March ___, 2002
Xxxxx Xxxxxx, Esq.
Xxxxxxx Xxxxxxxxx & Co., Ltd.
000 Xxxxxxxx Xxxxxx, Xxxx
Xxxxx 0000
Xxxxxxx, XX X0X 0X0
Xxxxxx
Re: Conversion of xXxxxxxxxxx.xxx, Inc. - Series A Preferred Stock
Dear Xx. Xxxxxx:
The purpose of this letter is to set forth the agreements and
understandings reached by and between xXxxxxxxxxx.xxx, Inc., a Nevada
corporation ("eAuto") and Thomson Kernaghan & Co., Ltd., a corporation organized
under the laws of Ontario, Canada ("TK") on behalf of itself and Canadian
Advantage Limited Partnership and Advantage (Bermuda) Fund, Ltd. (collectively
"CALP") in connection with the conversion by CALP and TK of eAuto's Series A
Convertible Preferred Stock. It is the intent of the parties that this letter be
a binding and enforceable agreement supported by good and valuable
consideration.
1. Background. eAuto, TK and CALP are parties to a certain Securities
Purchase Agreement dated as of June 27, 2000 (the "Purchase Agreement"), a
Security Agreement dated as of August 25, 2000 (the "Security Agreement") and a
Registration Rights Agreement dated August 25, 2000 (the "Registration Rights
Agreement") under which eAuto issued shares of its Series A Convertible
Preferred Stock ("Preferred Stock"), Purchaser's Warrants and Agents Warrants.
In addition, eAuto also issued shares of its Common Stock in escrow. The above
agreements are collectively referred to as the "Preferred Stock Agreements". The
Preferred Stock Agreements have been amended in certain respects pursuant to the
series of modification agreements and addendums thereto ("Modification
Agreement"). Unless otherwise provided below, the terms and conditions of the
Modification Agreement and Preferred Stock Agreement are terminated and of no
further force and effect between eAuto, TK and CALP. It is understood that the
terms and conditions of the Preferred Stock Agreement and related Modification
Agreement remain in full force and effect as between eAuto and Governors Road,
LLC.
2. Agreement to Convert all CALP Series A Preferred Stock. On December
7, 2001, xXxxx received conversion notices from TK, as agent for CALP, to
convert all of CALP's portion of Preferred Stock Certificates P-2, P-3 and P-4
at a conversion ratio of $.2825 for a total of 4,097,951 shares of eAuto's
Common Stock. By execution of this Letter Agreement, xXxxx agrees to take all
necessary actions to issue 4,097,951 shares of its Common Stock underlying the
conversion of the above referenced Series A Preferred Stock as directed by XX
and as owned by CALP. Upon such issuance, TK and CALP shall no longer own any
shares of eAuto's Preferred Stock. TK agrees that upon its receipt of
certificates totaling 4,097,951 shares of eAuto's Common Stock relating to the
conversion of the Series A Preferred Stock that it shall have no interest in the
shares of previously issued Common Stock held in escrow, 50% of which will
continue to be held for the benefit of Governor's Road, and the balance for
eAuto.
3. Affiliate Status. TK, on behalf of it self and CALP acknowledges and
understands that the conversion of its entire block of eAuto Preferred Stock
results in CALP and TK being considered an "affiliate" under Rule 144 of the
Securities Act of 1933, as amended. TK on behalf of it self and XXXX agrees not
to effect any sales or other transfers of eAuto's Common Stock for a 6-month
period from the conversion notice date. CALP and XX agree to comply with the
xxxxxxx xxxxxxx and reporting requirements imposed by Section 16 under the
Securities Exchange Act of 1934, as amended. eAuto will assist CALP and TK in
making appropriate 1934 Act filings (i.e. Schedule 13G and Forms 3 and 4). CALP
and TK agree, unless eAuto's shares are registered under the Securities Act, it
shall not sell, transfer or dispose of eAuto's shares unless such transaction
complies with the requirements of Rule 144 under the Securities Act, or TK
receives an opinion from reputable counsel that such sale, transfer or
conveyance of eAuto's common stock may be effected pursuant to another exemption
under the Securities Act or is otherwise registered under the Securities Act.
