EXHIBIT 10.1
SERIES B CONVERTIBLE PREFERRED STOCK PURCHASE
AGREEMENT
DATED AS OF JULY 30, 2004
AMONG
XSTREAM BEVERAGE GROUP, INC.
AND
THE PURCHASERS LISTED ON EXHIBIT A
TABLE OF CONTENTS
PAGE
ARTICLE I Purchase and Sale of Preferred Stock......................................................................1
Section 1.1 Purchase and Sale of Preferred Stock and Warrants........................................1
Section 1.2 The Conversion Shares....................................................................2
Section 1.3 Purchase Price and Closing...............................................................2
ARTICLE II Representations and Warranties...........................................................................2
Section 2.1 Representations and Warranties of the Company............................................2
Section 2.2 Representations and Warranties of the Purchasers........................................13
ARTICLE III Covenants..............................................................................................16
Section 3.1 Securities Compliance...................................................................16
Section 3.2 Registration and Listing................................................................16
Section 3.3 Inspection Rights.......................................................................16
Section 3.4 Compliance with Laws....................................................................16
Section 3.5 Keeping of Records and Books of Account.................................................16
Section 3.6 Reporting Requirements..................................................................17
Section 3.7 Amendments..............................................................................17
Section 3.8 Other Agreements........................................................................17
Section 3.9 Distributions...........................................................................17
Section 3.10 Status of Dividends.....................................................................17
Section 3.11 Use of Proceeds.........................................................................18
Section 3.12 Future Financings; Right of First Offer and Refusal.....................................18
Section 3.13 Reservation of Shares...................................................................20
Section 3.14 Transfer Agent Instructions.............................................................20
Section 3.15 Disposition of Assets...................................................................21
Section 3.16 Reporting Status........................................................................21
Section 3.17 Disclosure of Transaction ..............................................................21
Section 3.18 Disclosure of Material Information......................................................21
Section 3.19 Pledge of Securities....................................................................21
Section 3.20 Charter Amendment.......................................................................22
Section 3.21 Warrant Listing.........................................................................22
ARTICLE IV Conditions..............................................................................................22
Section 4.1 Conditions Precedent to the Obligation of the Company to Sell the
Shares..................................................................................22
Section 4.2 Conditions Precedent to the Obligation of the Purchasers to Purchase
the Shares..............................................................................23
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ARTICLE V Stock Certificate Legend.................................................................................25
Section 5.1 Legend..................................................................................25
ARTICLE VI Indemnification.........................................................................................26
Section 6.1 General Indemnity.......................................................................26
Section 6.2 Indemnification Procedure...............................................................27
ARTICLE VII Miscellaneous..........................................................................................28
Section 7.1 Fees and Expenses.......................................................................28
Section 7.2 Specific Enforcement, Consent to Jurisdiction...........................................28
Section 7.3 Entire Agreement; Amendment.............................................................29
Section 7.4 Notices.................................................................................29
Section 7.5 Waivers.................................................................................30
Section 7.6 Headings................................................................................30
Section 7.7 Successors and Assigns..................................................................30
Section 7.8 No Third Party Beneficiaries............................................................30
Section 7.9 Governing Law...........................................................................30
Section 7.10 Survival................................................................................30
Section 7.11 Counterparts............................................................................31
Section 7.12 Publicity...............................................................................31
Section 7.13 Severability............................................................................31
Section 7.14 Further Assurances......................................................................31
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SERIES B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
This SERIES B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (the
"Agreement") is dated as of July 30, 2004 by and among XStream Beverage Group,
Inc., a Nevada corporation (the "Company"), and each of the Purchasers of shares
of Series B Convertible Preferred Stock of the Company whose names are set forth
on Exhibit A hereto (individually, a "Purchaser" and collectively, the
"Purchasers").
The parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF PREFERRED STOCK
Section 1.1 Purchase and Sale of Preferred Stock and Warrants.
(a) Upon the following terms and conditions, the Company shall
issue and sell to the Purchasers and each of the Purchasers shall purchase from
the Company, the number of shares of the Company's Series B Convertible
Preferred Stock, par value $.001 per share (the "Preferred Shares"), at a
purchase price of $50,000 per share, set forth opposite such Purchaser's name on
Exhibit A hereto. The aggregate purchase price for the Preferred Shares and the
Warrants shall be up to $4,000,000. The designation, rights, preferences and
other terms and provisions of the Series B Convertible Preferred Stock are set
forth in the Certificate of Designation of the Relative Rights and Preferences
of the Series B Convertible Preferred Stock attached hereto as Exhibit B (the
"Certificate of Designation"). The Company and the Purchasers are executing and
delivering this Agreement in accordance with and in reliance upon the exemption
from securities registration afforded by Rule 506 of Regulation D ("Regulation
D") as promulgated by the United States Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Securities
Act") or Section 4(2) of the Securities Act.
(b) Upon the following terms and conditions, each of the
Purchasers shall be issued (i) Series A Warrants, in substantially the form
attached hereto as Exhibit C (the "Series A Warrants"), to purchase the number
of shares of the Company's Common Stock, par value $.001 per share (the "Common
Stock") equal to one hundred percent (100%) of the number of shares of Common
Stock issuable upon conversion of the Preferred Shares purchased pursuant to the
terms hereof, such amount to be set forth opposite such Purchaser's name on
Exhibit A hereto, and (ii) Series B Warrants, in substantially the form attached
hereto as Exhibit D (the "Series B Warrants" and together with the Series A
Warrants, the "Warrants"), to purchase the number of shares of Common Stock
equal to fifty percent (50%) of the number of shares of Common Stock issuable
upon conversion of the Preferred Shares purchased pursuant to the terms hereof,
such amount to be set forth opposite such Purchaser's name on Exhibit A attached
hereto. The Warrants shall have an exercise price equal to the Warrant Price (as
defined in the respective Warrant) and shall be exercisable as stated therein.
The Warrants shall expire five (5) years from the Closing Date, as defined
below.
Section 1.2 The Conversion Shares. Upon the filing of an
amendment to the Company's Articles (as defined in Section 2.1(c) hereof) with
the Nevada Secretary of State increasing the number of authorized shares of
Common Stock of the Company (the "Charter Amendment"), the Company will
authorize and will reserve and covenants to continue to reserve, free of
preemptive rights and other similar contractual rights of stockholders, such
number of shares of Common Stock as shall from time to time be sufficient to
effect the conversion of all of the Preferred Shares and exercise of the
Warrants then outstanding. Any shares of Common Stock issuable upon conversion
of the Preferred Shares are herein referred to as the "Conversion Shares". Any
shares of Common Stock issuable upon exercise of the Warrants (and such shares
when issued) are herein referred to as the "Warrant Shares". The Preferred
Shares, the Conversion Shares and the Warrant Shares are sometimes collectively
referred to as the "Shares".
Section 1.3 Purchase Price and Closing. The Company agrees to
issue and sell to the Purchasers and, in consideration of and in express
reliance upon the representations, warranties, covenants, terms and conditions
of this Agreement, the Purchasers, severally but not jointly, agree to purchase
that number of the Preferred Shares and Warrants set forth opposite their
respective names on Exhibit A. The aggregate purchase price of the Preferred
Shares and Warrants being acquired by each Purchaser is set forth opposite such
Purchaser's name on Exhibit A (for each such Purchaser, the "Purchase Price" and
collectively referred to as the "Purchase Prices"). The closing of the purchase
and sale of the Preferred Shares and Warrants shall take place at the offices of
Jenkens & Xxxxxxxxx Xxxxxx Xxxxxx LLP, The Chrysler Building, 000 Xxxxxxxxx
Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000 (the "Closing") at 1:00 p.m. (eastern time)
upon the satisfaction of each of the conditions set forth in Article IV hereof
(the "Closing Date"). Funding with respect to the Closing shall take place by
wire transfer of immediately available funds on or prior to the Closing Date.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1 Representations and Warranties of the Company. The
Company hereby makes the following representations and warranties to the
Purchasers, except as set forth in the Company's disclosure schedule delivered
with this Agreement as follows:
(a) Organization, Good Standing and Power. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Nevada and has the requisite corporate power to own, lease
and operate its properties and assets and to conduct its business as it is now
being conducted. The Company does not have any subsidiaries except as set forth
in the Company's Form 10-KSB for the year ended December 31, 2003, including the
accompanying financial statements (the "Form 10-KSB"), or in the Company's Form
10-QSB for the fiscal quarters ended March 31, 2004, September 30, 2003, June
30, 2003 or March 31, 2003 (collectively, the "Form 10-QSB"), or on Schedule
2.1(a) hereto. The Company and each such subsidiary is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which the nature of the business conducted or property owned by it makes such
qualification necessary except for any jurisdiction(s) (alone or in the
aggregate) in which the failure to be so qualified will not have a Material
Adverse Effect (as defined in Section 2.1(c) hereof) on the Company's financial
condition.
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(b) Authorization; Enforcement. Subject to the approval of
Laurus Master Fund, Ltd. ("Laurus") and the filing of the Charter Amendment, the
Company has the requisite corporate power and authority to enter into and
perform this Agreement, the Registration Rights Agreement attached hereto as
Exhibit E (the "Registration Rights Agreement"), the Irrevocable Transfer Agent
Instructions (as defined in Section 3.14), the Certificate of Designation, and
the Warrants (collectively, the "Transaction Documents") and to issue and sell
the Shares and the Warrants in accordance with the terms hereof. The execution,
delivery and, subject to the filing of the Charter Amendment, the performance of
the Transaction Documents by the Company and the consummation by it of the
transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action, and no further consent or
authorization of the Company or its Board of Directors or stockholders is
required. This Agreement has been duly executed and delivered by the Company.
The other Transaction Documents will have been duly executed and delivered by
the Company at the Closing. Each of the Transaction Documents constitutes, or
shall constitute when executed and delivered, a valid and binding obligation of
the Company enforceable against the Company in accordance with its terms, except
as such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation, conservatorship, receivership or
similar laws relating to, or affecting generally the enforcement of, creditor's
rights and remedies or by other equitable principles of general application.
(c) Capitalization. The authorized capital stock of the
Company and the shares thereof currently issued and outstanding as of July 19,
2004 are set forth on Schedule 2.1(c) hereto. All of the outstanding shares of
the Company's Common Stock and Series B Convertible Preferred Stock have been
duly and validly authorized. Except as set forth in this Agreement and the
Registration Rights Agreement and as set forth on Schedule 2.1(c) hereto, no
shares of Common Stock are entitled to preemptive rights or registration rights
and there are no outstanding options, warrants, scrip, rights to subscribe to,
call or commitments of any character whatsoever relating to, or securities or
rights convertible into, any shares of capital stock of the Company.
Furthermore, except as set forth in this Agreement and the Registration Rights
Agreement or on Schedule 2.1(c), there are no contracts, commitments,
understandings, or arrangements by which the Company is or may become bound to
issue additional shares of the capital stock of the Company or options,
securities or rights convertible into shares of capital stock of the Company.
