Exhibit 4.1
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "Agreement") is dated as of
January 10, 2005 among United Network Marketing Services, Inc., a Delaware
corporation (the "Company"), and each purchaser identified on the signature
pages hereto (each, including its successors and assigns, a "Purchaser" and
collectively the "Purchasers").
WHEREAS, subject to the terms and conditions set forth in this
Agreement and pursuant to Section 4(2) of the Securities Act of 1933, as amended
(the "Securities Act") and Rule 506 promulgated thereunder, the Company desires
to issue and sell to each Purchaser, and each Purchaser, severally and not
jointly, desires to purchase from the Company, shares of Series B Convertible
Preferred Stock of the Company and Common Stock Purchase Warrants of the Company
on the Closing Date, as more fully described in this Agreement.
WHEREAS, the Company intends to enter into an Agreement and Plan of
Merger among the Company, Knockout Acquisition Corp., a Delaware corporation and
a wholly owned subsidiary of the Company ("Merger Sub"), and The Knockout Group,
Inc., a Delaware corporation ("Knockout"), by which Knockout will merge with and
into Merger Sub and Knockout will be the surviving entity from the Merger.
WHEREAS, the Merger shall occur before the sale of the Securities by
the Company to the Purchasers and the Purchasers are accordingly purchasing
Securities of the post-Merger Company under this Agreement.
WHEREAS, subsequent to the Merger, the Company, through its wholly
owned subsidiary, Knockout, will be engaged in the business of selling household
and automobile cleaning products that are based on a proprietary encapsulation
technology.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in
this Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and each Purchaser agrees
as follows:
ARTICLE I.
DEFINITIONS
1.1 Definitions. In addition to the terms defined elsewhere in this
Agreement, the following terms have the meanings indicated in this Section 1.1:
"Action" shall have the meaning ascribed to such term in
Section 3.1(j).
"Affiliate" means any Person that, directly or indirectly
through one or more intermediaries, controls or is controlled by or is
under common control with a Person, as such terms are used in and
construed under Rule 144 under the Securities Act. With respect to a
Purchaser, any investment fund or managed account that is managed on a
discretionary basis by the same investment manager as such Purchaser
will be deemed to be an Affiliate of such Purchaser.
"Closing" means the closing of the purchase and sale of the
Securities pursuant to Section 2.2.
"Closing Date" means the date when all of the Transaction
Documents have been executed and delivered by the applicable parties
thereto, and all conditions precedent to (i) the Purchasers'
obligations to pay the Subscription Amount and (ii) the Company's
obligations to deliver the Securities have been satisfied or waived.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock of the Company, $.001
par value per share, and any securities into which such common stock
shall hereinafter have been reclassified into.
"Common Stock Equivalents" means any securities of the Company
or the Subsidiaries which would entitle the Stockholder thereof to
acquire at any time Common Stock, including without limitation, any
debt, preferred stock, rights, options, warrants or other instrument
that is at any time convertible into or exchangeable for, or otherwise
entitles the Stockholder thereof to receive, Common Stock.
"Company Counsel" means Sichenzia Xxxx Xxxxxxxx Xxxxxxx LLP.
"Conversion Price" shall have the meaning as set forth in
Section 2.7(b).
"Disclosure Schedules" means the Disclosure Schedules of the
Company delivered concurrently herewith.
"Effective Date" means the date that the initial Registration
Statement filed by the Company pursuant to the Registration Rights
Agreement is first declared effective by the Commission.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exempt Issuance" means the issuance of (a) shares of Common
Stock or options to officers, directors, employees or consultants of
the Company pursuant to any stock or option plan duly adopted by a
majority of the members of the Board of Directors of the Company or a
majority of the members of a committee of directors established for
such purpose, (b) securities upon the conversion of any securities
issued hereunder, convertible securities, options or warrants issued
and outstanding on the date of this Agreement, provided that such
securities have not been amended since the date of this Agreement to
increase the number of such securities, 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
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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.
"GAAP" shall have the meaning ascribed to such term in Section
3.1(h) hereof.
"Knockout Offering" shall mean a private placement by The
Knockout Group, Inc., a Delaware corporation and a wholly owned
subsidiary of the Company, of up to an aggregate of $2,500,000 of
Series C Convertible Preferred Stock of The Knockout Group, Inc., which
shall have completed prior to the Closing Date.
"Liens" means a lien, charge, security interest, encumbrance,
right of first refusal, preemptive right or other restriction.
"Material Adverse Effect" shall have the meaning assigned to
such term in Section 3.1(b) hereof.
"Material Permits" shall have the meaning ascribed to such
term in Section 3.1(m).
"Merger" shall mean the merger of The Knockout Group, Inc., a
Delaware corporation, with and into a wholly owned subsidiary ofthe
Company. "Person" means an individual or corporation, partnership,
trust, incorporated or unincorporated association, joint venture,
limited liability company, joint stock company, government (or an
agency or subdivision thereof) or other entity of any kind.
"Preferred Stock" means, the Series B Convertible Preferred
Stock issued by the Company to the Purchasers hereunder, in the form of
Exhibit A.
"Proceeding" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated the date hereof, among the Company and the Purchasers,
in the form of Exhibit B attached hereto.
"Registration Statement" means a registration statement
meeting the requirements set forth in the Registration Rights Agreement
and covering the resale of the Underlying Shares by each Purchaser as
provided for in the Registration Rights Agreement.
"Required Approvals" shall have the meaning ascribed to such
term in Section 3.1(e).
"Rule 144" means Rule 144 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time
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to time, or any similar rule or regulation hereafter adopted by the
Commission having substantially the same effect as such Rule.
"Securities" means the Preferred Stock, the Warrants and the
Underlying Shares.
"Securities Act" means the Securities Act of 1933, as amended.
"Subscription Amount" means, as to each Purchaser, the
aggregate amount to be paid for the Preferred Stock purchased hereunder
as specified below such Purchaser's name on the signature page of this
Agreement and next to the heading "Subscription Amount," in United
States Dollars and in immediately available funds.
"Subsidiary" means any subsidiary of the Company as set forth
on Schedule 3.1(a).
"Trading Day" means a day on which the Common Stock is traded
on a Trading Market.
"Trading Market" means the following markets or exchanges on
which the Common Stock is listed or quoted for trading on the date in
question: the Nasdaq SmallCap Market, the American Stock Exchange, the
New York Stock Exchange, the Nasdaq National Market or the OTC Bulletin
Board.
"Transaction Documents" means this Agreement, the Warrants,
the Registration Rights Agreement, the Accredited Investor
Questionnaire and any other documents or agreements executed in
connection with the transactions contemplated hereunder.
"Underlying Shares" means the shares of Common Stock issuable
upon: (i) conversion of the Preferred Stock, and (ii) exercise of the
Warrants.
"Warrants" means the Common Stock Purchase Warrants, in the
form of Exhibit C, delivered to the Purchasers at the Closing in
accordance with Section 2.3(a)(iii) hereof, which warrants shall be
exercisable immediately upon issuance for a term of 5 years and have an
exercise price equal to $2.25, subject to adjustment as provided
therein.
ARTICLE II.
PURCHASE AND SALE
2.1 Purchase Price. The purchase price of the Preferred Stock shall be
$46.8933 per share (the "Purchase Price"). For each one share of Preferred Stock
purchased hereunder, each Purchaser will receive sixteen (16) Warrants. Each
Purchaser hereby agrees to purchase such number of shares of Preferred Stock and
Warrants for the aggregate Subscription Amount indicated on the signature page
hereto.
2.2 Closing. On the Closing Date, upon the terms and subject to the
conditions set forth herein, concurrent with the execution and delivery of this
Agreement by the parties hereto, the Company agrees to sell, and each Purchaser
agrees to purchase in the aggregate, severally and not jointly, at least
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$100,000 principal amount of the Preferred Stock and Warrants. Notwithstanding
the above, the Company may in its sole discretion accept purchases less than
$100,000 principal amount of the Preferred Stock and Warrants. Each Purchaser
shall deliver to an escrow account set up for the benefit of the Company via
wire transfer or a certified check immediately available funds equal to their
Subscription Amount and the Company shall deliver to each Purchaser their
respective Preferred Stock Certificates and Warrants as determined pursuant to
Section 2.3(a) and the other items set forth in Section 2.3(a) issuable at the
Closing. Upon satisfaction of the conditions set forth in Section 2.3, the
Closing shall occur at the offices of the Company, or such other location as the
parties shall mutually agree.
2.3 Deliveries.
a) On the Closing Date, the Company shall deliver to the
counsel for such Purchasers with respect to each
Purchaser the following:
(i) this Agreement duly executed by the Company;
(ii) a Preferred Stock Certificate representing
the number of shares of Preferred Stock so
purchased, in the name of such Purchaser;
(iii) within 3 Trading Days of the date hereof, a
Warrant, registered in the name of such
Purchaser, pursuant to which such Purchaser
shall have the right to acquire up to the
number of shares of Common Stock equal to
____________________; and
(iv) the Registration Rights Agreement duly
executed by the Company.
b) On the Closing Date, each Purchaser shall deliver or
cause to be delivered to Company Counsel the
following:
(i) this Agreement duly executed by such
Purchaser;
(ii) such Purchaser's Subscription Amount by wire
transfer to an escrow account established
for the benefit of the Company and
controlled by the Company;
(iii) the Registration Rights Agreement duly
executed by such Purchaser;
(iv) a completed Accredited Investor
Questionnaire; and
(v) a completed Form W-9 or W-8, as applicable.
c) On the Closing Date, the Company shall notify the
escrow agent to release the funds being held to the
Company.
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2.4 Closing Conditions.
a) The obligations of the Company hereunder in
connection with the Closing are subject to the
following conditions being met:
(i) the accuracy in all material respects when
made and on the Closing Date of the
representations and warranties of the
Purchasers contained herein;
(ii) all obligations, covenants and agreements of
the Purchasers required to be performed at
or prior to the Closing Date shall have been
performed;
(iii) the delivery by the Purchasers of the items
set forth in Section 2.3(b) of this
Agreement; and
(iv) the Company shall have completed the Merger.
b) The respective obligations of the Purchasers
hereunder in connection with the Closing are subject
to the following conditions being met:
(i) the accuracy in all material respects on the
Closing Date of the representations and
warranties of the Company contained herein;
(ii) all obligations, covenants and agreements of
the Company required to be performed at or
prior to the Closing Date shall have been
performed;
(iii) the Company shall have completed the Merger;
(iv) the delivery by the Company of the items set
forth in Section 2.3(a) of this Agreement;
and
(v) there shall have been no Material Adverse
Effect with respect to the Company since the
date hereof.
