EXHIBIT 10.1
Securities Purchase Agreement
Execution Version
SERIES D PREFERRED STOCK PURCHASE
AND WARRANT EXERCISE AGREEMENT
THIS SERIES D PREFERRED STOCK PURCHASE AND WARRANT EXERCISE AGREEMENT,
dated as of January 31, 2003 (this "Agreement"), is entered into by and among
Tangible Asset Galleries, Inc., a corporation formed under the laws of the State
of Nevada (the "Company"), Stanford Venture Capital Holdings, Inc., a
corporation formed under the laws of the State of Delaware (the "Purchaser"),
Xxxxxxx XxXxxxxx, an individual resident of the State of California (the
"Insider"), and those whose names appear on Exhibit A attached hereto (the
"Warrant Holders").
W I T N E S S E T H:
WHEREAS, the Company is a dealer of rare coins, fine arts and other
collectibles and its common stock (the "Common Stock") is quoted on the OTC
Bulletin Board; and
WHEREAS, the Company, the Purchaser and the Insider were parties to a
Securities Purchase Agreement, dated as of April 3, 2002 (the "Prior Purchase
Agreement"), pursuant to which the Purchaser acquired (i) 3,000,000 shares of
the Company's Series B $1.00 Convertible Preferred Stock, with a stated value of
$1.00 per share (the "Series B Preferred Stock"), and (ii) warrants to purchase
in the aggregate 30,000,000 shares (the "Warrants") of the Common Stock; and
WHEREAS, the Company and the Purchaser were parties to a Bridge Loan
Agreement, dated as of December 27, 2002 (the "First Bridge Loan Agreement"),
pursuant to which the Purchaser lent the Company $500,000 in exchange for a note
issued by the Company (the "First Bridge Note"); and
WHEREAS, the Company and the Purchaser are parties to a Second Bridge
Loan Agreement, dated as of January 16, 2003 (the "Second Bridge Loan
Agreement"), pursuant to which the Purchaser lent the Company another $500,000
in exchange for a note issued by the Company (the "Second Bridge Note"; the
First Bridge Note and the Second Bridge Note collectively, the "Bridge Notes");
and
WHEREAS, the Purchaser wishes to purchase from the Company, and the
Company wishes to issue and sell to the Purchaser, upon the terms and conditions
of this Agreement, for an aggregate purchase price of $2,000,000, 2,000,000
shares of the Company's Series D $1.00 Convertible Preferred Stock, with a
stated value of $1.00 per share (the "Series D Preferred Stock"), the terms of
which are as set forth in the Certificate of Designation of Series D $1.00
Convertible Preferred Stock attached hereto as Exhibit B (the "Series D
Certificate of Designation"); and
WHEREAS, in connection with the purchase of the Series D Preferred
Stock pursuant to this Agreement by the Purchaser, the Company intends to modify
the terms of the
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Warrants so that the per-share exercise price for all the shares of the Common
Stock covered under the Warrants is reduced to $0.001, which reduced exercise
price shall remain the same following a contemplated 20:1 reverse stock split of
the outstanding shares of the Common Stock (the "Reverse Stock Split") and the
Warrant Holders intend to exercise all the Warrants concurrent with the
effectiveness of the Reverse Stock Split at such reduced per-post-split-share
exercise price; and
WHEREAS, the Company and the Purchaser are executing and delivering
this Agreement in reliance upon the exemptions from registration provided by
Regulation D ("Regulation D") promulgated by the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Securities Act"), and/or Section 4(2) of the Securities Act.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. AGREEMENT TO PURCHASE; PURCHASE PRICE; WARRANT MODIFICATION AND EXERCISE
a. Purchase of Preferred Stock. Subject to the terms and conditions set
forth in this Agreement, the Purchaser hereby agrees to purchase from the
Company, and the Company hereby agrees to issue and sell to the Purchaser, the
Series D Preferred Stock for an aggregate purchase price of TWO MILLION DOLLARS
($2,000,000) which shall be payable on the closing dates in the Table of Closing
Dates (as shown below) by (i) cancellation of the obligation of the Company to
repay the principal of the Bridge Notes and (ii) payment of $1,000,000 in
immediately available funds.
b. Closings. The Series D Preferred Stock to be purchased by the
Purchaser hereunder, in numbers set forth opposite each of the closing dates in
the Table of Closing Dates below, shall be issued in such denominations and in
such names as the Purchaser may request from the Company at least three business
days prior to any closing.
c. Table of Closing Dates.
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Number of Shares of
Closing Date Purchase Price Series D Preferred Stock
Issued
-----------------------------------------------------------------------------------------------
One Million Dollars ($1,000,000)
February 7, 2003 (the (payable by converting the 1,000,000
"First Closing Date") principal of the Bridge Loans)
-----------------------------------------------------------------------------------------------
February 15, 2003 (the Five Hundred Thousand Dollars 500,000
"Second Closing Date") ($500,000)
-----------------------------------------------------------------------------------------------
March 15, 2003 (the "Last Five Hundred Thousand Dollars 500,000
Closing Date") ($500,000)
-----------------------------------------------------------------------------------------------
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d. Warrant Modification and Exercise. The Company hereby reduces the
exercise price for all the shares of the Common Stock covered by the Warrants to
$0.001 per share effective immediately. If the Reverse Stock Split occurs, the
exercise price of the Warrants following such Reverse Stock Split shall remain
to be $0.001 per combined share. On the First Closing Date, the Warrant Holders
shall deliver to the Company the Warrant Exercise Forms attached to the
Warrants, pursuant to which the Warrant Holders shall exercise all the Warrants,
to be effective concurrently with the Reverse Stock Split, at $0.001 per
combined share. In the case of the Warrant held by the Purchaser, the aggregate
exercise price thereunder in the amount of $250 shall be deemed fully paid upon
conversion on the First Closing Date of all of the accrued interest under the
Bridge Notes through such date. As to the Warrants held by the remaining Warrant
Holders, the exercise price thereunder shall be paid by such respective holders
in personal checks delivered to the Company. Immediately upon the effectiveness
of the Reverse Stock Split, the Company shall issue an aggregate of 1,500,000
post-split shares (the "Warrant Stock") of the Common Stock to the Warrant
Holders represented in certificates in such respective numbers and under such
respective names as designated by the Warrant Holders. Notwithstanding anything
to the contrary in the Company's Certificate of Designation of Series B $1.00
Convertible Preferred Stock or Certificate of Designation of Series C $100
Redeemable 9% Convertible Preferred Stock (the "Series C Preferred Stock"), the
Insider, as holder of all of the issued and outstanding shares of the Series C
Preferred Stock and of 400,000 shares of the Series B Preferred Stock, and the
Purchaser, as holder of all the remaining issued and outstanding shares of the
Series B Preferred Stock, hereby agree that neither the "Conversion Price" nor
"Conversion Rate" (as such terms are used in such certificates of designations)
shall be adjusted as a result of the reduction of the exercise price of the
Warrants hereunder.
2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PURCHASER
The Purchaser represents and warrants to, and covenants and agrees with, the
Company as follows:
a. Qualified Investor. The Purchaser (i) is experienced in making
investments of the kind described in this Agreement and the related documents,
(ii) is able, by reason of the business and financial experience of its
management, to protect its own interests in connection with the transactions
described in this Agreement and the related documents, (iii) is able to afford
the loss of its entire investment in the Series D Preferred Stock, (iv) is an
"accredited investor" as defined in Rule 501(a) of Regulation D and (v) knows of
no reason to anticipate any material change in its financial condition for the
foreseeable future.
b. Restricted Securities. All subsequent offers and sales by the
Purchaser of the Series D Preferred Stock and the Common Stock issuable upon
conversion or exercise of the Series D Preferred Stock shall be made pursuant to
an effective registration statement under the Securities Act or pursuant to an
applicable exemption from such registration.
c. Reliance of Representations. The Purchaser understands that the Series
D Preferred Stock is being offered and sold to it in reliance upon exemptions
from the registration requirements of the United States federal securities laws,
and that the Company is relying upon the truthfulness and accuracy of the
Purchaser's representations and warranties, and the
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Purchaser's compliance with its covenants and agreements, each as set forth
herein, in order to determine the availability of such exemptions and the
eligibility of the Purchaser to acquire the Series D Preferred Stock.
d. Access to Information. The Purchaser (i) has been provided with
sufficient information with respect to the business of the Company for the
Purchaser to determine the suitability of making an investment in the Company
and such documents relating to the Company as the Purchaser has requested and
the Purchaser has carefully reviewed the same, (ii) has been provided with such
additional information with respect to the Company and its business and
financial condition as the Purchaser, or the Purchaser's agent or attorney, has
requested, and (iii) has had access to management of the Company and the
opportunity to discuss the information provided by management of the Company and
any questions that the Purchaser had with respect thereto have been answered to
the full satisfaction of the Purchaser.
e. Legality. The Purchaser has the requisite corporate power and
authority to enter into this Agreement.
f. Authorization. This Agreement and any related agreements, and the
transactions contemplated hereby and thereby, have been duly and validly
authorized by the Purchaser, and such agreements, when executed and delivered by
each of the Purchaser and the Company will each be a valid and binding agreement
of the Purchaser, enforceable in accordance with their respective terms, except
to the extent that enforcement of each such agreement may be limited by
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
other similar laws now or hereafter in effect relating to creditors rights
generally and to general principles of equity.
3. REPRESENTATIONS OF THE COMPANY AND INSIDER
The Company and the Insider, jointly and severally, represent and warrant to,
and covenant and agree with, the Purchaser that:
a. Organization. The Company is a corporation duly organized and validly
existing and in good standing under the laws of the State of Nevada. The Company
has no other interest in any other entities, except for those subsidiaries
listed on Schedule 3(a) attached hereto. Each of the Company's subsidiaries is a
corporation duly organized, validly existing and in good standing under the laws
of the state set forth following the name of such subsidiary as follows:
Tangible Collectibles, Inc. (Delaware); Superior Galleries, Inc. (Nevada);
Vintageroadshow, Inc. (California); Xxxxxxxxx & Xxxxxx, Inc. (Pennsylvania); and
Tangible Investments of America, Inc. (Pennsylvania). Each of the Company and
its subsidiaries is duly qualified as a foreign corporation and in good standing
in all jurisdictions in which either the ownership or use of the properties
owned or used by it, or the nature of the activities conducted by it, requires
such qualification. The minute books contain true and complete records of all
actions taken at all meetings and by all written consents in lieu of meetings of
the directors, shareholders and committees of the board of directors of the
Company from the date of organization through the date hereof. The stock record
books and other similar records of the Company have been provided or made
available to the Purchaser or its counsel prior to the execution of this
Agreement, are complete and correct in all material respects and have been
maintained in accordance with sound business practices. . The Company has, prior
to the execution of this
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Agreement, delivered to the Purchaser true and complete copies of the Company's
Articles of Incorporation, Certificates of Designation filed prior to the date
of this Agreement, and Bylaws, each as amended through the date hereof. The
Company is not in violation of any provisions of its Articles of Incorporation,
Certificates of Designation or Bylaws.
b. Capitalization. On the date hereof, the authorized capital of the
Company consists of: (i) 100,000,000 shares of Common Stock, of which 41,211,463
shares are issued and outstanding, (ii) 15,000,000 shares of preferred stock, of
which (A) 1,400,000 shares are designated as Series A $5.00 Convertible
Preferred Stock with 125,000 of such shares outstanding; (B) 3,400,000 shares
are designated as the Series B Preferred Stock, all of which are issued and
outstanding; (C) 7,000 shares are designated as the Series C Preferred Stock),
of which 7,000 shares are currently outstanding and none of which will be
outstanding as a result of the transactions contemplated by the Insider
Agreement (as defined in Section 4(i)), and (D) 2,000,000 shares shall be
designated as Series D Preferred Stock pursuant to this Agreement. On the date
hereof, the Company has issued warrants to purchase 38,309,587 shares of Common
Stock at exercise prices from $0.05 to $1.19 per share, and options to purchase
5,122,500 shares of Common Stock at exercise prices from $0.05 to $2.00 per
share and is obligated to issue warrants to purchase an aggregate of 131,250
shares of Common Stock at exercise prices ranging from $0.05 to $0.90 per share.
Schedule 3(b) attached hereto sets forth a complete list of all holders of
options, warrants, notes, or any other rights or instruments which would entitle
the holder thereof to acquire shares of the Common Stock or other equity
interests in the Company upon conversion or exercise, setting forth for each
such holder the type of security, number of equity shares covered thereunder,
the exercise or conversion price thereof, the vesting schedule thereof (if any),
and the issuance date and expiration date thereof. Other than as disclosed in
Schedule 3(b) attached hereto, there are no outstanding rights, agreements,
arrangements or understandings to which the Company is a party (written or oral)
which would obligate the Company to issue any equity interest, option, warrant,
convertible note, or other types of securities or to register any shares in a
registration statement filed with the Commission. Other than disclosed in
Schedule 3(b) attached hereto, to the Knowledge of the Company (as defined in
Section 9), there is no agreement, arrangement or understanding between or among
any entities or individuals which affects, restricts or relates to voting,
giving of written consents, dividend rights or transferability of shares with
respect to any voting shares of the Company, including without limitation any
voting trust agreement or proxy. Schedule 3(b) attached hereto contains a
complete and accurate schedule of all the shares subject to "lock-up" or similar
agreement or arrangement by which any equity shares are subject to resale
restrictions and the Company has provided the Purchaser complete and accurate
copies of all such agreements, which agreements are in full force and effect.
Except for certain guarantees of debt made by the Company on behalf of its
subsidiaries as such guarantees are set forth in Schedule 3(b) attached hereto,
there are no outstanding obligations of the Company or any of its subsidiaries
to repurchase, redeem or otherwise acquire for value any outstanding shares of
capital stock or other ownership interests of the Company or any of its
subsidiaries or to provide funds to or make any investment (in the form of a
loan, capital contribution or otherwise) in any of the Company's subsidiaries or
any other entity. There are no anti-dilution or price adjustment provisions
regarding any security issued by the Company (or in any agreement providing
rights to security holders) that will be triggered by the issuance of the
Securities.
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c. Concerning the Common Stock and the Warrant Stock. The Series D
Preferred Stock, the Warrant Stock and the Common Stock issuable upon conversion
of the Series D Preferred Stock, when issued, shall be duly and validly issued,
fully paid and non-assessable, and will not subject the holder thereof to
personal liability by reason of being such a holder.
d. Authorized Shares. The Company has available a sufficient number of
authorized and unissued shares of Common Stock as may be necessary to effect
conversion of the Series D Preferred Stock. Each of the Company and the Insider
understands and acknowledges the potentially dilutive effect to the Common Stock
of the issuance of shares of Common Stock upon the conversion of the Series D
Preferred Stock. The Company further acknowledges that its obligation to issue
shares of Common Stock upon conversion of the Series D Preferred Stock is
absolute and unconditional regardless of the dilutive effect that such issuance
may have on the ownership interests of other stockholders of the Company.
e. Legality. The Company has the requisite corporate power and authority
to enter into this Agreement, and to issue and deliver the Series D Preferred
Stock, the Warrant Stock and the Common Stock issuable upon conversion of the
Series D Preferred Stock.
f. Transaction Agreements. This Agreement, the Series D Certificate of
Designation, the Registration Rights Agreement (as defined below), the Stanford
Consulting Agreement (as defined below), and the Insider Agreement (as defined
below) (collectively, the "Primary Documents"), and the transactions
contemplated hereby and thereby, have been duly and validly authorized by the
Company; this Agreement has been duly executed and delivered by the Company and
this Agreement is, and the other Primary Documents, when executed and delivered
by the Company, will each be, a valid and binding agreement of the Company,
enforceable in accordance with their respective terms, except to the extent that
enforcement of each of the Primary Documents may be limited by bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or other similar
laws now or hereafter in effect relating to creditors' rights generally and to
general principles of equity.
g. Financial Statements. The financial statements and related notes
thereto contained in the Company's filings with the Commission (the "Company
Financials") are correct and complete in all material respects and have been
prepared in accordance with United States generally accepted accounting
principles applied on a basis consistent throughout the periods indicated and
consistent with each other. The Company Financials present fairly and accurately
the financial condition and operating results of the Company in all material
respects as of the dates and during the periods indicated therein. Except as
disclosed in Schedule 3(g) attached hereto, since December 31, 1998, there has
been no change in any accounting policies, principles, methods or practices,
including any change with respect to reserves (whether for bad debts, contingent
liabilities or otherwise), of the Company or any of its subsidiaries.
h. Commission Filings. The Company has furnished or made available to the
Purchaser true and complete copies of all the documents it has filed with the
Commission since its inception, all in the forms so filed. As of their
respective filing dates, such filings already filed by the Company or to be
filed by the Company after the date hereof but before the First Closing Date
complied or, if filed after the date hereof, will comply in all material
respects with
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the requirements of the Securities Act and the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and the rules and regulations of the Commission
thereunder, as the case may be, and none of the filings with the Commission
contained or will contain any untrue statement of a material fact or omitted or
will omit any material fact required to be stated therein or necessary to make
the statements made therein, in light of the circumstances in which they were
made, not misleading, except to the extent such filings have been all prior to
the date of this Agreement corrected, updated or superseded by a document
subsequently filed with Commission.
i. Non-Contravention. The execution and delivery of this Agreement and
each of the other Primary Documents, and the consummation by the Company of the
transactions contemplated by this Agreement and each of the other Primary
Documents, do not and will not conflict with, or result in a breach by the
Company of, or give any third party any right of termination, cancellation,
acceleration or modification in or with respect to, any of the terms or
provisions of, or constitute a default under, (A) its Articles of Incorporation,
Certificates of Designation or Bylaws of the Company, as amended through the
date hereof, (B) any material indenture, mortgage, deed of trust, lease or other
agreement or instrument to which the Company or its subsidiaries are a party or
by which they or any of their properties or assets are bound, or (C) any
existing applicable law, rule, or regulation or any applicable decree, judgment
or order of any court or federal, state, securities industry or foreign
regulatory body, administrative agency, or any other governmental body having
jurisdiction over the Company, its subsidiaries, or any of their properties or
assets (collectively, "Legal Requirements"), other than those which have been
waived or satisfied on or prior to the First Closing Date.
j. Approvals and Filings. Other than the completion of the filing of the
Series D Certificate of Designation, no authorization, approval or consent of
any court, governmental body, regulatory agency, self-regulatory organization,
stock exchange or market or the stockholders of the Company is required to be
obtained by the Company for the entry into or the performance of this Agreement
and the other Primary Documents.
k. Compliance With Legal Requirements. Except as disclosed in Schedule
3(k) attached hereto, neither the Company nor any of its subsidiaries has
violated in any material respect, and is not currently in material default
under, any Legal Requirement applicable to the Company or such subsidiary, or
any of the assets or properties of the Company or such subsidiary, where such
violation could reasonably be expected to have any Material Adverse Effect (as
defined below) on the business or financial condition of the Company or such
subsidiary. "Material Adverse Effect" means, with respect to any Person, a
material adverse effect on (i) the business, condition, capitalization, assets,
liabilities, operations or financial performance of the Person, or (ii) the
ability of the Person to consummate the transactions contemplated by the Primary
Documents or to perform any of its obligations under this Agreement.
l. Absence of Certain Changes. Since December 31, 2001 and except as
previously disclosed to the Purchaser and listed on Schedule 3(l), there has
been no change nor development that may have a Material Adverse Effect on the
Company, and no event has occurred or circumstance exists that may result in
such a Material Adverse Effect.
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m. Indebtedness to Officers, Directors and Shareholders. Except as set
forth on Schedule 3(m) attached hereto, neither the Company nor any of its
subsidiaries is indebted to any of such entity's shareholders, officers or
directors (or to members of their immediate families) in any amount whatsoever
(including, without limitation, any deferred compensation or salaries payable).
n. Relationships With Related Persons. To the Knowledge of the Company,
except as set forth in Schedule 3(n) attached hereto, no officer, director, or
principal shareholder of the Company or any of its subsidiaries nor any Related
Person (as defined below) of any of the foregoing has, or since December 31,
1998 has had, any interest in any property (whether real, personal, or mixed and
whether tangible or intangible) used in or pertaining to the business of the
Company or any of its subsidiaries. Except as set forth in Schedule 3(n)
attached hereto, no officer, director, or principal shareholder of the Company
or any of its subsidiaries nor any Related Person of the any of the foregoing
is, or since December 31, 1998 has owned an equity interest or any other
financial or profit interest in or held any management position with, a Person
(as defined below) that has (i) had business dealings or a material financial
interest in any transaction with the Company or any of its subsidiaries, or (ii)
engaged in competition with the Company or any of its subsidiaries with respect
to any line of the merchandise or services of such company (a "Competing
Business") in any market presently served by such company except for ownership
of less than one percent of the outstanding capital stock of any Competing
Business that is publicly traded on any recognized exchange or in the
over-the-counter market. Except as set forth in Schedule 3(n) attached hereto,
no director, officer, or principal shareholder of the Company or any of its
subsidiaries nor any Related Person of any of the foregoing is a party to any
Contract with, or has claim or right against, the Company or any of its
subsidiaries. As used in this Agreement, "Person" means any individual,
corporation (including any non-profit corporation), general or limited
partnership, limited liability company, joint venture, estate, trust,
association, organization, labor union, or other entity or any governmental
body; "Related Person" means, (X) with respect to a particular individual, (a)
each other member of such individual's Family (as defined below); (b) any Person
that is directly or indirectly controlled by such individual or one or more
members of such individual's Family; (c) any Person in which such individual or
members of such individual's Family hold (individually or in the aggregate) a
Material Interest (as defined below); and (d) any Person with respect to which
such individual or one or more members of such individual's Family serves as a
director, officer, partner, executor, or trustee (or in a similar capacity); (Y)
with respect to a specified Person other than an individual, (a) any Person that
directly or indirectly controls, is directly or indirectly controlled by, or is
directly or indirectly under common control with such specified Person; (b) any
Person that holds a Material Interest in such specified Person; (c) each Person
that serves as a director, officer, partner, executor, or trustee of such
specified Person (or in a similar capacity); (d) any Person in which such
specified Person holds a Material Interest; (e) any Person with respect to which
such specified Person serves as a general partner or a trustee (or in a similar
capacity); and (f) any Related Person of any individual described in clause (b)
or (c). For purposes of the foregoing definition, (a) the "Family" of an
individual includes (i) the individual, (ii) the individual's spouse and former
spouses, (iii) any other natural person who is related to the individual or the
individual's spouse within the second degree, and (iv) any other natural person
who resides with such individual, and (b) "Material Interest" means direct or
indirect beneficial ownership (as defined in Rule 13d-3 under the Exchange Act)
of voting securities or other voting
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interests representing at least 1% of the outstanding voting power of a Person
or equity securities or other equity interests representing at least 1% of the
outstanding equity securities or equity securities in a Person.
o. Full Disclosure. There is no fact known to the Company (other than
general economic conditions known to the public generally) that has not been
disclosed to the Purchaser that could reasonably be expected to have a Material
Adverse Effect upon the Company or any of its subsidiaries. The representations
and warranties of the Company set forth in this Agreement do not contain any
untrue statement of a material fact or omit any material fact necessary to make
the statements contained herein, in light of the circumstances under which they
were made, not misleading.
p. Title to Properties; Liens and Encumbrances. Each of the Company and
its subsidiaries has good and marketable title to all of its material properties
and assets, both real and personal, and has good title to all its leasehold
interests. Except as disclosed in Schedule 3(p) attached hereto, all material
properties and assets reflected in the Company Financials are free and clear of
all Encumbrances (as defined below) except liens for current Taxes not yet due.
