EXHIBIT 10.5
Debenture
STOCK EXCHANGE AGREEMENT
This Debenture Exchange Agreement (this "Agreement"), dated as of February 14,
2003, is entered into by and between FTS Apparel, Inc., a Colorado corporation
(the "Company"), and Dutchess Private Equities Fund LP, (the "Holder").
RECITALS
WHEREAS, the Holder currently has 250,000 shares of the Company's common stock
("Stock"), issued pursuant to the Stock Purchase Agreement dated on August 22,
2002.
WHEREAS, the Holder hereby agrees to exchange 250,000 shares of Stock into
shares of the Company's Convertible Debenture pursuant to the terms set forth in
the Debenture, Registration Rights Agreement and Subscription Agreement with
Dutchess Private Equities Fund, LP dated February 14, 2003 ("Debenture").
Pursuant to the Holder's rights of conversion, upon conversion of the Debenture
into the Company's common shares ("Stock") and for purposes of resale of such
Stock pursuant to Rule 144 or Rule 145, the date of consideration shall remain
August 22, 2002.
WHEREAS, the Holder desires to acquire, and the Company desires to issue
and sell to the Holder, $12,500 of the Debenture of the Company in exchange for
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250,000 shares of Stock; and
WHEREAS, the parties hereto desire to enter into this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained in this Agreement and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
1. AUTHORIZATION AND SALE OF SHARES.
1.1 Agreement to Exchange. Subject to the terms and conditions of this
Agreement, the Company will sell and issue to the Holder, and the Holder will
acquire from the Company, $12,500 worth of the Company's Debentures in exchange
for the cancellation of the 250,000 shares of Stock issued to the Holder.
1.2 No Public Solicitation. The Holder is not subscribing for the Shares as
a result of or subsequent to any advertisement, article, notice or other
communication published in any newspaper, magazine or similar media or broadcast
over television or radio, or presented at any seminar or meeting, or any
solicitation of a subscription by a person not previously known to the Holder in
connection with investments in securities generally.
1.3. Issuance of Shares. Within ten (10) business days following the
execution of this Agreement, the Company shall deliver to Holder a stock
certificate for the Shares registered in the name of Holder.
2. Representations of the Company. The Company hereby represents and
warrants to the Holder, that, to the extent applicable, all representations and
warranties of the Company set forth in the Stock Purchase Agreement dated August
22, 2002, are incorporated herein as though fully set forth. The Company also
agrees that all rights granted to the Holder as set forth in the Stock Purchase
Agreement dated August 22, 2002 are also incorporated herein as though fully set
forth.
3. Representations of the Holder. The Holder represents and warrants to the
Company as follows:
3.1 Investment Intent. The Debentures, and the shares of Common Stock into
which the Debentures, may be converted or exercised (collectively, the
"Securities") are, or will be, acquired for the Holder's own account, for
investment and not with a view to, or for resale in connection with, any
distribution or public offering thereof within the meaning of the Securities
Act.
3.2 Reviews and Inspection. The Holder and his or its representatives and
legal counsel have been granted the opportunity to review and inspect the
Company's corporate books, financial statements, records, contracts, documents,
offices and facilities, and have been afforded an opportunity to ask questions
of the Company's officers, employees, agents, accountants and representatives
concerning the Company's business. Holder is relying on its own analysis
regarding the Company's operations, financial condition, assets, liabilities and
other relevant matters as Holder deemed necessary or desirable in order to
evaluate the merits and risks of the prospective investment contemplated herein.
Holder acknowledges that it has not relied upon any information given to Holder,
or any statements made, by the Company or any officers or directors of the
Company, except for the representations and warranties of the Company expressly
made herein.
3.3 Holder Due Diligence. The Holder and its representatives are solely
responsible for the Holder's own "due diligence" investigation of the Company
and its management and business and for Holder's analysis of the financial
future and viability of the Company and desirability of the terms of this
investment. Holder acknowledges that neither the Company nor any officer or
director of the Company is making any representation or warranty regarding the
Company's financial projections previously given to Holder or the assumptions
underlying such financial projections, as such financial projections are subject
to significant business, economic and other uncertainties and contingencies.
Holder acknowledges that if the Company is not able to operate profitably or
generate positive cash flows, the Company may have difficulty meeting its
obligations and may not be able to continue to operate its business, and Holder
could lose all of its investment. The Holder has such knowledge and experience
in financial and business matters that the Holder is capable of evaluating the
merits and risks of the purchase of the Securities pursuant to the terms of this
Agreement and of protecting the Holder's interest in connection therewith.
3.4 Accredited Investor Status. Holder is an "Accredited Investor" as that
term is defined in Rule 501 of Regulation D promulgated under the Securities Act
because each member of Holder is an "Accredited Investor" and Holder is able to
bear the economic risk of the purchase of the Securities pursuant to the terms
of this Agreement, including a complete loss of the Holder's investment in the
Securities.
3.5 Authority for Agreement. The Holder has the full right, power and
authority to enter into and perform the Holder's obligations under the this
Agreement, and the Agreement constitutes the valid and binding obligations of
the Holder enforceable in accordance with their terms, except as limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws of
general application relating to or affecting enforcement of creditors' rights
and rules or laws concerning equitable remedies.
3.6 Governmental Consents. No consent, approval or authorization of or
designation, declaration or filing with any governmental authority on the part
of the Holder is required in connection with the valid execution, delivery and
performance of this Agreement.
