SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (the "Agreement") is made and entered
into on January 13, 2006 by and between Detto Technologies, Inc., a Delaware
corporation, with its principal place of business located at 00000 XX 00xx
Xxxxxx, Xxxxxxx, Xxxxxxxxxx (the "Company"), and each of the parties listed on
the attached "Schedule of Buyers" (each a "Buyer;" collectively, the "Buyers").
Recitals
A. The Company and the Buyers are executing and delivering this Agreement
in reliance upon the exemptions from securities registration afforded by (i) the
provisions of Regulation D ("Regulation D") as promulgated by the United States
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
as amended (the "1933 Act"), and (ii) Section 4(2) under the 0000 Xxx.
B. The Buyers desire to purchase from the Company, severally and not
jointly, and the Company desires to sell to the Buyers, severally and not
jointly, for the respective amounts set forth opposite each Buyer's name on the
Schedule of Buyers and upon the terms and conditions stated in this Agreement,
in a closing (the "Closing") as herein described, the following securities of
the Company:
(i) An aggregate of $500,000 in principal amount of the Company's 12%
Secured Convertible Promissory Notes in the form attached as Exhibit A (each a
"Note;"collectively, the "Notes"), which may be converted into the Company's
$.0001 par value common stock (the "Common Stock") on the terms and conditions
set forth in the Notes.
(ii) As additional consideration for each Buyer's purchase of a Note, the
Company shall also issue to each Buyer a warrant in the form attached as Exhibit
B (each a "Warrant;" collectively, the "Warrants") to purchase a specified
number of shares of Common Stock at an exercise price as specified in each
Warrant, which Warrants must be exercised (if at all) within five (5) years
after the date of issuance.
The principal amount of the each Note, and the number of shares
purchasable pursuant to each Warrant, shall be as set forth for each Buyer on
the Schedule of Buyers. Any Common Stock issuable pursuant to conversion of the
Notes shall be referred to herein as the "Conversion Shares." Any Common Stock
receivable upon exercise of the Warrants shall be referred to herein as the
"Warrant Shares." The Notes, the Conversion Shares, the Warrants and the Warrant
Shares may be collectively referred to herein as the "Securities."
C. Contemporaneously with the execution and delivery of this Agreement,
the Company is executing and delivering to the Buyers a Security Agreement in
the form attached as Exhibit C (the "Security Agreement"), pursuant to which the
Company has agreed to secure its obligations under the Notes with a
second-priority security interest in all existing and hereafter acquired assets
(including all patents, software, trademarks and other intellectual property)
owned by the Company.
D. As additional security for the Company's obligations under the Notes,
contemporaneously with the execution and delivery of this Agreement, Xxxxxx
Xxxxxx (a Company director), Xxxxx Mana'o (the Company's Chief Executive Officer
and a director), Xxxxx Xxxxx (the Company's Vice President of Operations),
Xxxxxx Xxxx (the Company's Chief Technology Officer), Xxxxx Xxxxx (the Company's
Vice President of Sales and Marketing), Xxxxxxx Xxxxx (the Company's Chief
Financial Officer) and Xxxxx Xxxxx (a Company director) (collectively, the
"Pledgors"), are each executing and delivering a Guaranty, Pledge and Security
Agreement in the form attached as Exhibit D (the "Pledge Agreements") pursuant
to which each Pledgor agrees to guaranty payment of the Notes and to secure that
guaranty with a first-priority security interest in all shares of the Company
which he owns.
E. Contemporaneously with the execution and delivery of this Agreement,
the parties hereto are also executing and delivering a Registration Rights
Agreement in the form attached as Exhibit E (the "Registration Rights
Agreement"), pursuant to which the Company has, among other things, agreed to
provide certain registration rights for the Warrant Shares and Conversion Shares
under the 1933 Act and applicable state securities laws.
Agreements
NOW, THEREFORE, in consideration of their respective promises contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Company and the Buyers hereby agree as
follows:
1. Purchase and Sale of the Securities.
(a) Purchase. At the Closing, the Buyers, severally and not jointly, agree
to purchase the Notes from the Company, and the Company, severally and not
jointly, agrees to sell the Notes to the Buyers. The purchase price for each
Note shall be as set forth on the Schedule of Buyers (each a "Purchase Price;"
collectively, the "Aggregate Purchase Price"). Out of the Aggregate Purchase
Price shall be paid (i) pre-paid interest on each Note through April 30, 2006,
(ii) an origination fee of $30,000 to the Buyers, allocated pro rata based on
each Buyer's respective Purchase Price relative to the Aggregate Purchase Price,
and (iii) such other amounts as may be included in the Disbursement Instructions
attached as Exhibit F (the "Disbursement Instructions"). The disbursements
specified in the Disbursement Instructions (including disbursement to the
Company of the remainder of the Aggregate Purchase Price) shall be made on the
Closing Date (as defined below).
(b) The Closing. The date of the Closing (the "Closing Date") shall be
January 13, 2006, or such other date as the parties may mutually agree in
writing. On or before the Closing Date, (i) each Buyer shall have delivered its
respective Purchase Price to the Escrow Agent (as defined in the Escrow
Agreement in the form attached as Exhibit G (the "Escrow Agreement")), (ii) each
Buyer shall have delivered to the Escrow Agent executed originals of those
Closing Documents (as defined below) which are to be signed by the Buyers and
(iii) the Company shall have delivered to the Escrow Agent originals of this
Agreement, the Notes, the Warrants, the Security Agreement, the Pledge
Agreements, the Registration Rights Agreement, the Disbursement Instructions and
the Escrow Agreement, each duly authorized and executed by the Company and/or
any other parties thereto (other than the Buyers), together with such other
items as may be required by this Agreement or any of the other documents
(collectively, the "Closing Documents").