As used in this Agreement, "Encumbrance" means any charge, claim, community
property interest, condition, equitable interest, lien, pledge, security
interest, right of first refusal, or restriction of any kind, including any
restriction on use, voting, transfer, receipt of income, or exercise of any
other attribute of ownership.
q. Patents and Other Proprietary Rights. The Company has sufficient title
and ownership of all patents, trademarks, service marks, trade names,
copyrights, trade secrets, information, proprietary rights and processes
necessary for the conduct of its business as now conducted and as proposed to be
conducted, and to the Knowledge of the Company, such business does not and would
not conflict with or constitute an infringement on the rights of others.
r. Permits. Each of the Company and its subsidiaries has all permits,
licenses and any similar authority necessary for the conduct of its business as
now conducted, the lack of which would have a Material Adverse Effect on such
company. Neither the Company nor any of its subsidiaries is in default in any
respect under any of such permits, licenses or similar authority.
s. Absence of Litigation. Except as disclosed on Schedule 3(s) attached
hereto, there is no action, suit, proceeding, inquiry or investigation before or
by any court, public board or body, or arbitration tribunal pending or, to the
Knowledge of the Company or its subsidiaries, threatened, against or affecting
the Company or its subsidiaries, in which an unfavorable decision, ruling or
finding would have a Material Adverse Effect on the Company and its
subsidiaries, taken as a whole, or which would adversely affect the validity or
enforceability of, or the authority or ability of the Company to perform its
obligations under, the Primary Documents.
t. No Default. Except as disclosed on Schedule 3(t) attached hereto,
neither the Company nor any of its subsidiaries is in default in the performance
or observance of any
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obligation, covenant or condition contained in any indenture, mortgage, deed of
trust or other instrument or agreement to which it is a party or by which it or
its property may be bound.
u. Taxes. Except as disclosed on Schedule 3(u) attached hereto,
1. All Tax Returns (as defined below) required to have been filed
by or with respect to the Company or any of its subsidiaries
(including any extensions) have been so filed. All such Tax
Returns are true, complete and correct in all material respects.
All Taxes (as defined below) due and payable by the Company, or
any of its subsidiaries, whether or not shown on any Tax Return,
or claimed to be due by any Taxing Authority, (as defined below)
have been paid or accrued on the balance sheet included in the
Company's latest filing with the Commission.
2. Neither the Company nor any of its subsidiaries has any material
liability for Taxes outstanding other than as reflected in the
balance sheet in the interim financial statements of the Company
for the nine-month period ended on September 30, 2002 (the
"Interim Financial Statements") or incurred subsequent to the
date of the Interim Financial Statements in the ordinary course
of business. The unpaid Taxes of the Company and its
subsidiaries (i) did not, as of the most recent fiscal month
end, exceed by any material amount the reserve for liability for
such tax (other than the reserve for deferred taxes established
to reflect timing differences between book and tax income) set
forth on the balance sheet included in the Interim Financial
Statements and (ii) will not exceed by any material amount that
reserve as adjusted for operation and transactions through the
First Closing Date.
3. Neither the Company nor any of its subsidiaries is a party to
any agreement extending the time within which to file any Tax
Return. No claim has ever been made by a Taxing Authority of any
jurisdiction in which the Company or any of its subsidiaries
does not file Tax Returns that the Company or such subsidiary is
or may be subject to taxation by that jurisdiction.
4. The Company and each of subsidiaries have withheld and paid all
Taxes required to have been withheld and paid in connection with
amounts paid or owing to any employee, creditor or independent
contractor.
5. There has been no action by any Taxing Authority in connection
with assessing additional Taxes against or in respect of the
Company or any of its subsidiaries for any past period. There is
no dispute or claim concerning any Tax liability of the Company
or any of its subsidiaries (i) claimed, raised or, to the
Knowledge of the Company, threatened by any Taxing Authority or
(ii) of which the Company is otherwise aware. There are no liens
for Taxes upon the assets and properties of the Company or any
of its subsidiaries other than liens for Taxes not yet due.
Schedule 3(u) attached hereto indicates those Tax Returns, if
any, of the Company, and each of its subsidiaries that have been
audited or examined by Taxing Authorities, and
10
indicates those Tax returns of the Company and of its subsidiaries
that currently are the subject of audit or examination. The Company
has made available to the Purchaser complete and correct copies of
all federal, state, local and foreign income Tax Returns filed by,
and all Tax examination reports and statements of deficiencies
assessed against or agreed to by, the Company and any of its
subsidiaries since the fiscal year ended December 31, 2001.
6. There are no outstanding agreements or waivers extending the
statutory period of limitation applicable to any Tax Returns
required to be filed by, or which include or are treated as
including, the Company or with respect to any Tax assessment or
deficiency affecting the Company or any of its subsidiaries.
7. The Company has not received any written ruling related to Taxes or
entered into any agreement with a Taxing Authority relating to
Taxes.
8. The Company does not have any liability for the Taxes of any person
or entity other than the Company (i) under Section 1.1502-6 of the
Treasury regulations (or any similar provision of state, local or
foreign Legal Requirements), (ii) as a transferee or successor,
(iii) by contract or (iv) otherwise.
9. The Company (i) has not agreed to make nor is required to make any
adjustment under Section 481 of the Internal Revenue Code by reason
of a change in accounting method and (ii) is not a "consenting
corporation" within the meaning of Section 341(f)(1) of the
Internal Revenue Code.
10. The Company is not a party to or bound by any obligations under any
tax sharing, tax allocation, tax indemnity or similar agreement or
arrangement.
11. The Company is not involved in, subject to, or a party to any joint
venture, partnership, contract or other arrangement that is treated
as a partnership for federal, state, local or foreign Tax purposes.
12. The Company was not included nor is includible, in the Tax Return
of any other entity.
As used in this Agreement, a "Tax Return" means any return, report, information
return, schedule, certificate, statement or other document (including any
related or supporting information) filed or required to be filed with, or, where
none is required to be filed with a Taxing Authority, the statement or other
document issued by, a Taxing Authority in connection with any Tax; "Tax" means
any and all taxes, charges, fees, levies or other assessments, including,
without limitation, income, gross, receipts, excise, real or personal property,
sales, withholding, social security, retirement, unemployment, occupation, use,
service, service use, license, net worth, payroll, franchise, transfer and
recording taxes, fees and charges, imposed by Taxing Authority, whether computed
on a separate, consolidated, unitary, combined or any other
11
basis; and such term includes any interest whether paid or received, fines,
penalties or additional amounts attributable to, or imposed upon, or with
respect to, any such taxes, charges, fees, levies or other assessments; and
"Taxing Authority" means any governmental agency, board, bureau, body,
department or authority of any United States federal, state or local
jurisdiction or any foreign jurisdiction, having or purporting to exercise
jurisdiction with respect to any Tax.
v. Certain Prohibited Activities. Neither the Company nor any of its
directors, officers or other employees has (i) used any Company funds for any
unlawful contribution, endorsement, gift, entertainment or other unlawful
expense relating to any political activity, (ii) made any direct or indirect
unlawful payment of Company funds to any foreign or domestic government official
or employee, (iii) violated or is in violation of any provision of the Foreign
Corrupt Practices Act of 1977, as amended, or (iv) made any bribe, rebate,
payoff, influence payment, kickback or other similar payment to any person.
w. Contracts; No Defaults. (A) Schedule 3(w) attached hereto contains a
complete and accurate list, and the Company has made available to the Purchaser
true and complete copies, of:
1. each Applicable Contract (as defined below) that involves
performance of services or delivery of goods or materials of an
amount or value in excess of $25,000;
2. each Applicable Contract that was not entered into in the ordinary
course of business or is not cancelable by the Company or a
subsidiary of the Company with no penalty upon advance notice of 30
days or less and that involves expenditures or receipts of the
Company or its subsidiaries in excess of $5,000;
3. each lease, rental or occupancy agreement, license, installment and
conditional sale agreement, and other Applicable Contract affecting
the ownership of, leasing of, title to, use of, or any leasehold or
other interest in, any real or personal property (except personal
property leases and installment and conditional sales agreements
having a value per item or aggregate payments of less than $5,000
and with terms of less than one year);
4. each joint venture, partnership, and other Applicable Contract
(however named) involving a sharing of profits, losses, costs, or
liabilities by the Company or any of its subsidiaries with any
other person or entity;
5. each Applicable Contract containing covenants that in any way
purport to restrict the business activity of any of the Company and
its subsidiaries or any affiliate of the foregoing or limit the
freedom of any of the Company and its subsidiaries or any affiliate
of the foregoing to engage in any line of business or to compete
with any person or entity;
12
6. each employment or consulting agreement of the Company and its
subsidiaries (other than unwritten at will employment
arrangements);
7. each Applicable Contract providing for payments to or by any person
or entity based on sales, purchases, or profits, other than direct
payments for goods;
8. each power of attorney executed by any of the Company and its
subsidiaries that is currently effective and outstanding;
9. each Applicable Contract entered into other than in the ordinary
course of business that contains or provides for an express
undertaking by any of the Company and its subsidiaries to be
responsible for consequential damages;
10. each Applicable Contract for capital expenditures in excess of
$25,000;
11. each written warranty, guaranty, and other similar undertaking with
respect to contractual performance extended by any of the Company
and its subsidiaries other than in the ordinary course of business;
and
12. each amendment, supplement, and modification (whether oral or
written) in respect of any of the foregoing.
As used in this Agreement, "Contract" means any agreement, contract, obligation,
promise, or undertaking (whether written or oral and whether express or implied)
that is legally binding; "Applicable Contract" means any Contract (a) under
which any of the Company or its subsidiaries has or may acquire any rights, (b)
under which any of the Company or its subsidiaries has or may become subject to
any obligation or liability, or (c) by which any of the Company or its
subsidiaries or any of the assets owned or used by it is or may become bound.
(B) Except as set forth in Schedule 3(w) attached hereto, (i) each of the
Company and its subsidiaries is, and has been, in material compliance with all
applicable terms and requirements of each Contract under which such company has
or had any obligation or liability or by which such company or any of the assets
owned or used by such company is or was bound; (ii) each other person or entity
that has or had any obligation or liability under any Contract under which any
of the Company and its subsidiaries has or had any rights is, and has been, in
material compliance with all applicable terms and requirements of such Contract;
(iii) no event has occurred or circumstance exists that (with or without notice
or lapse of time) may contravene, conflict with, or result in a material
violation or breach of, or give any of the Company and its subsidiaries or other
person or entity the right to declare a default or exercise any remedy under, or
to accelerate the maturity or performance of, or to cancel, terminate, or
modify, any Applicable Contract; and (iv) none of the Company and its
subsidiaries has given to or received from any other person or entity any notice
or other communication (whether oral or written) regarding any actual, alleged,
possible, or potential violation or breach of, or default under, any Contract.
13
(C) Each Applicable Contract is valid, in full force, and binding on and
enforceable against the other party or parties to such contract in accordance
with its terms and provisions.
(D) Except as disclosed on Schedule 3(w) attached hereto, there are no
renegotiation of, attempts to renegotiate, or outstanding rights to renegotiate
any material amounts paid or payable to any of the Company and its subsidiaries
under current or completed Contracts with any person or entity and, to the
Knowledge of the Company, no such person or entity has made written demand for
such renegotiation.
(E) The Contracts relating to the sale, design, or provision of products or
services by the Company or any of its subsidiaries have been entered into in the
ordinary course of business and have been entered into without the commission of
any act alone or in concert with any other person or entity, or any
consideration having been paid or promised, that is or would be in violation of
any Legal Requirement.
x. Agent Fees. The Company has not incurred any liability for any finder's
or brokerage fees or agent's commissions in connection with the transactions
contemplated by this Agreement.
y. Insurance. Schedule 3(y) attached hereto sets forth a true and correct
list of all the insurance policies covering the business, properties and assets
of the Company and its subsidiaries presently in force (including as to each (i)
risk insured against, (ii) name of carrier, (iii) policy number, (iv) amount of
coverage, (v) amount of premium, (vi) expiration date and (vii) the property, if
any, insured). All of the insurance policies set forth on Schedule 3(y) attached
hereto are in full force and effect and all premiums, retention amounts and
other related expenses due have been paid, and neither the Company nor any of
its subsidiaries has received any written notice of cancellation with respect to
any of the policies. Such policies, taken together, provide adequate insurance
coverage for the assets and the operations of the Company and its subsidiaries
for all risks normally insured against by companies carrying on the same
business or businesses as the Company and its subsidiaries.
z. Employees. Schedule 3(z) attached hereto is a true and correct list of
all employees of the Company and its subsidiaries and includes their accrued
vacation and sick pay, the nature of their duties and the amounts of their
compensations (including deferred compensation).
aa. Employee Benefits.
1. Except as disclosed on Schedule 3(aa) and except Plans (as defined
below), administered by third parties, that provide group health
coverage (medical and dental), (i) neither the Company nor any of
its ERISA Affiliates (as defined below) maintains or sponsors (or
ever maintained or sponsored), or makes or is required to make
contributions to, any Plans;
2. With respect to each Plan which provides health care coverage, the
Company and each of its ERISA Affiliates have complied in all
material respects with (i) the applicable health care continuation
and notice
14
provisions of the Consolidated Omnibus Budget Reconciliation Act
of 1985 ("COBRA"), and the applicable COBRA regulations and (ii)
the applicable requirements of the Health Insurance Portability
and Accountability Act of 1996 and the regulations thereunder, and
neither the Company nor any ERISA Affiliate has incurred any
liability under Section 4980B of the Internal Revenue Code;
3. Other than routine claims for benefits under the Plans, there are
no pending, or, to the Knowledge of the Company, threatened,
actions or proceedings involving the Plans, or the fiduciaries,
administrators, or trustees of any of the Plans or the Company or
any of its ERISA Affiliates as the employer or sponsor under any
Plan, with any governmental agency, any participant in or
beneficiary of any Plan or any other person whatsoever. The
Company knows of no reasonable basis for any such claim, lawsuit,
dispute, or controversy.
As used in this Agreement, "Plan" means (i) each of the "employee benefit plans"
(as such term is defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974 ("ERISA")), of which any of the Company or any member of
the same controlled group of businesses as the Company within the meaning of
Section 4001(a)(14) of ERISA (an "ERISA Affiliate") is or ever was a sponsor or
participating employer or as to which the Company or any of its ERISA Affiliates
makes contributions or is required to make contributions, and (ii) any similar
employment, severance or other arrangement or policy of any of the Company or
any of its ERISA Affiliates (whether written or oral) providing for health,
life, vision or dental insurance coverage (including self-insured arrangements),
workers' compensation, disability benefits, supplemental unemployment benefits,
vacation benefits or retirement benefits, fringe benefits, or for profit
sharing, deferred compensation, bonuses, stock options, stock appreciation or
other forms of incentive compensation or post-retirement insurance, compensation
or benefits.
bb. Private Offering. Subject to the accuracy of the Purchaser's
representations and warranties set forth in Section 2 hereof, (i) the offer,
sale and issuance of the Series D Preferred Stock, (ii) the issuance of Common
Stock pursuant to the conversion and/or exercise of such securities into shares
of Common Stock, each as contemplated by the Primary Documents, are exempt from
the registration requirements of the Securities Act. The Company agrees that
neither the Company nor anyone acting on its behalf will offer any of the Series
D Preferred Stock or any similar securities for issuance or sale, or solicit any
offer to acquire any of the same from anyone so as to render the issuance and
sale of such securities subject to the registration requirements of the
Securities Act. The Company has not offered or sold the Series D Preferred Stock
by any form of general solicitation or general advertising, as such terms are
used in Rule 502(c) under the Securities Act.
cc. Mergers, Acquisitions and Divestitures. Except as set forth on Schedule
3(cc) attached hereto, none of the Company and its subsidiaries has ever
acquired any equity interest in or any major assets of any other Person, or sold
the equity interest in any of its subsidiaries or any major asset owned by it or
any of its subsidiaries, in a deal the terms of which were not based on arms'
length negotiations. Except as set forth on Schedule 3(cc) attached hereto, to
the Knowledge of the Company, none of the Insider and the officers and directors
of the Company
15
or its subsidiaries has received any benefit in connection with any of the
foregoing transactions or is under any agreement or understanding with any
Person (including agreements or understandings among themselves) with respect to
the receipt of or entitlement to any such benefit.
4. CERTAIN COVENANTS, ACKNOWLEDGMENTS AND RESTRICTIONS
a. Transfer Restrictions. The Purchaser acknowledges that (i) neither the
Series D Preferred Stock nor the Common Stock issuable upon conversion of the
Series D Preferred Stock have been registered under the Securities Act, and such
securities may not be transferred unless (A) subsequently registered thereunder
or (B) they are transferred pursuant to an exemption from such registration, and
(ii) any sale of the Series D Preferred Stock or the Common Stock issuable upon
conversion thereof (collectively, the "Securities") made in reliance upon Rule
144 under the Securities Act ("Rule 144") may be made only in accordance with
the terms of said Rule 144. The provisions of Section 4(a) and 4(b) hereof,
together with the rights of the Purchaser under this Agreement and the other
Primary Documents, shall be binding upon any subsequent transferee of the Series
D Preferred Stock.
b. Restrictive Legend. The Purchaser acknowledges and agrees that, until
such time as the Securities shall have been registered under the Securities Act
or the Purchaser demonstrates to the reasonable satisfaction of the Company and
its counsel that such registration shall no longer be required, such Securities
may be subject to a stop-transfer order placed against the transfer of such
Securities, and such Securities shall bear a restrictive legend in substantially
the following form:
THESE SECURITIES (INCLUDING ANY UNDERLYING SECURITIES) HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES
UNDER SAID ACT OR AN OPINION OF COUNSEL OR OTHER EVIDENCE REASONABLY
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION SHALL NO LONGER BE
REQUIRED.
c. Filings. The Company undertakes and agrees that it will make all
required filings in connection with the sale of the Securities to the Purchaser
as required by federal and state laws and regulations, or by any domestic
securities exchange or trading market, and if applicable, the filing of a notice
on Form D (at such time and in such manner as required by the rules and
regulations of the Commission), and to provide copies thereof to the Purchaser
promptly after such filing or filings. With a view to making available to the
holders of the Securities the benefits of Rule 144 and any other rule or
regulation of the Commission that may at any time permit such holder to sell
securities of the Company to the public without registration or pursuant to a
registration on Form S-3 or Form SB-2, the Company shall (a) at all times make
and keep public information available, as those terms are understood and defined
in Rule 144, (b) file on a timely basis with the Commission all information that
the Commission may require under either of Section 13 or Section 15(d) of the
Exchange Act and, so long as it is required to file such information, take all
actions that may be required as a condition to the availability of
16
Rule 144 (or any successor exemptive rule hereafter in effect) with respect to
the Common Stock; and (c) furnish to any holder of the Securities forthwith upon
request (i) a written statement by the Company as to its compliance with the
reporting requirements of Rule 144, (ii) a copy of the most recent annual or
quarterly report of the Company as filed with the Commission, and (iii) any
other reports and documents that a holder of the Securities may reasonably
request in order to avail itself of any rule or regulation of the Commission
allowing such holder to sell any such Securities without registration.
