PREFERRED STOCK PURCHASE AGREEMENT BETWEEN CANEUM, INC. AND BARRON PARTNERS LP DATED MARCH 24, 2006
EXHIBIT 99.1
BETWEEN
CANEUM, INC.
AND
XXXXXX PARTNERS LP
DATED
MARCH 24, 2006
This PREFERRED STOCK PURCHASE AGREEMENT (the “Agreement”) is made and entered into as
of the 24th day of March, 2006 between CANEUM, INC., a corporation organized and
existing under the laws of the State of Nevada (“Caneum” or the “Company”) and XXXXXX PARTNERS LP,
a Delaware limited partnership (“Investor”).
PRELIMINARY STATEMENT:
WHEREAS, the Investor wishes to purchase from the Company, upon the terms and subject to the
conditions of this Agreement, four million (4,000,000) shares of preferred stock of the Company,
with such preferred stock being as described in the Certificate of Designations, Rights and
Preferences (the “Certificate of Designations”) in substantially the form attached hereto as
Exhibit A (the “Preferred Stock”) for the Purchase Price set forth in Section
1.3.15 hereof. Subject to the limitations set forth herein and in the Certificate of Designation,
the Preferred Stock shall be initially convertible into shares of common stock of the Company at
any time at a ratio of one share of Common Stock for each share of Preferred Stock converted (the
“Conversion Ratio”). In addition, the Company will issue to the Investor two Common Stock
Purchase Warrants (the “Warrants”) to purchase up to an additional eight million shares of
common stock of the Company at the following exercise prices as stated in the Warrants: 4,000,000
shares at $0.50 per share, 2,000,000 shares at $1.00 per share, and 2,000,000 shares at $1.50 per
share; and
WHEREAS, the parties intend to memorialize the purchase and sale of such Preferred Stock and
the Warrants.
NOW, THEREFORE, in consideration of the mutual covenants and premises contained herein, and
for other good and valuable consideration, the receipt and adequacy of which are hereby
conclusively acknowledged, the parties hereto, intending to be legally bound, agree as follows:
ARTICLE I
INCORPORATION BY REFERENCE, SUPERSEDER AND DEFINITIONS
1.1 Incorporation by Reference. The foregoing recitals and the Exhibits and Schedules
attached hereto and referred to herein, are hereby acknowledged to be true and accurate, and are
incorporated herein by this reference.
1.2 Superseder. This Agreement, to the extent that it is inconsistent with any other
instrument or understanding among the parties governing the affairs of the Company, shall supersede
such instrument or understanding to the fullest extent permitted by law. A copy of this Agreement
shall be filed at the Company’s principal office.
1.3 Certain Definitions. For purposes of this Agreement, the following capitalized terms
shall have the following meanings (all capitalized terms used in this Agreement that are not
defined in this Article 1 shall have the meanings set forth elsewhere in this Agreement):
1.3.1 “1933 Act” means the Securities Act of 1933, as amended.
1.3.2 “1934 Act” means the Securities Exchange Act of 1934, as amended.
1.3.3 “Adjusted EBITDA” means earnings before interest, taxes, depreciation, and
amortization, and is adjusted to add back into earnings the following items: (1) non-cash stock
based compensation associated with expensing stock options according to GAAP and FASB requirements
for calendar years 2006 and 2007; (2) all cash and non-cash expenses associated with individual M&A
transactions throughout the named period, including any non-cash charges associated with the Xxxxxx
financing transaction (including, but not limited to, those that may be assessed against the
convertible preferred stock and warrants and any due diligence fees) and also including the
Ascendiant fees, for calendar years 2006 and 2007; and (3) the one-time $137,500 investor relations
expense above and beyond normal investor relations programs recognized in calendar year 2006.
1.3.4 “Affiliate” means a Person or Persons directly or indirectly, through one or
more intermediaries, controlling, controlled by or under common control with the Person(s) in
question. The term “control,” as used in the immediately preceding sentence, means, with respect
to a Person that is a corporation, the right to the exercise, directly or indirectly, of more than
50 percent of the voting rights attributable to the shares of such controlled corporation and, with
respect to a Person that is not a corporation, the possession, directly or indirectly, of the power
to direct or cause the direction of the management or policies of such controlled Person.
1.3.5 “Articles” means the Certificate of Incorporation of the Company, as the same
may be amended from time to time.
1.3.6 “Closing” shall mean the Closing of the transactions contemplated by this
Agreement on the Closing Date.
1.3.7 “Closing Date” means the date on which the payment of the Purchase Price (as
defined herein) by the Investor to the company is completed pursuant to this Agreement to purchase
the Preferred Stock and Warrants, which shall occur on or before March 24, 2006.
1.3.8 “Common Stock” means shares of common stock of the Company, par value $0.001 per
share.
1.3.9 “Control” means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a person, whether through the ownership of
voting securities, by contract or otherwise, including, but not limited to the following: (i) the
right or power to designate one or more persons for membership to the board of directors or
governing board of the entity; (ii) the ability to affect the outcome of shareholder votes; or
(iii) the ability to materially affect the trading market of the entity’s securities.
1.3.10 “Escrow Agreement” shall mean the Escrow Agreement among the Company, the
Investor and The Law Office of Xxxxxx X. Xxxxx, P.C., as Escrow Agent, attached hereto as
Exhibit E.
1.3.11 “Exempt Issuance” means the issuance of (a) shares of Common Stock, options,
warrants, and shares of Common Stock issuable upon exercise of such options or warrants, to
employees, officers, directors, or consultants of the Company, or others, pursuant to the Company’s
2002 Stock Option/Stock Issuance Plan or similar stock or option plan duly adopted by a majority of
the non-employee members of the Board of Directors of the Company or a majority of the members of a
committee of non-employee directors established for such purpose, (b) securities upon the exercise
of or conversion of any securities issued hereunder, including warrants and shares issued to
Ascendiant Securities, LLC associated with this transaction, and (c) securities issued pursuant to
acquisitions or strategic transactions, provided any such issuance shall only be to a Person which
is, itself or through its subsidiaries, an operating company in a business synergistic with the
business of the Company and in which the Company receives benefits in addition to the investment of
funds, but shall not include a transaction in which the Company is issuing securities primarily for
the purpose of raising capital or to an entity whose primary business is investing in securities.
1.3.12 “Material Adverse Effect” shall mean any adverse effect on the business,
operations, properties or financial condition of the Company that is material and adverse to the
Company and its subsidiaries and affiliates, taken as a whole and/or any condition, circumstance,
or situation that would prohibit or otherwise materially interfere with the ability of the Company
to perform any of its material obligations under this Agreement or the Registration Rights
Agreement or to perform its obligations under any other material agreement.
1.3.13 “Per Share Purchase Price” means the rate of $0.50 per share of Preferred
Stock.
1.3.14 “Person” means an individual, partnership, firm, limited liability company,
trust, joint venture, association, corporation, or any other legal entity.
1.3.15 “Qualified Independent Director” means a person other than an officer of the Company
or its subsidiaries or any other individual having a relationship which, in the opinion of the
Company’s board of directors, would interfere with the exercise of independent judgment in carrying
out the responsibilities of a director, but excludes a director who is employed by the Company or
by any parent or subsidiary of the Company or who is otherwise compensated by
the Company, or by any parent or subsidiary of the Company, except in that person’s capacity
as a director of the Company, or any parent or subsidiary of the Company. Notwithstanding the
foregoing, a person would not be excluded from the definition of Qualified Independent Director if
such person performs services for the Company on limited special projects and receives compensation
for such services if a majority of the remaining Qualified Independent Directors conclude that
performance of such services would not otherwise interfere with that director’s exercise of
independent judgment in carrying out the responsibilities of a director.
1.3.15 “Purchase Price” means the Two Million Dollars ($2,000,000) paid by the
Investor to the Company for the Preferred Stock and the Warrants.
