INVESTMENT AGREEMENT
Exhibit
10.1
INVESTMENT
AGREEMENT (this "AGREEMENT"), dated as of September 12, 2005 by and between
Xxxxxxxxx Holdings, Inc., a Delaware corporation (the "Company"), and Dutchess
Private Equities Fund, LP, a Delaware limited partnership (the
"Investor").
Whereas,
the parties desire that, upon the terms and subject to the conditions contained
herein, the Investor shall invest up to Five Million dollars ($5,000,000) to
purchase the Company's Common Stock, without par value per share (the "Common
Stock");
Whereas,
such investments will be made in reliance upon the provisions of Section 4(2)
under the Securities Act of 1933, as amended (the "1933 Act"), Rule 506 of
Regulation D, and the rules and regulations promulgated thereunder, and/or
upon
such other exemption from the registration requirements of the 1933 Act as
may
be available with respect to any or all of the investments in Common Stock
to be
made hereunder; and
Whereas,
contemporaneously with the execution and delivery of this Agreement, the parties
hereto are executing and delivering a Registration Rights Agreement
substantially in the form attached hereto (as amended from time to time, the
"Registration Rights Agreement") pursuant to which the Company has agreed to
provide certain registration rights under the 1933 Act, and the rules and
regulations promulgated thereunder, and applicable state securities
laws.
NOW
THEREFORE, in consideration of the foregoing recitals, which shall be considered
an integral part of this Agreement, the covenants and agreements set forth
hereafter, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Company and the Investor hereby
agree as follows:
SECTION
1. DEFINITIONS.
As
used
in this Agreement, the following terms shall have the following meanings
specified or indicated below, and such meanings shall be equally applicable
to
the singular and plural forms of such defined terms.
“1933
Act”
shall
have the meaning set forth in the preamble of this agreement.
“1934
Act”
shall
mean the Securities Exchange Act of 1934, as it may be amended.
“Affiliate”
shall
have the meaning specified in Section 5(h), below.
“Agreement”
shall
mean this Investment Agreement.
“Best
Bid”
shall
mean the highest posted bid price of the Common Stock.
“Buy
In”
shall
have the meaning specified in Section 6, below.
“Buy
In Adjustment Amount”
shall
have the meaning specified in Section 6.
“Closing”
shall
have the meaning specified in Section 2(h).
“Closing
Date”
shall
mean no more than seven (7) Trading Days following the Put Notice
Date.
“Common
Stock”
shall
have the meaning set forth in the preamble of this Agreement.
“Control”
or
“Controls”
shall
have the meaning specified in Section 5(h).
“Covering
Shares” shall have the meaning specified in Section 6.
“Effective
Date”
shall
mean the date the SEC declares effective under the 1933 Act the Registration
Statement covering the Securities.
“Environmental
Laws”
shall
have the meaning specified in Section 4(m).
“Execution
Date”
shall
mean the date indicated in the preamble to this Agreement.
“Indemnities”
shall
have the meaning specified in Section 11.
“Indemnified
Liabilities”
shall
have the meaning specified in Section 11.
“Ineffective
Period”
shall
mean any period of time that the Registration Statement or any Supplemental
Registration Statement (as defined in the Registration Rights Agreement)
becomes
ineffective or unavailable for use for the sale or resale, as applicable,
of any
or all of the Registrable Securities (as defined in the Registration Rights
Agreement) for any reason (or in the event the prospectus under either of
the
above is not current and deliverable) during any time period required under
the
Registration Rights Agreement.
“Investor”
shall
have the meaning indicated in the preamble of this Agreement.
“Material
Adverse Effect”
shall
have the meaning specified in Section 4(a).
“Maximum
Common Stock Issuance”
shall
have the meaning specified in Section 2(I).
“Minimum
Acceptable Price”
with
respect to any Put Notice Date shall mean seventy-five percent (75%) of the
lowest closing bid prices for the ten (10) Trading Day period immediately
preceding such Put Notice Date.
“Open
Period”
shall
mean the period beginning on and including the Trading Day immediately following
the Effective Date and ending on the earlier to occur of (i)
the
date
which is thirty-six (36) months from the Effective Date; or (ii)
termination
of the Agreement in accordance with Section 9, below.
“Pricing
Period”
shall
mean the period beginning on the Put Notice Date and ending on and including
the
date that is five (5) Trading Days after such Put Notice Date.
“Principal
Market”
shall
mean the American Stock Exchange, Inc., the National Association of Securities
Dealers, Inc. Over-the-Counter Bulletin Board, the NASDAQ National Market System
or the NASDAQ SmallCap Market, whichever is the principal market on which the
Common Stock is listed.
“Prospectus”
shall
mean the prospectus, preliminary prospectus and supplemental prospectus used
in
connection with the Registration Statement.
“Purchase
Amount”
shall
mean the total amount being paid by the Investor on a particular Closing Date
to
purchase the Securities.
“Purchase
Price”
shall
mean ninety-five percent (95%) of the lowest closing Best Bid price of the
Common Stock during the Pricing Period.
“Put
Amount”
shall
have the meaning set forth in Section 2(b) hereof.
“Put
Notice”
shall
mean a written notice sent to the Investor by the Company stating the Put Amount
in U.S. dollars, the Company intends to sell to the Investor pursuant to the
terms of the Agreement and stating the current number of Shares issued and
outstanding on such date.
“Put
Notice Date”
shall
mean the Trading Day immediately following the day on which the Investor
receives a Put Notice, however a Put Notice shall be deemed delivered on
(a)
the
Trading Day it is received by facsimile or otherwise by the Investor if such
notice is received prior to 9:00 am Eastern Time, or (b)
the
immediately succeeding Trading Day if it is received by facsimile or otherwise
after 9:00 am Eastern Time on a Trading Day. No Put Notice may be deemed
delivered on a day that is not a Trading Day.
“Put
Restriction”
shall
mean the days between the beginning of the Pricing Period and Closing Date.
During this time, the Company shall not be entitled to deliver another Put
Notice.
“Registration
Period”
shall
have the meaning specified in Section 5(c), below.
“Registration
Rights Agreement”
shall
have the meaning set forth in the recitals, above.
“Registration
Statement”
means
the registration statement of the Company filed under the 1933 Act covering
the
Common Stock issuable hereunder.
“Related
Party”
shall
have the meaning specified in Section 5(h).
“Resolution”
shall
have the meaning specified in Section 8(e).
“SEC”
shall
mean the U.S. Securities & Exchange Commission.
“SEC
Documents”
shall
have the meaning specified in Section 4(f).
“Securities”
shall
mean the shares of Common Stock issued pursuant to the terms of the
Agreement.
“Shares”
shall
mean the shares of the Company’s Common Stock.
“Sold
Shares”
shall
have the meaning specified in Section 6.
“Subsidiaries”
shall
have the meaning specified in Section 4(a).
“Trading
Day”
shall
mean any day on which the Principal Market for the Common Stock is open for
trading, from the hours of 9:30 am until 4:00 pm.
“Transaction
Documents”
shall
mean this Agreement, the Registration Rights Agreement, and each of the other
agreements entered into by the parties hereto in connection with this
Agreement.
SECTION
2. PURCHASE AND SALE OF COMMON STOCK.
(A) PURCHASE
AND SALE OF COMMON STOCK. Subject to the terms and conditions set forth herein,
the Company shall issue and sell to the Investor, and the Investor shall
purchase from the Company, up to that number of Shares having an aggregate
Purchase Price of Five Million dollars ($5,000,000).
(B) DELIVERY
OF PUT NOTICES.
(I)
Subject to the terms and conditions of the Transaction Documents, and from
time
to time during the Open Period, the Company may, in its sole discretion, deliver
a Put Notice to the Investor which states the Put Amount (designated in U.S.
Dollars) which the Company intends to sell to the Investor on a Closing
Date.
The
Put Notice shall be in the form attached hereto as Exhibit F and incorporated
herein by reference. The amount that the Company shall be entitled to Put to
the
Investor (the "Put Amount") shall be equal to, at the Company's election,
either: (A) Two Hundred percent (200%) of the average daily volume (U.S. market
only) of the Common Stock for the ten (10) Trading Days prior to the applicable
Put Notice Date, multiplied by the average of the three (3) daily closing bid
prices immediately preceding the Put Date, or (B) One-Hundred Thousand dollars
($100,000); provided that in no event will the Put Amount be more than One
Million Dollars ($1,000,000) with respect to any single Put. During the Open
Period, the Company shall not be entitled to submit a Put Notice until after
the
previous Closing has been completed. The Purchase Price for the Common Stock
identified in the Put Notice shall be equal to ninety-five percent (95%) of
the
lowest closing bid price of the Common Stock during the Pricing
Period.