Notwithstanding the foregoing, the Company shall have until February 15, 2003 to
make its periodic filings on Forms 10KSB for the fiscal year ended June 30, 2002
and on Form 10QSB for the fiscal quarter ended September 30, 2002.
d. Periodic Filings With the Commission. The Company shall, no later than
February 15, 2003, make all the filings required to be filed by such date with
the Commission by the Company as a company subject to the periodic reporting
requirements under the Exchange Act.
e. Reservation of Common Stock. The Company will at all times have
authorized and reserved for the purpose of issuance a sufficient number of
shares of Common Stock to provide for the conversion of the Series D Preferred
Stock.
f. Registration Requirement. Concurrently with the execution of this
Agreement, the Purchaser and the Company shall execute a registration rights
agreement in the form attached hereto as Exhibit C (the "Registration Rights
Agreement").
g. Exchange of Series C Preferred Stock. The Insider shall have exchanged
all 7,000 shares of the Series C Preferred Stock held by him, representing all
of the issued and outstanding shares of such stock, into the Common Stock at an
exchange price of $0.06 per share pursuant to the Insider Agreement (as defined
below). The Company hereby covenants with the Purchaser that after such
exchange, no additional share of the Series C Preferred Stock will be issued
notwithstanding anything to the contrary in the Company's Certificate of
Designation of Series C $100 Redeemable 9% Convertible Preferred Stock.
h. Filing of the Series D Certificate of Designation. The Company shall
have authorized, caused to be executed, and filed with the Secretary of State of
the State of Nevada the Series D Certification of Designation by the First
Closing Date.
i. Agreement With Insider. Concurrently with the execution of this
Agreement, the Company and the Insider shall execute a Share Exchange and Note
Modification Agreement in the form of Exhibit D attached hereto (the "Insider
Agreement").
j. Stock Split. The Board of Directors of the Company shall authorize the
Reverse Stock Split of the outstanding shares of the Company's Common Stock, to
be effective concurrently with the effectiveness of the registration statement
to be filed with the Commission pursuant to the Registration Agreement, so that
every 20 shares of the Common Stock will be converted into one share of the
Common Stock. The Company shall use reasonable best efforts to obtain such other
approval or authorization as necessary to effectuate the Reverse Stock Split
17
and to cause the above-mentioned registration statement and the Reverse Stock
Split to become effective as promptly as possible.
k. Repayment of Debt. The Company shall repay all outstanding indebtedness
for borrowed money, other than (i) the $2,500,000 debt to the Xxx English Estate
and (ii) the $1,000,000 debt to the Insider as evidenced by that certain
Promissory Note dated April 3, 2002 from the Company, no later than the Last
Closing Date.
l. Consulting Agreement. The Company shall enter into a consulting
agreement (the "Stanford Consulting Agreement") substantially in the form of
Exhibit E attached hereto with the Purchaser by no later than the First Closing
Date.
m. Negotiation With Xxxxxx Xxxxxx. The Company shall obtain, no later than
the First Closing Date, an extension of its consulting agreement with Xxxxxx
Xxxxxx through May 31, 2003.
n. Return of Certificates on Conversion. Upon any conversion by the
Purchaser of less than all of the Series D Preferred Stock pursuant to the terms
of the Series D Certificates of Designation, the Company shall issue and deliver
to the Purchaser within 7 business days of the date of conversion, a new
certificate or certificates for, as applicable, the total number of shares of
the Series D Preferred Stock, which the Purchaser has not yet elected to convert
(with the number of and denomination of such new certificate(s) designated by
the Purchaser).
o. Replacement Certificates. The certificate(s) representing the shares of
the Series D Preferred Stock held by the Purchaser shall be exchangeable, at the
option of the Purchaser, at any time and from time to time at the office of
Company, for certificates with different denominations representing an equal
aggregate number of shares of the Series D Preferred Stock, as requested by the
Purchaser upon surrendering the same. No service charge will be made for such
registration or transfer or exchange.
p. Approval Rights. From the date hereof and until the Last Closing Date,
the Company shall not take any of the following actions without the prior
written consent of the Purchaser, which consent will not be unreasonably
withheld or delayed:
1. sell a material portion of the assets of the Company or any of its
subsidiaries or merge the Company or any of its subsidiaries into or with
another unaffiliated company;
2. change the articles of incorporation, bylaws or other charter
documents of the Company or any of its subsidiaries, except as contemplated
hereby;
3. change substantially or materially the nature of the business of
the Company or any of its subsidiaries;
4. issue any equity securities or securities convertible into equity
securities of the Company or any of its subsidiaries, other than the Series D
Preferred Stock and Warrant
18
Stock pursuant to this Agreement and any Common Stock issued upon conversion of
the Series B Preferred Stock or Series D Preferred Stock held by the Purchaser;
5. make any acquisition or any capital expenditure, services of
related expenditures or agree to a schedule of spending or payments for assets
which, in the aggregate, exceeds or would exceed $50,000 over a consecutive
twelve month period, except for the acquisition of inventory or other related
assets in the ordinary course of business;
6. enter into any credit facility or incur any material amount of
debt, other than incurring obligations for purchases of inventory or other
related assets in the ordinary course of business;
7. offer or sell any securities of the Company or its subsidiaries
other than permitted in clause (4) above;
8. expand the number of members of the board of directors of the
Company;
9. declare or pay dividends or redeem securities, except for (i) the
dividends relating to the Series A preferred stock pursuant to the terms of the
relevant certificate of designation; or (ii) any transaction relating to the
Series B Preferred Stock or Series D Preferred Stock; or
10. enter into or modify a related-party transaction.
q. Reconstitution of the Board. On or before February 15, 2003, the Company
shall cause the reconstitution of its Board of Directors to comply with the
regulatory requirements for companies that list their securities on the American
Stock Exchange or the NASDAQ Small Cap Market as currently being proposed or
later adopted prior to such date.
r. Information Statement. As soon as practicable but in no event later than
45 days from the date of this Agreement, the Company shall file a Schedule 14C
Information Statement concerning the Reverse Stock Split with the Commission.
5. CONDITIONS TO THE COMPANY'S OBLIGATION TO ISSUE THE SHARES
The Purchaser understands that the Company's obligation to issue the Series D
Preferred Stock on each closing date to the Purchaser pursuant to this Agreement
is conditioned upon the following (unless waived by the Company):
a. The accuracy on each closing date of the representations and warranties
of the Purchaser contained in this Agreement as if made on each closing date and
the performance by the Purchaser on or before each closing date of all covenants
and agreements of the Purchaser required to be performed on or before each
closing date.
b. The absence or inapplicability on each closing date of any and all laws,
rules or regulations prohibiting or restricting the transactions contemplated
hereby, or requiring any
19
consent or approval, except for any stockholder or Board of Director approval or
consent contemplated herein, which shall not have been obtained.
c. All regulatory approvals or filings, if any, on each closing date
necessary to consummate the transactions contemplated by this Agreement shall
have been made as of each closing date.
d. The receipt of good funds as of each closing date as scheduled in the
Table of Closings in Section 1(c).
6. CONDITIONS TO THE PURCHASER'S OBLIGATION TO PURCHASE THE SHARES
The Company understands that the Purchaser's obligation to purchase the Series
D Preferred Stock on each closing date is conditioned upon each of the
following, unless waived in writing by the Purchaser:
a. The Purchaser shall have completed to its satisfaction its due diligence
review of the Company, the Company's business, assets and liabilities, and the
Company shall have furnished to the Purchaser and its representatives, such
information as may be reasonably requested by them.
b. The accuracy on each closing date of the representations and warranties
of the Company contained in this Agreement as if made on such closing date, and
the performance by the Company on or before the First Closing Date of all
covenants and agreements of the Company required to be performed on or before
the First Closing Date.
c. The Company shall have delivered to the Purchaser the Series D Preferred
Stock as scheduled in the Table of Closings in Section 1(c).
d. On each closing date after the First Closing Date, the Company shall
have fulfilled each of its obligations under this Agreement, including, without
limitation, those covenants under Section 4, which the Company is required by
the terms of this Agreement to fulfill by such closing date.
e. On each closing date, the Insider shall have fulfilled each of his
obligations under the Insider Agreement which the Insider is required by the
terms of such Insider Agreement to fulfill by such closing date.
f. On each closing date, the Purchaser shall have received from the Company
such other certificates and documents as it or its representatives, if
applicable, shall reasonably request, and all proceedings taken by the Company
or the Board of Directors of the Company, as applicable, in connection with the
Primary Documents contemplated by this Agreement and the other Primary Documents
and all documents and papers relating to such Primary Documents shall be
satisfactory to the Purchaser.
g. All regulatory approvals or filings, if any, necessary to consummate the
20
transactions contemplated by this Agreement shall have been made as of each
closing date.
h. The Purchaser shall have received by the First Closing Date a legal
opinion from Xxxxx & Xxxxxx LLP substantially in the form attached hereto as
Exhibit F and a legal opinion from Xxxxxxx & Xxxxxxx, Chtd. substantially in the
form attached hereto as Exhibit G.
i. The Purchaser shall have received a Closing Certificate substantially in
the form attached hereto as Exhibit H.
j. With respect to the Last Closing Date only, the Company shall have
reimbursed the Purchaser the expenses incurred in connection with the
negotiation or performance of this Agreement pursuant to Section 8 hereof.
7. RIGHT TO INFORMATION
As long as any portion of the Series D Preferred Stock remains outstanding,
the Company hereby agrees to provide the Purchaser with:
a. audited financial statements for each fiscal year, as soon as they
become available but in no event later than 90 days after the end of each such
fiscal year;
b. unaudited financial statements for each quarter, as soon as they become
available but in no event later than 45 days after the end of each such quarter;
and
c. budget plans as they are prepared.
8. FEES AND EXPENSES
The Company and the Insider shall bear their own costs, including attorney's
fees, incurred in the negotiation of this Agreement and consummating of the
transactions contemplated herein. Within 30 days of receipt of supporting
documentation, the Company shall reimburse the Purchaser for all of the
Purchaser's reasonable out-of-pocket expenses incurred in connection with the
negotiation or performance of this Agreement, including without limitation
reasonable fees and disbursements of counsel to the Purchaser.
9. GOVERNING LAW; MISCELLANEOUS
Except for issues involving Nevada law which shall be governed by and
interpreted in accordance with the laws of the State of Nevada, this Agreement
shall be governed by and interpreted in accordance with the laws of the State of
Florida, without regard to its principles of conflict of laws. Each of the
parties consents to the jurisdiction of the federal courts of Florida or the
state courts of the State of Florida in connection with any dispute arising
under this Agreement or any of the transactions contemplated hereby, and hereby
waives, to the maximum extent permitted by law, any objection, including any
objections based on forum non conveniens, to the bringing of any such proceeding
in such jurisdictions. This Agreement may be signed in one or more counterparts,
each of which shall be deemed an original. The headings of this Agreement are
for convenience of reference only and shall not form part of, or affect the
21
interpretation of this Agreement. This Agreement and each of the Primary
Documents have been entered into freely by each of the parties, following
consultation with their respective counsel, and shall be interpreted fairly in
accordance with its respective terms, without any construction in favor of or
against either party. 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 or the
validity or unenforceability of this Agreement in any other jurisdiction. This
Agreement shall inure to the benefit of, and be binding upon the successors and
assigns of each of the parties hereto, including any transferees of the Series D
Preferred Stock and the Warrant Stock. This Agreement may be amended only by an
instrument in writing signed by the party to be charged with enforcement. This
Agreement supersedes all prior agreements and understandings among the parties
hereto with respect to the subject matter hereof. All references to the
"Knowledge of the Company" means the actual knowledge of either of the Insider
and the Company's Chief Financial Officer after reasonable investigation and due
diligence. This Agreement, together with the other Primary Documents, including
any certificate, schedule, exhibit or other document delivered to their terms,
constitutes the entire agreement among the parties hereto with respect to the
subject matters hereof and thereof, and supersedes all prior agreements and
understandings, whether written or oral, among the parties with respect to such
subject matters. If any action should arise between the parties hereto to
enforce or interpret the provisions of this Agreement, the prevailing party in
such action shall be reimbursed for all reasonable expenses incurred in
connection with such action, including reasonable attorneys' fees.
10. NOTICES
Any notice required or permitted hereunder shall be given in writing (unless
otherwise specified herein) and shall be effective upon personal delivery, via
facsimile (upon receipt of confirmation of error-free transmission and mailing a
copy of such confirmation, postage prepaid by certified mail, return receipt
requested) or the next business day following deposit of such notice with an
internationally recognized courier service, with postage prepaid and addressed
to each of the other parties thereunto entitled at the following addresses, or
at such other addresses as a party may designate by 5 days advance written
notice to each of the other parties hereto.
Company: Tangible Asset Galleries, Inc.
0000 Xxx Xxxx
Xxxxxxx Xxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxxx XxXxxxxx, Chief Executive Officer
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
with a copy to: Xxxxx & Xxxxxx LLP
000 Xxxxx Xxxxxxxxx, 00/xx/ Xxxxx
Xxxxx Xxxx, Xxxxxxxxxx 00000-0000
Attention: Xxxxxx X. Xxxxxxxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
22
Purchaser: Stanford Venture Capital Holdings, Inc.
0000 Xxxxxx Xxxxxx
Xxxxxxx, Xxxxxxxxx 00000
Attention: Xxxxx X. Xxxxx, President
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
With a copy to: Stanford Financial Group
0000 Xxxxxxxxxx
Xxxxxxx, Xxxxx 00000
Attention: Xxxxxxxx Xxxxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
11. SURVIVAL
The agreements, covenants, representations and warranties of the Company, the
Insider and the Purchaser shall survive the execution and delivery of this
Agreement and the delivery of the Securities hereunder for a period of four
years from the date of the Last Closing Date, except that:
a. the Company's representations and warranties regarding Taxes contained in
Section 3(u) of this agreement shall survive as long as the Company
remains statutorily liable for any obligation referenced in Section 3(u),
and
b. the Company's representations and warranties contained in Section 3(b)
shall survive until the Purchaser and any of its affiliates are no longer
holders of any of the securities purchased hereunder.
12. INDEMNIFICATION
Each of the Company and the Insider, jointly and severally, on the
one side, and the Purchaser (each in such capacity under this section, the
"Indemnifying Party") agrees to indemnify the other party and each officer,
director, employee, agent, partner, stockholder, member and affiliate of such
other party (collectively, the "Indemnified Parties") for, and hold each
Indemnified Party harmless from and against: (i) any and all damages, losses,
claims and other liabilities of any and every kind, including, without
limitation, judgments and costs of settlement, and (ii) any and all reasonable
out-of-pocket costs and expenses of any and every kind, including, without
limitation, reasonable fees and disbursements of counsel for such Indemnified
Parties (all of which expenses periodically shall be reimbursed as incurred), in
each case, arising out of or suffered or incurred in connection with any of the
following: (a) any misrepresentation or any breach of any warranty made by the
Indemnifying Party herein or in any of the other Primary Documents, (b) any
breach or non-fulfillment of any covenant or agreement made by the Indemnifying
Party herein or in any of the other Primary Documents, or (c) any claim relating
to or arising out of a violation of applicable federal or state securities laws
by the Indemnifying Party in connection with the sale or issuance of the Series
B Preferred Stock, the Series D Preferred Stock, the Common Stock issuable upon
conversion of the Series B Preferred Stock or the Series B Preferred Stock, or
the Warrant Stock by the Indemnifying Party
23
to the Indemnified Party (collectively, the "Indemnified Liabilities"). To the
extent that the foregoing undertaking by the Indemnifying Party may be
unenforceable for any reason, the Indemnifying Party shall make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law.
(Signatures on the following page)
24
[SIGNATURE PAGE TO SERIES D PREFERRED STOCK PURCHASE AND
WARRANT EXERCISE AGREEMENT]
IN WITNESS WHEREOF, this Series D Preferred Stock Purchase and Warrant
Exercise Agreement has been duly executed by each of the undersigned.
TANGIBLE ASSET GALLERIES, INC.
By: /s/ Xxxxxxx XxXxxxxx
----------------------------
Name: Xxxxxxx XxXxxxxx
Title: Chief Executive Officer
STANFORD VENTURE CAPITAL HOLDINGS, INC.
By: /s/ Xxxxx X. Xxxxx
-----------------------------
Name: Xxxxx X. Xxxxx
Title: President
"INSIDER"
By: /s/ Xxxxxxx XxXxxxxx
-----------------------------
Xxxxxxx XxXxxxxx, an Individual
"WARRANT HOLDERS"
/s/ Xxxxxxx XxXxxxxx
---------------------------------
Xxxxxxx XxXxxxxx, an individual
/s/ Xxxxxx X. Xxxxx
---------------------------------
Xxxxxx X. Xxxxx, an individual
/s/ Xxxxxxx X. Xxxxxxxxxx
---------------------------------
Xxxxxxx X. Xxxxxxxxxx, an individual
25
/s/ Xxxxxxx Pi
---------------------------------------
Xxxxxxx Pi, an individual
/s/ Xxxxxx X. Xxxxx
---------------------------------------
Xxxxxx X. Xxxxx, an individual
26
EXHIBIT INDEX
EXHIBIT A WARRANT HOLDERS
EXHIBIT B SERIES D CERTIFICATE OF DESIGNATION
EXHIBIT C REGISTRATION RIGHTS AGREEMENT
EXHIBIT D INSIDER AGREEMENT
EXHIBIT E STANFORD CONSULTING AGREEMENT
EXHIBIT F FORM OF XXXXX LEGAL OPINION
EXHIBIT G FORM OF XXXXXXX LEGAL OPINION
EXHIBIT H FORM OF CLOSING CERTIFICATE
27
SCHEDULE INDEX
Schedule Description Page
-------- ----------- ----
Number
------
3(a) Organization
3(b) Capitalization
3(g) Financial Statements
3(k) Compliance With Legal Requirements
3(l) Absence of Certain Changes
3(m) Indebtedness to Officers, Directors and Shareholders
3(n) Relationships With Related Persons
3(p) Title to Properties; Liens and Encumbrances
3(s) Absence of Litigation
3(t) No Default
3(u) Taxes
3(w) Contracts; No Defaults
3(y) Insurance
3(z) Employees
3(aa) Employee Benefits
3(cc) Mergers, Acquisitions and Divestitures
28
SCHEDULE 3(a)
ORGANIZATION
Tangible Asset Galleries, Inc. (Nevada)
Superior Galleries, Inc. (Nevada)
Tangible Collectibles, Inc. (Delaware) - Inactive*
Xxxxxxxxx & Xxxxxx, Inc. (Pennsylvania) - Inactive*
Xxxxxxxxxxxxxxx.xxx, Inc. - Inactive*
*Upon filing of these corporations final tax returns in March 2003, these
corporations will be dissolved.
SCHEDULE 3(b)
CAPITALIZATION
(Omits Nonconvertible Notes)
The Company's Board and shareholders have approved an increase in the authorized
number of shares of common stock to 250,000,000 shares, but the Company has not
yet filed a Certificate of Amendment of Articles of Incorporation with respect
to this change.
Notwithstanding the last sentence of Section 3(b) of the Series D Preferred
Stock Purchase and Warrant Exercise Agreement, the issuance of the Series D
Preferred Stock will result in an adjustment (reduction) in the conversion price
of the Company's outstanding Series B Convertible Preferred Stock.
List of common stock shareholders under "lock-up" agreements:
Lock-up Agreements Exhibit I (see April 2002 agreement)
--------------------------------------------------------------------------------
Shareholder Common Shares under Lock-up
--------------------------------------------------------------------------------
Xxxxxx Bayern 111,268
--------------------------------------------------------------------------------
Xxxxxxx Xxxxxxxx 111,268
--------------------------------------------------------------------------------
Xxxxxxx Xxxxx (1) 1,053,861
--------------------------------------------------------------------------------
Xxxxx Bayern 1,351,104
--------------------------------------------------------------------------------
Xxxxxx Xxxxxxx (1) 416,988
--------------------------------------------------------------------------------
Xxxxxxx XxXxxxxx 15,486,000
--------------------------------------------------------------------------------
Lock-up Agreements Exhibit II (see April 2002 agreement)
--------------------------------------------------------------------------------
Shareholder Common Shares under Lock-up
--------------------------------------------------------------------------------
Xxxxxx Xxxxx 2,163,250
--------------------------------------------------------------------------------
Xxxx Xxxxxxxxxx 2,176,942
--------------------------------------------------------------------------------
Xxxxxxx Xxxxx (1) 1,067,934
--------------------------------------------------------------------------------
Aquila Airways 273,830
--------------------------------------------------------------------------------
Xxxxxx Xxxxxxx (1) 422,556
--------------------------------------------------------------------------------
KSH Investment Fund 1, LP 100,000
--------------------------------------------------------------------------------
Lock-up Agreement Exhibit III
--------------------------------------------------------------------------------
Shareholder Common Shares under Lock-up
--------------------------------------------------------------------------------
CynDel & Co., Inc. 5,818,869
--------------------------------------------------------------------------------
(1) Some of the same shares are under both lock-up agreements for these
shareholders
-2-
On November 15, 2000, the Company entered into a $1,000,000 demand convertible
note payable to National Recovery Limited Partnership ("NRLP"), a lender
controlled by Xxxx X. Xxxxx ("Xxxxx"), a Director of the Company at the time of
the transaction, bearing interest at 13.5% per annum, interest payable monthly,
with profit sharing interest in the Company's wholly-owned subsidiary, Tangible
Collectibles, Inc., secured by the inventory of that subsidiary and guaranteed
by the Company and its chief executive officer and principal stockholder,
convertible into common stock at $0.75 per share for the first $500,000 and
$1.00 per share for the remaining $500,000. In June 2001 Xxxxx resigned, as a
Director of the Company and NRLP no longer was a related party. On October 1,
2001, the Company amended the note to increase the maximum loan balance to
$1,375,000. On January 22, 2003 the Company repaid the note in full.
On July 6, 2001, as part of the Superior business asset acquisition, Superior
executed a revolving promissory note ("Credit Line") with the seller of the
assets in the aggregate amount of $3,000,000 bearing interest at the prime rate
plus 4% and secured by the assignment of notes receivable from consignors of
property to Superior. Superior received these consignor notes receivable as
evidence of loans made by Superior where repayment of notes is made form the
proceeds of the consignor's property consigned through Superior. The line was
due on July 5, 2002. The Company and its chief executive officer and principal
stockholder guaranteed the Credit Line. On July 10, 2002, the Company repaid the
Credit Line in full.
On November 20, 2001, the Company entered into a repurchase agreement with Xxx
English (the "Buyer") providing for the sale of rare coins to the Buyer for
aggregate purchase price of $1,176,000, and granting the Company a non-exclusive
right to repurchase and re-sell the coins (in the event Buyer declares the coin
available for sale) at the original sale price to the Buyer (an aggregate amount
$1,176,000) at any time during the term of the agreement until the expiration
date on May 20, 2002. The repurchase agreement also grants the Company the
non-exclusive obligation to market the coins that are the subject of the
repurchase agreement and if the Company exercises the right to repurchase, the
Company must share with the Buyer 50% of the gross profit realized on the
subsequent sale of each coin repurchased. In addition, the repurchase agreement
provides for the obligation of the Company to repurchase, at the expiration date
and at the option of the Buyer, any coin still outstanding under the repurchase
agreement at a repurchase price of 106% of the original sale price to the Buyer.
Since the Company has the obligation to market the coins that are the subject of
the repurchase agreement, the sale of the coins to the buyer is not
substantially complete until the coins are marketed, repurchased and sold to
third parties. Accordingly, only those coins which the Company has re-marketed
and sold to third parties are recorded and recognized as sales, and the
aggregate value of the coins remaining under and subject to the repurchase
agreement are classified as inventory until third party sales are completed. As
of December 31, 2002, the Company had repurchased all the coins covered under
the agreement.
