SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (the "Agreement"), is made and entered
into as of June 9, 2006 (the " Closing Date"), by and between AVP, Inc., a
Delaware corporation (the "Company"), and the undersigned prospective investor
(the "Investor").
RECITALS
A. The Company and the Investor are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by the provisions of Regulation D ("Regulation D"), as promulgated by the U.S.
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
as amended.
B. The Investor is subscribing for shares (the "Shares") of the Company's
Common Stock (the "Common Stock"), par value $0.001 per share; and warrants to
purchase shares of the Common Stock substantially in the form attached hereto as
Exhibit A, as the same may be amended, modified or supplemented from time to
time in accordance with the terms thereof (the "Warrants", and collectively with
this Agreement, the "Transaction Documents"). Each Warrant entitles the holder
thereof to purchase Common Stock at an exercise price of $1.00 per share
(subject to adjustment as provided in the Warrant).
C. For the purposes of this Agreement, a "Unit" shall consist of 5 Shares
and 1 Warrant.
ARTICLE I
PURCHASE AND SALE OF UNITS; CLOSING
1.1 Purchase and Sale of the Units. Subject to the terms and conditions of
this Agreement, the Investor agrees to purchase from the Company the number of
Units indicated on Schedule A hereto (the "Subscription Amount") at a purchase
price of $4.25 per Unit (the "Unit Price") for an aggregate purchase price
indicated on Schedule A hereto (the "Aggregate Purchase Price"), such
Subscription Amount indicated on Schedule A with respect to the Investor, the
"Actual Subscription Amount". Subject to the terms and conditions of this
Agreement, the Company shall issue and sell to the Investor the number of Units
having an Actual Purchase Price, as defined hereinafter, equal to the Actual
Subscription Amount.
1.2 Aggregate Number of Units Offered. The Company has entered this same
form of Securities Purchase Agreement (the "Other Agreements") with certain
other investors (the "Other Investors", and together with the Investor, the
"Investors") to offer and sell (the "Offering") Units with an aggregate purchase
price that the parties hereto agree shall not to exceed $5,500,000 (the
"Offering Amount"). Notwithstanding anything herein to the contrary any Other
Agreement shall include terms and conditions that are not more favorable to such
Other Investor or less favorable to the Company than those set forth in this
Agreement. The Investor hereby acknowledges receipt of a copy of the
Confidential Private Placement Memorandum of the Company dated March 3, 2006
(the "Memorandum"), relating to the Offering.
1.3 Purchase Price. On the "Closing Date" (as defined below), the Investor
shall pay its Purchase Price to the Company for the Units to be issued and sold
to the Investor at such Closing, in United States dollars by wire transfer of
immediately available funds in accordance with the Company's written wire
instructions attached hereto as Exhibit B.
1.4 Binding Effect of this Agreement. The Investor acknowledges and agrees
that this Agreement shall be binding upon the Investor upon the submission to
the Company or Xxxxxxxxxxx & Co. Inc. (the "Placement Agent") of the Investor's
signed counterpart signature page to this Agreement (the "Subscription") and the
Investor's receipt of the signed counterpart signature of the Company; provided
that, in the event the Closing Date shall not have occurred on or prior to June
30, 2006 (the "Termination Date") this Agreement shall be terminated and be of
no force and effect.
1.5 Delivery of Units at Closing.
(a) The completion of the purchase and sale of the Units to the
Investor (the "Closing") shall occur, subject to the satisfaction or waiver of
the conditions set forth in Section 1.6 and Section 1.7 (other than those
intended to be satisfied at Closing), at 10 a.m. Eastern Standard Time on the
date hereof (the "Closing Date") at the offices of Loeb & Xxxx, XXX, 000 Xxxx
Xxxxxx, Xxx Xxxx, Xxx Xxxx, or such other time, date or place is agreed to by
the parties.
(b) At the Closing, (i) the Company shall authorize its transfer
agent to issue or transfer, as applicable, and the transfer agent shall issue or
transfer, as applicable, to the Investor one or more stock certificates
registered in the name of the Investor, or in such name of nominee(s) designated
by the Investor in writing, representing that number of shares of Common Stock
included in the Actual Subscription Amount and (ii) the Company shall issue the
number of related Warrants included in the Actual Subscription Amount against
payment of the Actual Purchase Price in accordance with Section 1.1. The "Actual
Purchase Price" shall mean an amount equal to the product of (A) the Actual
Subscription Amount for the Investor multiplied by (B) the Unit Price.
1.6 Conditions to the Company's Obligation to Complete Purchase and Sale.
Upon acceptance of the Subscription, the Company's obligation to issue and sell
the Units to the Investor at Closing is subject to the satisfaction, on or
before the Closing Date, of each of the following conditions, provided that
these conditions are for the Company's sole benefit and may be waived by the
Company at any time in its sole discretion by providing the Investor with prior
written notice thereof:
(a) Payment of Purchase Price. The Investor shall have delivered to
the Escrow Agent the Aggregate Purchase Price; and
(b) Representations and Warranties; Covenants. The representations
and warranties of the Investor set forth in Article III hereof shall be true and
correct as of the date hereof and as of the Closing Date as though made at that
time (except for representations and warranties that speak as of a specific date
(which shall be true and correct as of such date)), and the Investor shall have
performed, satisfied and complied with in all material respects the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Investor on or prior to the Closing Date.
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1.7 Conditions to the Investor's Obligation to Complete Purchase and Sale.
The obligation of the Investor hereunder to purchase the Units from the Company
at the Closing is subject to the satisfaction, on or before the Closing Date, of
each of the following conditions, provided that these conditions are for the
Investor's sole benefit and may be waived by the Investor at any time in its
sole discretion by providing the Company with prior written notice thereof:
(a) Opinion of Counsel. Receipt by the Investor of an opinion letter
of Loeb & Loeb, LLP, counsel to the Company, dated the Closing Date, in
substantially the form attached hereto as Exhibit C;
(b) Representations and Warranties; Covenants. The representations
and warranties of the Company set forth in Article II hereof shall be true and
correct in all material respects as of the date hereof and as of the Closing
Date as though made at that time (except for representations and warranties that
speak as of a specific date (which shall be true and correct in all material
respects as of such date)), and the Company shall have performed, satisfied and
complied with in all material respects the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by the
Company on or prior to the Closing Date;
(c) Consents, etc. The Company shall have obtained any and all
consents, permits, approvals, registrations and waivers necessary or appropriate
for consummation of the purchase and sale of the Units and the consummation of
the other transactions contemplated by the Transaction Documents, all of which
shall be in full force and effect;
(d) Officer's Certificate. The Company shall have delivered to the
Investor a certificate, dated the Closing Date, duly executed on behalf of the
Company by its Chief Executive Officer to the effect set forth in clauses (b),
(e), (f), and (g) of this Section 1.7;
(e) Secretary's Certificate. The Company shall have delivered to the
Investor a certificate, dated the Closing Date, duly executed by its Secretary
or Assistant Secretary, certifying that the attached copies of the Certificate
of Incorporation, the by-laws and the resolutions of the Board of Directors of
the Company approving this Agreement and the other Transaction Documents and the
transactions contemplated hereby and thereby, are all true, complete and correct
and remain un-amended and in full force and effect;
(f) Delivery of Warrants and Stock Certificates. The Company shall
have delivered to the Investor duly executed Warrants and a copy of the
Company's instruction to its transfer agent to issue certificates representing
the Shares being purchased by the Investor at the Closing;
(g) No Litigation. On the Closing Date, no legal action, suit or
proceeding shall be pending or overtly threatened which seeks to restrain or
prohibit the transactions contemplated by this Agreement and the other
Transaction Documents;
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(h) No Suspension, Etc. Trading in the Common Stock shall not have
been suspended by any stock exchange or market on which the Common Stock is then
listed or admitted for trading or quotation, as applicable, or the Securities
and Exchange Commission (the "SEC"), except for any suspension of trading of
limited duration agreed to by the Company, which suspension shall be terminated
prior to the 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 OTC
Bulletin Board, nor shall a banking moratorium have been declared either by the
United States or New York State authorities;
(i) 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 and the other Transaction Documents; and
(j) Material Adverse Effect. No material adverse effect on the
business, assets, financial condition or results of operations of the Company
and its Subsidiaries (defined below) and no event that would prohibit or
otherwise materially interfere with the ability of the Company to perform any of
its obligations under this Agreement and the other Transaction Documents in any
material respect shall have occurred at or before the Closing Date.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth on the schedule of exceptions attached hereto as
Schedule B (the "Schedule of Exceptions"), the Company hereby represents and
warrants to the Investor as follows:
2.1 Subsidiaries; Organization. The Company has no subsidiaries as defined
by Rule 405 under the Securities Act of 1933, as amended (the "Securities Act")
except as set forth on the Schedule of Exceptions (the "Subsidiaries"). Each of
the Company and the Subsidiaries is duly organized and validly existing and is
in good standing under the laws of the jurisdiction of its incorporation or
organization. Each of the Company and the Subsidiaries has full corporate power
and authority to own, operate and occupy its properties and to conduct its
business as presently conducted and is registered or qualified to do business
and in good standing in each jurisdiction in which it owns or leases property or
transacts business and where the failure to be so qualified would have a
material adverse effect upon the business, assets, financial condition or
results of operations of the Company and its Subsidiaries (a "Material Adverse
Effect"), and to the Company's knowledge, no proceeding has been instituted in
any such jurisdiction revoking, limiting or curtailing, or seeking to revoke,
limit or curtail, such power and authority or qualification. Except as set forth
in Section 2.1 of the Schedule of Exceptions, the Company does not own, lease or
license any asset or property or conduct business outside the United States of
America.
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2.2 Due Authorization. The Company has all requisite corporate power and
authority to execute, deliver and perform its obligations under the Transaction
Documents. Each Transaction Document has been duly authorized and validly
executed and delivered by the Company and, assuming due authorization, execution
and delivery by the other parties hereto, constitutes a valid and legally
binding obligation of the Company enforceable against the Company in accordance
with its terms, except (i) to the extent rights to indemnity and contribution
may be limited by state or federal securities laws or the public policy
underlying such laws, (ii) enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or
similar laws affecting creditors' and contracting parties' rights generally and
(iii) enforceability may be limited by general principles of equity (regardless
of whether such enforceability is considered in a proceeding in equity or at
law).
2.3 Non-Contravention. The execution and delivery of this Agreement, the
issuance and sale of the Shares and Warrants to be sold by the Company under
this Agreement, the performance by the Company of its obligations under the
Transaction Documents and the consummation of the transactions contemplated
thereby will not (A) conflict with or constitute a violation of, or default
(with or without the giving of notice or the passage of time or both) under, (i)
any material bond, debenture, note or other evidence of indebtedness, or under
any material lease, indenture, mortgage, deed of trust, loan agreement, joint
venture or other agreement or instrument to which the Company is a party or by
which it or its properties are bound, (ii) the charter, by-laws or other
organizational documents of the Company or any of its Subsidiaries, or (iii) any
law, administrative regulation, ordinance or order of any court or governmental
agency, arbitration panel or authority applicable to the Company, any of its
Subsidiaries or their respective properties, or (B) result in the creation or
imposition of any lien, encumbrance, claim, security interest or restriction
whatsoever upon any of the material properties or assets of the Company or any
of its Subsidiaries or an acceleration of indebtedness pursuant to any
obligation, agreement or condition contained in any material bond, debenture,
note or any other evidence of indebtedness or any material indenture, mortgage,
deed of trust or any other agreement or instrument to which the Company or any
of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound or to which any of the property or assets of the Company
or any of its Subsidiaries is subject. No consent, approval, authorization or
other order of, or registration, qualification or filing with, any regulatory
body, administrative agency, self-regulatory organization, stock exchange or
market, or other governmental body in the United States is required for the
execution and delivery of the Transaction Documents and the valid issuance and
sale of the Units to be sold pursuant to the Transaction Documents, other than
such as have been made or obtained, and except for any securities filings
required to be made under federal or state securities laws.
2.4 Reporting Status. The Company has filed in a timely manner all
documents that the Company was required to file under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), during the 12 months preceding the
date of this Agreement (the "SEC Documents"). The SEC Documents complied as to
form in all material respects with the SEC's requirements as of their respective
filing dates, and the information contained therein as of the date thereof did
not contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading, except
to the extent that information contained in any such document has been revised
or superseded by a later filed SEC Document.
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2.5 Capitalization.