2.5 Dividends.
a) Payment of Dividend in Cash. The Company shall pay
dividends on the Preferred Stock at the rate of 10%
per annum, payable quarterly on January 1, April 1,
July 1 and October 1, beginning April 1, 2005, in
cash based on the stated value of all unconverted
Preferred Stock. The dividend rate shall be subject
to an adjustment based on Section 2.10, below. No
dividends shall be paid on previously converted
Preferred Stock.
b) Dividend Calculations. Dividends shall be calculated
on the basis of a 360-day year and shall accrue daily
commencing on the date hereof.
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c) Late Fee. All overdue accrued and unpaid dividends to
be paid hereunder shall entail a late fee at the rate
of 18% per annum of such accrued and unpaid dividend,
which will accrue daily from the date such dividend
is due hereunder through and including the date of
payment.
2.6 Investment Representations. The Preferred Stock has been issued
subject to certain investment representations set forth in the Purchase
Agreement and may be transferred or exchanged only in compliance with the
Purchase Agreement and applicable federal and state securities laws and
regulations.
2.7. Conversion.
a) Mandatory Conversion. Immediately after the Company
amends its Certificate of Incorporation to authorize
an increase in the Company's authorized number of
shares of Common Stock to a sufficient number of
shares of Common Stock so that all shares of
Preferred Stock may be converted into Common Stock
(the "Conversion Date"), the Preferred Stock shall
automatically convert into fully paid and
nonassessable shares of Common Stock (subject to the
limitations on conversion set forth in this
Agreement). Immediately after the Conversion Date,
the Company shall cancel the Preferred Stock.
b) Conversion Price. Subject to Section 2.7, the
conversion price in effect on the Conversion Date
shall equal $.2931 per share (the "Conversion
Price").
c) Mechanics of Conversion
i. Conversion Shares Issuable Upon Conversion
of Preferred Stock. The number of shares of
Common Stock issuable upon a conversion
hereunder shall be determined by the
quotient obtained by dividing (x) the stated
value of the Preferred Stock and (y) the
Conversion Price.
ii. Fractional Shares. Upon a conversion
hereunder the Company shall not be required
to issue fractions of shares of Common
Stock, but may if otherwise permitted, make
a cash payment in respect of any final
fraction of a share based on the stated
value of the Preferred Stock. If the Company
elects not, or is unable, to make such a
cash payment, the Purchaser shall be
entitled to receive, in lieu of the final
fraction of a share, one whole share of
Common Stock.
2.8. Certain Adjustments.
a) Subsequent Equity Sales. Other than an Exempt
Issuance, if the Company or any Subsidiary thereof,
as applicable, at any time while the Preferred Stock
is outstanding, shall issue any Common Stock or
Common Stock Equivalent for a per share or conversion
or exercise price per share which is less than the
Conversion Price, then, and thereafter successively
upon each such issue, the Conversion Price shall be
reduced to such other lower per share price.
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b) Calculations. All calculations under this Section 2.8
shall be made to the nearest cent or the nearest
1/100th of a share, as the case may be. The number of
shares of Common Stock outstanding at any given time
shall not include shares of Common Stock owned or
held by or for the account of the Company, and the
description of any such shares of Common Stock shall
be considered on issue or sale of Common Stock. For
purposes of this Section 2.8, the number of shares of
Common Stock deemed to be issued and outstanding as
of a given date shall be the sum of the number of
shares of Common Stock (excluding treasury shares, if
any) issued and outstanding.
c) Adjustment to Conversion Price. Whenever the
Conversion Price is adjusted pursuant to this
Section, the Company shall promptly mail to each
Stockholder a notice setting forth the Conversion
Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment. If
the Company issues a variable rate security, the
Company shall be deemed to have issued Common Stock
or Common Stock Equivalents at the lowest possible
conversion or exercise price at which such securities
may be converted or exercised.
2.9. Optional Redemption. At the option of the Company, at any time
after March 31, 2005, the Company may redeem all of the Preferred Stock at a
purchase price equal to the stated value of the Preferred Stock, plus all
accrued, but unpaid dividends. The Company shall give the Stockholders at least
10 days prior written notice of its intention to redeem the Preferred Stock.
2.10. Dividend Adjustment. In the event that the Preferred Stock has
not converted into Common Stock pursuant to Section 2.7(a) or has not been
redeemed by the Company as described in Section 2.9, above, within 180 days of
the Closing Date, the dividend rate shall increase to 20% per annum.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company. Except as set forth
in the Disclosure Schedules, which shall be deemed a part hereof, the Company
hereby makes the representations and warranties set forth below to each
Purchaser.
(a) Subsidiaries. All of the direct and indirect
subsidiaries of the Company are set forth in the
Disclosure Schedules. The Company owns, directly or
indirectly, all of the capital stock or other equity
interests of each Subsidiary free and clear of any
Liens, and all the issued and outstanding shares of
capital stock of each Subsidiary are validly issued
and are fully paid, non-assessable and free of
preemptive and similar rights to subscribe for or
purchase securities. If the Company has no
subsidiaries, then references in the Transaction
Documents to the Subsidiaries will be disregarded.
(b) Organization and Qualification. Each of the Company
and the Subsidiaries is an entity duly incorporated
or otherwise organized, validly existing and in good
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standing under the laws of the jurisdiction of its
incorporation or organization (as applicable), with
the requisite power and authority to own and use its
properties and assets and to carry on its business as
currently conducted. Neither the Company nor any
Subsidiary is in violation or default of any of the
provisions of its respective certificate or articles
of incorporation, bylaws or other organizational or
charter documents. Each of the Company and the
Subsidiaries is duly qualified to conduct business
and is in good standing as a foreign corporation or
other entity 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 or in good standing, as
the case may be, could not have or reasonably be
expected to result in (i) a material adverse effect
on the legality, validity or enforceability of any
Transaction Documents, (ii) a material adverse effect
on the results of operations, assets, business,
prospects or financial condition of the Company and
the Subsidiaries, taken as a whole, or (iii) a
material adverse effect on the Company's ability to
perform in any material respect on a timely basis its
obligations under any Transaction Document (any of
(i), (ii) or (iii), a "Material Adverse Effect") and
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.
(c) Authorization; Enforcement. The Company has the
requisite corporate power and authority to enter into
and to consummate the transactions contemplated by
each of the Transaction Documents 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 and no further action is required by the
Company in connection therewith other than in
connection with the Required Approvals. Each
Transaction Document has been (or upon delivery will
have been) duly executed by the Company and, when
delivered in accordance with the terms hereof, will
constitute the valid and binding obligation of the
Company enforceable against the Company in accordance
with its terms except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium
and other laws of general application affecting
enforcement of creditors' rights generally and (ii)
as limited by laws relating to the availability of
specific performance, injunctive relief or other
equitable remedies.
(d) No Conflicts. The execution, delivery and performance
of the Transaction Documents by the Company and the
consummation by the Company of the other transactions
contemplated thereby do not and will not: (i)
conflict with or violate any provision of the
Company's or any Subsidiary's certificate or articles
of incorporation, bylaws or other organizational or
charter documents, or (ii) conflict with, or
constitute a default (or an event that with notice or
lapse of time or both would become a default) under,
result in the creation of any Lien upon any of the
properties or assets of the Company or any
Subsidiary, or give to others any rights of
termination, amendment, acceleration or cancellation
(with or without notice, lapse of time or both) of,
any agreement, credit facility, debt or other
instrument (evidencing a Company or Subsidiary debt
or otherwise) or other understanding to which the
Company or any Subsidiary is a party or by which any
property or asset of the Company or any Subsidiary is
bound or affected, or (iii) subject to the Required
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Approvals, conflict with or result in a violation of
any law, rule, regulation, order, judgment,
injunction, decree or other restriction of any court
or governmental authority to which the Company or a
Subsidiary is subject (including federal and state
securities laws and regulations), or by which any
property or asset of the Company or a Subsidiary is
bound or affected; except in the case of each of
clauses (ii) and (iii), such as could not have or
reasonably be expected to result in a Material
Adverse Effect.
(e) Filings, Consents and Approvals. The Company is not
required to obtain any consent, waiver, authorization
or order of, give any notice to, 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, other than (i) the filing with the
Commission of the Registration Statement, (ii) the
notice and/or application(s) to each applicable
Trading Market for the issuance and sale of the
Preferred Stock and the listing of the Underlying
Shares for trading thereon in the time and manner
required thereby and (iii) the filing of Form D with
the Commission and such filings as are required to be
made under applicable state securities laws
(collectively, the "Required Approvals").
(f) Issuance of the Securities. The Securities are duly
authorized and, when issued and paid for in
accordance with the applicable Transaction Documents,
will be duly and validly issued, fully paid and
nonassessable, free and clear of all Liens imposed by
the Company other than restrictions on transfer
provided for in the Transaction Documents. The
Underlying Shares, when issued in accordance with the
terms of the Transaction Documents, will be validly
issued, fully paid and nonassessable, free and clear
of all Liens imposed by the Company. The Company has
reserved from its duly authorized capital stock a
number of shares of Common Stock for issuance of the
Underlying Shares at least equal to the Common Stock
that would result from full conversion of all
Preferred Stock on the date hereof. The Company has
not, and to the knowledge of the Company, no
Affiliate of the Company has sold, offered for sale
or solicited offers to buy or otherwise negotiated in
respect of any security (as defined in Section 2 of
the Securities Act) that would be integrated with the
offer or sale of the Securities in a manner that
would require the registration under the Securities
Act of the sale of the Securities to the Purchasers,
or that would be integrated with the offer or sale of
the Securities for purposes of the rules and
regulations of any Trading Market.