(II)
If
any closing bid price during the applicable Pricing Period with respect to
that
Put Notice is less than Seventy-Five percent (75%) of the any closing bid prices
of the Common Stock for the ten (10) Trading Days prior to the Put Notice Date
(the "Minimum Acceptable Price"), the Put Notice will terminate at the Company's
request. In the event that the closing bid price for the applicable Pricing
Period is less than the Minimum Acceptable Price, the Company may elect, by
sending written notice to the Investor to cancel the Put Notice.
(C) RESERVED
(D) INVESTOR'S
OBLIGATION TO PURCHASE SHARES. Subject to the conditions set forth in this
Agreement, following the Investor's receipt of a validly delivered Put Notice,
the Investor shall be required to purchase from the Company during the related
Pricing Period that number of Shares having an aggregate Purchase Price equal
to
the lesser of (i) the Put Amount set forth in the Put Notice, and (ii) twenty
percent (20%) of the aggregate trading volume of the Common Stock during the
applicable Pricing Period times (x) the lowest closing bid price of the
Company's Common Stock during the specified Pricing Period, but only if said
Shares bear no restrictive legend, are not subject to stop transfer
instructions, pursuant to Section 2(h), prior to the applicable Closing
Date.
(E) Reserved
(F) CONDITIONS
TO INVESTOR'S OBLIGATION TO PURCHASE SHARES. Notwithstanding anything to the
contrary in this Agreement, the Company shall not be entitled to deliver a
Put
Notice and the Investor shall not be obligated to purchase any Shares at a
Closing (as defined in Section 2(h)) unless each of the following conditions
are
satisfied:
(I) a
Registration Statement shall
have been declared effective and shall remain effective and available for the
resale of all the Registrable Securities (as defined in
the
Registration Rights Agreement) at all times until the Closing with respect
to
the subject Put Notice;
(II) at
all
times during the period beginning on the related Put Notice Date and ending
on
and including the related Closing Date, the Common Stock shall have been listed
on the Principal Market and shall not have been suspended from trading thereon
for a period of two (2) consecutive Trading Days during the Open Period and
the
Company shall not have been notified of any pending or threatened proceeding
or
other action to suspend the trading of the Common Stock;
(III) the
Company has complied with its obligations and is otherwise not in breach of
a
material provision of, or in default under, this Agreement, the Registration
Rights Agreement or any other agreement executed in connection herewith which
has not been corrected prior to delivery of the Put Notice Date;
(IV) no
injunction shall have been issued and remain in force, or action commenced
by a
governmental authority which has not been stayed or abandoned, prohibiting
the
purchase or the issuance of the Securities; and
(V) the
issuance of the Securities will not violate any shareholder approval
requirements of the Principal Market.
If
any of
the events described in clauses (i) through (v) above occurs during a Pricing
Period, then the Investor shall have no obligation to purchase the Put Amount
of
Common Stock set forth in the applicable Put Notice.
(G) RESERVED
(H) MECHANICS
OF PURCHASE OF SHARES BY INVESTOR. Subject to the satisfaction of the conditions
set forth in Sections 2(f), 7 and 8, the closing of the purchase by the Investor
of Shares (a "Closing") shall occur on the date which is no later than seven
(7)
Trading Days following the applicable Put Notice Date (each a "Closing Date").
Prior to each Closing Date, (I)
the
Company shall deliver to the Investor pursuant to this Agreement, certificates
representing
the Shares to be issued to the Investor on such date and registered in the
name
of the Investor; and (II)
the
Investor shall deliver to the Company the Purchase Price to be paid for such
Shares, determined as set forth in Sections 2(b) and 2(d). In lieu of delivering
physical certificates representing the Securities and provided that the
Company's transfer agent then is participating in The Depository Trust Company
("DTC") Fast Automated Securities Transfer ("FAST") program, upon request of
the
Investor, the Company shall use its commercially reasonable efforts
to
cause
its transfer agent to electronically transmit the Securities by crediting the
account of the Investor's prime broker (which shall be specified by the Investor
a reasonably sufficient
time
in
advance) with DTC through its Deposit Withdrawal Agent Commission ("DWAC")
system.
The
Company understands that a delay in the issuance of Securities beyond the
Closing Date could result in economic loss to the Investor. After
the
Effective
Date,
as
compensation to the Investor for such loss, the Company agrees to pay late
payments to the Investor for late issuance of Securities (delivery of Securities
after
the
applicable Closing Date) in accordance with the following schedule (where "No.
of Days Late" is defined as the number of trading days beyond the Closing Date.
The Amounts are cumulative.):
|
LATE
PAYMENT FOR EACH
NO.
OF DAYS LATE
|
$10,000 OF COMMON STOCK | |
|
1
|
$100
|
|
|
2
|
$200
|
|
|
3
|
$300
|
|
|
4
|
$400
|
|
|
5
|
$500
|
|
|
6
|
$600
|
|
|
7
|
$700
|
|
|
8
|
$800
|
|
|
9
|
$900
|
|
|
10
|
$1,000
|
|
|
Over
10
|
$1,000
+ $200 for each
|
|
|
Business
Day late beyond 10 days
|
||
The
Company shall pay any payments incurred under this Section in immediately
available funds upon demand by the Investor. Nothing herein shall limit the
Investor's right to pursue actual damages for the Company's failure to issue
and
deliver the Securities to the Investor, except to the extent that such late
payments shall constitute payment for and offset
any
such
actual damages alleged by the Investor, and any Buy In Adjustment
Amount.
(I)
OVERALL
LIMIT ON COMMON STOCK ISSUABLE. Notwithstanding anything contained herein to
the
contrary, if during the Open Period the Company becomes listed on an exchange
that limits the number of shares of Common Stock that may be issued without
shareholder approval, then the number of Shares issuable by the Company and
purchasable by the Investor, including the shares of Common Stock issuable
to
the Investors, shall not exceed that number of the shares of Common Stock that
may be issuable without shareholder approval, subject to appropriate adjustment
for stock splits, stock dividends, combinations or other similar
recapitalization affecting
the
Common Stock (the "Maximum Common Stock Issuance"), unless the issuance of
Shares, including any Common Stock to be issued to the Investor pursuant to
Section 11(b), in excess of the Maximum Common Stock Issuance shall first be
approved by the Company's shareholders in accordance with applicable law and
the
By-laws and Amended and Restated Certificate of Incorporation of the Company,
if
such
issuance of shares of Common Stock could cause a delisting on the Principal
Market. The parties understand and agree that the Company's failure to seek
or
obtain such shareholder approval shall in no way adversely affect the validity
and due authorization of the issuance and sale of Securities or the Investor's
obligation in accordance with the terms and conditions hereof to purchase a
number of Shares in the aggregate up to the Maximum Common Stock Issuance
limitation, and that such approval pertains only to the applicability of the
Maximum Common Stock Issuance limitation provided in this Section
2(j).
SECTION
3. INVESTOR'S REPRESENTATIONS, WARRANTIES AND COVENANTS.
The
Investor represents and warrants to the Company, and covenants,
that:
(A) SOPHISTICATED
INVESTOR. The Investor has, by reason of its business and financial experience,
such knowledge, sophistication and experience in financial and business matters
and in making investment decisions of this type that it is capable of (I)
evaluating the merits and risks of an investment in the Securities and making
an
informed investment decision; (II) protecting its own interest; and (III)
bearing the economic risk of such investment for an indefinite period of
time.
(B) AUTHORIZATION;
ENFORCEMENT. This Agreement has been duly and validly authorized, executed
and
delivered on behalf of the Investor and is a valid and binding agreement of
the
Investor enforceable against the Investor in accordance with its terms, subject
as to enforceability to general principles of equity and to applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation and other
similar laws relating to, or affecting generally, the enforcement of applicable
creditors' rights and remedies.
(C) SECTION
9
OF THE 1934 ACT. During the term of this Agreement, the Investor will comply
with the provisions of Section 9 of the 1934 Act, and the rules promulgated
thereunder, with respect to transactions involving the Common Stock. The
Investor agrees not to short, either directly or indirectly through its
affiliates, principals or advisors, the Company's common stock during the term
of this Agreement.
(D) ACCREDITED
INVESTOR. Investor is an "Accredited Investor" as that term is defined in Rule
501(a)(3) of Regulation D of the 1933 Act.
(E) NO
CONFLICTS. The execution, delivery and performance of the Transaction Documents
by the Investor and the consummation by the Investor of the transactions
contemplated hereby and thereby will not result in a violation of Partnership
Agreement or other organizational documents of the Investor.
(F) OPPORTUNITY
TO DISCUSS. The Investor has received all materials relating to the Company's
business, finance and operations which it has requested.
The Investor has had an opportunity to discuss the business, management and
financial affairs of the Company with the Company's management.
(G) INVESTMENT
PURPOSES. The Investor is purchasing the Securities for its own account for
investment purposes and not with a view towards distribution and agrees to
resell or otherwise dispose of the Securities solely in accordance with the
registration provisions of the 1933 Act (or pursuant to an exemption from such
registration provisions).