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(c) Payment. Each Buyer shall pay the Purchase Price set forth opposite
such Buyer's name on the Schedule of Buyers by wire transfer of immediately
available funds in United States Dollars, to be deposited into the Escrow
Account (as defined in the Escrow Agreement), against delivery to the Escrow
Agent of the Closing Documents by the Company. At the Closing, the Escrow Agent
shall be responsible for disbursement of the Aggregate Purchase Price according
to the Disbursement Instructions and delivery of the Closing Documents to each
Buyer (with copies to the Company duly executed by each Buyer, where required),
in each case in accordance with the terms of the Escrow Agreement.
2. The Buyers' Representations and Warranties. With respect to its
purchase hereunder, each Buyer represents and warrants, severally and not
jointly, to the Company, and agrees, as follows:
(a) Investment Purposes; Compliance With 1933 Act. The Buyer is purchasing
the Securities for its own account for investment only and not with a view
towards, or in connection with, the public sale or distribution thereof, except
pursuant to sales registered, or exempt from registration, under the 1933 Act
and applicable state securities laws. The Buyer agrees to offer, sell or
otherwise transfer the Securities only (i) in accordance with the terms of this
Agreement, its Note, its Warrant and the Registration Rights Agreement, as
applicable, and (ii) pursuant to registration under the 1933 Act or an exemption
from registration under the 1933 Act and any other applicable securities laws.
The Buyer does not by its representations in this Section 2(a) agree to hold the
Securities for any minimum or other specific term, and reserves the right to
dispose of the Securities at any time pursuant to a registration statement or in
accordance with an exemption from registration under the 1933 Act, in all cases
in accordance with applicable state and federal securities laws. The Buyer
understands that it shall be a condition to the issuance of the Warrant Shares
and the Conversion Shares that such shares be and are subject to the
representations set forth in this Section 2(a).
(b) Accredited Investor Status. The Buyer is an "accredited investor," as
that term is defined in Rule 501(a) of Regulation D. The Buyer has such
knowledge and experience in financial and business matters that it is capable of
evaluating the merits and risks of the investment made pursuant to this
Agreement. The Buyer is aware that it may be required to bear the economic risk
of the investment made pursuant to this Agreement for an indefinite period of
time, and is able to bear such risk.
(c) Reliance on Exemptions. The Buyer understands that the Securities are
being offered and sold to it in reliance on specific exemptions from the
registration requirements of applicable federal and state securities laws, and
that the Company is relying upon the truth and accuracy of, and the Buyer's
compliance with, the representations, warranties, agreements and covenants of
the Buyer set forth herein in order to determine the availability of such
exemptions and the eligibility of the Buyer to acquire the Securities.
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(d) Information. The Buyer and its advisors, if any, have been furnished
with all materials relating to the business, finances and operations of the
Company and materials relating to the offer and sale of the Securities that have
been requested by the Buyer. The Buyer and its advisors, if any, have been
afforded the opportunity to ask all questions of the Company as they have in
their discretion deemed advisable. The Buyer understands that its investment in
the Securities involves a high degree of risk. The Buyer has sought such
accounting, legal and tax advice as it has considered necessary to an informed
investment decision with respect to the investment made pursuant to this
Agreement.
(e) No Government Review. The Buyer understands that no United States
federal or state agency or any other government or governmental agency has
approved or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities, nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
(f) Transfer or Resale. The Buyer understands that: (i) except as provided
in the Registration Rights Agreement, the Securities have not been and are not
being registered under the 1933 Act or any state securities laws, and may not be
offered for sale, sold or otherwise transferred unless either (A) subsequently
registered thereunder or (B) the Buyer shall have delivered to the Company an
opinion by counsel reasonably satisfactory to the Company, in form, scope and
substance reasonably satisfactory to the Company, to the effect that the
securities to be sold or transferred may be sold or transferred pursuant to an
exemption from such registration and (ii) neither the Company nor any other
person is under any obligation to register the Securities under the 1933 Act or
any state securities laws or to comply with the terms and conditions of any
exemption thereunder (in each case, except as required by this Agreement or the
Registration Rights Agreement).
(g) Legend. Subject to Section 5(b) below, the Buyer understands that its
Note, its Warrant and the stock certificates representing the Conversion Shares
and the Warrant Shares (until such time as the Conversion Shares and the Warrant
Shares have been registered under the 1933 Act pursuant to the Registration
Rights Agreement or otherwise may be sold by the Buyer pursuant to Rule 144 (or
any applicable rule which operates to replace said Rule) promulgated under the
1933 Act ("Rule 144")), will bear a restrictive legend (the "Legend") in
substantially the following form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 OR THE SECURITIES LAWS OF ANY STATE (COLLECTIVELY, THE "LAWS"). THE
SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE
ABSENCE OF EITHER (I) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
UNDER THE APPLICABLE LAWS OR (II) AN OPINION OF COUNSEL IN FORM, SUBSTANCE AND
SCOPE REASONABLY ACCEPTABLE TO THE ISSUER, TO THE EFFECT THAT SUCH REGISTRATION
IS NOT REQUIRED DUE TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF THE APPLICABLE LAWS.
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(h) Authorization; Enforcement. This Agreement, the Registration Rights
Agreement, the Disbursement Instructions, the Security Agreement, and the Escrow
Agreement (collectively, the "Agreements") have been duly and validly
authorized, executed and delivered by the Buyer and are each valid and binding
agreements of the Buyer enforceable in accordance with their respective terms,
subject as to enforceability to general principles of equity and to bankruptcy,
insolvency, moratorium and other similar laws affecting the enforcement of
creditors' rights generally.
