December 31,
2006 and 2005 (all of the foregoing together, the “Financial
Statements”),
all
as included within the Recent SEC Filings, fairly present in all material
respects the consolidated financial condition, operating results, cash flows
and
changes in stockholders’ equity (deficit) of the Company as of the respective
dates and for the respective periods covered thereby. The Financial Statements
have been prepared in accordance with generally accepted accounting principles
in the United States (“GAAP”)
applied on a consistent basis (except as may be indicated in the notes thereto).
For purposes hereof, “Latest
Statement Date”
means
March 31, 2007, and “Latest
Financial Statements”
means
the unaudited consolidated financial statements of the Company as of and for
the
three months ended March 31, 2007. Xxxxxx & Xxxxxx, PC, the accounting firm
that expressed an opinion with respect to the Company’s audited Financial
Statements, is registered as a public accounting firm with the Public Company
Accounting Oversight Board (the “PCAOB”),
conducted its audit of the Company’s audited Financial Statements in accordance
with PCAOB standards and is “independent” within the meaning of PCAOB standards
and the rules and regulations of the SEC and OTC Bulletin Board.
-3-
3.5. Liabilities.
The
Company (i) has no material liabilities and (ii) to the best of its knowledge,
has no material contingent liabilities, in each case not otherwise disclosed
in
the Latest Financial Statements, on Schedule 3.5 or in the Recent SEC Filings,
except (A) current liabilities incurred in the ordinary course of business
subsequent to the Latest Statement Date and (B) obligations under contracts
and
commitments incurred in the ordinary course of business and not required under
GAAP or the rules and regulations of the SEC or the PCAOB to be reflected in
the
Latest Financial Statements, which, in both cases have not had, either in any
individual case or in the aggregate, a material adverse effect on the Company,
or its business or properties, taken as a whole.
3.6. Certain
Agreements and Actions. Except
as
disclosed in the Financial Statements, on Schedule 3.6 or in the Recent SEC
Filings, the Company has not (i) declared or paid any dividends, or
authorized or made any distribution upon or with respect to any class or series
of its capital stock during the periods covered by the Financial Statements
or
since the Latest Statement Date, (ii) since the Latest Statement Date,
except for the Convertible Promissory Note, incurred any indebtedness for money
borrowed or any other material liabilities out of the ordinary course of
business, (iii) except as set forth in Schedule 3.6 or in the Recent SEC
Filings, made any loans or advances to any person, other than ordinary advances
for travel or entertainment expenses or (iv) sold, exchanged or otherwise
disposed of any of its assets or rights, other than in the ordinary course
of
business.
3.7. Obligations
of or to Related Parties.
Except
as disclosed on Schedule 3.7 or in the Recent SEC Filings, there are no
obligations of the Company to officers, directors or key employees of the
Company or, to the Company’s knowledge, to any members of their immediate
families or other affiliates, other than (i) for accrued salaries,
(ii) reimbursement for expenses reasonably incurred on behalf of the
Company and (iii) for other employee benefits made generally available to
all employees (including stock option agreements outstanding under any stock
option plan approved by the Board of Directors of the Company). Except as
disclosed on Schedule 3.7 or in the Recent SEC Filings, to the Company’s
knowledge, none of the officers, directors or key employees of the Company
or,
to the Company’s knowledge, any members of their immediate families or other
affiliates, are indebted to the Company or have any direct or indirect ownership
interest in any firm, corporation or other entity with which the Company is
affiliated or with which the Company has a business relationship, or any firm,
corporation or other entity that competes with the Company, except that such
officers, directors, employees and members of their immediate families may
own
securities (with beneficial ownership not exceeding 2%) in publicly-traded
companies that compete with the Company. Except as disclosed on Schedule 3.7
or
in the Recent SEC Filings, no officer, director or key employee of the Company,
or, to the Company’s knowledge, any member of their immediate families or other
affiliates, is, directly or indirectly, interested in or a party to any material
contract with the Company. Except as disclosed on Schedule 3.7, in the Financial
Statements or in the Recent SEC Filings, the Company is not a guarantor or
indemnitor of any indebtedness of any other person, firm or
corporation.
-4-
3.8. Changes.
Since
the Latest Statement Date, and except as disclosed on Schedule 3.8 or in the
Recent SEC Filings, there has not been, to the Company’s knowledge, any event or
condition of any character that, either individually or cumulatively, has
materially and adversely affected the business, assets, liabilities, financial
condition, operations or prospects of the Company.