(a) As of the date hereof, the authorized capital stock of the
Company consists of 82,000,000 shares of capital stock, of which 80,000,000
shares are designated Common Stock and 2,000,000 shares are designated preferred
stock. As of the date hereof, there were 13,067,919 shares of Common Stock
issued and outstanding and 74,708 shares of Series B Preferred Stock issued and
outstanding. As of the date hereof, 8,905,065 shares of Common Stock were
reserved for issuance upon exercise of outstanding stock options issued by the
Company to certain former and current employees, consultants and directors of
the Company. In addition to the shares of Common Stock reserved for issuance
upon exercise of the Warrants or the Agent's Warrants, an additional 9,593,028
shares of Common Stock have been reserved for issuance upon exercise of certain
warrants and the conversion of the Series B Preferred Stock outstanding as of
the date hereof.
(b) All outstanding shares of Common Stock and Series B Preferred
Stock are duly authorized, validly issued, fully paid and nonassessable and were
issued in compliance with federal and U.S. state securities laws. Except as set
forth above, there are no outstanding rights, options, warrants, preemptive
rights, rights of first refusal, agreements, commitments or similar rights for
the purchase or acquisition from the Company or any of its Subsidiaries of any
securities of the Company or any of its Subsidiaries.
(c) The Shares to be sold pursuant to this Agreement have been duly
authorized, and when issued and paid for in accordance with the terms of this
Agreement will be validly issued, fully paid and nonassessable and free and
clear of all pledges, liens and encumbrances arising through the Company. The
Warrants to be issued pursuant to this Agreement have been duly authorized. The
Common Stock issuable upon exercise of the Warrants (the "Warrant Shares") has
been duly authorized and reserved and, when issued upon exercise of the Warrants
in accordance with the terms of the Warrants, will be validly issued, fully paid
and non-assessable and free and clear of all pledges, liens and encumbrances
arising through the Company.
(d) The Units, the Shares, the Warrants and the Warrant Shares
collectively are referred to herein as the "Securities". No preemptive right,
co-sale right, right of first refusal or other similar right exists with respect
to the Securities or the issuance and sale thereof. No further approval or
authorization of any stockholder or the Board of Directors of the Company is
required for the issuance and sale of the Securities. Except as set forth in
Section 2.5(d) of the Schedule of Exceptions, no holder of any of the securities
of the Company has any rights ("demand," "piggyback" or otherwise) to have such
securities registered by reason of the intention to file, filing or
effectiveness of a Registration Statement (as defined in Section 5.1 hereof).
2.6 Legal Proceedings. Except as disclosed in Section 2.6 of the Schedule
of Exceptions, there is no action, suit or proceeding before any court,
governmental agency or body, domestic or foreign, now pending or, to the
knowledge of the Company or any of its Subsidiaries, overtly threatened against
the Company or its Subsidiaries wherein an unfavorable decision, ruling or
finding would reasonably be expected to adversely affect the validity or
enforceability of, or the authority or ability of the Company to perform its
obligations under this Agreement and the other Transaction Documents.
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2.7 No Violations. Neither the Company nor any of its Subsidiaries: (i) is
in violation of its charter, bylaws, or other organizational document, or in
violation of any law, administrative regulation, ordinance or order of any court
or governmental agency, arbitration panel or authority applicable to the Company
or any of its Subsidiaries, which violation, individually or in the aggregate,
would be reasonably likely to have a Material Adverse Effect, or (ii) is in
default (and there exists no condition which, with or without the passage of
time or giving of notice or both, would constitute a default) in any material
respect in the performance of any bond, debenture, note or any other evidence of
indebtedness in any indenture, mortgage, deed of trust or any other material
agreement or instrument to which the Company or any of its Subsidiaries is a
party or by which the Company or any of its Subsidiaries is bound or by which
the properties of the Company are bound, which would be reasonably likely to
have a Material Adverse Effect or would prohibit or otherwise materially
interfere with the ability of the Company to perform any of its obligations
under this Agreement or any other Transaction Document in any material respect.
2.8 Governmental Permits, Etc. The Company and its Subsidiaries possess
all necessary franchises, licenses, certificates and other authorizations from
any foreign, federal, state or local government or governmental agency,
department or body that are currently necessary for the operation of their
respective businesses as currently conducted, except where such failure to
possess could not reasonably be expected to have a Material Adverse Effect or
would not prohibit or otherwise materially interfere with the ability of the
Company to perform any of its obligations under this Agreement in any material
respect.
2.9 Intellectual Property.
(a) All Intellectual Property of the Company and its Subsidiaries is
currently in compliance with all legal requirements (including timely filings,
proofs and payments of fees) and is valid and enforceable. No Intellectual
Property of the Company or its Subsidiaries which is necessary for the conduct
of Company's and each of its Subsidiaries' respective businesses as currently
conducted or as currently proposed to be conducted has been or is now involved
in any cancellation, dispute or litigation, and, to the Company's knowledge, no
such action is threatened. No patent of the Company or its Subsidiaries has been
or is now involved in any interference, reissue, re-examination or opposition
proceeding. For purposes of this Agreement, "Intellectual Property" shall mean
all of the following: (i) patents, patent applications, patent disclosures and
inventions (whether or not patentable and whether or not reduced to practice);
(ii) trademarks, service marks, trade dress, trade names, corporate names,
logos, slogans and Internet domain names, together with all goodwill associated
with each of the foregoing; (iii) copyrights and copyrightable works; (iv)
registrations, applications and renewals for any of the foregoing; and (v)
proprietary computer software (including but not limited to data, data bases and
documentation).
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(b) All of the licenses and sublicenses and consent, royalty or
other agreements concerning third-party Intellectual Property necessary for the
conduct of the Company's and each of its Subsidiaries' respective businesses as
currently conducted or as currently proposed to be conducted to which the
Company or any Subsidiary is a party or by which any of their assets are bound
(other than generally commercially available, non-custom, off-the-shelf software
application programs having a retail acquisition price of less than $10,000 per
license) (collectively, "License Agreements") are valid and binding obligations
of the Company or its Subsidiaries that are parties thereto and, to the
Company's knowledge, the other parties thereto, enforceable in accordance with
their terms, except to the extent that enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
other similar laws affecting the enforcement of creditors' rights generally, and
there exists no event or condition which will result in a material violation or
breach of or constitute (with or without due notice or lapse of time or both) a
default by the Company or any of its Subsidiaries under any such License
Agreement.
(c) The Company and its Subsidiaries own or, with respect to
third-party Intellectual Property, to the Company's knowledge, have the valid
right to use all of the Intellectual Property that is necessary for the conduct
of the Company's and each of its Subsidiaries' respective businesses as
currently conducted or as currently proposed to be conducted and for the
ownership, maintenance and operation of the Company's and its Subsidiaries'
properties and assets, free and clear of all liens, encumbrances, adverse claims
or obligations to license all such owned Intellectual Property, other than
licenses entered into in the ordinary course of the Company's and its
Subsidiaries' businesses.
(d) To the Company's knowledge, the conduct of the Company's and its
Subsidiaries' businesses as currently conducted does not infringe or otherwise
impair or conflict with (collectively, "Infringe") any Intellectual Property
rights of any third party or any confidentiality obligation owed to a third
party, and, to the Company's knowledge, the Intellectual Property of the Company
and its Subsidiaries which are necessary for the conduct of Company's and each
of its Subsidiaries' respective businesses as currently conducted or as
currently proposed to be conducted are not being Infringed by any third party.
There is no litigation or order pending or outstanding or, to the Company's
knowledge, threatened or imminent, that seeks to limit or challenge or that
concerns the ownership, use, validity or enforceability of any Intellectual
Property of the Company and its Subsidiaries and the Company's and its
Subsidiaries' use of any Intellectual Property owned by a third party, and, to
the Company's knowledge, there is no valid basis for the same.
(e) The consummation of the transactions contemplated by the
Transaction Documents will not result in the alteration, loss, impairment of or
restriction on the Company's or any of its Subsidiaries' ownership or right to
use any of the Intellectual Property which is necessary for the conduct of
Company's and each of its Subsidiaries' respective businesses as currently
conducted or as currently proposed to be conducted.
(f) The Company and its Subsidiaries have taken reasonable steps
consistent with industry practice to protect the Company's and its Subsidiaries'
rights in their Intellectual Property and Confidential Information (as defined
below). Each employee, consultant and contractor who has had access to
Confidential Information which is necessary for the conduct of Company's and
each of its Subsidiaries' respective businesses as currently conducted or as
currently proposed to be conducted has executed an agreement to maintain the
confidentiality of such Confidential Information and has executed appropriate
agreements that are substantially consistent with the Company's standard forms
thereof. Except under confidentiality obligations, to the Company's knowledge,
there has been no material disclosure of any of the Company's or its
Subsidiaries' Confidential Information to any third party. For purposes hereof,
the term "Confidential Information" means trade secrets, confidential
information and know-how (including but not limited to ideas, formulae,
compositions, processes, procedures and techniques, research and development
information, computer program code, performance specifications, support
documentation, drawings, specifications, designs, business and marketing plans,
and customer and supplier lists and related information).
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2.10 Financial Statements. The consolidated financial statements of the
Company and its Subsidiaries and the related notes thereto included in the SEC
Documents, as the same may be amended, present fairly, in all material respects,
the financial position of the Company as of the dates indicated and the results
of its operations and cash flows for the periods therein specified. Except as
set forth in the SEC Documents, such financial statements (including the related
notes) have been prepared in accordance with United States generally accepted
accounting principles applied on a consistent basis throughout the periods
therein specified.
2.11 No Material Adverse Change. There has not been (i) any material
adverse change in the business, assets, financial condition or results of
operations of the Company and its Subsidiaries, (ii) any obligation, direct or
contingent, that is material to the Company and its Subsidiaries, incurred by
the Company or any of its Subsidiaries, except obligations incurred in the
ordinary course of business, (iii) any dividend or distribution of any kind
declared, paid or made on the capital stock of the Company, (iv) any loss,
destruction or damage (whether or not insured) to the physical property of the
Company or any of its Subsidiaries other than which has not had and could not
reasonably be expected to have a Material Adverse Effect, individually or in the
aggregate, (v) any waiver, not in the ordinary course of business, by the
Company or any of its Subsidiaries of a material right or of a material debt
owed to it; (vi) any satisfaction or discharge of any lien, claim or encumbrance
or payment of any obligation by the Company or any of its Subsidiaries, except
in the ordinary course of business and which has not had and could not
reasonably be expected to have a Material Adverse Effect; (vi) any change or
amendment to the Company's Amended and Restated Certificate of Incorporation or
by-laws, or material change to any material contract or arrangement by which the
Company or any of its Subsidiaries is bound or to which any of their respective
assets or properties is subject; (vii) any material labor difficulties or labor
union organizing activities with respect to employees of the Company or any of
its Subsidiaries; (viii) the loss of the services of any key employee, or
material change in the composition or duties of the senior management of the
Company or any of its Subsidiaries; (ix) the loss or threatened loss of any
customer which has had or could reasonably be expected to have a Material
Adverse Effect; or ( x) any other event or condition of any character that has
had or could reasonably be expected to have a Material Adverse Effect.
2.12 Compliance with the OTC Bulletin Board Continued Listing
Requirements. The Company's Common Stock is registered pursuant to Section 12(g)
of the Exchange Act and is listed on the OTC Bulletin Board (the "Bulletin
Board"), the Company is in compliance with applicable Bulletin Board continued
listing requirements and has taken no action designed to, or likely to have the
effect of, terminating the registration of the Common Stock under the Exchange
Act or the de-listing of the Common Stock from the Bulletin Board, nor to the
Company's knowledge is the Bulletin Board currently contemplating terminating
such listing. There are no proceedings pending or, to the Company's knowledge,
threatened against the Company relating to the continued listing of the
Company's Common Stock on the Bulletin Board and the Company has not received
any notice of, nor to the Company's knowledge is there any basis for, the
delisting of the Common Stock from the Bulletin Board.
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2.13 No Manipulation of Stock. Neither the Company, nor the Subsidiaries,
nor any of its affiliates has taken or may take directly or indirectly, any
action in violation of applicable law or any action designed to or that might
reasonably be expected to cause or result in stabilization or manipulation of
the price of the Common Stock or the preferred stock to facilitate the sale or
resale of the Units, the Shares or the Warrant Shares.
