CROSS CAPITAL FUND, LLC
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INVESTMENT EXCHANGE AGREEMENT
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INVESTMENT EXCHANGE AGREEMENT dated as of March 19, 2004, by and among
Cross Capital Fund, LLC, a New York limited liability Fund with its principal
place of business at 000 Xxxxxxxx Xxxxxx, Xxxxx 000, Xxxxxx Xxxx, Xxx Xxxx 00000
(the "Fund") and T&G2, Inc., a Nevada corporation, with its principal place of
business at 00 Xx Xxxxxx Xxxxxx, Xxxxxxxx Xxxxxxx, Xxx Xxxxxx 00000 (the
"Company").
WHEREAS, the Fund desires to make an equity investment in Company in such
amount and manner as is set forth herein, in exchange for receiving preferred
stock;
WHEREAS, Company desires to make a capital contribution to the Fund in such
amount and manner as is set forth herein, in exchange for receiving an Investor
Membership Interest in the Fund;
WHEREAS, the Company, as a Member of the Fund, also desires to be bound by
the terms of the Fund's Operating Agreement (the "Operating Agreement").
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein the parties agree as follows:
1. Purchase and Sale of Membership Interests.
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1. Investment Exchange. Subject to the terms and conditions herein, the
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Fund will make an equity investment in Company and Company will receive from the
Fund an Investor Membership Interest, as defined in the Operating Agreement (the
"Membership Interest") in an aggregate amount equal to Three Million
($2,000,000) Dollars (the "Investment") in exchange for an investment in the
Fund by Company ("Annual Investment"), in the following amount, on the following
date (the "Annual Investment Date"):
Upon execution hereof: $2,000,000
Each Annual Investment made by the Fund shall be issued and recorded in
amounts and on the dates pursuant to the schedule above. The investment
installment from the Company shall be made within five (5) business days of
receipt by Company of a notice from the Fund as to the number of shares to be
delivered to the Fund to represent the Annual Investment together with a
calculation showing how such number of shares was determined (the "Annual
Investment Notice"). The full amount of each Annual Investment and the
Participation Fee will be credited to the Company's Capital Account, as defined
in the Operating Agreement.
Notwithstanding the total amount of the Investment above, (a) Company's
Capital Account shall be credited only in amounts equal to the Annual
Investments actually made by Company plus the Participation Fees actually paid
by the Company and (b) the Fund reserves the right, at it sole discretion, not
to accept any Annual Investment which would result in the Fund owning in excess
of 9.99% of the outstanding capital of the Company.
1.2 Investment Form. Each Annual Investment shall be made in the form of
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such number of newly issued shares of a series of the Company's preferred stock
issued in the name of the Fund (the "Preferred Stock") as determined in
accordance with Section 1.3 below. The Preferred Stock will have such rights and
privileges as described in Exhibit "A" hereto. Company acknowledges that that
the Preferred Stock shall become the sole property of the Fund and that the
Company shall have no right to the Preferred Stock, dividends paid thereon or
the proceeds from the sales of any share thereof, except for Company's right to
receive pro rata distributions made by the Fund pursuant to the Operating
Agreement. In addition, upon the execution hereof, Company shall grant to the
Fund a warrant to purchase such number of shares of the Company's common stock,
pursuant to the Annual Investment, which is equal to twenty percent (20%) of
each Annual Investment Share Count, as defined below, with an exercise price of
twenty percent (20%) greater than the lesser of (x) ninety-five percent (95%) of
the average closing bid prices for Company's common stock for the twenty (20)
trading days preceding the applicable Annual Investment Date and (y) ninety-five
percent (95%) of the bid price for Company's common stock for the one (1)
trading day preceding the applicable Annual Investment Date (the "Annual
Investment Date Average Stock Price"), in the form attached hereto as Schedule
"A" (the "Warrant").
1.3 Shares of Preferred Stock. The number of shares of Preferred Stock
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which will represent each Annual Investment (the "Annual Investment Share
Count") shall be determined by dividing the amount of the Annual Investment
being made by One ($1.00) Dollar. The Fund shall have the right to review and
approve the Certificate of Designation of the Preferred Stock.