3.9. Title
to Properties and Assets; Liens. Except
as
set forth on Schedule 3.9 or in the Recent SEC Filings, the Company has good
and
marketable title to its properties and assets, including the properties and
assets reflected in the Latest Financial Statements, in each case subject to
no
mortgage, pledge, lien, lease, encumbrance or charge, other than (i) those
resulting from taxes that have not yet become delinquent, (ii) liens and
encumbrances that do not materially detract from the value of the property
subject thereto or materially impair the operations of the Company and
(iii) those that have otherwise arisen in the ordinary course of business.
With respect to the property and assets it leases, the Company is in compliance
with such leases in all material respects and, to the Company’s knowledge, holds
a valid leasehold interest free of any liens, claims or encumbrances. All
facilities, machinery, equipment, fixtures and other properties owned, leased
or
used by the Company which are reasonably necessary to the Company’s conduct of
its business are in good operating condition and repair and are reasonably
fit
and usable for the purposes for which they are being used, reasonable wear
and
tear excepted.
3.10. Patents
and Trademarks.
Schedule
3.10 contains a listing of all U.S. and foreign patents and patent applications,
and U.S. and foreign trademarks and service marks and applications therefor,
owned by, assigned to or licensed to the Company. Except as set forth on
Schedule 3.10 or in the Recent SEC Filings, the Company owns or has a valid
right to use all patents, trademarks, service marks, trade names, copyrights,
trade secrets, information and other proprietary rights and processes necessary
for its business as now conducted and as proposed to be conducted, without
any
known infringement of the rights of others. None of the Company’s employees is
obligated under any contract (including licenses, covenants or commitments
of
any nature) or other agreement, or subject to any judgment, decree or order
of
any court or administrative agency, that would interfere with their duties
to
the Company or that would conflict with the Company’s business as now conducted
or proposed to be conducted. None of the execution or delivery of, or the
performance of the transactions contemplated by, the Transaction Documents,
the
carrying on of the Company’s business by the employees of the Company nor the
conduct of the Company’s business as currently conducted or proposed to be
conducted will conflict with or result in a breach of the terms, conditions
or
provisions of, or constitute a default under, any contract, covenant or
instrument under which any employee is now obligated. The Company does not
require the use of any inventions, trade secrets or proprietary information
of
any of its employees made prior to their employment by the Company, except
for
inventions, trade secrets or proprietary information that have been exclusively
assigned to the Company.
-5-
Except
as
set forth in Schedule 3.10, (i) each of the Company’s key employees have
executed agreements of confidentiality and non-disclosure as to the Company’s
confidential information, including its intellectual property and trade secrets,
and (ii) each of the Company’s employees has agreed to assign to the Company
any
and
all significant conceptions and ideas for inventions, improvements and valuable
discoveries, whether patentable or not, which are conceived or made by such
employees, solely or jointly with another, during the period of employment,
and
which are directly related to the business or activities of the Company and
which the employee conceives as a result of the employee’s employment by the
Company (other than inventions for which no equipment, supplies, facility or
trade secret information of the Company was used and which was developed
entirely on the employee’s own time and (1) which do not relate (a) directly to
the business of the Company or (b) to the Company’s actual or demonstrably
anticipated research or development or (2) which do not result from any work
performed by the employee for the Company).
3.11. Compliance
with Other Instruments.
Except
as disclosed on Schedule 3.11, the Company is not in violation or default of
any
term of its Certificate of Incorporation or Bylaws, or to its knowledge in
any
material respect of any mortgage, indenture, contract, agreement, instrument
or
contract to which it is party or by which it is bound or of any judgment,
decree, order, writ or, to its knowledge, any statute, rule or regulation
applicable to the Company that would materially and adversely affect the
business, assets, liabilities, financial condition, operations or prospects
of
the Company. The execution and delivery of, and the performance of and
compliance with the transactions contemplated by, the Transaction Documents,
and
the issuance and sale of the Convertible Promissory Note, upon conversion of
the
Convertible Promissory Note, the Conversion Shares, the Warrant and, upon
exercise of the Warrant, the Warrant Shares, will not, with or without the
passage of time or giving of notice, result in any such material violation,
or
be in conflict with or constitute a default under any such term, or result
in
the creation of any mortgage, pledge, lien, encumbrance or charge upon any
of
the properties or assets of the Company or the suspension, revocation,
impairment, forfeiture or nonrenewal of any permit, license, authorization
or
approval applicable to the Company, its business or operations or any of its
assets or properties, except for such results that would not materially and
adversely affect the business, assets, liabilities, financial condition,
operations or prospects of the Company. The Company is in compliance with all
effective requirements of the Xxxxxxxx-Xxxxx Act of 2002, as amended, and the
rules and regulations thereunder, that are applicable to it, except where such
noncompliance could not have or reasonably be expected to materially and
adversely affect the business, assets, liabilities, financial condition,
operations or prospects of the Company.