2.14 Insurance. The Company and each of its Subsidiaries maintain and will
continue to maintain insurance against loss or damage by fire or other casualty
and such other insurance, including, but not limited to, general liability
insurance, in such amounts and covering such risks as is reasonably adequate
consistent with industry practice for the conduct of their respective businesses
and the value of their respective properties.
2.15 Tax Matters. The Company and each of its Subsidiaries have timely
prepared and filed all federal, state, local and foreign income and franchise
and other tax returns required to be filed by any jurisdiction to which it is
subject and have paid all taxes due in accordance therewith, and no tax
deficiency has been determined adversely to the Company or any of its
Subsidiaries which has had (nor does the Company or any of its Subsidiaries have
any knowledge of any tax deficiency which, if determined adversely to the
Company or any of its Subsidiaries, would reasonably be expected to have) a
Material Adverse Effect. There are no tax liens or claims pending or, to the
Company's knowledge, threatened against the Company or any of its Subsidiaries
or any of their respective assets or property. There are no outstanding tax
sharing agreements or other such arrangements between the Company and any of its
Subsidiaries or other corporation or entity.
2.16 Title to Properties. The Company and each of its Subsidiaries has
good and marketable title to all real properties and all other properties and
assets owned by it, in each case free from liens, encumbrances and defects that
would materially affect the value thereof or materially interfere with the use
made or currently planned to be made thereof by them. The Company and each of
its Subsidiaries holds any leased real or personal property under valid and
enforceable leases with no exceptions that would materially interfere with the
use made or currently planned to be made thereof by them.
2.17 No Labor Disputes. No material labor dispute with the employees of
the Company or any of its Subsidiaries exists or, to the Company's knowledge, is
imminent.
2.18 Investment Company. The Company is not an "investment company" within
the meaning of such term under the Investment Company Act of 1940 and the rules
and regulations of the SEC thereunder.
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2.19 No Registration. Assuming compliance by the Placement Agent with
manner of offering rules and the accuracy of the representations and warranties
made by, and compliance with the covenants of, the Investor in Article III
hereof, no registration of the Securities under the Securities Act is required
in connection with the offer and sale of the Securities by the Company to the
Investor as contemplated by this Agreement and the Warrants.
2.20 Disclosure. Neither this Agreement, the Schedule of Exceptions
hereto, the other Transaction Documents and or any of the SEC Documents nor any
other documents, certificates or instruments furnished to the Investor by or on
behalf of the Company in connection with the transactions contemplated by 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. Except for the execution and performance of the Transaction
Documents, no material fact (within the meaning of the federal securities laws
of the United States and of applicable state securities laws) exists with
respect to the Company which has not been publicly disclosed.
2.21 No Integrated Offering; No General Solicitation. Neither the Company
nor any of its affiliates, nor any person acting on its behalf or their behalf,
directly or indirectly has (i) sold, offered for sale, solicited offers to buy
or otherwise negotiated in respect of, any security (as defined in the
Securities Act) which is or will be integrated with the sale of the Securities
in a manner that would require the registration under the Securities Act of the
sale of the Securities pursuant to this Agreement and the other Transaction
Documents; or (ii) offered, solicited offers to buy or sold Securities by any
form of general solicitation or general advertising (as those terms are used in
Regulation D under the Securities Act) or in any manner involving a public
offering within the meaning of Section 4(2) of the Securities Act. The Company
does not have any registration statement pending before the SEC or currently
under the SEC's review.
2.22 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 SEC Documents or such that, individually or in the
aggregate, the noncompliance therewith could not reasonably be expected to have
a Material Adverse Effect or would prohibit or otherwise materially interfere
with the ability of the Company to perform any of its obligations under the
Transaction Documents in any material respect. The Company and 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 or would prohibit or
otherwise materially interfere with the ability of the Company to perform any of
its obligations under the Transaction Documents in any material respect.
2.23 Questionable Payments. Neither the Company nor any of its
Subsidiaries nor, to the Company's knowledge, any of their respective current or
former stockholders, directors, officers, employees, agents or other persons
acting on behalf of the Company or any Subsidiary, has on behalf of the Company
or any Subsidiary or in connection with their respective businesses: (a) used
any corporate funds for unlawful contributions, gifts, entertainment or other
unlawful expenses relating to political activity; (b) made any direct or
indirect unlawful payments to any governmental officials or employees from
corporate funds; (c) established or maintained any unlawful or unrecorded fund
of corporate monies or other assets; (d) made any false or fictitious entries on
the books and records of the Company or any Subsidiary; or (e) made any unlawful
bribe, rebate, payoff, influence payment, kickback or other unlawful payment of
any nature.
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2.24 Money Laundering Laws. The operations of the Company and its
subsidiaries are and have been conducted at all times in compliance with
applicable financial record keeping and reporting requirements of the Currency
and Foreign Transactions Reporting Act of 1970, as amended, the money laundering
statutes of all jurisdictions, the rules and regulations thereunder and any
related or similar rules, regulations or guidelines issued, administered or
enforced by any governmental agency (collectively, the "Money Laundering Laws")
and no action, suit or proceeding by or before any court or governmental agency,
authority or body or any arbitrator involving the Company or any of it
subsidiaries with respect to the Money Laundering Laws is pending, or to the
best knowledge of the Company, threatened.
2.25 Xxxxxxxx-Xxxxx Act. The Company is in 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 with other applicable provisions of the Xxxxxxxx-Xxxxx Act, and the rules
and regulations promulgated thereunder, upon the effectiveness of such
provisions.
2.26 Internal Controls. The Company and its Subsidiaries maintain a system
of internal accounting controls sufficient to provide reasonable assurance that
(i) transactions are executed in accordance with management's general or
specific authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization, and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any difference. The Company maintains and will continue to maintain a
standard system of accounting established and administered in accordance with
GAAP and the applicable requirements of the Exchange Act. The Company's officers
certified to the Company's internal controls as of the filing of the Company's
Form 10-KSB for the year ending December 31, 2005 and since that date, that
there have been no significant changes in the Company's internal controls (as
such term is defined in Section 307(b) of Regulation S-K) or, to the Company's
knowledge, any other facts that would significantly affect the Company's
internal controls.
2.27 No Broker. Other than the fee to be paid by the Company to the
Placement Agent, the Company has not incurred any liability for any finder's or
broker's fee, or agent's commission in connection with the execution and
delivery of this Agreement or any other Transaction Document or the consummation
of the transactions contemplated hereby and thereby.
2.28 Forward-Looking Statements. The information contained in the SEC
Documents regarding the Company's expectations, plans and intentions, and any
other information that constitutes "forward-looking" information within the
meaning of the Securities Act and the Exchange Act were made by the Company on a
reasonable basis and reflected the Company's good faith belief and/or estimate
of the matters described therein, in each case as of the date of the SEC
Document containing such information.
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2.29 Use of Proceeds. The proceeds from the sale of the Securities will be
used to fund expansion of the Company's business, hire additional employees,
augment sales force, expand e-commerce and community building capabilities, grow
national membership organization for volleyball enthusiasts and participants,
acquire complementary businesses, and for working capital needs and general
corporate purposes.
2.30 Non-Public Information. The Company confirms that neither it nor any
person acting on its behalf has provided the Investor with any information that
the Company believes constitutes material non-public information, except with
respect to the existence, terms and conditions of this offering or as otherwise
is disclosed in the Current Report on Form 8-K to be filed by the Company, and
the exhibits thereto, in conjunction with the press release referred to in
Section 4.2 hereto.
2.31 Transactions With Affiliates and Employees. Except as disclosed in
Section 2.31 of the Schedule of Exceptions, none of the officers or directors of
the Company and, to the knowledge of the Company, none of the employees of the
Company is presently a party to any transaction with the Company or any
Subsidiary (other than for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any entity in
which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner.
2.32 Environmental Matters. Neither the Company nor any of its
Subsidiaries is in violation of any statute, rule, regulation, decision or order
of any governmental agency or body or any court, domestic or foreign, relating
to the use, disposal or release of hazardous or toxic substances or relating to
the protection or restoration of the environment or human exposure to hazardous
or toxic substances (collectively, "Environmental Laws"), owns or operates any
real property contaminated with any substance that is subject to any
Environmental Laws, is liable for any off-site disposal or contamination
pursuant to any Environmental Laws, or is subject to any claim relating to any
Environmental Laws; and there is no pending or, to the Company's knowledge,
threatened investigation that might lead to such a claim.
2.33 Lock-Up Agreements. All executive officers and directors have
executed lock up agreements and delivered them to the Placement Agent in which,
without prior approval of the Placement Agent, they have agreed to not sell
shares of Common Stock held by them (including shares which may be issued to
them pursuant to the conversion of preferred stock or the exercise of
outstanding options or warrants) during the period ending 60 days after the
effective date of the Registration Statement.
2.34 Sufficient Reserves. In addition to the shares of Common Stock
reserved for issuance upon exercise of the Warrants or the Agent's Warrants, an
additional 9,593,028 shares of Common Stock have been reserved for issuance upon
exercise of certain warrants and the conversion of the Series B Preferred Stock.
13
ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE INVESTOR
The Investor represents, warrants and covenants to the Company as follows:
3.1 Securities Law Representations and Warranties.
(a) The Investor is an "accredited investor" as defined in
Regulation D under the Securities Act and the Investor has the knowledge,
sophistication and experience necessary to make, and is qualified to make
decisions with respect to, investments in shares presenting an investment
decision like that involved in the purchase of the Securities, including
investments in securities issued by the Company and investments in comparable
companies, can bear the economic risk of a total loss of its investment in the
Securities and has requested, received, reviewed and considered all information
it deemed relevant in making an informed decision to purchase the Securities.
The Investor is not a broker-dealer;
(b) The Investor (i) is acquiring the Securities for its own account
for investment only and not with a view towards, or for resale in connection
with, the public sale or distribution thereof;
(c) The Investor was not organized for the specific purpose of
acquiring the Securities;
(d) The Investor will not, directly or indirectly, offer, sell,
transfer or otherwise dispose of (or solicit any offers to buy, purchase or
otherwise acquire or take a pledge of) any of the Securities except in
compliance with the Securities Act, Exchange Act, applicable state securities
laws and the respective rules and regulations promulgated thereunder;
(e) The Investor understands that the Securities are being offered
and sold to it in reliance on specific exemptions from the registration
requirements of the United States federal and state securities laws and that the
Company is relying upon the truth and accuracy of, and the Investor's compliance
with, representations, warranties, agreements, acknowledgements and
understandings of the Investor set forth herein and in the applicable Warrant in
order to determine the availability of such exemptions and the eligibility of
the Investor to acquire the Securities;
(f) The Investor understands that no United States federal or state
agency or any other government or governmental agency has passed on or made any
recommendation or endorsement of the Securities or the fairness or suitability
of an investment in the Securities nor have such authorities passed upon or
endorsed the merits of the offering of the Securities; and
(g) The Investor acknowledges that the Company has represented that
no action has been or will be taken in any jurisdiction outside the United
States by the Company that would permit an offering of the Securities, or
possession or distribution of offering materials in connection with the issue of
the Securities, in any jurisdiction outside the United States where action for
that purpose is required. If the Investor is located or domiciled outside the
United States it agrees to comply with all applicable laws and regulations in
each foreign jurisdiction in which it purchases, offers, sells or delivers
Securities or has in its possession or distributes any offering material, in all
cases at its own expense.
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3.2 Legends.
(a) The Investor understands that certificates evidencing the
Securities may bear the following or any similar legend:
A. "THE SECURITIES REPRESENTED HEREBY MAY NOT BE TRANSFERRED UNLESS (1) SUCH
SECURITIES HAVE BEEN REGISTERED FOR SALE PURSUANT TO THE SECURITIES ACT OF
1933, AS AMENDED, (2) SUCH SECURITIES MAY BE SOLD PURSUANT TO RULE 144(K),
OR (3) THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO IT THAT SUCH TRANSFER MAY LAWFULLY BE MADE WITHOUT
REGISTRATION UNDER THE SECURITIES ACT OF 1933 OR QUALIFICATION UNDER
APPLICABLE STATE SECURITIES LAWS.
B. THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.
THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR OTHERWISE
DISPOSED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR AN EXEMPTION
THEREFROM."
If required by the authorities of any state in connection with the
issuance of sale of the Securities, the legend required by such state
authority.