1.3.16 “Registration Rights Agreement” shall mean the registration rights agreement
between the Investor and the Company attached hereto as Exhibit B.
1.3.17 “Registration Statement” shall mean the registration statement under the 1933
Act to be filed with the Securities and Exchange Commission for the registration of the Shares
pursuant to the Registration Rights Agreement attached hereto as Exhibit B.
1.3.18 “SEC” means the Securities and Exchange Commission.
1.3.19 “SEC Documents” shall mean the Company’s latest Form 10-K or 10-KSB as of the
time in question, all Forms 10-Q or 10-QSB and 8-K filed thereafter, and the Proxy Statement for
its latest fiscal year as of the time in question until such time as the Company no longer has an
obligation to maintain the effectiveness of a Registration Statement as set forth in the
Registration Rights Agreement.
1.3.20 “Shares” shall mean, collectively, the shares of Common Stock of the Company
issued upon conversion of the Preferred Stock subscribed for hereunder and those shares of Common
Stock issuable to the Investor upon exercise of the Warrants.
1.3.21 “Subsequent Financing” shall mean any offer and sale of shares of Preferred
Stock or debt that is initially convertible into shares of Common Stock or otherwise senior or
superior to the Preferred Stock.
1.3.22 “Transaction Documents” shall mean this Agreement, all Schedules and Exhibits
attached hereto and all other documents and instruments to be executed and delivered by the parties
in order to consummate the transactions contemplated hereby, including, but not limited to the
documents listed in Sections 3.2 and 3.3 hereof.
1.3.23 “Warrants” shall mean the A, B, and C Common Stock Purchase Warrants in the
form attached hereto Exhibits C-1, C-2, and C-3.
ARTICLE II
SALE AND PURCHASE OF CANEUM PREFERRED STOCK AND WARRANTS PURCHASE PRICE
2.1 Sale of Preferred Stock and Issuance of Warrants.
(a) Upon the terms and subject to the conditions set forth herein, and in accordance with
applicable law, the Company agrees to sell to the Investor, and the Investor agrees to purchase
from the Company, on the Closing Date four million (4,000,000) shares of Preferred Stock and the
Warrants for the (the “Purchase Price”) of Two Million Dollars ($2,000,000.00). The
Purchase Price shall be paid by the Investor to the Company on the Closing Date by a wire transfer
or check of the Purchase Price into escrow to be held by the escrow agent pursuant to the terms of
the Escrow Agreement. The Company shall cause the Preferred Stock and the Warrants to be issued to
the Investor upon the release of the Purchase Price to the Company by the escrow agent pursuant to
the terms of the Escrow Agreement. The Company shall register the shares of Common Stock into
which the Preferred Stock is convertible pursuant to the terms and conditions of a Registration
Rights Agreement attached hereto as Exhibit B.
(b) Except as otherwise provided in this Agreement, each share of Preferred stock shall
initially be convertible by the Investor into one (1) share of Common Stock; provided, however,
that the Investor shall not be entitled to convert any portion of the Series A Preferred Stock to
the extent that after giving effect to such conversion, the Investor (together with the Investor’s
Affiliates), would beneficially own in excess of 4.9% of the number of shares of the Common Stock
outstanding immediately after giving effect to such conversion. For purposes of the foregoing
sentence, the number of shares of Common Stock beneficially owned by the Investor and its
Affiliates shall include the number of shares of Common Stock issuable upon conversion of the
Series A Preferred Stock with respect to which the determination of such sentence is being made,
but shall exclude the number of shares of Common Stock which would be issuable upon (A) conversion
of the remaining, nonconverted shares of Series A Preferred Stock beneficially owned by the
Investor or any of its Affiliates, so long as such shares of Series A Preferred Stock are not
convertible within sixty (60) days from the date of such determination, and (B) exercise or
conversion of the unexercised or nonconverted portion of any other securities of the Company
(including warrants) subject to a limitation on conversion or exercise analogous to the limitation
contained herein beneficially owned by the Investor or any of its Affiliates, so long as such other
securities of the Company are not exercisable nor convertible within sixty (60) days from the date
of such determination. For purposes of this Section 2.1(b), in determining the number of
outstanding shares of Common Stock, the Investor may rely on the number of outstanding shares of
Common Stock as reflected in the most recent of the following: (A) the Company’s most recent
quarterly reports, Form 10-Q, Form 10-QSB, Annual Reports, Form 10-K, or Form 10-KSB, as the case
may be, as filed with the SEC under the Exchange Act (B) a more recent public announcement by the
Company or (C) any other written notice by the Company or the Company’s transfer agent setting
forth the number of shares of Common Stock
outstanding. Upon the written or oral request of the Investor, the Company shall within two (2)
Trading Days confirm orally and in writing to the Investor the number of shares of Common Stock
then outstanding. In any case, the number of outstanding shares of Common Stock shall be
determined after giving effect to the conversion or exercise of securities of the Company,
including the Series A Preferred Stock, by the Holder or its affiliates since the date as of which
such number of outstanding shares of Common Stock was publicly reported by the Company.
(c) Upon execution and delivery of this Agreement and the Company’s receipt of the Purchase
Price from the Escrow Agent pursuant to the terms of the Escrow Agreement, the Company shall issue
to the Investor the Warrants to purchase an aggregate of eight million (8,000,000) shares of Common
Stock at exercise prices as stated in the Warrants, all pursuant to the terms and conditions of the
forms of Warrants attached hereto as Exhibit C-1, C-2, and C-3; provided, however, that the
Investor shall not be entitled to exercise the Warrants and receive shares of Common Stock that
would result in beneficial ownership by the Investor and its affiliates of more than 4.9% of the
then outstanding number of shares of Common Stock on such date as determined in Section 2.1(b)
above.
2.2 Purchase Price. The Purchase Price shall be delivered by the Investor in the form of a
check or wire transfer made payable to the Company in United States Dollars from the Investor to
the Escrow Agent pursuant to the Escrow Agreement on the Closing Date.
ARTICLE III
CLOSING DATE AND DELIVERIES AT CLOSING
3.1 Closing Date. The closing of the transactions contemplated by this Agreement (the
“Closing”), unless expressly determined herein, shall be held at the offices of the
Company, at 5:00 P.M. local time, on the Closing Date or on such other date and at such other place
as may be mutually agreed by the parties, including closing by facsimile with originals to follow.
3.2 Deliveries by the Company. In addition to and without limiting any other provision of
this Agreement, the Company agrees to deliver, or cause to be delivered, to the Escrow Agent under
the Escrow Agreement, the following:
| (a) | At or prior to Closing, an executed Agreement with all exhibits and schedules attached hereto; | ||
| (b) | At or prior to Closing, executed Warrant certificates in the name of the Investor in the form attached hereto as Exhibit C-1, C-2, and C-3; | ||
| (c) | The executed Registration Rights Agreement; | ||
| (d) | Certifications in form and substance acceptable to the Company and the Investor from any and all brokers or agents involved in the transactions contemplated hereby as to the amount of commission or compensation payable to such broker or agent as |
| a result of the consummation of the transactions contemplated hereby and from the Company or Investor, as appropriate, to the effect that reasonable reserves for any other commissions or compensation that may be claimed by any broker or agent have been set aside; | |||
| (e) | [Reserved] | ||
| (f) | Evidence of approval of the Board of Directors of the Company of the Transaction Documents and the transactions contemplated hereby; | ||
| (g) | Certificate of the President and the Secretary of the Company that the Certificate of Designation has been adopted and filed; | ||
| (h) | [Reserved] | ||
| (i) | Certificates of Existence or Authority to Transact Business of the Company issued by each of the Secretaries of State for Nevada and California; | ||
| (j) | An opinion from the Company’s counsel concerning the Transaction Documents and the transactions contemplated hereby in form and substance reasonably acceptable to Investor; | ||
| (k) | Stock Certificate in the name of Investor evidencing the Preferred Stock; (l) The executed Escrow Agreement; and |
||
| (m) | Except as previously furnished to Investor or except as available on the website of the SEC, copies of all executive employment agreements, all past and present financing documentation or other documentation where stock could potentially be issued or issued as payment, all past and present litigation documents and historical financials. | ||
| (n) | Such other documents or certificates as shall be reasonably requested by Investor or its counsel. |
3.3 Deliveries by Investor. In addition to and without limiting any other provision of
this Agreement, the Investor agrees to deliver, or cause to be delivered, to the Escrow Agent under
the Escrow Agreement, the following:
| (a) | A deposit in the amount of the Investor Funds; | ||
| (b) | The executed Agreement with all Exhibits and Schedules attached hereto; | ||
| (c) | The executed Registration Rights Agreement; | ||
| (d) | The executed Escrow Agreement; and | ||
| (e) | Such other documents or certificates as shall be reasonably requested by the Company or its counsel. |
In the event any document provided to the other party in Paragraphs 3.2 and 3.3 herein are provided
by facsimile, the party shall forward an original document to the other party within seven (7)
business days.