-6-
3.12. Litigation. There
is
no action, suit, proceeding or investigation pending or, to the Company’s
knowledge, currently threatened against the Company that questions the validity
of this Agreement or the other Transaction Documents or the right of the Company
to enter into any of such agreements, or to consummate the transactions
contemplated hereby or thereby. Except as disclosed in the Financial Statements,
on Schedule 3.12 or in the Recent SEC Filings, there is no action, suit,
proceeding or investigation or, to the Company’s knowledge, currently threatened
against the Company that might result, either individually or in the aggregate,
in any material adverse change in the assets, condition, affairs or prospects
of
the Company, financial or otherwise, or any change in the current equity
ownership of the Company. The foregoing includes, without limitation, actions
pending or threatened involving the prior employment of any of the employees
of
the Company, their use in connection with the Company’s business of any
information or techniques allegedly proprietary to any of their former employers
or their obligations under any agreements with prior employers. The Company
is
not a party or subject to the provisions of any order, writ, injunction,
judgment or decree of any court or government agency or
instrumentality.
3.13. Tax
Returns and Payments. The
Company has filed all tax returns (federal, state and local) to its knowledge
required to be filed by it. All taxes shown to be due and payable on such
returns, any assessments imposed, and, to the Company’s knowledge, all other
taxes due and payable by the Company on or before the Closing have been paid
or
will be paid prior to the time they become delinquent. The Company has not
been
advised (i) that any of its returns, federal, state or other, have been or
are being audited as of the date hereof or (ii) of any deficiency in
assessment or proposed judgment to its federal, state or other taxes. The
Company has no knowledge of any liability of any tax to be imposed upon the
properties or assets of the Company as of the date of this Agreement that is
not
adequately provided for.
3.14. Employees.
The
Company has no collective bargaining agreements with any of its employees.
The
Company is not aware of any labor union organizing activity relating to its
employees. Except as set forth on Schedule 3.14 or in the Recent SEC Filings,
no
employee has any agreement or contract, written or verbal, regarding his
employment. Except as disclosed on Schedule 3.14 or in the Recent SEC Filings,
the Company is not a party to or bound by any currently effective employment
contract, deferred compensation arrangement, bonus plan, incentive plan, profit
sharing or defined benefit plan, retirement agreement or other employee
compensation plan or agreement. To the Company’s knowledge, no employee of the
Company, nor any consultant with whom the Company has contracted, is in
violation of any material term of any employment contract, proprietary
information agreement or any other agreement relating to the right of any such
individual to be employed by, or to contract with, the Company because of the
nature of the business to be conducted by the Company; and, to the Company’s
knowledge, the continued employment by the Company of its present employees,
and
the performance of the Company’s contracts with its independent contractors,
will not result in any such violation. The Company has not received any written
or oral notice alleging that any such violation has occurred. Except as
disclosed on Schedule 3.14 or in the Recent SEC Filings, no employee of the
Company has been granted the right to continued employment by the Company or
to
any material compensation following termination of employment with the Company.
The Company is not aware that any officer or key employee, or that any group
of
key employees, intends to terminate their employment with the Company, nor
does
the Company have a present intention to terminate the employment of any officer,
key employee or group of key employees.
-7-
3.15. Compliance
with Laws; Permits. Except
as
disclosed on Schedule 3.15 or in the Recent SEC Filings, to its knowledge,
the
Company is not in violation of any applicable statute, rule, regulation, order
or restriction of any domestic or foreign government or any instrumentality
or
agency thereof in respect of the conduct of its business or the ownership of
its
properties that would materially and adversely affect the business, assets,
liabilities, financial condition, operations or prospects of the Company. No
governmental orders, permissions, consents, approvals or authorizations are
required to be obtained and no registrations or declarations are required to
be
filed in connection with the execution and delivery of, and the performance
of
the transactions contemplated by, the Transaction Documents or the sale and
issuance of the Convertible Promissory Note, upon exercise of the Convertible
Promissory Note, the Conversion Shares, the Warrant and, upon exercise of the
Warrant, the Warrant Shares, except such as has been duly and validly obtained
or filed, or with respect to any filings that must be made after the Closing,
as
will be filed in a timely manner. To its knowledge, the Company has all
franchises, permits, licenses and any similar authority necessary for the
conduct of its business as now being conducted by it, the lack of which could
materially and adversely affect the business, properties, prospects or financial
condition of the Company and the Company believes it can obtain any similar
authority for the conduct of its business as now conducted or planned to be
conducted.
3.16. Environmental
and Safety Laws.