Except for customary transfer restrictions contained in agreements entered into
by the Company in order to sell restricted securities or as set forth on
Schedule 2.1(c) hereto, the Company is not a party to any agreement granting
registration or anti-dilution rights to any person with respect to any of its
equity or debt securities. The Company is not a party to, and it has no
knowledge of, any agreement restricting the voting or transfer of any shares of
the capital stock of the Company. Except as set forth on Schedule 2.1(c) hereto,
the offer and sale of all capital stock, convertible securities, rights,
warrants, or options of the Company issued prior to the Closing complied with
all applicable Federal and state securities laws, and no stockholder has a right
of rescission or claim for damages with respect thereto which would have a
Material Adverse Effect (as defined below) on the Company's financial condition
or operating results. The Company has furnished or made available to the
Purchasers true and correct copies of the Company's Articles of Incorporation as
in effect on the date hereof (the "Articles"), and the Company's Bylaws as in
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effect on the date hereof (the "Bylaws"). For the purposes of this Agreement,
"Material Adverse Effect" means any material adverse effect on the business,
operations, properties, prospects, or financial condition of the Company and its
subsidiaries and/or any condition, circumstance, or situation that would
prohibit or otherwise materially interfere with the ability of the Company to
perform any of its obligations under this Agreement in any material respect.
(d) Issuance of Shares. Subject to the filing of the Charter
Amendment, the Preferred Shares and the Warrants to be issued at the Closing
have been duly authorized by all necessary corporate action and the Preferred
Shares, when paid for or issued in accordance with the terms hereof, shall be
validly issued and outstanding, fully paid and nonassessable and entitled to the
rights and preferences set forth in the Certificate of Designation. When the
Conversion Shares and the Warrant Shares are issued in accordance with the terms
of the Certificate of Designation and the Warrants, respectively, such shares
will be duly authorized by all necessary corporate action and validly issued and
outstanding, fully paid and nonassessable, and the holders shall be entitled to
all rights accorded to a holder of Common Stock.
(e) No Conflicts. The execution, delivery and, subject to the
filing of the Charter Amendment, the performance of the Transaction Documents by
the Company, the performance by the Company of its obligations under the
Certificate of Designation and the consummation by the Company of the
transactions contemplated herein and therein do not and will not (i) violate any
provision of the Company's Articles or Bylaws, (ii) conflict with, or constitute
a default (or an event which 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 of, any agreement, mortgage, deed of trust,
indenture, note, bond, license, lease agreement, instrument or obligation to
which the Company is a party or by which it or its properties or assets are
bound, (iii) create or impose a lien, mortgage, security interest, charge or
encumbrance of any nature on any property of the Company under any agreement or
any commitment to which the Company is a party or by which the Company is bound
or by which any of its respective properties or assets are bound, or (iv) result
in a violation of any federal, state, local or foreign statute, rule,
regulation, order, judgment or decree (including Federal and state securities
laws and regulations) applicable to the Company or any of its subsidiaries or by
which any property or asset of the Company or any of its subsidiaries are bound
or affected, except, in all cases other than violations pursuant to clauses (i)
and (iv) above, for such conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations as would not, individually or in the
aggregate, have a Material Adverse Effect. The business of the Company and its
subsidiaries is not being conducted in violation of any laws, ordinances or
regulations of any governmental entity, except for possible violations which
singularly or in the aggregate do not and will not have a Material Adverse
Effect. The Company is not required under Federal, state or local law, rule or
regulation to obtain any consent, authorization or order of, or make any filing
or registration with, any court or governmental agency in order for it to
execute, deliver or perform any of its obligations under the Transaction
Documents, or issue and sell the Preferred Shares, the Warrants, the Conversion
Shares and the Warrant Shares in accordance with the terms hereof or thereof
(other than any filings which may be required to be made by the Company with the
Commission or state securities administrators subsequent to the Closing, any
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registration statement which may be filed pursuant hereto, and the Certificate
of Designation); provided that, for purposes of the representation made in this
sentence, the Company is assuming and relying upon the accuracy of the relevant
representations and agreements of the Purchasers herein.
(f) Commission Documents, Financial Statements. The Common
Stock is registered pursuant to Section 12(b) or 12(g) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, since March 31,
2004, the Company has timely filed all reports, schedules, forms, statements and
other documents required to be filed by it with the Commission pursuant to the
reporting requirements of the Exchange Act, including material filed pursuant to
Section 13(a) or 15(d) of the Exchange Act (all of the foregoing including
filings incorporated by reference therein being referred to herein as the
"Commission Documents"). The Company has delivered or made available to each of
the Purchasers true and complete copies of the Commission Documents filed with
the Commission since March 31, 2004. The Company has not provided to the
Purchasers any material non-public information or other information which,
according to applicable law, rule or regulation, was required to have been
disclosed publicly by the Company but which has not been so disclosed, other
than with respect to the transactions contemplated by this Agreement. At the
times of their respective filings, the Form 10-KSB and the Form 10-QSB complied
in all material respects with the requirements of the Exchange Act and the rules
and regulations of the Commission promulgated thereunder and other federal,
state and local laws, rules and regulations applicable to such documents, and,
as of their respective dates, none of the Form 10-KSB and the Form 10-QSB
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 Commission
Documents comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the Commission or other
applicable rules and regulations with respect thereto. Such financial statements
have been prepared in accordance with United States generally accepted
accounting principles ("GAAP") applied on a consistent basis during the periods
involved (except (i) as may be otherwise indicated in such financial statements
or the notes thereto or (ii) in the case of unaudited interim statements, to the
extent they may not include footnotes or may be condensed or summary
statements), and fairly present in all material respects the financial position
of the Company and its subsidiaries as of 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).
(g) Subsidiaries. Schedule 2.1(g) hereto sets forth each
subsidiary of the Company, showing the jurisdiction of its incorporation or
organization and showing the percentage of each person's ownership. For the
purposes of this Agreement, "subsidiary" shall mean any corporation or other
entity of which at least a majority of the securities or other ownership
interest having ordinary voting power (absolutely or contingently) for the
election of directors or other persons performing similar functions are at the
time owned directly or indirectly by the Company and/or any of its other
subsidiaries. All of the outstanding shares of capital stock of each subsidiary
have been duly authorized and validly issued, and are fully paid and
nonassessable. There are no outstanding preemptive, conversion or other rights,
options, warrants or agreements granted or issued by or binding upon any
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subsidiary for the purchase or acquisition of any shares of capital stock of any
subsidiary or any other securities convertible into, exchangeable for or
evidencing the rights to subscribe for any shares of such capital stock. Neither
the Company nor any subsidiary is subject to any obligation (contingent or
otherwise) to repurchase or otherwise acquire or retire any shares of the
capital stock of any subsidiary or any convertible securities, rights, warrants
or options of the type described in the preceding sentence. Except as set forth
on Schedule 2.1(g) hereto, neither the Company nor any subsidiary is party to,
nor has any knowledge of, any agreement restricting the voting or transfer of
any shares of the capital stock of any subsidiary.
(h) No Material Adverse Change. Since March 31, 2004, the
Company has not experienced or suffered any Material Adverse Effect, except as
disclosed on Schedule 2.1(h) hereto.
(i) No Undisclosed Liabilities. Except as set forth on
Schedule 2.1(i) hereto, or in the Commission Documents, neither the Company nor
any of its subsidiaries has any liabilities, obligations, claims or losses
(whether liquidated or unliquidated, secured or unsecured, absolute, accrued,
contingent or otherwise) other than those incurred in the ordinary course of the
Company's or its subsidiaries respective businesses since March 31, 2004 and
which, individually or in the aggregate, do not or would not have a Material
Adverse Effect on the Company or its subsidiaries.
(j) No Undisclosed Events or Circumstances. Except as set
forth on Schedule 2.1(j) hereto, no event or circumstance has occurred or exists
with respect to the Company or its subsidiaries or their respective businesses,
properties, prospects, operations or financial condition, which, under
applicable law, rule or regulation, requires public disclosure or announcement
by the Company but which has not been so publicly announced or disclosed.
(k) Indebtedness. The Form 10-KSB, Form 10-QSB or Schedule
2.1(k) hereto sets forth as of a recent date all outstanding secured and
unsecured Indebtedness of the Company or any subsidiary, or for which the
Company or any subsidiary has commitments. For the purposes of this Agreement,
"Indebtedness" shall mean (a) any liabilities for borrowed money or amounts owed
in excess of $100,000 (other than trade accounts payable incurred in the
ordinary course of business), (b) all guaranties, endorsements and other
contingent obligations in respect of Indebtedness of others, whether or not the
same are or should be reflected in the Company's balance sheet (or the notes
thereto), except guaranties by endorsement of negotiable instruments for deposit
or collection or similar transactions in the ordinary course of business; and
(c) the present value of any lease payments in excess of $25,000 due under
leases required to be capitalized in accordance with GAAP. Except as set forth
on Schedule 2.1(k), neither the Company nor any subsidiary is in default with
respect to any Indebtedness.
(l) Title to Assets. Except as disclosed on Schedule 2.1(l)
hereto, each of the Company and the subsidiaries has good and marketable title
to all of its real and personal property reflected in the Form 10-KSB, free and
clear of any mortgages, pledges, charges, liens, security interests or other
encumbrances, except for those indicated in the Form 10-KSB, Form 10-QSB or on
Schedule 2.1(l) hereto or such that, individually or in the aggregate, do not
cause a Material Adverse Effect on the Company's financial condition or
operating results. All said leases of the Company and each of its subsidiaries
are valid and subsisting and in full force and effect.
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(m) Actions Pending. There is no action, suit, claim,
investigation, arbitration, alternate dispute resolution proceeding or any other
proceeding pending or, to the knowledge of the Company, threatened against the
Company or any subsidiary which questions the validity of this Agreement or any
of the other Transaction Documents or the transactions contemplated hereby or
thereby or any action taken or to be taken pursuant hereto or thereto. Except as
set forth in the Form 10-KSB, Form 10-QSB or on Schedule 2.1(m) hereto, there is
no action, suit, claim, investigation, arbitration, alternate dispute resolution
proceeding or any other proceeding pending or, to the knowledge of the Company,
threatened, against or involving the Company, any subsidiary or any of their
respective properties or assets. Except as set forth in the Form 10-KSB, Form
10-QSB or Schedule 2.1(m) hereto, there are no outstanding orders, judgments,
injunctions, awards or decrees of any court, arbitrator or governmental or
regulatory body against the Company or any subsidiary or any officers or
directors of the Company or subsidiary in their capacities as such.
(n) Compliance with Law. The business of the Company and the
subsidiaries has been and is presently being conducted in accordance with all
applicable federal, state and local governmental laws, rules, regulations and
ordinances, except as set forth in the Form 10-KSB, Form 10-QSB, or such that,
individually or in the aggregate, do not cause a Material Adverse Effect. The
Company and each of its subsidiaries have all franchises, permits, licenses,
consents and other governmental or regulatory authorizations and approvals
necessary for the conduct of its business as now being conducted by it unless
the failure to possess such franchises, permits, licenses, consents and other
governmental or regulatory authorizations and approvals, individually or in the
aggregate, could not reasonably be expected to have a Material Adverse Effect.
(o) Taxes. The Company and each of the subsidiaries has
accurately prepared and filed all federal, state and other tax returns required
by law to be filed by it, has paid or made provisions for the payment of all
taxes shown to be due and all additional assessments, and adequate provisions
have been and are reflected in the financial statements of the Company and the
subsidiaries for all current taxes and other charges to which the Company or any
subsidiary is subject and which are not currently due and payable. None of the
federal income tax returns of the Company or any subsidiary have been audited by
the Internal Revenue Service. The Company has no knowledge of any additional
assessments, adjustments or contingent tax liability (whether federal or state)
of any nature whatsoever, whether pending or threatened against the Company or
any subsidiary for any period, nor of any basis for any such assessment,
adjustment or contingency.