(g) Capitalization. The capitalization of the Company is
as set forth in the Disclosure Schedules. The Company
has not issued any capital stock other than pursuant
to the exercise of employee stock options under the
Company's stock option plans, the issuance of shares
of Common Stock to employees pursuant to the
Company's employee stock purchase plan and pursuant
to the conversion or exercise of outstanding Common
Stock Equivalents. No Person has any right of first
refusal, preemptive right, right of participation, or
any similar right to participate in the transactions
contemplated by the Transaction Documents. Except as
set forth in the Disclosure Schedules, as a result of
the purchase and sale of the Securities, there are no
outstanding options, warrants, script rights to
subscribe to, calls or commitments of any character
whatsoever relating to, or securities, rights or
obligations convertible into or exchangeable for, or
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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 or any Subsidiary is or may become bound
to issue additional shares of Common Stock, or
securities or rights convertible or exchangeable into
shares of Common Stock. The issuance and sale of the
Securities will not obligate the Company to issue
shares of Common Stock or other securities to any
Person (other than the Purchasers) and will not
result in a right of any Stockholder of Company
securities to adjust the exercise, conversion,
exchange or reset price under such securities. All of
the outstanding shares of capital stock of the
Company are validly issued, fully paid and
nonassessable, have been issued in compliance with
all federal and state securities laws, and none of
such outstanding shares was issued in violation of
any preemptive rights or similar rights to subscribe
for or purchase securities. No further approval or
authorization of any Stockholder, the Board of
Directors of the Company or others is required for
the issuance and sale of the Securities.
(h) Financial Statements. The audited financial
statements of the Company as of and for the periods
ended December 31, 2003 and 2002 have been prepared
in accordance with United States generally accepted
accounting principles applied on a consistent basis
during the periods involved ("GAAP"), except as may
be otherwise specified in such financial statements
and except that such unaudited financial statements
may not contain all footnotes required by GAAP, and
fairly present in all material respects the financial
position of the Company and its consolidated
subsidiaries as of and for the dates thereof and the
results of operations and cash flows for the periods
then ended, subject, in the case of unaudited
statements, to normal, immaterial, year-end audit
adjustments.
(i) Material Changes. Except as described in the
Disclosure Schedules, since the date of the latest
fiscal year (i) there has been no event, occurrence
or development that has had or that could reasonably
be expected to result in a Material Adverse Effect,
(ii) the Company has not incurred any liabilities
(contingent or otherwise) other than (A) trade
payables and accrued expenses incurred in the
ordinary course of business consistent with past
practice and (B) liabilities not required to be
reflected in the Company's financial statements
pursuant to GAAP, (iii) the Company has not altered
its method of accounting, (iv) the Company has not
declared or made any dividend or distribution of cash
or other property to its Stockholders or purchased,
redeemed or made any agreements to purchase or redeem
any shares of its capital stock and (v) the Company
has not issued any equity securities to any officer,
director or Affiliate, except pursuant to existing
Company stock option plans.
(j) Litigation. Other than as set forth in the Disclosure
Schedules, there is no action, suit, inquiry, notice
of violation, proceeding or investigation pending or,
to the knowledge of the Company, threatened against
or affecting the Company, any Subsidiary or any of
their respective properties before or by any court,
arbitrator, governmental or administrative agency or
regulatory authority (federal, state, county, local
or foreign) (collectively, an "Action") which (i)
adversely affects or challenges the legality,
validity or enforceability of any of the Transaction
Documents or the Securities or (ii) could, if there
were an unfavorable decision, have or reasonably be
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expected to result in a Material Adverse Effect.
Neither the Company nor any Subsidiary, nor any
director or officer thereof, is or has been the
subject of any Action involving a claim of violation
of or liability under federal or state securities
laws or a claim of breach of fiduciary duty. There
has not been, and to the knowledge of the Company,
there is not pending or contemplated, any
investigation by the Commission involving the Company
or any current or former director or officer of the
Company.
(k) Labor Relations. No material labor dispute exists or,
to the knowledge of the Company, is imminent with
respect to any of the employees of the Company which
could reasonably be expected to result in a Material
Adverse Effect.
(l) Compliance. Neither the Company nor any Subsidiary
(i) is in default under or in violation of (and no
event has occurred that has not been waived that,
with notice or lapse of time or both, would result in
a default by the Company or any Subsidiary under),
nor has the Company or any Subsidiary received notice
of a claim that it is in default under or that it is
in violation of, any indenture, loan or credit
agreement or any other agreement or instrument to
which it is a party or by which it or any of its
properties is bound (whether or not such default or
violation has been waived), (ii) is in violation of
any order of any court, arbitrator or governmental
body, or (iii) is in violation of any statute, rule
or regulation of any governmental authority,
including without limitation all foreign, federal,
state and local laws applicable to its business
except in each case as could not have a Material
Adverse Effect.
(m) Regulatory Permits. The Company and the Subsidiaries
possess all certificates, authorizations and permits
issued by the appropriate federal, state, local or
foreign regulatory authorities necessary to conduct
their respective businesses, except where the failure
to possess such permits could not have or reasonably
be expected to result in a Material Adverse Effect
("Material Permits"), and neither the Company nor any
Subsidiary has received any notice of proceedings
relating to the revocation or modification of any
Material Permit.
(n) Title to Assets. The Company and the Subsidiaries
have good and marketable title in fee simple to all
real property owned by them that is material to the
business of the Company and the Subsidiaries and good
and marketable title in all personal property owned
by them that is material to the business of the
Company and the Subsidiaries, in each case free and
clear of all Liens, except for Liens as do not
materially affect the value of such property and do
not materially interfere with the use made and
proposed to be made of such property by the Company
and the Subsidiaries and Liens for the payment of
federal, state or other taxes, the payment of which
is neither delinquent nor subject to penalties. Any
real property and facilities held under lease by the
Company and the Subsidiaries are held by them under
valid, subsisting and enforceable leases of which the
Company and the Subsidiaries are in compliance.
(o) Patents and Trademarks. The Company and the
Subsidiaries have, or have rights to use, all
patents, patent applications, trademarks, trademark
applications, service marks, trade names, copyrights,
licenses and other similar rights necessary or
12
material for use in connection with their respective
businesses and which the failure to so have could
have a Material Adverse Effect (collectively, the
"Intellectual Property Rights"). Neither the Company
nor any Subsidiary has received a written notice that
the Intellectual Property Rights used by the Company
or any Subsidiary violates or infringes upon the
rights of any Person. To the knowledge of the
Company, all such Intellectual Property Rights are
enforceable and there is no existing infringement by
another Person of any of the Intellectual Property
Rights of others.
(p) Insurance. The Company and the Subsidiaries are
insured by insurers of recognized financial
responsibility against such losses and risks and in
such amounts as are prudent and customary in the
businesses in which the Company and the Subsidiaries
are engaged, including, but not limited to, directors
and officers insurance. To the best of Company's
knowledge, such insurance contracts and policies are
accurate and complete. Neither the Company nor any
Subsidiary has any reason to believe that it will not
be able to renew its existing insurance coverage as
and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to
continue its business without a significant increase
in cost.
(q) Transactions With Affiliates and Employees. Except as
set forth in the Disclosure Schedules, 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, in each case in excess of $50,000
other than (i) for payment of salary or consulting
fees for services rendered, (ii) reimbursement for
expenses incurred on behalf of the Company and (iii)
for other employee benefits, including stock option
agreements under any stock option plan of the
Company.
(r) Intentionally Omitted.
(s) Certain Fees. Except for fees owed to Xxxxxx Capital
LLC and/or the Xxxxxx Group in relation to this
Offering, no brokerage or finder's fees or
commissions are or will be payable by the Company to
any broker, financial advisor or consultant, finder,
placement agent, investment banker, bank or other
Person with respect to the transactions contemplated
by this Agreement. The Purchasers shall have no
obligation with respect to any fees or with respect
to any claims made by or on behalf of other Persons
for fees of a type contemplated in this Section that
may be due in connection with the transactions
contemplated by this Agreement.
(t) Private Placement. Assuming the accuracy of the
Purchasers representations and warranties set forth
in Section 3.2, no registration under the Securities
Act is required for the offer and sale of the
13
Securities by the Company to the Purchasers as
contemplated hereby. The issuance and sale of the
Securities hereunder does not contravene the rules
and regulations of the Trading Market.
(u) Investment Company. The Company is not, and is not an
Affiliate of, and immediately after receipt of
payment for the Securities, will not be or be an
Affiliate of, an "investment company" within the
meaning of the Investment Company Act of 1940, as
amended. The Company shall conduct its business in a
manner so that it will not become subject to the
Investment Company Act.
(v) Registration Rights. Except as set forth on the
Disclosure Schedules, and other than the Purchasers,
no Person has any right to cause the Company to
effect the registration under the Securities Act of
any securities of the Company.
(w) Intentionally Omitted.
(x) Intentionally Omitted.
(y) Disclosure. All disclosure provided to the Purchasers
regarding the Company, its business and the
transactions contemplated hereby, including the
Disclosure Schedules to this Agreement, furnished by
or on behalf of the Company with respect to the
representations and warranties made herein are true
and correct with respect to such representations and
warranties and do not contain any untrue statement of
a material fact or omit to state any material fact
necessary in order to make the statements made
therein, in light of the circumstances under which
they were made, not misleading. The Company
acknowledges and agrees that no Purchaser makes or
has made any representations or warranties with
respect to the transactions contemplated hereby other
than those specifically set forth in Section 3.2
hereof.
(z) No Integrated Offering. Assuming the accuracy of the
Purchasers' representations and warranties set forth
in Section 3.2, neither the Company, nor any of its
affiliates, nor any Person acting on its or their
behalf has, directly or indirectly, made any offers
or sales of any security or solicited any offers to
buy any security, under circumstances that would
cause this offering of the Securities to be
integrated with prior offerings by the Company for
purposes of the Securities Act or any applicable
Stockholder approval provisions, including, without
limitation, under the rules and regulations of any
exchange or automated quotation system on which any
of the securities of the Company are listed or
designated.
(aa) Intentionally Omitted.
(bb) Tax Status. Except for matters that would not,
individually or in the aggregate, have or reasonably
be expected to result in a Material Adverse Effect,
the Company and each Subsidiary has filed all
necessary federal, state and foreign income and
franchise tax returns and has paid or accrued all
taxes shown as due thereon, and the Company has no
knowledge of a tax deficiency which has been asserted
or threatened against the Company or any Subsidiary.