The
Company is not in violation of any applicable statute, law or regulation
relating to the environment or occupational health and safety, where such
violation would have a material adverse effect on the Company, and to the
Company’s knowledge, no material expenditures are or will be required in order
to comply with any such existing statute, law or regulation. Without limiting
the foregoing:
|
(i)
|
with
respect to any real
property owned, leased or otherwise utilized by the Company (“Real
Property”),
the Company is not or has not in the past been in violation of any
Hazardous Substance Law which violation could reasonably be expected
to
result in a material liability to the Company or its properties and
assets;
|
|
(ii)
|
neither
the Company nor, to the knowledge of the Company, any third party
has
used, released, generated, manufactured, produced or stored, in,
on,
under, or about any Real Property, or transported thereto or therefrom,
any Hazardous Substances that could reasonably be expected to result
in a
material liability to the Company under any Hazardous Substance
Law;
|
-8-
|
(iii)
|
to
the knowledge of the Company, there are no underground tanks, whether
operative or temporarily or permanently closed, located on any Real
Property that could reasonably be expected to result in a material
liability to the Company under any Hazardous Substance
Law;
|
|
(iv)
|
there
are no Hazardous Substances used, stored or present at, or on, or
to the
knowledge of the Company that could reasonably be expected to migrate
onto
any Real Property, except in compliance with Hazardous Substance
Laws;
and
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|
(v)
|
to
the knowledge of the Company, there neither is nor has been any condition,
circumstance,
action, activity or event that could reasonably be expected to be
a
material violation by the Company of any Hazardous Substance Law,
or to
result in liability to the Company under any Hazardous Substance
Law.
|
For
purposes hereof, “Hazardous
Substances”
means
(statutory acronyms and abbreviations having the meaning given them in the
definition below of “Hazardous
Substances Laws”)
substances defined as “hazardous substances,” “pollutants” or “contaminants” in
Section 101 of the CERCLA; those substances defined as “hazardous waste,”
“hazardous materials” or “regulated substances” by the RCRA; those substances
designated as a “hazardous substance” pursuant to Section 311 of the CWA;
those substances defined as “hazardous materials” in Section 103 of the
HMTA; those substances regulated as a hazardous chemical substance or mixture
or
as an imminently hazardous chemical substance or mixture pursuant to
Sections 6 or 7 of the TSCA; those substances defined as “contaminants” by
Section 1401 of the SDWA, if present in excess of permissible levels; those
substances regulated by the Oil Pollution Act; those substances defined as
a
pesticide pursuant to Section 2(u) of the FIFRA; those substances defined
as a source, special nuclear or by-product material by Section 11 of the
AEA; those substances defined as “residual radioactive material” by
Section 101 of the UMTRCA; those substances defined as “toxic materials” or
“harmful physical agents” pursuant to Section 6 of the OSHA; those
substances defined as hazardous wastes in 40 C.F.R. Part 261.3; those
substances defined as hazardous waste constituents in 40 C.F.R.
Part 260.10, specifically including Appendix VII and VIII of Subpart D of
40 C.F.R. Part 261; those substances designated as hazardous substances in
40 C.F.R. Parts 116.4 and 302.4; those substances defined as hazardous
substances or hazardous materials in 49 C.F.R. Part 171.8; those substances
regulated as hazardous materials, hazardous substances, or toxic substances
in
40 C.F.R. Part 1910; any chemical, material, toxin, pollutant, or waste
regulated by or in any other Hazardous Substances Laws; and in the regulations
adopted and publications promulgated pursuant to said laws, whether or not
such
regulations or publications are specifically referenced herein.
-9-
“Hazardous
Substances Law”
means
any of:
| (i) |
the
Comprehensive Environmental Response, Compensation, and Liability
Act
of 1980,
as amended (42 U.S.C. Section 9601 et
seq.)
(“CERCLA”);
|
| (ii) |
the
Federal Water Pollution Control Act (33 U.S.C. Section 1251
et
seq.)
(“Clean Water
Act”
or
“CWA”);
|
|
(iii)
|
the
Resource Conservation and Recovery Act (42 U.S.C. Section 6901
et
seq.)
(“RCRA”);
|
| (iv) |
the
Atomic Energy Act of 1954 (42 U.S.C. Section 2011 et
seq.)
(“AEA”);
|
| (v) |
the
Clean Air Act (42 U.S.C. Section 7401 et
seq.)
(“CAA”);
|
|
(vi)
|
the
Emergency Planning and Community Right to Know Act (42 U.S.C.
Section 11001 et
seq.)
(“EPCRA”);
|
|
(vii)
|
the
Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C.
Section 136 et
seq.)
(“FIFRA”);
|
| (viii) |
the
Oil Pollution Act of 1990 (33 U.S.C.A. Section 2701 et
seq.);
|
| (ix) |
the
Safe Drinking Water Act (42 U.S.C. Sections 300f et
seq.)
(“SDWA”);
|
|
(x)
|
the
Surface Mining Control and Reclamation Act of 1974 (30 U.S.C.
