SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT,
dated as of September 29, 2009 (this "Agreement") is
entered into by and among Ecology
Coatings, Inc., a Nevada corporation (the "Company"),
Xxxxxxxxx Acquisition Corporation, an Illinois corporation (the "Purchaser") and
Xxxxxxx Xxxxxxxxx. The parties, intending to be legally bound, hereby
agree as follows:
WHEREAS, the Company desires
to sell to Purchaser, and the Purchaser desires to purchase from the Company up
to three thousand (3,000) five (5.0%) percent Cumulative Convertible Preferred
Shares of the Company at a price per share of One Thousand and 00/100 dollars
($1,000/00) (the “Convertible Preferred Stock”) containing the terms set forth
in the Certificate of Designation attached as Exhibit “A” hereto (the
“Certificate of Designation”).
The amounts in excess of $240,000.00 invested by Xxxxxxxxx Acquisition
Corporation to Company under this agreement is not guaranteed and will be
subject to Xxxxxxxxx Acquisition Corporation’s sole and absolute
discretion.
NOW, THEREFORE, in
consideration of the mutual promises herein made, and in consideration of the
representations, warranties and covenants herein contained, the Company and
Purchaser agree as follows:
1. Sale of Convertible Preferred
Stock. Subject to the terms and conditions of this Agreement,
Company hereby agrees to sell to Purchaser and Purchaser hereby agrees to
purchase from Company up to three thousand (3,000) shares of the Convertible
Preferred Stock at a price of One Thousand and 00/100 dollars ($1,000/00) per
share. Upon the execution of this Agreement (the "First Closing"):
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a.
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The
Company shall deliver or cause to be delivered to Purchaser
the following: (i) this Agreement duly executed by
the Company; (ii) a certificate evidencing that number of shares of
Convertible Preferred Stock being purchased by
Purchaser, registered in the name of Purchaser; (iii)
the Registration Rights Agreement [attached]
duly executed by the Company and (iv) and Warrant (the "Warrant")
[attached], registered in the name of Purchaser and giving Purchaser the
right to acquire the number of shares of the Company’s common stock (the
“Common Stock”) upon the exercise of
the Warrant; and
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b.
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Purchaser
shall deliver or cause to be delivered to the Company the following: (i)
this Agreement duly executed by Purchaser; (ii)
the purchase price for the
Shares being purchased by
Purchaser, by check, wire transfer, or
any combination thereof, payable to
Company, and (iii)
the Registration Rights Agreement duly executed
by Purchaser.
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2. Additional Closings. After
investment of the initial $240,000.00 Purchaser, in Purchaser’s sole and
absolute discretion, may purchase up to 2760 additional Convertible Preferred
Shares on or before six (6) months after the First Closing
(the "Additional Closing(s)"), subject to
the same procedures as
provided in Section 1.
3. Conversion. The Convertible
Preferred Stock can be converted at Purchaser’s option at any time into shares
of the Company’s Common Stock at a conversion price equal to seventy-seven (77%)
percent of the average closing price of the Company’s common stock as quoted on
the Over the Counter Bulletin Board, or, where applicable, other national
exchange, for the five (5) business days preceding the First Closing or, as
applicable, any Additional Closing (the “Conversion Price”).
4. Warrants. Upon the First
Closing, and each Additional Closing(s) thereafter, the Company shall issue
Purchaser a warrant to purchase that number of shares of the Company’s Common
Stock which is equal to six (6%) percent of the total dollar amount invested by
Purchaser at the respective Closing (the “Warrant”). Thus, for the avoidance of
doubt, should Purchaser invest One Million and 00/100 dollars ($1,000,000/00)
(e.g., purchases 1,000 shares of the Convertible Preferred Stock), the Company
shall issue Purchase a warrant to purchase sixty thousand (60,000/00) shares of
the Company’s Common Stock. The exercise price of a Warrant shall be equal to
the Conversion Price.