(b) Removal of Legends. The legend set forth in Section 3.2 shall be
removed and the Company shall issue a certificate without such legend to the
holder of the Securities upon which it is stamped, upon (x) the written request
of the holder of such Securities to the Company and (y) the surrender of such
Securities to the Company (collectively, the "Legend Removal Delivery
Documents", and the date such documents are received by the Company the "Legend
Removal Request Date"), if, unless otherwise required by state securities laws,
(i) such Securities are registered for resale under the 1933 Act, or (ii)
following a sale or transfer of such Securities pursuant to Rule 144 (assuming
the transferor is not an affiliate of the Company), (iii) while such Securities
are eligible for sale under Rule 144(k), or (iv) if such legend is not required
under applicable requirements of the 1933 Act (including judicial
interpretations and pronouncements issued by the Staff of the SEC). If the
Company shall fail for any reason or for no reason to issue such a certificate
to the holder within three (3) Business Days of the Legend Removal Request Date,
and, after such third Business Day, the holder is required to purchase (in an
open market transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by the Investor of shares of Common Stock represented by
such certificate (a "Buy-In"), then the Company shall, within three (3) Business
Days after the holder's request, reimburse the holder for its expenses incurred
in connection with such Buy-In, including brokerage commissions.
15
3.3 Authorization; Enforcement; Validity. The Investor has full right,
power, authority and capacity to enter into each Transaction Document to which
it is a party to and to consummate the transactions contemplated thereby and has
taken all necessary action to authorize the execution, delivery and performance
of such Transaction Documents. Each Transaction Document to which the Investor
is a party constitutes a valid and binding obligation of the Investor
enforceable against the Investor in accordance with its terms, except (i) to the
extent rights to indemnity and contribution may be limited by state or federal
securities laws or the public policy underlying such laws, (ii) enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium or similar laws affecting creditors' and contracting
parties' rights generally and (iii) enforceability may be limited by general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
3.4 Certain Trading Limitations. The Investor (i) represents that on and
from the date the Investor first became aware of the Offering until the date
hereof he, she or it has not and (ii) covenants that for the period commencing
on the date hereof and ending 30 calendar days after the Company publicly
announces the Offering he, she or it will not, engage in any hedging or other
transaction which is designed to or could reasonably be expected to lead to or
result in, or be characterized as, a sale, an offer to sell, a solicitation of
offers to buy, disposition of, loan, pledge or grant of any right with respect
to (collectively, a "Disposition") Common Stock of the Company by the Investor
or any other person or entity in violation of the Securities Act. Such
prohibited hedging or other transactions would include without limitation
effecting any short sale or having in effect any short position (whether or not
such sale or position is against the box and regardless of when such position
was entered into) or any purchase, sale or grant of any right (including without
limitation any put or call option) with respect to the Common Stock of the
Company or with respect to any security (other than a broad-based market basket
or index) that includes, relates to or derives any significant part of its value
from the Common Stock of the Company.
3.5 No Sale of Securities. The Investor hereby covenants with the Company
not to make any sale of the Securities without (i) complying with the provisions
of this Agreement, including Section 5.4 hereof or (ii) without satisfying the
requirements of the Securities Act and the rules and regulations promulgated
thereunder, including, without limitation, causing the prospectus delivery
requirement under the Securities Act to be satisfied, if applicable. The
Investor acknowledges that there may occasionally be times when the Company,
based on the advice of its counsel, determines that, subject to the limitations
of Section 5.4, it must suspend the use of the prospectus forming a part of the
Registration Statement until such time as an amendment to the Registration
Statement has been filed by the Company and declared effective by the SEC or
until the Company has amended or supplemented such prospectus.
3.6 Registration Questionnaire. The Investor has completed or caused to be
completed the Registration Questionnaire attached hereto as Exhibit D and on the
signature page for use in preparation of the Registration Statement and the
answers to the Questionnaire and on such signature page are true and correct in
all material respects as of the date of this Agreement and will be true and
correct as of the effective date of the Registration Statement; provided that
the Investor shall be entitled to update such information by providing written
notice thereof to the Company prior to the effective date of the Registration
Statement.
16
3.7 Investor Suitability Questionnaire. The information contained in the
Investor Suitability Questionnaire in the form attached as Exhibit E delivered
by the Investor in connection with this Agreement is complete and accurate in
all respects.
3.8 No Advice. The Investor understands that nothing in this Agreement or
any other materials presented to the Investor in connection with the purchase
and sale of the Units constitutes legal, tax or investment advice. The Investor
has consulted such legal, tax and investment advisors as it, in its sole
discretion, has deemed necessary or appropriate in connection with its purchase
of the Units.
3.9 Independent Investment. The Investor has not agreed to act with any
other investor for the purpose of acquiring, holding, voting or disposing of the
Securities purchased hereunder for purposes of Section 13(d) under the Exchange
Act, and the Investor is acting independently with respect to its investment in
the Securities.
ARTICLE IV
COVENANTS OF THE COMPANY
4.1 Form D. The Company agrees to file one or more Forms D with respect to
the Securities with the SEC as required under Regulation D under the Securities
Act to perfect its claim to the exemption provided by Rule 506 of Regulation D
and to provide a copy thereof to the Investor within fifteen (15) days after the
Closing Date.
4.2 Form 8-K; Press Release. The Company shall (i) as soon as practicable
after the Closing Date, but in no event later than one business day after the
Closing Date, issue a press release and file with the SEC a Current Report on
Form 8-K disclosing the Transaction Documents and the transactions contemplated
thereby, which press release and Current Report shall be subject to prior review
and comment by the Placement Agent, and (ii) make such other filings and notices
in the manner and within the time required by the SEC. Upon the issuance of such
press release and filing of such Current Report, to the knowledge of the
Company, the Investor will not be in possession of any material, nonpublic
information regarding the Company or its Common Stock. The Company and the
Investor shall consult with each other in connection with issuing any other
press releases with respect to the transactions contemplated hereby, and the
Company shall not issue any such press release or otherwise make any such public
statement without the prior consent of the Investor, which consent shall not
unreasonably be withheld, except if such disclosure is required by law, in which
case the disclosing party shall promptly provide the other party with prior
notice of such public statement or communication
4.3 Additional Issuances of Securities; Right of First Offer.
17
(a) For purposes of this Section 4.10, the following
definitions shall apply.
(i) "Convertible Securities" means any stock or
securities (other than Options) convertible into or exercisable or
exchangeable for shares of Common Stock.
(ii) "Options" means any rights, warrants or options to
subscribe for or purchase shares of Common Stock or Convertible
Securities.
(iii) "Common Stock Equivalents" means, collectively,
Common Stock, Options and Convertible Securities.
(b) Commencing on the Closing Date and for a period of sixty
(60) days following the effective date of the Registration Statement (as defined
in Section 5.1(a) hereof), (the "Trigger Date"), the Company will not, directly
or indirectly, offer, sell, grant any option to purchase, or otherwise dispose
of (or announce any offer, sale, grant or any option to purchase or other
disposition of) any of its or its Subsidiaries' equity or equity equivalent
securities, including, without limitation, any debt, preferred stock or other
instrument or security that is, at any time during its life and under any
circumstances, convertible into or exchangeable or exercisable for shares of
Common Stock Equivalents (any such offer, sale, grant, disposition or
announcement being referred to as a "Subsequent Placement").
(c) As long as the Warrants remain outstanding, the Company
will not, directly or indirectly, propose to offer or effect any Subsequent
Placement unless the Company shall have first complied with this Section
4.10(c).
(i) If the Company wishes to issue any Common Stock
Equivalent, it shall so notify the Investor (each, a "Negotiation
Notice"), and, so long as the Investor wishes to negotiate the purchase of
Common Stock Equivalents, the Company shall for a period not exceeding
twenty (20) Business Days following such notice (the "Letter of Intent
Drafting Period"), in good faith negotiate with the Investor to issue
Common Stock Equivalents to the Investor on such terms as they might
agree. In the event the Company receives an unsolicited offer and desires
to purchase securities under the terms and conditions of such unsolicited
offer, the Company shall deliver written notice (the "Unsolicited Offer
Notice") to the Investor of the terms and conditions of such offer and the
Investor shall have three (3) Business Days following receipt of the
Unsolicited Offer Notice to execute a letter of intent with respect to
such unsolicited offer with the Company, which shall constitute a Letter
of Intent as defined below. If (x) the Investor at any time after
receiving a Negotiation Notice or Unsolicited Offer Notice advises that it
does not wish to purchase Common Stock Equivalents (such date, the "Right
of Offer Refusal Date"), (y) the Company and Investor do not sign a letter
of intent (the "Letter of Intent") regarding the sale and purchase thereof
before the end of the Letter of Intent Drafting Period, or (z) such
definitive agreements are not executed within the time period set forth in
the Letter of Intent executed by the Company and the Investor (the
"Documentation Drafting Period"), then the Company shall have one hundred
and twenty (120) Business Days (the "Third Party Sale Period") from the
earliest to occur of the foregoing events in which to consummate a sale (a
"Third Party Sale") of Common Stock Equivalents to one ore more third
parties (collectively, the "Third Party").
18
(ii) If (x) on or prior to the last Business Day of the
Letter of Intent Drafting Period, a Letter of Intent is not executed, (y) on or
prior to the last Business Day of the Documentation Drafting Period, if
definitive agreements are not completed and the transaction consummated, or (z)
on the Right of Offer Refusal Date, the Investor delivers notice to the Company
that the Investor intends in good faith to exercise its Maintenance Rights (as
defined below) even if Company issues Common Stock Equivalents consistent with
the terms last proposed by Company to Investor, during the Third Party Sale
Period, the Investor shall have the right to purchase in such Third Party Sale
(on the same terms and conditions as such Third Party and using documentation in
the same form as used in such Third Party Sale) an amount of Common Stock
Equivalents (the "Maintenance Securities") necessary for the Investor to
maintain the Investor's fully diluted equity interest in the Company (such
rights, the "Maintenance Rights"). If the Investor has elected to exercise its
Maintenance Rights, the Company shall notify the Investor within five (5)
Business Days prior to the consummation of any Third Party Sale, such notice to
include all relevant documentation with respect to such Third Party Sale and
signature pages for such Investor to execute (the "Third Party Sale Notice"), of
such Third Party Sale. The Investor's election to purchase the Maintenance
Securities will be timely made if Company receives actual written notice of the
Investor's election on or prior to the third Business Day after the Investor's
receipt of the Third Party Sale Notice.
(iii) Notwithstanding subsection (i), if, pursuant to
such subsection, the Company shall agree to sell to a third party Common
Stock Equivalents on economic terms materially more favorable to the third
party than set forth in the Investor's last written offer or the Letter of
Intent, then the Company shall give the Investors a three-Business-Day
right of first refusal to purchase, on the same terms and conditions as
such Third Party and using documentation in the same form as used in such
Third Party Sale, the Maintenance Securities with respect to such Third
Party Sale. "Economic terms" shall mean solely the unit purchase price,
and, if applicable, dividend or coupon rate, exercise, exchange, or
conversion price, term of instrument, liquidity (but without detailed
comparisons of transfer restrictions or registration rights, if
applicable), and other such factors and exclude information rights, board
representation, drag-along and tag-along rights, and the like.
(iv) Investor's fully diluted equity interest in the
Company shall be determined by dividing (x) the amount of all Common Stock
Equivalents held by the Investor by (y) the amount of all outstanding
Common Stock Equivalents, in each case, as of close of business on the
Business Day immediately preceding the closing date of the Third Party
Sale. The amount of Common Stock Equivalents in a particular case shall
equal the sum of (A) the amount of Common Stock held, outstanding, or to
be sold, plus (B) the amount of Common Stock underlying other Common Stock
Equivalents held, outstanding, or to be sold, respectively, in each case,
as of close of business on the Business Day immediately preceding the
closing date of the Third Party Sale.
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(d) The restrictions contained in subsections (b) and (c) of this
Section 4.10 shall not apply in connection with the issuance of any Excluded
Securities (as defined in the Warrant).
4.4 Reporting Status. So long as the Investor beneficially owns any of the
Securities, the Company shall timely file all reports required to be filed with
the SEC 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.
4.5 Reservation of Common Stock. The Company has currently 10,534,228
shares of Common Stock duly authorized and reserved for issuance pursuant to the
exercise of the Warrants, the exercise of certain warrants and the conversion of
the Series B Preferred Stock. Such shares, as well as any additional shares of
Common Stock subsequently authorized by the Company's stockholders and Board of
Directors for issuance upon the exercise of the Warrants in accordance with the
terms thereof, as applicable, shall be reserved by the Company, and the Company
shall continue to reserve and keep available at all times, free of preemptive
rights, a sufficient number of shares of Common Stock for the purpose of
enabling the Company to issue Warrant Shares.