4. No Sales to Competitors. TK on behalf of itself and CALP understands
that a material factor to eAuto for entering into this Agreement and eliminating
the conversion limits in the prior Modification Agreements is TK's and CALP's
agreement not to sell, convey, transfer or assign any shares of eAuto's Common
Stock, warrants or voting rights related thereto, either directly or indirectly,
to any competitor of eAuto. The parties will take reasonable steps to assure
that the purchaser or transferee of any eAuto securities from TK or CALP is not
a competitor of eAuto. In the event TK or CALP knowingly violate this
understanding not to transfer xXxxx's securities to competitors, the voting
rights with respect to such securities shall be void ab initio. This provision
will not prohibit TK or CALP from engaging in normal open market sales of
eAuto's securities in accordance with Rule 144.
5. Right of First Refusal and Notice for Block Trades. TK and CALP
agree to provide eAuto 48-hours business day prior written notice of any
proposed block trade of eAuto's securities, which exceed 25,000 shares. eAuto
shall have the right to direct TK or CALP to a designated market maker or broker
dealer to effectuate such trade within such 48-hours notice on the same terms
and conditions with best execution. If such designated market maker or broker
dealer is unable to effectuate the block trade, TK and CALP shall be free to
effectuate the trade through its own market maker or broker dealer.
6. Purchaser and Agent Warrants. TK and CALP shall retain all rights
with respect to the Purchaser Warrants and Agent Warrants issued to such parties
in connection with the Preferred Stock Agreements. Specifically, TK retains
registration rights (subject to paragraph 7 below) and anti-dilution rights for
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the Purchaser Warrants and Agent Warrants as set forth in the respective
Preferred Stock Agreements. All terms and conditions of the Purchaser Warrants
and Agent Warrants remain unchanged, except that the Agent Warrants will be
entitled to a cashless brokerage exercise.
7. Registration Rights
TK and CALP agree to waive any registration rights for any
eAuto securities (shares, warranties or options) relating to registration of
eAuto securities in connection with the registration statement (including all
amendments) filed on behalf of certain selling shareholders for equity financing
placed through Vfinance. TK and CALP shall have piggyback registration rights
for subsequent registration statement (excluding Form S-8) subject to (i) the
consent, not to be unreasonably withheld, of the managing underwriter of the
subsequent underwritten public offering of the amount of eAuto securities
included in any subsequent registration statement, (ii) reasonable lock up
restrictions mutually agreed to by eAuto, TK and CALP. The parties will
negotiate in good faith in determining the scope and nature of reasonable lock
up arrangements.
8. Satisfaction and Waiver of any Penalty Provisions. Upon the
execution of this Agreement and delivery by eAuto of the 4,097,951 shares of its
Common Stock, TK and CALP agree that any penalty provisions set forth in the
Preferred Stock Agreement are satisfied vis-a-vis TK and CALP.
9. TK's Exclusive Right to Future Equity Line Financing Agreement.
eAuto agrees that TK shall maintain its exclusive right as a financing source
for any future equity line of credit or similar arrangements based upon the
agreed terms for such financings summarized on Exhibit "C" to the Restated
Master Modification Agreement through May 31, 2003.
10. Releases. Except for the covenants and obligations set forth in
this Letter Agreement, eAuto, TK and CALP, as well as their successors and
assigns forever release and discharge each other as well as their officers,
directors, members, partners, attorneys, employees, agents, managers and
representatives from any and all actions, causes of action, obligations, bad
faith claims, costs, expenses, attorneys fees, damages, claims, liabilities and
demands of whatsoever character, nature and kind, whether in contract or tort,
known or unknown, suspected or unsuspected, which any party to this Agreement
may now own or hold, against the other parties, directly or indirectly, deriving
from, related to, connected with or incidental to the execution and performance
of the Preferred Stock Agreements and subsequent modifications thereto.
11. Successors and Assigns. The terms and conditions of this
Agreement shall apply to the successors and assigns of the parties.
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IN WITNESS WHEREOF, the parties below have executed this Agreement
effective as of the date set forth above.
xXXXXXXXXXX.XXX, INC.
By:
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Xxxx Xxxxxx
President
THOMSON KERNAGHAN & CO., LTD.,
individually and as agent
By:
--------------------------------------------------
Xxxxx Xxxxxx
Senior Vice President
CALP II, LP, holding for
CANADIAN ADVANTAGE LIMITED
PARTNERSHIP as to 73% and
ADVANTAGE (BERMUDA) FUND, LTD.
as to 27%
By:
--------------------------------------------------
Xxxx Xxxxxxxxx
President - General Partner
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