3.4 Further Assurances. The Company and the Investor shall, upon request, on or after the
Closing Date, cooperate with each other (specifically, the Company shall cooperate with the
Investor, and the Investor shall cooperate with the Company) by furnishing any additional
information, executing and delivering any additional documents and/or other instruments and
doing any and all such things as may be reasonably required by the parties or their counsel to
consummate or otherwise implement the transactions contemplated by this Agreement.
3.5 Waiver. The Investor may waive any of the requirements of Section 3.2 of this
Agreement, and the Company at its discretion may waive any of the provisions of Section 3.3 of this
Agreement. The Investor may also waive any of the requirements of the Company under the Escrow
Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
CANEUM, INC.
CANEUM, INC.
The Company represents and warrants to the Investor as of the date hereof and as of Closing
(which warranties and representations shall survive the Closing regardless of what examinations,
inspections, audits and other investigations the Investor has heretofore made or may hereinafter
make with respect to such warranties and representations) as follows:
4.1 Organization and Qualification. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Nevada, and has the requisite
corporate power and authority to own, lease and operate its properties and to carry on its business
as it is now being conducted and is duly qualified to do business in any other jurisdiction by
virtue of the nature of the businesses conducted by it or the ownership or leasing of its
properties, except where the failure to be so qualified will not, when taken together with all
other such failures, have a Material Adverse Effect on the business, operations, properties,
assets, financial condition or results of operation of the Company and its subsidiaries taken as a
whole.
4.2 Articles of Incorporation and By-Laws. The complete and correct copies of the
Company’s Articles and By-Laws, as amended or restated to date which have been filed with the
Securities and Exchange Commission are a complete and correct copy of such document as in effect
on the date hereof and as of the Closing Date.
4.3 Capitalization.
4.3.1 The authorized and outstanding capital stock of the Company is set forth in the
Company’s Annual Report on Form 10-KSB, filed on March 31, 2005 with the Securities and Exchange
Commission and updated on all subsequent SEC Documents. All shares of capital stock have been duly
authorized and are validly issued, and are fully paid and nonassessable, and free of preemptive
rights.
4.3.2 As of the date of this Agreement, the authorized capital stock of the Company consists
of 100,000,000 shares of common Stock ($.001 par value) and 20,000,000
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shares of preferred stock ($.001 par value), of which approximately 5,966,611 shares of common
Stock are issued and outstanding. As of Closing, following the issuance by the Company of the
Preferred Stock to the Investor, the authorized capital stock of the Company will consist of
100,000,000 shares of Common Stock ($.001 par value) and 20,000,000 shares of preferred stock
($.001 par value), of which approximately 5,966,611 share of Common Stock and 4,000,000 shares of
preferred stock shall be issued and outstanding. As of Closing, the Company will have no more than
approximately 5,144,917 shares of Common Stock subject to outstanding options, warrants, or other
instruments convertible into shares of Common Stock. All outstanding shares of capital stock have
been duly authorized and are validly issued, and are fully paid and nonassessable and free of
preemptive rights. All shares of capital stock described above to be issued have been duly
authorized and when issued, will be validly issued, fully paid and nonassessable and free of
preemptive rights. Schedule 4.3.2 hereby contains all shares and derivatives currently and
potentially outstanding. The company hereby represents that any and all shares and current
potentially dilutive events have been included in Schedule 4.3.2, including employment agreements,
acquisition, consulting agreements, debts, payments, financing or business relationships that could
be paid in equity, derivatives or resulting in additional equity issuances that could potentially
occur.
4.3.3 Except pursuant to this Agreement and as set forth in Schedule 4.3.3 hereto, and as set
forth in the Company’s SEC Documents, filed with the SEC, as of the date hereof and as of the
Closing Date, there are not now outstanding options, warrants, rights to subscribe for, calls or
commitments of any character whatsoever relating to, or securities or rights convertible into or
exchangeable for, shares of any class of capital stock of the Company, or agreements,
understandings or arrangements to which the Company is a party, or by which the Company is or may
be bound, to issue additional shares of its capital stock or options, warrants, scrip or rights to
subscribe for, calls or commitment of any character whatsoever relating to, or securities or rights
convertible into or exchangeable for, any shares of any class of its capital stock. The Company
agrees to inform the Investors in writing of any additional warrants granted prior to the Closing
Date.
4.3.4 The Company on the Closing Date (i) will have full right, power, and authority to
sell, assign, transfer, and deliver, by reason of record and beneficial ownership, to the Investor,
the Company Shares hereunder, free and clear of all liens, charges, claims, options, pledges,
restrictions, and encumbrances whatsoever; and (ii) upon conversion of the Preferred Stock or
exercise of the Warrants, the Investor will acquire good and marketable title to such Shares, free
and clear of all liens, charges, claims, options, pledges, restrictions, and encumbrances
whatsoever, except as otherwise provided in this Agreement as to the limitation on the voting
rights of such Shares in certain circumstances.
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4.4 Authority. The Company has all requisite corporate power and authority to execute and
deliver this Agreement, the Preferred Stock, and the Warrants, to perform its obligations hereunder
and thereunder and to consummate the transactions contemplated hereby and thereby. The execution
and delivery of this Agreement by the Company and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary corporate action and no other corporate
proceedings on the part of the Company is necessary to authorize this Agreement or to consummate
the transactions contemplated hereby except as disclosed in this Agreement. This Agreement 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, except as
such enforceability may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation, conservatorship, receivership or similar laws relating to, or affecting
generally the enforcement of, creditors’ rights and remedies or by other equitable principles of
general application.
4.5 No Conflict; Required Filings and Consents. The execution and delivery of this
Agreement by the Company does not, and the performance by the Company of their respective
obligations hereunder will not: (i) conflict with or violate the Articles or By-Laws of the
Company; (ii) conflict with, breach or violate any federal, state, foreign or local law, statute,
ordinance, rule, regulation, order, judgment or decree (collectively, “Laws”) in effect as
of the date of this Agreement and applicable to the Company; or (iii) result in any breach of,
constitute a default (or an event that with notice or lapse of time or both would become a default)
under, give to any other entity any right of termination, amendment, acceleration or cancellation
of, require payment under, or result in the creation of a lien or encumbrance on any of the
properties or assets of the Company pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation to which the Company
is a party or by the Company or any of its properties or assets is bound. Excluding from the
foregoing are such violations, conflicts, breaches, defaults, terminations, accelerations,
creations of liens, or incumbency that would not, in the aggregate, have a Material Adverse Effect.