(H) NO
REGISTRATION AS A DEALER. The Investor is not and will not be required to be
registered as a "dealer" under the 1934 Act, either as a result of its execution
and performance of its obligations under this Agreement or
otherwise.
(I) GOOD
STANDING The Investor is a Limited Partnership, duly organized, validly existing
and in good standing in the State of Delaware.
(J) TAX
LIABILITIES. The Investor understands that it is liable for its own tax
liabilities.
(K) REGULATION
M. The Investor will comply with Regulation M under the 1934 Act, if
applicable.
SECTION
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
Except
as
set forth in the Schedules attached hereto, or as disclosed on the Company's
SEC
Documents, the Company represents and warrants to the Investor
that:
(A)
ORGANIZATION AND QUALIFICATION. The Company is a corporation duly organized
and
validly existing in good standing under the laws of Delaware and has the
requisite corporate power and authorization to own its properties and to carry
on its business as now being conducted. Both the Company and the companies
it owns or controls, its “Subsidiaries,” are duly qualified to do
business
and are
in good standing in every jurisdiction in which its ownership of property
or
the
nature of the business conducted by it makes such qualification
necessary,
except
to the extent that the failure to be so qualified or be in good standing would
not have a Material Adverse Effect. As used in this Agreement, "Material Adverse
Effect" means any material adverse effect on the business, properties, assets,
operations, results of operations, financial condition or prospects of the
Company and its Subsidiaries, if any, taken as a whole, or on the transactions
contemplated hereby or by the agreements and instruments to be entered into
in
connection herewith, or on the authority or ability of the Company to perform
its obligations under the Transaction Documents (as defined in Section 1 and
4(b), below).
(B) AUTHORIZATION;
ENFORCEMENT;
COMPLIANCE WITH OTHER INSTRUMENTS.
(I) The
Company has the requisite corporate power and authority to enter into and
perform this Agreement, the Registration Rights Agreement, and each of the
other
agreements entered into by the parties hereto in connection with the
transactions contemplated by this Agreement (collectively, the "Transaction
Documents"), and to issue the Securities in accordance with the terms hereof
and
thereof.
(II) The
execution and delivery of the Transaction Documents by the Company and the
consummation by it, of the transactions contemplated hereby and thereby,
including without limitation the reservation for issuance and the issuance
of
the Securities pursuant to this Agreement, have been duly and validly authorized
by the Company's Board of Directors and no further consent or authorization
is
required by the Company, its Board of Directors, or its
shareholders.
(III) The
Transaction Documents have been duly and validly executed and delivered by
the
Company.
(IV) The
Transaction Documents constitute the valid and binding obligations of the
Company enforceable against the Company in accordance with their terms, except
as such enforceability may be limited by general principles of equity or
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation
or
similar laws relating to, or affecting
generally,
the enforcement of creditors' rights and remedies.
(C)
CAPITALIZATION. As of the date hereof, the authorized capital stock of the
Company consists of (i) 19,900,000 shares of Common Stock, par value $.001
per
share, of which 8,715,476 and 8,622,978 shares are issued and outstanding (as
of
March 31, 2005 and December 31, 2004), and (ii) 100,000 shares of Preferred
stock, par value $.001 per share, of which none is issued and outstanding,
and
(iii) 60,000,000 shares of Series A Convertible Preferred, par value $.001
per
share, of which none are issued and outstanding (as of March 31, 2005); and
no
shares reserved for issuance pursuant to options, warrants and other convertible
securities. All of such outstanding shares have been, or upon issuance will
be,
validly issued and are fully paid and nonassessable. Except as disclosed in
the
Company's publicly available filings with Periodic Filings,
(I)
no
shares of the Company's capital stock are subject to preemptive rights or any
other similar rights or any liens or encumbrances suffered
or
permitted by the Company; (II)
there
are
no outstanding debt securities; (III) there are no outstanding shares of capital
stock, options, warrants, scrip, rights to subscribe to, calls or commitments
of
any character whatsoever relating to, or securities or rights convertible into,
any shares of capital stock of the Company or any of its Subsidiaries,
or contracts, commitments, understandings or arrangements by which the Company
or any of its Subsidiaries is or may become bound to issue additional shares
of
capital stock of the Company or any of its Subsidiaries or options, warrants,
scrip, rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, any shares of capital
stock of the Company or any of its Subsidiaries; (IV) there are no agreements
or
arrangements under which the Company or any of its Subsidiaries is obligated
to
register the sale of any of their securities under the 1933 Act (except the
Registration Rights Agreement), (V) there are no outstanding securities of
the
Company or any of its Subsidiaries which contain any redemption or similar
provisions, and there are no contracts, commitments, understandings or
arrangements by which the Company or any of its Subsidiaries is or may become
bound to redeem a security of the Company or any of its Subsidiaries; (VI)
there
are no securities or instruments containing anti-dilution or similar provisions
that will be triggered by the issuance of the Securities as described in this
Agreement; (VII) the Company does not have any stock appreciation rights or
"phantom stock" plans or agreements or any similar plan or agreement; and (VIII)
there is no dispute as to the classification of any shares of the Company's
capital stock. The Company has furnished to the Investor, or the Investor has
had access through XXXXX to, true and correct copies of the Company's Amended
and Restated Certificate of Incorporation, as in effect on the date hereof
(the
"Certificate of Incorporation"), and the Company's By-laws, as in effect on
the
date hereof (the "By-laws"), and the terms of all securities convertible into
or
exercisable for Common Stock and the material rights of the holders thereof
in
respect thereto.
(D) ISSUANCE
OF SHARES. The Company’s reservation Shares for issuance pursuant to this
Agreement has been duly authorized and reserved for issuance (subject to
adjustment pursuant to the Company's covenant set forth in Section 5(f) below)
pursuant to this Agreement. Upon issuance in accordance with this Agreement,
the
Securities will be validly issued, fully paid and non-assessable and free from
all taxes, liens and charges with respect to the issue thereof. In the event
the
Company cannot register a sufficient number of Shares for issuance pursuant
to
this Agreement, the Company will use its best efforts to authorize and reserve
for issuance the number of Shares required for the Company to perform its
obligations hereunder as soon as reasonably practicable.
(E) NO
CONFLICTS. The execution, delivery and performance of the Transaction Documents
by the Company and the consummation by the Company of the transactions
contemplated hereby and thereby will not (I) result in a violation of the
Certificate of Incorporation, any Certificate of Designations, Preferences
and
Rights of any outstanding series of preferred stock of the Company or the
By-laws; or (II) conflict with, or constitute a material default (or an event
which with notice or lapse of time or both would become a material default)
under, or give to others any rights of termination, amendment, acceleration
or
cancellation of, any material agreement, contract, indenture mortgage,
indebtedness or instrument to which the Company or any of its Subsidiaries
is a party, or to the Company's knowledge result in a violation of any law,
rule, regulation, order, judgment or decree (including United States federal
and
state securities laws and regulations and the rules and regulations of the
Principal Market or principal securities exchange or trading market on which
the
Common Stock is traded or listed) applicable to the Company or any of its
Subsidiaries or by which any property or asset of the Company or any of its
Subsidiaries is bound or affected. Except as disclosed in Schedule 4(e), neither
the Company nor its Subsidiaries is in violation of any term of, or in default
under, the Certificate of Incorporation, any Certificate of Designations,
Preferences and Rights of any outstanding series of preferred stock of the
Company or the By-laws or their organizational charter or by-laws, respectively,
or any contract, agreement, mortgage, indebtedness, indenture, instrument,
judgment, decree or order or any statute, rule or regulation applicable to
the
Company or its Subsidiaries, except for possible conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations that
would
not individually or in the aggregate have a Material Adverse Effect. The
business of the Company and its Subsidiaries is not being conducted, and shall
not be conducted, in violation of any law, statute, ordinance, rule, order
or
regulation of any governmental authority or agency, regulatory or
self-regulatory agency, or court, except for possible violations the sanctions
for which either individually or in the aggregate would not have a Material
Adverse Effect. Except as specifically contemplated by this Agreement and as
required under the 1933 Act to the Company's knowledge, the Company is not
required to obtain any consent, authorization, permit or order of, or make
any
filing or registration (except the filing of a registration statement) with,
any
court, governmental authority or agency, regulatory or self-regulatory agency
or
other third party in order for it to execute, deliver or perform any of its
obligations under, or contemplated by, the Transaction Documents in accordance
with the terms hereof or thereof. All consents, authorizations, permits, orders,
filings and registrations which the Company is required to obtain pursuant
to
the preceding sentence have been obtained or effected on or prior to the date
hereof and are in full force and effect as of the date hereof. Except as
disclosed in Schedule 4(e), the Company and its Subsidiaries are unaware of
any
facts or circumstances which might give rise to any of the foregoing. The
Company is not, and will not be, in violation of the listing requirements of
the
Principal Market as in effect on the date hereof and on each of the Closing
Dates and is not aware of any facts which would reasonably lead to delisting
of
the Common Stock by the Principal Market in the foreseeable future.