1.4 Increases in Investment. In the event that during the term hereof,
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Company shall desire to increase the amount of the Investment, Company shall
request that the Fund amend this Agreement to reflect a larger Investment amount
and the Fund, in the sole discretion of the Fund's Manager, may accept or reject
such request to increase in the Investment.
1.5 Renewal Terms. This Agreement shall be automatically renewed for
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additional one (1) year terms unless either party notifies the other, in
writing, of its desire to discontinue this Agreement at least sixty (60) days
prior to the expiration of a term of this Agreement. The Investment for each
renewal term shall be the amount set forth in Section 1.1 above.
2. Representations and Warranties of the Fund.
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The Fund hereby represents and warrants as follows:
2.1 Organization and Qualification. The Fund is a limited liability Fund
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duly organized and validly existing under the laws of the State of New York. The
Fund has all requisite power and authority to carry on its business as
contemplated by the Operating Agreement.
2.2 No Implied Representations. Except as expressly set forth herein, the
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Fund makes no representations or warranties of any kind to the Company.
2.3 No Short Sales. The Fund agrees that the Fund shall not engage in any
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"short" selling of the Company's common stock held by the Fund.
3. Representations and Warranties of Company.
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Company hereby represents and warrants as follows:
3.1 Duly Organized. Company is a duly organized, validly existing
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corporation under the laws of its state of incorporation as set forth above.
3.2 Validly Issued. The Company Stock when issued will be validly issued,
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fully paid and non-assessable under the law of its state of incorporation.
3.3 Authorization. This Agreement and the Operating Agreement constitute
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valid and legally binding obligations of the Company, enforceable in accordance
with their respective terms and shall have been duly authorized, executed and
delivered by the Company.
3.4 Compliance with Other Instruments. The execution, delivery and
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performance of and compliance with this Agreement and the Operating Agreement
will not result in any such violation, be in conflict with or constitute, with
or without the passage of time or giving of notice, a default under any such
provision, require any consent or waiver under any such provision or result in
the creation of any mortgage, pledge, lien, encumbrance or charge upon any of
the properties or assets of Company pursuant to any such provision.
3.5 Securities Laws. Company has fully complied with all requirements of
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the Securities Act of 1934, as amended (the "1934 Act"). Company's common stock
is currently approved for quotation on the OTC Bulletin Board or is applying for
listing within sixty (60) days hereof. There are no stop orders in effect or
contemplated with respect thereto and no facts exist which may give rise there.
Company has filed all reports required to be filed by Company pursuant to the
Act of 1934 or will file such reports within sixty (60) days hereof. Company has
not been informed, and has no reason to believe, that its common stock will be
de-listed or suspended by the NASD. Company has fully complied with all
applicable securities laws and regulations and is not in default of any of its
obligations thereunder.
3.6 Experience. Company is experienced in evaluating companies such as the
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Fund, is able to fend for itself in transactions such as the one contemplated by
this Agreement, has such knowledge and experience in financial and business
matters as is necessary to evaluate the merits and risks of its prospective
investment in Fund and has the ability to bear the economic risks of the
investment.
3.7 Investment. Company is acquiring the Membership Interest from the Fund
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for its own account and not with the view to, or for resale in connection with,
any distribution thereof. Company understands that the Membership Interest have
not been registered under the Securities Act of 1933, as amended (the
"Securities Act"), by reason of a specific exemption from the registration
provisions of the Securities Act, which depends upon, among other things, the
bona fide nature of the investment intent as expressed herein. Company further
represent that it does not have any contract, undertaking, agreement or
arrangement with any person to sell, transfer or grant participation to any
third person with respect to the Membership Interest.
3.8 Access to Data. Company has received and reviewed information about
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the Fund and have had an opportunity to discuss the Fund's business, management
and financial affairs with its management. Company understands that such
discussions, as well as any written information provided by the Fund, were
intended to describe the aspects of the Fund's business and prospects which the
Fund believes to be material, but were not necessarily a thorough or exhaustive
description, and except as expressly set forth in this Agreement, the Fund makes
no representation or warranty with respect to the completeness of such
information and makes no representation or warranty of any kind with respect to
any information provided by any entity other than the Fund.