5. Budgetary Authority.
Purchaser shall have approval authority over fifty (50%) percent of the proceeds
of the First Closing, or, as applicable, any Additional Closing up to a maximum
of Five hundred thousand dollars ($500,000.00) in total (the "Discretionary
Investment"). Purchaser will advise and make recommendations to the
Company as to the use of such Discretionary Investment, which shall include
recommendations as to the Company’s investor relations and shareholder
communications programs as well as other company debts and payables per its
existing agreements. The Company shall not employ nor withhold the
Discretionary Investment without the prior approval of the
Purchaser. Upon approval or recommendation of the Discretionary
Investment from the Purchaser, the Company shall make the approved
payments within three (3) business days of the request of the Purchaser.
The Company's failure to abide by the terms and conditions of
this paragraph five (5) or paragraph nine (9) shall constitute a material
breach of this Securities Purchase Agreement and result in liquidated damages
for Purchaser equal to four times the amount of Discretionary Investment
funds. In the event the Company fails to abide by the terms and
conditions of this paragraph five (5) or paragraph nine (9) it is
understood and agreed that Purchaser has the unequivocal right to obtain timely
injunctive relief to protect the rights of Purchaser.
Notwithstanding the foregoing, Purchaser shall not have authority pursuant
to this paragraph five (5) to bind or obligate the Company with respect to any
material agreement.
6. Representations and Warranties of
Company. Company hereby represents and warrants to
Purchaser in
the First Closing that the statements
contained in the following paragraphs of this Section 6 are all true and correct
as of the date of this Agreement and the Closing Date, and to
Purchaser in an Additional Closing that the statements contained in
the following paragraphs of this Section 6 are all true
and correct as of the date of the Additional
Closing:
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a.
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Organization and Standing:
Articles and Bylaws. Company is a corporation duly
organized, validly existing and in good standing
under the laws of
the State of Nevada and has
all requisite corporate power and
authority to carry on its business as now
conducted.
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b.
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Corporate Power. Company has
all requisite legal and corporate power to enter
into, execute, deliver and perform this Agreement
and the Registration Rights Agreement (the "Registration Rights
Agreement") of even date herewith between Company and Purchaser. This
Agreement and the Registration Rights Agreement
(the "Transaction Documents") have been duly
executed by the Company and constitute the
legal, valid and binding obligations of
Company, enforceable in accordance with their terms, except as the same
may be limited by (i)
bankruptcy, insolvency, moratorium, and
other laws of general application affecting
the enforcement of creditors' rights
and (ii) limitations on the
enforceability of
the indemnification provisions of
the Registration Rights Agreement as limited by
applicable securities laws.
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c.
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Authorization.
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i.
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Corporate
Action. All corporate and legal action on the part of
Company, its officers, directors and shareholders necessary for the
execution and delivery of this Agreement, the Registration Rights
Agreement, the sale and issuance of the Convertible Preferred Stock and
Common Stock, and the performance of Company's obligations
hereunder have been taken.
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ii.
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Valid
Issuance. The Convertible Preferred Stock and Common
Stock, when issued in compliance with the provisions of this Agreement and
the Warrant, will be duly and validly issued, fully paid and
nonassessable, free and clear of all liens and encumbrances; provided,
however, that the Convertible Preferred Stock, the Common Stock and
Warrants may be subject to restrictions on transfer under state and/or
federal securities laws as set forth
herein, and as may be required by future changes in such
laws.
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d.
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Government Consent,
Etc. No consent, approval, order or
authorization of, or designation, registration, declaration or
filing with, any federal, state, local or other governmental
authority on the part of Company is required in connection with
the valid execution and delivery of this Agreement, the Registration
Rights Agreement or the offer, sale or issuance of the Convertible
Preferred Stock, the Common Stock and the
Warrant other than, if required, filings
or qualifications under the Nevada Securities Act, as amended (the
"Nevada Law"), or other applicable blue
sky laws, which filings or qualifications, if
required, will be timely filed or obtained by
Company. The execution, delivery and performance of
the Transaction Documents by the Company and the consummation by the
Company of the transactions contemplated thereby do not and
will not conflict with, or constitute a default (or
an event that with notice or lapse of time or both would become a default)
under, or give to others any rights of
termination, amendment, acceleration or cancellation (with
or without notice, lapse of time or both) of, any agreement
filed (or incorporated by reference) as an exhibit to the SEC Reports (as
defined below).