Sections 1201 et
seq.)
(“SMCRA”);
|
| (xi) |
the
Toxic Substances Control Act (15 U.S.C. Section 2601 et seq.)
(“TSCA”);
|
|
(xii)
|
the
Hazardous Materials Transportation Act (49 U.S.C. Section 5101
et
seq.)
(“HMTA”);
|
|
(xiii)
|
the
Uranium Mill Tailings Radiation Control Act of 1978 (42 U.S.C.
Section 7901 et seq.) (“UMTRCA”);
|
|
(xiv)
|
the
Occupational Safety and Health Act (29 U.S.C. Section 651 et seq.)
(“OSHA”);
and
|
|
(xv)
|
all
other federal, state and local governmental rules which govern Hazardous
Substances, and the regulations adopted and publications promulgated
pursuant to all such foregoing
laws.
|
-10-
3.17. Offering
Valid.
Assuming
the accuracy of the representations and warranties of WSL contained in Section
4, the offer, sale and issuance of the Convertible Promissory Note, upon
conversion of the Convertible Promissory Note, the Conversion Shares, the
Warrant and, upon exercise of the Warrant, the Warrant Shares will be exempt
from the registration requirements of the Securities Act, and will have been
registered or qualified (or are exempt from registration and qualification)
under the registration, permit or qualification requirements of the State of
Minnesota.
3.18. Full
Disclosure.
None of
the Transaction Documents contains any untrue statement of a material fact
nor,
to the Company’s knowledge and belief, omits to state a material fact necessary
in order to make the statements contained herein or therein not
misleading.
3.19. Insurance.
The
Company has fire and casualty insurance policies with coverage customary for
companies similarly situated to the Company.
3.20. Foreign
Corrupt Practices. Neither
the Company, nor to the knowledge of the Company, any agent or other person
acting on behalf of the Company, has (i) directly or indirectly, used any
corrupt funds for unlawful contributions, gifts, entertainment or other unlawful
expenses related to foreign or domestic political activity, (ii) made any
unlawful payment to foreign or domestic government officials or employees or
to
any foreign or domestic political parties or campaigns from corporate funds,
(iii) failed to disclose fully any contribution made by the Company (or made
by
any person acting on its behalf of which the Company is aware) which is in
violation of law, or (iv) violated in any material respect any provision of
the
Foreign Corrupt Practices Act of 1977, as amended.
3.21. Brokers
or Finders.
Except
as set forth in Schedule 3.21, the Company has not incurred nor will incur,
directly or indirectly, any liability for any brokerage or finders’ fees or
agent’s commissions or any similar charges (whether payable in cash, in equity
securities or by a combination thereof) in connection with this Agreement or
any
transaction contemplated hereby.
3.22 SEC
Reports. Except
as
set forth in Schedule 3.22, the Company has filed or furnished all reports,
forms or other information required to be filed or furnished by it under the
Securities Act and the Exchange Act for the twelve months preceding the date
hereof or such shorter period as the Company has been required by law to file
or
furnish such reports, forms or other information (the foregoing materials being
collectively referred to herein as the “SEC
Reports”)
on a
timely basis or has timely filed a valid extension of such time of filing or
furnishing and has filed or furnished any such SEC Reports prior to the
expiration of any such extension. As of their respective dates, the SEC Reports
complied in all material respects with the requirements of the Securities Act
and the Exchange Act and the rules and regulations of the SEC promulgated
thereunder, and none of the SEC Reports, when filed, contained any untrue
statement of a material fact or omitted to state a material fact required to
be
stated therein or necessary in order to make the statements therein, in light
of
the circumstances under which they were made not misleading.
-11-
3.23 Investment
Company Act.
The
Company is not, and will not use the net proceeds from the sale of the
Convertible Promissory Note, the Warrant and, upon exercise of the Warrant,
the
Warrant Shares in a manner so as to become, an “investment company,” or a
company “controlled” by an “investment company,” within the meaning of the
Investment Company Act of 1940, as amended.
3.24 No
Manipulation of Stock.
Neither
the Company, nor any of its directors, officers or controlling persons, has
taken or will, in violation of applicable law, take, any action designed to
or
that might reasonably be expected to cause or result in, or which has
constituted, stabilization or manipulation of the price of the Company’s Common
Stock to facilitate the sale or resale of the securities issued or issuable
in
connection with the transactions contemplated under this Agreement.
3.25 Registration
Rights.
Except
as disclosed on Schedule 3.25 or in the Recent SEC Filings, or as required
pursuant to the Registration Rights Agreement, the Company is presently not
under any obligation, and has not granted any rights, to register (as defined
in
the Registration Rights Agreement) any of the Company’s presently outstanding
securities or any of its securities that may hereafter be issued.
3.26 Press
Releases.