14
(cc) No General Solicitation. Neither the Company nor any
person acting on behalf of the Company has offered or
sold any of the Securities by any form of general
solicitation or general advertising. The Company has
offered the Securities for sale only to the
Purchasers and certain other "accredited investors"
within the meaning of Rule 501 under the Securities
Act.
(dd) Foreign Corrupt Practices. Neither the Company, nor
to the knowledge of the Company, any agent or other
person acting on behalf of the Company, has (i)
directly or indirectly, used any corrupt funds for
unlawful contributions, gifts, entertainment or other
unlawful expenses related to foreign or domestic
political activity, (ii) made any unlawful payment to
foreign or domestic government officials or employees
or to any foreign or domestic political parties or
campaigns from corporate funds, (iii) failed to
disclose fully any contribution made by the Company
(or made by any person acting on its behalf of which
the Company is aware) which is in violation of law,
or (iv) violated in any material respect any
provision of the Foreign Corrupt Practices Act of
1977, as amended.
(ee) Accountants. Knockout is in the process of retaining
BDO Xxxxxxx, LLP as its accountants. Knockout expects
that such accountants will express their opinion with
respect to the financial statements of Knockout for
the year ended December 31, 2003 and will provide a
review of the financial statements of Knockout for
the period ended September 30, 2004.
(ff) Intentionally Omitted.
(gg) Intentionally Omitted.
(hh) Acknowledgment Regarding Purchasers' Purchase of
Securities. The Company acknowledges and agrees that
each of the Purchasers is acting solely in the
capacity of an arm's length purchaser with respect to
the Transaction Documents and the transactions
contemplated hereby. The Company further acknowledges
that no Purchaser is acting as a financial advisor or
fiduciary of the Company (or in any similar capacity)
with respect to this Agreement and the transactions
contemplated hereby and any advice given by any
Purchaser or any of their respective representatives
or agents in connection with this Agreement and the
transactions contemplated hereby is merely incidental
to the Purchasers' purchase of the Securities. The
Company further represents to each Purchaser that the
Company's decision to enter into this Agreement has
been based solely on the independent evaluation of
the transactions contemplated hereby by the Company
and its representatives. The Company further
acknowledges that in addition to purchasing
Securities, the Purchasers or their affiliates may
directly or indirectly own Common Stock and Preferred
Stock in the Company and that such parties,
exercising their rights hereunder may adversely
impact their other holdings as well as the other
equity Stockholders in the Company.
15
3.2 Representations and Warranties of the Purchasers. Each Purchaser
hereby, for itself and for no other Purchaser, represents and warrants as of the
date hereof and as of the Closing Date to the Company as follows:
(a) Organization; Authority. Such Purchaser is an
accredited investor and in the case of an entity, as
opposed to and individual, such entity is duly
organized, validly existing and in good standing
under the laws of the jurisdiction of its
organization with full right, corporate or
partnership power and authority to enter into and to
consummate the transactions contemplated by the
Transaction Documents and otherwise to carry out its
obligations thereunder. The execution, delivery and
performance by such Purchaser of the transactions
contemplated by this Agreement have been duly
authorized by all necessary corporate or similar
action on the part of such Purchaser. Each
Transaction Document to which it is a party has been
duly executed by such Purchaser, and when delivered
by such Purchaser in accordance with the terms
hereof, will constitute the valid and legally binding
obligation of such Purchaser, enforceable against it
in accordance with its terms, except (i) as limited
by general equitable principles and applicable
bankruptcy, insolvency, reorganization, moratorium
and other laws of general application affecting
enforcement of creditors' rights generally, (ii) as
limited by laws relating to the availability of
specific performance, injunctive relief or other
equitable remedies and (iii) insofar as
indemnification and contribution provisions may be
limited by applicable law.
(b) Purchaser Representation. Such Purchaser understands
that the Securities are "restricted securities" and
have not been registered under the Securities Act or
any applicable state securities law and is acquiring
the Securities as principal for its own account and
not with a view to or for distributing or reselling
such Securities or any part thereof, has no present
intention of distributing any of such Securities and
has no arrangement or understanding with any other
persons regarding the distribution of such Securities
(this representation and warranty not limiting such
Purchaser's right to sell the Securities pursuant to
the Registration Statement or otherwise in compliance
with applicable federal and state securities laws).
Such Purchaser is acquiring the Securities hereunder
in the ordinary course of its business. Such
Purchaser does not have any agreement or
understanding, directly or indirectly, with any
Person to distribute any of the Securities.
(c) Purchaser Status. At the time such Purchaser was
offered the Securities, it was, and at the date
hereof it is, and on each date it converts any
Preferred Stock or exercises any Warrants it will be
either: (i) an "accredited investor" as defined in
Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8)
under the Securities Act or (ii) a "qualified
institutional buyer" as defined in Rule 144A(a) under
the Securities Act. Such Purchaser is not required to
be registered as a broker-dealer under Section 15 of
the Exchange Act.
(d) Experience of Such Purchaser. Such Purchaser, either
alone or together with its representatives, has such
knowledge, sophistication and experience in business
and financial matters so as to be capable of
evaluating the merits and risks of the prospective
investment in the Securities, and has so evaluated
the merits and risks of such investment. Such
Purchaser is able to bear the economic risk of an
16
investment in the Securities and, at the present
time, is able to afford a complete loss of such
investment.
(e) General Solicitation. Such Purchaser is not
purchasing the Securities as a result of any
advertisement, article, notice or other communication
regarding the Securities published in any newspaper,
magazine or similar media or broadcast over
television or radio or presented at any seminar or
any other general solicitation or general
advertisement.
(f) Registration Required. Each Purchaser hereby
covenants with the Company not to make any sale of
the Securities without complying with the provisions
hereof and of the Registration Rights Agreement, and
without effectively causing the prospectus delivery
requirement under the Securities Act to be satisfied
(unless such Purchaser is selling such Securities in
a transaction not subject to the prospectus delivery
requirement), and such Purchaser acknowledges that
the certificates evidencing the Underlying Shares
will be imprinted with a legend that prohibits their
transfer except in accordance therewith.
The Company acknowledges and agrees that each Purchaser does
not make or has not made any representations or warranties with respect
to the transactions contemplated hereby other than those specifically
set forth in this Section 3.2.
ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
4.1 Transfer Restrictions.
(a) The Securities may only be disposed of in compliance
with state and federal securities laws. In connection
with any transfer of Securities other than pursuant
to an effective registration statement or Rule 144,
to the Company or to an affiliate of a Purchaser or
in connection with a pledge as contemplated in
Section 4.1(b), the Company may require the
transferor thereof to provide to the Company an
opinion of counsel selected by the transferor and
reasonably acceptable to the Company, the form and
substance of which opinion shall be reasonably
satisfactory to the Company, to the effect that such
transfer does not require registration of such
transferred Securities under the Securities Act. As a
condition of transfer, any such transferee shall
agree in writing to be bound by the terms of this
Agreement and shall have the rights of a Purchaser
under this Agreement and the Registration Rights
Agreement.
(b) The Purchasers agree to the imprinting, so long as is
required by this Section 4.1(b), of a legend on any
of the Securities in the following form:
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES
ARE CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON
AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR
17
SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS
AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH
EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF
THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.
The Company acknowledges and agrees that a Purchaser may from
time to time pledge pursuant to a bona fide margin agreement with a
registered broker-dealer or grant a security interest in some or all of
the Securities to a financial institution that is an "accredited
investor" as defined in Rule 501(a) under the Securities Act and who
agrees to be bound by the provisions of this Agreement and the
Registration Rights Agreement and, if required under the terms of such
arrangement, such Purchaser may transfer pledged or secured Securities
to the pledgees or secured parties. Such a pledge or transfer would not
be subject to approval of the Company and no legal opinion of legal
counsel of the pledgee, secured party or pledgor shall be required in
connection therewith. Further, no notice shall be required of such
pledge. At the appropriate Purchaser's expense, the Company will
execute and deliver such reasonable documentation as a pledgee or
secured party of Securities may reasonably request in connection with a
pledge or transfer of the Securities, including, if the Securities are
subject to registration pursuant to the Registration Rights Agreement,
the preparation and filing of any required prospectus supplement under
Rule 424(b)(3) under the Securities Act or other applicable provision
of the Securities Act to appropriately amend the list of Selling
Stockholders thereunder.
(c) Certificates evidencing the Underlying Shares shall
not contain any legend (including the legend set
forth in Section 4.1(b) hereof): (i) while a
registration statement (including the Registration
Statement) covering the resale of such security is
effective under the Securities Act, or (ii) following
any sale of such Underlying Shares pursuant to Rule
144, or (iii) if such Underlying Shares are eligible
for sale under Rule 144(k), or (iv) if such legend is
not required under applicable requirements of the
Securities Act (including judicial interpretations
and pronouncements issued by the staff of the
Commission). The Company shall cause its counsel to
issue a legal opinion to the Company's transfer agent
promptly after the Effective Date if required by the
Company's transfer agent to effect the removal of the
legend hereunder. If all or any portion of the
Preferred Stock is converted or exercised (as
applicable) at a time when there is an effective
registration statement to cover the resale of the
Underlying Shares, or if such Underlying Shares may
be sold under Rule 144(k) or if such legend is not
otherwise required under applicable requirements of
the Securities Act (including judicial
interpretations thereof) then such Underlying Shares
shall be issued free of all legends. The Company
agrees that following the Effective Date or at such
18
time as such legend is no longer required under this
Section 4.1(c), it will, no later than five Trading
Days following the delivery by a Purchaser to the
Company or the Company's transfer agent of a
certificate representing Underlying Shares, as
applicable, issued with a restrictive legend (such
fifth Trading Day, the "Legend Removal Date"),
deliver or cause to be delivered to such Purchaser a
certificate representing such shares that is free
from all restrictive and other legends. The Company
may not make any notation on its records or give
instructions to any transfer agent of the Company
that enlarge the restrictions on transfer set forth
in this Section.
(d) Each Purchaser, severally and not jointly with the
other Purchasers, agrees that the removal of the
restrictive legend from certificates representing
Securities as set forth in this Section 4.1 is
predicated upon the Company's reliance that the
Purchaser will sell any Securities pursuant to either
the registration requirements of the Securities Act,
including any applicable prospectus delivery
requirements, or an exemption therefrom.