(p) Certain Fees. Except as set forth in this Agreement or on
Schedule 2.1(p) hereto, no brokers, finders or financial advisory fees or
commissions will be payable by the Company or any subsidiary or any Purchaser
with respect to the transactions contemplated by this Agreement.
(q) Disclosure. To the best of the Company's knowledge,
neither this Agreement or the Schedules hereto nor any other documents,
certificates or instruments furnished to the Purchasers by or on behalf of the
Company or any subsidiary in connection with the transactions contemplated by
7
this Agreement contain any untrue statement of a material fact or omit to state
a material fact necessary in order to make the statements made herein or
therein, in the light of the circumstances under which they were made herein or
therein, not misleading.
(r) Operation of Business. The Company and each of the
subsidiaries owns or possesses, subject to the intellectual property pledge
rights granted to Laurus in certain agreements entered into between the Company
and Laurus on May 14, 2004, all patents, trademarks, domain names (whether or
not registered) and any patentable improvements or copyrightable derivative
works thereof, websites and intellectual property rights relating thereto,
service marks, trade names, copyrights, licenses and authorizations as set forth
in the Form 10-KSB, Form 10-QSB and on Schedule 2.1(r) hereto, and all rights
with respect to the foregoing, which are necessary for the conduct of its
business as now conducted without any conflict with the rights of others.
(s) Environmental Compliance. The Company and each of its
subsidiaries have obtained all material approvals, authorization, certificates,
consents, licenses, orders and permits or other similar authorizations of all
governmental authorities, or from any other person, that are required under any
Environmental Laws. The Form 10-KSB or Form 10-QSB describes all material
permits, licenses and other authorizations issued under any Environmental Laws
to the Company or its subsidiaries. "Environmental Laws" shall mean all
applicable laws relating to the protection of the environment including, without
limitation, all requirements pertaining to reporting, licensing, permitting,
controlling, investigating or remediating emissions, discharges, releases or
threatened releases of hazardous substances, chemical substances, pollutants,
contaminants or toxic substances, materials or wastes, whether solid, liquid or
gaseous in nature, into the air, surface water, groundwater or land, or relating
to the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of hazardous substances, chemical substances, pollutants,
contaminants or toxic substances, material or wastes, whether solid, liquid or
gaseous in nature. The Company has all necessary governmental approvals required
under all Environmental Laws and used in its business or in the business of any
of its subsidiaries. The Company and each of its subsidiaries are also in
compliance with all other limitations, restrictions, conditions, standards,
requirements, schedules and timetables required or imposed under all
Environmental Laws. Except for such instances as would not individually or in
the aggregate have a Material Adverse Effect, there are no past or present
events, conditions, circumstances, incidents, actions or omissions relating to
or in any way affecting the Company or its subsidiaries that violate or may
violate any Environmental Law after the Closing Date or that may give rise to
any environmental liability, or otherwise form the basis of any claim, action,
demand, suit, proceeding, hearing, study or investigation (i) under any
Environmental Law, or (ii) based on or related to the manufacture, processing,
distribution, use, treatment, storage (including without limitation underground
storage tanks), disposal, transport or handling, or the emission, discharge,
release or threatened release of any hazardous substance.
(t) Books and Record Internal Accounting Controls. The books
and records of the Company and its subsidiaries accurately reflect in all
material respects the information relating to the business of the Company and
the subsidiaries, the location and collection of their assets, and the nature of
all transactions giving rise to the obligations or accounts receivable of the
8
Company or any subsidiary. The Company and each of its subsidiaries maintain a
system of internal accounting controls sufficient, in the judgment of the
Company, 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
actions is taken with respect to any differences.
(u) Material Agreements. Except as set forth in the Form
10-KSB, Form 10-QSB or on Schedule 2.1(u) hereto, neither the Company nor any
subsidiary is a party to any written or oral contract, instrument, agreement,
commitment, obligation, plan or arrangement, a copy of which would be required
to be filed with the Commission as an exhibit to a registration statement on
Form S-3 or applicable form (collectively, "Material Agreements") if the Company
or any subsidiary were registering securities under the Securities Act. Except
as set forth on Schedule 2.1(u) or in the Commission Documents, the Company and
each of its subsidiaries has in all material respects performed all the
obligations required to be performed by them to date under the foregoing
agreements, have received no notice of default and, to the best of the Company's
knowledge are not in default under any Material Agreement now in effect, the
result of which could cause a Material Adverse Effect. Except as set forth on
Schedule 2.1(u) or in the Commission Documents, no written or oral contract,
instrument, agreement, commitment, obligation, plan or arrangement of the
Company or of any subsidiary limits or shall limit the payment of dividends on
the Company's Preferred Shares, other Preferred Stock, if any, or its Common
Stock. (v) Transactions with Affiliates. Except as set forth in the Form 10-KSB,
Form 10-QSB or on Schedule 2.1
(v) hereto, there are no loans, leases, agreements, contracts,
royalty agreements, management contracts or arrangements or other continuing
transactions between (a) the Company, any subsidiary or any of their respective
customers or suppliers on the one hand, and (b) on the other hand, any officer,
employee, consultant or director of the Company, or any of its subsidiaries, or
any person owning any capital stock of the Company or any subsidiary or any
member of the immediate family of such officer, employee, consultant, director
or stockholder or any corporation or other entity controlled by such officer,
employee, consultant, director or stockholder, or a member of the immediate
family of such officer, employee, consultant, director or stockholder.
(w) Securities Act of 1933. Based in material part upon the
representations herein of the Purchasers, the Company has complied and will
comply with all applicable federal and state securities laws in connection with
the offer, issuance and sale of the Shares and the Warrants hereunder. Neither
the Company nor anyone acting on its behalf, directly or indirectly, has or will
sell, offer to sell or solicit offers to buy any of the Shares, the Warrants or
similar securities to, or solicit offers with respect thereto from, or enter
into any preliminary conversations or negotiations relating thereto with, any
person, or has taken or will take any action so as to bring the issuance and
sale of any of the Shares and the Warrants under the registration provisions of
the Securities Act and applicable state securities laws, and neither the Company
nor any of its affiliates, nor any person acting on its or their behalf, has
engaged in any form of general solicitation or general advertising (within the
meaning of Regulation D under the Securities Act) in connection with the offer
or sale of any of the Shares and the Warrants.
9
(x) Governmental Approvals. Except as set forth in the Form
10-KSB or Form 10-QSB, and except for the filing of any notice prior or
subsequent to the Closing Date that may be required under applicable state
and/or Federal securities laws (which if required, shall be filed on a timely
basis), including the filing of a Form D and a registration statement or
statements pursuant to the Registration Rights Agreement, and the filing of the
Certificate of Designation with the Secretary of State for the State of Nevada,
no authorization, consent, approval, license, exemption of, filing or
registration with any court or governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, is or will be necessary
for, or in connection with, the execution or delivery of the Preferred Shares
and the Warrants, or for the performance by the Company of its obligations under
the Transaction Documents.
(y) Employees. Neither the Company nor any subsidiary has any
collective bargaining arrangements or agreements covering any of its employees,
except as set forth in the Form 10-KSB, Form 10-QSB or on Schedule 2.1(y)
hereto. Except as set forth in the Form 10-KSB, Form 10-QSB or on Schedule
2.1(y) hereto, neither the Company nor any subsidiary has any employment
contract, agreement regarding proprietary information, non-competition
agreement, non-solicitation agreement, confidentiality agreement, or any other
similar contract or restrictive covenant, relating to the right of any officer,
employee or consultant to be employed or engaged by the Company or such
subsidiary. Since September 30, 2003, no officer, consultant or key employee of
the Company or any subsidiary whose termination, either individually or in the
aggregate, could have a Material Adverse Effect, has terminated or, to the
knowledge of the Company, has any present intention of terminating his or her
employment or engagement with the Company or any subsidiary.
(z) Absence of Certain Developments. Except as provided on
Schedule 2.1(z) hereto, since March 31, 2004, neither the Company nor any
subsidiary has:
(i) issued any stock, bonds or other corporate securities or
any right, options or warrants with respect thereto;
(ii) borrowed any amount in excess of $300,000 or incurred
or become subject to any other liabilities in excess of $100,000 (absolute or
contingent) except current liabilities incurred in the ordinary course of
business which are comparable in nature and amount to the current liabilities
incurred in the ordinary course of business during the comparable portion of its
prior fiscal year, as adjusted to reflect the current nature and volume of the
business of the Company and its Subsidiaries;
(iii) discharged or satisfied any lien or encumbrance in
excess of $250,000 or paid any obligation or liability (absolute or contingent)
in excess of $250,000, other than current liabilities paid in the ordinary
course of business;
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(iv) declared or made any payment or distribution of cash or
other property to stockholders with respect to its stock, or purchased or
redeemed, or made any agreements so to purchase or redeem, any shares of its
capital stock, in each case in excess of $50,000 individually or $100,000 in the
aggregate;
(v) sold, assigned or transferred any other tangible assets,
or canceled any debts or claims, in each case in excess of $250,000, except in
the ordinary course of business;
(vi) sold, assigned or transferred any patent rights,
trademarks, trade names, copyrights, trade secrets or other intangible assets or
intellectual property rights in excess of $250,000, or disclosed any proprietary
confidential information to any person except to customers in the ordinary
course of business or to the Purchasers or their representatives;
(vii) suffered any material losses or waived any rights of
material value, whether or not in the ordinary course of business, or suffered
the loss of any material amount of prospective business;
(viii) made any changes in employee compensation except in
the ordinary course of business and consistent with past practices;
(ix) made capital expenditures or commitments therefor that
aggregate in excess of $100,000;
(x) entered into any material transaction, whether or not in
the ordinary course of business;
(xi) made charitable contributions or pledges in excess of
$25,000;
(xii) suffered any material damage, destruction or casualty
loss, whether or not covered by insurance;
(xiii) experienced any material problems with labor or
management in connection with the terms and conditions of their employment; or
(xiv) entered into an agreement, written or otherwise, to
take any of the foregoing actions.
(aa) Public Utility Holding Company Act and Investment Company
Act Status. The Company is not a "holding company" or a "public utility company"
as such terms are defined in the Public Utility Holding Company Act of 1935, as
amended. The Company is not, and as a result of and immediately upon the Closing
will not be, an "investment company" or a company "controlled" by an "investment
company," within the meaning of the Investment Company Act of 1940, as amended.