4.6 Report and Financial Statements. The Company’s Annual Report on Form 10-KSB, filed on
March 31, 2005 with the SEC contains the audited financial statements of the Company. The Company
has previously provided to the Investor the audited financial statements of the Company as of
December 31, 2004 and the unaudited financial statements for the nine months ended September 30,
2005 (collectively, the “Financial Statements”). Each of the balance sheets contained in or
incorporated by reference into any such Financial Statements (including the related notes and
schedules thereto) fairly presented the financial position of the Company, as of its date, and each
of the statements of income and changes in stockholders’ equity and cash flows or equivalent
statements in such Financial Statements (including any related notes and schedules thereto) fairly
presents, changes in stockholders’ equity and changes in cash flows, as the case may be, of the
Company, for the periods to which they relate, in each case in accordance with United States
generally accepted accounting principles (“U.S. GAAP”) consistently applied during the
periods involved, except in each case as may be noted therein, subject to normal year-
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end audit adjustments in the case of unaudited statements. The books and records of the Company
have been, and are being, maintained in all material respects in accordance with U.S. GAAP.
4.7 Compliance with Applicable Laws. The Company is not in violation of, or, to the
knowledge of the Company is under investigation with respect to or has been given notice or has
been charged with the violation of any Law of a governmental agency, except for violations which
individually or in the aggregate do not have a Material Adverse Effect.
4.8 Brokers. Except for Ascendant Securities LLC, no broker, finder or investment banker is
entitled to any brokerage, finder’s or other fee or Commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of the Company.
4.9 SEC Documents. The Company acknowledges that the Company is a publicly held company and
has made available to the Investor after demand true and complete copies of any requested SEC
Documents. The Company has registered its Common Stock pursuant to Section 12(g) of the 1934 Act,
and the Common Stock is quoted on the OTC Bulletin Board. The Company has received no notice,
either oral or written, with respect to the continued quotation or trading of the Common Stock on
the OTC Bulletin Board. The Company has not provided to the Investor any information that,
according to applicable law, rule or regulation, should have been disclosed publicly prior to the
date hereof by the Company, but which has not been so disclosed. As of their respective dates, the
SEC Documents complied in all material respects with the requirements of the 1934 Act, and rules
and regulations of the SEC promulgated thereunder and the SEC Documents did not contain any untrue
statement of a material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances under which they
were made, not misleading.
4.10 Litigation. To the knowledge of the Company, no litigation, claim, or other proceeding
before any court or governmental agency is pending or to the knowledge of the Company, threatened
against the Company, the prosecution or outcome of which may have a Material Adverse Effect.
4.11 Exemption from Registration. Subject to the accuracy of the Investor’s representations
in Article V, except as required pursuant to the Registration Rights Agreement, the sale of the
Preferred Stock and Warrants by the Company to the Investor will not require registration under the
1933 Act, but may require registration under New York state securities law if applicable to the
Investor. When validly converted in accordance with the terms of the Preferred Stock, and upon
exercise of the Warrants in accordance with their terms, the Shares underlying the Preferred Stock
and the Warrants will be duly and validly issued, fully paid, and nonassessable. The Company is
issuing the Preferred Stock and the Warrants in accordance with and in reliance upon the exemption
from securities registration afforded, inter alia, by Rule 506 under Regulation D as promulgated by
the SEC under the 1933 Act, and/or Section 4(2) or Section 4(6)
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of the 1933 Act; provided, however, that certain filings and registrations may be required under
state securities “blue sky” laws depending upon the residency of the Investor.
4.12 No General Solicitation or Advertising in Regard to this Transaction. Neither the
Company nor any of its affiliates nor, to the knowledge of the Company, any Person acting on its or
their behalf (i) has conducted or will conduct any general solicitation (as that term is used in
Rule 502(c) of Regulation D as promulgated by the SEC under the 0000 Xxx) or general advertising
with respect to the sale of the Preferred Stock or Warrants, or (ii) made any offers or sales of
any security or solicited any offers to buy any security under any circumstances that would require
registration of the Preferred Stock or Warrants, under the 1933 Act, except as required herein.
4.13 No Material Adverse Effect. Except as set forth in Schedule 4.13 attached hereto,
since September 30, 2005, no event or circumstance resulting in a Material Adverse Effect has
occurred or exists with respect to the Company. No material supplier or customer has given notice,
oral or written, that it intends to cease or reduce the volume of its business with the Company
from historical levels. Since September 30, 2005, no event or circumstance has occurred or exists
with respect to the Company or its businesses, properties, prospects, operations or financial
condition, that, under any applicable law, rule or regulation, requires public disclosure or
announcement prior to the date hereof by the Company but which has not been so publicly announced
or disclosed in writing to the Investor.
4.14 [RESERVED]
4.15 Internal Controls And Procedures. The Company maintains books and records and internal
accounting controls which provide reasonable assurance that (i) all transactions to which the
Company or any subsidiary is a party or by which its properties are bound are executed with
management’s authorization; (ii) the recorded accounting of the Company’s consolidated assets is
compared with existing assets at regular intervals; (iii) access to the Company’s consolidated
assets is permitted only in accordance with management’s authorization; and (iv) all transactions
to which the Company or any subsidiary is a party or by which its properties are bound are recorded
as necessary to permit preparation of the financial statements of the Company in accordance with
U.S. GAAP.
4.16 Full Disclosure. No representation or warranty made by the Company in this Agreement
and no certificate or document furnished or to be furnished to the Investor pursuant to this
Agreement contains or will contain any untrue statement of a material fact, or omits or will omit
to state a material fact necessary to make the statements contained herein or therein not
misleading.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE INVESTORS
The Investor represents and warrants to the Company that:
5.1 Organization and Standing of the Investor. The Investor is a limited partnership duly
formed, validly existing and in good standing under the laws of the State of Delaware. The state in
which any offer to purchase shares hereunder was made or accepted by such Investor is the state
shown as such Investor’s address. The Investor was not formed for the purpose of investing solely
in the Preferred Stock, the Warrants or the shares of Common Stock which are the subject of this
Agreement.
5.2 Authorization and Power. The Investor has the requisite power and authority to enter
into and perform this Agreement and to purchase the securities being sold to it hereunder. The
execution, delivery and performance of this Agreement by the Investor and the consummation by the
Investor of the transactions contemplated hereby have been duly authorized by all necessary
partnership action where appropriate. This Agreement and the Registration Rights Agreement have
been duly executed and delivered by the Investor and at the Closing shall constitute valid and
binding obligations of the Investor enforceable against the Investor in accordance with their
terms, except as such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation, conservatorship, receivership or similar laws relating to,
or affecting generally the enforcement of, creditors’ rights and remedies or by other equitable
principles of general application.
5.3 No Conflicts. The execution, delivery and performance of this Agreement and the
consummation by the Investor of the transactions contemplated hereby or relating hereto do not and
will not (i) result in a violation of such Investor’s charter documents or bylaws where appropriate
or (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or
both would become a default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of any agreement, indenture or instrument to which the Investor is a
party, or result in a violation of any law, rule, or regulation, or any order, judgment or decree
of any court or governmental agency applicable to the Investor or its properties (except for such
conflicts, defaults and violations as would not, individually or in the aggregate, have a Material
Adverse Effect on such Investor). The Investor is not required to obtain any consent, authorization
or order of, or make any filing or registration with, any court or governmental agency in order for
it to execute, deliver or perform any of such Investor’s obligations under this Agreement or to
purchase the securities from the Company in accordance with the terms hereof, provided that for
purposes of the representation made in this sentence, the Investor is assuming and relying upon the
accuracy of the relevant representations and agreements of the Company herein.
5.4 Financial Risks. The Investor acknowledges that such Investor is able to bear the
financial risks associated with an investment in the securities being purchased by the Investor
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from the Company and that it has been given full access to such records of the Company and the
subsidiaries and to the officers of the Company and the subsidiaries as it has deemed necessary or
appropriate to conduct its due diligence investigation. The Investor is capable of evaluating the
risks and merits of an investment in the securities being purchased by the Investor from the
Company by virtue of its experience as an investor and its knowledge, experience, and
sophistication in financial and business matters and the Investor is capable of bearing the entire
loss of its investment in the securities being purchased by the Investor from the Company.