On July 9, 2002 and July 26, 2002 the Company entered into temporary working
capital loan agreements with Xxxx Xxxxxx English ("English") in the amounts of
$1,500,000 and $1,000,000 respectively. These loans bear interest at the prime
lending rate plus 7% per annum, were secured by the inventory of the Company and
a personal guarantee of the Company's chief executive officer and principal
stockholder, and were due to repaid in 60 days. On August 8,
-3-
2002, the Company converted the two loans from English into a Line of Credit
with English by executing a Secured Revolving Line of Credit Agreement ("Line of
Credit"). The Line of Credit bears interest at the prime lending rate plus 7%
per annum, was due on September 9, 2002, is secured by substantially all the
assets of the Company and a personal guarantee of the Company's chief executive
officer and principal stockholder. The Line of Credit provide for interest
payments to made in cash, inventory or restricted common shares of the Company
at the sole discretion of English. On September 16, 2002 the Line of Credit was
amended to extend the due to October 15, 2002. In November 2002 English became
deceased and the aforementioned Line of Credit became an asset of the Estate of
Xxxx Xxxxxx English ("English Estate"). As of the January 22, 2003, the balance
of the Line of Credit was $2,500,000 plus accrued interest and no contact has
been made by the representatives of the English Estate with regard to the
disposition of the Line of Credit.
List of former HotelInterative, Inc. shareholders now holding shares and
warrants, each warrant is identical with terms as described on the schedule
above all subject to registration statement requirements:
--------------------------------------------------------------------------------------------------------------------
HOLDER SHARES WARRANTS
--------------------------------------------------------------------------------------------------------------------
XXXXX X. XXXXXXXX 6,766 508
--------------------------------------------------------------------------------------------------------------------
XXXXX X. XXXXX 8,054 605
--------------------------------------------------------------------------------------------------------------------
XXXXXX X. XXXXX XX 153,023 11,484
--------------------------------------------------------------------------------------------------------------------
AQUILA AIRWAYS INC. 273,830 20,550
--------------------------------------------------------------------------------------------------------------------
XXXXX BAYERN 1,369,146 102,749
--------------------------------------------------------------------------------------------------------------------
XXXXXX X. BAYERN 112,754 8,462
--------------------------------------------------------------------------------------------------------------------
CYNDEL & CO INC. 5,818,869 436,680
--------------------------------------------------------------------------------------------------------------------
XXXXXX X. XXXXX 2,163,250 162,343
--------------------------------------------------------------------------------------------------------------------
XXXXXX XXXXX 68,458 5,138
--------------------------------------------------------------------------------------------------------------------
XXXXXX XXXXXXX 422,556 31,711
--------------------------------------------------------------------------------------------------------------------
XXXX XXXXXXXXXX 2,176,942 163,370
--------------------------------------------------------------------------------------------------------------------
XXXXXXXX XXXXXX & XXXXX XXXXXX XXXXX 68,458 5,138
--------------------------------------------------------------------------------------------------------------------
XXXXXXX & DIANE'S XXXXX JTTEN 1,067,934 80,144
--------------------------------------------------------------------------------------------------------------------
XXXXXXX X. XXXXXXX 112,754 8,462
--------------------------------------------------------------------------------------------------------------------
KSH INVESTMENT GROUP, INC 740,950 55,605
--------------------------------------------------------------------------------------------------------------------
XXXXXX XXXXXX 136,915 10,275
--------------------------------------------------------------------------------------------------------------------
XXXXXX XXXXXX 136,915 10,275
--------------------------------------------------------------------------------------------------------------------
XXXXXX X. XXXXXXX 6,766 508
--------------------------------------------------------------------------------------------------------------------
UNITED GROWTH FUND, INC. 136,915 10,275
--------------------------------------------------------------------------------------------------------------------
XXXXXXX X. XXXXXX 6,766 508
--------------------------------------------------------------------------------------------------------------------
XXXXXXXX XXXXXXX 136,915 10,275
--------------------------------------------------------------------------------------------------------------------
WIN CAPITAL CORP. 68,458 5,138
--------------------------------------------------------------------------------------------------------------------
XXXXXX X. XXXXXXXXX 80,538 6,045
--------------------------------------------------------------------------------------------------------------------
XXXXXX X. XXXXX 20,135 1,512
--------------------------------------------------------------------------------------------------------------------
XXX XXXXXX & XXXXXX XXXXXXX JTTEN 12,081 907
--------------------------------------------------------------------------------------------------------------------
XXXXXXXX ANASTASI& XXXXXX X. ANASTIOS 40,269 3,023
--------------------------------------------------------------------------------------------------------------------
XXXXXX X. BALIKN 80,538 6,045
--------------------------------------------------------------------------------------------------------------------
XXXXXXX FAMILY LTD PARTNERSHIP II 20,135 1,512
--------------------------------------------------------------------------------------------------------------------
XXXXXXX X. BATHOLOMAY 80,538 6,045
--------------------------------------------------------------------------------------------------------------------
XXXXX XXXXXX 20,135 1,512
--------------------------------------------------------------------------------------------------------------------
XXXXXXXXXXX X. XXXX 20,135 1,512
--------------------------------------------------------------------------------------------------------------------
XXXXXX XXXXXX 20,135 1,512
--------------------------------------------------------------------------------------------------------------------
XXXXXX X. XXXXX 32,216 2,418
--------------------------------------------------------------------------------------------------------------------
XXXX X. XXXXXXX & XXXXXXX X. XXXXXXX, JJTTN 8,054 605
--------------------------------------------------------------------------------------------------------------------
XXXX X. XXXXXXX GST TRUST UA 8,054 605
06/02/92 & XXXX X. XXXXXXX TTEE
--------------------------------------------------------------------------------------------------------------------
BERKELY INVESTMENTS INC. 16,108 1,209
--------------------------------------------------------------------------------------------------------------------
XXXX X XXXXXXX GST TRUST US XXXX X. XXXXXXX TTEE 8,054 605
--------------------------------------------------------------------------------------------------------------------
XXXX X. XXXXXXX TRUST 2 UA 10/26/99 XXXX X. XXXXXXX TTEE 8,054 605
--------------------------------------------------------------------------------------------------------------------
XXXXX & XXXXX ACCOUNTING INC. 120,807 9,067
--------------------------------------------------------------------------------------------------------------------
XXXX X. HACHILL 20,135 1,512
--------------------------------------------------------------------------------------------------------------------
-4-
--------------------------------------------------------------------------------------------------------------------
HOLDER SHARES WARRANTS
--------------------------------------------------------------------------------------------------------------------
CARCAP CO. LLC 32,216 2,418
--------------------------------------------------------------------------------------------------------------------
XXXXX XXXXXX 20,135 1,512
--------------------------------------------------------------------------------------------------------------------
XXXXXX XXXXXXX 80,538 6,045
--------------------------------------------------------------------------------------------------------------------
M. XXXXXX XXXXX & XXXXXXX X. XXXXX LIVING TRUST UA 06-15/95 80,538 6,045
--------------------------------------------------------------------------------------------------------------------
XXXXX X. XXXX & XXXXX X. XXXX JTTEN 80,538 6,045
--------------------------------------------------------------------------------------------------------------------
XXXXXX X. XXXXXX 20,135 1,512
--------------------------------------------------------------------------------------------------------------------
XXXXX XXXXXXXX 40,269 3,023
--------------------------------------------------------------------------------------------------------------------
XXXXXX X. XXXXX 20,135 1,512
--------------------------------------------------------------------------------------------------------------------
XXXXX DE LA XXXX 40,269 3,023
--------------------------------------------------------------------------------------------------------------------
XXXXXX XXXXXXX TRUST UA 05/05/95 20,135 1,512
XXXXXX XXXXXXX TTEE
--------------------------------------------------------------------------------------------------------------------
XXXXXX X. XXXXXXX 20,135 1,512
--------------------------------------------------------------------------------------------------------------------
XXXXXX XXXX-XXXXXX & XXXXXX XXXX- XXXXXX TEN ENT 20,135 1,512
--------------------------------------------------------------------------------------------------------------------
XXXXXXXX XXXXX 10,068 756
--------------------------------------------------------------------------------------------------------------------
XXXX FEINBLATTT & XXXX XXXXXXXXX JTTEN 16,108 1,209
--------------------------------------------------------------------------------------------------------------------
XXXXX XXXXXX 20,135 1,512
--------------------------------------------------------------------------------------------------------------------
XXXXX XXXXXXXX (XXX) BEAR XXXXXX SEC CORPO CUST 20,135 1,512
--------------------------------------------------------------------------------------------------------------------
XXXX XXXXX 20,135 1,512
--------------------------------------------------------------------------------------------------------------------
XXXXXXX X. XXXXXXXX RECOCABLE TRUST UA 12/17/93 80,538 6,045
XXXXXXX X. XXXXXXXX TTEE
--------------------------------------------------------------------------------------------------------------------
XXXXXX X. XXXXXXXXX 10,068 756
--------------------------------------------------------------------------------------------------------------------
XXXXXX X. XXXXXXXX 20,135 1,512
--------------------------------------------------------------------------------------------------------------------
XXXXXXXX XXXXXXXX & XXXXXX XXXXXXXX JTTEN 16,108 1,209
--------------------------------------------------------------------------------------------------------------------
XXXX X. XXXXXX 20,135 1,512
--------------------------------------------------------------------------------------------------------------------
XXXXX XXXXXX 20,135 1,512
--------------------------------------------------------------------------------------------------------------------
XXXXXX X. XXXXXX 12,081 907
--------------------------------------------------------------------------------------------------------------------
XXXXXX XXXXX & XXXXXXX X. XXXXX TEN COMM. 8,054 605
--------------------------------------------------------------------------------------------------------------------
XXXXXXXX XXXXXX & XXXXXX XXXXXX JTTEN 40,269 3,023
--------------------------------------------------------------------------------------------------------------------
HOTEL INVESTMENT INC. 184,432 13,841
--------------------------------------------------------------------------------------------------------------------
XXXXX XXXXXXX JABECH & XXXXXX XXXXX XXXXXX JTTEN 40,269 3,023
--------------------------------------------------------------------------------------------------------------------
XXXXX X. XXXXXXX 40,269 3,023
--------------------------------------------------------------------------------------------------------------------
XXXXX X. XXXXX 20,135 1,512
--------------------------------------------------------------------------------------------------------------------
JEFFERYL. XXXX 20,135 1,512
--------------------------------------------------------------------------------------------------------------------
XXXX FAMILY REVOCABLE TRUST UA 02/06/97 XXXXXX X. XXXX TTEE 32,216 2,418
--------------------------------------------------------------------------------------------------------------------
XXXXXXXX XXXXXX 20,135 1,512
--------------------------------------------------------------------------------------------------------------------
XXXXX XXXXXX 40,269 3,023
--------------------------------------------------------------------------------------------------------------------
XXXXXX X. XXXX 20,135 1,512
--------------------------------------------------------------------------------------------------------------------
XXXXX X. XXXXXX 20,135 1,512
--------------------------------------------------------------------------------------------------------------------
XXXXXX XXXXXX 20,135 1,512
--------------------------------------------------------------------------------------------------------------------
XXXXX X. XXXX 20,135 1,512
--------------------------------------------------------------------------------------------------------------------
ORBE ENTERPRISES C/O HUMBERTIO XXXXXXXXX 80,538 6,045
--------------------------------------------------------------------------------------------------------------------
XXXXX XXXXXX 20,135 1,512
--------------------------------------------------------------------------------------------------------------------
XXXXX X. XXXXXX & XXXX XXXXXXX TEN COM 16,108 1,209
--------------------------------------------------------------------------------------------------------------------
XXXXXXXX X.PLATE TRUST UA 01/23/97 XXXXXXXX X.PLATE TTEE 20,135 1,512
--------------------------------------------------------------------------------------------------------------------
XXXXXXXX X. PUMADA & XXXXX X. XXXXXXXX JTTEN 4,027 303
--------------------------------------------------------------------------------------------------------------------
SOLEINAN RABANIPOUR 40,268 3,023
--------------------------------------------------------------------------------------------------------------------
XXXXXXX XXXXX (XXX) BEAR XXXXXXX SEC SORP CUST 20,135 1,512
--------------------------------------------------------------------------------------------------------------------
XXXXX XXXXXXXXXX 10,068 756
--------------------------------------------------------------------------------------------------------------------
XXXXX X. & XXXXXX X. XXXXXXXXXX TEN COM 40,269 3,023
--------------------------------------------------------------------------------------------------------------------
XXXX XXXXXXX 12,081 907
--------------------------------------------------------------------------------------------------------------------
XXXXXX X. XXXX XX. (XXX) BEAR XXXXXXX SEC CORP CUST 20,135 1,512
--------------------------------------------------------------------------------------------------------------------
XXXXXX XXXXX 40,269 3,023
--------------------------------------------------------------------------------------------------------------------
XXXXX XXXXX 40,269 3,023
--------------------------------------------------------------------------------------------------------------------
XXXXXX XXXXXXX 20,135 1,512
--------------------------------------------------------------------------------------------------------------------
PATRICAIA SAN XXXXX 40,269 3,023
--------------------------------------------------------------------------------------------------------------------
XXXX XXXXXXX 80,538 6,045
--------------------------------------------------------------------------------------------------------------------
XXXXX X. XXXXXX 80,538 6,045
--------------------------------------------------------------------------------------------------------------------
XXXXXXXX XXXXXXXXX 8,054 605
--------------------------------------------------------------------------------------------------------------------
XXXXXXX X. VETERRE & XXXXX X. VETEREJTTEN 20,135 1,512
--------------------------------------------------------------------------------------------------------------------
XXXXX XXXXXX 10,068 756
--------------------------------------------------------------------------------------------------------------------
XXXXXXX X. XXXX 20,135 1,512
--------------------------------------------------------------------------------------------------------------------
XXXX XXXXXXXXX 64,431 4,836
--------------------------------------------------------------------------------------------------------------------
XANADU ASSOCIATES LLC 40,269 3,023
--------------------------------------------------------------------------------------------------------------------
-5-
--------------------------------------------------------------------------------------------------------------------
HOLDER SHARES WARRANTS
--------------------------------------------------------------------------------------------------------------------
ZERO NET INC 805,380 60,441
--------------------------------------------------------------------------------------------------------------------
XXXXX X. XXXXXX TRUST US 12/02/81 40,269 3,023
--------------------------------------------------------------------------------------------------------------------
XXXXXXX XXXXXXXX 1,788 135
--------------------------------------------------------------------------------------------------------------------
XXXXX XXXXXX 2,586 195
--------------------------------------------------------------------------------------------------------------------
XXXX XXXXXXXXXX 290 22
--------------------------------------------------------------------------------------------------------------------
XXXXXX XXXXXX 725 55
--------------------------------------------------------------------------------------------------------------------
XXXXXXXXXXX XXXXXXXX 2,586 195
--------------------------------------------------------------------------------------------------------------------
XXXX XXXXXXXX 1,933 146
--------------------------------------------------------------------------------------------------------------------
XXXX XXXXXXX 145 11
--------------------------------------------------------------------------------------------------------------------
XXXXXXX XXXXXX 1,445 109
--------------------------------------------------------------------------------------------------------------------
XXXXXXX XXXXX 20,818 2,313
--------------------------------------------------------------------------------------------------------------------
XXXXX XXXX 145 11
--------------------------------------------------------------------------------------------------------------------
XXXXX XXXXX 1,445 109
--------------------------------------------------------------------------------------------------------------------
XXXXX XXXXXXXX 1,445 109
--------------------------------------------------------------------------------------------------------------------
XXXXX XXX XXXXXXX XXXXXXX XXXXX 000 00
--------------------------------------------------------------------------------------------------------------------
XXXX XXXXX XXXXXXX 910 69
--------------------------------------------------------------------------------------------------------------------
XXXXX XXXXXX 30,818 2,313
--------------------------------------------------------------------------------------------------------------------
WIN CAPITAL CORP. 4,929 370
--------------------------------------------------------------------------------------------------------------------
CAPITAL INVESTMENTS SERCIES, INC. 95 8
--------------------------------------------------------------------------------------------------------------------
XXXXX XXXXXXX 806 61
--------------------------------------------------------------------------------------------------------------------
TOTAL 18,755,345 1,407,587
--------------------------------------------------------------------------------------------------------------------
The Series B Preferred Shareholders are entitled to additional warrants in
connection with the Company's failure to register their securities, and the
Series C Preferred Shareholder is entitled to additional warrants as a result of
the Company's failure to pay dividends on such securities.
Registration Rights: The Company is obligated to register securities under (1)
an Agreement dated April 3, 2002 with the holders of Series B $1.00 Convertible
Preferred Stock and Series C Convertible Preferred Stock; (2) an Agreement and
Plan of Merger dated June 25, 2001, relating to the Hotel Interactive
transaction; and (3) its private placement of securities conducted from July to
October 2001.
Shareholder (Voting) Agreements: Shareholder Agreement dated April 3, 2002 among
the Company, Stanford Venture Capital Holdings, Inc. and Xxxxxxx XxXxxxxx.
Redemption Obligations. The Company is required to redeem its Series A
Convertible Preferred Stock, at the option of the holder thereof after March 21,
2004, pursuant to the Certificate of Designation for such securities.
Commitment to Issue Additional Options. The Company has verbally committed to
issue approximately 2,060,773 options under its 2000 Omnibus Stock Option Plan
to officers and key employees. The options would be issued at exercise prices
equal to the fair market value of the underlying common stock at the date of
grant.
-6-
SCHEDULE 3(g)
FINANCIAL STATEMENTS
Other than the changes in accounting policy as required under changes in
generally accepted accounting principles since December 31, 1998, and the
addition of assets or operations that required the application or adoption of
accounting policy that was not required or necessary prior to the addition of
assets or operations, there have been no changes in accounting policy,
principles, methods or practices including any change with respect to reserves
(whether for bad debts, contingent liabilities or otherwise), of the Company or
any of its subsidiaries since December 31, 1998.
-7-
SCHEDULE 3(k)
COMPLIANCE WITH LEGAL REQUIREMENTS
The Company is required under its bylaws to hold annual shareholders meetings in
the fifth month following the end of the Company's fiscal year. The Company has
not held its annual shareholders meetings for the fiscal years ended December
31, 2000, June 30, 2001 and June 30, 2002.
The Company is required under its bylaws to furnish annual reports to the
shareholders not later than 120 days after the end of each fiscal period. Other
than filing with the Form 10-KSB with the Securities and Exchange Commission for
the fiscal years ended December 31, 2000 and June 30, 2001, the Company has not
sent an annual report to the shareholders for the fiscal years ended December
31, 2000, June 30, 2001, and June 30, 2002.
The Company is required to file Forms 10-KSB and 10-QSB within 90 days and 45
days respectively subsequent to close of fiscal periods with the Securities and
Exchange Commission. The Company has not filed Form 10-KSB for the fiscal year
ended June 30, 2002 and Form 10-QSB for the quarter ended September 30, 2002.
The Company is required to file a registration statement for securities issued
under the Agreement and Plan of Merger by and between Tangible Asset Galleries,
Inc., Tangible Asset Galleries Acquisition Corp, and HotelInteractive, Inc.
dated June 25, 2001 within six months of the effective date of the transaction.
The Company has not filed such registration statement.
The Company is required to file a registration statement for securities issued
under the Private Placement Memorandum dated July 6, 2001 and terminated October
31, 2001, within sixty days of the termination date of the offering. The Company
has not filed such registration statement.
The Company is required to file a registration statement for securities under
Securities and Purchase Agreement with Stanford Venture Capital Holdings, Inc.
dated April 3, 2002 within 180 days of the first closing date of the
transaction. The Company has not filed such registration statement.
-8-
SCHEDULE 3(l)
ABSENCE OF CERTAIN CHANGES
On February 19, 2002, the Company reported on Form 8-K for the date of February
7, 2002, the sale of all of the outstanding chares of HotelInteractive, Inc. a
wholly-owned subsidiary of the Company to HCR Holdings, Inc.
On February 28, 2002, the Company reported on Form 8-K for the date of February
22, 2002, the divesture of the assets and assignment of the liabilities of
Xxxxxxxxx & Xxxxxx, Inc, to the management of Xxxxxxxxx & Xxxxxx, Inc.
On April 28, 2002, the Company reported on Form 8-K for the date of April 10,
2002, the change in control of the Company as result of the sale of Series B and
Series C Convertible Preferred Shares to Stanford Venture Capital Holdings, Inc,
and Xxxxxxx XxXxxxxx, the Company's chief executive officer and principal
stockholder.
On May 31, 2002, the Company reported on Form 14-C a Definitive Information
Statement relative to the increase in the Company's authorized number of Common
Shares and to reduce the number of Board of Directors subject to shareholder
approval and estimate to be effective on or about June 23, 2002.
The Company incurred losses during the periods following December 31, 2002. The
loss for the full fiscal year ended June 30, 2002 was approximately $4.9
million, and the loss for the six (6) month period ended December 31, 2002 was
between $1.0 million and $1.5 million. The Company will have a "going concern"
qualification in its audit opinion for the year ended June 30, 2002.
-9-
SCHEDULE 3(m)
INDEBTEDNESS TO OFFICERS, DIRECTORS AND SHAREHOLDERS
On December 31, 2000, the Company executed a promissory note payable to Xxxxxxx
XxXxxxxx, the Company's chief executive officer and principal stockholder,
bearing interest at 9.5% per annum for three months and 12.5% per annum to
maturity with interest payable monthly in arrears. The note was issued in full
satisfaction of a note of the same amount maturing on January 1, 2001 with
interest at 10% per annum. The note was to mature on December 31, 2004, at which
time all outstanding principal and interest is due. On April 10, 2002, the
promissory note balance of $700,000 was converted into 7,000 Series C
Convertible Redeemable Preferred ("Series C") Shares with a dividend of 9%
payable quarterly. The Series C shares are convertible into common shares at the
rate of $0.22 per common share and are redeemable for cash on December 31, 2004.
As of January 22, 2003, the Company has accrued, but not paid $47,250 of
dividends due to Xx. XxXxxxxx.