11
(bb) ERISA. No liability to the Pension Benefit Guaranty
Corporation has been incurred with respect to any Plan by the Company or any of
its subsidiaries which is or would be materially adverse to the Company and its
subsidiaries. The execution and delivery of this Agreement and the issuance and
sale of the Preferred Shares will not involve any transaction which is subject
to the prohibitions of Section 406 of ERISA or in connection with which a tax
could be imposed pursuant to Section 4975 of the Internal Revenue Code of 1986,
as amended, provided that, if any of the Purchasers, or any person or entity
that owns a beneficial interest in any of the Purchasers, is an "employee
pension benefit plan" (within the meaning of Section 3(2) of ERISA) with respect
to which the Company is a "party in interest" (within the meaning of Section
3(14) of ERISA), the requirements of Sections 407(d)(5) and 408(e) of ERISA, if
applicable, are met. As used in this Section 2.1(bb), the term "Plan" shall mean
an "employee pension benefit plan" (as defined in Section 3 of ERISA) which is
or has been established or maintained, or to which contributions are or have
been made, by the Company or any subsidiary or by any trade or business, whether
or not incorporated, which, together with the Company or any subsidiary, is
under common control, as described in Section 414(b) or (c) of the Code.
(cc) Dilutive Effect. The Company understands and acknowledges
that the number of Conversion Shares issuable upon conversion of the Preferred
Shares and the Warrant Shares issuable upon exercise of the Warrants will
increase in certain circumstances. The Company further acknowledges that its
obligation to issue Conversion Shares upon conversion of the Preferred Shares in
accordance with this Agreement and the Certificate of Designation and its
obligations to issue the Warrant Shares upon the exercise of the Warrants in
accordance with this Agreement and the Warrants, is, in each case, absolute and
unconditional regardless of the dilutive effect that such issuance may have on
the ownership interest of other stockholders of the Company.
(dd) Independent Nature of Purchasers. The Company
acknowledges that the obligations of each Purchaser under the Transaction
Documents are several and not joint with the obligations of any other Purchaser,
and no Purchaser shall be responsible in any way for the performance of the
obligations of any other Purchaser under the Transaction Documents. The Company
acknowledges that the decision of each Purchaser to purchase the Shares and
Warrants pursuant to this Agreement has been made by such Purchaser
independently of any other purchase and independently of any information,
materials, statements or opinions as to the business, affairs, operations,
assets, properties, liabilities, results of operations, condition (financial or
otherwise) or prospects of the Company or of its Subsidiaries which may have
made or given by any other Purchaser or by any agent or employee of any other
Purchaser, and no Purchaser or any of its agents or employees shall have any
liability to any Purchaser (or any other person) relating to or arising from any
such information, materials, statements or opinions. The Company acknowledges
that nothing contained herein, or in any Transaction Document, and no action
taken by any Purchaser pursuant hereto or thereto, shall be deemed to constitute
the Purchasers as a partnership, an association, a joint venture or any other
kind of entity, or create a presumption that the Purchasers are in any way
acting in concert or as a group with respect to such obligations or the
transactions contemplated by the Transaction Documents. The Company acknowledges
that each Purchaser shall be entitled to independently protect and enforce its
rights, including without limitation, the rights arising out of this Agreement
or out of the other Transaction Documents, and it shall not be necessary for any
other Purchaser to be joined as an additional party in any proceeding for such
purpose. The Company acknowledges that for reasons of administrative convenience
only, the Transaction Documents have been prepared by counsel for one of the
12
Purchasers and such counsel does not represent all of the Purchasers but only
such Purchaser and the other Purchasers have retained their own individual
counsel with respect to the transactions contemplated hereby. The Company
acknowledges that it has elected to provide all Purchasers with the same terms
and Transaction Documents for the convenience of the Company and not because it
was required or requested to do so by the Purchasers. The Company acknowledges
that such procedure with respect to the Transaction Documents in no way creates
a presumption that the Purchasers are in any way acting in concert or as a group
with respect to the Transaction Documents or the transactions contemplated
hereby or thereby.
(ee) No Integrated Offering. Neither the Company, nor any of
its affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would cause the offering of the Shares
pursuant to this Agreement to be integrated with prior offerings by the Company
for purposes of the Securities Act which would prevent the Company from selling
the Shares pursuant to Rule 506 under the Securities Act, or any applicable
exchange-related stockholder approval provisions, nor will the Company or any of
its affiliates or subsidiaries take any action or steps that would cause the
offering of the Shares to be integrated with other offerings. The Company does
not have any registration statement pending before the Commission or currently
under the Commission's review and since January 1, 2004, the Company has not
offered or sold any of its equity securities.
(hh) Xxxxxxxx-Xxxxx Act(kk) . The Company is in substantial
compliance with the applicable provisions of the Xxxxxxxx-Xxxxx Act of 2002 (the
"Xxxxxxxx-Xxxxx Act"), and the rules and regulations promulgated thereunder,
that are effective and intends to comply substantially with other applicable
provisions of the Xxxxxxxx-Xxxxx Act, and the rules and regulations promulgated
thereunder, upon the effectiveness of such provisions.
Section 2.2 Representations and Warranties of the Purchasers.
Each of the Purchasers hereby makes the following representations and warranties
to the Company with respect solely to itself and not with respect to any other
Purchaser:
(a) Organization and Standing of the Purchasers. If the
Purchaser is an entity, such Purchaser is a corporation or partnership duly
incorporated or organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation or organization.
(b) Authorization and Power. Each Purchaser has the requisite
power and authority to enter into and perform this Agreement and to purchase the
Preferred Shares and Warrants being sold to it hereunder. The execution,
delivery and performance of this Agreement and the Registration Rights Agreement
by such Purchaser and the consummation by it of the transactions contemplated
hereby and thereby have been duly authorized by all necessary corporate or
partnership action, and no further consent or authorization of such Purchaser or
its Board of Directors, stockholders, or partners, as the case may be, is
required. Each of this Agreement and the Registration Rights Agreement has been
duly authorized, executed and delivered by such Purchaser and constitutes, or
shall constitute when executed and delivered, a valid and binding obligation of
the Purchaser enforceable against the Purchaser in accordance with the terms
thereof.
13
(c) No Conflicts. The execution, delivery and performance of
this Agreement and the Registration Rights Agreement and the consummation by
such Purchaser of the transactions contemplated hereby and thereby or relating
hereto do not and will not (i) result in a violation of such Purchaser's charter
documents or bylaws or other organizational documents or (ii) conflict with, or
constitute a default (or an event which 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 of any agreement, indenture or
instrument or obligation to which such Purchaser is a party or by which its
properties or assets are bound, or result in a violation of any law, rule, or
regulation, or any order, judgment or decree of any court or governmental agency
applicable to such Purchaser or its properties (except for such conflicts,
defaults and violations as would not, individually or in the aggregate, have a
material adverse effect on such Purchaser). Such Purchaser is not required to
obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency in order for it to execute,
deliver or perform any of its obligations under this Agreement or the
Registration Rights Agreement or to purchase the Preferred Shares or acquire the
Warrants in accordance with the terms hereof, provided that for purposes of the
representation made in this sentence, such Purchaser is assuming and relying
upon the accuracy of the relevant representations and agreements of the Company
herein.
(d) Acquisition for Investment. Each Purchaser is acquiring
the Preferred Shares and the Warrants solely for its own account for the purpose
of investment and not with a view to or for sale in connection with
distribution. Each Purchaser does not have a present intention to sell the
Preferred Shares or the Warrants, nor a present arrangement (whether or not
legally binding) or intention to effect any distribution of the Preferred Shares
or the Warrants to or through any person or entity; provided, however, that by
making the representations herein and subject to Section 2.2(h) below, such
Purchaser does not agree to hold the Shares or the Warrants for any minimum or
other specific term and reserves the right to dispose of the Shares or the
Warrants at any time in accordance with Federal and state securities laws
applicable to such disposition. Each Purchaser acknowledges that it is able to
bear the financial risks associated with an investment in the Preferred Shares
and the Warrants and that it has been given full access to such records of the
Company and the subsidiaries and to the officers of the Company and the
subsidiaries and received such information as it has deemed necessary or
appropriate to conduct its due diligence investigation and has sufficient
knowledge and experience in investing in companies similar to the Company in
terms of the Company's stage of development so as to be able to evaluate the
risks and merits of its investment in the Company.
(e) Status of Purchasers. Such Purchaser is an "accredited
investor" as defined in Regulation D promulgated under the Securities Act. Such
Purchaser is not required to be registered as a broker-dealer under Section 15
of the Exchange Act and such Purchaser is not a broker-dealer.
(f) Opportunities for Additional Information. Each Purchaser
acknowledges that such Purchaser has had the opportunity to ask questions of and
receive answers from, or obtain additional information from, the executive
officers of the Company concerning the financial and other affairs of the
14
Company, and to the extent deemed necessary in light of such Purchaser's
personal knowledge of the Company's affairs, such Purchaser has asked such
questions and received answers to the full satisfaction of such Purchaser, and
such Purchaser desires to invest in the Company.
(g) No General Solicitation. Each Purchaser acknowledges that
the Shares were not offered to such Purchaser by means of any form of general or
public solicitation or general advertising, or publicly disseminated
advertisements or sales literature, including (i) any advertisement, article,
notice or other communication published in any newspaper, magazine, or similar
media, or broadcast over television or radio, or (ii) any seminar or meeting to
which such Purchaser was invited by any of the foregoing means of
communications.
(h) Rule 144. Such Purchaser understands that the Shares must
be held indefinitely unless such Shares are registered under the Securities Act
or an exemption from registration is available. Such Purchaser acknowledges that
such Purchaser is familiar with Rule 144 of the rules and regulations of the
Commission, as amended, promulgated pursuant to the Securities Act ("Rule 144"),
and that such person has been advised that Rule 144 permits resales only under
certain circumstances. Such Purchaser understands that to the extent that Rule
144 is not available, such Purchaser will be unable to sell any Shares without
either registration under the Securities Act or the existence of another
exemption from such registration requirement.
(i) General. Such Purchaser understands that the Shares are
being offered and sold in reliance on a transactional exemption from the
registration requirement of Federal and state securities laws and the Company is
relying upon the truth and accuracy of the representations, warranties,
agreements, acknowledgments and understandings of such Purchaser set forth
herein in order to determine the applicability of such exemptions and the
suitability of such Purchaser to acquire the Shares.
(j) Independent Investment. No Purchaser has agreed to act
with any other Purchaser for the purpose of acquiring, holding, voting or
disposing of the Shares purchased hereunder for purposes of Section 13(d) under
the Exchange Act, and each Purchaser is acting independently with respect to its
investment in the Shares.
15
ARTICLE III
COVENANTS
The Company covenants with each of the Purchasers as follows, which
covenants are for the benefit of the Purchasers and their permitted assignees
(as defined herein).
Section 3.1 Securities Compliance. The Company shall notify
the Commission in accordance with their rules and regulations, of the
transactions contemplated by any of the Transaction Documents, including filing
a Form D with respect to the Preferred Shares, Warrants, Conversion Shares and
Warrant Shares as required under Regulation D, and shall take all other
necessary action and proceedings as may be required and permitted by applicable
law, rule and regulation, for the legal and valid issuance of the Preferred
Shares, the Warrants, the Conversion Shares and the Warrant Shares to the
Purchasers or subsequent holders.