3.9 Confidentiality; Proprietary Rights. Company acknowledges that the
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Fund's business model, investment structure and business processes are
proprietary to the Fund and the subject of a United States patent application by
the Fund (the "Proprietary Information"). Company agrees that the Fund is and
shall remain the exclusive owner of Proprietary Information and all patent,
copyright, trade secret, trademark and other intellectual property rights
therein and Company shall use such Proprietary Information only for the purpose
contemplated herein and shall not use or exploit such Proprietary Information
for its own benefit or the benefit of another. Company shall disclose
Proprietary Information only to persons within its organization and its
attorneys, accountants, and consultants who have a need to know such Proprietary
Information in the course of the performance of their duties and who are bound
and undertake to protect the confidentiality of such Proprietary Information.
4. Covenants.
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4.1 Operating Agreement. Company agrees that upon the execution of this
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Agreement, Company shall also be bound by and/or a party to the Operating
Agreement and agrees to be fully bound by and subject to, all the covenants,
terms and conditions of the Operating Agreement as though an original party
thereto and shall be deemed a holder of Company Membership interests under the
Operating Agreement.
4.2 OTCBB Listing. Company agrees that Company currently fully complies
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with the eligibility requirements to maintain the quotation of Company's common
stock on the Nasdaq Small Cap, American Stock Exchange or the Over-the-Counter
Bulletin Board and\or shall, within six (6) months of the date hereof, use its
best efforts to apply for and obtain, a listing on the Over-the-Counter Bulletin
Board.
4.3 Distribution Reduction. Notwithstanding anything to the contrary
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contained herein or in the Operating Agreement, if in the event that upon the
record date of each Distribution made by the Fund
(a) the average closing bid price for the Company's common stock for
the ten (10) trading days prior to the record date of each Distribution
(the "Look Back Period Average Stock Price") shall be more than twenty
percent (20%) lower than the average of all the Conversion Rates for the
Company's Preferred Stock, the amount of the Distribution made to the
Company shall be reduced by multiplying the balance of the Company's
Capital Account by 80% prior to calculating the pro-rate Distribution due
to the Company, or
(b) if the Look Back Period Average Stock Price shall be more than
forty percent (40%) lower than the average of all the Conversion Rates for
the Company's Preferred Stock, the amount of the Distribution made to the
Company shall be reduced by multiplying the balance of the Company's
Capital Account by 60% prior to calculating the pro-rate Distribution due
to the Company; or
(c) if the Look Back Period Average Stock Price shall be more than
sixty percent (60%) lower than the average of all the Conversion Rates for
the Company's Preferred Stock, the amount of the Distribution made to the
Company shall be reduced by multiplying the balance of the Company's
Capital Account by 40% prior to calculating the pro-rate Distribution due
to the Company.
4.4 Participation Fee. Company acknowledges that the Managing Member has
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agreed to assume the normal costs and expenses of operating the Fund through May
31, 2007, and the costs of providing to the Company the services set forth in
Section 4.10 below, in exchange for receiving a monthly fee directly from the
Company Members. Company agrees to pay to the Managing Member a monthly fee of
Ten Thousand ($10,000.00) Dollars (the "Participation Fee") to be paid, in
advance, on a monthly basis, in the form of either cash or freely trading shares
of the Company's common stock issued in the name of the Managing Member or its
designee. The Fund and the Company acknowledge that the Participation Fee
represents costs, expenses and fees incurred by the Fund which would otherwise
be paid directly by the Fund and pursuant to the Operating Agreement. The
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Participation Fee paid by Company shall be added to the Company's Capital
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Account.