(F)
SEC
DOCUMENTS; FINANCIAL STATEMENTS. As of June 21, 2005, the Company has filed
all
reports, schedules, forms, statements and other documents required to be filed
by it with the SEC pursuant to the reporting requirements of the 1934 Act (all
of the foregoing filed prior to the date hereof and all exhibits included
therein and financial statements and schedules thereto and documents
incorporated by reference therein being hereinafter referred to as the "SEC
Documents"). The Company has delivered to the Investor or its representatives,
or they have had access through XXXXX to, true and complete copies
of
the SEC Documents. As of their respective dates, the SEC Documents complied
in
all material respects with the requirements of the 1934 Act and the rules and
regulations of the SEC promulgated thereunder applicable to the SEC Documents,
and none of the SEC Documents, at the time they were filed with the SEC,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading. As
of
their respective dates, the financial statements of the Company included in
the
SEC Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC
with
respect thereto. Such financial statements have been prepared in accordance
with
generally accepted accounting principles, by a firm that is a member of the
Public Companies Accounting Oversight Board ("PCAOB") consistently applied,
during the periods involved (except (I) as may be otherwise indicated in such
financial statements or the notes thereto, or (II) in the case of unaudited
interim statements, to the extent they may exclude footnotes or may be condensed
or summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case
of
unaudited statements, to normal year-end audit adjustments). No other written
information provided by or on behalf of the Company to the Investor which is
not
included in the SEC Documents, including, without limitation, information
referred to in Section 4(d) of this Agreement, contains any untrue statement
of
a material fact or omits to state any material fact necessary to make the
statements therein, in the light of the circumstance under which they are or
were made, not misleading. Neither the Company nor any of its Subsidiaries
or
any of their officers, directors, employees or agents have provided the Investor
with any material, nonpublic information which was not publicly disclosed prior
to the date hereof and any material, nonpublic information provided to the
Investor by the Company or its Subsidiaries or any of their officers, directors,
employees or agents prior to any Closing Date shall be publicly disclosed by
the
Company prior to such Closing Date.
(G) ABSENCE
OF CERTAIN CHANGES. Except as set forth in the SEC Documents, the Company does
not intend to change the business operations of the Company in any material
way.
The Company has not taken any steps, and does not currently expect to take
any
steps, to seek protection pursuant to any bankruptcy law nor does the Company
or
its Subsidiaries have any knowledge or reason to believe that its creditors
intend to initiate involuntary bankruptcy proceedings.
(H) ABSENCE
OF LITIGATION. Except as set forth in the SEC Documents, there is no action,
suit, proceeding, inquiry or investigation before or by any court, public board,
government agency, self-regulatory organization or body pending or, to the
knowledge of the executive officers of Company or any of its Subsidiaries,
threatened against or affecting the Company, the Common Stock or any of the
Company's Subsidiaries or any of the Company's or the Company's Subsidiaries'
officers or directors in their capacities as such, in which an adverse decision
could have a Material Adverse Effect.
(I) ACKNOWLEDGMENT
REGARDING INVESTOR'S PURCHASE OF SHARES. The Company acknowledges and agrees
that the Investor is acting solely in the capacity of arm's length purchaser
with respect to the Transaction Documents and the transactions contemplated
hereby and thereby. The Company further acknowledges that the Investor is not
acting as a financial advisor or fiduciary of the Company (or in any similar
capacity) with respect to the Transaction Documents and the transactions
contemplated hereby and thereby and any advice given by the Investor or any
of
its respective representatives or agents in connection with the Transaction
Documents and the transactions contemplated hereby and thereby is merely
incidental to the Investor's purchase of the Securities. The Company further
represents to the Investor that the Company's decision to enter into the
Transaction Documents has been based solely on the independent evaluation by
the
Company and its representatives.
(J) NO
UNDISCLOSED EVENTS, LIABILITIES, DEVELOPMENTS OR CIRCUMSTANCES. Except as set
forth in the SEC Documents, since May 17, 2005, no event, liability, development
or circumstance has occurred or exists, or to the Company's knowledge is
contemplated to occur, with respect to the Company or its Subsidiaries or their
respective business, properties, assets, prospects, operations or financial
condition, that would be required to be disclosed by the Company under
applicable securities laws on a registration statement filed with the SEC
relating to an issuance and sale by the Company of its Common Stock and which
has not been publicly announced.
(K) EMPLOYEE
RELATIONS. Neither the Company nor any of its Subsidiaries is involved in any
union labor dispute nor, to the knowledge of the Company or any of its
Subsidiaries, is any such dispute threatened. Neither the Company nor any of
its
Subsidiaries is a party to a collective bargaining agreement, and the Company
and its Subsidiaries believe that relations with their employees are good.
No
executive officer (as defined in Rule 501(f) of the 0000 Xxx) has notified
the
Company that such officer intends to leave the Company's employ or otherwise
terminate such officer's employment with the Company.
(L) INTELLECTUAL
PROPERTY RIGHTS. The Company and its Subsidiaries own or possess adequate rights
or licenses to use all trademarks, trade names, service marks, service xxxx
registrations, service names, patents, patent rights, copyrights, inventions,
licenses, approvals, governmental authorizations, trade secrets and rights
necessary to conduct their respective businesses as now conducted. Except as
set
forth in the SEC Documents, none of the Company's trademarks, trade names,
service marks, service xxxx registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, government authorizations,
trade secrets or other intellectual property rights necessary to conduct its
business as now or as proposed to be conducted have expired
or terminated, or are expected to expire or terminate within two (2) years
from
the date of this Agreement. The Company and its Subsidiaries do not have any
knowledge of any infringement by the Company or its Subsidiaries of trademark,
trade name rights, patents, patent rights, copyrights, inventions, licenses,
service names, service marks, service xxxx registrations, trade secret or other
similar rights of others, or of any such development of similar or identical
trade secrets or technical information by others and, except as set forth in
the
SEC Documents, there is no claim, action or proceeding being made or brought
against, or to the Company's knowledge, being threatened against, the Company
or
its Subsidiaries regarding trademark, trade name, patents, patent rights,
invention, copyright, license, service names, service marks, service xxxx
registrations, trade secret or other infringement; and the Company and its
Subsidiaries are unaware of any facts or circumstances which might give rise
to
any of the foregoing. The Company and its Subsidiaries have taken commercially
reasonable security measures to protect the secrecy, confidentiality and value
of all of their intellectual properties.
(M) ENVIRONMENTAL
LAWS. The Company and its Subsidiaries (I)
are,
to
the knowledge of management of the Company, in compliance with any and all
applicable foreign, federal, state and local laws and regulations relating
to
the protection of human health and safety, the environment or hazardous or
toxic
substances or wastes, pollutants or contaminants ("Environmental Laws");
(II)
have,
to
the knowledge of management of the Company, received all permits, licenses
or
other approvals required of them under applicable Environmental Laws to conduct
their respective businesses; and (III) are in compliance, to the knowledge
of
the Company, with all terms and conditions of any such permit, license or
approval where, in each of the three (3) foregoing cases, the failure to so
comply would have, individually or in the aggregate, a Material Adverse
Effect.
(N) TITLE.
The Company and its Subsidiaries have good and marketable title to all personal
property owned by them which is material to the business of the Company and
its
Subsidiaries, in each case free and clear of all liens, encumbrances and defects
except such as are described in the SEC Documents or such as do not materially
affect
the
value
of such property and do not interfere with the use made and proposed to be
made
of such property by the Company or any of its Subsidiaries. Any real property
and facilities held under lease by the Company or any of its Subsidiaries are
held by them under valid, subsisting and enforceable leases with such exceptions
as are not material and do not interfere with the use made and proposed to
be
made of such property and buildings by the Company and its
Subsidiaries.
(O) INSURANCE.
Each of the Company's Subsidiaries are insured by insurers of recognized
financial
responsibility
against such losses and risks and in such amounts as management of the Company
reasonably believes to be prudent and customary in the businesses in which
the
Company and its Subsidiaries are engaged. Neither the Company nor any such
Subsidiary has been refused any insurance coverage sought or applied for and
neither the Company nor any such 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
at a
cost that would not have a Material Adverse Effect.
(P) REGULATORY
PERMITS. The Company and its Subsidiaries have in full force and effect all
certificates, approvals, authorizations and permits from the appropriate
federal, state, local or foreign regulatory authorities and comparable foreign
regulatory agencies, necessary to own, lease or operate their respective
properties and assets and conduct their respective businesses, and neither
the
Company nor any such Subsidiary has received any notice of proceedings relating
to the revocation or modification of any such certificate, approval,
authorization or permit, except for such certificates, approvals, authorizations
or permits which if not obtained, or such revocations or modifications which,
would not have a Material Adverse Effect.