Section 3.2 Registration and Listing. The Company will cause
its Common Stock to continue to be registered under Sections 12(b) or 12(g) of
the Exchange Act, will comply in all respects with its reporting and filing
obligations under the Exchange Act, will comply with all requirements related to
any registration statement filed pursuant to this Agreement or the Registration
Rights Agreement, and will not take any action or file any document (whether or
not permitted by the Securities Act or the rules promulgated thereunder) to
terminate or suspend such registration or to terminate or suspend its reporting
and filing obligations under the Exchange Act or Securities Act, except as
permitted herein. The Company will take all action necessary to continue the
listing or trading of its Common Stock on the OTC Bulletin Board. Section
3.3 Inspection Rights. The Company shall permit, during normal
business hours and upon reasonable request and reasonable notice, each Purchaser
or any employees, agents or representatives thereof, so long as such Purchaser
shall be obligated hereunder to purchase the Preferred Shares or shall
beneficially own any Preferred Shares, or shall own Conversion Shares which, in
the aggregate, represent more than 2% of the total combined voting power of all
voting securities then outstanding, for purposes reasonably related to such
Purchaser's interests as a stockholder to examine and make reasonable copies of
and extracts from the records and books of account of, and visit and inspect the
properties, assets, operations and business of the Company and any subsidiary,
and to discuss the affairs, finances and accounts of the Company and any
subsidiary with any of its officers, consultants, directors, and key employees.
Section
3.4 Compliance with Laws. The Company shall comply, and cause
each subsidiary to comply, with all applicable laws, rules, regulations and
orders, noncompliance with which could have a Material Adverse Effect. Section
3.5 Keeping of Records and Books of Account. The Company shall
keep and cause each subsidiary to keep adequate records and books of account, in
which complete entries will be made in accordance with GAAP consistently
applied, reflecting all financial transactions of the Company and its
subsidiaries, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other
purposes in connection with its business shall be made.
16
Section 3.6 Reporting Requirements. If the Commission ceases
making periodic reports filed under Section 13 of the Exchange Act available via
its Election Data Gathering Retrieval and Analysis System, then at a Purchaser's
request the Company shall furnish the following to such Purchaser so long as
such Purchaser shall be obligated hereunder to purchase the Preferred Shares or
shall beneficially own any Preferred Shares, or shall own Conversion Shares
which, in the aggregate, represent more than 2% of the total combined voting
power of all voting securities then outstanding:
(a) Quarterly Reports filed with the Commission on Form 10-QSB
as soon as practical after the document is filed with the Commission, and in any
event within fifty-five (55) days after the end of each of the first three
fiscal quarters of the Company;
(b) Annual Reports filed with the Commission on Form 10-KSB as
soon as practical after the document is filed with the Commission, and in any
event within one hundred (100) days after the end of each fiscal year of the
Company; and
(c) Copies of all notices and information, including without
limitation notices and proxy statements in connection with any meetings, that
are provided to holders of shares of Common Stock, contemporaneously with the
delivery of such notices or information to such holders of Common Stock.
Section 3.7 Amendments. The Company shall not amend or waive
any provision of the Articles or Bylaws of the Company in any way that would
adversely affect the liquidation preferences, dividends rights, conversion
rights, voting rights or redemption rights of the Preferred Shares; provided,
however, that any creation and issuance of another series of Junior Stock (as
defined in the Certificate of Designation) or any other class or series of
equity securities which by its terms shall rank on parity with the Preferred
Shares shall not be deemed to materially and adversely affect such rights,
preferences or privileges.
Section 3.8 Other Agreements. The Company shall not enter into
any agreement in which the terms of such agreement would restrict or impair the
right or ability to perform of the Company or any subsidiary under any
Transaction Document.
Section 3.9 Distributions. So long as any Preferred Shares or
Warrants remain outstanding, the Company agrees that it shall not (i) declare or
pay any dividends or make any distributions to any holder(s) of Common Stock or
(ii) purchase or otherwise acquire for value, directly or indirectly, any Common
Stock or other equity security of the Company.
Section 3.10 Status of Dividends. The Company covenants and
agrees that (i) no Federal income tax return or claim for refund of Federal
income tax or other submission to the Internal Revenue Service will adversely
affect the Preferred Shares, any other series of its Preferred Stock, or the
Common Stock, and any deduction shall not operate to jeopardize the availability
17
to Purchasers of the dividends received deduction provided by Section 243(a)(1)
of the Code or any successor provision, (ii) in no report to shareholders or to
any governmental body having jurisdiction over the Company or otherwise will it
treat the Preferred Shares other than as equity capital or the dividends paid
thereon other than as dividends paid on equity capital unless required to do so
by a governmental body having jurisdiction over the accounts of the Company or
by a change in generally accepted accounting principles required as a result of
action by an authoritative accounting standards setting body, and (iii) other
than pursuant to this Agreement or the Certificate of Designation, it will take
no action which would result in the dividends paid by the Company on the
Preferred Shares out of the Company's current or accumulated earnings and
profits being ineligible for the dividends received deduction provided by
Section 243(a)(1) of the Code. The preceding sentence shall not be deemed to
prevent the Company from designating the Preferred Stock as "Convertible
Preferred Stock" in its annual and quarterly financial statements in accordance
with its prior practice concerning other series of preferred stock of the
Company. Notwithstanding the foregoing, the Company shall not be required to
restate or modify its tax returns for periods prior to the Closing Date. In the
event that the Purchasers have reasonable cause to believe that dividends paid
by the Company on the Preferred Shares out of the Company's current or
accumulated earnings and profits will not be treated as eligible for the
dividends received deduction provided by Section 243(a)(1) of the Code, or any
successor provision, the Company will, at the reasonable request of the
Purchasers of 51% of the outstanding Preferred Shares, join with the Purchasers
in the submission to the Service of a request for a ruling that dividends paid
on the Shares will be so eligible for Federal income tax purposes, at the
Purchasers expense. In addition, the Company will reasonably cooperate with the
Purchasers (at Purchasers' expense) in any litigation, appeal or other
proceeding challenging or contesting any ruling, technical advice, finding or
determination that earnings and profits are not eligible for the dividends
received deduction provided by Section 243(a)(1) of the Code, or any successor
provision to the extent that the position to be taken in any such litigation,
appeal, or other proceeding is not contrary to any provision of the Code or
incurred in connection with any such submission, litigation, appeal or other
proceeding. Notwithstanding the foregoing, nothing herein contained shall be
deemed to preclude the Company from claiming a deduction with respect to such
dividends if (i) the Code shall hereafter be amended, or final Treasury
regulations thereunder are issued or modified, to provide that dividends on the
Preferred Shares or Conversion Shares should not be treated as dividends for
Federal income tax purposes or that a deduction with respect to all or a portion
of the dividends on the Shares is allowable for Federal income tax purposes, or
(ii) in the absence of such an amendment, issuance or modification and after a
submission of a request for ruling or technical advice, the service shall rule
or advise that dividends on the shares should not be treated as dividends for
Federal income tax purposes. If the Service determines that the Preferred Shares
or Conversion Shares constitute debt, the Company may file protective claims for
refund.
Section 3.11 Use of Proceeds. The proceeds from the sale of
the Preferred Shares will be used by the Company for working capital and general
corporate purposes.
Section 3.12 Future Financings; Right of First Offer and
Refusal. (a) For purposes of this Agreement, a "Subsequent Financing" shall be
defined as any subsequent offer or sale to, or exchange with (or other type of
distribution to), any third party of Common Stock or any securities convertible,
exercisable or exchangeable into Common Stock, including debt securities so
convertible, in a private transaction (collectively, the "Financing Securities")
18
other than a Permitted Financing. For purposes of this Agreement, "Permitted
Financing" shall mean any transaction involving (i) the Company's issuance of
any Financing Securities (other than for cash) in connection with a merger,
acquisition or consolidation, (ii) the Company's issuance of Financing
Securities in connection with strategic license agreements and other partnering
arrangements so long as such issuances are not for the purpose of raising
capital, (iii) the Company's issuance of Financing Securities in connection with
bona fide firm underwritten public offerings of its securities, (iv) the
Company's issuance of Common Stock or the issuance or grants of options to
purchase Common Stock pursuant to the Company's stock option plans and employee
stock purchase plans so long as the purchase price or exercise price of such
securities is greater than the Conversion Price (as defined in the Certificate
of Designation), (v) as a result of the exercise of options or warrants or
conversion of convertible notes or preferred stock which are granted or issued
as of the date of this Agreement, (vi) any Warrants issued to the Purchasers and
any warrants issued to the placement agent for the transactions contemplated by
this Agreement, (vii) the payment of any dividends on the Series B Preferred
Stock, or (viii) the Company's issuance of any Financing Securities in a
transaction involving Laurus or any other entity that Laurus may introduce to
the Company.
(b) During the period commencing on the Closing Date and
ending on the date that is three (3) years following the Closing Date, the
Company covenants and agrees to promptly notify (in no event later than five (5)
days after making or receiving an applicable offer) in writing (a "Rights
Notice") each Purchaser of the terms and conditions of any proposed Subsequent
Financing. The Rights Notice shall describe, in reasonable detail, the proposed
Subsequent Financing, the proposed closing date of the Subsequent Financing,
which shall be within thirty (30) calendar days from the date of the Rights
Notice, including, without limitation, all of the terms and conditions thereof
and proposed definitive documentation to be entered into in connection
therewith. The Rights Notice shall provide each Purchaser an option (the "Rights
Option") during the fifteen (15) trading days following delivery of the Rights
Notice (the "Option Period") to inform the Company whether such Purchaser will
purchase up its pro rata portion for the securities being offered in such
Subsequent Financing on the same, absolute terms and conditions as contemplated
by such Subsequent Financing (the "First Refusal Rights"). If any Purchaser
elects not to participate in such Subsequent Financing, the other Purchasers may
participate on a pro-rata basis so long as such participation in the aggregate
does not exceed the total Purchase Price hereunder. For purposes of this
Section, all references to "pro rata" means, for any Purchaser electing to
participate in such Subsequent Financing, the percentage obtained by dividing
(x) the total number of Preferred Shares purchased by such Purchaser at the
Closing by (y) the total number of Preferred Shares purchased by all of the
participating Purchasers at the Closing. Delivery of any Rights Notice
constitutes a representation and warranty by the Company that there are no other
material terms and conditions, arrangements, agreements or otherwise except for
those disclosed in the Rights Notice, to provide additional compensation to any
party participating in any proposed Subsequent Financing, including, but not
limited to, additional compensation based on changes in the Purchase Price or
any type of reset or adjustment of a purchase or conversion price or to issue
additional securities at any time after the closing date of a Subsequent
Financing. If the Company does not receive notice of exercise of the Rights
Option from the Purchasers within the Option Period, the Company shall have the
right to close the Subsequent Financing on the scheduled closing date with a
third party; provided that all of the material terms and conditions of the
closing are the same as those provided to the Purchasers in the Rights Notice.
19
If the closing of the proposed Subsequent Financing does not occur on that date,
any closing of the contemplated Subsequent Financing or any other Subsequent
Financing shall be subject to all of the provisions of this Section 3.12,
including, without limitation, the delivery of a new Rights Notice. The
provisions of this Section 3.12(b) shall not apply to issuances of Financing
Securities in a Permitted Financing.
(c) During the period commencing on the Closing Date and
ending on the date that is forty two (42) months following the Closing Date, if
the Company enters into any Subsequent Financing on terms more favorable than
the terms governing the Preferred Shares, then the Purchasers in their sole
discretion may exchange the Preferred Shares, valued at their stated value, for
the securities issued or to be issued in the Subsequent Financing. The Company
covenants and agrees to promptly notify in writing the Purchasers of the terms
and conditions of any such proposed Subsequent Financing.