4.6 Listing of Common Stock. The Company hereby agrees to use commercially
reasonable efforts to comply with all the requirements of the Bulletin Board
with respect to the issuance and listing of the Shares and Warrant Shares.
Further, if the Company applies to have its Common Stock or other securities
traded on any other principal stock exchange or market, it shall include in such
application the Shares and the Warrant Shares and will take such other action as
is necessary to cause such Common Stock to be so listed. The Company will use
commercially reasonable efforts to continue the listing and trading of its
Common Stock on the Bulletin Board and, in accordance therewith, will use
commercially reasonable efforts to comply in all respects with the Company's
reporting, filing and other obligations under the rules and regulations of such
market.
4.7 Corporate Existence. So long as the Investor beneficially owns any
Securities, the Company shall maintain its corporate existence, except in the
event of a merger, consolidation or sale of all or substantially all of the
Company's assets, as long as the surviving or successor entity in such
transaction assumes the Company's obligations hereunder and under the agreements
and instruments entered into in connection herewith.
4.8 No Conflicting Agreements. The Company will not take any action, enter
into any agreement or make any commitment that would conflict or interfere in
any material respect with the Company's obligations to the Investor under the
Transaction Documents.
4.9 Information. The Company agrees to promptly provide to the Investor
any information with respect to the Company, its properties, or its business or
Investor's investment as the Investor may reasonably request; provided, however,
that the Company shall not be required to give the Investor any material
nonpublic information. If any information requested by the Investor from the
Company contains material nonpublic information, the Company shall inform the
Investor in writing that the information requested contains material nonpublic
information and shall in no event provide such information to the Investor
without the express written consent of the Investor after being so informed.
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ARTICLE V
REGISTRATION OF SHARES; COMPLIANCE WITH THE SECURITIES ACT
5.1 Registration Procedures and Expenses. The Company shall:
(a) Subject to receipt of the Registration Statement Questionnaires
from the Investor, use best efforts to prepare and file with the SEC, within 10
business days after the Closing Date, a registration statement (the
"Registration Statement") to enable the resale of the Registrable Shares by the
Investor. "Registrable Shares" means (a) all Shares; (b) all Warrant Shares, and
(c) all shares of Common Stock issued or issuable in respect of the Warrant
Shares by virtue of any stock split, stock dividend, recapitalization or similar
event, until the earlier of: (1) the date on which such share has been resold or
otherwise transferred pursuant to the Registration Statement; (2) the date on
which such share is transferred in compliance with Rule 144(k) under the
Securities Act or may be sold or transferred by a person who is not an affiliate
of the Company pursuant to Rule 144(k) under the Securities Act (or any other
similar provisions then in force) without any volume or manner of sale
restrictions thereunder; and (3) the date on which such share ceases to be
outstanding (whether as a result of redemption, repurchase and cancellation or
otherwise).
(b) use best efforts, subject to receipt of necessary information
from the Investor, including the Registration Statement Questionnaires, to cause
the Registration Statement to become effective within 120 days of the Closing
Date;
(c) use best efforts to prepare and file with the SEC such
amendments and supplements to the Registration Statement and the Prospectus (as
defined in Section 5.5 below) used in connection therewith and take all such
other actions as may be necessary to keep the Registration Statement current and
effective for a period (the "Registration Period") not exceeding, with respect
to the Registrable Shares, the earliest of (i) the date on which all Registrable
Shares then held by the Investor may be sold or transferred in compliance with
Rule 144(k) under the Securities Act or may be sold or transferred by a person
who is not an affiliate of the Company pursuant to Rule 144(k) of the Securities
Act (or any other similar provisions then in force) without any volume or manner
of sale restrictions thereunder, or (ii) such time as all Registrable Shares
held by the Investor have been sold (A) pursuant to a registration statement,
(B) to or through a broker or dealer or underwriter in a public distribution or
a public securities transaction, or (C) in a transaction exempt from the
registration and prospectus delivery requirements of the Securities Act under
Section 4(1) thereof so that all transfer restrictions and restrictive legends
with respect thereto, if any, are removed upon the consummation of such sale;
(d) promptly furnish to the Investor with respect to the Registrable
Shares registered under the Registration Statement such reasonable number of
copies of the Registration Statement and Prospectus, including any supplements
to or amendments of the Prospectus or Registration Statement, in order to
facilitate the public sale or other disposition of all or any of the Registrable
Shares by the Investor;
21
(e) promptly take such action as may be necessary to qualify, or
obtain, an exemption for the Registrable Shares under such of the state
securities laws of United States jurisdictions as shall be necessary to qualify,
or obtain an exemption for, the sale of the Registrable Shares in states
specified in writing by the Investor; provided, however, that the Company shall
not be required to qualify to do business or consent to service of process in
any jurisdiction in which it is not now so qualified or has not so consented;
(f) bear all expenses in connection with the procedures in
paragraphs (a) through (e) and (g) of this Section 5.1 and the registration of
the Registrable Shares pursuant to the Registration Statement, regardless of
whether a Registration Statement becomes effective, including without
limitation: (i) all registration and filing fees and expenses (including filings
made with the Bulletin Board or any other applicable stock exchange); (ii) fees
and expenses of compliance with federal securities and state "blue sky" or
securities laws; (iii) expenses of printing (including printing certificates for
the Registrable Shares and Prospectuses); (iv) all application and filing fees
in connection with listing the Registrable Shares on the Bulletin Board; and (v)
all fees and disbursements of counsel of the Company and independent certified
public accountants of the Company; provided, however, that the Investor shall be
responsible for paying the underwriting commissions or brokerage fees, and taxes
of any kind (including, without limitation, transfer taxes) applicable to any
disposition, sale or transfer of the Investor's Registrable Shares. The Company
shall, in any event, bear its internal expenses (including, without limitation,
all salaries and expenses of its officers and employees performing legal or
accounting duties);
(g) advise the Investor, within two business days by e-mail, fax or
other type of communication, and, if requested by such person, confirm such
advice in writing: (i) after it shall receive notice or obtain knowledge of the
issuance of any stop order by the SEC delaying or suspending the effectiveness
of the Registration Statement or of the initiation or threat of any proceeding
for that purpose, or any other order issued by any state securities commission
or other regulatory authority suspending the qualification or exemption from
qualification of such Registrable Shares under state securities or "blue sky"
laws; and it will promptly use its reasonable best efforts to prevent the
issuance of any stop order or other order or to obtain its withdrawal at the
earliest possible moment if such stop order or other order should be issued;
(ii) when the Prospectus or any supplements to or amendments of the Prospectus
have been filed, and, with respect to the Registration Statement or any
post-effective amendment thereto, when the same has become effective, and (iii)
when the SEC notifies the Company whether there will be a "review" of such
Registration Statement and whenever the SEC comments in writing on such
Registration Statement;
(h) not, prior to the date on which the Registration Statement is
declared effective, prepare and file with the SEC a registration statement
relating to an offering for its own account or the account of others (other than
as contemplated in this Agreement) under the Securities Act of any of its equity
securities;
22
(i) not, for a period of 60 days after the date on which the
Registration Statement is declared effective, without the prior consent of the
Placement Agent, issue or sell any equity securities of the Company, unless the
issuance or sale is related to outstanding options or warrants, is in lieu of
cash payment in an arm's-length transaction for goods or services that the
Company acquires in the ordinary course of its business, or is required pursuant
to the stock retainer plan for non-employee directors;
(j) unless otherwise agreed to by holders of no less than 50.1% of
the Registrable Shares, neither the Company nor any of its securities holders
(other than the Investor and the Placement Agent (and/or its designees)) may
include securities of the Company in any Registration Statement filed pursuant
to this Agreement other than the Registrable Shares and shares of Common Stock
issued or issuable to the Placement Agent and/or the Placement Agent's
designees, and the Company shall not after the date hereof enter into any
agreement in contravention of the foregoing; except that Common Stock referred
to in Section 2.5(d) of Schedule B (including Schedule 2.5(d) thereto will be
included in the Registration Statement;
(k) if at any time during the Registration Period, there is not one
or more effective Registration Statements covering the resale of all Registrable
Shares and the Company shall determine to prepare and file with the SEC a
registration statement relating to an offering for its own account or the
account of others under the Securities Act of any of its equity securities,
other than of Form S-4 or Form S-8 (each as promulgated under the Securities
Act) or their then equivalents relating to equity securities to be issued solely
in connection with any acquisition of any entity or business or equity
securities issuable in connection with stock option or other employee benefit
plans, then the Company shall send to the Investor written notice of such
determination and if, within 20 days after receipt of such notice, the Investor
shall so request in writing, the Company shall include in such registration
statement those Registrable Shares requested by the Investor to be so included
and which are not otherwise covered by one or more effective Registration
Statements;
(l) respond as promptly as reasonably possible to any comments
received from the SEC with respect to each Registration Statement or any
amendment thereto and, as promptly as reasonably possible provide the Investor
true and complete copies of all correspondence from and to the SEC relating to
such Registration Statement that would not result in the disclosure to the
Investor of material and non-public information concerning the Company;
(m) comply in all material respects with the provisions of the
Securities Act, the Exchange Act and all rules of the SEC promulgated thereunder
with respect to the Registration Statements and the disposition of all
Registrable Shares covered by each Registration Statement;
(n) cooperate with the Investor to facilitate the timely preparation
and delivery of certificates representing Registrable Shares to be delivered to
a transferee pursuant to the Registration Statements, which certificates shall
be free of all restrictive legends, and to enable such Registrable Shares to be
in such denominations and registered in such names as the Investor may request;
provided, that, the delivery of such certificates shall be subject to the
payment by the Investor of any transfer taxes, if applicable; and
23
(o) cooperate with any due diligence investigation undertaken by the
Investor in connection with the sale of the Registrable Shares, including,
without limitation and subject to Section 4.8 hereof, by making available any
documents and information.
5.2 Delay in Effectiveness of Registration Statement. The Company further
agrees that, in the event the Registration Statement has not been filed with the
SEC within 30 days after the Closing Date, the Company shall pay to the Investor
liquidated damages, for each day thereafter by which the Registration Statement
shall not have been filed, at a rate equal to 1.0% of the Actual Purchase Price
for each 30 days of delinquency (the "LD Rate"), the Company shall pay to the
Investor liquidated damages at the LD Rate for each day after 90 days from the
Closing Date by which the Registration Statement has not been declared effective
by the SEC, or 120 days from the Closing Date, if the SEC shall comment on the
Registration Statement. The Company shall deliver the cash payments described in
clauses (i) and (ii) to the Investor by the fifth business day after the
occurrence of the event described in (i) or (ii), as applicable.
5.3 Piggyback Registrations. If the Company at any time proposes to file a
registration statement (other than a registration on Form X-0, Xxxx X-0 or Form
S-3 (solely with respect to dividend reinvestment plans and similar plans) or
any successor forms thereto) (a "Company Registration Statement") with respect
to securities, whether for its own account or for the account of other holders
of the Company's securities ("Other Holders") that have requested such
registration (a "Requesting Holder"), the Company shall, in each case, give
written notice of such proposed filing to the Investor at least twenty (20) days
before the anticipated filing date of the Company Registration Statement, and
such notice shall offer to the Investor the opportunity to have any or all of
the Registrable Shares held by the Investor included in the Company Registration
Statement. If the Investor desires to have its Registrable Shares registered
under this Section 5.3, it shall so advise the Company in writing within ten
(10) days after the date of receipt of such notice (which request shall set
forth the amount of Registrable Shares for which registration is requested), and
the Company shall use its commercially reasonable efforts to include in the
Company Registration Statement all such Registrable Shares so requested to be
included therein. Notwithstanding the foregoing, if such proposed offering is an
underwritten offering and the managing underwriter or underwriters of the
offering advises the Company that the total amount of Registrable Shares which
the Investor, the Company and any Other Holders intended to be included in such
proposed public offering is sufficiently large to adversely affect the success
of such proposed public offering, then the amount of securities to be offered
for the account of the Investor and the Other Holders shall be reduced pro rata,
based upon the aggregate number of securities to be offered for the accounts of
the Investor and all Other Holders (except the Company) intended to be included
in such offering, to the extent necessary to reduce the total amount of
securities to be included in such proposed public offering to the amount
recommended by such managing underwriter or underwriters before the securities
offered by the Company are so reduced. Anything to the contrary in this
Agreement notwithstanding, the Company may withdraw or postpone any Company
Registration Statement referred to in this Section 5.3 at any time before it
becomes effective or withdraw, postpone or terminate the offering after it
becomes effective without any liability or obligation to the Investor. The
obligations of the Company under this Section 5.3 shall terminate with respect
to the Investor: (1) on the date that a Registration Statement filed by the
Company in accordance with Section 5.1 is declared effective or (2) on the date
on which the Investor can sell all of its remaining Registrable Shares in any
three (3) month period pursuant to Rule 144 as promulgated under the Securities
Act without the need for any registration or qualification.