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e.
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SEC Reports; Financial
Statements. The Company has filed all
reports required to be filed by it under
the Securities Exchange Act of
1934, as
amended ("1934 Act"), including pursuant
to Section 13(a) or 15(d) thereof, for
the twelve months preceding the date hereof (the foregoing
materials being collectively referred to
herein as the "SEC Reports") on a
timely basis or has received a
valid extension of such time of filing and has filed 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 of 1933, as amended (the "1933 Act") and the 1934 Act and
the rules and regulations of
the Securities and Exchange Commission
("Commission") 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. The financial statements of
the Company included in the
SEC Reports comply in all material respects with applicable accounting
requirements and the
rules and regulations of
the Commission with respect thereto as in
effect at the time of filing. Such financial statements have
been prepared in accordance with generally accepted
accounting principles applied on
a consistent basis during the
periods involved, except as may
be otherwise specified in such financial statements
or the notes thereto, and fairly present in
all material respects the financial position of the Company and its
consolidated subsidiaries as of and for the
dates thereof and the results of
operations and cash flows for the periods then
ended, subject, in the case of unaudited statements,
to normal, year-end audit
adjustments.
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f.
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Private Placement.
Assuming the accuracy of the Purchaser’s representations and warranties
set forth in Section 7, no registration under the 1933 Act is required for
the offer, issuance and sale of the Convertible Preferred Stock, the
Common Stock and the Warrants by the Company to Purchaser as contemplated
hereby.
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g.
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Investment Company. The Company
is not, and is not an Affiliate of,
an "investment company" within
the meaning of the Investment Company Act of 1940,
as amended.
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7. Representations and Warranties by Purchaser. Purchaser
represents and warrants to Company as of the Closing Date (or Additional Closing
Date, as applicable) as follows:
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a.
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Investment
Intent: Authority. This Agreement is made with Purchaser
in reliance upon Purchaser's representation to
Company, evidenced by Purchaser's execution of this Agreement,
that Purchaser is acquiring the Convertible Preferred Stock, the Warrants
and the Common Stock for investment for Purchaser's own
account, not as nominee or agent, for investment and not with a view to,
or for resale in connection with, any distribution or public
offering thereof within the meaning of the 1933 Act;
provided, however, that by making the
representations herein, Purchaser does not agree to hold any of
the Convertible Preferred Stock, the Warrants and the Common Stock for any
minimum or other specific term and reserves the right to
dispose of the Convertible Preferred
Stock, the Warrants and the
Warrant. Shares at any time in accordance with or pursuant to a
registration statement or an exemption under the 1933 Act. Purchaser has
the requisite right, power, authority and capacity
to enter into and perform this Agreement and the Agreement will constitute
a valid and binding
obligation upon Purchaser, except as the
same may be limited by bankruptcy,
insolvency, moratorium, and other laws of
general application affecting the
enforcement of creditors' rights.
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b.
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Knowledge and
Experience. Purchaser (i) has such knowledge and experience in
financial and business matters as to be capable of evaluating
the merits and risks of
Purchaser's prospective investment in the
Convertible Preferred Stock, the Warrants and the Common Stock;
(ii) has the ability to bear the economic risks of
Purchaser's prospective investment; (iii)
has had all questions which have been asked
by Purchaser satisfactorily answered by
Company; and (iv) has not been offered the
Convertible Preferred
Stock, the Warrants and the Common Stock
by any form of
advertisement, article, notice or other communication published in any
newspaper, magazine, or similar media or broadcast over
television or radio, or any seminar or
meeting whose attendees have
been invited by any such media. Purchaser represents and
warrants that it is an "accredited investor" within the meaning of Rule
501 of Regulation D of the Securities
Act.