(Q) INTERNAL
ACCOUNTING CONTROLS. The Company and each of its Subsidiaries maintain a system
of internal accounting controls sufficient to provide reasonable assurance
that
(I) transactions are executed in accordance with management's general or
specific authorizations; (II) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles by a firm with membership to the PCAOB and to maintain
asset accountability; (III) access to assets is permitted only in accordance
with management's general or specific authorization; and (IV) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any
differences.
(R) NO
MATERIALLY ADVERSE CONTRACTS, ETC. Neither the Company nor any of its
Subsidiaries is subject to any charter, corporate or other legal restriction,
or
any judgment, decree, order, rule or regulation which in the judgment of the
Company's officers has or is expected in the future to have a Material Adverse
Effect. Neither the Company nor any of its Subsidiaries is a party to any
contract or agreement which in the judgment of the Company's officers has or
is
expected to have a Material Adverse Effect.
(S) TAX
STATUS. The Company and each of its Subsidiaries has made or filed all United
States federal and state income and all other tax returns, reports and
declarations required by any jurisdiction to which it is subject (unless and
only to the extent that the Company and each of its Subsidiaries has set aside
on its books provisions reasonably adequate for the payment of all unpaid and
unreported taxes) and has paid all taxes and other governmental assessments
and
charges that are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith
and has set aside on its books provision reasonably adequate for the payment
of
all taxes for periods subsequent to the periods to which such returns, reports
or declarations apply. There are no unpaid taxes in any material amount claimed
to be
due by
the taxing authority of any jurisdiction, and the officers of the Company know
of no basis for any such claim.
(T) CERTAIN
TRANSACTIONS. Except as set forth in the SEC Documents filed at least ten (10)
days prior to the date hereof and except for arm's length transactions pursuant
to which the Company makes payments in the ordinary course of business upon
terms no less favorable than the Company could obtain from third parties and
other than the grant of stock options disclosed in the SEC Documents, none
of
the officers, directors, or employees of the Company is presently a party to
any
transaction with the Company or any of its Subsidiaries (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 corporation, partnership, trust or other entity in which
any
officer, director, or any such employee has a substantial interest or is an
officer, director, trustee or partner.
(U) DILUTIVE
EFFECT. The Company understands and acknowledges that the number of shares
of
Common Stock issuable upon purchases pursuant to this Agreement will increase
in
certain circumstances including, but not necessarily limited to, the
circumstance wherein the trading price of the Common Stock declines during
the
period between the Effective Date and the end of the Open Period. The Company's
executive officers and directors have studied and fully understand the nature
of
the transactions contemplated by this Agreement and recognize that they have
a
potential dilutive effect. The Board of Directors of the Company has concluded,
in its good faith business judgment, that such issuance is in the best interests
of the Company. The Company specifically acknowledges that, subject to such
limitations as are expressly set forth in the Transaction Documents, its
obligation to issue shares of Common Stock upon purchases pursuant to this
Agreement is absolute and unconditional regardless of the dilutive effect that
such issuance may have on the ownership interests of other shareholders of
the
Company.
(V) RIGHT
OF
FIRST REFUSAL. The Company shall not, directly or indirectly, without the prior
written consent of Investor which will not be unreasonably withheld, offer,
sell, grant any option to purchase, or otherwise dispose of (or announce any
offer, sale, grant or any option to purchase or other disposition) any of its
Common Stock or securities convertible into Common Stock at a price that is
less
than the market price of the Common Stock at the time of issuance of such
security or investment (a "Subsequent Financing") for a period of one (1) year
after the Effective Date, except (I) the granting of options or warrants to
employees, officers, directors and consultants, and the issuance of shares
upon
exercise of options granted, under any stock option plan heretofore or hereafter
duly adopted by the Company or for services rendered or to be rendered; (II)
shares issued upon exercise of any currently outstanding warrants or options
and
upon conversion of any currently outstanding convertible debenture
or convertible
preferred stock, in each case disclosed pursuant to Section 4(c); (III)
securities issued in connection with the capitalization or creation of a joint
venture with a strategic partner; (IV) shares issued to pay part or all of
the
purchase price for the acquisition by the Company of another entity (which,
for
purposes of this clause (iv), shall not include an individual or group of
individuals); and (V) shares issued in a bona fide public offering by the
Company of its securities, unless (A) the Company delivers to Investor a written
notice (the "Subsequent Financing Notice") of its intention to effect such
Subsequent Financing, which Subsequent Financing Notice shall describe in
reasonable detail the proposed terms of such Subsequent Financing, the amount
of
proceeds intended to be raised thereunder, the person with whom such Subsequent
Financing shall be effected, and attached to which shall be a term sheet or
similar document relating thereto; and (B) Investor shall not have notified
the
Company by 5:00 p.m. (Eastern Time) on the fifth Trading Day after its receipt
of the Subsequent Financing Notice of its willingness to provide, subject to
completion of mutually acceptable documentation, financing to the Company on
substantially the terms set forth in the Subsequent Financing Notice; (VI)
to
enter into a loan, credit or lease facility with a bank or financing
institution. If Investor shall fail to notify the Company of its intention
to
enter into such negotiations within such time period, then the Company may
effect the Subsequent Financing substantially upon the terms set forth in the
Subsequent Financing Notice; provided that the Company shall provide Investor
with a second Subsequent Financing Notice, and Investor shall again have the
right of first refusal set forth above in this Section, if the Subsequent
Financing subject to the initial Subsequent Financing Notice shall not have
been
consummated for any reason on the terms set forth in such Subsequent Financing
Notice within thirty Trading Days after the date of the initial Subsequent
Financing Notice. The rights granted to Investor in this Section are not subject
to any prior right of first refusal given to any other person disclosed on
Schedule 4(c).
(W) LOCK-UP.
The Company shall cause its officers, insiders, directors, and affiliates or
other related parties under control of the Company, to refrain from selling
Common Stock during each Pricing Period.
(X) NO
GENERAL SOLICITATION. Neither the Company, nor any of its affiliates, nor any
person acting on its behalf, has engaged in any form of general solicitation
or
general advertising (within the meaning of Regulation D) in connection with
the
offer or sale of the Common Stock offered hereby.
(Y) NO
BROKERS, FINDERS OR FINANCIAL ADVISORY FEES OR COMMISSIONS will be payable
by
the Company with respect to the transactions contemplated by this Agreement,
other than disclosed in this Agreement.
SECTION
5. COVENANTS OF THE COMPANY
(A) BEST
EFFORTS. The Company shall use commercially reasonable efforts
timely
to
satisfy each of the conditions to be satisfied by it as provided in Section
7 of
this Agreement.
(B) BLUE
SKY.
The Company shall, at its sole cost and expense, on or before each of the
Closing Dates, take such action as the Company shall reasonably determine is
necessary to qualify the Securities for, or obtain exemption for the Securities
for, sale to the Investor at each of the Closings pursuant to this Agreement
under applicable securities or "Blue Sky" laws of such states of the United
States, as reasonably specified by Investor, and shall provide evidence of
any
such action so taken to the Investor on or prior to the Closing
Date.
(C) REPORTING
STATUS. Until the earlier to occur of (I)
the
first
date which is after
the
date
this Agreement is terminated pursuant to Section 9 and on which the Holders
(as
that term is defined in the Registration Rights Agreement) may sell all of
the
Securities without restriction pursuant to Rule 144(k) promulgated under the
1933 Act (or successor thereto); and (II)
the
date
on which (A) the Holders shall have sold all the Securities; and (B) this
Agreement has been terminated pursuant to Section 9 (the "Registration Period"),
the Company shall file all reports required to be filed with the SEC pursuant
to
the 1934 Act, and the Company shall not terminate its status as a reporting
company under the 1934 Act.
(D) USE
OF
PROCEEDS. The Company will use the proceeds from the sale of the Shares
(excluding amounts paid by the Company for fees as set forth in the Transaction
Documents) for general corporate and working capital purposes and acquisitions
or assets, businesses or operations or for other purposes that the Board of
Directors deem to be in the best interest of the Company.
(E) FINANCIAL
INFORMATION. The Company agrees to make available to the Investor via XXXXX
or
other electronic means the following to the Investor during the Registration
Period: (I)
within
five (5) Trading Days after
the
filing thereof with the SEC, a copy of its Annual Reports on Form 10-KSB, its
Quarterly Reports on Form 10-QSB, any Current Reports on Form 8-K and any
Registration Statements or amendments filed pursuant to the 1933 Act;
(II)
on
the
same day as the release thereof, facsimile copies of all press releases issued
by the Company or any of its Subsidiaries; (III) copies of any notices and
other
information made available or given to the shareholders of the Company
generally, contemporaneously with the making available or giving thereof to
the
shareholders; and (IV) within two (2) calendar days of filing or delivery
thereof, copies of all documents filed with, and all correspondence sent to,
the
Principal Market, any securities exchange or market, or the National Association
of Securities Dealers, Inc., unless such information is material nonpublic
information.