5.5 Accredited Investor. The Investor is (i) an “accredited investor” as that term is
defined in Rule 501 of Regulation D promulgated under the 1933 Act by reason of Rule 501(a)(3) and
(6), (ii) experienced in making investments of the kind described in this Agreement and the related
documents, (iii) able, by reason of the business and financial experience of its officers (if an
entity) and professional advisors (who are not affiliated with or compensated in any way by the
Company or any of its affiliates or selling agents), to protect its own interests in connection
with the transactions described in this Agreement, and the related documents, and (iv) able to
afford the entire loss of its investment in the securities being purchased by the Investor from the
Company.
5.6 Brokers. Except as set forth in Schedule 4.8, no broker, finder or investment banker is
entitled to any brokerage, finder’s or other fee or Commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of the Investor.
5.7 Knowledge of Company. The Investor and such Investor’s advisors, if any, have been,
upon request, furnished with all materials relating to the business, finances and operations of the
Company and materials relating to the offer and sale of the securities being purchased by the
Investor from the Company. The Investor and such Investor’s advisors, if any, have been afforded
the opportunity to ask questions of the Company and have received complete and satisfactory answers
to any such inquiries.
5.8 Risk Factors. The Investor understands that such Investor’s investment in the
securities being purchased by the Investor from the Company involves a high degree of risk. 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 being
purchased by the Investor from the Company. The Investor warrants that such Investor is able to
bear the complete loss of such Investor’s investment in the securities being purchased by the
Investor from the Company.
5.9 Full Disclosure. No representation or warranty made by the Investor in this Agreement
and no certificate or document furnished or to be furnished to the Company pursuant to this
Agreement contains or will contain any untrue statement of a material fact, or omits or will omit
to state a material fact necessary to make the statements contained herein or therein not
misleading. Except as set forth or referred to in this Agreement, Investor does not have any
agreement or understanding with any person relating to acquiring, holding, voting or disposing of
any equity securities of the Company.
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5.10 Payment of Due Diligence Expenses. At Closing the Escrow Agent shall disperse to the
Investor Fifty Thousand Dollars ($50,000.00) for due diligence expenses.
ARTICLE VI
COVENANTS OF THE COMPANY
6.1 Registration Rights. The Company shall cause the Registration Rights Agreement to
remain in full force and effect according to the provisions of the Registration Rights Agreement
and the Company shall comply in all material respects with the terms thereof.
6.2 Reservation of Common Stock. As of the date hereof, the Company has reserved and the
Company shall continue to reserve and keep available at all times, free of preemptive rights,
shares of Common Stock for the purpose of enabling the Company to issue the shares of Common Stock
underlying the Preferred Stock and Warrants.
6.3 Compliance with Laws. The Company hereby agrees to comply in all material respects with
the Company’s reporting, filing and other obligations under the Laws.
6.4 Exchange Act Registration. The Company (a) will continue its obligation to report to
the SEC under Section 12(g) of the 1934 Act and will use its best efforts to comply in all respects
with its reporting and filing obligations under the 1934 Act, and will not take any action or file
any document (whether or not permitted by the 1934 Act or the rules thereunder) to terminate or
suspend any such registration or to terminate or suspend its reporting and filing obligations under
the 1934 until the Investors have disposed of all of their Shares.
6.5 Corporate Existence; Conflicting Agreements. The Company will take all steps necessary
to preserve and continue the corporate existence of the Company. The Company shall not enter into
any agreement, the terms of which agreement would restrict or impair the right or ability of the
Company to perform any of its obligations under this Agreement or any of the other agreements
attached as exhibits hereto.
6.6 Preferred Stock. On or prior to the Closing Date, the Company will cause to be
cancelled all preferred stock in the Company with the exceptions of Preferred Stock issued to the
Investor. For a period of eighteen months from the closing the Company will not issue any preferred
stock of the Company with the exception of Preferred Stock issued to the Investor.
6.7 Convertible Debt. On or prior to the Closing Date, the Company will cause to be
cancelled all convertible debt in the Company. For a period of eighteen months from the closing the
Company will not issue any convertible debt.
6.8 Debt Limitation. Except for the proposed acquisition of Tier One Consulting, Inc. which
will include first and second anniversary installment payments, and existing and future lines of
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credit, the Company agrees for eighteen months after Closing not to enter into any new borrowings
of more than twice as much as the sum of the Adjusted EBITDA from recurring operations over the
past four quarters.
6.9 Reset Equity Deals. On or prior to the Closing Date, the Company will cause to be
cancelled any and all reset features related to any shares outstanding that could result in
additional shares being issued. For a period during which any of the Preferred Shares is
outstanding, the Company will not enter into any transactions that have any reset features that
could result in additional shares being issued.
6.10 Independent Directors. The Company shall have caused the appointment of the majority
of the board of directors to be Qualified Independent Directors before November 1, 2006. If at any
time after such date, the board shall not be comprised in the majority of Qualified Independent
Directors for a consecutive thirty-day period, the Company shall pay to the Investors, pro rata, as
liquidated damages and not as a penalty, an amount equal to one percent (1%) of the Purchase Price,
but not to exceed an aggregate of five percent (5%), for each month during which such Qualified
Independent Directors do not comprise the majority of directors, payable at the end of each such
calendar month in cash or Preferred Stock at the option of the Investor. The parties agree that
the only damages payable for a violation of the terms of this Agreement with respect to which
liquidated damages are expressly provided shall be such liquidated damages. Nothing shall preclude
the Investor from pursuing or obtaining specific performance or other equitable relief with respect
to this Agreement. The parties hereto agree that the liquidated damages provided for in this
Section 6.10 constitute a reasonable estimate of the damages that may be incurred by the Investor
by reason of the failure of the Company to appoint Qualified Independent Directors in accordance
with the provision hereof. The Investor shall not withhold or delay exercise of the Warrants in
connection with the appointment of Qualified Independent Directors or otherwise directly or
indirectly influence or mandate the appointment of persons to the Company’s board of directors.
6.11 Independent Directors Become Majority of Audit and Compensation Committees. The
Company will cause the appointment of a majority of Qualified Independent Directors to the audit
and compensation committees of the board of directors before Closing. If at any time after Closing
such Qualified Independent Directors do not compose the majority of the audit and compensation
committees for a consecutive sixty-day period, the Company shall pay to the Investors, pro rata, as
liquidated damages and not as a penalty, an amount equal to twelve percent (12%) of the Purchase
Price per annum, payable monthly in cash or Preferred Stock at the option of the Investor. The
parties agree that the only damages payable for a violation of the terms of this Agreement with
respect to which liquidated damages are expressly provided shall be such liquidated damages.
Nothing shall preclude the Investor from pursuing other remedies or obtaining specific performance
or other equitable relief with respect to this Agreement.
6.12 Use of Proceeds. The Company will use the net proceeds from the sale of the Preferred
Stock and the Warrants (excluding amounts paid by the Company for legal and administrative
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fees in connection with the sale of such securities) for acquisition of Tier One Consulting, Inc.,
working capital and other acquisitions.
6.13 Right of First Refusal. Each Investor shall have the right to participate in any
subsequent funding by the Company on a pro rata basis at one hundred percent (100%) of the offering
price.
6.14 Conversion Ratio Adjustment. If, from the date hereof until such time as the Investor
no longer holds any of the Company’s Shares, the Company closes on the sale of a note or notes,
shares of Common Stock, or shares of any class of Preferred Stock at a price per share of Common
Stock, or with a conversion right to acquire Common Stock at a price per share of Common Stock,
that is less than the Per Share Purchase Price (as adjusted to the capitalization per share as of
the Closing Date, following any stock splits, stock dividends, or the like) (collectively, the
“Subsequent Conversion Price”), the Company shall make a post-Closing adjustment in the Conversion
Ratio so that the number of shares of Common Stock into which the Preferred Stock are convertible
shall be increased proportionately to reflect the Subsequent Conversion Price after taking into
account any prior conversions of the Preferred Stock and/or exercises of the Warrants. For
example, if the Company closes on a sale of shares of Common Stock at $0.40 per share and the
Investor tenders 100,000 shares of Preferred stock for conversion, the conversion ratio would be
adjusted by a factor the numerator of which would be the Purchase Price and the denominator of
which would be the Subsequent Conversion Price times the number of Preferred Shares being converted
(.50/.40 x 100,000 = 125,000 shares of Preferred Stock). Notwithstanding the foregoing, this
Section 6.14 shall not apply in respect of an Exempt Issuance and shall not apply if the Investor
has publicly sold, directly or indirectly, any shares of Common Stock within the six (6) months
immediately preceding the date otherwise triggering an adjustment pursuant to this Section 6.14.