24
5.4 Transfer of Shares; Suspension.
(a) The Investor agrees that it will not effect any Disposition of
the Registrable Shares or its right to purchase the Registrable Shares that
would constitute a sale within the meaning of the Securities Act, except as
contemplated in the Registration Statement referred to in Section 5.1, any
Company Registration Statement referred to in 6.3 or in accordance with the
Securities Act, and that it will promptly notify the Company of any changes in
the information set forth in such registration statement regarding the Investor
or its plan of distribution.
(b) Except in the event that paragraph (c) below applies, the
Company shall, at all times during the Registration Period, promptly (i) prepare
and file from time to time with the SEC a post-effective amendment to the
Registration Statement or a supplement to the related Prospectus or a supplement
or amendment to any document incorporated therein by reference or file any other
required document so that such Registration Statement will not contain an untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein not misleading, and so that, as thereafter delivered to
purchasers of the Registrable Shares being sold thereunder, such Prospectus will
not contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading; (ii)
provide the Investor copies of any documents filed pursuant to Section
5.3(b)(i); and (iii) inform the Investor that the Company has complied with its
obligations in Section 5.3(b)(i) (or that, if the Company has filed a
post-effective amendment to the Registration Statement which has not yet been
declared effective, the Company will notify the Investor to that effect, will
use its best efforts to secure the effectiveness of such post-effective
amendment as promptly as possible and will promptly notify the Investor pursuant
to Section 5.3(b)(iii) hereof when the amendment has become effective).
(c) Subject to paragraph (d) below, in the event of (i) any request
by the SEC or any other federal or state governmental authority during the
period of effectiveness of the Registration Statement for amendments or
supplements to a Registration Statement or related Prospectus or for additional
information; (ii) the issuance by the SEC or any other federal or state
governmental authority of any stop order suspending the effectiveness of a
Registration Statement or the initiation of any proceedings for that purpose;
(iii) the receipt by the Company of any notification with respect to the
suspension of the qualification or exemption from qualification of any of the
Registrable Shares for sale in any jurisdiction or the initiation or threatening
of any proceeding for such purpose; or (iv) any event or circumstance which
necessitates the making of any changes in the Registration Statement or
Prospectus, or any document incorporated or deemed to be incorporated therein by
reference, so that, in the case of the Registration Statement, it will not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and that in the case of the Prospectus, it will not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading, then the Company shall deliver a notice in
writing to the Investor (the "Suspension Notice") to the effect of the foregoing
and, upon receipt of such Suspension Notice, the Investor will refrain from
selling any Registrable Shares pursuant to the Registration Statement (a
"Suspension") until the Investor's receipt of copies of a supplemented or
amended Prospectus prepared and filed by the Company, or until it is advised in
writing by the Company that the current Prospectus may be used. In the event of
any Suspension, the Company will use its commercially reasonable efforts,
consistent with the best interests of the Company and its stockholders, to cause
the use of the Prospectus so suspended to be resumed as soon as reasonably
practicable after the delivery of a Suspension Notice to the Investor. The
Company shall pay to the Investor liquidated damages for each Unit held during
each day of Suspension at a rate equal to 1.0% of the Unit Price for each 30
days of Suspension; provided, however, that the foregoing liquidated damages
shall not be payable unless one or more Suspensions, as applicable, continue for
at least (i) thirty (30) consecutive days or (ii) sixty (60) non-consecutive
days in any twelve (12) month period.
25
(d) Notwithstanding anything else herein, the Company shall not be
required to pay liquidated damages under Sections 5.4 and 5.2 exceeding 15% of
the Actual Purchase Price.
5.5 Indemnification. For the purpose of this Section 5.5, the term
"Registration Statement" shall include any preliminary or final prospectus,
exhibit, supplement or amendment included in or relating to the Registration
Statement referred to in Section 5.1 or any Company Registration Statement
referred to in Section 5.3, and the term "Rules and Regulations" means the rules
and regulations promulgated under the Securities Act.
(a) Indemnification by the Company. The Company agrees to indemnify,
defend and hold harmless the Investor, its officers, directors, agents,
investment advisors, partners, members, managers, stockholders, trustees and
employees, and each person, if any, who controls the Investor (or any of such
other persons) within the meaning of the Securities Act, against any losses,
claims, damages, liabilities or expenses to which the Investor or such
controlling person may become subject (including, without limitation, reasonable
legal and other costs and expenses of preparing, investigating, defending,
settling, compromising or paying such losses, claims, damages, liabilities,
costs or expenses) (collectively, "Losses"), as incurred, under the Securities
Act, the Exchange Act, or any other federal or state statutory law or regulation
insofar as such Losses (or actions in respect thereof as contemplated below)
arise out of or are based upon (i) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement,
including the Prospectus, financial statements and schedules, and all other
documents filed as a part thereof, as amended at the time of effectiveness of
the Registration Statement, including any information deemed to be a part
thereof as of the time of effectiveness pursuant to paragraph (b) of Rule 430A,
or pursuant to Rule 434 of the Rules and Regulations, or the Prospectus, in the
form first filed with the SEC pursuant to Rule 424(b) of the Regulations, or
filed as part of the Registration Statement at the time of effectiveness if no
Rule 424(b) filing is required (the "Prospectus"), or any amendment or
supplement thereto (ii) the omission or alleged omission to state in any of them
a material fact required to be stated therein or necessary to make the
statements in any of them, in light of the circumstances under which they were
made, not misleading, (iii) any inaccuracy in the representations and warranties
of the Company contained in the Transaction Documents or any failure of the
Company to perform its obligations under the Transaction Documents, or (iv) any
violation or alleged violation by the Company of the Securities Act, the
Securities and Exchange Act of 1934, as amended, state ("blue sky") securities
laws or any rule or regulation promulgated thereunder; provided, however, that
the Company will not be liable in any such case to the extent that any such Loss
arises out of or is based upon (i) an untrue statement or alleged untrue
statement or omission or alleged omission made in the Registration Statement,
the Prospectus or any amendment or supplement of the Registration Statement or
Prospectus in reliance upon and in conformity with written information furnished
to the Company by or on behalf of the Investor expressly for use in the
Registration Statement or the Prospectus, or (ii) the failure of the Investor to
comply with the covenants and agreements contained in Sections 3.5 or 5.4 of
this Agreement respecting resale of Registrable Shares, or (iii) the inaccuracy
of any representations made by the Investor in each Transaction Document to
which it is a party to, or (iv) any untrue statement or omission of a material
fact in any Prospectus that is corrected in any subsequent Prospectus that was
delivered to the Investor before the pertinent sale or sales by such Investor.
26
(b) Indemnification by the Investor. The Investor will indemnify and
hold harmless the Company, each of its directors, each of its officers who sign
the Registration Statement and each person, if any, who controls the Company
within the meaning of the Securities Act, against any Losses to which the
Company, each of its directors, each of its officers who sign the Registration
Statement or controlling person may become subject, under the Securities Act,
the Exchange Act, or any other federal or state statutory law or regulation
insofar as such Losses (or actions in respect thereof as contemplated below)
arise out of or are based upon (i) any failure on the part of the Investor to
comply with the covenants and agreements contained in Sections 3.5 or 5.4 of
this Agreement respecting the sale of the Registrable Shares or (ii) the
inaccuracy of any representation or warranty made by the Investor in each
Transaction Document to which it is a party to, or (iii) any untrue statement of
any material fact contained in the Registration Statement, the Prospectus, or
any amendment or supplement to the Registration Statement or Prospectus, or the
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or omission was made
in the Registration Statement, the Prospectus, or any amendment or supplement
thereto, in reliance upon and in conformity with written information furnished
to the Company by or on behalf of such Investor expressly for use therein;
provided, however, that the Investor shall not be liable for any such untrue
statement or omission of which the Investor has delivered to the Company in
writing a correction at least five business days before the occurrence of the
transaction from which such loss was incurred, and the Investor will reimburse
the Company, each of its directors, each of its officers who signed the
Registration Statement or controlling person for any legal and other expense
reasonably incurred by the Company, each of its directors, each of its officers
who signed the Registration Statement or controlling person in connection with
investigating, defending, settling, compromising or paying any such Loss for
which such person is entitled to be indemnified in accordance with this Section
5.5(b). Notwithstanding anything to the contrary contained herein, the Investor
shall not be liable for any indemnification obligation under this Agreement in
excess of the amount of net proceeds received by the Investor from the sale of
the Registrable Shares, unless such obligation has resulted from the gross
negligence or willful misconduct of the Investor.
(c) Indemnification Procedure.
(i) Promptly after receipt by an indemnified party under this
Section 5.5 of notice of the threat or commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made against an
indemnifying party under this Section 5.5, promptly notify the indemnifying
party in writing of the claim; but the omission so to notify the indemnifying
party will not relieve it from any liability which it may have to any
indemnified party for contribution or otherwise under the indemnity agreement
contained in this Section 5.5 or to the extent it is not materially prejudiced
as a result of such failure.
(ii) In case any such action is brought against any
indemnified party and such indemnified party seeks or intends to seek indemnity
from an indemnifying party, the indemnifying party will be entitled to
participate in, and, to the extent that it may wish, jointly with all other
indemnifying parties similarly notified, to assume the defense thereof;
provided, however, if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be a conflict between the positions of
the indemnifying party and the indemnified party in conducting the defense of
any such action or that there may be legal defenses available to it or other
indemnified parties that are different from or additional to those available to
the indemnifying party, the indemnified party or parties shall have the right to
select separate counsel to assume such legal defenses and to otherwise
participate in the defense of such action on behalf of such indemnified party or
parties. Upon receipt of notice from the indemnifying party to such indemnified
party of its election so to assume the defense of such action, the indemnifying
party will not be liable to such indemnified party under this Section 5.5 for
any legal or other expenses subsequently incurred by such indemnified party in
connection with the defense thereof unless:
(1) the indemnified party shall have employed such
counsel in connection with the assumption of legal defenses in accordance with
the proviso to the preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than one
separate counsel, approved by such indemnifying party (such approval not to be
unreasonably withheld) representing all of the indemnified parties who are
parties to such action), or
(2) the indemnifying party shall not have counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party within a reasonable time after notice of commencement of action, in each
of which cases the reasonable fees and expenses of counsel shall be at the
expense of the indemnifying party. Notwithstanding the provisions of this
Section 5.5, the Investor shall not be liable for any indemnification obligation
under this Agreement in excess of the amount of net proceeds received by the
Investor from the sale of the Registrable Shares, unless such obligation has
resulted from the gross negligence or willful misconduct of the Investor.
(d) Contribution. If a claim for indemnification under this Section
5.5 is unavailable to an indemnified party (by reason of public policy or
otherwise), then each indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of any losses, claims, damages, liabilities or
expenses referred to in this Agreement, in such proportion as is appropriate to
reflect the relative fault of the indemnifying party and indemnified party in
connection with the actions, statements or omissions that resulted in such
losses, claims, damages, liabilities or expenses as well as any other relevant
equitable considerations. The relative fault of such indemnifying party and
indemnified party shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue statement
of a material fact or omission or alleged omission of a material fact, has been
taken or made by, or relates to information supplied by, such indemnifying party
or indemnified party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action, statement or
omission. The amount paid or payable by a party as a result of any losses,
claims, damages, liabilities or expenses shall be deemed to include, subject to
the limitations set forth in this Section 5.5, any reasonable attorneys' or
other reasonable fees or expenses incurred by such party in connection with any
proceeding to the extent such party would have been indemnified for such fees or
expenses if the indemnification provided for in this Section was available to
such party in accordance with its terms.