Section 3.13 Reservation of Shares. Upon the filing of the
Charter Amendment, so long as any of the Preferred Shares or Warrants remain
outstanding, the Company shall take all action necessary to at all times have
authorized, and reserved for the purpose of issuance, no less than the aggregate
number of shares of Common Stock needed to provide for the issuance of the
Conversion Shares and the Warrant Shares.
Section 3.14 Transfer Agent Instructions. The Company shall
issue irrevocable instructions to its transfer agent, and any subsequent
transfer agent, to issue certificates, registered in the name of each Purchaser
or its respective nominee(s), for the Conversion Shares and the Warrant Shares
in such amounts as specified from time to time by each Purchaser to the Company
upon conversion of the Preferred Shares or exercise of the Warrants in the form
of Exhibit F attached hereto (the "Irrevocable Transfer Agent Instructions").
Prior to registration of the Conversion Shares and the Warrant Shares under the
Securities Act, all such certificates shall bear the restrictive legend
specified in Section 5.1 of this Agreement. The Company warrants that no
instruction other than the Irrevocable Transfer Agent Instructions referred to
in this Section 3.14 will be given by the Company to its transfer agent and that
the Shares shall otherwise be freely transferable on the books and records of
the Company as and to the extent provided in this Agreement and the Registration
Rights Agreement. Nothing in this Section 3.14 shall affect in any way each
Purchaser's obligations and agreements set forth in Section 5.1 to comply with
all applicable prospectus delivery requirements, if any, upon resale of the
Shares. If a Purchaser 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 may be made without registration under the Securities Act
or the Purchaser provides the Company with reasonable assurances that the Shares
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 Company shall permit the transfer, and, in the case of the Conversion Shares
and the Warrant Shares, promptly instruct its transfer agent to issue one or
more certificates in such name and in such denominations as specified by such
Purchaser and without any restrictive legend. The Company acknowledges that a
breach by it of its obligations under this Section 3.14 will cause irreparable
harm to the Purchasers by vitiating the intent and purpose of the transaction
contemplated hereby. Accordingly, the Company acknowledges that the remedy at
law for a breach of its obligations under this Section 3.14 will be inadequate
20
and agrees, in the event of a breach or threatened breach by the Company of the
provisions of this Section 3.14, that the Purchasers shall be entitled, in
addition to all other available remedies, to an order and/or injunction
restraining any breach and requiring immediate issuance and transfer, without
the necessity of showing economic loss and without any bond or other security
being required.
Section 3.15 Disposition of Assets. So long as the Preferred
Shares remain outstanding, neither the Company nor any Subsidiary shall sell,
transfer or otherwise dispose of any of its properties, assets and rights
including, without limitation, its software and intellectual property, to any
person except for sales to customers in the ordinary course of business or with
the prior written consent of the holders of a majority of the Preferred Shares
then outstanding; provided, that, the Company may sell, transfer or otherwise
dispose of its properties and assets to Laurus in connection with certain
agreements entered into between the Company and Laurus on May 14, 2004 and any
future agreements entered into between the Company and Laurus so long as the
fair market value of the properties or assets being sold or transferred to
Laurus does not exceed the investment amount under such agreements entered into
between Laurus and the Company.
Section 3.16 Reporting Status. So long as a Purchaser
beneficially owns any of the Securities, the Company shall timely file all
reports required to be filed with the Commission pursuant to the Exchange Act,
and the Company shall not terminate its status as an issuer required to file
reports under the Exchange Act even if the Exchange Act or the rules and
regulations thereunder would permit such termination. Section
3.17 Disclosure of Transaction. The Company shall issue a
press release describing the material terms of the transactions contemplated
hereby (the "Press Release") as soon as practicable after the Closing; provided,
however, that if Closing occurs after 4:00 P.M. Eastern Time on any Trading Day
but in no event later than one hour after the Closing, the Company shall issue
the Press Release no later than 9:00 A.M. Eastern Time on the first Trading Day
following the Closing Date. The Company shall also file with the Commission a
Current Report on Form 8-K (the "Form 8-K") describing the material terms of the
transactions contemplated hereby (and attaching as exhibits thereto this
Agreement, the Certificate of Designation, the Registration Rights Agreement and
the form of Warrant) as soon as practicable following the Closing Date but in no
event more than two (2) Trading Days following the Closing Date, which Press
Release and Form 8-K shall be subject to prior review and comment by the
Purchasers. "Trading Day" means any day during which the OTC Bulletin Board (or
other principal exchange on which the Common Stock is traded) shall be open for
trading.
Section 3.18 Disclosure of Material Information. The Company
covenants and agrees that neither it nor any other person acting on its behalf
has provided or will provide any Purchaser or its agents or counsel with any
information that the Company believes constitutes material non-public
information, unless prior thereto such Purchaser shall have executed a written
agreement regarding the confidentiality and use of such information. The Company
understands and confirms that each Purchaser shall be relying on the foregoing
representations in effecting transactions in securities of the Company.
21
Section 3.19 Pledge of Securities. The Company acknowledges
and agrees that the Shares may be pledged by a Purchaser in connection with a
bona fide margin agreement or other loan or financing arrangement that is
secured by the Common Stock. The pledge of Common Stock shall not be deemed to
be a transfer, sale or assignment of the Common Stock hereunder, and no
Purchaser effecting a pledge of Common Stock shall be required to provide the
Company with any notice thereof or otherwise make any delivery to the Company
pursuant to this Agreement or any other Transaction Document; provided that a
Purchaser and its pledgee shall be required to comply with the provisions of
Article V hereof in order to effect a sale, transfer or assignment of Common
Stock to such pledgee. At the Purchasers' expense, the Company hereby agrees to
execute and deliver such documentation as a pledgee of the Common Stock may
reasonably request in connection with a pledge of the Common Stock to such
pledgee by a Purchaser.
Section 3.20 Charter Amendment. The Company shall file the
Charter Amendment no later than August 30, 2004.
Section 3.21 Listing of Warrants. The Company shall use its
best efforts to list the Warrants for trading on the OTC Bulletin Board or other
applicable exchange no later than five (5) business days following the
Effectiveness Date (as defined in the Registration Rights Agreement). The
Company and the Purchasers agree that the Purchasers will suffer damages if the
Warrants are not listed for trading on the OTC Bulletin Board or other
applicable exchange within five (5) business days following the Effectiveness
Date (the "Warrant Listing Date"). The Company and the Purchasers further agree
that it would not be feasible to ascertain the extent of such damages with
precision. Accordingly, if the Warrants are not listed for trading on the OTC
Bulletin Board or other applicable exchange by the Warrant Listing Date, the
Company shall pay an amount as liquidated damages to each Purchaser, payable in
cash, equal to two percent (2%) for the first calendar month or portion thereof
of the Purchaser's initial investment in the Preferred Shares from the Warrant
Listing Date and one and one quarter percent (1.25%) for each calendar month
thereafter or portion thereof from the Warrant Listing Date until the Warrants
are listed for trading on the OTC Bulletin Board or other applicable exchange.
ARTICLE IV
CONDITIONS
Section 4.1 Conditions Precedent to the Obligation of the
Company to Sell the Shares. The obligation hereunder of the Company to issue and
sell the Preferred Shares and the Warrants to the Purchasers is subject to the
satisfaction or waiver, at or before the Closing, of each of the conditions set
forth below. These conditions are for the Company's sole benefit and may be
waived by the Company at any time in its sole discretion.
(a) Accuracy of Each Purchaser's Representations and
Warranties. The representations and warranties of each Purchaser shall be true
and correct in all material respects as of the date when made and as of the
Closing Date as though made at that time, except for representations and
warranties that are expressly made as of a particular date, which shall be true
and correct in all material respects as of such date.
(b) Performance by the Purchasers. Each Purchaser shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by such Purchaser at or prior to the Closing.
22
(c) No Injunction. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement.
(d) Delivery of Purchase Price. The Purchase Price for the
Preferred Shares and Warrants has been delivered to the Company at the Closing
Date.
(e) Delivery of Transaction Documents. The Transaction
Documents have been duly executed and delivered by the Purchasers to the
Company.
(f) Written Consent of Laurus. Laurus shall have delivered to
the Company an executed written consent consenting to the transactions
contemplated by this Agreement.
Section 4.2 Conditions Precedent to the Obligation of the
Purchasers to Purchase the Shares. The obligation hereunder of each Purchaser to
acquire and pay for the Preferred Shares and the Warrants is subject to the
satisfaction or waiver, at or before the Closing, of each of the conditions set
forth below. These conditions are for each Purchaser's sole benefit and may be
waived by such Purchaser at any time in its sole discretion.
(a) Accuracy of the Company's Representations and Warranties.
Each of the representations and warranties of the Company in this Agreement and
the Registration Rights Agreement shall be true and correct in all material
respects as of the date when made and as of the Closing Date as though made at
that time (except for representations and warranties that are expressly made as
of a particular date), which shall be true and correct in all material respects
as of such date.
(b) Performance by the Company. The Company shall have
performed, satisfied and complied in all respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to the Closing.
(c) No Suspension, Etc. Trading in the Company's Common Stock
shall not have been suspended by the Commission or the OTC Bulletin Board
(except for any suspension of trading of limited duration agreed to by the
Company, which suspension shall be terminated prior to the applicable Closing),
and, at any time prior to the Closing Date, trading in securities generally as
reported by Bloomberg Financial Markets ("Bloomberg") shall not have been
suspended or limited, or minimum prices shall not have been established on
securities whose trades are reported by Bloomberg, or on the New York Stock
Exchange, nor shall a banking moratorium have been declared either by the United
States or New York State authorities.
23
(d) No Injunction. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement.
(e) No Proceedings or Litigation. No action, suit or
proceeding before any arbitrator or any governmental authority shall have been
commenced, and no investigation by any governmental authority shall have been
threatened, against the Company or any subsidiary, or any of the officers,
directors or affiliates of the Company or any subsidiary seeking to restrain,
prevent or change the transactions contemplated by this Agreement, or seeking
damages in connection with such transactions.
(f) Certificate of Designation of Rights and Preferences.
Prior to the Closing, the Certificate of Designation in the form of Exhibit B
attached hereto shall have been filed with the Secretary of State of Nevada.
(g) Opinion of Counsel, Etc. At the Closing, the Purchasers
shall have received an opinion of counsel to the Company, dated the date of the
Closing, in the form of Exhibit G hereto, and such other certificates and
documents as the Purchasers or its counsel shall reasonably require incident to
the Closing.
(h) Registration Rights Agreement. At the Closing, the Company
shall have executed and delivered the Registration Rights Agreement to each
Purchaser.
(i) Certificates. The Company shall have executed and
delivered to the Purchasers the certificates (in such denominations as such
Purchaser shall request) for the Preferred Shares and Warrants being acquired by
such Purchaser at the Closing.
(j) Resolutions. The Board of Directors of the Company shall
have adopted resolutions consistent with Section 2.1(b) hereof in a form
reasonably acceptable to such Purchaser (the "Resolutions").
(k) Intentionally Omitted.
(l) Transfer Agent Instructions. The Irrevocable Transfer
Agent Instructions, in the form of Exhibit F attached hereto, shall have been
delivered to and acknowledged in writing by the Company's transfer agent.