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In the event that this Agreement shall be renewed for additional one (1)
year terms in accordance with the provisions of Section 1.5 above, the
Participation Fee for each such additional term shall be eighty percent (80%) of
the Participation Fee set forth above. In the event that Company or the Fund
shall elect not to renew the term of this Agreement, Company shall continue to
pay to the Managing Member a fee in the amount of Two Thousand Five Hundred
($2,500.00) Dollars per month (the "Sunset Fee") for so long as the Company has
a positive Capital Account. Company acknowledges that the Sunset Fee paid shall
not be added to the Company's Capital Account. In the event that Company shall
fail to timely pay the Participation Fee or the Sunset Fee, the Managing Member
shall have the right to offset the Participation Fee against any Distributions,
as defined below, payable to the Company.
4.5 Mailing Lists. At the time of each Annual Investment, Company shall
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furnish the Fund with a copy, in computer-readable form, of the Company's
current public relations mailing and e-mail list of its stockholders and others.
Company hereby grants to the Fund a right to use such list for the Fund's public
relations purposes.
4.6 Securities Act Compliance. Company agrees that Company shall file, on
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a timely basis, all reports required to be filed by Company pursuant to the
Securities Act. With a view to making available to the Fund the benefits of Rule
144 promulgated under the Securities Act and any other rule or regulation of the
SEC that may at any time permit a holder to sell securities of Company to the
public without registration, Company agrees to use its best efforts to: (a) make
and keep public information regarding Company available, within the-meaning of
Rule 144, for so long as the Fund owns restricted securities of the Company, (b)
furnish to the Fund, upon request, a written statement by Company that it has
complied with the reporting requirements of Rule 144, and of the Securities Act
and the 1934 Act and (c) furnish to the Fund, at the Company's expense, such
opinions of counsel as may be necessary to permit sales pursuant to Rule 144.
4.7 Xxxxxxxx-Xxxxx Compliance. Company agrees that, within ninety (90)
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days of the date hereof, Company shall develop a written plan to comply with the
requirements of the Xxxxxxxx-Xxxxx Act of 2002 ("Xxxxxxxx-Xxxxx Act") and
Company shall make such written plan available to the Fund upon request.
4.8 Registration Rights. In the event that Company shall file a
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registration statement under the Securities Act in connection with the proposed
offer and sale of any of the Company's securities by Company or any of its
security holders (other than a registration statement on Form X-0, X-0 or other
successor or comparable form), Company will give written notice of the
registration (the "Piggyback Notice") to the Fund at least thirty (30) days
prior to filing such registration statement. Upon the written request from the
Fund, within twenty (20) days after the giving of the Piggyback Notice, Company
will cause the Company Stock and Warrants held by the Fund to be included in
such registration statement. If any such registration shall be underwritten in
whole or in part, the Fund may require that such shares requested for inclusion
pursuant to this Section be included in the underwriting on the same terms and
conditions as the securities otherwise being sold through the underwriter(s).
4.9 Default. The occurrence of any of the following events shall
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constitute an act of default by Company (a "Default"):
(a) Company has materially breached any provisions of this Agreement,
and such breach remains uncured for a period of thirty (30) days after written
notice thereof is given by the Fund;
(b) Company has materially breached the Operating Agreement pursuant
to the terms thereof;
(c) Company files a voluntary petition for protection under the
bankruptcy laws of the United States or similar State statute, or an involuntary
petition for bankruptcy is filed against Company and such petition is not
dismissed within sixty (60) days, or a receiver, trustee or similar entity is
appointed for the Company, or Company makes a general assignment for the benefit
of creditors, or ceases to actively conduct business.
In the event of a Default by Company which is not cured within the time
period set forth above, Company shall be deemed to waive any right to receive
Distributions until such Default is cure, the entire Participation Fee payable
during the current term hereof shall immediately become payable in full and the
Fund shall have such additional remedies against the Company as set forth in the
Operating Agreement.