The
press releases disseminated by the Company during the twelve months preceding
the date of this Agreement do not individually or taken as a whole contain
any
untrue statement of a material fact or omit to state a material fact required
to
be stated therein or necessary in order to make the statements therein, in
light
of the circumstances under which they were made and when made, not
misleading.
3.27 Material
Changes.
Since
the date of the Latest Financial Statements, except as specifically disclosed
in
the Recent SEC Filings, (i) there has been no event, occurrence or development
that has had or that could reasonably be expected to result in a material and
adverse effect on the results of operations, assets, prospects, business or
condition (financial or otherwise) of the Company and the Subsidiaries, taken
as
a whole, (ii) the Company has altered its method of accounting or the identity
of its auditors and (iv) the Company has not declared or made any dividend
or
distribution of cash or other property to its shareholders or purchased,
redeemed or made any agreements to purchase or redeem any shares of its capital
stock. The Company does not have pending before the SEC any request for
confidential treatment of information.
3.28 Listing
and Maintenance Requirements.
Except
as specified in the Recent SEC Filings, the Company has not, in the two years
preceding the date hereof, received notice from any Trading Market to the effect
that the Company is not in compliance with the listing or maintenance
requirements thereof. The Company is in compliance with the listing and
maintenance requirements for continued listing of the Common Stock on the
Trading Market on which the Common Stock is currently listed or quoted. The
issuance and sale of the Convertible Promissory Note, upon conversion of the
Convertible Promissory Note, the Conversion Shares, the Warrant and, upon
exercise of the Warrant, the Warrant Shares under the Transaction Documents
does
not contravene the rules and regulations of the Trading Market on which the
Common Stock is currently listed or quoted, and no approval of the shareholders
of the Company thereunder is required for the Company to issue and deliver
to
WSL the securities contemplated by the Transaction Documents. A “Trading
Market”
is
the
New York Stock Exchange, the American Stock Exchange, the NASDAQ National
Market, the NASDAQ SmallCap Market or OTC Bulletin Board.
-12-
SECTION
4. REPRESENTATIONS
AND WARRANTIES OF WSL
WSL
hereby represents and warrants to the Company as of the Closing Date, and
agrees, as follows:
4.1. Authorization.
WSL
has
full power and authority to enter into this Agreement and each of the
Transaction Documents, and each such agreement, when executed and delivered
by
WSL, will constitute the valid and binding obligation of WSL enforceable in
accordance with its terms, except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
affecting enforcement of creditors’ rights generally and (ii) as limited by laws
relating to the availability of specific performance, injunctive relief or
other
equitable remedies.
4.2. Investment
Representations.
WSL
understands that neither the offer nor the sale of the Convertible Promissory
Note, upon conversion of the Convertible Promissory Note, the Conversion Shares,
the Warrant or, upon exercise of the Warrant, the Warrant Shares has been,
or
will not be, registered under the Securities Act (except as required by the
Registration Rights Agreement). WSL also understands that the Convertible
Promissory Note, upon conversion of the Convertible Promissory Note, the
Conversion Shares, the Warrant and, upon exercise of the Warrant, the Warrant
Shares are being offered and sold pursuant to an exemption from registration
contained in the Securities Act based in part upon WSL’s representations
contained in the Agreement. WSL hereby represents and warrants as
follows:
(a) WSL
Bears Economic Risk. WSL
has
substantial experience in evaluating and investing in private placement
transactions of securities in companies similar to the Company so that it is
capable of evaluating the merits and risks of its investment in the Company
and
has the capacity to protect its own interests. WSL must bear the economic risk
of this investment indefinitely unless the Convertible Promissory Note, upon
conversion of the Convertible Promissory Note, the Conversion Shares, the
Warrant and, upon exercise of the Warrant, the Warrant Shares are registered
pursuant to the Securities Act, or an exemption from registration is available.
Pending the availability of registration under the Registration Rights
Agreement, WSL has no present intention of selling or otherwise transferring
the
Convertible Promissory Note, upon conversion of the Convertible Promissory
Note,
the Conversion Shares, the Warrant or, upon exercise of the Warrant, the Warrant
Shares, or any interest therein. The WSL also understands that there is no
assurance that any exemption from registration under the Securities Act will
be
available and that, even if available, such exemption may not allow WSL to
transfer all or any portion of the Convertible Promissory Note, upon conversion
of the Convertible Promissory Note, the Conversion Shares, the Warrant or,
upon
exercise of the Warrant, the Warrant Shares under the circumstances, in the
amounts or at the times WSL might propose.
-13-
(b) Acquisition
for Own Account.
WSL is
acquiring, or will acquire, the Convertible Promissory Note, upon conversion
of
the Convertible Promissory Note, the Conversion Shares, the Warrant and, upon
exercise of the Warrant, the Warrant Shares for its own account for investment
only, and not with a view towards their public distribution.