3. The Company's Representations and Warranties. The Company represents
and warrants to the Buyers, severally and not jointly, and agrees, as follows:
(a) Organization and Qualification. The Company is a corporation duly
organized and existing in good standing under the laws of the State of Delaware,
and has the requisite corporate power to own its properties and to carry on its
business as now being conducted. The Company is duly qualified as a foreign
corporation to do business and is in good standing in every other jurisdiction
in which the nature of the business conducted by it makes such qualification
necessary and where the failure so to qualify would have a Material Adverse
Effect. As used herein, "Material Adverse Effect" means any material adverse
effect on the operations, properties or financial condition of the Company taken
as a whole. The Common Stock is quoted on the OTC Bulletin Board (the "OTCBB")
under the symbol "DTTO." The Company has received no notice, either written or
oral, with respect to the continued eligibility of the Common Stock for such
quotation, the Company has maintained all requirements for the continuation of
such quotation, and the Company does not reasonably anticipate that the Common
Stock will be removed from the OTCBB in the foreseeable future. The Company has
complied, and will timely comply, with all requirements of the SEC, the National
Association of Securities Dealers and the OTCBB with respect to the issuance of
the Securities.
(b) Authorization; Enforcement. The Company has the requisite corporate
power and authority to enter into and perform the Agreements to which it is a
party, to issue and sell the Securities in accordance with the terms hereof and
thereof, and to perform its obligations under the Notes and the Warrants in
accordance with their terms. The Company's execution, delivery and performance
of the Agreements to which it is a party, the Notes and the Warrants, and its
consummation of the transactions contemplated thereby, have been duly authorized
by the Company's Board of Directors and no further consent or authorization of
the Company, its Board of Directors, its stockholders, or any other person or
entity, is required. The Agreements to which the Company is a party and, on the
Closing Date, the Notes and the Warrants, have been duly and validly authorized,
executed and delivered by the Company, and the Agreements to which the Company
is a party, the Notes (when issued) and the Warrants (when issued) constitute
the valid and binding obligations of the Company enforceable against the Company
in accordance with their respective terms, subject as to enforceability to
general principles of equity and to bankruptcy, insolvency, moratorium and other
similar laws affecting the enforcement of creditors' rights generally.
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(c) Capitalization. As of the Closing Date, the authorized capital stock
of the Company consisted of (i) 100,000,000 shares of Common Stock, of which
22,130,770 shares were issued and outstanding and (ii) 20,000,000 shares of
$.0001 par value preferred stock, of which no shares were issued and
outstanding. All of such outstanding shares have been validly issued and are
fully paid and non-assessable. As of the Closing Date, except as disclosed in
the attached Schedule 3(c), (i) there were no outstanding options, warrants,
scrip, rights to subscribe to, calls or commitments of any character whatsoever
issued or agreed to by the Company relating to, or securities or rights
convertible into, any shares of capital stock of the Company or any of its
subsidiaries, or arrangements by which the Company or any of its subsidiaries is
or may become bound to issue additional shares of capital stock of the Company
or any of its subsidiaries, (ii) there are no outstanding debt securities of the
Company or any of its subsidiaries and (iii) there are no agreements or
arrangements under which the Company or any of its subsidiaries is obligated to
register the sale of any of its or their securities under the 1933 Act (except
as provided herein and in the Registration Rights Agreement). If requested by a
Buyer, the Company has furnished to the Buyer true and correct copies of the
Company's Certificate of Incorporation, as in effect on the date hereof (the
"Certificate of Incorporation"), and the Company's Bylaws, as in effect on the
date hereof.
(d) Issuance of Warrant Shares and Conversion Shares. The Warrant Shares
and Conversion Shares are all duly authorized and reserved for issuance, and in
all cases upon issuance shall be validly issued, fully paid and non-assessable,
free from all taxes, liens and charges with respect to the issuance thereof, and
will not be subject to preemptive rights or other similar rights of stockholders
of the Company which have not been previously waived.
(e) Acknowledgment Regarding Buyers' Purchase of the Securities. Except as
disclosed on Schedule 3(e), (i) no Buyer is acting as a financial advisor to, or
fiduciary of, the Company (or in any similar capacity) with respect to this
Agreement or the transactions contemplated hereby, (ii) this Agreement and the
transactions contemplated hereby, and the relationship between the Buyers and
the Company, are and will be considered "arms-length" notwithstanding any other
or prior agreements or nexus between the Buyers and the Company, whether or not
disclosed, and (iii) any statements made by the Buyers, or any of their
representatives or agents, in connection with this Agreement and the
transactions contemplated hereby are not to be construed as advice or a
recommendation, are merely incidental to the Buyers' purchase of the Securities
and have not been relied upon in any way by the Company, its officers or
directors. The Company's decision to enter into this Agreement and the
transactions contemplated hereby have been based solely upon an independent
evaluation by the Company, its officers and directors.
(f) 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 which would prevent the parties hereto from consummating the
transactions contemplated hereby pursuant to an exemption from registration
under the 1933 Act and, specifically, in accordance with the provisions of
Regulation D. The transactions contemplated hereby are exempt from the
registration requirements of the 1933 Act, assuming the accuracy of the
representations and warranties of the Buyers contained herein.
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(g) No Conflicts. Except as set forth in the attached Schedule 3(g),
neither the Company nor any of its subsidiaries is in violation of its
Certificate of Incorporation or other organizational documents, and neither the
Company nor any of its subsidiaries is in default (and no event has occurred
which, with notice or lapse of time or both, would put the Company or any of its
subsidiaries in default) under, nor has there occurred any event giving others
(with notice or lapse of time or both) any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or other instrument to
which the Company or any of its subsidiaries is a party, except for possible
defaults or rights as would not, in the aggregate or individually, have a
Material Adverse Effect. The business of the Company and its subsidiaries is not
being conducted and, so long as a Buyer owns any of the Securities, shall not be
conducted, in violation of any law, ordinance or regulation of any governmental
entity, except for possible violations which neither singly nor in the aggregate
would have a Material Adverse Effect. Except as specifically contemplated by
this Agreement or as required under the 1933 Act and any applicable state
securities laws, the Company is not required to obtain any consent,
authorization or order of, or make any filing or registration with, any
individual, entity, court or governmental agency in order for it to execute,
deliver and perform any of its obligations under the Agreements, the Notes or
the Warrants in accordance with the terms thereof.