On December 31, 2000, the Company executed a $1,400,000 promissory note payable
to Xxxxxxx XxXxxxxx, the Company's chief executive officer and principal
stockholder, bearing interest at 9.5% per annum for three months and 12.5% per
annum to maturity with interest payable monthly in arrears. The note was
convertible into common shares of the Company at $0.22 per share, as specified
in the agreement. The note was issued in full satisfaction of a note of the same
amount maturing on March 31, 2004 that was convertible at $1.00 per share with
interest at 9% per annum, but in default at December 31, 2000. The note in the
amount of $1,400,000 was set to mature on June 30, 2002. On April 10, 2002 the
note was converted into 400,000 Series B Convertible Preferred ("Series B")
Shares along with warrants to purchase 4,000,000 common shares of the Company,
and, a secured subordinate note ("secured note") in the amount of $1,000,000
bearing interest at the rate of 9% per annum. The secured note is repayable in
quarterly installments of $150,000 of principal plus accrued interest. As of
January 22, 2003 no principal reductions have been made and the balance of the
secured note is $1,000,000 plus accrued interest.
On December 10, 2002, the Company executed a promissory note payable to Xxxxxxx
XxXxxxxx, the Company's chief executive officer and principal stockholder,
bearing interest at 12.0% per annum and payable on demand. The proceeds of the
note were used to pay-off the line of credit with First Bank & Trust. As of
January 22, 2003 no principal reductions have been made and the balance of the
note is $289,969.77 plus accrued interest.
On December 13, 2002, the Company executed a promissory note payable to Xxxxxxx
XxXxxxxx, the Company's chief executive officer and principal stockholder,
bearing interest at 12.0% per annum and payable on demand. The proceeds of the
note were used for working capital. As of January 22, 2003 no principal
reductions have been made and the balance of the note is $70,000 plus accrued
interest.
As reported on Schedule 3 (z), the Company has accrued vacation days payable to
Xxxxxxx XxXxxxxx, Xxxxxx Xxxxx, Xxxxxx Xxxxxx, Xxx Xxxxxx and Xxx Xxxxxx.
-10-
There are amounts that are not material or substantial that may be due to
Xxxxxxx XxXxxxxx, Xxxxxx Xxxxx and Xxxx Biberkraut as reimbursements for any
expenses of the Company incurred by these officers on behalf of the Company.
-11-
SCHEDULE 3(n)
RELATIONSHIP WITH RELATED PERSONS
Xxxxxxx XxXxxxxx has a first priority security interest in the inventory and
accounts receivable of the Company as described in the UCC-1 filing dated
January 10, 2002.
On August 3, 1999, the Company entered into an agreement with Xxxx Xxxxxxxxx
that provides for Wesselink to render services to the Company upon request.
Compensation for such services is commission on sales of specific coins for
which services were rendered equal to 50% of the difference between the net
sales price to a third party and the Company invoice price as approved by
Xxxxxxx XxXxxxxx.
On August 6, 2000, Tangible Collectibles, Inc. ("TCI"), a wholly-owned
subsidiary of the Company entered into a consulting agreement ("agreement") with
RLH Enterprises, Inc. ("RLH") to render services relating to all activities
associated with the purchase, marketing and sale of rare coins on behalf of the
Company on an exclusive basis. The agreement provided for a compensation based
on the greater of a guaranteed fee of $285,000 per year or 37.5% of TCI's income
before taxes. In October 2001, after a review of TCI's performance under the
agreement and a related financing agreement, TCI and RLH mutually agreed to
terminate the agreement. Prior to the execution of the agreement, Xxxxxx X.
Xxxxxx, the principal owner of RLH was employed by Superior Galleries, Inc.
("Superior"), at the time a Competing Business. Subsequent to termination of the
agreement, to the knowledge of the Company, Xxxxxx is employed by Spectrum
Numismatics, Inc. a Competing Business.
On November 15, 2000, the Company entered into a $1,000,000 demand convertible
note payable to National Recovery Limited Partnership ("NRLP"), a lender
controlled by Xxxx X. Xxxxx ("Xxxxx"), a Director of the Company from November
27, 2000 to June 25, 2001, bearing interest at 13.5% per annum, interest payable
monthly, with profit sharing interest in the Company's wholly-owned subsidiary,
Tangible Collectibles, Inc., secured by the inventory of that subsidiary and
guaranteed by the Company and its chief executive officer and principal
stockholder, convertible into common stock at $0.75 per share for the first
$500,000 and $1.00 per share for the remaining $500,000. On October 1, 2001, the
Company amended the note to increase the maximum loan balance to $1,375,000. On
January 22, 2003 the Company repaid the note in full. Prior to the date of the
above referenced note and during the period when Xxxxx was Company Director, the
Company entered into and concluded several joint ventures and profit sharing
agreements with Xxxxx or NRLP. Other than the referenced note, its related
terms, and the shares of Common Stock owned by NRLP or Xxxxx, to the knowledge
of the Company, Xxxxx and NRLP have had no agreements of any kind that carry a
financial interest in the properties of the Company or claims or rights with or
against the Company and its subsidiaries or a financial or profit interest in
any Competing Business.
In November 2001, the Company negotiated an agreement with the management of
Xxxxxxxxx & Xxxxxx, Inc. ("G&K") to divest the assets and assign the liabilities
of Xxxxxxxxx & Xxxxxx, Inc. dba Keystone Coin & Stamp Exchange ("Keystone') that
was approved by the Company's Board of Directors subject to a final accounting.
The operations of Keystone were transferred to G&K
-12-
on November 28, 2001 based on the negotiation and while the accounting and
written agreement were being finalized. On February 22, 2002, a final accounting
was agreed upon between the Company and G&K and the transaction was
substantially completed. As part of the agreement the Company issued 325,000
shares of the Company's common stock to G&K as a fee for assuming the
liabilities. The value of the common shares was $16,250 and G&K agreed to pay
the Company $135,086 for the net assets of Keystone. Xxxxxx Xxxxxxxxx, a G&K
management member, was a member of the Company's Board of Directors from
November 20, 2000 to June 25, 2001. G&K were the owners of substantially all the
outstanding shares of Keystone until the Company purchased all of the shares on
December 30, 1999. Prior to the purchase by the Company of such shares, G&K
operated a Competing Business. Since the transfer of Keystone assets on November
28, 2001, G&K are operating a Competing Business
Pursuant to the employment agreement of Xxxxxxx XxXxxxxx ("XxXxxxxx") dated
April 30, 2001, XxXxxxxx is eligible to receive a bonus equal to a percentage of
his base salary upon the Company achieving specified net income goals as defined
in the agreement. The agreement also provides for bonuses based on the
achievement of certain market capitalization goals and allows XxXxxxxx to engage
in business related activity of personal nature in managing his tangible and
financial assets including the buying and selling of such assets, it being
understood that any activity wholesale in nature or buying and selling such
assets through dealers, brokers or auctioneers is deemed not to be competitive
with the activities of the Company.
Pursuant to the employment agreement of Xxxxxxx X. Xxxxxx ("Xxxxxx") dated
September 6, 2000, Xxxxxx is eligible to receive a bonus equal to a percentage
of his base salary upon the Company achieving specified net income goals as
defined in the agreement. The agreement also provides for bonuses based on the
achievement of certain market capitalization goals. Xxxxxx employment with
company was terminated on June 3, 2002. Prior to the employment with the
Company, Xxxxxx was the President of a Competing Business. In January 2003,
Xxxxxx became the President of Collectors Universe, Inc, a Competing Business.
On July 9, 2001, Superior engaged Xxxxxx Xxxxx ("Deeds") in employment as its
President. Pursuant to that employment, as modified to date, Deeds received 0.5%
of the aggregate hammer price of all coins sold through Superior. Prior to
employment with the Company, Deeds was a director of coin auctions for a
Competing Business.
-13-
SCHEDULE 3(p)
TITLE TO PROPERTIES; LIENS AND ENCUMBRANCES
On August 30, 1999, the Company obtained a line of credit agreement with a bank
that bore interest at the bank's prime rate plus 1.5%, secured by substantially
all the assets of the Company and guaranteed by the chief executive officer and
principal stockholders. On February 11, 2002 the bank released the lien on the
inventory of uncertified coins and art. On December 10, 2002 the line of credit
with the bank was paid off in full with proceeds of a loan from the Company's
chief executive officer and principal stockholder.
The Company signed a long-term loan agreement with a finance company dated
October 17, 2000 secured by a delivery van and payable in 60 monthly
installments of $456.54 principal and interest at rate of 5.9% per annum. The
outstanding balance as of January 22, 2003 is $13,875.89 plus accrued interest
On November 15, 2000, the Company entered into a $1,000,000 demand convertible
note payable to National Recovery Limited Partnership ("NRLP"), bearing interest
at 13.5% per annum, interest payable monthly, with profit sharing interest in
the Company's wholly-owned subsidiary, Tangible Collectibles, Inc., secured by
the inventory of that subsidiary and guaranteed by the Company and its chief
executive officer and principal stockholder, convertible into common stock at
$0.75 per share for the first $500,000 and $1.00 per share for the remaining
$500,000. On October 1, 2001, the Company amended the note to increase the
maximum loan balance to $1,375,000. On January 22, 2003 the Company repaid the
note in full.
On December 31, 2000, the Company executed a promissory note payable to Xxxxxxx
XxXxxxxx, the Company's chief executive officer and principal stockholder,
bearing interest at 9.5% per annum for three months and 12.5% per annum to
maturity with interest payable monthly in arrears. The note was convertible into
common shares of the Company at $0.22 per share, as specified in the agreement
and was secured by the Company's inventory and accounts receivable. The note was
issued in full satisfaction of a note of the same amount maturing on March 31,
2004 that was convertible at $1.00 per share with interest at 9% per annum, but
in default at December 31, 2000. The note in the amount of $1,400,000 was sent
to mature on June 30, 2002. On April 10, 2002 the note was converted into
400,000 Series B Convertible Preferred ("Series B") Shares along with warrants
to purchase 4,000,000 common shares of the Company, and, a secured subordinate
note ("secured note") in the amount of $1,000,000 bearing interest at the rate
of 9% per annum. The secured note is collateralized by the Company's inventory
and accounts receivable. The secured note is repayable in quarterly installments
of $150,000 of principal plus accrued interest. As of January 22, 2003 no
principal reductions have been made and the balance of the secured note is
$1,000,000 plus accrued interest.
On July 6, 2001, the Company completed the acquisition of the assets placed in
the Company's wholly-owned subsidiary, Superior Galleries, Inc. ("Superior"),
whereby Superior issued a non-interest bearing promissory note payable to the
seller for $701,000 secured by all the assets of Superior and guaranteed by the
Company and its chief executive officer and principal stockholder. The note
provided for periodic payments up to January 10, 2002. In January 2002
-14-
the Company defaulted on the note, but continued to make periodic payments of
principal and interest through September 2002. On October 30, 2002, the Company
renegotiated the note by making a lump-sum payment and agreeing to pay the
remaining balance of $181,214.35 by making 10 monthly payments of $19,132.99 of
principal and interest commencing December 1, 2002. The renegotiated note bears
interest at the rate of 12% per annum. As of January 22, 2003 the note balance
was $147,863.44 plus accrued interest.
On July 6, 2001, as part of the Superior business asset acquisition, Superior
executed a revolving promissory note ("Credit Line") with the seller of the
assets in the aggregate amount of $3,000,000 bearing interest at the prime rate
plus 4% and secured by the assignment of notes receivable from consignors of
property to Superior. Superior received these consignor notes receivable as
evidence of loans made by Superior where repayment of notes is made form the
proceeds of the consignor's property consigned through Superior. The line was
due on July 5, 2002. The Company and its chief executive officer and principal
stockholder guaranteed the Credit Line. On July 10, 2002, the Company repaid the
Credit Line in full.
On October 31, 2001, the Company closed a private placement of Series A $5.00
Redeemable 8% Convertible Preferred Stock ("Series A Shares") with sales of
125,000 Series A Shares with total offering proceeds of $625,000. The Series A
Shares carry a $0.40 annual dividend per share payable quarterly in cash or the
Company's Common Stock at the Company's election, is convertible into 11 shares
of the Company's Common Stock and provides for a cash redemption or conversion
into the Company's Common Stock based on elections by the stockholders or the
Company subject to certain contingencies. The Series A Shares are redeemable
after march 31, 2004 for cash, at the option of the holder, in the amount of
$5.50 per share, with such amount for each holder payable in ten equal quarterly
installments, the first payment being due the quarter immediately following the
redemption date. The certificate of designation of the Series A Shares provides
that the Company shall not allow any liens on its inventory, unless subordinated
to the interests of the Series A Shares, with such preference on the inventory
equal to the inventory value, as determined in accordance with GAAP, of 150% of
the stated par value of the aggregate of the outstanding Series A Shares, except
for the inventory of the Company that is on consignment to be sold by third
parties or was otherwise purchased pursuant to a security interest.
On November 20, 2001, the Company entered into a repurchase agreement with an
individual (the "Buyer") providing for the sale of rare coins to the Buyer for
aggregate purchase price of $1,176,000, and granting the Company a non-exclusive
right to repurchase and re-sell the coins (in the Buyer declares the coin
available for sale) at the original sale price to the Buyer (an aggregate amount
$1,176,000) at any time during the term of the agreement until the expiration
date on May 20, 2002. The repurchase agreement also grants the Company the
non-exclusive obligation to market the coins that are the subject of the
repurchase agreement and if the Company exercises the right to repurchase, the
Company must share with the Buyer 50% of the gross profit realized on the
subsequent sale of each coin repurchased. In addition, the repurchase agreement
provides for the obligation of the Company to repurchase, at the expiration date
and at the option of the Buyer, any coin still outstanding under the repurchase
agreement at a repurchase price of 106% of the original sale price to the Buyer.
Since the Company has the obligation to market the coins that are the subject of
the repurchase agreement, the sale of the coins to the buyer is not
substantially complete until the coins are marketed, repurchased and
-15-
sold to third parties. Accordingly, only those coins which the Company has
re-marketed and sold to third parties are recorded and recognized as sales, and
the aggregate value of the coins remaining under and subject to the repurchase
agreement are classified as inventory until third party sales are completed. As
of December 31, 2002, the Company had repurchased all the coins covered under
the agreement.
On July 9, 2002 and July 26, 2002 the Company entered into temporary working
capital loan agreements with Xxxx Xxxxxx English ("English") in the amounts of
$1,500,000 and $1,000,000 respectively. These loans bear interest at the
prime-lending rate plus 7% per annum, were secured by the inventory of the
Company and a personal guarantee of the Company's chief executive officer and
principal stockholder, and were due to repaid in 60 days. On August 8, 2002, the
Company converted the two loans from English into a Line of Credit with English
by executing a Secured Revolving Line of Credit Agreement ("Line of Credit").
The Line of Credit bears interest at the prime lending rate plus 7% per annum,
was due on September 9, 2002, is secured by substantially all the assets of the
Company and a personal guarantee of the Company's chief executive officer and
principal stockholder. The Line of Credit provide for interest payments to made
in cash, inventory or restricted common shares of the Company at the sole
discretion of English. On September 16, 2002 the Line of Credit was amended to
extend the due to October 15, 2002. In November 2002 English became deceased and
the aforementioned Line of Credit became an asset of the Estate of Xxxx Xxxxxx
English ("English Estate"). As of the January 22, 2003, the balance of the Line
of Credit was $2,500,000 plus accrued interest and no contact has been made by
the representatives of the English Estate with regard to the disposition of the
Line of Credit.
On October 9, 2002, the Company's subsidiary Superior Galleries, Inc.
("Superior") executed a promissory note with a third party rare coin dealer in
the amount of $1,011,975 for the purchase of rare coin inventory from an
unrelated third party. The note bears interest of $75,000 through January 20,
2003 and thereafter bears interest at the rate of 2.5% per month. The loan is
secured by the rare coin inventory purchases with the proceeds of the note. All
proceeds from the sales of the rare coins securing the note will be applied
against the loan principal and interest. As of January 22, 2003 the balance of
loan is $786,975 plus accrued interest.
On November 1, 2002, the Company's subsidiary Superior Galleries, Inc.
("Superior") executed a promissory note with a third party rare coin dealer in
the amount of $179,350 to pay down the promissory note related to the Superior
acquisition of July 2001. The note bears interest of $7,500 through January 31,
2003 and thereafter bears interest at the rate of 1.50% per month. The loan is
secured by specific rare coin inventory. All proceeds from the sales of the rare
coins securing the note will be applied against the loan principal and interest.
As of January 22, 2003 the balance of loan is $179,350 plus accrued interest.
The Company utilizes leased assets not owned by the Company and such assets are
subject to the limitations as provided in each specific lease agreement.
KSH Strategic Investment Fund I, LP, secured promissory note dated July 3, 2001,
in the original principal amount of $275,000, bearing interest at the rate of
10% per annum, payable at the earlier of the receipt of the proceeds of a
private placement memorandum or July 3, 2002. In August 2002, KSH and Company
agreed to extend the payment terms of the secured promissory
-16-
note on a month to month basis. The balance of the promissory at January 22,
2002 was $31,250 plus accrued interest.
-17-
SCHEDULE 3(s)
ABSENCE OF LITIGATION
The Company has been named as the defendant in a lawsuit initiated by plaintiffs
Xxxxx Bayern and CynDel & Co., Inc. dated November 11, 2001 in the Supreme Court
of the State of New York, County of New York, that alleges breach of contract in
the approximate amount of $450,000, representing the aggregate of monthly fees
to be paid for the approximately three years. On February 28, 2002, the parties
executed a letter to "stand still" on the lawsuit and nay counterclaims until
April 15, 2002, at which time, the parties will assess the progress on the
contemplated preferred stock financing. On April 3, 2002, the Company entered
into a settlement and release agreement to settle all claims of all parties to
the lawsuit.
-18-
SCHEDULE 3(t)
NO DEFAULT
On June 15, 2001, the Company entered into and advisory agreement with Xxxxxx
Bayern ("Bayern"), a shareholder of 5% or more of the Company's Common Stock,
pursuant to which Bayern is to provide advice to the Company with respect to
corporate governance matters and corporate strategy. The Company did not pay
Bayern in accordance with the terms of the agreement claiming a number of
defenses including fraud, failure of consideration, failure to mitigate damages
and other defenses. Bayern filed suit in New York alleging breach of contract.
On April 3, 2002, the Company entered into a settlement and release agreement
with Bayern to settle all claims of all parties to the suit.
On June 15, 2001, the Company entered into a three-year consulting agreement
with CynDel & Co., Inc. ("CynDel") expiring in June 2004 to provide financial
advice and other financial consulting services at the rate of $120,000 per year.
Xxxxxx Bayern and Xxxxxxx Xxxxxxxx both of who are shareholders of more than 5%
of the Company's Common Stock own CynDel. The Company had not paid CynDel in
accordance with the terms of the agreement claiming a number of defenses
including fraud, failure of consideration, failure to mitigate damages and other
defenses. CynDel filed suite in New York alleging breach of contract. On April
3, 2002, the Company entered into a settlement and release agreement with CynDel
to settle all claims of all parties to the suit.
On July 6, 2001, the Company completed the acquisition of the assets placed in
the Company's wholly-owned subsidiary, Superior Galleries, Inc. ("Superior"),
whereby Superior issued a non-interest bearing promissory note payable to the
seller for $701,000 secured by all the assets of Superior and guaranteed by the
Company and its chief executive officer and principal stockholder. The note
provided for periodic payments up to January 10, 2002. The Company had a dispute
with the seller regarding the covenants of the seller, the Company suspended
payments in accordance with the terms of the note and negotiated temporary
payments by mutual consent of the parties. The dispute was resolved with the
Seller and both parties agreed to revised payment schedule of principal and
interest. As of January 22, 2003 the balance of the note was $147,863.44 plus
accrued interest.
On July 6, 2001, as part of the Superior business asset acquisition, Superior
executed a revolving promissory note ("Credit Line") with the seller of the
assets in the aggregate amount of $3,000,000 bearing interest at the prime rate
plus 4% and secured by the assignment of notes receivable from consignors of
property to Superior. The Credit Line contained a default provision such that
any default in the promissory note related to the asset acquisition as described
above is also a default under the Line of Credit. On July 10, 2002, the Company
repaid the Credit Line in full.
On July 9, 2002 and July 26, 2002 the Company entered into temporary working
capital loan agreements with Xxxx Xxxxxx English ("English") in the amounts of
$1,500,000 and $1,000,000 respectively. These loans bear interest at the
prime-lending rate plus 7% per annum, were secured by the inventory of the
Company and a personal guarantee of the Company's chief
-19-
executive officer and principal stockholder, and were due to repaid in 60 days.
On August 8, 2002, the Company converted the two loans from English into a Line
of Credit with English by executing a Secured Revolving Line of Credit Agreement
("Line of Credit"). The Line of Credit bears interest at the prime lending rate
plus 7% per annum, was due on September 9, 2002, is secured by substantially all
the assets of the Company and a personal guarantee of the Company's chief
executive officer and principal stockholder. The Line of Credit provide for
interest payments to made in cash, inventory or restricted common shares of the
Company at the sole discretion of English. On September 16, 2002 the Line of
Credit was amended to extend the due to October 15, 2002. In November 2002
English became deceased and the aforementioned Line of Credit became an asset of
the Estate of Xxxx Xxxxxx English ("English Estate"). As of the January 22,
2003, the balance of the Line of Credit was $2,500,000 plus accrued interest and
no contact has been made by the representatives of the English Estate with
regard to the disposition of the Line of Credit. This Line of Credit is in
technical default.
The Company is required under its bylaws to hold annual shareholders meetings in
the fifth month following the end of the Company's fiscal year. The Company has
not held its annual shareholders meetings for the fiscal years ended December
31, 2000, June 30, 2001 and June 30, 2002.
The Company is required under its bylaws to furnish annual reports to the
shareholders not late than 120 days after the end of each fiscal period. Other
than filing with the Form 10-KSB with the Securities and Exchange Commission for
the fiscal years ended December 31, 2000 and June 30, 2001, the Company has not
sent an annual report to the shareholders for the fiscal years ended December
31, 2000, June 30, 2001, and June 30, 2002.
The Company is required to file Forms 10-KSB and 10-QSB within 90 days and 45
days respectively subsequent to close of fiscal periods with the Securities and
Exchange Commission. The Company has not filed Form 10-KSB for the fiscal year
ended June 30, 2002 and Form 10-QSB for the quarter ended September 30, 2002.
The Company is required to file a registration statement for securities issued
under the Agreement and Plan of Merger by and between Tangible Asset Galleries,
Inc., Tangible Asset Galleries Acquisition Corp, and HotelInteractive, Inc.
dated June 25, 2001 within six months of the effective date of the transaction.