(c) WSL
Can Protect Its Interest.
WSL
represents that by reason of its, or of its management’s, business or financial
experience, WSL has the capacity to protect its own interests in connection
with
the transactions contemplated in this Agreement. Further, WSL is aware of no
publication of any advertisement in connection with the transactions
contemplated in the Agreement.
(d) Accredited
Investor.
WSL
represents that it is an accredited investor within the meaning of Rule 501
of
Regulation D of the Securities Act.
(e) Residence.
WSL
represents that it is organized under the laws of the British Virgin Islands
and
that its principal place of business is located in the State of
Minnesota.
SECTION
5. CONDITIONS FOR CLOSING
5.1. Conditions
for the Company to Satisfy for the Closing.
The
obligation
of WSL to purchase the Convertible Promissory Note and Warrant as contemplated
by this Agreement is subject to satisfaction of the following contingencies
at
or prior to the Closing:
(a) The
Company
shall have obtained all third party consents required in connection with this
Agreement.
(b) The
Company shall have delivered the agreements, documents and instruments and
paid
the fees described in Section 2.1(a) of this Agreement.
(c) The
Company shall have performed and complied with all agreements, obligations
and
conditions contained in this Agreement that are required to be performed or
complied with by it on or before the Closing.
(d) Spectrum
Law Group, LLP, legal counsel to the Company, shall have delivered an opinion
to
WSL with respect to the following matters (which opinion may contain customary
exclusions and limitations that are reasonably acceptable to counsel for
WSL):
|
The
Company is a corporation duly incorporated, validly existing and
in good
standing under the laws of the State of Delaware. Each Subsidiary
is a
corporation duly incorporated, validly existing and in good standing
under
the laws of the State of Texas. The Company and each Subsidiary has
all
corporate power and authority necessary to own its properties and
to
conduct its business as, to such counsel’s knowledge, it is presently
conducted.
|
-14-
|
(ii)
|
The
Company has the requisite corporate power and authority to execute,
deliver and perform its obligations under the Transaction
Documents.
|
|
(iii)
|
The
Transaction Documents have been duly authorized by all necessary
corporate
action on the part of the Company.
|
|
(iv)
|
The
authorized capital stock of the Company consists of 50,000,000 shares
of
Common Stock, par value $0.001 per share, of which 20,283,045 shares
are
outstanding, and 10,000,000 shares of Preferred Stock, par value
$0.001,
of which no shares are outstanding.
|
|
(v)
|
Each
of the Transaction Documents, when executed and delivered by the
Company,
will constitute valid and binding obligations of the Company, enforceable
against the Company in accordance with their
terms.
|
|
(vi)
|
The
Conversion Shares and the Warrant Shares have been duly authorized,
and
when issued in accordance with the terms of the Convertible Promissory
Note or Warrant, as applicable, will be validly issued, fully paid
and
nonassessable.
|
|
(vii)
|
The
execution and delivery of the Transaction Documents by the Company
will
not result in (i) a violation of the Company’s Certificate of
Incorporation or Bylaws or (ii) a violation of any judgment or
order known to such counsel.
|
SECTION
6. OTHER AGREEMENTS
For
so
long as any amount is outstanding under the Convertible Promissory Note or
WSL
beneficially owns any portion of the Warrant or the Warrant Shares, the Company
covenants and agrees to the following (as to which the failure to comply with
any provision shall constitute a material event of default under this
Agreement):
6.1 Internal
Accounting Controls.
The
Company shall maintain a system of internal accounting controls sufficient
to
provide reasonable assurance that (i) transactions are executed in accordance
with management’s general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with GAAP and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management’s general or specific
authorization, and (iv) the recorded accountability for assets is compared
with
the existing assets at reasonable intervals and appropriate action is taken
with
respect to any differences.
6.2. SEC
Reporting.
The
Company shall (a) timely file (or obtain extensions in respect thereof and
file
within the applicable grace period) all reports and other information required
to be filed or furnished by the Company pursuant to the Exchange Act; (b)
maintain disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) that are designed to ensure that material information
relating to the Company is made known to the certifying officers by others
within the Company, particularly during the period in which the Company’s Form
10-KSB or Form 10-QSB, as the case may be, is being prepared and (c) when and
to
the extent required by SEC and PCAOB rules and regulations, maintain internal
control over financial reporting (as defined in Exchange Act Rules 13a-15(f)
and
15d-15(f)).
-15-
SECTION
7. MISCELLANEOUS
7.1. Governing
Law.
This
Agreement shall be governed by the internal laws of the State of Minnesota
as
such laws are applied to agreements between Minnesota residents entered into
and
performed entirely in Minnesota.