(h) SEC Documents; Financial Statements. Except as disclosed on Schedule
3(h) hereof, since September 30, 2005, the Company has timely filed all reports,
schedules, forms, statements and other documents required to be filed by it with
the SEC pursuant to the reporting requirements of the Securities Exchange Act of
1934, as amended (the "1934 Act"), with all of the foregoing that were filed
prior to the date hereof and all exhibits included therein and all financial
statements and schedules thereto and all documents (other than exhibits)
incorporated by reference therein being hereinafter referred to as the "SEC
Documents." The Company has delivered to the Buyers (to the extent requested by
the Buyers) true and complete copies of the SEC Documents. As of their
respective dates, the SEC Documents complied in all material respects with the
requirements of the 1934 Act and the applicable rules and regulations of the SEC
promulgated thereunder, and none of the SEC Documents, at the time they were
filed with the SEC, contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. As of their respective dates, the financial statements of the
Company included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements with respect thereto. Such
financial statements (i) have been prepared in accordance with generally
accepted accounting principles, consistently applied, during the periods
involved except (A) as may be otherwise indicated in such financial statements
or the notes thereto or (B) in the case of unaudited interim statements, to the
extent they may exclude footnotes or may be condensed or summary statements and
(ii) fairly present in all material respects the financial position of the
Company as of the dates thereof and the results of its operations and cash flows
for the periods then ended (subject, in the case of unaudited statements, to
normal year-end audit adjustments). No information provided by or on behalf of
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the Company to the Buyers contains any untrue statement of a material fact or
omits to state any material fact required to be stated therein in order to make
the statements therein, in the light of the circumstances under which they are
or were made, not materially misleading. Except as set forth in the financial
statements of the Company included in the SEC Documents or the attached Schedule
3(h), the Company has no liabilities, contingent or otherwise, other than (i)
liabilities incurred in the ordinary course of business subsequent to the date
of such financial statements and (ii) obligations under contracts and
commitments incurred in the ordinary course of business and not required under
generally accepted accounting principles to be reflected in such financial
statements, in each case of clauses (i) and (ii) above, which, individually or
in the aggregate, are material to the financial condition, business, operations,
properties, operating results or prospects of the Company. The SEC Documents
contain a complete and accurate description of all material written and oral
contracts, agreements, leases or other instruments to which the Company or any
subsidiary is a party or by which the Company or any subsidiary is bound which
are required by the rules and regulations promulgated by the SEC to be disclosed
(each a "Contract"). None of the Company, its subsidiaries or, to the best of
the Company's knowledge, any of the other parties thereto, is in breach or
violation of any Contract, which breach or violation would, or with the lapse of
time, the giving of notice, or both, have a Material Adverse Effect.
(i) Absence of Certain Changes; Bankruptcy. Since September 30, 2005,
there has been no material adverse change or development in the business,
properties, operation, financial condition, results of operations or prospects
of the Company. The Company has not taken any steps, and does not currently have
any reasonable expectation of taking any steps, to seek protection pursuant to
any bankruptcy law, nor does the Company have any knowledge that its creditors
intend to initiate involuntary bankruptcy proceedings.
(j) Absence of Litigation. Except as set forth in the attached Schedule
3(j), there is no action, suit, proceeding, inquiry or investigation before or
by any court, public board or governmental body pending or, to the knowledge of
the Company, threatened against or affecting the Company, wherein an unfavorable
decision, ruling or finding would have a Material Adverse Effect or which would
materially and adversely affect the validity or enforceability of, or the
authority or ability of the Company to perform its obligations under, this
Agreement or any of the documents contemplated herein.
(k) Foreign Corrupt Practices. Neither the Company nor any of its
subsidiaries, nor any officer, director or other person acting on behalf of the
Company or any subsidiary has, in the course of his, her or its actions for or
on behalf of the Company, (i) used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expense relating to
political activity, (ii) made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds, (iii)
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977, as amended, or (iv) made any bribe, rebate, payoff,
influence payment, kickback or other unlawful payment to any foreign or domestic
government official or employee.
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(l) Brokers; No General Solicitation. The Company has taken no action that
would give rise to any claim by any person for brokerage commissions, finder's
fees or similar payments relating to this Agreement and the transactions
contemplated hereby other than as set forth in the Disbursement Instructions.
The Company acknowledges that no broker or finder was involved with respect to
the transactions contemplated hereby other than as set forth in the Disbursement
Instructions. Neither the Company nor any other person or entity participating
on the Company's behalf in the transactions contemplated hereby, nor any person
or entity acting for the Company or any such other person or entity, has
conducted any "general solicitation," as described in Rule 502(c) under
Regulation D, with respect to the Securities.
(m) Status of Assets. Except as described on Schedule 3(m), the Company
has good and marketable title to each of the assets that is material to its
business, free and clear of all liens, claims, restrictions and other
encumbrances.
(n) Status of Pledged Shares. The 3,045,131 shares of the Company that are
subject to the Pledge Agreements (the "Pledged Shares") constitute 13.76% of the
outstanding shares and voting power of the Company. To the Company's best
knowledge after inquiry of the owners of the Pledged Shares, none of the owners
of the Pledged Shares has pledged, hypothecated or otherwise encumbered any of
the Pledged Shares.
(o) Validity of Pledge Agreements. To the Company's best knowledge, the
Pledge Agreements constitute valid and binding obligations of the owners of the
Pledged Shares, enforceable in accordance with their terms, subject to
bankruptcy, insolvency, moratorium and other similar laws affecting the
enforcement of creditors' rights generally.
4. Covenants of the Parties.
(a) Best Efforts. Each party shall use its best efforts to timely satisfy
each of the conditions to be satisfied by it as provided in Sections 6 and 7 of
this Agreement.