4.2 Acknowledgment of Dilution. The Company acknowledges that the
issuance of the Securities may result in dilution of the outstanding shares of
Common Stock, which dilution may be substantial under certain market conditions.
The Company further acknowledges that its obligations under the Transaction
Documents, including without limitation its obligation to issue the Underlying
Shares pursuant to the Transaction Documents, are unconditional and absolute and
not subject to any right of set off, counterclaim, delay or reduction,
regardless of the effect of any such dilution or any claim the Company may have
against any Purchaser and regardless of the dilutive effect that such issuance
may have on the ownership of the other Stockholders of the Company.
4.3 Intentionally Omitted.
4.4 Integration. The Company shall not sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the Securities in a manner that would require the registration under the
Securities Act of the sale of the Securities to the Purchasers or that would be
integrated with the offer or sale of the Securities for purposes of the rules
and regulations of any Trading Market.
4.5 Conversion and Exercise Procedures. No additional legal opinion or
other information or instructions shall be required of the Purchasers to convert
their Preferred Stock or exercise their Warrants. The Company shall honor
conversions of the Preferred Stock and exercise of the Warrants and shall
deliver Underlying Shares in accordance with the terms, conditions and time
periods set forth in the Transaction Documents.
4.6 Intentionally Omitted.
4.7 Stockholder Rights Plan. No claim will be made or enforced by the
Company or, to the knowledge of the Company, any other Person that any Purchaser
is an "Acquiring Person" under any Stockholder rights plan or similar plan or
arrangement in effect or hereafter adopted by the Company, or that any Purchaser
19
could be deemed to trigger the provisions of any such plan or arrangement, by
virtue of receiving Securities under the Transaction Documents or under any
other agreement between the Company and the Purchasers. The Company shall
conduct its business in a manner so that it will not become subject to the
Investment Company Act.
4.8 Non-Public Information. The Company covenants and agrees that
neither it nor any other Person acting on its behalf will provide any Purchaser
or its agents or counsel with any information that the Company believes
constitutes material non-public information, unless prior thereto such Purchaser
shall have executed a written agreement regarding the confidentiality and use of
such information. The Company understands and confirms that each Purchaser shall
be relying on the foregoing representations in effecting transactions in
securities of the Company.
4.9 Use of Proceeds. The Company shall use the net proceeds from the
sale of the Securities hereunder substantially in accordance with the
description in the Disclosure Schedules attached hereto.
4.10 Intentionally Omitted.
4.11 Indemnification of Purchasers. Subject to the provisions of this
Section 4.11, the Company will indemnify and hold the Purchasers and their
directors, officers, stockholders, partners, employees and agents (each, a
"Purchaser Party") harmless from any and all losses, liabilities, obligations,
claims, contingencies, damages, costs and expenses, including all judgments,
amounts paid in settlements, court costs and reasonable attorneys' fees and
costs of investigation that any such Purchaser Party may suffer or incur as a
result of or relating to (a) any breach of any of the representations,
warranties, covenants or agreements made by the Company in this Agreement or in
the other Transaction Documents or (b) any action instituted against a
Purchaser, or any of them or their respective Affiliates, by any stockholder of
the Company who is not an Affiliate of such Purchaser, with respect to any of
the transactions contemplated by the Transaction Documents (unless such action
is based upon a breach of such Purchaser's representation, warranties or
covenants under the Transaction Documents or any agreements or understandings
such Purchaser may have with any such stockholder or any violations by the
Purchaser of state or federal securities laws or any conduct by such Purchaser
which constitutes fraud, gross negligence, willful misconduct or malfeasance).
If any action shall be brought against any Purchaser Party in respect of which
indemnity may be sought pursuant to this Agreement, such Purchaser Party shall
promptly notify the Company in writing, and the Company shall have the right to
assume the defense thereof with counsel of its own choosing. Any Purchaser Party
shall have the right to employ separate counsel in any such action and
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Purchaser Party except to the extent that (i)
the employment thereof has been specifically authorized by the Company in
writing, (ii) the Company has failed after a reasonable period of time to assume
such defense and to employ counsel or (iii) in such action there is, in the
reasonable opinion of such separate counsel, a material conflict on any material
issue between the position of the Company and the position of such Purchaser
Party. The Company will not be liable to any Purchaser Party under this
Agreement (i) for any settlement by a Purchaser Party effected without the
Company's prior written consent, which shall not be unreasonably withheld or
delayed; or (ii) to the extent, but only to the extent that a loss, claim,
20
damage or liability is attributable to any Purchaser Party's breach of any of
the representations, warranties, covenants or agreements made by the Purchasers
in this Agreement or in the other Transaction Documents.
4.12 Reservation of Securities.
(a) The Company shall maintain a reserve from its duly
authorized shares of Common Stock for issuance
pursuant to the Transaction Documents in such amount
as may be required to fulfill its obligations in full
under the Transaction Documents (the "Required
Minimum").
(b) If, on any date, the number of authorized but
unissued (and otherwise unreserved) shares of Common
Stock is less than the Required Minimum on such date,
then the Board of Directors of the Company shall use
commercially reasonable efforts to amend the
Company's certificate or articles of incorporation to
increase the number of authorized but unissued shares
of Common Stock to at least the number of shares of
Common Stock that would result from the full
conversion of the Preferred Stock and exercise of the
Warrants at such time, as soon as possible and in any
event not later than the 75th day after such date.
4.13 Intentionally Omitted.
4.14 Equal Treatment of Purchasers. No consideration shall be offered
or paid to any person to amend or consent to a waiver or modification of any
provision of any of the Transaction Documents unless the same consideration is
also offered to all of the parties to the Transaction Documents. For
clarification purposes, this provision constitutes a separate right granted to
each Purchaser by the Company and negotiated separately by each Purchaser, and
is intended to treat for the Company the Preferred Stock Stockholders as a class
and shall not in any way be construed as the Purchasers acting in concert or as
a group with respect to the purchase, disposition or voting of Securities or
otherwise.
4.15 Most Favored Nation Provision. Other than an Exempt Issuance, if
at any time while the Preferred Stock is outstanding, the Company issues Common
Stock or Common Stock Equivalents to any Person at a per share or conversion or
exercise price per share which is less than the Conversion Price, then the
Company shall issue, for each such occasion, additional shares of Common Stock
to each Purchaser so that the Conversion Price is equal to such other lower
price per share.
4.16 Adjustment to Knockout Offering. The Purchasers hereby acknowledge
and agree that upon Closing, investors in the Knockout Offering will
automatically receive Warrants to purchase shares of Common Stock of the Company
in accordance with their respective subscription amount on the same terms of the
Warrants as set forth in this Agreement.
21
ARTICLE V.
MISCELLANEOUS
5.1 Termination. This Agreement may be terminated by any Purchaser, by
written notice to the other parties, if the Closing has not been consummated on
or before January 31, 2005; provided that no such termination will affect the
right of any party to xxx for any breach by the other party (or parties).
5.2 Legal Fees. Except as expressly set forth in the Transaction
Documents to the contrary, each party shall pay the fees and expenses of its
advisers, counsel, accountants and other experts, if any, and all other expenses
incurred by such party incident to the negotiation, preparation, execution,
delivery and performance of this Agreement. The Company shall pay all transfer
agent fees, stamp taxes and other taxes and duties levied in connection with the
issuance of any Securities.
5.3 Entire Agreement. The Transaction Documents, together with the
exhibits and schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.
5.4 Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
set forth on the signature pages attached hereto prior to 5:30 p.m. (New York
City time) on a Trading Day, (b) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number set forth on the signature pages attached hereto on a day that
is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading
Day, (c) the second Trading Day following the date of mailing, if sent by U.S.
nationally recognized overnight courier service, or (d) upon actual receipt by
the party to whom such notice is required to be given. The address for such
notices and communications shall be as set forth on the signature pages attached
hereto.
5.5 Amendments; Waivers. No provision of this Agreement may be waived
or amended except in a written instrument signed, in the case of an amendment,
by the Company and each Purchaser or, in the case of a waiver, by the party
against whom enforcement of any such waiver is sought. No waiver of any default
with respect to any provision, condition or requirement of this Agreement shall
be deemed to be a continuing waiver in the future or a waiver of any subsequent
default or a waiver of any other provision, condition or requirement hereof, nor
shall any delay or omission of either party to exercise any right hereunder in
any manner impair the exercise of any such right.
5.6 Construction. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.
5.7 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
The Company may not assign this Agreement or any rights or obligations hereunder
22
without the prior written consent of each Purchaser. Any Purchaser may assign
any or all of its rights under this Agreement to any Person to whom such
Purchaser assigns or transfers any Securities, provided such transferee agrees
in writing to be bound, with respect to the transferred Securities, by the
provisions hereof that apply to the "Purchasers".
5.8 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except as otherwise set forth in Section 4.11.
5.9 Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflicts of law thereof. Each
party agrees that all legal proceedings concerning the interpretations,
enforcement and defense of the transactions contemplated by this Agreement and
any other Transaction Documents (whether brought against a party hereto or its
respective affiliates, directors, officers, stockholders, employees or agents)
shall be commenced exclusively in the state and federal courts sitting in the
City of New York. Each party hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in the City of New York,
borough of Manhattan for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein (including with respect to the enforcement of any of the Transaction
Documents), and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is improper
or inconvenient venue for such proceeding. Each party hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof via registered or certified
mail or overnight delivery (with evidence of delivery) to such party at the
address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. The parties hereby waive all
rights to a trial by jury. If either party shall commence an action or
proceeding to enforce any provisions of the Transaction Documents, then the
prevailing party in such action or proceeding shall be reimbursed by the other
party for its attorneys' fees and other costs and expenses incurred with the
investigation, preparation and prosecution of such action or proceeding.
5.10 Survival. The representations and warranties contained herein
shall survive the Closing and the delivery, exercise and/or conversion of the
Securities, as applicable for the applicable statue of limitations.
5.11 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
23
executed) with the same force and effect as if such facsimile signature page
were an original thereof.
5.12 Severability. If any provision of this Agreement is held to be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.