3.7 Not an Investment Company. Neither the Holder nor any of its members is
an "investment company" or a company controlled by an "investment company",
within the meaning of the Investment Company Act of 1940, or principally engaged
in, or undertaking as one of its important activities, the business of extending
credit for the purpose of purchasing or carrying margin stock.
3.8 Tax Matters. The Holder has not relied on any statements or
representations of the Company or any of its agents with respect to the federal,
state, local and foreign tax consequences of this investment and the federal,
state, local and foreign tax consequences of transactions contemplated by this
Agreement. With respect to such matters, the Holder understands that it (and
not the Company) shall be responsible for its own tax liability that may arise
as a result of this investment or the transactions contemplated by this
Agreement.
4. Assignment. This Agreement and all of the provisions hereof will be
binding upon and inure to the benefit of the parties hereto and there respective
successors and permitted assigns. No party hereunder may assign neither this
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Agreement nor any of the rights, interests or obligations without prior written
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consent of the other party.
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5. Survival of Representations and Warranties. All agreements,
representations and warranties contained herein shall survive the execution and
delivery of this Agreement; provided, however, that except as provided above,
such representations and warranties need only be accurate as of the date of such
execution.
6. Notice. Any notices, consents, waivers or other communications required
or permitted to be given under the terms of this Agreement must be in writing
and will be deemed to have been delivered (i) upon receipt, when delivered
personally; (ii) upon receipt, when sent by facsimile (provided a confirmation
of transmission is mechanically or electronically generated and kept on file by
the sending party); or (iii) one (1) day after deposit with a nationally
recognized overnight delivery service, in each case properly addressed to the
party to receive the same. The addresses and facsimile numbers for such
communications shall be:
If to the Company:
FTS Apparel, Inc.
0000 Xxxxx Xxxx
Xxxxxxx, Xxxxxxxxxxxx 00000
Attention: Xxxxx Xxxxxxxxx, CEO
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to the Investor:
At the address listed in the Questionnaire.
With a copy to:
Xxxxxx X. XxXxxxx, Esq.
00 Xxxxxx Xxxxxx, Xxxxx 000
Xxx Xxxxxx, XX 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
Each party shall provide five (5) business days prior notice to the other
party of any change in address, phone number or facsimile number.
7. Brokers. Each of the Holder and the Company (a) represents and warrants
to the other party that it has not retained any finders or brokers in connection
with the transactions contemplated by this Agreement, and (b) will indemnify and
save the other party harmless from and against any and all claims, liabilities
or obligations with respect to brokerage or finders' fees or commissions, or
consulting fees in connection with the transactions contemplated by this
Agreement asserted by any person on the basis of any statement or
representation alleged to have been made by it.
8. Entire Agreement. This Agreement embodies the entire agreement and
understanding between the parties hereto with respect to the subject matter
hereof and supersedes all prior agreements and understandings relating to such
subject matter.
9. Amendments and Waivers. Any term of this Agreement may be amended and
the observance of any term of this Agreement may be waived (either generally or
in a particular instance and either retroactively or prospectively) only with
the written consent of the Company and the Holder. No waivers of or exceptions
to any term, condition or provision of this Agreement, in any one or more
instances, shall be deemed to be, or construed as, a further or continuing
waiver of any such term, condition or provision.
10. This Agreement may be executed in two or more counterparts, all of which
taken together shall constitute one instrument. Execution and delivery of this
Agreement by exchange of facsimile copies bearing the facsimile signature of a
party shall constitute a valid and binding execution and delivery of this
Agreement by such party. Such facsimile copies shall constitute enforceable
original documents.
11. Section Headings. The Section headings are for the convenience of the
parties and in no way alter, modify, amend, limit, or restrict the contractual
obligations of the parties.
12. Severability. Any part, provision, representation or warranty of this
Agreement that is prohibited or that is held to be void or unenforceable shall
be ineffective solely to the extent of such prohibition or non-enforceability
without invalidating the remaining provisions hereof.
13. Governing Law. All disputes arising under this agreement shall be
governed by and interpreted in accordance with the laws of the Commonwealth of
Massachusetts, without regard to principles of conflict of laws. The parties to
this agreement will submit all disputes arising under this agreement to
arbitration in Boston, Massachusetts before a single arbitrator of the American
Arbitration Association ("AAA"). The arbitrator shall be selected by
application of the rules of the AAA, or by mutual agreement of the parties,
except that such arbitrator shall be an attorney admitted to practice law in the
Commonwealth of Massachusetts. No party to this agreement will challenge the
jurisdiction or venue provisions as provided in this section.
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SIGNATURE PAGE TO CONVERTIBLE DEBENTURE
STOCK EXCHANGE AGREEMENT / DEBT CONVERSION
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
"COMPANY":
FTS APPAREL, INC.
a Colorado corporation
By: /s/ Xxxxx Xxxxxxxxx
____________________
Name: Xxxxx Xxxxxxxxx
Title: President
DUTCHESS PRIVATE EQUITIES FUND, L.P.
BY ITS GENERAL PARTNER DUTCHESS
CAPITAL MANAGEMENT, LLC
/s/ Xxxxxxx Xxxxxxxx
By:__________________________________
Name:
Xxxxxxx X. Xxxxxxxx
Title: A Managing Member