(b) Securities Laws. The Company shall timely file a Form D (and any other
equivalent form or notice required by applicable state law) with respect to the
issuance of the Securities if and as required under Regulation D and applicable
state securities laws, and shall, upon written request of a Buyer, provide a
copy thereof to the Buyer within five (5) days of such request. The Company
shall, on or before the Closing Date, take all action necessary in order to sell
the Securities to the Buyers in compliance with federal and applicable state
securities laws, and shall provide written evidence of such action to the Buyers
upon written request.
(c) Reporting Status. So long as the Buyers beneficially own any of the
Securities, the Company shall (i) file all reports required to be filed with the
SEC pursuant to the 1934 Act and (ii) maintain its status as an issuer required
to file reports under the 1934 Act, even if the 1934 Act or the rules and
regulations thereunder would permit termination of such status.
(d) Reservation of Shares.
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(i) The Company shall at all times have authorized and reserved for
issuance that number of shares of Common Stock which is sufficient to provide
for the issuance of all of the Conversion Shares and the Warrant Shares. Prior
to full payment of the Notes and complete exercise of the Warrants, the Company
shall not reduce the number of shares of Common Stock reserved for issuance
hereunder without the written consent of the Buyers, except for a reduction
proportionate to a reverse stock split which affects all shares of Common Stock
equally.
(ii) If at any date the Company shall not have authorized and reserved for
issuance that number of shares of Common Stock which is sufficient to provide
for the issuance of all of the Conversion Shares and the Warrant Shares which
could then be issued, within ninety (90) days of such date the Company shall
call and hold a special meeting of its stockholders for the sole purpose of
increasing the Company's authorized and unissued shares to an amount sufficient
to correct such deficiency. In connection with such meeting, (i) the Company's
officers and directors shall (A) recommend to stockholders that they vote in
favor of such increase in the number of authorized and unissued shares and (B)
vote all of their shares in favor of such increase and (ii) the Company shall
cause its officers and directors to act in a manner consistent with the forgoing
clause (i).
(e) Prospectus Delivery Requirement. The Buyers understand that the 1933
Act requires delivery of a prospectus relating to the Conversion Shares and the
Warrant Shares in connection with any sale thereof pursuant to a registration
statement under the 1933 Act, and the Buyers shall comply with any applicable
prospectus delivery requirements of the 1933 Act in connection with any such
sale. The Company shall have the right to rely upon the Buyers' agreement
contained in this Section 4(e); therefore, with respect to any resale of the
Conversion Shares and the Warrant Shares by the Buyers pursuant to a
registration statement, any certificate evidencing such Conversion Shares and
Warrant Shares shall not contain a restrictive legend of any kind.
(f) Intentional Acts or Omissions. Neither party shall intentionally
perform or fail to perform any act that, if performed or omitted to be
performed, would prevent or excuse the performance of this Agreement or any of
the transactions contemplated hereby.
(g) Expenses. At the Closing, the Company agrees to pay to, or at the
direction of, the Buyers an amount equal to the attorney's fees and other
expenses incurred by the Buyers in connection with the Buyers' due diligence
investigation, document preparation and escrow for the transactions contemplated
by this Agreement.
(h) Corporate Status; Taxes. The Company shall, at least until the Buyers
no longer hold any of the Securities, maintain its corporate existence in good
standing and shall pay all taxes when due except for taxes it reasonably
disputes.
(i) Use of Proceeds. The Company shall use the balance of the Aggregate
Purchase Price for the payment of fees and expenses incurred in connection with
this Agreement and for general corporate purposes (excluding officers'
salaries).
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(j) Restrictions on Debt Payments. Until such time as the Notes have been
paid in full, the Company shall not make any payment on or with respect to any
debt except trade payables, sales tax, any required payments to Access Business
Finance, LLC and interest payments arising after the date of this Agreement
under any debt that is in existence on the date of this Agreement.
(k) No Additional Share Issuances. Until the Notes have been paid in full,
unless approved in writing by the Buyers, the Company shall not take any action
that would cause dilution of the voting power of the Pledged Shares, including,
but not limited to, the issuance of additional shares of Common Stock to anyone
other than the Buyers.
(l) Listing or Quotation. The Company shall at all times comply in all
respects with its reporting, filing and other obligations under the by-laws or
rules of the National Association of Securities Dealers and the OTCBB or such
national securities exchange or other market on which the Common Stock may then
be quoted or listed, as applicable.
(m) Right to Participate in Future Financings. If, at any time within two
(2) years after the date of this Agreement, the Company decides to proceed with
a financing of any kind other than one which involves only straight debt with no
convertibility feature (a "Financing"), it shall not proceed with such Financing
until it has provided each Buyer with all documentation describing such
Financing and an opportunity to participate as provided herein. If, within ten
(10) business days after the Buyer's receipt of the last of such Financing
documentation and such other information regarding the Financing as the Buyer
may request, a Buyer gives notice to the Company in writing that the Buyer
desires to participate in such Financing, the Company shall thereafter take all
actions as are necessary to allow that Buyer's participation in the Financing in
an amount up to the original principal amount of that Buyer's Note, such
participation to be on the same terms as the other participants except that the
purchase price for the securities sold to the Buyer in the Financing shall be
fifty percent (50%) of the price paid by the other participants in the
Financing. The foregoing right of participation may be exercised only once by
each Buyer.