(m) Secretary's Certificate. The Company shall have delivered
to such Purchaser a secretary's certificate, dated as of the Closing Date, as to
(i) the Resolutions, (ii) the Articles, (iii) the Bylaws, (iv) the Certificate
of Designation, each as in effect at the Closing, and (iv) the authority and
incumbency of the officers of the Company executing the Transaction Documents
and any other documents required to be executed or delivered in connection
therewith.
24
(n) Officer's Certificate. The Company shall have delivered to
the Purchasers a certificate of an executive officer of the Company, dated as of
the Closing Date, confirming the accuracy of the Company's representations,
warranties and covenants as of such Closing Date and confirming the compliance
by the Company with the conditions precedent set forth in this Section 4.2 as of
the Closing Date.
(o) Material Adverse Effect. No Material Adverse Effect shall
have occurred at or before the Closing Date.
(p) Written Consent of Laurus. The Company shall have
delivered to the Purchasers an executed written consent of Laurus consenting to
the transactions contemplated by this Agreement.
(q) Minimum Purchase. The Purchasers shall have purchased at
least $2,000,000 of the aggregate Purchase Price.
(r) Release of Restricted Cash. Laurus shall have released
$250,000 of restricted cash to the Company in connection with certain agreements
entered into between the Company and Laurus on May 14, 2004.
ARTICLE V
STOCK CERTIFICATE LEGEND
Section 5.1 Legend. Each certificate representing the
Preferred Shares and the Warrants, and, if appropriate, securities issued upon
conversion thereof, shall be stamped or otherwise imprinted with a legend
substantially in the following form (in addition to any legend required by
applicable state securities or "blue sky" laws):
THESE SECURITIES REPRESENTED BY THIS CERTIFICATE (THE
"SECURITIES") HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE
SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND
UNDER APPLICABLE STATE SECURITIES LAWS OR XSTREAM BEVERAGE
GROUP, INC. SHALL HAVE RECEIVED AN OPINION OF COUNSEL THAT
REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND
UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT
REQUIRED.
The Company agrees to reissue certificates representing any of the
Conversion Shares and the Warrant Shares, without the legend set forth above if
at such time, prior to making any transfer of any such securities, such holder
thereof shall give written notice to the Company describing the manner and terms
of such transfer and removal as the Company may reasonably request. Such
proposed transfer and removal will not be effected until: (a) either (i) the
Company has received an opinion of counsel reasonably satisfactory to the
25
Company, to the effect that the registration of the Conversion Shares or the
Warrant Shares under the Securities Act is not required in connection with such
proposed transfer, (ii) a registration statement under the Securities Act
covering such proposed disposition has been filed by the Company with the
Commission and has become effective under the Securities Act, (iii) the Company
has received other evidence reasonably satisfactory to the Company that such
registration and qualification under the Securities Act and state securities
laws are not required, or (iv) the holder provides the Company with reasonable
assurances that such security can be sold pursuant to Rule 144 under the
Securities Act; and (b) either (i) the Company has received an opinion of
counsel reasonably satisfactory to the Company, to the effect that registration
or qualification under the securities or "blue sky" laws of any state is not
required in connection with such proposed disposition, or (ii) compliance with
applicable state securities or "blue sky" laws has been effected or a valid
exemption exists with respect thereto. The Company will respond to any such
notice from a holder within five (5) business days. In the case of any proposed
transfer under this Section 6.1, the Company will use reasonable efforts to
comply with any such applicable state securities or "blue sky" laws, but shall
in no event be required, (x) to qualify to do business in any state where it is
not then qualified, (y) to take any action that would subject it to tax or to
the general service of process in any state where it is not then subject, or (z)
to comply with state securities or "blue sky" laws of any state for which
registration by coordination is unavailable to the Company. The restrictions on
transfer contained in this Section 6.1 shall be in addition to, and not by way
of limitation of, any other restrictions on transfer contained in any other
section of this Agreement. Whenever a certificate representing the Conversion
Shares or Warrant Shares is required to be issued to a Purchaser without a
legend, in lieu of delivering physical certificates representing the Conversion
Shares or Warrant Shares, provided the Company's transfer agent is participating
in the Depository Trust Company ("DTC") Fast Automated Securities Transfer
program, the Company shall use its reasonable best efforts to cause its transfer
agent to electronically transmit the Conversion Shares or Warrant Shares to a
Purchaser by crediting the account of such Purchaser's Prime Broker with DTC
through its Deposit Withdrawal Agent Commission ("DWAC") system (to the extent
not inconsistent with any provisions of this Agreement).
ARTICLE VI
INDEMNIFICATION
Section 6.1 General Indemnity. The Company agrees to indemnify
and hold harmless the Purchasers (and their respective directors, officers,
affiliates, agents, successors and assigns) from and against any and all losses,
liabilities, deficiencies, costs, damages and expenses (including, without
limitation, reasonable attorneys' fees, charges and disbursements) incurred by
the Purchasers as a result of any inaccuracy in or breach of the
representations, warranties or covenants made by the Company herein. Each
Purchaser severally but not jointly agrees to indemnify and hold harmless the
Company and its directors, officers, affiliates, agents, successors and assigns
from and against any and all losses, liabilities, deficiencies, costs, damages
and expenses (including, without limitation, reasonable attorneys' fees, charges
and disbursements) incurred by the Company as result of any inaccuracy in or
breach of the representations, warranties or covenants made by such Purchaser
herein. The maximum aggregate liability of each Purchaser pursuant to its
indemnification obligations under this Article VI shall not exceed the portion
of the Purchase Price paid by such Purchaser hereunder.
26
Section 6.2 Indemnification Procedure. Any party entitled to
indemnification under this Article VI (an "indemnified party") will give written
notice to the indemnifying party of any matters giving rise to a claim for
indemnification; provided, that the failure of any party entitled to
indemnification hereunder to give notice as provided herein shall not relieve
the indemnifying party of its obligations under this Article VI except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any action, proceeding or claim is brought against an
indemnified party in respect of which indemnification is sought hereunder, the
indemnifying party shall be entitled to participate in and, unless in the
reasonable judgment of the indemnified party a conflict of interest between it
and the indemnifying party may exist with respect of such action, proceeding or
claim, to assume the defense thereof with counsel reasonably satisfactory to the
indemnified party. In the event that the indemnifying party advises an
indemnified party that it will contest such a claim for indemnification
hereunder, or fails, within thirty (30) days of receipt of any indemnification
notice to notify, in writing, such person of its election to defend, settle or
compromise, at its sole cost and expense, any action, proceeding or claim (or
discontinues its defense at any time after it commences such defense), then the
indemnified party may, at its option, defend, settle or otherwise compromise or
pay such action or claim. In any event, unless and until the indemnifying party
elects in writing to assume and does so assume the defense of any such claim,
proceeding or action, the indemnified party's costs and expenses arising out of
the defense, settlement or compromise of any such action, claim or proceeding
shall be losses subject to indemnification hereunder. The indemnified party
shall cooperate fully with the indemnifying party in connection with any
negotiation or defense of any such action or claim by the indemnifying party and
shall furnish to the indemnifying party all information reasonably available to
the indemnified party which relates to such action or claim. The indemnifying
party shall keep the indemnified party fully apprised at all times as to the
status of the defense or any settlement negotiations with respect thereto. If
the indemnifying party elects to defend any such action or claim, then the
indemnified party shall be entitled to participate in such defense with counsel
of its choice at its sole cost and expense. The indemnifying party shall not be
liable for any settlement of any action, claim or proceeding effected without
its prior written consent. Notwithstanding anything in this Article VI to the
contrary, the indemnifying party shall not, without the indemnified party's
prior written consent, settle or compromise any claim or consent to entry of any
judgment in respect thereof which imposes any future obligation on the
indemnified party or which does not include, as an unconditional term thereof,
the giving by the claimant or the plaintiff to the indemnified party of a
release from all liability in respect of such claim. The indemnification
required by this Article VI shall be made by periodic payments of the amount
thereof during the course of investigation or defense, as and when bills are
received or expense, loss, damage or liability is incurred, so long as the
indemnified party irrevocably agrees to refund such moneys if it is ultimately
determined by a court of competent jurisdiction that such party was not entitled
to indemnification. The indemnity agreements contained herein shall be in
addition to (a) any cause of action or similar rights of the indemnified party
against the indemnifying party or others, and (b) any liabilities the
indemnifying party may be subject to pursuant to the law.
27
ARTICLE VII
MISCELLANEOUS
Section 7.1 Fees and Expenses. Except as otherwise set forth
in this Agreement, the Registration Rights Agreement or the Certificate of
Designation, each party shall pay the fees and expenses of its advisors,
counsel, accountants and other experts, if any, and all other expenses, incurred
by such party incident to the negotiation, preparation, execution, delivery and
performance of this Agreement, provided that the Company shall pay all actual
attorneys' fees and expenses (including disbursements and out-of-pocket
expenses) incurred by the Purchasers in connection with (i) the preparation,
negotiation, execution and delivery of this Agreement, the Registration Rights
Agreement and the transactions contemplated thereunder, which payment shall be
made at Closing and shall not exceed $35,000 (exclusive of disbursements and
out-of-pocket expenses), (ii) the filing and declaration of effectiveness by the
Commission of the Registration Statement (as defined in the Registration Rights
Agreement) and (iii) any amendments, modifications or waivers of this Agreement
or any of the other Transaction Documents. In addition, the Company shall pay
all reasonable fees and expenses incurred by the Purchasers in connection with
the enforcement of this Agreement or any of the other Transaction Documents,
including, without limitation, all reasonable attorneys' fees and expenses. The
Company shall pay all stamp or other similar taxes and duties levied in
connection with issuance of the Preferred Shares pursuant hereto.
Section 7.2 Specific Enforcement, Consent to Jurisdiction.
(a) The Company and the Purchasers acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement, the Certificate of Designation or the Registration Rights Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent or cure breaches of the provisions of this
Agreement or the Registration Rights Agreement and to enforce specifically the
terms and provisions hereof or thereof, this being in addition to any other
remedy to which any of them may be entitled by law or equity.
(b) Each of the Company and the Purchasers (i) hereby
irrevocably submits to the jurisdiction of the United States District Court
sitting in the Southern District of New York and the courts of the State of New
York located in New York county for the purposes of any suit, action or
proceeding arising out of or relating to this Agreement or any of the other
Transaction Documents or the transactions contemplated hereby or thereby and
(ii) hereby waives, and agrees not to assert in any such suit, action or
proceeding, any claim that it is not personally subject to the jurisdiction of
such court, that the suit, action or proceeding is brought in an inconvenient
forum or that the venue of the suit, action or proceeding is improper. Each of
the Company and the Purchasers consents to process being served in any such
suit, action or proceeding by mailing a copy thereof to such party at the
address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing in this Section 9.2 shall affect or limit any right to serve
process in any other manner permitted by law.