6.15 Adjustment Based on Adjusted EBITDA. In the event the Company’s Adjusted EBITDA for
the year ended December 31, 2006, is less than $0.04 per share on a fully-diluted basis, then the
Company shall issue to the Investor additional Preferred Shares based on the number of Preferred
Shares owned by the Investor on the Calculation Date (as defined below). . If the Company’s
Adjusted EBITDA at year end comes in below $0.028 per share than the Company should issue an
additional 1,720,000 shares of Preferred Stock. For example if the earnings are $0.038 per share
(5% Decline), and the Investor owns 4,000,000 Preferred Shares, then the Company shall issue to the
Investor an additional 7.17% shares of Preferred Stock or 286,667 additional Preferred Shares. In
addition to any adjustment pursuant to the above portion of Section 6.15 of this Agreement, in the
event the Company’s Adjusted EBITDA for the year ended December 31, 2007, is less than $0.08 per
share on a fully-diluted basis, then the Company shall issue to the Investor additional Preferred
Shares based on the number of Preferred Shares owned by the Investor on the Calculation Date (as
defined below) equal to the proportional reduction in Adjusted EBITDA. For example if the earnings
are $0.076 per share (5% Decline), and the Investor owns 2,000,000 of the Preferred Shares on the
Calculation Date, then the Company shall issue to the Investor an additional 7.17% shares of
Preferred Stock or 143,333 additional Preferred Shares. For purposes of this Section 6.15, the
Calculation Date shall
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be the fifth business day following the initial filing date of the Company’s Form 10-KSB.
Notwithstanding the foregoing, the maximum number of additional shares of Preferred Stock issuable
pursuant to this Section 6.15 shall not exceed 2,600,000 Preferred Shares. Fully-diluted Adjusted
EBITDA Per Share shall be based on the number of outstanding shares of Common Stock plus all shares
of Common Stock issuable upon conversion of all outstanding convertible securities and upon all
outstanding warrants, options and rights, regardless of whether (i) such shares would be included
in determining diluted earnings per share, (ii) such convertible securities are subject to a
restriction or limitation on exercise (iii) such options are vested or not vested, (iv) such
options are out of the money or in the money and (v) such options are owned by employees or
non-employees. Thus, for purpose of determining fully-diluted Adjusted EBITDA per share, the four
and nine tenths percent (4.9%) Limitation shall be disregarded. The additional Preferred Shares
shall be issued within five business days of the audited numbers being reported to the SEC.
Notwithstanding the foregoing, the parties agree that in the event a reasonable business
opportunity becomes available to the Company which would have the effect of benefiting the Company,
but which would cause the Company not to meet its Adjusted EBITDA obligation as set forth in this
Section 6.15, the Investor and the Company shall in good faith negotiate a reasonable adjustment or
waiver to the adjustment provided in this section.
6.16 Insider Selling. For a period of six (6) months from the Closing, no executive officer
or director of the Company shall be permitted to sell any shares of Common Stock in the open
market, or sell any shares in a private transaction which would permit the resale of such shares in
the open market during such six-month period.
6.17 Employment and Consulting Contracts. For eighteen months after the Closing the Company
must have a unanimous opinion from the Compensation Committee of the Board of Directors that any
awards other than salary are usual, appropriate and reasonable for any officer, non-Qualified
Independent Director, employee or consultant consistent with generally accepted market rates based
on the experience and quality of the individual.
6.18 Subsequent Equity Sales. From the date hereof until such time as the Investor no
longer holds any of the Company’s Shares, the Company shall be prohibited from effecting or
entering into an agreement to effect any Subsequent Financing involving a “Variable Rate
Transaction” or an “MFN Transaction” (each as defined below). The term “Variable
Rate Transaction” shall mean a transaction in which the Company issues or sells (i) any debt or
equity securities that are convertible into, exchangeable or exercisable for, or include the right
to receive additional shares of Common Stock either (A) at a conversion, exercise or exchange rate
or other price that is based upon and/or varies with the trading prices of or quotations for the
shares of Common Stock at any time after the initial issuance of such debt or equity securities, or
(B) with a conversion, exercise or exchange price that is subject to being reset at some future
date after the initial issuance of such debt or equity security or upon the occurrence of specified
or contingent events directly or indirectly related to the business of the Company or the market
for the Common Stock. The term “MFN Transaction” shall mean a transaction in which the
Company issues or sells any securities in a capital raising transaction or series of related
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transactions which grants to an investor the right to receive additional shares based upon future
transactions of the Company on terms more favorable than those granted to such investor in such
offering. Any Purchaser shall be entitled to obtain injunctive relief against the Company to
preclude any such issuance, which remedy shall be in addition to any right to collect damages.
Notwithstanding the foregoing, this Section 6.18 shall not apply in respect of an Exempt Issuance,
except that no Variable Rate Transaction or MFN Transaction shall be an Exempt Issuance.
6.19 Option Grants to Current Employees, Officers, Directors, and Consultants. For a
period of two years from Closing, the Company shall not issue in aggregate more than 1,000,000
additional options or warrants, or shares of common stock or common stock equivalents to any
existing employees, officers, directors, or consultants of the Company as of the Closing Date,
excluding existing outside legal and accounting service providers currently retained by the
Company. This restriction shall not apply to any new employees, officers, directors, or
consultants hired, appointed, or retained by the Company after Closing.
6.20 Amendment to Certificate of Incorporation. At or before the next annual meeting of
the stockholders of the Company, the Board of Directors shall propose and submit to the holders of
the Common Stock for approval, an amendment to the Certificate of Incorporation that provides
substantially as follows:
“The terms and conditions of any rights, options and warrants approved by the Board of
Directors may provide that any or all of such terms and conditions may be waived or
amended only with the consent of the holders of a designated percentage of a
designated class or classes of capital stock of the Corporation (or a designated group
or groups of holders within such class or classes, including but not limited to
disinterested holders), and the applicable terms and conditions of any such rights,
options or warrants so conditioned may not be waived or amended absent such consent.”.
6.21 Stock Splits. All forward and reverse stock splits shall affect all equity and
derivative holders proportionately.
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ARTICLE VII
COVENANTS OF THE INVESTOR
7.1 Compliance with Law. The Investor’s trading activities with respect to shares of the
Company’s Common Stock will be in compliance with all applicable state and federal securities laws,
rules and regulations and rules and regulations of any public market on which the Company’s Common
Stock is listed. The Investor shall not engage, directly or indirectly, in any shorting activities
involving any of the Company’s Common Stock.
7.2 Transfer Restrictions. The Investor’s acknowledge that (1) the Preferred Stock,
Warrants and shares underlying the Preferred Stock and Warrants have not been registered under the
provisions of the 1933 Act, and may not be transferred unless (A) subsequently registered
thereunder or (B) the Investor shall have delivered to the Company an opinion of counsel,
reasonably satisfactory in form, scope and substance to the Company, to the effect that the
Preferred Stock, Warrants and shares underlying the Notes and Warrants to be sold or transferred
may be sold or transferred pursuant to an exemption from such registration; and (2) any sale of the
Preferred Stock, Warrants and shares underlying the Preferred Stock and Warrants made in reliance
on Rule 144 promulgated under the 1933 Act may be made only in accordance with the terms of said
Rule and further, if said Rule is not applicable, any resale of such securities under circumstances
in which the seller, or the person through whom the sale is made, may be deemed to be an
underwriter, as that term is used in the 1933 Act, may require compliance with some other exemption
under the 1933 Act or the rules and regulations of the SEC thereunder.