5. Legend; Transfer Instructions; Related Matters.
(a) Transfer Agent Instructions. Promptly after receiving notice of
conversion of any Note or exercise of any Warrant (as applicable) pursuant to
the terms thereof, and in any event no more than five (5) business days after
the Company's receipt of such notice of conversion or, in the case of the
exercise of a Warrant, payment of the full purchase price of the Warrant Shares
(as set forth therein), the Company shall issue, or shall instruct its transfer
agent to issue, certificates, registered in the name of the respective Buyer or
its permitted nominee, for the Warrant Shares or Conversion Shares, as the case
may be, in such amounts as are specified in such notice. All such certificates
shall bear the Legend specified in Section 2(g) of this Agreement only to the
extent required by applicable law and as specified in this Agreement or any
documents referenced herein. The Company represents and warrants that (i) no
instructions will be given by it to its transfer agent other than (A) the
instructions referred to in this Section 5 and (B) any stop transfer
instructions required to give effect to Section 2(f) hereof in the case of the
Warrant Shares and Conversion Shares prior to their registration under the 1933
11
Act and (ii) the Warrant Shares and Conversion Shares shall otherwise be freely
transferable on the books and records of the Company as and to the extent
permitted by applicable law and provided by this Agreement, the Warrants, the
Notes and the Registration Rights Agreement. Nothing in this Section shall
affect in any way a Buyer's obligations and agreement to comply with all
applicable securities laws upon resale of the Warrant Shares and Conversion
Shares. If a Buyer (i) provides the Company with an opinion of counsel
reasonably satisfactory to the Company that registration by the Buyer of its
Note, Warrant, Warrant Shares and/or Conversion Shares is not required under the
1933 Act, (ii) transfers any of the Securities to an affiliate which is an
accredited investor (in accordance with the provisions of this Agreement) or
(iii) transfers any of the Securities in compliance with Rule 144, then, in each
instance, the Company shall permit such transfer and, if applicable, promptly
(and in all events within five (5) business days) issue, or instruct any
transfer agent to issue, one or more certificates in such name and in such
denominations as specified by such Buyer.
(b) Removal of Legend. The Legend shall be removed from any certificate
for a Security, and a certificate for a Security shall be originally issued
without the Legend, if, unless otherwise required by state securities laws, (i)
the sale of such Security is registered under the 1933 Act, (ii) the holder of
such Security provides the Company with an opinion by counsel reasonably
satisfactory to the Company, that is in form, substance and scope reasonably
satisfactory to the Company, to the effect that a public sale or transfer of
such Security may be made without registration under the 1933 Act or (iii) such
holder provides the Company with assurances reasonably satisfactory to the
Company that such Security can be sold pursuant to Rule 144. Each Buyer agrees
that its sale of all Securities, including those represented by a certificate
from which the Legend has been removed, or which were originally issued without
the Legend, shall be made only pursuant to an effective registration statement
(with delivery of a prospectus in connection with such sale) or in compliance
with an exemption from the registration requirements of the 1933 Act. In the
event the Legend is removed from the certificate for any Security or any
certificate for a Security is issued without the Legend and thereafter the
effectiveness of a registration statement covering the sale of such Security is
suspended or the Company determines that a supplement or amendment thereto is
required by applicable securities laws, then upon reasonable advance notice to
the holder of such Security, the Company shall be entitled to require that the
Legend be placed upon such Security, which Legend shall be removed when such
Security may again be sold pursuant to an effective registration statement or
Rule 144 or such holder provides the opinion with respect thereto described in
clause (ii) above.
(c) Exercise of Warrants and Conversion of Notes. The exercise of the
Warrants and the conversion of the Notes shall occur pursuant to the respective
terms thereof. The Company will transmit the certificate(s) representing the
shares of Common Stock issuable upon exercise of any Warrant or conversion of
any Note (along with a replacement Warrant or Note representing the amount of
the original Warrant not so exercised, or original Note not so converted, as the
case may be, if applicable) to the applicable Buyer or its designee via
overnight courier within five (5) business days after the relevant exercise or
conversion date (with respect to each exercise or conversion, the "Deadline").
Time is of the essence with respect to the requirements of the immediately
preceding sentence.
12
(d) Injunctive Relief for Breach. The Company acknowledges that a breach
of its obligations under Sections 5(a), 5(b) and/or 5(c) above will cause
irreparable harm to the Buyers by vitiating the intent and purpose of the
transactions contemplated hereby. Accordingly, the Company agrees that the
remedy at law for a breach of its obligations under such Sections would be
inadequate and agrees that, in the event of a breach or threatened breach by the
Company, the Buyers shall be entitled, in addition to all other remedies at law
or in equity, to an injunction restraining any breach and/or requiring immediate
appropriate action by the Company, without the necessity of showing economic
loss and without any bond or other security being required.
(e) Liquidated Damages for Non-Delivery of Certificates. In addition to
the provisions of Section 5(d) above, the Company understands and agrees that
any delay in the issuance of a certificate beyond the Deadline will result in
substantial economic loss and other damages to a Buyer. As partial compensation
to such Buyer for such loss, the Company agrees to pay liquidated damages (which
the Company acknowledges is not a penalty) to any such Buyer for issuance and
delivery of the certificate(s) after the Deadline, in accordance with the
following schedule (where "No. of Business Days Late" is defined as the number
of business days beyond five (5) business days from the date of delivery by the
Buyer to the Company of a facsimile Notice of Exercise or Conversion Notice, as
the case may be, or, if later, from the date on which all other necessary
documentation duly executed and in proper form required for the exercise of the
Warrant or the conversion of the Note, as the case may be, has been delivered to
the Company, but only if such necessary documentation has not been delivered to
the Company within the five (5) business day period after the facsimile delivery
to the Company of the Notice of Exercise or Conversion Notice, as the case may
be):
No. of Business Days Late Liquidated Damages (in US$)
1 $300
2 $400
3 $500
4 $600
5 $700
6 $800
7 $900
8 $1,000
9 $1,250
10 $1,500
11+ $1,750 + $1,000 for
each Business Day Late
beyond 11 days
13
Subject to such Buyer's right, in its sole discretion, to add accrued
liquidated damages on to the principal amount of its Note (as provided in the
Note), the Company shall pay such Buyer any liquidated damages incurred under
this Section 5(e) by certified or cashier's check upon the earlier of (i) the
issuance to the Buyer of the certificate(s) with respect to which the damages
accrued or (ii) each monthly anniversary of the receipt by the Company of the
Buyer's Notice of Exercise or Conversion Notice, as the case may be. Nothing
herein shall limit a Buyer's right to pursue actual damages for the Company's
failure to issue and deliver certificates to the Buyer in accordance with the
terms of this Agreement or for breach by the Company of this Agreement.