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c.
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Transfer Restrictions. Purchaser covenants that
in no event will it sell, transfer
or otherwise dispose of any of
the Convertible Preferred Stock, the
Warrants and the Common Stock other than
in conjunction with an effective registration
statement for the same under the Securities Act or pursuant to an
exemption there from, or
in compliance with Rule
144 promulgated under the Securities Act
or to a person related to or
an entity affiliated with said Purchaser
and other than in compliance with the applicable securities regulation
laws of any state.
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8. Registration of the Shares to be
Purchased. The Purchaser will have such rights to have the
Common Stock registered under the Securities Act as is provided initially under
the Registration Rights Agreement.
9. Xxxxxxxxx
Family. Company will continue to use the services of RJS
Consulting. Company will upon the maturity date of the promissory
note Company made to Xxxxxxx Xxxxxxxxx offer the option to either extend the
terms of the note for an additional one year period on identical terms or
convert the outstanding principal and interest owed under the note into the
Company’s common stock at a conversion price equal to the close of the Company’s
common stock on the OTC Bulletin Board on the maturity date. Company
agrees to extend an offer to Xxxx Xxxxxxxxx and Xxxxxx Xxxxxxxxx that will allow
them upon the maturity dates of the Company’s promissory notes held by them to
either extend the terms of the notes for an additional one year period on
identical terms or convert the outstanding principal and interest owed under the
notes into the Company’s common stock at a conversion price equal to the close
of the Company’s common stock on the OTC Bulletin Board on the maturity
dates. Upon completion of the first closing and immediately after
dispersments are made per the Discretionary Investment of the initial
$240,000.00 of investment, Xxxxxxx Xxxxxxxxx agrees to resign as a member of the
Company’s Board of Directors by executing a resignation letter substantially in
the form of Exhibit B. Subsequently, as long as there are no material
breaches of this agreement Xxxxxxx Xxxxxxxxx also agrees not to seek directly or
indirectly to become a Company director, be nominated to become a Company
director and/or accept the appointment as a Company director for a period of
five years after the effective date of this Agreement.
10. Legends. Company will place the following legends on each
certificate representing Shares and Common Stock:
THE
SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED ("ACT"), OR
ANY APPLICABLE STATE SECURITIES LAWS ("BLUE SKY LAWS").
ANY TRANSFER OF SUCH SECURITIES WILL BE INVALID UNLESS A REGISTRATION STATEMENT
UNDER THE ACT OR AS REQUIRED BY BLUE SKY LAWS IS IN EFFECT AS TO
SUCH TRANSFER OR IN THE
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY SUCH
REGISTRATION IS UNNECESSARY IN ORDER FOR SUCH TRANSFER TO
COMPLY WITH THE ACT OR BLUE SKY LAWS.
The legend set
forth above shall be removed and
the Company shall issue a
certificate without such legend to the holder of the Shares and
Warrant Shares upon which it is
stamped, if, unless otherwise required
by state securities laws, (i) such Shares and
Warrant Shares are registered for resale under
the 1933 Act, (ii) in connection with a
sale transaction, such holder provides the
Company with an opinion of counsel, in
a generally acceptable form, to the
effect that a
public sale, assignment or transfer
of the Shares and Common Stock may be made without registration under the 1933
Act, or (iii) such holder provides the
Company with reasonable assurances that
the Shares and Common Stock can be sold pursuant to Rule 144 without any
restriction as to the number of securities acquired as of
a particular date that can then be immediately
sold. The Purchaser
acknowledges, covenants and agrees to
sell Shares and
Warrant Shares represented by
a certificate from which the legend has been
removed only pursuant to (i) a
registration statement effective under the 1933 Act or
(ii) advice of counsel that such sale is
exempt from the registration requirements of
Section 5 of the 1993
Act, including, without limitation, a
transaction pursuant to Rule 144.