27
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5.5 were determined by pro rata allocation
or by any other method of allocation that does not take into account the
equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 5.5, the Investor shall not be
required to contribute, in the aggregate, any amount in excess of the amount by
which the net proceeds from the sale of Registrable Shares by the Investor
exceeds the amount of any damages that the Investor has otherwise been required
to pay by reason of such untrue or alleged untrue statement or omission or
alleged omission. No party to this Agreement guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any other party to this Agreement who was
not guilty of such fraudulent misrepresentation.
5.6 Termination of Conditions and Obligations. The restrictions imposed by
this Agreement upon the transferability of the Registrable Shares shall cease
and terminate as to any particular number of the Registrable Shares when such
Registrable Shares may be sold under Rule 144(k) by such holder of Registrable
Shares or at such time as an opinion of counsel satisfactory in form and
substance to the Company shall have been rendered to the effect that such
conditions are not necessary in order to comply with the Securities Act.
5.7 Rule 144. For a period of two years following the Closing Date
(provided, however, that with respect to Registrable Shares that are Warrant
Shares, the foregoing period shall be two years following the date the related
Warrant was exercised), the Company agrees with each holder of Registrable
Shares to:
(a) comply with the requirements of Rule 144(c) under the Securities
Act with respect to current public information about the Company;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act
(at any time it is subject to such reporting requirements); and
28
(c) furnish to any holder of Registrable Shares promptly after
receipt of a written request therefor (i) a written statement by the Company as
to its compliance with the requirements of said Rule 144(c), and the reporting
requirements of the Securities Act and the Exchange Act, (ii) a copy of the most
recent annual or quarterly report of the Company, and (iii) such other reports
and documents of the Company as such holder may reasonably request to avail
itself of any similar rule or regulation of the SEC allowing it to sell any such
securities without registration.
ARTICLE VI
MISCELLANEOUS
6.1 Notices. Except as specifically permitted by Section 5.1(g), all
notices, requests, consents and other communications hereunder shall be in
writing, shall be mailed (A) if within United States by first-class registered
or certified airmail, or nationally recognized overnight express courier,
postage prepaid, or by facsimile, or (B) if delivered from outside the United
States, by International Federal Express or facsimile, and shall be deemed given
(i) if delivered by first-class registered or certified mail domestic, three
business days after so mailed, (ii) if delivered by nationally recognized
overnight carrier, one business day after so mailed, (iii) if delivered by
International Federal Express, two business days after so mailed, and (iv) if
delivered by facsimile, upon electric confirmation of receipt, and shall be
delivered as addressed as follows:
if to the Company, to:
Xx. Xxxxxx Xxxx
Chief Operating Officer and Chief Financial Officer
AVP, Inc.
0000 Xxxxxx Xxxxx
Xxxxx 000
Xxx Xxxxxxx, XX 00000
(000) 000-0000 (direct dial)
(000) 000-0000 (facsimile)
with a copy to:
Loeb & Loeb, LLP
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxx X. Xxxxxxx, Esq.
(000) 000-0000 (direct dial)
(000) 000-0000 (facsimile)
if to the Investor, at its address on the signature page hereto, with a copy
(for informational purposes only) to
Xxx Xxxx
c/o AmTrust International
00000 Xxxx Xxx Xxxxxx
Xxxxxx Xxxxx, Xxxxxxxx 00000
29
or at such other address or addresses as may have been furnished to the other
parties hereto in writing.
6.2 Changes. This Agreement may not be modified or amended except pursuant
to an instrument in writing signed by the Company and Investors holding a
majority of Registrable Shares held by Investors.
6.3 Headings. The headings of the various sections of this Agreement have
been inserted for convenience of reference only and shall not be deemed to be
part of this Agreement.
6.4 Severability. In case any provision contained in this Agreement should
be invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein shall not in any way
be affected or impaired thereby.
6.5 Survival of Representations, Warranties and Agreements.
Notwithstanding any investigation made by any party to this Agreement, all
covenants, agreements, representations and warranties made by the Company and
the Investor herein shall survive the execution of this Agreement, the delivery
to the Investor of the Units being purchased and the payment therefor.
6.6 Governing Law. This Agreement shall be governed by, and construed in
accordance with, the internal laws of the State of Delaware, without giving
effect to any of the conflicts of law principles which would result in the
application of the substantive law of another jurisdiction.
6.7 Entire Agreement. This Agreement and the other Transaction Documents
and the documents referenced herein and therein constitute the entire agreement
among the parties hereto with respect to the subject matter hereof and thereof.
There are no restrictions, promises, warranties or undertakings, other than
those set forth or referred to herein and therein. The Transaction Documents
supersede all prior agreements and understandings among the parties.
6.8 Finders Fees. Neither the Company nor the Investor nor any affiliate
thereof has incurred any obligation which will result in the obligation of the
other party to pay any finder's fee or commission in connection with this
transaction, except for fees payable by the Company to the Placement Agent.
6.9 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall constitute an original, but all of which, when
taken together, shall constitute but one instrument, and shall become effective
when one or more counterparts have been signed by each party hereto and
delivered to the other party.
6.10 Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the successors, heirs, executors and administrators and
permitted assigns of the parties hereto. With respect to transfers that are not
made pursuant to the Registration Statement, but are otherwise made in
accordance with all applicable laws and the terms of this Agreement, the rights
and obligations of the Investor under this Agreement shall be automatically
assigned by the Investor to any transferee of all or any portion of the
Investor's Securities who is a Permitted Transferee (as defined below);
provided, however, that within two business days prior to the transfer, (i) the
Company is provided written notice of the transfer including the name and
address of the transferee and the number of Securities transferred; and (ii)
that such transferee agrees in writing to be bound by the terms of this
Agreement as if such transferee was the Investor. For purposes of this
Agreement, a "Permitted Transferee" shall mean any Person who (a) is an
"accredited investor," as that term is defined in Rule 501(a) of Regulation D
under the Securities Act and (b) is a transferee of at least 50,000 Shares,
Warrants and/or Warrant Shares. Upon any transfer permitted by this Section
6.10, the Company shall be obligated to such transferee to perform all of its
covenants under this Agreement as if such transferee was the Investor.
30
6.11 Expenses. Each party hereto shall bear its own expenses in connection
with the preparation and negotiation of the Agreement.
6.12 Exculpation. Each party to this Agreement acknowledges that Xxxxxx &
Xxxxxxx, P.C., represented the Placement Agent in the Offering contemplated by
this Agreement and has not represented either the Company or the Investor or any
other investor who purchases Units in the Offering pursuant to a Securities
Purchase Agreement in substantially the form hereof.
6.13 Third Party Rights. Except as explicitly set forth in this Agreement,
nothing in this Agreement shall create or be deemed to create any rights in any
person or entity not a party to this Agreement.
6.14 No Waiver. It is agreed that a waiver by any party of a breach of any
provision of this Agreement shall not operate, or be construed, as a waiver of
any subsequent breach by that same party.
6.15 Further Assurances. The parties agree to execute and deliver all such
further documents, agreements and instruments and take such other and further
action as may be necessary or appropriate to carry out the purposes and intent
of this Agreement.
[SIGNATURE PAGES FOLLOW]
31
IN WITNESS WHEREOF, the parties have caused this Securities Purchase
Agreement to be duly executed as of the date first written above.
AVP, INC.
By: ______________________________
[Signature of Investor on Following Page]
32
"INVESTOR"
---------------------------------------
(print full legal name of Investor)
By:
--------------------------------
(signature of authorized
representative)
Name:
------------------------------
------------------------------
Its:
------------------------------
Address:
----------------------------
Telephone:
--------------------------
Fax:
--------------------------------
Email:
------------------------------
Tax I.D. or SSN:
----------------------
Address where Units should be sent
(if different from above)
---------------------------------------
---------------------------------------
---------------------------------------
[signature page to Securities Purchase Agreement]
33
10128077.5
Schedule A
Units Purchased
Shares of Common Stock Total Number
Common Stock Warrants of Units* Purchase Price
3,529,410 705,882 705,882 $2,999,998.50
---------------- ---------------- -------------- ---------------
* Each Unit represents 5 shares of Common Stock and a Warrant to buy one share
of Common Stock.
Schedule B
Company Disclosure Schedule
Section 2.1 Subsidiaries; Organization; International
The Company has the following subsidiaries:
AVP Pro Beach Volleyball Tour, Inc.
Xxxxx.xxx, Inc. (inactive)
The Company has engaged SFX, Inc. to license its television programming
internationally in 2006.
Section 2.5(d) Registration Rights
National Sports Programming (FOX): 666,667 shares of common stock
Warrant representing 4,424,260 shares of common stock, for the holders set
forth on Schedule 2.5(d) attached hereto
A. Xxxxxxx Storiazzi: 4,465 shares of common stock
Xxxxx X. Xxxxxxxx: 1,122 shares of common stock
XxxXxxxxxxx Xxxxx: 667 shares of common stock
Xxxxxxx Xxxxxx: warrant representing 12,702 shares of common stock
Quantum Fund: warrant representing 13,464 shares of common stock
Crocs, Inc.: warrant representing 1,000,000 shares of common stock
(vesting 200,000 per year)
Wall Street Communications, Inc.: 250,000 shares of common stock
Wall Street Communications, Inc.: warrant representing 200,000 shares of
common stock (vesting 100,000 per year)
Section 2.6 Legal Matters
A complaint was filed by Xxxx Xxxxxxxxx and Xxxxxxxxx Productions, LLC on
October 24, 2005 in the United States District Court, Central District of
California, in which the plaintiffs seek damages for copyright
infringement in connection with the allegedly unauthorized use of a still
photograph in a television commercial that was broadcast on NBC and Fox
Sports Net in 2005.
Section 2.31 Affiliate Transactions
None.
Schedule 2.5(d)
AVP
15% Warrant Pool
Post-Split Reversal Grant Exercise
AVP Warrants Date Price
--------------------------- --------------- ------------
Xxxxxxx Xxxxxx 1,502,157 6/24/2005 $ 2.20
Xxxxx Xxxxxx 346,868 6/24/2005 $ 2.20
Xxxx Xxxx 193,424 6/24/2005 $ 2.20
Xxxxx Xxx 50,000 6/24/2005 $ 2.20
Phil Guaracio 39,380 6/24/2005 $ 2.20
Xxx Xxxxx 25,000 6/24/2005 $ 2.20
Xxxxx Xxxxxx 25,000 6/24/2005 $ 2.20
Xxxxx May 29,588 6/24/2005 $ 2.20
Xxxxx Xxxxxxx 654,024 6/24/2005 $ 2.20
Xxxx Xxxxxxxxxx 334,557 6/25/2005 $ 2.20
Xxxx Xxxxxxxx 7,500 6/24/2005 $ 2.20
Xxxxxx Xxxxxxx 10,000 6/24/2005 $ 2.20
Xxxxx Xxxxxxxx 2,500 6/24/2005 $ 2.20
Wall Street Communications Group Inc. 40,000 6/24/2005 $ 2.20
Xxxxxxx Xxxxxxx 20,000 6/24/2005 $ 2.20
Xxxxxx Xxxxxx 300,000 6/24/2005 $ 2.20
Xxxxx X. Xxxx 10,000 6/24/2005 $ 2.20
Xxxx X'Xxxxxx 10,000 6/24/2005 $ 2.20
Xxxxxxx Xxxxx 10,000 6/24/2005 $ 2.20
Xxxxxx Xxxxx 10,000 6/24/2005 $ 2.20
Marconsult Limited 334,557 6/24/2005 $ 2.20
Xxxxxxx Xxxxxxxxx Trust 135,000 6/24/2005 $ 2.20
Xxxxx Xxxxxxxx 125,000 6/24/2005 $ 2.20
Steflind 15,000 6/24/2005 $ 2.20
Ascent Int'l Corporation 5,000 6/24/2005 $ 2.20
Xxxxxx Xxxxxxxxx 10,000 6/24/2005 $ 2.20
Coconut Capital LLC 99,705 6/24/2005 $ 2.20
Xxxx Xxxxx 10,000 6/24/2005 $ 2.20
Cadogan, Ltd. 70,000 6/24/2005 $ 2.20
---------------------------
4,424,260
===========================
Exhibit A
FORM OF WARRANT
Exhibit B
COMPANY WIRE TRANSFER INSTRUCTIONS
Bank: City National
Bank
-------------------
ABA No. 000-000-000
-------------------
Customer Account #: 101817423
-------------------
Account Name: AVP Pro Beach Volleyball
Tour
Exhibit C
FORM OF OPINION OF COUNSEL TO THE COMPANY
1. The Company and its Subsidiaries is each a corporation, duly
incorporated, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, with the requisite corporate power and
authority to own and use its properties and assets and to carry on its business
as currently conducted. Each of the Company and its Subsidiaries is duly
qualified to do business and is in good standing as a foreign corporation in
each jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, except where the failure to be
so qualified would not have a material adverse effect on the business, assets
or financial condition of the Company and the Subsidiaries, taken as a whole.