7.3 Restrictive Legend. The Investor acknowledges and agrees that the Preferred Stock, the
Warrants and the Shares underlying the Preferred Stock and Warrants, and, until such time as the
Shares underlying the Preferred Stock and Warrants have been registered under the 1933 Act and sold
in accordance with an effective Registration Statement, certificates and other instruments
representing any of the Shares, shall bear a restrictive legend in substantially the following form
(and a stop-transfer order may be placed against transfer of any such securities):
“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES LAWS AND NEITHER SUCH
SHARES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR OTHERWISE TRANSFERRED
UNLESS (1) A REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE SECURITIES ACT AND
ANY APPLICABLE STATE SECURITIES LAWS, OR (2) IN ACCORDANCE WITH THE PROVISIONS OF REGULATION S, OR
(3) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT.”
7.4 Amendment to Certificate of Incorporation. Investor hereby agrees to vote any shares of
capital stock that it may own directly or beneficially, for the amendment to the Certificate of
Incorporation referenced in Section 6.20. Pending adoption of such amendment, Investor hereby
agrees for itself and its successors and assigns that neither this Section 7.4 or Section 6.20
above, or any restriction on exercise of the Warrants shall be amended, modified or waived without
the consent of the holders of a majority of the shares of Common Stock held by Persons who are not
Affiliates of the Company, or the Investor or Affiliates of the Investor.
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7.5 Exercise of Control. Investor shall not exercise any Control over the Company.
ARTICLE VIII
CONDITIONS PRECEDENT TO THE COMPANY’S OBLIGATIONS
The obligation of the Company to consummate the transactions contemplated hereby shall be
subject to the fulfillment, on or prior to Closing Date, of the following conditions:
8.1 No Termination. This Agreement shall not have been terminated pursuant to Article X
hereof.
8.2 Representations True and Correct. The representations and warranties of the Investor
contained in this Agreement shall be true and correct in all material respects on and as of the
Closing Date with the same force and effect as if made on as of the Closing Date.
8.3 Compliance with Covenants. The Investor shall have performed and complied in all
material respects with all covenants, agreements, and conditions required by this Agreement to be
performed or complied by it prior to or at the Closing Date.
8.4 No Adverse Proceedings. On the Closing Date, no action or proceeding shall be pending
by any public authority or individual or entity before any court or administrative body to
restrain, enjoin, or otherwise prevent the consummation of this Agreement or the transactions
contemplated hereby or to recover any damages or obtain other relief as a result of the
transactions proposed hereby.
ARTICLE IX
CONDITIONS PRECEDENT TO INVESTOR’S OBLIGATIONS
The obligation of the Investors to consummate the transactions contemplated hereby shall be
subject to the fulfillment, on or prior to Closing Date unless specified otherwise, of the
following conditions:
9.1 No Termination. This Agreement shall not have been terminated pursuant to Article X
hereof.
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9.2 Representations True and Correct. The representations and warranties of the Company
contained in this Agreement shall be true and correct in all material respects on and as of the
Closing Date with the same force and effect as if made on as of the Closing Date.
9.3 Compliance with Covenants . The Company shall have performed and complied in all
material respects with all covenants, agreements, and conditions required by this Agreement to be
performed or complied by it prior to or at the Closing Date.
9.4 No Adverse Proceedings. On the Closing Date, no action or proceeding shall be pending
by any public authority or individual or entity before any court or administrative body to
restrain, enjoin, or otherwise prevent the consummation of this Agreement or the transactions
contemplated hereby or to recover any damages or obtain other relief as a result of the
transactions proposed hereby.
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
10.1 Termination. This Agreement may be terminated at any time prior to the Closing Date
10.1.1 by mutual written consent of the Investor and the Company;
10.1.2 by the Company upon a material breach of any representation, warranty, covenant or
agreement on the part of the Investor set forth in this Agreement, or the Investor upon a material
breach of any representation, warranty, covenant or agreement on the part of the Company set forth
in this Agreement, or if any representation or warranty of the Company or the Investor,
respectively, shall have become untrue, in either case such that any of the conditions set forth in
Article VIII or Article IX hereof would not be satisfied (a “Terminating Breach”), and such breach
shall, if capable of cure, not have been cured within five (5) business days after receipt by the
party in breach of a notice from the non-breaching party setting forth in detail the nature of such
breach.
10.2 Effect of Termination. Except as otherwise provided herein, in the event of the
termination of this Agreement pursuant to Section 10.1 hereof, there shall be no liability on the
part of the Company or the Investor or any of their respective officers, directors, agents or other
representatives and all rights and obligations of any party hereto shall cease; provided that in
the event of a Terminating Breach, the breaching party shall be liable to the non-breaching party
for all costs and expenses incurred by the non-breaching party not to exceed $50,000.00.
10.3 Amendment. This Agreement may be amended by the parties hereto any time prior to the
Closing Date by an instrument in writing signed by the parties hereto.
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10.4 Waiver. At any time prior to the Closing Date, the Company or the Investor, as
appropriate, may: (a) extend the time for the performance of any of the obligations or other acts
of other party or; (b) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto which have been made to it or them; or (c)
waive compliance with any of the agreements or conditions contained herein for its or their
benefit. Any such extension or waiver shall be valid only if set forth in an instrument in writing
signed by the party or parties to be bound hereby.
ARTICLE XI
GENERAL PROVISIONS
11.1 Transaction Costs. Except as otherwise provided herein, each of the parties
shall pay all of his or its costs and expenses (including attorney fees and other legal costs and
expenses and accountants’ fees and other accounting costs and expenses) incurred by that party in
connection with this Agreement; provided, the Company shall pay Investor such due diligence
expenses as described in section 5.10.
11.2 Indemnification. The Investor agrees to indemnify, defend and hold the Company
(following the Closing Date) and its officers and directors harmless against and in respect of any
and all claims, demands, losses, costs, expenses, obligations, liabilities or damages, including
interest, penalties and reasonable attorney’s fees, that it shall incur or suffer, which arise out
of or result from any breach of this Agreement by such Investor or failure by such Investor to
perform with respect to any of its representations, warranties or covenants contained in this
Agreement or in any exhibit or other instrument furnished or to be furnished under this Agreement.
The Company agrees to indemnify, defend and hold the Investor (following the Closing Date) harmless
against and in respect of any and all claims, demands, losses, costs, expenses, obligations,
liabilities or damages, including interest, penalties and reasonable attorney’s fees, that it shall
incur or suffer, which arise out of, result from or relate to any breach of this Agreement or
failure by the Company to perform with respect to any of its representations, warranties or
covenants contained in this Agreement or in any exhibit or other instrument furnished or to be
furnished under this Agreement. In no event shall the Company or the Investors be entitled to
recover consequential or punitive damages resulting from a breach or violation of this Agreement
nor shall any party have any liability hereunder in the event of gross negligence or willful
misconduct of the indemnified party. In the event of a breach of this Agreement by the Company,
the Investor shall be entitled to pursue a remedy of specific performance upon tender into the
Court an amount equal to the Purchase Price hereunder. The indemnification by Investor pursuant
hereto shall be limited to $50,000.00 and the indemnification by the Company pursuant hereto shall
be limited to $1,000,000.
PREFERRED STOCK PURCHASE AGREEMENT BETWEEN
CANEUM, INC. AND XXXXXX PARTNERS LP
PAGE 23 OF 28
CANEUM, INC. AND XXXXXX PARTNERS LP
PAGE 23 OF 28
11.3 Headings. The table of contents and headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or interpretation of this
Agreement.
11.4 Entire Agreement. This Agreement (together with the Schedule, Exhibits, Warrants and
documents referred to herein) constitute the entire agreement of the parties and supersede all
prior agreements and undertakings, both written and oral, between the parties, or any of them, with
respect to the subject matter hereof.