11. Indemnification of
Purchasers. The Company will indemnify and hold Purchaser and
its directors, officers, shareholders, partners, employees
and agents (each, a "Purchaser Party") harmless from
any and all losses,
liabilities, obligations, claims,
contingencies, damages, costs and expenses, including all judgments,
amounts paid in settlements, court costs and reasonable
attorneys' fees and costs
of investigation (collectively, "Losses") that
a Purchaser Party may suffer or incur as a result of
or relating to the failure of
the representations and warranties of
the Company to be true and correct.
12. Miscellaneous.
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a.
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Waivers and
Amendments. The provisions of this Agreement may only be
amended or modified in a writing executed by each of Company
and Purchaser. A waiver shall not be
effective unless in a writing by the party against
whom such waiver is to be enforced.
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b.
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Governing Law. This
Agreement and all actions arising out of or in
connection with this Agreement shall be
governed by and construed in accordance with the
laws of
the State of Michigan, without regard to
the conflicts of law provisions thereof. EACH PARTY
HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO
REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF
ANY DISPUTE HEREUNDER OR
IN CONNECTION HEREWITH OR
ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED
HEREBY.
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c.
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Entire
Agreement. This Agreement, the Registration Rights
Agreement and the Warrants constitute the
full and entire understanding and agreement between
the parties with regard to the subjects hereof and
thereof.
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d.
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Survival. The
representations, warranties, covenants and
agreements made herein shall survive the execution and delivery of
this Agreement.
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e.
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Notices, etc. Any
notice, request or other communication required or
permitted hereunder shall be in writing and shall be deemed to
have been duly given (i) upon receipt
if personally delivered, (ii) three (3)
days after being mailed by registered or certified
mail, postage prepaid, or (iii) one day
after being sent by recognized overnight courier or by
facsimile, if to Purchaser, 0000 Xxxxxxxxx Xxxxx,
Xxxxxxxxxx Xxxxx, Xxxxxxxx, or at such other address or number as
Purchaser shall have furnished to Company in writing, or if to Company, at
0000 Xxxxxxxxx Xxxxx, Xxxxx 000, Xxxxxx Xxxxx, Xxxxxxxx, or at such other
address or number as the Company shall have furnished to Purchaser in
writing.
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f.
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Validity. If
any provision of this Agreement shall be
judicially determined to be invalid, illegal
or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way
be affected or impaired thereby.
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g.
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Counterparts.
This Agreement may be executed in any number of
counterparts, each of which shall be an
original, but all of which together shall be deemed to
constitute one instrument.
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h.
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Assignment. The
terms and conditions of this Agreement shall inure
to the benefit of and be binding upon the respective successors
and assigns of the parties. Nothing in
this Agreement, express or implied, is
intended to confer upon
any party other than
the parties hereto or their
respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as
expressly provided in this
Agreement.
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i.
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Remedies. The
Purchaser shall have all rights and remedies set forth in
the Transaction Documents and all rights
and remedies which such holders have been granted at
any time under any other agreement or
contract and all of the rights which such holders have
under any
law. Any person having any rights under
any provision of this Agreement shall be entitled to
enforce such rights specifically (without posting a bond or
other security), to recover damages
by reason of any breach of any provision of this Agreement and to exercise
all other rights granted by law.
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IN WITNESS WHEREOF, the parties have
caused this Agreement to be duly executed and delivered by their proper and duly
authorized officers as of the date and year first written above.
/s/ Xxxxxx X.
Xxxxxxxx
By: Xxxxxx
X. Xxxxxxxx
Its: CEO
XXXXXXXXX
ACQUISITION CORPORATION
/s/ Xxxxxxx X.
Xxxxxxxxx
By:
Xxxxxxx X. Xxxxxxxxx
Its:
President
/s/ Xxxxxxx
Xxxxxxxxx
XXXXXXX
XXXXXXXXX, Individually