(F) RESERVATION
OF SHARES. Subject to the following sentence, the Company shall take all action
necessary to at all times have authorized, and reserved
for the purpose of issuance, a sufficient number of shares of Common Stock
to
provide for the issuance of the Securities hereunder. In the event that the
Company determines that it does not have a sufficient number of authorized
shares of Common Stock to reserve and keep available for issuance as described
in this Section 5(f), the Company shall use its best efforts to increase the
number of authorized shares of Common Stock by seeking shareholder approval
for
the authorization of such additional shares.
(G) LISTING.
The Company shall promptly secure and maintain the listing of all of the
Registrable Securities (as defined in the Registration Rights Agreement) upon
the Principal Market and each other national securities exchange and automated
quotation system, if any, upon which shares of Common Stock are then listed
(subject to official notice of issuance) and shall maintain, such listing of
all
Registrable Securities from time to time issuable under the terms of the
Transaction Documents. Neither the Company nor any of its Subsidiaries shall
take any action which would be reasonably expected to result in the delisting
or
suspension of the Common Stock on the Principal Market (excluding suspensions
of
not more than one (1) trading day resulting from business announcements by
the
Company). The Company shall promptly provide to the Investor copies of any
notices it receives from the Principal Market regarding the continued
eligibility of the Common Stock for listing on such automated quotation system
or securities exchange. The Company shall pay all fees and expenses in
connection with satisfying its obligations under this Section 5(g).
(H) TRANSACTIONS
WITH AFFILIATES. The Company shall not, and shall cause each of its Subsidiaries
not to, enter into, amend, modify or supplement, or permit any Subsidiary to
enter into, amend, modify or supplement, any agreement, transaction, commitment
or arrangement with any of its or any Subsidiary's officers, directors, persons
who were officers or directors at any time during the previous two (2) years,
shareholders who beneficially own 5% or more of the Common Stock, or affiliates
or with any individual related by blood, marriage or adoption to any such
individual or with any entity in which any such entity or individual owns a
5%
or more beneficial interest (each a "Related Party"),
except for (I) customary employment arrangements and benefit
programs
on
reasonable terms, (II) any agreement, transaction, commitment or arrangement
on
an arms-length basis on terms no less favorable than terms which would have
been
obtainable from a person other than such Related Party, or (III) any agreement,
transaction, commitment or arrangement which is approved by a majority of the
disinterested directors of the Company. For purposes hereof, any director who
is
also an officer of the Company or any Subsidiary of the Company shall not be
a
disinterested director with respect to any such agreement, transaction,
commitment or arrangement. "Affiliate" for purposes hereof means, with respect
to any person or entity, another person or entity that, directly or indirectly,
(I) has a 5% or more equity interest in that person or entity, (II) has 5%
or
more common ownership with that person or entity, (III) controls that person
or
entity, or (IV) is under common control with that person or entity. "Control"
or
"Controls" for purposes hereof means that a person or entity has
the
power, direct or indirect, to conduct or govern the policies of another person
or entity.
(I) FILING
OF
FORM 8-K. On or before the date which is three (3) Trading Days after the
Execution Date, the Company shall file a Current Report on Form 8-K with the
SEC
describing the terms of the transaction contemplated by the Transaction
Documents in the form required by the 1934 Act, if such filing is
required.
(J) CORPORATE
EXISTENCE. The Company shall use its best efforts to preserve and continue
the
corporate existence of the Company.
(K) NOTICE
OF
CERTAIN EVENTS AFFECTING REGISTRATION; SUSPENSION OF RIGHT TO MAKE A PUT. The
Company shall promptly notify Investor upon the occurrence of any of the
following events in respect of a Registration Statement or related prospectus
in
respect of an offering of the Securities: (I) receipt of any request for
additional information by the SEC or any other federal or state governmental
authority during the period of effectiveness of the Registration Statement
for
amendments or supplements to the Registration Statement or related prospectus;
(II) the issuance by the SEC or any other federal or state governmental
authority of any stop order suspending the effectiveness of any Registration
Statement or the initiation of any proceedings for that purpose; (III) receipt
of any notification with respect to the suspension of the qualification or
exemption from qualification of any of the Securities for sale in any
jurisdiction or the initiation or notice of any proceeding for such purpose;
(IV) the happening of any event that makes any statement made in such
Registration Statement or related prospectus or any document incorporated or
deemed to be incorporated therein by reference untrue in any material respect
or
that requires the making of any changes in the Registration Statement, related
prospectus or documents so that, in the case of a Registration Statement, it
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, and that in the case of the related prospectus, it
will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; and (V) the Company's reasonable determination that a post-effective
amendment to the Registration Statement would be appropriate, and the Company
shall promptly make available to Investor any such supplement or amendment
to
the related prospectus. The Company shall not deliver to Investor any Put Notice
during the continuation of any of the foregoing events.
(L) REIMBURSEMENT.
If (I) Investor becomes involved in any capacity in any action, proceeding
or
investigation brought by any shareholder of the Company, in connection with
or
as a result of the consummation of the transactions contemplated by the
Transaction Documents, or if Investor is impleaded in any such action,
proceeding or investigation by any person (other than as a result of
a
breach
of the Investor’s representations and warranties set forth in this Agreement);
or (II)Investor becomes involved in any capacity in any action, proceeding
or
investigation brought by the SEC against or involving the Company or in
connection with or as a result of the consummation of the transactions
contemplated by the Transaction Documents (other than as a result of a breach
of
the Investor’s representations and warranties set forth in this Agreement), or
if Investor is impleaded in any such action, proceeding or investigation by
any
person, then in any such case, the Company will reimburse Investor for its
reasonable legal and other expenses (including the cost of any investigation
and
preparation) incurred in connection therewith, as such expenses are incurred.
In
addition, other than with respect to any matter in which Investor is a named
party, the Company will pay to Investor the charges, as reasonably determined
by
Investor, for the time of any officers or employees of Investor devoted to
appearing and preparing to appear as witnesses, assisting in preparation for
hearings, trials or pretrial matters, or otherwise with respect to inquiries,
hearing, trials, and other proceedings relating to the subject matter of this
Agreement. The reimbursement obligations of the Company under this section
shall
be in addition to any liability which the Company may otherwise have, shall
extend upon the same terms and conditions to any affiliates of Investor that
are
actually named in such action, proceeding or investigation, and partners,
directors, agents, employees, attorneys, accountants, auditors and controlling
persons (if any), as the case may be, of Investor and any such affiliate, and
shall be binding upon and inure to the benefit of any successors of the Company,
Investor and any such affiliate and any such person.
(M)
TRANSFER AGENT. Upon effectiveness of the Registration Statement, the Company
shall deliver instructions to its transfer agent to issue shares of Common
Stock
to the Investor free of restrictive legends for any Puts completed by the
Company.
SECTION
6. COVER.
If
the
number of Shares represented by any Put Notice (s) become restricted or are
no
longer freely trading for any reason, and after the applicable Closing Date,
the
Investor purchases, in an open market transaction or otherwise, the Company's
Common Stock (the "Covering Shares") in order to make delivery in satisfaction
of a sale of Common Stock by the Investor (the "Sold Shares"), which delivery
such Investor anticipated to make using the Shares represented by the Put Notice
(a "Buy-In"), the Company shall pay to the Investor the Buy-In Adjustment Amount
(as defined below). The "Buy-In Adjustment Amount" is the amount equal to the
excess, if any, of (A) the Investor's total purchase price (including brokerage
commissions, if any) for the Covering Shares over (B) the net proceeds (after
brokerage commissions, if any) received by the Investor from the sale of the
Sold Shares. The Company shall pay the Buy-In Adjustment Amount to the Investor
in immediately available funds immediately upon demand by the Investor. By
way
of illustration and not in limitation of the foregoing, if the Investor
purchases Common Stock having a total purchase price (including brokerage
commissions) of $11,000 to cover a Buy-In with respect to the Common Stock
it
sold for net proceeds of $10,000, the Buy-In Adjustment Amount which the Company
will be required to pay to the Investor will be $1,000.
SECTION
7. CONDITIONS OF THE COMPANY'S OBLIGATION TO SELL.
The
obligation hereunder of the Company to issue and sell the Securities to the
Investor is further subject to the satisfaction, at or before each Closing
Date,
of each of the following conditions set forth below. These conditions are for
the Company's sole benefit and may be waived by the Company at any time in
its
sole discretion.
(A) The
Investor shall have executed each of this Agreement and the Registration Rights
Agreement and delivered the same to the Company.