4.10 Assistance to the Company. The Fund, at the Fund's own expense, agrees
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to assist Company in developing written compliance plans to comply with the
requirements of the OTCCBB or its current exchange and to comply with the
requirements of the Xxxxxxxx-Xxxxx Act, as required by Section 4.7 above. Such
assistance shall consist of assisting the Company in conducting an audit of its
current compliance with the Xxxxxxxx-Xxxxx Act, assisting the Company in
preparing a written Xxxxxxxx-Xxxxx Act compliance plan, assisting the Company in
auditing its compliance with its Xxxxxxxx-Xxxxx Act, assisting the Company in
identifying potential individuals to join the Company's Board of Directors
and/or Board of Advisors and assisting the Company in applying for listings on
exchanges.
4.11 Press Releases. Company agrees that Company shall seek the prior
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written consent of the Fund before making or issuing any public announcement or
written statement concerning the Company's investment into the Fund, which
consent shall not be unreasonably delayed or withheld. Company acknowledges that
the intent of this Section is to assure that any public announcement or written
statement concerning the Fund accurately reflects the business of the Fund.
4.12 Restriction on Conversions. In no event shall the Fund be entitled to
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convert any portion of the Preferred Stock into the Company's common stock which
would result in the number of shares of common stock beneficially owned by the
Fund being more than 4.99% of the outstanding shares of the Company's common
stock. For purposes of this Section, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulations 13D-G thereunder, except as otherwise provided herein.
5. Miscellaneous.
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5.1 Governing Law. This Agreement shall be governed in all respects by the
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laws of the State of New York, without regard to any provisions thereof relating
to conflicts of laws among different jurisdictions.
5.2 Successors and Assigns. Except as otherwise provided herein, the
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provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto;
provided, however, that the rights of Company to purchase the Membership
Interest shall not be assignable without the consent of the Fund. This Agreement
shall not be construed so as to confer any right or benefit on any party not a
party hereto, other than their respective successors, assigns, heirs, executors
and administrators.
5.3 Entire Agreement; Amendment. This Agreement, the Operating Agreement
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and the other documents delivered pursuant hereto constitute the full and entire
understanding and agreement among the parties with regard to the subjects hereof
and thereof and supersedes all prior agreements and understandings relating
thereto. Neither this Agreement nor any term hereof may be amended, waived,
discharged or terminated other than by a written instrument signed by the party
against whom enforcement of any such amendment, waiver, discharge or termination
is sought.
5.4 Notices. All notices under this Agreement shall be sufficiently given
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for all purposes if made in writing and delivered personally, sent by documented
overnight delivery service or, to the extent receipt is confirmed, facsimile or
other electronic transmission, to following addresses set forth above.
5.5 Counterparts. This Agreement may be executed in any number of
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counterparts, each of which may be executed by only one party, which shall be
enforceable against the parties actually executing such counterparts, and all of
which together shall constitute one instrument.
5.6 Severability. In the event that any provision of this Agreement
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becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without such provision; provided that no such severability shall be effective if
it materially changes the economic benefit of this Agreement to any party.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
Cross Capital Fund, LLC
By:
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Name:
Title:
T & G2, Inc.
By:
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Name:
Title:
Exhibit A
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Preferred Stock Rights and Privileges
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1. Coupon Rate. Six Percent (6%) per annum paid in equal quarterly
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installments (i.e. six ($0.06)cents per share). cumulative
2. Form of Dividend. At the Company's option, the quarterly dividend can
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be paid either in cash or in the form of shares of the Company's common stock,
based upon the average closing bid price for Company's common stock for the
twenty (20) trading days preceding each dividend payment date (the "Average
Quarterly Common Share Price").
3. Conversion Rate. The Preferred Stock shall be convertible in shares of
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the Company's common stock, at any time, at the option of the Fund. The
conversion rate shall be fixed upon each Investment Date (a "Conversion Rate")
and shall be calculated as lower of (x) ninety-five percent (95%) of the average
closing bid prices for Company's common stock for the twenty (20) trading days
preceding the applicable Annual Investment Date and (y) ninety-five percent
(95%) of the bid price for Company's Stock for the one (1) trading day preceding
the applicable Annual Investment Date.
4. Liquidation Preference. The Preferred Stock will have no liquidation
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preference.
5. Voting Rights. The holders of the Preferred Stock shall not be
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entitled to any voting rights.