5.13 Rescission and Withdrawal Right. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Purchaser exercises a right, election,
demand or option under a Transaction Document and the Company does not timely
perform its related obligations within the periods therein provided, then such
Purchaser may rescind or withdraw, in its sole discretion from time to time upon
written notice to the Company, any relevant notice, demand or election in whole
or in part without prejudice to its future actions and rights; provided,
however, in the case of a rescission of a conversion of the Preferred Stock, the
Purchaser shall be required to return any shares of Common Stock subject to any
such rescinded conversion or exercise notice.
5.14 Replacement of Securities. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof, or in lieu of and substitution therefor, a new certificate
or instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested. The applicants for a new certificate or instrument
under such circumstances shall also pay any reasonable third-party costs
associated with the issuance of such replacement Securities.
5.15 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchasers and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific performance of any such obligation the defense that a
remedy at law would be adequate.
5.16 Intentionally Omitted.
5.17 Intentionally Omitted.
5.18 Independent Nature of Purchasers' Obligations and Rights. The
obligations of each Purchaser under any Transaction Document are several and not
joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Document. Nothing contained herein or in any
Transaction Document, and no action taken by any Purchaser pursuant thereto,
shall be deemed to constitute the Purchasers as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert or as a group with respect to such
24
obligations or the transactions contemplated by the Transaction Document. Each
Purchaser shall be entitled to independently protect and enforce its rights,
including without limitation the rights arising out of this Agreement or out of
the other Transaction Documents, and it shall not be necessary for any other
Purchaser to be joined as an additional party in any proceeding for such
purpose. Each Purchaser has been represented by its own separate legal counsel
in their review and negotiation of the Transaction Documents. For reasons of
administrative convenience only, Purchasers and their respective counsel have
chosen to communicate with the Company through Xxxxxx Capital LLC. Xxxxxx
Capital LLC does not represent all of the Purchasers but only itself. The
Company has elected to provide all Purchasers with the same terms and
Transaction Documents for the convenience of the Company and not because it was
required or requested to do so by the Purchasers.
5.19 Liquidated Damages. The Company's obligations to pay any partial
liquidated damages or other amounts owing under the Transaction Documents is a
continuing obligation of the Company and shall not terminate until all unpaid
partial liquidated damages and other amounts have been paid notwithstanding the
fact that the instrument or security pursuant to which such partial liquidated
damages or other amounts are due and payable shall have been canceled.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
25
IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
UNITED NETWORK MARKETING SERVICES, INC. Address for Notice:
-------------------
/s/ Xxxx Xxxxxxx 000 X. Xxxxxxxxx Xxx.
------------------------------
Name: Xxxx Xxxxxxx Xxxxxxxxx, XX 00000
Title: Chief Executive Officer
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
With a copy to (which shall not
constitute notice):
Sichenzia Xxxx Xxxxxxxx Xxxxxxx LLP
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, XX 00000 Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxxxxx Xxxxxxxxx, Esq.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR PURCHASER FOLLOWS]
26
[PURCHASER SIGNATURE PAGES TO UNITED NETWORK MARKETING SERVICES, INC. SECURITIES
PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
Name of Investor: DCOFI Master, LDC
--------------------------------------------------------------
Signature of Authorized Signatory
(if Investor is an Entity): /s/ Xxxxxxx Xxxxxxxxx
--------------------------------------------------
Name of Authorized Signatory: Xxxxxxx Xxxxxxxxx
--------------------------------------------------
Title of Authorized Signatory: Director
-------------------------------------------------
Email Address of Authorized Entity: xx@xxxxxxx.xxx
--------------------------------------------
Address for Notice of Investor:
c/o M&C Corporate Services Limited
P.O. Box 309GT
Xxxxxx House, Georgetown, Grand Cayman
Address for Delivery of Securities for Investor (if not same as above):
000 Xxxxx Xxxxxx, 00xx Xx.
Xxx Xxxx, XX 00000
Subscription Amount: $600,000
Shares of Preferred Stock: 12,795
Warrants: 204,720
Social Security Number (EIN Number if Investor is an Entity):
[SIGNATURE PAGES CONTINUE]
27
[PURCHASER SIGNATURE PAGES TO UNITED NETWORK MARKETING SERVICES, INC. SECURITIES
PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
Name of Investor: Bridges & Pipes LLC
--------------------------------------------------------------
Signature of Authorized Signatory(if Investor is an Entity): /s/ Xxxxx Xxxxx
-------------------
Name of Authorized Signatory: Xxxxx Xxxxx
--------------------------------------------------
Title of Authorized Signatory: Managing Member
-------------------------------------------------
Email Address of Authorized Entity:
--------------------------------------------
Address for Notice of Investor:
000 0xx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
Address for Delivery of Securities for Investor (if not same as above):
same
Subscription Amount: $65,000
Shares of Preferred Stock: 1,386
Warrants: 22,176
Social Security Number (EIN Number if Investor is an Entity):
27
[PURCHASER SIGNATURE PAGES TO UNITED NETWORK MARKETING SERVICES, INC. SECURITIES
PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
Name of Investor: X X Xxxxxxxx & Sons
--------------------------------------------------------------
Signature of Authorized Signatory(if Investor is an Entity): /s/ X X Xxxxxxxx
-------------------
Name of Authorized Signatory: X X Xxxxxxxx
--------------------------------------------------
Title of Authorized Signatory:
-------------------------------------------------
Email Address of Authorized Entity:
--------------------------------------------
Address for Notice of Investor:
Address for Delivery of Securities for Investor (if not same as above):
Subscription Amount: $100,000
Shares of Preferred Stock: 2,133
Warrants: 34,128
Social Security Number (EIN Number if Investor is an Entity):
27
[PURCHASER SIGNATURE PAGES TO UNITED NETWORK MARKETING SERVICES, INC. SECURITIES
PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
Name of Investor: BushidoCapital Master Fund L.P.
--------------------------------------------------------------
Signature of Authorized Signatory(if Investor is an Entity): /s/ Xxxxx Xxxxxx
-------------------
Name of Authorized Signatory: Xxxxx Xxxxxx
--------------------------------------------------
Title of Authorized Signatory: President
-------------------------------------------------
Email Address of Authorized Entity: xxxxxx@xxxxxxxxxxxxxx.xxx
--------------------------------------------
Address for Notice of Investor:
000 Xxxxxxx Xxxxxx
Xxxxx 000
Xxx Xxxx, XX 00000
Address for Delivery of Securities for Investor (if not same as above):
Subscription Amount: $250,000
Shares of Preferred Stock: 5,331
Warrants: 85,296
Social Security Number (EIN Number if Investor is an Entity):
[SIGNATURE PAGES CONTINUE]
27
[PURCHASER SIGNATURE PAGES TO UNITED NETWORK MARKETING SERVICES, INC. SECURITIES
PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
Name of Investor: Gamma Opportunity Capital Partners, LP
--------------------------------------------------------------
Signature of Authorized Signatory
(if Investor is an Entity): /s/ Xxxxxxxx X. Xxxxxx
--------------------------------------------------
Name of Authorized Signatory: Xxxxxxxx X. Xxxxxx
--------------------------------------------------
Title of Authorized Signatory: President
-------------------------------------------------
Email Address of Authorized Entity: Xxxxxxxx@xxxxxx.xxx
--------------------------------------------
Address for Notice of Investor:
000 Xxxxxxxx Xxxxxxxxx Xxxxx
Xxxxx 000
Xxxx Xxxx, XX 00000
Address for Delivery of Securities for Investor (if not same as above):
Subscription Amount: $250,000
Shares of Preferred Stock: 5,331
Warrants: 85,296
Social Security Number (EIN Number if Investor is an Entity):
[SIGNATURE PAGES CONTINUE]
27
[PURCHASER SIGNATURE PAGES TO UNITED NETWORK MARKETING SERVICES, INC. SECURITIES
PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
Name of Investor: Bristol Investments Funds, Ltd
--------------------------------------------------------------
Signature of Authorized Signatory(if Investor is an Entity): /s/ Xxxx Xxxxxxx
-------------------
Name of Authorized Signatory: Xxxx Xxxxxxx
--------------------------------------------------
Title of Authorized Signatory: Director
-------------------------------------------------
Email Address of Authorized Entity: xxxxxxxx@xxxxxxxxxxxxxxxx.xxx
--------------------------------------------
Address for Notice of Investor:
Bristol Capital Advisors, LLC
Attn: Xxx Xxxx
00000 Xxxxxxxx Xxxx., Xxxxx 0000
Xxx Xxxxxxx, XX 00000
Address for Delivery of Securities for Investor (if not same as above):
Subscription Amount: $250,000
Shares of Preferred Stock: 5,331
Warrants: 85,296
Social Security Number (EIN Number if Investor is an Entity):
[SIGNATURE PAGES CONTINUE]
27
[PURCHASER SIGNATURE PAGES TO UNITED NETWORK MARKETING SERVICES, INC. SECURITIES
PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
Name of Investor: AJW Qualified Partners, LLC
--------------------------------------------------------------
Signature of Authorized Signatory(if Investor is an Entity): /s/ Xxxxx Xxxxxxxx
-------------------
Name of Authorized Signatory: Xxxxx Xxxxxxxx
--------------------------------------------------
Title of Authorized Signatory: Manager
-------------------------------------------------
Email Address of Authorized Entity: xxxxxxxxx@xxxxxxxx.xxx
--------------------------------------------
Address for Notice of Investor:
0000 Xxxxxxxx Xxxx, Xxxxx 000
Xxxxxx, XX 00000
Address for Delivery of Securities for Investor (if not same as above):
Subscription Amount: $90,000
Shares of Preferred Stock: 1,919
Warrants: 30,704
Social Security Number (EIN Number if Investor is an Entity):
[SIGNATURE PAGES CONTINUE]
27
[PURCHASER SIGNATURE PAGES TO UNITED NETWORK MARKETING SERVICES, INC. SECURITIES
PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
Name of Investor: AJW Offshore LTD
--------------------------------------------------------------
Signature of Authorized Signatory(if Investor is an Entity): /s/ Xxxxx Xxxxxxxx
-------------------
Name of Authorized Signatory: Xxxxx Xxxxxxxx
--------------------------------------------------
Title of Authorized Signatory: Manager, First Street Mgr II, LLC
-------------------------------------------------
Email Address of Authorized Entity: xxxxxxxxx@xxxxxxxx.xxx
--------------------------------------------
Address for Notice of Investor:
0000 Xxxxxxxx Xxxx, Xxxxx 000
Xxxxxx, XX 00000
Address for Delivery of Securities for Investor (if not same as above):
Subscription Amount: $78,000
Shares of Preferred Stock: 1,663
Warrants: 26,608
Social Security Number (EIN Number if Investor is an Entity):
[SIGNATURE PAGES CONTINUE]
27
[PURCHASER SIGNATURE PAGES TO UNITED NETWORK MARKETING SERVICES, INC. SECURITIES
PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
Name of Investor: New Millenium Capital Partners II, LLC
--------------------------------------------------------------
Signature of Authorized Signatory(if Investor is an Entity): /s/ Xxxxx Xxxxxxxx
-------------------
Name of Authorized Signatory: Xxxxx Xxxxxxxx
--------------------------------------------------
Title of Authorized Signatory: Manager, First Street Manager II, LLC
-------------------------------------------------
Email Address of Authorized Entity: xxxxxxxxx@xxxxxxxx.xxx
--------------------------------------------
Address for Notice of Investor:
0000 Xxxxxxxx Xxxx, Xxxxx 000
Xxxxxx, XX 00000
Address for Delivery of Securities for Investor (if not same as above):
Subscription Amount: $4,000
Shares of Preferred Stock: 85
Warrants: 1,360
Social Security Number (EIN Number if Investor is an Entity):
[SIGNATURE PAGES CONTINUE]
27
[PURCHASER SIGNATURE PAGES TO UNITED NETWORK MARKETING SERVICES, INC. SECURITIES
PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
Name of Investor: AJW Partners, LLC
--------------------------------------------------------------
Signature of Authorized Signatory(if Investor is an Entity): /s/ Xxxxx Xxxxxxxx
-------------------
Name of Authorized Signatory: Xxxxx Xxxxxxxx
--------------------------------------------------
Title of Authorized Signatory: Manager, SMS Manager, LLC
-------------------------------------------------
Email Address of Authorized Entity: xxxxxxxxx@xxxxxxxx.xxx
--------------------------------------------
Address for Notice of Investor:
0000 Xxxxxxxx Xxxx.
Xxxxx 000
Xxxxxx, XX 00000
Address for Delivery of Securities for Investor (if not same as above):
Subscription Amount: $28,000
Shares of Preferred Stock: 597
Warrants: 9,552
Social Security Number (EIN Number if Investor is an Entity):
[SIGNATURE PAGES CONTINUE]
27
[PURCHASER SIGNATURE PAGES TO UNITED NETWORK MARKETING SERVICES, INC. SECURITIES
PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
Name of Investor: Anasazi Partners, LLC
--------------------------------------------------------------
Signature of Authorized Signatory
(if Investor is an Entity): /s/ Xxxxxxxxxxx X. Xxxxx
--------------------------------------------------
Name of Authorized Signatory: Xxxxxxxxxxx X. Xxxxx
--------------------------------------------------
Title of Authorized Signatory: Manager, XX Xxxxx LLC, ITS Manager
-------------------------------------------------
Email Address of Authorized Entity: Xxxxx@xxxxxxx.xxx
--------------------------------------------
Address for Notice of Investor:
000 Xxxxxxxx Xx. Xxxxx 000
Xxxxxx, XX 00000
Address for Delivery of Securities for Investor (if not same as above):
Subscription Amount: $75,000
Shares of Preferred Stock: 1,599
Warrants: 25,584
Social Security Number (EIN Number if Investor is an Entity):
[SIGNATURE PAGES CONTINUE]
27
[PURCHASER SIGNATURE PAGES TO UNITED NETWORK MARKETING SERVICES, INC. SECURITIES
PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
Name of Investor: Xxxxxxxxxxx X. Xxxxx
--------------------------------------------------------------
Signature of Authorized Signatory
(if Investor is an Entity): /s/ Xxxxxxxxxxx X. Xxxxx
--------------------------------------------------
Name of Authorized Signatory: n/a
--------------------------------------------------
Title of Authorized Signatory: n/a
-------------------------------------------------
Email Address of Authorized Entity:
--------------------------------------------
Address for Notice of Investor:
000 Xxxxxxxx Xx. Xxxxx 000
Xxxxxx, XX 00000
Address for Delivery of Securities for Investor (if not same as above):
Subscription Amount: $150,000
Shares of Preferred Stock: 3,199
Warrants: 51,184
Social Security Number (EIN Number if Investor is an Entity):
[SIGNATURE PAGES CONTINUE]
27
[PURCHASER SIGNATURE PAGES TO UNITED NETWORK MARKETING SERVICES, INC. SECURITIES
PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
Name of Investor: Anasazi Partners III Offshore, LTD
--------------------------------------------------------------
Signature of Authorized Signatory(if Investor is an Entity): s/Xxxxxxxxxxx Xxxxx
-------------------
Name of Authorized Signatory: Xxxxxxxxxxx X. Xxxxx
--------------------------------------------------
Title of Authorized Signatory: Manager, XX Xxxxx LLC, ITS Manager
-------------------------------------------------
Email Address of Authorized Entity: Xxxxx@xxxxxxx.xxx
--------------------------------------------
Address for Notice of Investor:
000 Xxxxxxxx Xx. Xxxxx 000
Xxxxxx, XX 00000
Address of Record
Romasco Place
Wiehamas Cay 1
Road Town, Tortola, BVI
Address for Delivery of Securities for Investor (if not same as above):
000 Xxxxxxxx Xx. Xxxxx 000
Xxxxxx, XX 00000
Subscription Amount: $75,000
Shares of Preferred Stock: 1,599
Warrants: 25,584
Social Security Number (EIN Number if Investor is an Entity):
[SIGNATURE PAGES CONTINUE]
27
[PURCHASER SIGNATURE PAGES TO UNITED NETWORK MARKETING SERVICES, INC. SECURITIES
PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
Name of Investor: Royal Capital Value Fund, LP
--------------------------------------------------------------
Signature of Authorized Signatory(if Investor is an Entity): /s/ Yale Fergong
-------------------
Name of Authorized Signatory: Yale Fergong
--------------------------------------------------
Title of Authorized Signatory: Managing Partner
-------------------------------------------------
Email Address of Authorized Entity: xxxxxxxx@xxxxxxxx.xxx
--------------------------------------------
Address for Notice of Investor:
000 Xxxxxxxxx Xxxxxx, 0xx Xxxxx
Xxx Xxxx, XX 00000
Address for Delivery of Securities for Investor (if not same as above):
Subscription Amount: $71,369
Shares of Preferred Stock: 1,522
Warrants: 24,352
Social Security Number (EIN Number if Investor is an Entity):
[SIGNATURE PAGES CONTINUE]
27
[PURCHASER SIGNATURE PAGES TO UNITED NETWORK MARKETING SERVICES, INC. SECURITIES
PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
Name of Investor: Royal Capital Value Fund (QP), LP
--------------------------------------------------------------
Signature of Authorized Signatory(if Investor is an Entity): /s/ Yale Fergong
-------------------
Name of Authorized Signatory: Yale Fergong
--------------------------------------------------
Title of Authorized Signatory: Managing Partner
-------------------------------------------------
Email Address of Authorized Entity: xxxxxxxx@xxxxxxxx.xxx
--------------------------------------------
Address for Notice of Investor:
000 Xxxxxxxxx Xxxxxx, 0xx Xxxxx
Xxx Xxxx, XX 00000
Address for Delivery of Securities for Investor (if not same as above):
Subscription Amount: $656,173
Shares of Preferred Stock: 13,993
Warrants: 223,888
Social Security Number (EIN Number if Investor is an Entity):
[SIGNATURE PAGES CONTINUE]
27
[PURCHASER SIGNATURE PAGES TO UNITED NETWORK MARKETING SERVICES, INC. SECURITIES
PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
Name of Investor: Royal Capital Value Fund LTD
--------------------------------------------------------------
Signature of Authorized Signatory(if Investor is an Entity): /s/ Yale Fergong
-------------------
Name of Authorized Signatory: Yale Fergong
--------------------------------------------------
Title of Authorized Signatory: Managing Partner
-------------------------------------------------
Email Address of Authorized Entity: xxxxxxxx@xxxxxxxx.xxx
--------------------------------------------
Address for Notice of Investor:
000 Xxxxxxxxx Xxxxxx, 0xx Xxxxx
Xxx Xxxx, XX 00000
Address for Delivery of Securities for Investor (if not same as above):
Subscription Amount: $272,458
Shares of Preferred Stock: 5,810
Warrants: 92,960
Social Security Number (EIN Number if Investor is an Entity):
[SIGNATURE PAGES CONTINUE]
27
[PURCHASER SIGNATURE PAGES TO UNITED NETWORK MARKETING SERVICES, INC. SECURITIES
PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
Name of Investor: Vicis Capital Master Fund
--------------------------------------------------------------
Signature of Authorized Signatory(if Investor is an Entity): /s/ Xxxxxxx Xxx
-------------------
Name of Authorized Signatory: Xxxxxxx Xxx
--------------------------------------------------
Title of Authorized Signatory: Portfolio Manager
-------------------------------------------------
Email Address of Authorized Entity: rhan@ xxxxxxxxxxxx.xxx
--------------------------------------------
Address for Notice of Investor:
00 Xxxx 00xx Xxxxxx, 0xx xxxxx
Xxx Xxxx, XX 00000
Address for Delivery of Securities for Investor (if not same as above):
Subscription Amount: $250,000
Shares of Preferred Stock: 5,331
Warrants: 85,296
Social Security Number (EIN Number if Investor is an Entity):
[SIGNATURE PAGES CONTINUE]
27
DISCLOSURE SCHEDULES
TO
SECURITIES PURCHASE AGREEMENT
(Prepared in connection with Series B Preferred Stock sold by the Company to the
Purchasers under the Securities Purchase Agreement dated January __, 2005 (the
"2005 Securities Purchase Agreement"). Capitalized terms not defined herein
shall have the meaning given to such terms in the 2005 Securities Purchase
Agreement.)