7.2. Survival.
The
representations, warranties, covenants and agreements made in this Agreement
shall survive any investigation made by the parties and the closing of the
transactions contemplated hereby. All statements as to factual matters contained
in any certificate or other instrument delivered by or on behalf of the Company
pursuant hereto in connection with the transactions contemplated hereby shall
be
deemed to be representations and warranties by the Company hereunder solely
as
of the date of such certificate or instrument.
7.3. Successors
and Assigns.
Except
as otherwise expressly provided herein, the provisions hereof shall inure to
the
benefit of, and be binding upon, the successors, assigns, heirs, executors
and
administrators of the parties hereto and shall inure to the benefit of and
be
enforceable by each person who shall be a holder of the Convertible Promissory
Note, the Warrant and, upon exercise of the Warrant, the Warrant Shares from
time to time.
7.4. Entire
Agreement.
The
Transaction Documents and the other documents delivered pursuant hereto
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and no party shall be liable or bound to
any
other in any manner by any representations, warranties, covenants and agreements
except as specifically set forth herein and therein.
7.5. Severability.
In case
any provision of the Agreement shall be invalid, illegal or unenforceable,
the
validity, legality and enforceability of the remaining provisions shall not
in
any way be affected or impaired thereby.
7.6. Amendment
and Waiver.
This
Agreement may be amended or modified, and any provision hereunder may be waived,
only upon the written consent of the Company and WSL.
7.7. Notices.
All
notices, requests, consents, and other communications hereunder shall be in
writing and shall be deemed effectively given and received when delivered in
person or by national overnight courier service or by certified or registered
mail, return receipt requested, or by telecopier, addressed as
follows:
| (a) |
if
to the Company, at
Xxxxxxx
Industries, Inc.
00000
XX 0000
Xxxxxx,
Xxxxx 00000
Attention:
Xxxxxxx X. Xxxxxxxx, Chief Financial Officer
Facsimile:
(000) 000-0000
|
-16-
|
with
a copy to:
Spectrum
Law Group, LLP
0000
Xxxx Xxxxxx, Xxxxx 000
Xxxxxx,
Xxxxxxxxxx 00000
Attention:
Xxxx X. Xxxxxxxx, Esq.
Facsimile:
(000) 000-0000
|
| (b) |
if
to WSL, at
Whitebox
Advisors, LLC
0000
Xxxxxxxxx Xxxxxxxxx, Xxxxx 000
Xxxxxxxxxxx,
Xxxxxxxxx 00000
Attention:
Xxxxxxxx Xxxx, Chief Financial Officer
Facsimile:
(000) 000-0000
with
a copy to:
Xxxxxxxx
& Xxxxxx P.A.
000
Xxxxx Xxxxx Xxxxxx, Xxxxx 0000
Xxxxxxxxxxx,
Xxxxxxxxx 00000
Attention:
Xxxxxxx X. Xxxxxxx, Esq.
Facsimile:
(000) 000-0000
|
7.8. Indemnification
by the Company.
The
Company agrees to indemnify and hold WSL, its affiliates and the directors,
officers, managers, employees and agents of each of the foregoing (each, a
“Whitebox
Party”)
harmless against any and all claims, losses, liabilities, obligations, damages,
judgments, costs or expenses (including reasonable legal fees and costs) that
any such Whitebox Party may suffer, sustain or become subject to as a result
of,
or in connection with, or in any way related to or by reason of (a) any
misrepresentation, breach or inaccuracy of any representation, warranty,
covenant or agreement made by the Company in any of the Transaction Documents;
or (b) the execution, delivery or performance of any of the Transaction
Documents or any transaction contemplated by any of the Transaction
Documents.
-17-
7.9. Expenses.
The
Company agrees to pay or reimburse WSL for its reasonable legal fees and
expenses that it may incur after the date hereof in connection with the granting
of any waiver with respect to, the modification of any of the terms or
provisions of, or the enforcement of any of the Transaction
Documents.
7.10. Titles
and Subtitles.
The
titles of the sections and subsections of the Agreement are for convenience
of
reference only and are not to be considered in construing this
Agreement.
7.11. Counterparts.
This
Agreement may be delivered via facsimile or other means of electronic
communication, and may be executed in counterparts, each of which shall be
an
original, but all of which together shall constitute one
instrument.
IN
WITNESS WHEREOF,
the
undersigned have hereunto affixed their signatures.
| Whitebox Xxxxxxx Ltd. | Xxxxxxx Industries, Inc. | ||
| By | By | ||
|
Xxxxxxxx Xxxx, |
Xxxxxxx X. Xxxxxxxx, |
||
|
Chief
Financial
Officer
|
Chief
Financial
Officer
|
-18-