Each of the Company and its Subsidiaries has full corporate power and authority
to own or lease its properties and assets and conduct its business as
presently, and as proposed to be, conducted as described in the Private
Placement Memorandum.
2. The Company has the requisite corporate power and authority to enter
into, execute and deliver, and to consummate the transactions contemplated by,
each of the Securities Purchase Agreement, the Warrants and the Agent's
Warrants and otherwise to carry out its obligations thereunder. The execution
and delivery of each of the Transaction Documents by the Company and the
consummation by it of the transactions contemplated thereby have been duly
authorized by all necessary action on the part of the Company. Each of the
Transaction Documents has been duly executed and delivered by the Company and
constitutes the legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its terms. No approval, authorization,
waiver, consent, registration, filing, qualification, license or permit of or
with any court, regulatory, administrative or other governmental body is
required for the execution and delivery of the Transaction Documents or the
consummation of the transactions contemplated thereby, except such as have been
obtained and are in full force and effect under the Securities Act, and such as
may be required under applicable "Blue Sky" laws in connection with the
issuance of the Securities.
3. The authorized capital stock of the Company consists of 80,000,000
shares of Common Stock, and 2,000,000 shares of preferred stock. Except as
specifically disclosed in Schedule B to the Securities Purchase Agreement or as
a result of the purchase and sale of the Securities and the issuance of the
Agent's Warrants, to our knowledge there are no outstanding options, warrants,
script rights to subscribe to, calls or commitments of any character whatsoever
relating to, securities, rights or obligations convertible into or exchangeable
for, or giving any person any right to subscribe for or acquire any shares of
Common Stock, or contracts, commitments, understandings, or arrangements by
which the Company is or may become bound to issue additional shares of Common
Stock, or securities or rights convertible or exchangeable into shares of
Common Stock.
4. The Securities and the Agent's Warrants have been duly authorized and,
when paid for and issued, shall have been validly issued, fully paid and
nonassessable. The certificates evidencing the Securities, and the Common Stock
issuable upon proper exercise of the Agent's Warrants are in due and proper
form under Delaware law.
5. The Company has duly authorized and reserved for issuance such number
of Common Stock as are issuable upon exercise of the Warrants and the Agent's
Warrants as required pursuant to the terms of the Warrants and the Agent's
Warrants, as applicable. When issued by the Company in accordance with the
terms of the Warrants and the Agent's Warrants, the underlying common shares
will be validly issued, fully paid and nonassessable.
6. The execution, delivery and performance of the Transaction Documents by
the Company and the consummation by the Company of the transactions
contemplated by such agreements do not and will not, either by itself or upon
notice or the passage of time or both (i) conflict with or violate any
provision of its or its Subsidiaries' certificate of incorporation 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, (A) any
agreement, license, credit facility, debt or other instrument (evidencing a
Company or Subsidiary debt or otherwise) to which the Company or its
Subsidiaries is a party which is attached as an exhibit to the SEC Documents
and (B) to our knowledge, any other agreement, credit facility or other
instrument relating to indebtedness of the Company or its Subsidiaries or
instrument to which the Company or its Subsidiaries is a party, (iii) result in
a violation of any law, rule or regulation, order of any governmental
authority, regulatory body, stock market or trading facility to which the
Company is subject, or by which any property or asset of the Company is bound
or affected, or (iv) result in any violation of any order, judgment,
injunction, decree or other restriction of any court or governmental authority.
7. None of the Company or its Subsidiaries is required to obtain any
consent, waiver, authorization or order of, or make any filing or registration
with, any court or other Federal, state, local or other governmental authority
or other person in connection with the execution, delivery and performance by
the Company of the Transaction Documents, except for such filings as have been
made pursuant to Regulation D of the Securities Act or with the OTC Bulletin
Board, and such as may be required under applicable "Blue Sky" laws in
connection with the issuance of the Securities.
8. To our knowledge, the Company has filed all reports required to be
filed by it under the Exchange Act, including pursuant to Section 13(a) or
15(d) thereof, for the two years preceding the date hereof on a timely basis,
or has received a valid extension of such time of filing and made such filing
within the applicable grace period. As of their respective dates, the SEC
Documents complied in all material respects as to form with the requirements of
the Securities Act and the Exchange Act and the rules and regulations of the
Securities and Exchange Commission promulgated thereunder.
9. Assuming the accuracy of the representations and warranties of the
Company set forth in Article II of the Securities Purchase Agreement and of the
Investors set forth in Article III of the Securities Purchase Agreement, the
offer, issuance and sale of the Securities are exempt from the registration
requirements of the Securities Act.
10. Except as set forth in the SEC Documents or Schedule B to the
Securities Purchase Agreement, to our knowledge, the Company is not (i) subject
to any unsatisfied judgment, order, decree, stipulation or injunction or (ii) a
party to or threatened to be made a party to any complaint, acting, suit,
proceeding, hearing or investigation of or in any court or administrative
agency of any federal, state, local or foreign jurisdiction or before any
arbitrator.
We have participated in conferences with directors, officers and other
representatives of the Company of which the contents of the Private Placement
Memorandum and related matters were discussed. We have also examined the
Transaction Documents. We advise you that no facts have come to our attention
which lead us to believe that the Private Placement Memorandum (other than the
financial statements contained therein, as to which do not opine) contains an
untrue statement of a material fact or omits to state a material fact required
to be stated therein or necessary to make the statements contained therein not
misleading.
Exhibit D
REGISTRATION STATEMENT QUESTIONNAIRE
In connection with the preparation of the Registration Statement, please
provide us with the following information:
1. For use in the "Selling Stockholder" section of the Registration
Statement, please state your or your organization's name exactly as it
should appear in the Registration Statement (the "Holder"):
---------------------------------------------------------------------
2. Please provide the type and amount of securities of the Company that the
Holder will own immediately after Closing, including those securities
purchased by the Holder pursuant to the Securities Purchase Agreement and
those Securities purchased by the Holder through other transactions:
Securities purchased pursuant to the Securities Purchase Agreement:
---------------------------------------------------------------------
Other securities beneficially owned through other transactions:
---------------------------------------------------------------------
3. Has the Holder had any position, office or other material relationship
within the past three years with the Company or its affiliates?
Yes No
-------------- ---------------
If yes, please indicate the nature of any such relationships below:
---------------------------------------------------------
---------------------------------------------------------
---------------------------------------------------------
---------------------------------------------------------
4. If the Holder is an entity, identify the individual or individuals who
have sole or shared voting or investment power over the Company's
securities owned by such entity:
---------------------------------------------------------
5. Is the Holder a broker-dealer? (indicate "Yes" or "No")
Is the Holder an affiliate of a broker-dealer? (indicate "Yes" or "No")
If the answer is yes, except as set forth below, the Holder purchased the
shares in the ordinary course of business, and at the time of the purchase
of the securities to be resold, the seller had no agreements or
understandings, directly or indirectly, with any person to distribute
them.
State any exceptions here:
---------------------------------------------------------------------
---------------------------------------------------------------------
The undersigned has reviewed the answers to the above questions and
affirms that the same are true, complete and accurate. The undersigned agrees to
notify the Company of any changes in the foregoing information.
Dated: ______________, 2006 _________________________________
_________________________________
(Please sign your name in exactly the same
manner as the certificate(s) for the
shares being registered)
Exhibit E
INVESTOR SUITABILITY QUESTIONNAIRE
Before any sale of Common Stock or Warrants by AVP, Inc. can be made to
you, this Questionnaire must be completed and returned to Xxxxxxxxxxx &
Co. Inc. Attn: Investment Banking Department, 000 Xxxxx Xxxxxx, 00xx
Xxxxx, Xxx Xxxx, XX 00000.
1. IF YOU ARE AN INDIVIDUAL PLEASE FILL IN THE IDENTIFICATION QUESTIONS IN
(A) IF YOU ARE AN ENTITY PLEASE FILL IN THE IDENTIFICATION QUESTIONS IN
(B)
A. INDIVIDUAL INDENTIFICATION QUESTIONS
Name
------------------------------------------------
(Exact name as it should appear on stock
certificate)
Residence Address
-------------------------------------
Home Telephone Number
--------------------------------
Fax Number
-------------------------------------------
Date of Birth
-----------------------------------------
Social Security Number
---------------------------------
B. INDENTIFICATION QUESTIONS FOR ENTITIES
Name
------------------------------------------------
(Exact name as it will appear on stock
certificate)
------------------------------------------------
Address of
Principal
Place of Business
------------------------------------
State (or Country) of
Formation
or
Incorporation
---------------------------------------
Contact
Person
----------------------------------------
Telephone Number ( )
-------------------------------------
Type of Entity
(corporation,
partnership,
trust,
etc.)
-------------------------------------------
Was entity formed for the purpose of this investment?
Yes No
----- -----
DESCRIPTION OF INVESTOR
The following information is required to ascertain whether you would be deemed
an "accredited investor" as defined in Rule 501 of Regulation D under the
Securities Act. Please check whether you are any of the following:
a corporation or partnership with total assets in excess of
$5,000,000, not organized for the purpose of this particular
investment
private business development company as defined in Section
202(a)(22) of the Investment Advisers Act of 1940 [a U.S. venture
capital fund which invests primarily through private placements in
non-publicly traded securities and makes available (either directly
or through co-investors) to the portfolio companies significant
guidance concerning management, operations or business objectives
a Small Business Investment Company licensed by the U.S. Small
Business Administration under Section 301(c) or (d) of the Small
Business Investment Act of 1958
an investment company registered under the Investment Company Act
of 1940 or a business development company as defined in Section
2(a)(48) of that Act
a trust not organized to make this particular investment, with
total assets in excess of $5,000,000 whose purchase is directed by
a sophisticated person as described in Rule 506(b)(2)(ii) of the
Securities Act of 1933 and who completed item 4 below of this
questionnaire
a bank as defined in Section 3(a)(2) or a savings and loan
association or other institution defined in Section 3(a)(5)(A) of
the Securities Act of 1933 acting in either an individual or
fiduciary capacity
an insurance company as defined in Section 2(13) of the
Securities Act of 1933
an employee benefit plan within the meaning of Title I of the
Employee Retirement Income Security Act of 1974 (i) whose
investment decision is made by a fiduciary which is either a bank,
savings and loan association, insurance company, or registered
investment advisor, or (ii) whose total assets exceed $5,000,000,
or (iii) if a self-directed plan, whose investment decisions are
made solely by a person who is an accredited investor and who
completed Part I of this questionnaire;
a charitable, religious, educational or other organization
described in Section 501(c)(3) of the Internal Revenue Code, not
formed for the purpose of this investment, with total assets in
excess of $5,000,000
an entity not located in the U.S. none of whose equity owners are
U.S. citizens or U.S. residents
a broker or dealer registered under Section 15 of the Securities
Exchange Act of 1934
a plan having assets exceeding $5,000,000 established and
maintained by a government agency for its employees an individual
who had individual income from all sources during each of the last
two years in excess of $200,000 or the joint income of you and your
spouse (if married) from all sources during each of such years in
excess of $300,000
an individual who reasonably expects that either your own income
from all sources during the current year to exceed $200,000 or the
joint income of you and your spouse (if married) from all sources
during the current year to exceed $300,000
an individual whose net worth as of the date you purchase the
securities offered, together with the net worth of your spouse, be
in excess of $1,000,000
an entity in which all of the equity owners are accredited
investors
3. SIGNATURE
The above information is true and correct. The undersigned recognizes that
the Company and its counsel are relying on the truth and accuracy of such
information in reliance on the exemption contained in Subsection 4(2) of the
Securities Act of 1933, as amended, and Regulation D promulgated thereunder. The
undersigned agrees to notify the Company promptly of any changes in the
foregoing information which may occur prior to the investment.
Executed at ___________________, on [_________ ___], 2006
------------------------------------
(Signature)
------------------------------------
(Title if for Entity)