6. Conditions to the Company's Obligation to Sell. The obligation of the
Company hereunder to sell a Note and deliver a Warrant at the Closing to a Buyer
is subject to the satisfaction, on or before the Closing Date, of each of the
following conditions; provided, however, that these conditions are for the
Company's sole benefit and may be waived in writing by the Company at any time
in its sole discretion:
(a) Such Buyer shall have (i) executed each of the Agreements and (ii)
delivered such documents or signature pages thereof (via facsimile or as
otherwise provided in the Escrow Agreement), together with such other items as
may be required by this Agreement, to the Escrow Agent;
(b) Such Buyer shall have delivered to the Escrow Agent on behalf of the
Company, and the Company shall have received from the Escrow Agent pursuant to
the terms of Escrow Agreement, the Buyer's respective Purchase Price by wire
transfer of immediately available funds pursuant to the wiring instructions
provided by the Escrow Agent;
(c) The representations and warranties of such Buyer in this Agreement
shall be true and correct in all material respects as of the date made and as of
the Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date), and such Buyer shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by such Buyer at or prior to the Closing Date; and
(d) No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered or issued by any court or
governmental authority of competent jurisdiction or any self-regulatory
organization having authority over the matters contemplated hereby which
restricts or prohibits the consummation of any of the transactions contemplated
herein.
7. Conditions to Each Buyer's Obligation to Purchase. The obligation of a
Buyer to purchase a Note and accept delivery of a Warrant is subject to the
satisfaction, on or before the Closing Date, of each of the following
conditions; provided, however, that these conditions are for the sole benefit of
such Buyer and may be waived by such Buyer at any time in its sole discretion:
(a) The Company shall have (i) executed each of the Agreements to the
extent required thereby and (ii) delivered such documents or signature pages
thereof (via overnight delivery or as otherwise provided in the Escrow
Agreement), together with such other items as may be required by this Agreement,
to the Escrow Agent;
14
(b) The Company shall have issued and have duly executed by the authorized
officers of the Company and delivered to the Escrow Agent on behalf of such
Buyer, the Buyer's original Note and Warrant (via overnight delivery or as
otherwise provided by the Escrow Agreement);
(c) The representations and warranties of the Company shall be true and
correct in all material respects as of the date made and as of Closing Date as
though made at that time (except for representations and warranties that speak
as of a specific date), and the Company shall have performed, satisfied and
complied in all material respects with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by the
Company at or prior to the Closing Date. The Buyers may require a certificate,
executed by the Chief Executive Officer of the Company and dated as of the
Closing Date, to the foregoing effect and as to such other matters as may be
reasonably requested by the Buyers;
(d) The Common Stock shall be authorized for quotation on the OTC Bulletin
Board (or listing on a national securities exchange or other market) and trading
in the Common Stock on such market shall not have been suspended by the SEC or
other relevant regulatory agency; and
(e) No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, or issued by any court or
governmental authority of competent jurisdiction or any self-regulatory
organization having authority over the matters contemplated hereby which
restricts or prohibits the consummation of any of the transactions contemplated
herein.
8. Governing Law; Miscellaneous.
(a) Governing Law. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Delaware without regard to the
principles of conflict of laws. Service of process in any civil action relating
to or arising out of this Agreement (including all Exhibits or Schedules or any
addenda hereto) or the transactions contemplated herein may be accomplished in
any manner provided by law. The parties hereto agree that a final,
non-appealable judgment in any such suit or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on such judgment or in any other
lawful manner.
(b) Counterparts. This Agreement may be executed in two or more identical
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
signature pages from such counterparts have been delivered to the Escrow Agent.
(c) Headings; Interpretation. The headings of this Agreement are for
convenience of reference and shall not form a part of, or affect the
interpretation of this Agreement. As used herein, the masculine shall refer to
the feminine and neuter, and vice versa, as the context may require. As used
herein, unless the context clearly requires otherwise, the words "herein,"
15
"hereunder" and "hereby," shall refer to this entire Agreement and not only to
the Section or paragraph in which such word appears. If any date specified
herein falls upon a Saturday, Sunday or public or legal holidays, the date shall
be construed to mean the next business day following such Saturday, Sunday or
public or legal holiday. For purposes of this Agreement, a "business day" is any
day other than a Saturday, Sunday or public or legal holiday. Each party intends
that this Agreement be deemed and construed to have been jointly prepared by the
parties. As a result, the parties agree that any uncertainty or ambiguity
existing herein shall not be interpreted against either of them.
(d) Severability. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.
(e) Entire Agreement; Amendments. This Agreement and the documents
referenced herein (which are incorporated herein by reference) contain the
entire understanding of the parties with respect to the matters covered herein
and supercede all prior agreements, negotiations and understandings, written or
oral, with respect to such subject matter. Except as specifically set forth
herein, neither the Company nor any Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. No provision of this
Agreement shall be waived or amended other than by an instrument in writing
signed by the Company and the Buyers. No delay or omission of any party hereto
in exercising any right or remedy hereunder shall constitute a waiver of such
right or remedy, and no waiver as to any obligation shall operate as a
continuing waiver or as a waiver of any subsequent breach.
(f) Notices. Any notices required or permitted to be given under the terms
of this Agreement shall be in writing and sent by U. S. Mail or delivered
personally or by overnight courier or via facsimile (if via facsimile, to be
followed within one (1) business day by an original of the notice document via
overnight courier) and shall be effective (i) five (5) days after being placed
in the mail, if mailed, certified or registered, return receipt requested, (ii)
upon receipt, if delivered personally or (iii) one (1) day after facsimile
transmission or delivery to a courier service for overnight delivery, in each
case properly addressed to the party to receive the same. The addresses for such
communications shall be as follows:
If to the Company: Detto Technologies, Inc.