11.5 Notices. All notices and other communications hereunder shall be in writing and shall
be deemed to have been given (i) on the date they are delivered if delivered in person; (ii) on the
date initially received if delivered by facsimile transmission followed by registered or certified
mail confirmation; (iii) on the date delivered by an overnight courier service; or (iv) on the
third business day after it is mailed by registered or certified mail, return receipt requested
with postage and other fees prepaid as follows:
If to the Company:
000 Xxxxxxx Xxxxxx Xxxxx
Xxxxx 000
Xxxxxxx Xxxxx, XX 00000
Attention: Xxxx Xxxxxxxxx, Chairman
Facsimile No.: (000) 000-0000
Xxxxx 000
Xxxxxxx Xxxxx, XX 00000
Attention: Xxxx Xxxxxxxxx, Chairman
Facsimile No.: (000) 000-0000
With a copy to:
Xxxxxx X. Xxxxx
Attorney at Law
00 Xxxx 000 Xxxxx
Xxxxx 000
Xxxx Xxxx Xxxx, XX 00000
Facsimile No.: (000) 000-0000
Attorney at Law
00 Xxxx 000 Xxxxx
Xxxxx 000
Xxxx Xxxx Xxxx, XX 00000
Facsimile No.: (000) 000-0000
If to the Investor:
Xxxxxx Partners L.P.
c/x Xxxxxx Capital Advisors, LLC
000 Xxxxx Xxxxxx, 0xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxxx Xxxxxx Xxxxxx
c/x Xxxxxx Capital Advisors, LLC
000 Xxxxx Xxxxxx, 0xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxxx Xxxxxx Xxxxxx
Facsimile No.: (000) 000-0000
PREFERRED STOCK PURCHASE AGREEMENT BETWEEN
CANEUM, INC. AND XXXXXX PARTNERS LP
PAGE 24 OF 28
CANEUM, INC. AND XXXXXX PARTNERS LP
PAGE 24 OF 28
11.6 Severability. If any term or other provision of this Agreement is invalid, illegal or
incapable of being enforced by any rule of law or public policy, all other conditions and
provisions of this Agreement shall nevertheless remain in full force and effect so long as the
economic or legal substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any such term or other provision is
invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith
to modify this Agreement so as to effect the original intent of the parties as closely as possible
in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the
extent possible.
11.7 Binding Effect. All the terms and provisions of this Agreement whether so expressed or
not, shall be binding upon, inure to the benefit of, and be enforceable by the parties and their
respective administrators, executors, legal representatives, heirs, successors and assignees.
11.8 Preparation of Agreement. This Agreement shall not be construed more strongly against
any party regardless of who is responsible for its preparation. The parties acknowledge each
contributed and is equally responsible for its preparation.
11.9 Governing Law. This Agreement shall be governed by, and construed in accordance with,
the laws of the State of New York, without giving effect to applicable principles of conflicts of
law.
11.10 Jurisdiction. This Agreement shall be exclusively governed by and construed in
accordance with the laws of the State of New York. If any action is brought among the parties with
respect to this Agreement or otherwise, by way of a claim or counterclaim, the parties agree that
in any such action, and on all issues, the parties irrevocably waive their right to a trial by
jury. Exclusive jurisdiction and venue for any such action shall be the Federal Courts serving the
State of New York. In the event suit or action is brought by any party under this Agreement to
enforce any of its terms, or in any appeal therefrom, it is agreed that the prevailing party shall
be entitled to reasonable attorneys fees to be fixed by the arbitrator, trial court, and/or
appellate court.
11.11 Preparation and Filing of Securities and Exchange Commission filings. The Investor
shall reasonably assist and cooperate with the Company in the preparation of all filings with the
SEC after the Closing Date due after the Closing Date.
11.12 Further Assurances, Cooperation. Each party shall, upon reasonable request by the
other party, execute and deliver any additional documents necessary or desirable to complete the
transactions herein pursuant to and in the manner contemplated by this Agreement. The parties
hereto agree to cooperate and use their respective best efforts to consummate the transactions
contemplated by this Agreement.
11.13 Survival. The representations, warranties, covenants and agreements made herein shall
survive the Closing of the transaction contemplated hereby.
PREFERRED STOCK PURCHASE AGREEMENT BETWEEN
CANEUM, INC. AND XXXXXX PARTNERS LP
PAGE 25 OF 28
CANEUM, INC. AND XXXXXX PARTNERS LP
PAGE 25 OF 28
11.14 Third Parties. Except as disclosed in this Agreement, nothing in this Agreement,
whether express or implied, is intended to confer any rights or remedies under or by reason of this
Agreement on any persons other than the parties hereto and their respective administrators,
executors, legal representatives, heirs, successors and assignees. Nothing in this Agreement is
intended to relieve or discharge the obligation or liability of any third persons to any party to
this Agreement, nor shall any provision give any third persons any right of subrogation or action
over or against any party to this Agreement.
11.15 Failure or Indulgence Not Waiver; Remedies Cumulative. No failure or delay on the
part of any party hereto in the exercise of any right hereunder shall impair such right or be
construed to be a waiver of, or acquiescence in, any breach of any representation, warranty,
covenant or agreement herein, nor shall nay single or partial exercise of any such right preclude
other or further exercise thereof or of any other right. All rights and remedies existing under
this Agreement are cumulative to, and not exclusive of, any rights or remedies otherwise available.
11.16 Counterparts. This Agreement may be executed in one or more counterparts, and by the
different parties hereto in separate counterparts, each of which when executed shall be deemed to
be an original, but all of which taken together shall constitute one and the same agreement. A
facsimile transmission of this signed Agreement shall be legal and binding on all parties
hereto.
[SIGNATURES ON FOLLOWING PAGE]
PREFERRED STOCK PURCHASE AGREEMENT BETWEEN
CANEUM, INC. AND XXXXXX PARTNERS LP
PAGE 26 OF 28
CANEUM, INC. AND XXXXXX PARTNERS LP
PAGE 26 OF 28
IN WITNESS WHEREOF, the Investors and the Company have as of the date first written above
executed this Agreement.
| THE COMPANY: CANEUM, INC. |
||||
| /s/ Suki Mudan | ||||
| By: | Suki Mudan | |||
| Title: | President | |||
| INVESTOR: XXXXXX PARTNERS LP |
||||
| By: | Xxxxxx Capital Advisors, LLC, its General Partners | |||
| /s/ Xxxxxx Xxxxxx Xxxxxx | ||||
| Xxxxxx Xxxxxx Xxxxxx | ||||
| President 000 Xxxxx Xxxxxx, 0xx Xxxxx Xxx Xxxx XX 00000 |
||||
PREFERRED STOCK PURCHASE AGREEMENT BETWEEN
CANEUM, INC. AND XXXXXX PARTNERS LP
PAGE 27 OF 28
CANEUM, INC. AND XXXXXX PARTNERS LP
PAGE 27 OF 28
Schedule A
| NUMBER OF SHARES | ||||||||||||
| OF COMMON STOCK | NUMBER OF SHARES | |||||||||||
| AMOUNT OF | INTO WHICH PREFERRED | UNDERLYING | ||||||||||
| NAME AND ADDRESS | INVESTMENT | STOCK IS CONVERTIBLE | WARRANTS | |||||||||
Xxxxxx Partners LP 000 Xxxxx Xxxxxx, 0xx Xxxxx Xxx Xxxx, Xxx Xxxx 00000 Attn: Xxxxxx Xxxxxx Xxxxxx |
$2,000,000 | 4,000,000 | 8,000,000 | |||||||||
PREFERRED STOCK PURCHASE AGREEMENT BETWEEN
CANEUM, INC. AND XXXXXX PARTNERS LP
PAGE 28 OF 28
CANEUM, INC. AND XXXXXX PARTNERS LP
PAGE 28 OF 28