28
Section 7.3 Entire Agreement; Amendment. This Agreement and
the Transaction Documents contains the entire understanding and agreement of the
parties with respect to the matters covered hereby and, except as specifically
set forth herein or in the Transaction Documents or the Certificate of
Designation, neither the Company nor any of the Purchasers makes any
representations, warranty, covenant or undertaking with respect to such matters
and they supersede all prior understandings and agreements with respect to said
subject matter, all of which are merged herein. No provision of this Agreement
may be waived or amended other than by a written instrument signed by the
Company and the holders of at least three-fourths (3/4) of the Preferred Shares
then outstanding, and no provision hereof may be waived other than by an a
written instrument signed by the party against whom enforcement of any such
amendment or waiver is sought. No such amendment shall be effective to the
extent that it applies to less than all of the holders of the Preferred Shares
then outstanding. No consideration shall be offered or paid to any person to
amend or consent to a waiver or modification of any provision of any of the
Transaction Documents or the Certificate of Designation unless the same
consideration is also offered to all of the parties to the Transaction Documents
or holders of Preferred Shares, as the case may be.
Section 7.4 Notices. Any notice, demand, request, waiver or
other communication required or permitted to be given hereunder shall be in
writing and shall be effective (a) upon hand delivery, telecopy or facsimile at
the address or number designated below (if delivered on a business day during
normal business hours where such notice is to be received), or the first
business day following such delivery (if delivered other than on a business day
during normal business hours where such notice is to be received) or (b) on the
second business day following the date of mailing by express courier service,
fully prepaid, addressed to such address, or upon actual receipt of such
mailing, whichever shall first occur. The addresses for such communications
shall be:
If to the Company: XStream Beverage Group, Inc.
0000 X.X. 00xx Xxxxxx, Xxx 0-X
Xxxx Xxxxxxxxxx, XX 00000
Attention: Xxxxx Xxxxxxxx
Tel. No.: (000) 000-0000
Fax No.: (000) 000-0000
with copies to: Xxxxxx, Xxxxxxx & Xxxxx, LLP
0000 Xxxxx Xxxxxxxx Xxxxx
Xxxx Xxxxx, Xxxxxxx 00000
Attention: Xxxxxxx Xxxxx
Tel. No.: (000) 000-0000
Fax No.: (000) 000-0000
29
If to any Purchaser: At the address of such
Purchaser set forth on
Exhibit A to this Agreement,
with copies to Purchaser's
counsel as set forth on
Exhibit A or as specified in
writing by such Purchaser
with copies to:
Jenkens & Xxxxxxxxx Xxxxxx Xxxxxx LLP
The Chrysler Building
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxxxxxxx X. Xxxxxxx, Esq.
Tel No.: (000) 000-0000
Fax No.: (000) 000-0000
Any party hereto may from time to time change its address for notices
by giving at least ten (10) days written notice of such changed address to the
other party hereto.
Section 7.5 Waivers. No waiver by either party of any default
with respect to any provision, condition or requirement of this Agreement shall
be deemed to be a continuing waiver in the future or a waiver of any other
provisions, condition or requirement hereof, nor shall any delay or omission of
any party to exercise any right hereunder in any manner impair the exercise of
any such right accruing to it thereafter.
Section 7.6 Headings. The article, section and subsection
headings in this Agreement are for convenience only and shall not constitute a
part of this Agreement for any other purpose and shall not be deemed to limit or
affect any of the provisions hereof.
Section 7.7 Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties and their successors and
assigns.
Section 7.8 No Third Party Beneficiaries. This Agreement is
intended for the benefit of the parties hereto and their respective permitted
successors and assigns and is not for the benefit of, nor may any provision
hereof be enforced by, any other person.
Section 7.9 Governing Law. This Agreement shall be governed by
and construed in accordance with the internal laws of the State of New York,
without giving effect to any of the conflicts of law principles which would
result in the application of the substantive law of another jurisdiction. This
Agreement shall not be interpreted or construed with any presumption against the
party causing this Agreement to be drafted.
Section 7.10 Survival. The representations and warranties of
the Company and the Purchasers contained in Sections 2.1(o) and (s) should
survive indefinitely and those contained in Article II, with the exception of
Sections 2.1(o) and (s), shall survive the execution and delivery hereof and the
Closing until the date three (3) years from the Closing Date, and the agreements
and covenants set forth in Articles I, III, VI and VII of this Agreement shall
survive the execution and delivery hereof and the Closing hereunder until the
Purchasers in the aggregate beneficially own (determined in accordance with Rule
13d-3 under the Exchange Act) less than 10% of the total combined voting power
of all voting securities then outstanding, provided, that Sections 3.1, 3.2,
3.4, 3.5, 3.7, 3.8, 3.9, 3.10, 3.11, 3.13, 3.14, 3.15, 3.16, and 3.18 shall not
expire until the Registration Statement required by Section 2 of the
Registration Rights Agreement is no longer required to be effective under the
terms and conditions of Registration Rights Agreement.
30
Section 7.11 Counterparts. This Agreement may be executed in
any number of counterparts, all of which taken together shall constitute one and
the same instrument and shall become effective when counterparts have been
signed by each party and delivered to the other parties hereto, it being
understood that all parties need not sign the same counterpart. In the event any
signature is delivered by facsimile transmission, the party using such means of
delivery shall cause four additional executed signature pages to be physically
delivered to the other parties within five days of the execution and delivery
hereof.
Section 7.12 Publicity. The Company agrees that it will not
disclose, and will not include in any public announcement, the name of the
Purchasers without the consent of the Purchasers unless and until such
disclosure is required by law or applicable regulation, and then only to the
extent of such requirement.
Section 7.13 Severability. The provisions of this Agreement,
the Certificate of Designation and the Registration Rights Agreement are
severable and, in the event that any court of competent jurisdiction shall
determine that any one or more of the provisions or part of the provisions
contained in this Agreement, the Certificate of Designation or the Registration
Rights Agreement shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision or part of a provision of this Agreement,
the Certificate of Designation or the Registration Rights Agreement shall be
reformed and construed as if such invalid or illegal or unenforceable provision,
or part of such provision, had never been contained herein, so that such
provisions would be valid, legal and enforceable to the maximum extent possible.
Section 7.14 Further Assurances. From and after the date of
this Agreement, upon the request of any Purchaser or the Company, each of the
Company and the Purchasers shall execute and deliver such instrument, documents
and other writings as may be reasonably necessary or desirable to confirm and
carry out and to effectuate fully the intent and purposes of this Agreement, the
Preferred Shares, the Conversion Shares, the Warrants, the Warrant Shares, the
Certificate of Designation, and the Registration Rights Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
31
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officer as of the date first above
written.
XSTREAM BEVERAGE GROUP, INC.
By:
---------------------------
Name:
Title:
PURCHASER
By:
---------------------------
Name:
Title:
32
XStream Beverage Group - Series B Financing (July 2004)
Investor List
------------------------------------------------------------------------------------------------------------------------------------
REGISTRATION MAILING
INVESTOR ADDRESS ADDRESS TID/SS#
------------------------------------------------------------------------------------------------------------------------------------
Alpha Capital XX Xxxxxxxxx 0, Xxxxxxxxxxx, 0000 Xxxxx, X.X. Financial, 000 Xxxxxxx Xxxx Xxxxx, --
Xxxxxxxxxxxxx Xxxxx 0000, Xxx Xxxx, XX 00000
Xxxxx Xxxxxxxx 0000 Xxxxxxxx Xxxx Xx., Xxxx O' Lakes, 0000 Xxxxxxxx Xxxx Xx., Xxxx X' Xxxxx, --
XX 00000 FL 34639
Enable Growth Partners L.P. One Sansome Street, Suite 2900, One Sansome Street, Suite 2900, --
Xxx Xxxxxxxxx, XX 00000 Xxx Xxxxxxxxx, XX 00000
Greenwich Growth Fund Ltd Xxx Xx Xxxxx Xxxxx, 0xx Xxxxx, 00 Par PO Box HM2257 Hamilton HMJX, --
La Ville Road, Xxxxxxxx, Bermuda Bermuda
SRG Capital, LLC 000 Xxxxxxxx, 00xx Xxxxx, Xxx Xxxx, 000 Xxxxxxxx, 00xx Xxxxx, Xxx Xxxx, --
XX 00000 NY 10271
Xxxxxxxxxxx Limited Partnership 000 Xxxx Xxxxxx Xxxx., Xxxxx 000, c/o Canaccord Capital Corp., --
Xxxxxxx, Xxxxxxx X0X-0X0 000 Xxx Xxxxxx, Xxxxx 0000 X0X 0X0
Xxxxxxx Equity Partners, LP 000 Xxxxxxxxx Xxxxxx, 00xx Floor, 641 Lexington Avenue, 25th Floor, --
Xxx Xxxx, XX 00000 Xxx Xxxx, XX 00000
Whalehaven Fund Limited Par La Xxxxx Xxxxx, 0xx Xxxxx, 00 Xxx Xx PO Box HM2257 Hamilton HMJX, --
Ville Road, Xxxxxxxx, Bermuda Bermuda
Whalehaven Fund Limited #2 A/C Par La Xxxxx Xxxxx, 0xx Xxxxx, 00 Xxx Xx XX Xxx XX0000 Xxxxxxxx XXXX,
Xxxxx Xxxx, Xxxxxxxx, Xxxxxxx Xxxxxxx
Table Restubbed
----------------------------------------------------------------------------------------------------------------------------------
% of PP
STATE CONTACT PHONE FAX EMAIL AMOUNT RECEIVED MISSING PURCHASED
----------------------------------------------------------------------------------------------------------------------------------
Liechtenstein -- -- -- -- $ 350,000 $ 350,000 $ -- 16.20%
FL -- -- -- -- $ 10,000 $ 10,000 $ -- 0.46%
CA -- -- -- -- $ 400,000 $ 400,000 $ -- 18.52%
Bermuda -- -- -- -- $ 150,000 $ 150,000 $ -- 6.94%
NY -- -- -- -- $ 200,000 $ 200,000 $ -- 9.26%
Canada -- -- -- -- $ 450,000 $ 450,000 $ -- 20.83%
DE -- -- -- -- $ 300,000 $ 300,000 $ -- 13.89%
Bermuda -- -- -- -- $ 150,000 $ 150,000 $ -- 6.94%
Bermuda $ 150,000 $ 150,000 $ -- 6.94%
---------- ---------- ----- ------
$2,160,000 $2,160,000 $ -- 100%
---------- ---------- ----- ------
----------
Aggregate Consideration to Company $1,909,000
----------
----------
Placement Agent Fees $ 216,000
----------
----------
Legal Fees $ 35,000
----------
----------
Escrow Break #1: $2,160,000
----------
Total: $2,160,000
==========
Continuation of Restubbed Table
------------------------------------------------------- ------------- ---------------------------------------------
TOTAL TOTAL COMMON TOTAL "A" TOTAL "B" PURCHASE REG INFO
PREFERRED SHARES UNDERLYING PREFERRED WARRANTS WARRANTS AGREEMENT RIGHTS AI SHEET WIRE
------------------------------------------------------- ------------- ---------------------------------------------
7.000 233,333 233,333 116,666 x x x x x
0.200 6,666 6,666 3,333 x x x x x
8.000 266,666 266,666 133,333 x x x x x
3.000 100,000 100,000 50,000 x x x x x
4.000 133,333 133,333 66,666 x x x x x
9.000 300,000 300,000 150,000 x x x x x
6.000 200,000 200,000 100,000 x x x x x
3.000 100,000 100,000 50,000 x x x x x
3.000 100,000 100,000 50,000 x x x x x
------ --------- --------- -------
43.200 1,439,998 1,439,998 719,998
------ --------- --------- -------