(B) The
Investor shall have delivered to the Company the Purchase Price for the
Securities being purchased by the Investor between the end of the Pricing Period
and the Closing Date via a Put Settlement Sheet (hereto attached as Exhibit
G)
After
receipt
of confirmation of delivery of such Securities to the Investor, the Investor,
by
wire transfer of immediately available funds pursuant to the wire instructions
provided by the Company will disburse the funds constituting the Purchase
Amount.
(C) No
statute, rule, regulation, executive order, decree, ruling or injunction shall
have been enacted, entered, promulgated or endorsed by any court or governmental
authority of competent jurisdiction which prohibits the consummation of any
of
the transactions contemplated by this Agreement.
SECTION
8. FURTHER CONDITIONS OF THE INVESTOR'S OBLIGATION TO PURCHASE.
The
obligation of the Investor hereunder to purchase Shares is subject to the
satisfaction, on or before each Closing Date, of each of the following
conditions set forth below.
(A) The
Company shall have executed each of the Transaction Documents and delivered
the
same to the Investor.
(B) The
Common Stock shall be authorized for quotation on the Principal Market and
trading in the Common Stock shall not have been suspended by the Principal
Market or the SEC, at any time beginning on the date hereof and through and
including the respective Closing Date (excluding suspensions of not more than
one (1) Trading Day resulting from business announcements by the Company,
provided that such suspensions occur prior to the Company's delivery of the
Put
Notice related to such Closing).
(C) The
representations and warranties of the Company shall be true and correct as
of
the date when made and as of the applicable Closing Date as though made at
that
time (except for (I) representations and warranties that speak as of a specific
date and (II) with respect to the representations made in Sections 4(g),
(h)
and
(j) and the third sentence of Section 4(k) hereof, events which occur on
or
after
the date of this Agreement and are disclosed in SEC filings made by the Company
at least ten (10) Trading Days prior to the applicable Put Notice Date) and
the
Company shall have performed, satisfied and complied with the covenants,
agreements and conditions required by the Transaction Documents to be performed,
satisfied or complied with by the Company on or before such Closing Date. The
Investor may request an update as of such Closing Date regarding the
representation contained in Section 4(c) above.
(D) The
Company shall have executed and delivered to the Investor the certificates
representing, or have executed electronic book-entry transfer of, the Securities
(in such denominations as such Investor shall request) being purchased by the
Investor at such Closing.
(E) The
Board
of Directors of the Company shall have adopted resolutions consistent with
Section 4(b)(ii) above (the "Resolutions") and such Resolutions shall not have
been amended or rescinded prior to such Closing Date.
(F) reserved
(G) No
statute, rule, regulation, executive order, decree, ruling or injunction shall
have been enacted, entered, promulgated or endorsed by any court or governmental
authority of competent jurisdiction which prohibits the consummation of any
of
the transactions contemplated by this Agreement.
(H) The
Registration Statement shall be effective on each Closing Date and no stop
order
suspending the effectiveness of the Registration statement shall be in effect
or
to the Company's knowledge shall be pending or threatened. Furthermore, on
each
Closing Date (I) neither the Company nor Investor shall have received notice
that the SEC has issued or intends to issue a stop order with respect to such
Registration Statement or that the SEC otherwise has suspended or withdrawn
the
effectiveness of such Registration Statement, either temporarily or permanently,
or intends or has threatened to do so (unless the SEC's concerns have been
addressed and Investor is reasonably satisfied that the SEC no longer is
considering or intends to take such action), and (II) no other suspension of
the
use or withdrawal of the effectiveness of such Registration Statement or related
prospectus shall exist.
(I) At
the
time of each Closing, the Registration Statement (including information or
documents incorporated by reference therein) and any amendments or supplements
thereto shall not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to
make the
statements therein not misleading or which would require public disclosure
or an
update supplement to the prospectus.
(J) If
applicable, the shareholders of the Company shall have approved the issuance
of
any Shares in excess of the Maximum Common Stock Issuance in accordance with
Section 2(i) or the Company shall have obtained appropriate approval pursuant
to
the requirements of Delaware law and the Company’s Articles of Incorporation and
By-laws.
(K) The
conditions to such Closing set forth in Section 2(f) shall have been satisfied
on or before such Closing Date.
(L) The
Company shall have certified to the Investor the number of Shares of Common
Stock outstanding when a Put Notice is given to the Investor.
SECTION
9. TERMINATION. This Agreement shall terminate upon any of the following
events:
(I) when
the
Investor has purchased an aggregate of Five Million dollars ($5,000,000) in
the
Common Stock of the Company pursuant to this Agreement;
(II) on
the
date which is thirty-six (36) months after the Effective Date;
SECTION
10. SUSPENSION
This
Agreement shall be suspended upon any of the following events, and shall remain
suspended until such event is rectified:
(I) the
trading of the Common Stock is suspended by the SEC, the Principal Market or
the
NASD for a period of two (2) consecutive Trading Days during the Open
Period;
(II) The
Common Stock ceases to be registered under the 1934 Act or listed or traded
on
the Principal Market. Upon the occurrence of one (1) of the above-described
events, the Company shall send written notice of such event to the
Investor.
SECTION
11. INDEMNIFICATION.
In
consideration of the parties mutual obligations set forth In the Transaction
Documents, each of the parties (in such capacity, an "Indemnitor") shall defend,
protect, indemnify and hold harmless the other and all of the other party's
shareholders, officers, directors, employees, counsel, and direct or indirect
investors and any of the foregoing person's agents or other representatives
(including, without limitation, those retained in connection with the
transactions contemplated by this Agreement) (collectively, the "Indemnitees")
from and against any and all actions, causes of action, suits, claims, losses,
costs, penalties,
fees, liabilities and damages, and reasonable expenses in connection therewith
(irrespective of whether any such Indemnitee is a party to the action for which
indemnification hereunder is sought), and including reasonable attorneys' fees
and disbursements (the "Indemnified Liabilities"), incurred by any Indemnitee
as
a result of, or arising out of, or relating to (I) any misrepresentation or
breach of any representation or warranty made by the Indemnitor or any other
certificate, instrument or document contemplated hereby or thereby; (II) any
breach of any covenant, agreement or obligation of the Indemnitor contained
in
the Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby; or (III) any cause of action, suit or claim
brought or made against such Indemnitee by a third party and arising out of
or
resulting from the execution, delivery, performance or enforcement of the
Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby, except insofar as any such misrepresentation,
breach or any untrue statement, alleged untrue statement, omission or alleged
omission is made in reliance upon and in conformity with information furnished
to Indemnitor which is specifically intended for use in the preparation of
any
such Registration Statement, preliminary prospectus, prospectus or amendments
to
the prospectus. To the extent that the foregoing undertaking by the Indemnitor
may be unenforceable for any reason, the Indemnitor shall make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. The indemnity provisions
contained herein shall be in addition to any cause of action or similar rights
Indemnitor may have, and any liabilities the Indemnitor or the Indemnitees
may
be subject to.
SECTION
12. GOVERNING LAW; MISCELLANEOUS.
(A)
GOVERNING LAW. This Agreement shall be governed by and interpreted in accordance
with the laws of the Commonwealth of Massachusetts without regard to the
principles of conflict of laws. Each party hereby irrevocably submits to the
exclusive jurisdiction of the state and federal courts sitting in the City
of
Boston, County of Suffolk, for the adjudication of any dispute hereunder or
in
connection herewith or with any transaction contemplated hereby or discussed
herein, 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 brought
in an inconvenient forum or that the venue of such suit, action or proceeding
is
improper. 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 to such party at the address for such 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.
If any provision of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement in that jurisdiction or
the
validity or enforceability of any provision of this Agreement in any other
jurisdiction.
(B) LEGAL
FEES; AND MISCELLANEOUS FEES. Except as otherwise set forth in the Transaction
Documents, each party shall pay the fees and expenses of its advisers, counsel,
the 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. Any attorneys' fees and expenses incurred by
either the Company or by the Investor in connection with the preparation,
negotiation, execution and delivery of any amendments to this Agreement or
relating to the enforcement of the rights of any party, after the occurrence
of
any breach of the terms of this Agreement by another party or any default by
another party in respect of the transactions contemplated hereunder, shall
be
paid on demand by the party which breached the Agreement and/or defaulted,
as
the case may be. The Company shall pay all stamp and other taxes and duties
levied in connection with the issuance of any Securities.
(C) COUNTERPARTS.
This Agreement may be executed in two or more identical counterparts, all of
which 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; provided that a facsimile signature shall be considered due execution
and
shall be binding upon the signatory thereto with the same force and effect
as if
the signature were an original, not a facsimile signature.
(D) HEADINGS;
SINGULAR/PLURAL. The headings of this Agreement are for convenience of reference
and shall not form part of, or affect the interpretation of, this Agreement.