The Company has not filed such registration statement.
The Company is required to file a registration statement for securities issued
under the Private Placement Memorandum dated July 6, 2001 and terminated October
31, 2001, within sixty days of the termination date of the offering. The Company
has not filed such registration statement.
The Company is required to file a registration statement for securities under
Securities and Purchase Agreement with Stanford Venture Capital Holdings, Inc.
dated April 3, 2002 within 180 days of the first closing date of the
transaction. The Company has not filed such registration statement.
-20-
SCHEDULE 3(u)
TAXES
None. The Company's filing deadlines for tax returns for the fiscal year ended
June 30, 2002 have been extended to March 31, 2003.
-21-
SCHEDULE 3(w)
CONTRACTS; NO DEFAULTS
1. ACC Financial Services, Inc. dated September 15, 2000
2. Xxxxxxxxxxx Xxxx Group, dated August 26, 2000
3. Lo Money, Inc., dated September 11, 2000
4. Repurchase Agreement with Xxx English, dated November 20, 2001
5. Asset Purchase and Assumption of Liabilities Agreement, dated November
28,2001
6. Advisory Agreement with Xxxxxx Xxxxxxx, Dated June 25, 2001
7. Financial Advisory Agreement with CynDel & Co., Inc., dated June 9, 2001
8. Financial Advisory Agreement with Xxxxxx Bayern, dated June 9, 2001
9. Advertising Space Agreement with Art & Antiques, dated July 30, 2001
10. Lease Agreement Ford Credit dated September 22, 2000
11. Lease Agreement Mercedes- Benz Credit, dated August 31, 2001
12. Lease Agreement Ford Credit, dated January 31, 2002
13. Real Estate Lease Agreement with LJR Lido Partners LP, dated September 20,
1999
14. Assignment of Real Estate Lease with 9478 Corporation dated July 6, 2001
15. Real Estate Sublease Agreement with A-Xxxx Auction Galleries, Inc. dated
July 6,2001
16. Asset Purchase Agreement with A-Xxxx Auction Galleries, Inc., dated July 6,
2001
17. Agreement and Plan of merger with HotelInteractive , Inc. dated April 9,
2001
18. Collateral Agreement with International Fidelity Insurance Company, dated
February 21, 2002
19. Auction Agreement with the American Numismatic Association, as amended,
dated January 25, 2002
20. Secured Promissory Note from HCR Holdings Corporation, dated February 7,
2002
21. Secured Promissory Note from HotelInteractive, Inc., dated February 7, 2002
22. Share Purchase Agreement with HCR Holdings Corporation, dated February 7,
2002
23. Employment Agreement with Xxxxxxx XxXxxxxx, dated April 30, 2001
24. Employment Agreement with Xxxxxxx Xxxxxx, dated September 6, 2000
25. Consulting Agreement with U.S. Gold Exchange, dated August 3, 1999
26. Commercial Loan and Security Agreement with National Recovery Limited
Partnership, dated November 15, 2000
27. Guaranty for Tangible Collectibles, Inc. in favor of National recovery
Limited Partnership, dated November 15, 2000
28. Guaranty for Superior Galleries, Inc. in favor of A-Xxxx Auciton
Gallleries, Inc., dated July 6, 2001
29. General Indemnity Agreement with International Fidelity Insurance Company,
dated February 12, 2002
30. Securities Purchase Agreement with Stanford Venture Capital Holdings, Inc.
dated April 3, 2002
31. Temporary Working Capital Loan Agreement with Xxxx Xxxxxx English, dated
July 9, 2002
32. Secured Loan and Security Agreement with Xxxx Xxxxxx English, dated July 9,
2002
33. Temporary Working Capital Loan Agreement with Xxxx Xxxxxx English, dated
July 26, 2002
34. Secured Loan and Security Agreement with Xxxx Xxxxxx English, dated July
26, 2002
-22-
35. Secured Revolving Line of Credit Agreement with Xxxx Xxxxxx English, dated
August 8, 2002
36. Secured Promissory Note with Xxxxx Xxxxxx Rare Coins, dated October 8, 2002
37. Secured Promissory Note with Xxxxx Xxxxxx Rare Coins, dated November 1,
2002
38. Promissory Note with Keystone Rare Coins, LLC, dated December 9, 2002
39. Promissory Note with Xxxxxxx X. XxXxxxxx, dated December 10, 2002
40. Promissory Note with Xxxxxxx X. XxXxxxxx, dated December 13, 2002
41. Bridge Loan Agreement and Bridge Note with Stanford Venture Capital
Holdings, Inc., dated January 2, 2003
42. Consulting Agreement with Xxxxxx Xxxxx, dated January 4, 2003
43. Bridge Loan Agreement and Bridge Note with Stanford Venture Capital
Holdings, Inc, dated January 15, 2003
On June 15, 2001, the Company entered into an advisory agreement with Xxxxxx
Bayern, a shareholder of 5% or more of the Company's common stock, pursuant to
which Mr. Bayern is to provide advice to the Company with respect to corporate
governance matters and corporate strategy. The Company has not paid Mr. Bayern
in accordance with the terms of the agreement claiming breach by Mr. Bayern. Mr.
Bayern has filed suit in New York alleging breach of contract.
On June 15, 2001, the Company entered into a three-year consulting agreement
with CynDel & Co., Inc. ("CynDel") expiring June 2004 to provide financial
advice and other financial consulting service at the rate of $120,000 per year.
Xxxxxx Bayern and Xxxxxxx Xxxxxxxx, both of who are shareholders of more than 5%
of the Company's common stock, own CynDel. The Company has not paid CynDel in
accordance with the terms of the agreement claiming breach by CynDel. CynDel has
filed suit in New York alleging breach of contract.
On July 6, 2001, the Company completed the acquisition of the assets placed in
Superior Galleries, Inc. ("Superior"), pursuant to which Superior issued a
non-interest bearing promissory note payable to the seller for $701,000, secured
by all the assets of Superior and guaranteed by the Company and the principal
stockholder and chief executive officer of the Company. The note provides for
periodic payment up to January 10, 2002. The Company has a dispute with the
seller regarding the covenants of the seller. In January 2002 the Company
defaulted on the note, but continued to make periodic payments of principal and
interest through September 2002. On October 30, 2002, the Company renegotiated
the note by making a lump-sum payment and agreeing to pay the remaining balance
of $181,214.35 by making 10 monthly payments of $19,132.99 of principal and
interest commencing December 1, 2002. The renegotiated note bears interest at
the rate of 12% per annum. As of January 22, 2003 the note balance was
$147,863.44 plus accrued interest.
On July 6, 2001, as a part of the transaction whereby assets of the business
were purchased, Superior signed a revolving promissory note with the seller of
the assets in the aggregate amount of $3,000,000 bearing interest at 4% over the
prime rate and secured by assignment of the notes receivable from consignors of
property to Superior. The revolving promissory note contained a default
provision such that any default under the promissory note related to the asset
as described
-23-
above is also a default under the revolving promissory note. The revolving
promissory note was paid off on July 10, 2002.
The Company is required under its bylaws to hold an annual shareholders meetings
in the fifth month following the end of the Company's fiscal year. The Company
has not held its annual shareholders meetings for the fiscal years ended
December 31, 2000 and June 30, 2001.
The Company is required under its bylaws to furnish an annual report to the
shareholders not later than 120 days after the end of each fiscal period. Other
than filing with the Form 10-KSB with the Securities and Exchange Commission,
the Company has not sent an annual an annual report to the shareholders for the
fiscal years ended December 31, 200 and June 30, 2001.
The Company is required to file a registration statement for securities issued
under the Agreement and Plan of Merger by and between Tangible Asset Galleries,
Inc., Tangible Asset Galleries Acquisition Corp. and HotelInteractive, Inc.
dated as of within six months of the effective date of the transaction. The
Company has not filed such registration statement.
The Company is required to file a registration statement for securities issued
under the Private Placement Memorandum dated as of July 6, 2001 and terminated
October 31, 2001, within sixty days of the termination date of the offering. The
Company has not filed such registration statement.
The Company is required to file a registration statement for securities under
Securities and Purchase Agreement with Stanford Venture Capital Holdings, Inc.
dated April 3, 2002 within 180 days of the first closing date of the
transaction. The Company has not filed such registration statement.
The Company entered into an agreement with ACC Financial Services, Inc. ("ACC")
dated September 15, 2000, and on January 7, 2001, the Company suspended payment
and the ACC ceased performing services under such agreement until such time as
the Company could complete the underwriting of certain transactions.
The Company entered into an agreement with Xxxxxxxxxxx Xxxx Group
("Xxxxxxxxxxx"), dated August 26, 2000, and on January 7, 2001, the Company
suspended payments and Xxxxxxxxxxx ceased performing services under such
agreements
The Company entered into an agreement with Lo Money, Inc. ("Lo Money"), dated
September 11, 2000, and on January 7, 2001, the Company suspended payments and
Lo Money ceased performing services under such agreement until such time as the
Company could complete the underwriting of certain transactions.
-24-
SCHEDULE 3(y)
INSURANCE
Policy Annual Expiry Property
Risk Carrier Number Coverage Premium Date Insured
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
Commercial Property American States 02-CD-146435-1 $650K 1,495 10/9/2003 Office Contents & Leasehold
Improvements
------------------------------------------------------------------------------------------------------------------------------------
Commercial Liability American States 02-CD-146435-1 $2M/$1M/$200K/$10K 18,653 10/9/2003 General and Umbrella Liability
Aggreg/Per
Occ/Fire/Med
------------------------------------------------------------------------------------------------------------------------------------
$100K per loc/$25K
Commercial Inland American States 02-CD-146435-1 Break 552 10/9/2003 Electronic Date Processing
Marine
------------------------------------------------------------------------------------------------------------------------------------
Commerical Auto American States 02-CD-146435-1 $1M Owned & Non-owned 132 10/9/2003 Liability
------------------------------------------------------------------------------------------------------------------------------------
Workers' Compensatio Administaff Coverage as of 10/31/2003 See Schedule 3 (z)
01/01/03
------------------------------------------------------------------------------------------------------------------------------------
Employee Dishonesty Fidelity Deposit CCP 005 34 14
Company of 01 $2M 2,073 Liability and Theft
Maryland
------------------------------------------------------------------------------------------------------------------------------------
Automobile Progressive 04221883-1 $1M/$5K/$1M/$3.5K 3,956 1/14/2004 2000 GMAC Van
Comm Vehicle Ins Bi-PD/Med/UM/Prop
Co. Damg
------------------------------------------------------------------------------------------------------------------------------------
Inventory Travelers
Insurance Co. KTJM-525D061-1 $5M/$1M/$500K/$3.5M 25,000 8/5/2003 Rare Coins & Fine Art
Per Inventories
Loc/Art/Transit/Shows
------------------------------------------------------------------------------------------------------------------------------------
Directors & Officers Fireman's Fund CDO0007566458
Liability Insurance Company 1 $1M 22,994 2/28/2003 D & O Liability
------------------------------------------------------------------------------------------------------------------------------------
Officer Life First Colongy Life 5,275,524 $2.5M 1,275 5/27/2003 Xxxxxxx X. XxXxxxxx
Insurance Company
------------------------------------------------------------------------------------------------------------------------------------
-25-
SCHEDULE 3(z)
EMPLOYEES
As of 12/31/03
Annual Base Other Accrued Accrued
Employee Name (*) Compensation Compensation Vacation Pay Sick Pay Duties
-----------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
Xxxxxxxx, Xxxxx $ 22,880 $ 440 No Cash Value Sales Support
-----------------------------------------------------------------------------------------------------------------------------
Biberkraut, Xxxx $ 120,000 Bonus $ - No Cash Value Chief Financial Officer
-----------------------------------------------------------------------------------------------------------------------------
Xxxxxx, Xxxxxxx $ 120,000 Commission $ 2,308 No Cash Value Sales
-----------------------------------------------------------------------------------------------------------------------------
Xxxxx, Xxxxxxx $ 69,000 $ 1,327 No Cash Value Sales
-----------------------------------------------------------------------------------------------------------------------------
Xxxxxxx, Xxxx $ - Commission $ - No Cash Value Sales
-----------------------------------------------------------------------------------------------------------------------------
Xxxxx, Xxxxxx $ 202,500 Commission $ 7,788 No Cash Value President Auctions
-----------------------------------------------------------------------------------------------------------------------------
XxXxxxxx, Xxxxxxx $ 337,500 Bonus $ 19,471 No Cash Value Chief Executive Officer
-----------------------------------------------------------------------------------------------------------------------------
Xxxx, Xxxxx $ 60,000 Commission $ 1,154 No Cash Value Sales
-----------------------------------------------------------------------------------------------------------------------------
Xxxxxx, Xxxxxx $ 31,500 $ 606 No Cash Value Sales Support
-----------------------------------------------------------------------------------------------------------------------------
Xxxx, Xxxxx $ 30,000 $ 288 No Cash Value Accounting
-----------------------------------------------------------------------------------------------------------------------------
Xxxxxxxxxx, Xxxxx $ 40,000 $ 769 No Cash Value Administration
-----------------------------------------------------------------------------------------------------------------------------
Xxxxxx, Xxxxx $ 85,000 $ 1,635 No Cash Value Operations
-----------------------------------------------------------------------------------------------------------------------------
Xxxxxx, Xxx $ 25,000 $ 481 No Cash Value Sales Support
-----------------------------------------------------------------------------------------------------------------------------
Xxxxxx, Xxx $ 45,000 $ 1,731 No Cash Value Inventory Control
-----------------------------------------------------------------------------------------------------------------------------
Xxxxxxxxx, Xxxxx $ 48,000 $ 923 No Cash Value Accounting
-----------------------------------------------------------------------------------------------------------------------------
Xxxxxx, Xxxxxxx $ 34,000 $ 654 No Cash Value Operations
-----------------------------------------------------------------------------------------------------------------------------
* As of January 1, 2003 all employees are co-employees of Tangible Asset
Galleries, Inc. and Administaff, a professional employer organization. All
payroll, payroll taxes, employee benefits and worker's compensation are being
administered by Administaff and charged as a fee to Tangible.
-26-
SCHEDULE 3(aa)
EMPLOYEE BENEFITS
Tangible Asset Galleries, Inc. 401 (k) Profit Sharing Plan & Trust
Tangible Asset Galleries, Inc. Profit Sharing Plan
As of January 1, 2003 the Company's benefits are provided by Administaff, a
professional employer organization. Administaff's benefits include health
insurance, dental insurance, vision insurance, workers' compensation coverage,
life insurance and 401(k) retirement plan. The two plans listed above will be
terminated during 2003.
-27-
SCHEDULE (cc)
MERGERS, ACQUISITIONS AND DIVESTITURES
On February 7, 2002, the Company completed the sale of its HotelInteractive,
Inc. ("HI") subsidiary. Pursuant to a Share Purchase Agreement entered into
between the Company and HCR Holdings Corporation, a Delaware corporation
("HCR"), the Company agreed to sell to HCR all of HI's issued and outstanding
shares. HCR is controlled by Xx. Xxxxxxx Xxxxx, a member of the Company's Board
of Directors at the time of the sale. The decision to sell HI to HCR was made
pursuant to the unanimous written consent of the Company's Board of Directors
without counting Xx. Xxxxx'x vote. The terms of the sale were negotiating on an
arms-length basis between the Company's management and HCR's.
-28-
EXHIBIT A
TO
SERIES D PREFERRED STOCK PURCHASE
AND WARRANT EXERCISE AGREEMENT
LIST OF WARRANT HOLDERS
Xxxxxxx XxXxxxxx
Xxxxxx X. Xxxxx
Xxxxxxx X. Xxxxxxxxxx
Xxxxxxx Pi
Xxxxxx X. Xxxxx
EXHIBIT B
CERTIFICATE OF DESIGNATION
OF
SERIES D $1.00 CONVERTIBLE PREFERRED STOCK
OF
TANGIBLE ASSET GALLERIES, INC.
Pursuant to Nevada Revised Statutes 78.1555, the undersigned, being an
officer of Tangible Assets Galleries, Inc., a Nevada corporation (the
"Corporation"), does hereby certify that the following resolutions were duly
adopted by the unanimous consent of the board of directors (the "Board") of the
Corporation:
RESOLVED, that pursuant to authority expressly granted to and vested in
the Board by the Articles of Incorporation, as amended, of the Corporation, the
Board hereby creates two million (2,000,000) shares of Series D $1.00
Convertible Preferred Stock, of the Corporation and authorizes the issuance
thereof, and hereby fixes the designation thereof, and the voting powers,
preferences and relative, participating, optional and other special rights, and
the qualifications, limitations or restrictions thereon (in addition to the
designation, preferences and relative, participating and other special rights,
and the qualifications, limitations or restrictions thereof, set forth in the
Articles of Incorporation, as amended, of the Corporation, which are applicable
to the preferred stock, if any) as follows:
1. Designation. The series of preferred stock shall be designated and
known as "Series D $1.00 Convertible Preferred Stock" (the "Series D Preferred
Stock"). The number of shares constituting the Series D Preferred Stock shall be
two million (2,000,000). Each share of the Series D Preferred Stock shall have a
stated value equal to one dollar ($1.00) (the "Stated Value").
2. Conversion Rights. The Series D Preferred Stock shall be convertible
into the $0.001 par value common stock of the Corporation (the "Common Stock")
as follows:
a. Optional Conversion. Subject to and upon compliance with the
provisions of this Section 2, a holder of any shares of the Series D Preferred
Stock (a "Holder") shall have the right at such Holder's option at any time, to
convert any of such shares of the Series D Preferred Stock held by the Holder
into fully paid and non-assessable shares of the Common Stock at the then
Conversion Rate (as defined herein).
b. Conversion Rate. Each share of the Series D Preferred Stock is
convertible into the number of shares of the Common Stock shall be calculated by
dividing the Stated Value by $0.06
(the "Conversion Price"; the conversion rate so calculated, the "Conversion
Rate"), subject to adjustments as set forth in Section 2(e) hereof.
c. Mechanics of Conversion. The Holder may exercise the conversion
right specified in Section 2(a) by giving thirty (30) days written notice to the
Corporation, that the Holder elects to convert a stated number of shares of the
Series D Preferred Stock into a stated number of shares of Common Stock, and by
surrendering the certificate or certificates representing the Series D Preferred
Stock to be converted, duly endorsed to the Corporation or in blank, to the
Corporation at its principal office (or at such other office as the Corporation
may designate by written notice, postage prepaid, to all Holders) at any time
during its usual business hours, together with a statement of the name or names
(with addresses) of the person or persons in whose name the certificate or
certificates for Common Stock shall be issued.
d. Conversion Rate Adjustments. The Conversion Price shall be subject
to adjustment from time to time as follows:
1. Consolidation, Merger, Sale, Lease or Conveyance. In case of
any consolidation or merger of the Corporation with or into another
corporation, or in case of any sale, lease or conveyance to another
corporation of all or substantially all of the assets of the
Corporation, each share of the Series D Preferred Stock shall after the
date of such consolidation, merger, sale, lease or conveyance be
convertible into the number of shares of stock or other securities or
property (including cash) to which the Common Stock issuable (at the
time of such consolidation, merger, sale, lease or conveyance) upon
conversion of such share of the Series D Preferred Stock would have
been entitled upon such consolidation, merger, sale, lease or
conveyance; and in any such case, if necessary, the provisions set
forth herein with respect to the rights and interests thereafter of the
Holder of the shares of the Series D Preferred Stock shall be
appropriately adjusted so as to be applicable, as nearly as may
reasonably be, to any shares of stock of other securities or property
thereafter deliverable on the conversion of the shares of the Series D
Preferred Stock.
2. Stock Dividends, Subdivisions, Reclassification, or
Combinations. If the Corporation shall (i) declare a dividend or make a
distribution on its Common Stock in shares of its Common Stock, (ii)
subdivide or reclassify the outstanding shares of Common Stock into a
greater number of shares, or (iii) combine or reclassify the
outstanding Common Stock into a smaller number of shares; the
Conversion Price in effect at the time of the record date for such
dividend or distribution or the effective date of such subdivision,
combination, or reclassification shall be proportionately adjusted so
that the Holder of any shares of the Series D Preferred Stock
surrendered for conversion after such date shall be entitled to receive
the number of shares of Common Stock that it would have owned or been
entitled to receive had such Series D Preferred Stock been converted
immediately prior to such date. Successive adjustments in the
Conversion Price shall be made whenever any event specified above shall
occur.
3. Issuances of Securities. If the Corporation shall (i) sell or
otherwise issue shares of the Common Stock at a purchase price per
share less than the Conversion Price, or (ii) sell or otherwise issue
the Corporation's securities which are convertible into or exercisable
for shares of the Corporation's Common Stock at a conversion or
exercise price
per share less than the Conversion Price, then immediately upon such
issuance or sale, the Conversion Price shall be adjusted to a price
determined by multiplying the Conversion Price immediately prior to
such issuance by a fraction, the numerator of which shall be the number
of shares of Common Stock outstanding immediately prior to such
issuance or sale (excluding shares held in the treasury), plus the
number of shares of the Common Stock that the aggregate consideration
received by the Corporation for such issuance would purchase at such
Conversion Price; and the denominator of which shall be the number of
shares of Common Stock outstanding immediately prior to such issuance
plus the number of the additional shares to be issued at such issuance
or sale.
4. Excluded Transactions. No adjustment to the Conversion Price
shall be required under this Section 2(e) in the event of the issuance
of shares of Common Stock by the Corporation upon the conversion or
exercise of or pursuant to any outstanding stock options or stock
option plan now existing or hereafter approved by the Holders which
stock options have an exercise or conversion price per share of less
than the Conversion Price.
f. Approvals. If any shares of the Common Stock reserved for the
purpose of conversion of shares of the Series D Preferred Stock require
registration with or approval of any governmental authority under any Federal or
state law before such shares may be validly issued or delivered upon conversion,
then the Corporation will in good faith and as expeditiously as possible
endeavor to secure such registration or approval, as the case may be. If, and so
long as, any Common Stock into which the shares of the Series D Preferred Stock
are then convertible is listed on any national securities exchange, the
Corporation will, if permitted by the rules of such exchange, list and keep
listed on such exchange, upon official notice of issuance, all shares of such
Common Stock issuable upon conversion.
g. Valid Issuance. All shares of Common Stock that may be issued upon
conversion of shares of the Series D Preferred Stock will upon issuance be duly
and validly issued, fully paid and non-assessable and free from all taxes, liens
and charges with respect to the issuance thereof, and the Corporation shall take
no action that will cause a contrary result.