JANUARY __, 2005
SCHEDULE 3.1(a)
SUBSIDIARIES
The Knockout Group, Inc., a Delaware corporation ("Knockout")
SCHEDULE 3.1(g)
CAPITALIZATION
The Company's authorized capital consists of 20,000,000 shares of
common stock, par value $.001 per share, and 1,000,000 shares of preferred
stock, par value $.001 per share, of which 865,000 shares have been designated
as Series A Convertible Preferred Stock and 135,000 shares have been designated
as Series B Convertible Preferred Stock. As of the date of the Agreement, the
Company has 8,165,752 shares of common stock outstanding, 855,980 shares of
Series A Convertible Preferred Stock outstanding and zero shares of Series B
Convertible Preferred Stock outstanding.
After the Company amends its Certificate of Incorporation to authorize
the issuance of a sufficient number of shares of common stock so that all shares
of Series A Convertible Preferred Stock may be fully converted, the Series A
Convertible Preferred Stock will immediately convert into fully paid and
nonassessable shares of common stock of the Company in an amount equal to the
stated value of such Series A Convertible Preferred Stock, which equals
$46.8933, divided by $.2931, subject to adjustment.
SCHEDULE 3.1(i)
MATERIAL CHANGES
In September 2004, Knockout issued a $600,000 principal amount 10%
promissory note (the "$600K Note") to Galt Ventures. The $600K Note bears
interest at 10% per annum from the date the principal amount of the $600K Note
is advanced to Knockout until Knockout pays the $600K Note in full. All unpaid
principal and interest on the $600K Note is due and payable on the earlier of
(i) December 23, 2004 or (ii) the date that Knockout has raised $2,500,000 from
the sale of securities.
In September 2004, Knockout issued a $1,000,000 principal amount 10%
promissory note (the "$1M Note") to Galt Ventures. The $1M Note bears interest
at 10% per annum from the date the principal amount of the $1M Note is advanced
to Knockout until Knockout pays the $1M Note in full. All unpaid principal and
interest on the $1M Note is due and payable on the earlier of April 1, 2005 or
the date of exercise of the Warrants.
In November 2004, Knockout sold a $500,000 principal amount convertible
note (the "500K Note") to the Xxxxxx Group. The term of the $500K Note is nine
months. The principal of the $500K Note is convertible into 83,463 shares of
common stock of Knockout. In connection with the sale of the $500K Note,
Knockout issued the Xxxxxx Group warrants to purchase 43,546 shares of
Knockout's common stock at an exercise price of $0.01 per share.
Seven of Knockout's employees and one consultant have family
relationships with Xxxx Xxxxxxx, Knockout's Chief Executive Officer and a
Director.
In recognition of the service and assistance provided by Knockout's
Board members, key management personnel, and key consultants, Knockout's Board
of Directors authorized and approved the following transactions:
Re-priced the exercise price of options to purchase 134,000 shares of
Knockout's common stock to $0.01 per share issued to Xx. Xxxxx Xxxxxx. Xx.
Xxxxxx is a member of Knockout's Board of Directors and a Consultant to
Knockout.
Re-priced the exercise price of options to purchase 84,875 shares of
Knockout's common stock to $0.01 per share issued to Xxxx Xxxxx. Xx. Xxxxx is a
member of the Knockout's Board of Directors.
Re-priced the exercise price of options to purchase 71,598 shares of
Knockout's common stock to $0.01 per share issued to Xxxx Xxxxxxxx. Xx. Xxxxxxxx
is a member of Knockout's Board of Directors.
Re-priced the exercise price of warrants to purchase 390,100 shares of
Knockout's common stock to $0.01 per share issued to Xxxxx Xxxxxxx in
consideration for agreeing to certain amendments to terms of Knockout's Series A
Preferred Stock in favor of investors in Knockout's Series C Preferred Stock.
Xx. Xxxxxxx is the holder of Knockout's outstanding Series A Preferred Stock and
is also a member of Knockout's Board of Directors.
Re-priced the exercise price of warrants to purchase 37,500 shares of
Knockout's common stock to $0.01 per share issued to Xxxxx Rights in
consideration for agreeing to certain amendments to the terms of Knockout's
Series B Preferred Stock in favor of investors in Knockout's Series C Preferred
Stock. Mr. Rights is a holder of Knockout's outstanding Series B Preferred Stock
and is also a member of Knockout's Board of Directors.
Re-priced the exercise price of options to purchase 108,620 shares of
Knockout's common stock to $0.01 per share issued to Xxxxx Xxxxxx. Xx. Xxxxxx is
Knockout's Chief Financial Officer and a member of Knockout's Board of
Directors.
Re-priced the exercise price of options to purchase 67,888 shares of
Knockout's common stock to $0.01 per share issued to Xxxxx Xxxxxx. Xx. Xxxxxx is
Knockout's Chief Operating Officer.
SCHEDULE 3.1(j)
LITIGATION
None.
SCHEDULE 3.1(q)
TRANSACTIONS WITH AFFILIATES AND EMPLOYEES
Knockout has retained Artistic Communication Center ("ACC"), a
multi-media video and audio production company, to produce Knockout's household
and automotive infomercials for television broadcast. Knockout's current
contract with ACC provides that ACC will be compensated at "cost, plus 10%."
Through September 30, 2004, Knockout has paid a total of $894,000 to ACC for two
infomercials. Knockout's Chief Executive Officer, Xxxx Xxxxxxx, has the
principal ownership position of ACC.
In consideration for the assignment of pending trademarks and pending
patents to Knockout, Knockout has agreed to pay Xx. Xxxxx Xxxxxx a total of
$400,000 as follows: $200,000 by December 31, 2004 and the remaining $200,000
over the following twelve months. Knockout also issued Xx. Xxxxxx 354,608 shares
of common stock as partial consideration for the assignment of the pending
trademarks and pending patents. In addition, Xx. Xxxxxx acts as a consultant to
Knockout's executive officers, advising Knockout on fundraising, quality
control, product development, business strategy, licensing, patent development,
and personnel matters. As part of his agreement with Knockout, Xx. Xxxxxx has
agreed not to develop or contribute any intellectual property to any other
company, either now or in the future, that competes in the "cleaning" products
segment. Xx. Xxxxxx'x consulting services are billed to Knockout at an hourly
rate of $350.00 per hour. Notwithstanding this hourly rate, Knockout has agreed
to pay Xx. Xxxxxx a minimum amount of $2,500 per month. Xx. Xxxxxx is also a
member of Knockout's Board of Directors.
In recognition of the service and assistance provided by Knockout's
Board members, key management personnel, and key consultants, Knockout's Board
of Directors authorized and approved the following transactions:
Re-priced the exercise price of options to purchase 134,000 shares of
Knockout's common stock to $0.01 per share issued to Xx. Xxxxx Xxxxxx. Xx.
Xxxxxx is a member of Knockout's Board of Directors and a Consultant to
Knockout.
Re-priced the exercise price of options to purchase 84,875 shares of
Knockout's common stock to $0.01 per share issued to Xxxx Xxxxx. Xx. Xxxxx is a
member of the Knockout's Board of Directors.
Re-priced the exercise price of options to purchase 71,598 shares of
Knockout's common stock to $0.01 per share issued to Xxxx Xxxxxxxx. Xx. Xxxxxxxx
is a member of Knockout's Board of Directors.
Re-priced the exercise price of warrants to purchase 390,100 shares of
Knockout's common stock to $0.01 per share issued to Xxxxx Xxxxxxx in
consideration for agreeing to certain amendments to terms of Knockout's Series A
Preferred Stock in favor of investors in Knockout's Series C Preferred Stock.
Xx. Xxxxxxx is the holder of Knockout's outstanding Series A Preferred Stock and
is also a member of Knockout's Board of Directors.
Re-priced the exercise price of warrants to purchase 37,500 shares of
Knockout's common stock to $0.01 per share issued to Xxxxx Rights in
consideration for agreeing to certain amendments to the terms of Knockout's
Series B Preferred Stock in favor of investors in Knockout's Series C Preferred
Stock. Mr. Rights is a holder of Knockout's outstanding Series B Preferred Stock
and is also a member of Knockout's Board of Directors.
Re-priced the exercise price of options to purchase 108,620 shares of
Knockout's common stock to $0.01 per share issued to Xxxxx Xxxxxx. Xx. Xxxxxx is
Knockout's Chief Financial Officer and a member of Knockout's Board of
Directors.
Re-priced the exercise price of options to purchase 67,888 shares of
Knockout's common stock to $0.01 per share issued to Xxxxx Xxxxxx. Xx. Xxxxxx is
Knockout's Chief Operating Officer.
SCHEDULE 3.1(v)
REGISTRATION RIGHTS
The following Persons have the right to cause the Company to effect the
registration under the Securities Act of securities of the Company:
Pursuant to an Investor Rights Agreement dated June 30, 2004, any
holder or holders who, in the aggregate hold not less than 25% of Knockout's (i)
Series A Preferred Stock (or Common Stock into which Series A Preferred Stock
has been converted), (ii) Series B Preferred Stock (or Common Stock into which
Series B Preferred Stock has been converted) and (iii) Common Stock held by Xxxx
Xxxxxxx, upon written request, may require the Company to effect the
registration of such securities on a "best efforts" basis.
Pursuant to a Registration Rights Agreement entered into in December
2004, the Company must register with the Securities and Exchange Commission the
common stock that was issued upon conversion of Knockout's Series C Convertible
Preferred Stock. Immediately before the Merger, all of the outstanding shares of
Knockout's Series C Convertible Preferred Stock were converted into common stock
of Knockout. Upon effectiveness of the Merger, this common stock was exchanged
for Series A Preferred Stock of the Company. The Company must file a
registration statement to register the common stock of the Company that is
beneficially owned by the prior owners of Knockout's Series C Convertible
Preferred Stock and which was acquired as a result of the conversion of such
Series C Convertible Preferred Stock.
The Company has agreed to include 250,000 shares of common stock owned
by Xxxxxxx Xxxx in the next registration statement that the Company files on
Form SB-2.
SCHEDULE 4.9
USE OF PROCEEDS
The following use of proceeds table assumes receipt by the Company of
gross proceeds of $6,000,000.
Use of Proceeds Amount
--------------- ------
Placement Agent Fees $ 300,000
Repayment of Debt $ 600,000
Legal and Accounting Fees $ 100,000
Other Transaction Costs $ 32,600
Marketing $ 2,500,000
Inventory $ 2,000,000
Operations $ 467,400
TOTAL $ 6,000,000