Whenever required by the context of this Agreement, the singular shall include
the plural and masculine shall include the feminine.
(E) SEVERABILITY.
If any provision of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement in that jurisdiction or
the
validity or enforceability of any provision of this Agreement in any other
jurisdiction.
(F) ENTIRE
AGREEMENT; AMENDMENTS. This Agreement supersedes all other prior oral or written
agreements between the Investor, the Company, their affiliates and persons
acting on their behalf with respect to the matters discussed herein, and this
Agreement and the instruments referenced herein (including the other Transaction
Documents) contain the entire understanding of the parties with respect to
the
matters covered herein and therein and, except as specifically set forth herein
or therein, neither the Company nor the Investor makes any representation,
warranty, covenant or undertaking with respect to such matters. No provision
of
this Agreement may be amended other than by an instrument in writing signed
by
the Company and the Investor, and no provision hereof may be waived other than
by an instrument in writing signed by the party against whom enforcement is
sought.
(G) NOTICES.
Any notices 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 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:
Xxxxxxxxx
Holdings, Inc.
000
Xxxxxxx Xxxxxx
Xxxxxxxxxx,
XX 00000
Telephone:
000-000-0000
Facsimile: 703-340-1642
If
to the Investor:
Dutchess
Private Equities Fund, LP
00
Xxxxxxxxxxxx Xxx, Xxxxx
Xxxxxx,
XX 00000
Telephone:
000-000-0000
Facsimile:
000-000-0000
Each
party shall provide five (5) days' prior written notice to the other party
of
any change in address or facsimile number.
(H) NO
ASSIGNMENT. This Agreement may not be assigned.
(I) NO
THIRD
PARTY BENEFICIARIES. This Agreement is intended for the benefit of the parties
hereto and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
(J) SURVIVAL.
The representations and warranties of the Company and the Investor contained
in
Sections 2 and 3, the agreements and covenants set forth in Sections 4 and
5,
and the indemnification provisions set forth in Section 10, shall survive each
of the Closings and the termination of this Agreement.
(K) PUBLICITY.
The Company and Investor shall consult with each other in issuing any press
releases or otherwise making public statements with respect to the transactions
contemplated hereby and no party shall issue any such press release or otherwise
make any such public statement without the prior consent of the other parties,
which consent shall not be unreasonably withheld or delayed, except that no
prior consent shall be required if such disclosure is required by law,
in
which such case the disclosing party shall provide the other parties with prior
notice of such public statement. Notwithstanding the foregoing, the Company
shall not publicly disclose the name of Investor without the prior consent
of
such Investor, except to the extent required by law. Investor acknowledges
that
this Agreement and all or part of the Transaction Documents may be deemed to
be
"material contracts" as that term is defined by Item 601(b)(10) of Regulation
S-B, and that the Company may therefore be required to file such documents
as
exhibits to reports or registration statements filed under the 1933 Act or
the
1934 Act. Investor further agrees that the status of such documents and
materials as material contracts shall be determined solely by the Company,
in
consultation with its counsel.
(L) FURTHER
ASSURANCES. Each party shall do and perform, or cause to be done and performed,
all such further acts and things, and shall execute and deliver all such other
agreements, certificates, instruments and documents, as the other party may
reasonably request in order to carry out the intent and accomplish the purposes
of this Agreement and the consummation of the transactions contemplated
hereby.
(M) PLACEMENT
AGENT. The Company agrees to pay Xxxxx, Xxxx and Xxxxxxxxx , a registered broker
dealer one percent ( 1%) of the Put Amount on each draw toward the fee. The
Investor shall have no obligation with respect to any fees or with respect
to
any claims made by or on behalf of other persons or entities for fees of a
type
contemplated in this Section that may be due in connection with the transactions
contemplated by the Transaction Documents. The Company shall indemnify and
hold
harmless the Investor, their employees, officers,
directors,
agents, and partners, and their respective affiliates,
from
and
against all claims, losses, damages, costs (including the costs of preparation
and attorney's fees) and expenses incurred in respect of any such claimed or
existing fees, as such fees and expenses are incurred.
(N) NO
STRICT
CONSTRUCTION. 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.
(O) REMEDIES.
The Investor and each holder of the Shares shall have all rights and remedies
set forth in this Agreement and the Registration Rights Agreement and all rights
and remedies which such holders have been granted at any time under any other
agreement or contract and all of the rights which such holders have under any
law. Any person having any rights under any provision of this Agreement shall
be
entitled to enforce such rights specifically
(without
posting a bond or other security), to recover damages by reason of any default
or breach of any provision of this Agreement, including the recovery of
reasonable attorneys fees and costs, and to exercise all other rights granted
by
law.
(P) PAYMENT
SET ASIDE. To the extent that the Company makes a payment or payments to the
Investor hereunder or under the Registration Rights Agreement or
the
Investor enforces or exercises its rights hereunder or thereunder, and such
payment or payments or the proceeds of such enforcement or exercise or any
part
thereof are subsequently invalidated, declared to be fraudulent or preferential,
set aside, recovered from, disgorged by or are required to be refunded, repaid
or otherwise restored to the Company, a trustee, receiver or any other person
under any law (including, without limitation, any bankruptcy law, state or
federal law, common law or equitable cause of action), then to the extent of
any
such restoration the obligation or part thereof originally intended to be
satisfied shall be revived and continued in full force and effect as if such
payment had not been made or such enforcement or setoff had not
occurred.
(Q)
PRICING OF COMMON STOCK. For purposes of this Agreement, the bid price of the
Common Stock in this Agreement shall be as reported on Bloomberg.
SECTION
13. Non-Disclosure of Non-Public Information.
(a) The
Company shall not disclose non-public information to the Investor, its advisors,
or its representatives, unless prior to disclosure of such information the
Company identifies such information, in writing, as being non-public information
and provides the Investor, such advisors and representatives with the
opportunity to accept or refuse to accept such non-public information for
review. The Company may, as a condition to disclosing any non-public information
hereunder, require the Investor's advisors and representatives to enter into
a
confidentiality agreement in form reasonably satisfactory to the Company and
the
Investor.
(b) Nothing
herein shall require the Company to disclose non-public information to the
Investor or its advisors or representatives, and the Company represents that
it
does not disseminate non-public information to any investors who purchase stock
in the Company in a public offering, to money managers or to securities
analysts, provided, however, that notwithstanding anything herein to the
contrary, the Company will, as hereinabove provided, immediately notify the
advisors and representatives of the Investor and, if any, underwriters, of
any
event or the existence of any circumstance (without any obligation to disclose
the specific event or circumstance) of which it becomes aware, constituting
non-public information (whether or not requested of the Company specifically
or
generally during the course of due diligence by such persons or entities),
which, if not disclosed in the prospectus included in the Registration Statement
would cause such prospectus to include a material misstatement or to omit a
material fact required to be stated therein in order to make the statements,
therein, in light of the circumstances in which they were made, not misleading.
Nothing contained in this Section 13 shall be construed to mean that such
persons or entities other than the Investor (without the written consent of
the
Investor prior to disclosure of such information) may not obtain non-public
information in the course of conducting due diligence in accordance with the
terms of this Agreement and nothing herein shall prevent any such persons or
entities from notifying the Company of their opinion that based on such due
diligence by such persons
or entities, that the Registration Statement contains an untrue statement of
material fact or omits a material fact required to be stated in the Registration
Statement or necessary to make the statements contained therein, in light of
the
circumstances in which they were made, not misleading.
*
*
*
SIGNATURE
PAGE OF INVESTMENT AGREEMENT
Your
signature on this Signature Page evidences your agreement to be bound by the
terms and conditions of the Investment Agreement and the Registration Rights
Agreement as of the date first written above.
The
undersigned signatory hereby certifies that he has read and understands the
Investment Agreement, and the representations made by the undersigned in this
Investment Agreement are true and accurate, and agrees to be bound by its
terms.
DUTCHESS
PRIVATE EQUITIES FUND, L.P.
BY
ITS GENERAL PARTNER,
DUTCHESS
CAPITAL MANAGEMENT, LLC
By:
/s/
Xxxxxxx X. Xxxxxxxx
Xxxxxxx
X. Xxxxxxxx, Managing Member
XXXXXXXXX
HOLDINGS, INC.
By:
/s/
Xxxx Xxxx
Xxxx
Xxxx, Chief Executive Officer
LIST OF EXHIBITS
|
EXHIBIT
A
|
Registration
Rights Agreement
|
|
EXHIBIT
B
|
Opinion
of Company's Counsel
|
|
EXHIBIT
C
|
[reserved]
|
|
EXHIBIT
D
|
Broker
Representation Letter
|
|
EXHIBIT
E
|
Board
Resolution
|
|
EXHIBIT
F
|
Put
Notice
|
|
EXHIBIT
G
|
Put
Settlement Sheet
|
Schedule
4(a)
Subsidiaries