3. Liquidation.
a. Liquidation Preference. In the event of liquidation, dissolution
or winding up of the Corporation (each a "Liquidation Event"), the Holders of
the Series D Preferred Stock shall have the same liquidation preference, pari
passu, as the holders (the "Series B Holders") of the Series B $1.00 Convertible
Preferred Stock (the "Series B Preferred Stock"), and be entitled to receive,
before any distribution of assets shall be made to the holders of any Series C
$100 Redeemable 9% Convertible Preferred Stock (the "Series C Preferred Stock")
or Common Stock, but after the liquidation preference of the Series A $5.00
convertible preferred stock (the "Series A Preferred Stock"), an amount equal to
the Stated Value per share of Series D Preferred Stock held by such Holder (the
"Liquidation Pay Out"). After payment of the Liquidation Pay Out to each Holder
and the payment of the respective liquidation preferences of the other classes
of preferred stock of the Corporation, pursuant to the Corporation's Articles of
Incorporation, as amended, each Holder shall be entitled to share with the
Series B Holders, the holders of the Series C Preferred Stock and the holders of
the Common Stock, pari passu, the remaining assets of the Corporation available
for distribution to the Corporation's stockholders.
b. Ratable Distribution. If upon any liquidation, dissolution or
winding up of the Corporation, the net assets of the Corporation to be
distributed among the Holders and the Series B Holders shall be insufficient to
permit payment in full to such holders, then all remaining net assets of the
Corporation after the provision for the payment of the Corporation's debts and
distribution to any senior stockholders shall be distributed ratably in
proportion to the full amounts to which they would otherwise be entitled to
receive among such holders of the Series B Preferred Stock and Series D
Preferred Stock.
4. Voting Rights. Except as prohibited under Nevada law, the Holders of
the Series D Preferred Stock shall be entitled to vote at any meeting of
stockholders of the Corporation (or any written actions of stockholders in lieu
of meetings) with respect to any matters presented to the stockholders of the
Corporation for their action or consideration. For the purposes of such
shareholder votes, each share of Series D Preferred Stock shall be entitled to
such number of votes as represented by the number of shares of Common Stock such
share of Series D Preferred Stock would be convertible into at the time of such
voting. Notwithstanding the foregoing, so long as any shares of Series D
Preferred Stock remain outstanding, the Corporation shall not, without first
obtaining the approval of the holders of at least a majority of the then
outstanding shares of Series D Preferred Stock, voting as a separate class (i)
alter or change the rights, preferences or privileges of the Series D Preferred
Stock as outlined herein, or (ii) create any new class or series of capital
stock having a preference same as or over the Series D Preferred Stock as to the
payment of dividends or the distribution of assets upon the occurrence of a
Liquidation Event ("Senior Securities"), or (iii) alter or change the rights,
preferences or privileges of any Senior Securities so as to adversely affect the
Series D Preferred Stock.
5. Dividends. The Holders of the Series D Preferred Stock shall not be
entitled to receive dividends.
6. No Preemptive Rights. No Holders of the Series D Preferred Stock,
whether now or hereafter authorized, shall, as such Holder, have any preemptive
right whatsoever to purchase, subscribe for or otherwise acquire, stock of any
class of the Corporation nor of any security convertible into, nor of any
warrant, option or right to purchase, subscribe for or otherwise acquire, stock
of any class of the Corporation, whether now or hereafter authorized.
7. Exclusion of Other Rights. Except as may otherwise be required by law,
the shares of the Series D Preferred Stock shall not have any preferences or
relative, participating, optional or other special rights, other than those
specifically set forth in this resolution (as such resolution may be amended
from time to time) and in the Corporation's Articles of Incorporation, as
amended. The shares of the Series D Preferred Stock shall have no preemptive or
subscription rights.
8. Headings of Subdivisions. The headings of the various subdivisions
hereof are for convenience of reference only and shall not affect the
interpretation of any of the provisions hereof.
9. Severability of Provisions. If any right, preference or limitation of
the Series D Preferred Stock set forth in this certificate of designation (this
"Certificate") (as such Certificate may be amended from time to time) is
invalid, unlawful or incapable of being enforced by reason of any rule of law or
public policy, all other rights, preferences and limitations set forth in this
Certificate (as so
amended) which can be given effect without the invalid, unlawful or
unenforceable right, preference or limitation shall, nevertheless, remain in
full force and effect, and no right, preference or limitation herein set forth
shall be deemed dependent upon any other such right, preference or limitation
unless so expressed herein.
10. Status of Reacquired Shares. No shares of the Series D Preferred Stock
which have been issued and reacquired in any manner may be reissued, and all
such shares shall be returned to the status of undesignated shares of preferred
stock of the Corporation.
11. Restrictions and Limitations. So long as any shares of the Series D
Preferred Stock remain outstanding, the Corporation may not, without the vote or
written consent by the holders of a majority of the outstanding shares of the
Series D Preferred Stock, voting as a separate class:
a. Effect any sale, license, conveyance, exchange or transfer of
all or substantially all of the assets of the Corporation or
take any other action which will result in the holders of the
Corporation's capital stock prior to the transaction owning
less than 50% of the voting power of the Corporation's capital
stock after the transaction; or
b. Amend or otherwise change the Corporation's Articles of
Incorporation, bylaws or certificate of designation of any
stock; or
c. Change the nature of the business of the Corporation or any of
its subsidiaries; or
d. Make any distributions on, or redemption of, any capital stock
(other than: (i) distributions or redemptions made pursuant to
the certificates of designations of the Series A Preferred
Stock, the Series B Preferred Stock, the Series C Preferred
Stock or the Series D Preferred Stock; or (ii) redemptions or
repurchases in amounts not exceeding $10,000 in the aggregate
per fiscal year); or
e. Authorize, issue, obligate itself to issue, or agree to the
authorization or issuance by any of the subsidiaries of the
Corporation of, any capital stock or securities convertible
into or exercisable for any capital stock, other than issuance
of the Series D Preferred Stock pursuant to that certain
Series D Preferred Stock Purchase and Warrant Exercise
Agreement between the Corporation and Stanford Venture Capital
Holdings, Inc. dated as of even date herewith (the "Series D
Purchase Agreement") or the issuance of the Common Stock upon
the conversion of shares of the Corporation's preferred stock
or upon the exercise of any options or warrants which have
been contemplated or disclosed in the Series D Purchase
Agreement in ; or
f. Make acquisitions of fixed assets or capital stock or capital
expenditures (except for the purchase of inventory or other
assets in the ordinary course of business) in any 12-month
period during which the aggregate amount of all such
transactions exceeds $100,000; or
g. Enter into any credit facility or issue any debt (except for
(i) increases in debt under existing credit facilities as of
the date hereof and as in effect on the date hereof and (ii)
the increase of trade credit or accounts payable in the
ordinary course of business)
that exceeds $100,000 in a single transaction or a series of
transactions; or
h. Increase the number of directors on the Board above five; or
i. Enter into any transaction with any affiliate (as such term is
used in Rule 144 promulgated pursuant to the Securities Act of
1933, as amended) of the Corporation or modify any existing
agreement or understanding with such affiliate (except for any
transaction with any of its wholly owned, operating subsidiaries
in the ordinary course of business); or
j. File a voluntary or involuntary petition that commences a case
under Title 11 of the United States Code (or any successor
statutes) with respect to the Corporation, or consent to the
institution of bankruptcy or insolvency proceedings against it, or
file a petition seeking, or consent to, relief under any
applicable federal or state law relating to bankruptcy or
insolvency.
12. Amendment. This Certificate may be amended with the written approval of
(i) the Corporation and (ii) the vote or written consent of holders of a
majority of the outstanding shares of the Series D Preferred Stock, without the
consent or approval of any other party. Any amendment so effected shall be
binding upon the Corporation and any holder of the Series D Preferred Stock.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to
be signed in its name and on its behalf by its Chief Executive Officer and
attested to as of the 31st day of January 2003.
TANGIBLE ASSET GALLERIES, INC.
By:: /s/ Xxxxxxx XxXxxxxx
--------------------------
Name: Xxxxxxx XxXxxxxx
Title: Chief Executive Officer
Exhibit C
Execution Version
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of January 31, 2003, is made
by and among Tangible Asset Galleries, Inc., a Nevada corporation (the
"Company"), and holders of the Company's Series B $1.00 Convertible Preferred
Stock (the "Series B Preferred Stock"), Series C $100 Redeemable 9% Convertible
Preferred Stock (the "Series C Preferred Stock") and Warrants (the "Warrants")
issued pursuant to that certain Securities Purchase Agreement by and between the
Company and such holders dated as of April 3, 2002 (the "First Purchase
Agreement") and the Company's Series D $1.00 Convertible Preferred Stock (the
"Series D Preferred Stock") issued pursuant to that certain Series D Preferred
Stock and Warrant Exercise Agreement by and between the Company and such holders
dated as of even date herewith (the "Second Purchase Agreement"; the First
Purchase Agreement and the Second Purchase Agreement collectively, the "Purchase
Agreements") whose names appear on the signature page hereto below that of the
Company (collectively, the "Investors"). For purposes of clarification, the
Warrants include the warrants to purchase 4,000,000 shares of the Company's
Common Stock issued to Xxxxxxx XxXxxxxx pursuant to Section 4(g) of the First
Purchase Agreement. Capitalized terms not defined herein shall have the meanings
ascribed to them in the Second Purchase Agreement.
RECITALS:
WHEREAS, the Company desires to grant to the Investors the registration
rights set forth herein with respect to the shares (the "Conversion Shares") of
Common Stock issuable upon conversion or exchange of the Series B Preferred
Stock, Series C Preferred Stock and Series D Preferred Stock, shares (the
"Warrant Shares") of Common Stock issuable upon exercise of the Warrants and
shares (the "Default Warrant Shares") of Common Stock issuable upon the exercise
of the warrants issuable in the event of a registration default pursuant to
Section 3(e) (all the shares of the Series B Preferred Stock, the Series C
Preferred Stock and Series D Preferred Stock, the Conversion Shares, the Warrant
Shares and the Default Warrant Shares, collectively and interchangeably to be
referred to as the "Securities").
NOW, THEREFORE, the parties hereto mutually agree as follows:
Section 1. Certain Definitions. As used herein the term "Registrable
Security" means the Conversion Shares, Warrant Shares, and Default Warrant
Shares, until (i) all Securities have been disposed of pursuant to the
Registration Statement (as defined below), (ii) all Securities have been sold
under circumstances under which all of the applicable conditions of Rule 144
("Rule 144") (or any similar provision then in force) under the Securities Act
of 1933, as amended (the "Securities Act") are met, or (iii) such time as, in
the opinion of counsel to the Company reasonably satisfactory to the Investors
and upon delivery to the Investors of such executed opinion, all Securities may
be sold without any time, volume or manner limitations pursuant to Rule 144 (or
any similar provision then in effect). In the event of any merger,
reorganization, consolidation, recapitalization or other change in corporate
structure affecting the Common Stock, such adjustment shall be deemed to be made
in the definition of "Registrable Security" as is appropriate in order to
prevent any dilution or enlargement of the rights granted pursuant to this
Agreement. As used herein the term "Holder" means any Person owning or having
the right to acquire Registrable Securities or any assignee thereof in
accordance with Section 9 hereof.
Section 2. Restrictions on Transfer. Each of the Investors acknowledges
and understands that prior to the registration of the Securities as provided
herein, the Securities are "restricted securities" as defined in Rule 144. Each
of the Investors understands that no disposition or transfer of the Securities
may be made by any of the Investors in the absence of (i) an opinion of counsel
to such Investor, in form and substance reasonably satisfactory to the Company,
that such transfer may be made without registration under the Securities Act or
(ii) such registration.
With a view to making available to the Investors the benefits of Rule 144
or any other similar rule or regulation of the Securities and Exchange
Commission (the "Commission") that may at any time permit the holders of the
Securities to sell securities of the Company to the public pursuant to Rule 144,
the Company agrees to:
(a) comply with the provisions of paragraph (c)(1) of Rule 144;
(b) file with the Commission in a timely manner all reports and
other documents required to be filed with the Commission pursuant to
Section 13 or 15(d) under the Exchange Act by companies subject to either
of such sections, irrespective of whether the Company is then subject to
such reporting requirements; and
(c) Upon request by any Holder or the Company's transfer agent,
provide an opinion of counsel, which opinion shall be reasonably
acceptable to the Holder and/or the Company's transfer agent, that the
such Holder has complied with the applicable conditions of Rule 144 (or
any similar provision then in force).
Section 3. Registration Rights With Respect to the Registrable
Securities.
(a) The Company agrees that it will prepare and file with the
Commission, no later than June 30, 2003, a registration statement (on
Form S-1 or SB-2, or other appropriate registration statement form) under
the Securities Act (such registration statement, including (a) all
amendments and supplements thereto, (b) each prospectus contained
therein, and (c) all exhibits thereto or incorporated by reference
therein, the "Registration Statement"), in respect of the Holders, so as
to permit a resale of the Securities under the Act by the Holders as
selling stockholders and not as underwriters.
The Company shall use diligent best efforts to cause the
Registration Statement to become effective as soon as practical following
the filing of the Registration Statement. The number of shares designated
in the Registration Statement to be registered shall include 150% of the
Warrant Shares, 150% of the Default Warrant Shares, if any, and
2
150% of the Conversion Shares. The Registration Statement shall include
appropriate language regarding reliance upon Rule 416 to the extent
permitted by the Commission. The Company will notify the Holders and its
transfer agent of the effectiveness of the Registration Statement within
one (1) Trading Day (as defined below) of such event. As used herein
"Trading Day" shall mean any business day on which the market on which
the Common Stock trades is open for business.
(b) The Company will maintain the Registration Statement or
post-effective amendment filed under this Section 3 effective under the
Securities Act until the earlier of (i) the date that none of the
Registrable Securities covered by such Registration Statement are or may
become issued and outstanding, (ii) the date that all of the Registrable
Securities have been sold pursuant to such Registration Statement, (iii)
the date all the Holders receive an opinion of counsel to the Company,
which counsel shall be reasonably acceptable to the Holders, that the
Registrable Securities may be sold under the provisions of Rule 144
without limitation as to volume, (iv) all Registrable Securities have
been otherwise transferred to persons who may trade such shares without
restriction under the Securities Act, and the Company has delivered a new
certificate or other evidence of ownership for such securities not
bearing a restrictive legend, or (v) 3 years from the date on which the
Registration Statement first became effective (the "Effective Date").
(c) All fees, disbursements and out-of-pocket expenses and costs
incurred by the Company in connection with the preparation and filing of
the Registration Statement under subparagraph 3(a) and in complying with
applicable securities and Blue Sky laws (including, without limitation,
all attorneys' fees of the Company and all other fees and disbursements
of the Company's accountants, auditors and other independent professional
service providers) shall be borne by the Company. The Company shall also
reimburse the fees and expenses of counsel to the Holders incurred in
connection with such counsel's review of the Registration Statement and
advice concerning the Registration Statement and its filing subject to a
cap of $10,000. The Holders shall bear the cost of underwriting and/or
brokerage discounts, fees and commissions, if any, applicable to the
Registrable Securities being registered. The Holders and their counsel
shall have a reasonable period, not to exceed ten (10) Trading Days, to
review the proposed Registration Statement or any amendment thereto,
prior to filing with the Commission, and the Company shall provide the
Holders with copies of any comment letters received from the Commission
with respect thereto within two (2) Trading Days of receipt thereof. The
Company shall qualify any of the securities for sale in such states as
the Holders reasonably designate and shall furnish indemnification in the
manner provided in Section 6 hereof. However, the Company shall not be
required to qualify in any state which will require an escrow or other
restriction relating to the Company and/or the Holders, or which will
require the Company to qualify to do business in such state or require
the Company to file therein any general consent to service of process.
The Company at its expense will supply each of the Investors with copies
of the applicable Registration Statement and the prospectus included
therein and other related documents in such quantities as may be
reasonably requested by any of the Investors.
3
(d) The Company shall not be required by this Section 3 to include
the Registrable Securities in any Registration Statement which is to be
filed if, in the opinion of counsel for both the Holders and the Company
(or, should they not agree, in the opinion of another counsel experienced
in securities law matters acceptable to counsel for the Holders and the
Company) the proposed offering or other transfer as to which such
registration is requested is exempt from applicable federal and state
securities laws and would result in all purchasers or transferees
obtaining securities which are not "restricted securities" as such term
is defined in Rule 144.
(e) In the event that (i) the Registration Statement is not filed
by the Company in a timely manner as set forth in Section 3(a); (ii) the
Registration Statement is not declared effective by the Commission within
180 days after the initial filing thereof; or (iii) such Registration
Statement is not maintained as effective by the Company for the period
set forth in Section 3(b) above (each a "Registration Default"), then the
Company will issue to each of the Holders, for each Registration Default
then in effect, as liquidated damages and not as a penalty, for every
three-month period in which each Registration Default is occurring,
warrants to purchase one (1) share of the Common Stock ("Default
Warrants") for each share of Series B Preferred Stock, Series C Preferred
Stock and Series D Preferred Stock issued to the Holders pursuant to the
Purchase Agreements until such corresponding Registration Default no
longer exists ("Liquidated Damages"); provided, however, that the
issuance of such Default Warrants shall not relieve the Company from its
obligations to register the Registrable Securities pursuant to this
Section.
If the Company does not issue the Default Warrants to the Holders
as set forth above, the Company will pay any Holder's reasonable costs of
any action in a court of law to cause compliance with this Section 3(e),
including reasonable attorneys' fees, in addition to the Default
Warrants. The registration of the Registrable Securities pursuant to this
Section shall not affect or limit a Holder's other rights or remedies as
set forth in this Agreement.
(f) The Company shall be precluded from including in any
registration statement which it is required to file pursuant to this
Section 3 any other securities apart from the Registrable Securities,
except for the securities listed on Exhibit B hereto and those securities
related to any qualified stock option plan approved by the Board of
Directors of the Company, without the prior written consent of the
Holders.
(g) If, at any time any Registrable Securities are not at the time
covered by any effective Registration Statement, the Company shall
determine to register under the Securities Act (including pursuant to a
demand of any stockholder of the Company exercising registration rights)
any of its shares of the Common Stock (other than in connection with a
merger or other business combination transaction that has been consented
to in writing by holders of the Series B Preferred Stock and Series D
Preferred Stock, or pursuant to Form S-8 when such filing has been
consented to in writing by holders of the Series B Preferred Stock and
the Series D Preferred Stock), it shall send to each Holder written
notice of such determination and, if within twenty (20) days after
4
receipt of such notice, such Holder shall so request in writing, the
Company shall use its best efforts to include in such registration
statement all or any part of the Registrable Securities that such Holder
requests to be registered. Notwithstanding the foregoing, if, in
connection with any offering involving an underwriting of the Common
Stock to by issued by the Company, the managing underwriter shall impose
a limitation on the number of shares of the Common Stock included in any
such registration statement because, in such underwriter's judgment, such
limitation is necessary based on market conditions: (a) if the
registration statement is for a public offering of common stock on a
"firm commitment" basis with gross proceeds to the Company of at least
$15,000,000 (a "Qualified Public Offering"), the Company may exclude, to
the extent so advised by the underwriters, the Registrable Securities
from the underwriting; provided, however, that if the underwriters do not
entirely exclude the Registrable Securities from such Qualified Public
Offering, the Company shall be obligated to include in such registration
statement, with respect to the requesting Holder, only an amount of
Registrable Securities equal to the product of (i) the number of
Registrable Securities that remain available for registration after the
underwriter's cutback and (ii) such Holder's percentage of ownership of
all the Registrable Securities then outstanding (on an as-converted
basis) (the "Registrable Percentage"); and (b) if the registration
statement is not for a Qualified Public Offering, the Company shall be
obligated to include in such registration statement, with respect to the
requesting Holder, only an amount of Registrable Securities equal to the
product of (i) the number of Registrable Securities that remain available
for registration after the underwriter's cutback and (ii) such Holder's
Registrable Percentage; provided, however, that the aggregate value of
the Registrable Securities to be included in such registration may not be
so reduced to less than 20% of the total value of all securities included
in such registration. If any Holder disapproves of the terms of any
underwriting referred to in this paragraph, it may elect to withdraw
therefrom by written notice to the Company and the underwriter. No
incidental right under this paragraph shall be construed to limit any
registration required under the other provisions of this Agreement.
Section 4. Cooperation with Company. Each Holder will cooperate with the
Company in all respects in connection with this Agreement, including timely
supplying all information reasonably requested by the Company (which shall
include all information regarding such Holder and proposed manner of sale of the
Registrable Securities required to be disclosed in any Registration Statement)
and executing and returning all documents reasonably requested in connection
with the registration and sale of the Registrable Securities and entering into
and performing its obligations under any underwriting agreement, if the offering
is an underwritten offering, in usual and customary form, with the managing
underwriter or underwriters of such underwritten offering. Nothing in this
Agreement shall obligate any Holder to consent to be named as an underwriter in
any Registration Statement. The obligation of the Company to register the
Registrable Securities shall be absolute and unconditional as to those
Registrable Securities which the Commission will permit to be registered without
naming any Holder as underwriters. Any delay or delays caused by a Holder by
failure to cooperate as required hereunder shall not constitute a Registration
Default as to such Holder.