00000 XX 00xx Xxxxxx
Xxxxxxx, Xxxxxxxxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
E-mail: XxxxX@Xxxxx.xxx
16
If to a Buyer: At such Buyer's address as shown on the signature page
of this Agreement.
Each party shall provide written notice to the other parties of any change
in address.
(g) Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their respective successors and permitted
assigns. Neither the Company nor any Buyer shall assign this Agreement or any
rights or obligations hereunder without the prior written consent of the other
(which written consent shall not be unreasonably withheld) and, in any event,
any assignee of a Buyer shall be an "accredited investor" (as defined in
Regulation D). Notwithstanding the foregoing, if applicable, the Buyers may
assign their rights hereunder to any of their "affiliates," as that term is
defined under Rule 405 of the 1933 Act, without the consent of the Company;
provided, however, that (i) any such assignment shall not release a Buyer from
its obligations hereunder unless such obligations are assumed by such affiliate
and (ii) no such assignment shall be made unless it is made in accordance with
any applicable securities laws. Any request for consent to an assignment made
hereunder by a Buyer shall be accompanied by a legal opinion in form, substance
and scope reasonably satisfactory to the Company that such assignment is proper
under applicable law. Notwithstanding anything herein to the contrary, the
Buyers may pledge all or any part of the Securities as collateral for a bona
fide loan pursuant to a security agreement with a third party lender, and such
pledge shall not be considered an assignment in violation of this Agreement so
long as it is made in compliance with all applicable laws.
(h) 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.
(i) Survival. Unless this Agreement is terminated under Section 8(l)
below, the representations and warranties of the Company and the Buyers
contained herein, and the agreements and covenants set forth herein, shall
survive the Closing. (j) Publicity. The Company and the Buyers shall have the
right to review, before issuance by the other, any press releases or other
public statements with respect to the transactions contemplated hereby;
provided, however, that the Buyers and their affiliates shall each be entitled,
without prior consultation with or approval of the Company, to publish a
"tombstone"describing the financing provided pursuant to this Agreement.
(k) Further Assurance. Each party shall do and perform, or cause to be
done and performed, at its expense, all such further acts and things, and shall
execute and deliver all such other agreements, certificates, instruments and
documents, as the other party may reasonably request in order to carry out the
intent and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
(l) Termination. In the event that the Closing shall not have occurred on
or before January 31, 2006, this Agreement may be terminated at any time
thereafter by written notice from one party to the others. Such termination
shall not be the sole remedy for a breach of this Agreement by the non-breaching
party, and each party shall retain all of its rights hereunder at law or in
equity. Notwithstanding anything herein to the contrary, a party whose breach of
a covenant or representation and warranty or failure to satisfy a condition
prevented the Closing shall not be entitled to terminate this Agreement.
17
(m) Remedies. No provision of this Agreement providing for any specific
remedy to a party shall be construed to limit such party to the specific remedy
described, and any other remedy that would otherwise be available to such party
at law or in equity shall also be available. The parties also intend that the
rights and remedies hereunder be cumulative, so that exercise of any one or more
of such rights or remedies shall not preclude the later or concurrent exercise
of any other rights or remedies.
(n) Attorney's Fees. If any party to this Agreement shall bring any action
for relief against the other arising out of or in connection with this
Agreement, in addition to all other remedies to which the prevailing party may
be entitled, the losing party shall be required to pay to the prevailing party a
reasonable sum for attorney's fees and costs incurred in bringing such action
and/or enforcing any judgment granted therein, all of which shall be deemed to
have accrued upon the commencement of such action and shall be paid whether or
not such action is prosecuted to judgment. Any judgment or order entered in such
action shall contain a specific provision providing for the recovery of
attorney's fees and costs incurred in enforcing such judgment. For the purposes
of this Section, attorney's fees shall include, without limitation, fees
incurred with respect to the following: (i) post-judgment motions, (ii) contempt
proceedings, (iii) garnishment, levy and debtor and third party examinations,
(iv) discovery and (v) bankruptcy litigation.
IN WITNESS WHEREOF, the Buyers and the Company have caused this Agreement
to be duly executed by their respective authorized persons on the date first
written above.
DETTO TECHNOLOGIES, INC.
By:____________________________
President
By:____________________________
Secretary
18
LIST OF EXHIBITS AND SCHEDULES
Schedule of Buyers
Exhibit A Form of 12% Secured Convertible Promissory Note
Exhibit B Form of Warrant to Purchase Common Stock
Exhibit C Security Agreement
Exhibit D Form of Guaranty, Pledge and Security Agreement
Exhibit E Registration Rights Agreement
Exhibit F Disbursement Instructions
Exhibit G Escrow Agreement
Schedule 3(c)
Schedule 3(e)
Schedule 3(g)
Schedule 3(h)
Schedule 3(j)
Schedule 3(m)
19
SCHEDULE OF BUYERS
Name of Buyer Note Principal Number of Warrant Shares
Di Capital Investments $150,000 331,962
Xxxxxx Holdings Corporation $200,000 442,616
Alessandro Grande $150,000 331,962
SCHEDULE 3(c)
Total Warrants 27,500 at $.58
50,000 at $.68
50,000 at $1.24
50,000 at $1.50
100,000 at $1.00
265,000 at $.50
---------------
542,500
=======
Stock Options 765,000 at $1.56
5,000 at $.70
Convertible Note of $235,000 235,000 at $1.00
Total Potential Dilution 1,547,500
=========
20
SCHEDULE 3(e)
None
SCHEDULE 3(g)
None
SCHEDULE 3(h)
None
SCHEDULE 3(j)
None
SCHEDULE 3(m)
None
21