5
Section 5. Registration Procedures. If and whenever the Company is
required by any of the provisions of this Agreement to effect the registration
of any of the Registrable Securities under the Securities Act, the Company shall
(except as otherwise provided in this Agreement), as expeditiously as possible,
subject to the Holders' assistance and cooperation as reasonably required with
respect to each Registration Statement:
(a) (i) prepare and file with the Commission such amendments and
supplements to the Registration Statement and the prospectus used in
connection therewith as may be necessary to keep such Registration
Statement effective and to comply with the provisions of the Securities
Act with respect to the sale or other disposition of all Registrable
Securities covered by such Registration Statement whenever any of the
Holder shall desire to sell or otherwise dispose of the same (including
prospectus supplements with respect to the sales of Registrable
Securities from time to time in connection with a registration statement
pursuant to Rule 415 promulgated under the Securities Act) and (ii) take
all lawful action such that each of (A) the Registration Statement and
any amendment thereto does not, when it becomes effective, contain an
untrue statement of a material fact or omit 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 and (B) the prospectus forming part of the Registration
Statement, and any amendment or supplement thereto, does not at any time
during the Registration Period include an untrue statement of a material
fact or omit 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;
(b) (i) prior to the filing with the Commission of any
Registration Statement (including any amendments thereto) and the
distribution or delivery of any prospectus (including any supplements
thereto), provide draft copies thereof to the Holders as required by
Section 3(c) and reflect in such documents all such comments as the
Holders (and their counsel) reasonably may propose; (ii) furnish to each
of the Holders such numbers of copies of a prospectus including a
preliminary prospectus or any amendment or supplement to any prospectus,
as applicable, in conformity with the requirements of the Act, and such
other documents, as any of the Holders may reasonably request in order to
facilitate the public sale or other disposition of the Registrable
Securities owned by such Holder; and (iii) provide to the Holders copies
of any comments and communications from the Commission relating to the
Registration Statement, if lawful to do so;
(c) register and qualify the Registrable Securities covered by
the Registration Statement under such other securities or blue sky laws
of such jurisdictions as any of the Holders shall reasonably request
(subject to the limitations set forth in Section 3(c) above), and do any
and all other acts and things which may be necessary or advisable to
enable such Holder to consummate the public sale or other disposition in
such jurisdiction of the Registrable Securities owned by such Holder;
6
(d) list such Registrable Securities on the markets where the
Common Stock of the Company is listed as of the Effective Date, if the
listing of such Registrable Securities is then permitted under the rules
of such markets;
(e) notify the Holders at any time when a prospectus relating
thereto covered by the Registration Statement is required to be delivered
under the Securities Act, of the happening of any event of which it has
knowledge as a result of which the prospectus included in the
Registration Statement, as then in effect, includes an untrue statement
of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading
in the light of the circumstances then existing, and the Company shall
prepare and file a curative amendment under Section 5(a) as quickly as
reasonably possible and during such period, the Holders shall not make
any sales of Registrable Securities pursuant to the Registration
Statement;
(f) after becoming aware of such event, notify each of the Holders
who holds Registrable Securities being sold (or, in the event of an
underwritten offering, the managing underwriters) of the issuance by the
Commission of any stop order or other suspension of the effectiveness of
the Registration Statement at the earliest possible time and take all
lawful action to effect the withdrawal, rescission or removal of such
stop order or other suspension;
(g) cooperate with the Holders to facilitate the timely
preparation and delivery of certificates for the Registrable Securities
to be offered pursuant to the Registration Statement and enable such
certificates for the Registrable Securities to be in such denominations
or amounts, as the case may be, as any of the Holders reasonably may
request and registered in such names as any of the Holders may request;
and, within three (3) Trading Days after a Registration Statement which
includes Registrable Securities is declared effective by the Commission,
deliver and cause legal counsel selected by the Company to deliver to the
transfer agent for the Registrable Securities (with copies to the
Holders) an appropriate instruction and, to the extent necessary, an
opinion of such counsel;
(h) take all such other lawful actions reasonably necessary to
expedite and facilitate the disposition by the Holders of their
Registrable Securities in accordance with the intended methods therefor
provided in the prospectus which are customary for issuers to perform
under the circumstances;
(i) in the event of an underwritten offering, promptly include or
incorporate in a prospectus supplement or post-effective amendment to the
Registration Statement such information as the managers reasonably agree
should be included therein and to which the Company does not reasonably
object and make all required filings of such prospectus supplement or
post-effective amendment as soon as practicable after it is notified of
the matters to be included or incorporated in such prospectus supplement
or post-effective amendment; and
(j) maintain a transfer agent and registrar for the Common Stock.
7
Section 6. Indemnification.
(a) To the maximum extent permitted by law, the Company agrees to
indemnify and hold harmless each of the Holders, each person, if any, who
controls any of the Holders within the meaning of the Securities Act, and
each director, officer, shareholder, employee, agent, representative,
accountant or attorney of the foregoing (each of such indemnified
parties, a "Distributing Investor") against any losses, claims, damages
or liabilities, joint or several (which shall, for all purposes of this
Agreement, include, but not be limited to, all reasonable costs of
defense and investigation and all reasonable attorneys' fees and
expenses), to which the Distributing Investor may become subject, under
the Securities Act or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material
fact contained in any Registration Statement, or any related final
prospectus or amendment or supplement thereto, or arise out of or are
based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading; provided, however, that the Company will not be
liable in any such case to the extent, and only to the extent, that any
such loss, claim, damage or liability arises out of or is based upon (i)
an untrue statement or alleged untrue statement or omission or alleged
omission made in such Registration Statement, preliminary prospectus,
final prospectus or amendment or supplement thereto in reliance upon, and
in conformity with, written information furnished to the Company by the
Distributing Investor, its counsel, or affiliates, specifically for use
in the preparation thereof or (ii) such Distributing Investor's failure
to deliver to the purchaser a copy of the most recent prospectus
(including any amendments or supplements thereto). This indemnity
agreement will be in addition to any liability which the Company may
otherwise have.
(b) To the maximum extent permitted by law, each Distributing
Investor agrees that it will indemnify and hold harmless the Company, and
each officer and director of the Company or person, if any, who controls
the Company within the meaning of the Securities Act, against any losses,
claims, damages or liabilities (which shall, for all purposes of this
Agreement, include, but not be limited to, all reasonable costs of
defense and investigation and all reasonable attorneys' fees and
expenses) to which the Company or any such officer, director or
controlling person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in
any Registration Statement, or any related final prospectus or amendment
or supplement thereto, or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, but in each case only to the extent that such untrue
statement or alleged untrue statement or omission or alleged omission was
made in such Registration Statement, final prospectus or amendment or
supplement thereto in reliance upon, and in conformity with, written
information furnished to the Company by such Distributing Investor, its
counsel or affiliates, specifically for use in the preparation thereof.
This indemnity agreement will be
8
in addition to any liability which the Distributing Investor may
otherwise have under this Agreement. Notwithstanding anything to the
contrary herein, the Distributing Investor shall be liable under this
Section 6(b) for only that amount as does not exceed the net proceeds
to such Distributing Investor as a result of the sale of Registrable
Securities pursuant to the Registration Statement.
(c) Promptly after receipt by an indemnified party under this
Section 6 of notice of the commencement of any action against such
indemnified party, such indemnified party will, if a claim in respect
thereof is to be made against the indemnifying party under this Section
6, notify the indemnifying party in writing of the commencement
thereof; but the omission so to notify the indemnifying party will not
relieve the indemnifying party from any liability which it may have to
any indemnified party except to the extent the failure of the
indemnified party to provide such written notification actually
prejudices the ability of the indemnifying party to defend such action.
In case any such action is brought against any indemnified party, and
it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the
extent that it may wish, jointly with any other indemnifying party
similarly notified, assume the defense thereof, subject to the
provisions herein stated and after notice from the indemnifying party
to such indemnified party of its election so to assume the defense
thereof, the indemnifying party will not be liable to such indemnified
party under this Section 6 for any legal or other expenses subsequently
incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation, unless the
indemnifying party shall not pursue the action to its final conclusion.
The indemnified parties shall have the right to employ one or more
separate counsel in any such action and to participate in the defense
thereof, but the fees and expenses of such counsel shall not be at the
expense of the indemnifying party if the indemnifying party has assumed
the defense of the action with counsel reasonably satisfactory to the
indemnified party unless (i) the employment of such counsel has been
specifically authorized in writing by the indemnifying party, or (ii)
the named parties to any such action (including any interpleaded
parties) include both the indemnified party and the indemnifying party
and the indemnified party shall have been advised by its counsel that
there may be one or more legal defenses available to the indemnifying
party different from or in conflict with any legal defenses which may
be available to the indemnified party or any other indemnified party
(in which case the indemnifying party shall not have the right to
assume the defense of such action on behalf of such indemnified party,
it being understood, however, that the indemnifying party shall, in
connection with any one such action or separate but substantially
similar or related actions in the same jurisdiction arising out of the
same general allegations or circumstances, be liable only for the
reasonable fees and expenses of one separate firm of attorneys for the
indemnified party, which firm shall be designated in writing by the
indemnified party). No settlement of any action against an indemnified
party shall be made without the prior written consent of the
indemnified party, which consent shall not be unreasonably withheld so
long as such settlement includes a full release of claims against the
indemnified party.
9
All fees and expenses of the indemnified party (including
reasonable costs of defense and investigation in a manner not
inconsistent with this Section and all reasonable attorneys' fees and
expenses) shall be paid to the indemnified party, as incurred, within
ten (10) Trading Days of written notice thereof to the indemnifying
party; provided, that the indemnifying party may require such
indemnified party to undertake to reimburse all such fees and expenses
to the extent it is finally judicially determined that such indemnified
party is not entitled to indemnification hereunder.
Section 7. Contribution. In order to provide for just and equitable
contribution under the Securities Act in any case in which (i) the indemnified
party makes a claim for indemnification pursuant to Section 6 hereof but is
judicially determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial of the
last right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that the express provisions of Section 6 hereof provide
for indemnification in such case, or (ii) contribution under the Securities Act
may be required on the part of any indemnified party, then the Company and the
applicable Distributing Investor shall contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (which shall, for
all purposes of this Agreement, include, but not be limited to, all reasonable
costs of defense and investigation and all reasonable attorneys' fees and
expenses), in either such case (after contribution from others) on the basis of
relative fault as well as any other relevant equitable considerations. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company on the one hand or the applicable Distributing Investor on the other
hand, and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company and
the Distributing Investor agree that it would not be just and equitable if
contribution pursuant to this Section 7 were determined by pro rata allocation
or by any other method of allocation which does not take account of the
equitable considerations referred to in this Section 7. The amount paid or
payable by an indemnified party as a result of the losses, claims, damages or
liabilities (or actions in respect thereof) referred to above in this Section 7
shall be deemed to include any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
Notwithstanding any other provision of this Section 7, in no event
shall (i) any of the Distributing Investors be required to undertake liability
to any person under this Section 7 for any amounts in excess of the dollar
amount of the proceeds received by such Distributing Investor from the sale of
such Distributing Investor's Registrable Securities (after deducting any fees,
discounts and commissions applicable thereto) pursuant to any Registration
Statement under which such Registrable Securities are registered under the
Securities Act and (ii) any underwriter be required to undertake liability to
any person hereunder for any amounts in excess of the aggregate discount,
commission or other compensation payable to such underwriter with respect to the
Registrable Securities underwritten by it and distributed pursuant to such
Registration Statement.
10
Section 8. Notices. All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder shall be in
writing and, unless otherwise specified herein, shall be (i) hand delivered,
(ii) deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by facsimile, addressed as set forth on Exhibit A
hereto or to such other address as such party shall have specified most recently
by written notice. Any notice or other communication required or permitted to be
given hereunder shall be deemed effective (a) upon hand delivery or delivery by
facsimile, with accurate confirmation generated by the transmitting facsimile
machine, at the address or number designated below (if delivered on a business
day during normal business hours where such notice is to be received), or the
first business day following such delivery (if delivered other than on a
business day during normal business hours where such notice is to be received)
or (b) on the first business day following the date of sending by reputable
courier service, fully prepaid, addressed to such address, or (c) upon actual
receipt of such mailing, if mailed. Any party hereto may from time to time
change its address or facsimile number for notices under this Section 8 by
giving at least ten (10) days' prior written notice of such changed address or
facsimile number to the other party hereto.
Section 9. Assignment. This Agreement is binding upon and inures to the
benefit of the parties hereto and their respective heirs, successors and
permitted assigns. The registration rights granted to any Holder under this
Agreement may be transferred as set forth below (provided (1) the transferee is
bound by the terms of this Agreement and (2) the Company is given written notice
prior to such transfer) to: (i) any partner or affiliate of such Holder; (ii) in
the case of an individual, any member of the immediate family of such individual
or any trust for the benefit of the individual or any such family member or
members; or (iii) any other transferee which receives substantially all of the
Registrable Securities (or the rights thereto) held by such Holder.
Section 10. Additional Covenants of the Company. For so long as it
shall be required to maintain the effectiveness of the Registration Statement,
it shall file all reports and information required to be filed by it with the
Commission in a timely manner and take all such other action so as to maintain
such eligibility for the use of the applicable form.
Section 11. Counterparts/Facsimile. This Agreement may be executed in
two or more counterparts, each of which shall constitute an original, but all of
which, when together shall constitute but one and the same instrument, and shall
become effective when one or more counterparts have been signed by each party
hereto and delivered to the other parties. In lieu of the original, a facsimile
transmission or copy of the original shall be as effective and enforceable as
the original.
Section 12. Remedies. The remedies provided in this Agreement are
cumulative and not exclusive of any other remedies provided by law. If any term,
provision, covenant or restriction of this Agreement is held by a court of
competent jurisdiction to be invalid, illegal, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions set forth herein
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated, and the parties hereto shall use their best efforts to find and
employ an alternative means to achieve
11
the same or substantially the same result as that contemplated by such term,
provision, covenant or restriction.
Section 13. Conflicting Agreements. The Company shall not enter into
any agreement with respect to its securities that is inconsistent with the
rights granted to the Holders in this Agreement or otherwise prevents the
Company from complying with all of its obligations hereunder.
Section 14. Headings. The headings in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
Section 15. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Florida applicable to
contracts made in Florida by persons domiciled in Miami and without regard to
its principles of conflicts of laws. The Company and the Holders agree to submit
themselves to the in personam jurisdiction of the state and federal courts
situated within the Southern District of the State of Florida with regard to any
controversy arising out of or relating to this Agreement. The non-prevailing
party to any dispute hereunder shall pay the expenses of the prevailing party,
including reasonable attorneys' fees, in connection with any such dispute.
Section 16. Amendments, Waivers and Consents. Any provision in this
Agreement to the contrary notwithstanding, (A) changes in or additions to this
Agreement may be made, (B) compliance with any covenant or provision herein set
forth may be omitted or waived, or (C) approval or consent by the Holders may be
obtained, only if the Company receives consent thereto in writing from persons
holding or having the right to acquire a majority of the Registrable Shares at
the time such consent is given (on an as-converted, as exchanged basis). All
Holders shall be bound by any amendment to this Agreement that is approved by or
consented to by such persons holding or having the right to acquire a majority
of the Registrable Shares.
Section 17. 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 or the validity or unenforceability of this
Agreement in any other jurisdiction.
Section 18. Integration. This Agreement supersedes all prior agreements
and understandings among the parties hereto with respect to the subject matter
hereof (including that certain Registration Rights Agreement dated as of April
3, 2002 among the parties hereto).
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
12
[SIGNATURE PAGE OF REGISTRATION RIGHTS AGREEMENT]
IN WITNESS WHEREOF, the parties hereto have caused this Registration
Rights Agreement to be duly executed, as of the date and year first above
written.
TANGIBLE ASSET GALLERIES, INC.
By: /s/ Xxxxxxx XxXxxxxx
--------------------------------------
Xxxxxxx XxXxxxxx, Chairman & CEO
INVESTORS:
STANFORD VENTURE CAPITAL HOLDINGS, INC.
By: /s/ Xxxxx X. Xxxxx
--------------------------------------
Name: Xxxxx X. Xxxxx
Title: President
/s/ Xxxxxxx XxXxxxxx
-----------------------------------------
Xxxxxxx XxXxxxxx, an individual
/s/ Xxxxxx X. Xxxxx
-----------------------------------------
Xxxxxx X. Xxxxx, an individual
/s/ Xxxxxxx X. Xxxxxxxxxx
-----------------------------------------
Xxxxxxx X. Xxxxxxxxxx, an individual
/s/ Xxxxxxx Pi
-----------------------------------------
Xxxxxxx Pi, an individual
/s/ Xxxxxx X. Xxxxx
-----------------------------------------
Xxxxxx X. Xxxxx, an individual
13
Exhibit D
LIQUIDATION PREFERENCES AGREEMENT
This LIQUIDATION PREFERENCES AGREEMENT (this "Agreement") is made
effective as of January 31, 2003, and is made by and among TANGIBLE ASSET
GALLERIES, INC., a Nevada corporation (the "Company"), the persons indicated on
the signature page hereof as being the holders of the Company's outstanding
Series B $1.00 Convertible Preferred Stock (the "Series B Holders") and STANFORD
VENTURE CAPITAL HOLDINGS, INC., a Delaware corporation, in its capacity as the
sole purchaser of the Company's Series D $1.00 Convertible Preferred Stock (the
"Series D Holder").
R E C I T A L S
A. Concurrently herewith, the Company is executing a Series D Preferred
Stock Purchase and Warrant Exercise Agreement (the "Stock Purchase Agreement"),
pursuant to which the Series D Holder is purchasing two million (2,000,000)
shares of the Company's Series D $1.00 Convertible Preferred Stock (the "Series
D Preferred Stock"). The rights, preferences and privileges of the Series D
Preferred Stock are set forth in a Certificate of Designation filed with the
Nevada Secretary of State (the "Series D Certificate of Designation").
B. The Company currently has outstanding three million four hundred
thousand (3,400,000) shares of Series B Preferred Stock, the rights, preferences
and privileges of which are set forth in a Certificate of Designation filed with
the Nevada Secretary of State (the "Series B Certificate of Designation").
C. The parties desire that the Series D Preferred Stock have the same
liquidation preferences as the Series B Preferred Stock. In order to amend the
Certificate of Designation for the Series B Preferred Stock so that its
liquidation preference is the same as (i.e., pari passu) with the Series D
Preferred Stock, the consent of the holders of the Company's outstanding Series
A $5.00 Redeemable 8% Convertible Preferred Stock (the "Series A Preferred
Stock") will have to be obtained. The parties desire to close the transactions
described in the Stock Purchase Agreement without first obtaining the consent of
the holders of the Series A Preferred Stock.
D. The parties are therefore entering into this Agreement so that they
may agree upon the liquidation preferences of the Series B Preferred Stock and
Series D Preferred Stock, with the intent that the Company shall also commence
efforts to obtain the approval of the holders of the Series A Preferred Stock to
the amendment of the various Certificates of Designation, so that in the event
of a liquidation of the Company, the distributions to the holders of the Series
B Preferred Stock and Series D Preferred Stock shall be as set forth herein.
A G R E E M E N T
NOW THEREFORE, the parties hereto do hereby agree as follows:
1. Distribution of Assets in Event of Liquidation.
Notwithstanding the terms of the Series B Certificate of Designation
and the Series D Certificate of Designation, in the event of a liquidation,
dissolution or winding up of the
Company, all cash or other property that would be distributable to the Series B
Holders and Series D Holders under the Series B Certificate of Designation or
Series D Certificate of Designation, respectively, shall be pooled, and shall be
distributed to the Series B Holders and the Series D Holders in the manner set
forth in Exhibit A hereto.
2. Restriction on Transfer.
The Series B Holders and Series D Holder agree not to transfer their
shares of Series B Preferred Stock or Series D Preferred Stock, or assign any
interest therein, to any third party unless such third party agrees to be bound
by the terms hereof. The holders of the Series B Preferred Stock and Series D
Preferred Stock agree to tender their certificates for such shares to the
Company to be marked with a legend reflecting the existence of this Agreement.
3. Amendment of Certificate of Designation.
The Series B Holders hereby irrevocably agree that the Series B
Certificate of Designation shall be amended so that Section 3 thereof, relating
to "Liquidation," shall read as set forth in Exhibit A hereto. The Company shall
promptly use its best efforts to obtain the approval of the Series A Holders to
the amendment of the Series Certificate of Designation and Series D Certificate
of Designation so that the liquidation preferences for both such classes of
securities thereof shall be as set forth in Exhibit A hereto.
4. Miscellaneous.
(a) Entire Agreement. This Agreement and the Exhibit hereto
constitute the entire agreement between the parties relating to the
subject matter hereof, is intended as a complete and exclusive
statement of the terms of the agreement among the parties with respect
thereto and supersedes all prior agreements, representations and
understandings, whether written or oral, concerning such subject
matter.
(b) Counterparts; Facsimile Transmission. This Agreement may be
executed simultaneously in two counterparts, each of which shall be
deemed an original but both of which together shall constitute one and
the same instrument. Facsimile transmission of any signed original
document or retransmission of any signed facsimile transmission will be
deemed the same as the delivery of an original. At the request of any
party, the parties will confirm facsimile transmission by signing a
duplicate original document.
(c) Further Assurances. The parties shall at their own cost and
expense execute and deliver such further documents and instruments and
shall take such other actions as may be reasonably required or
appropriate to carry out the intent and purposes of this Agreement.
(d) Governing Law. Except for issues involving Nevada law which
shall be governed by and interpreted in accordance with the laws of the
State of Nevada, this Agreement shall be governed by and interpreted in
accordance with the laws of the State of Florida, without regard to its
principles of conflict of laws. Each of the parties consents to the
jurisdiction of the federal courts of Florida or the state courts of
the State
-2-
of Florida in connection with any dispute arising under this Agreement
or any of the transactions contemplated hereby, and hereby waives, to
the maximum extent permitted by law, any objection, including any
objections based on forum non conveniens, to the bringing of any such
proceeding in such jurisdictions.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
COMPANY: TANGIBLE ASSET GALLERIES, INC.,
a Nevada corporation
By:_____________________________________
Its:_________________________________
SERIES B HOLDERS: STANFORD VENTURE CAPITAL HOLDINGS, INC.,
a Delaware corporation
By:_____________________________________
Its:_________________________________
/s/ Xxxxxxx Xxxxxxxx
----------------------------------------
XXXXXXX XXXXXXXX
SERIES D HOLDERS: STANFORD VENTURE CAPITAL HOLDINGS, INC.,
a Delaware corporation
By:_____________________________________
Its:_________________________________
-3-
EXHIBIT A
3. Liquidation.
a. Liquidation Preference. In the event of liquidation,
dissolution or winding up of the Corporation (each a "Liquidation
Event"), the holders (the "Series B Holders") of the Series B Preferred
Stock and the Holders of the Series D $1.00 Convertible Preferred Stock
(the "Series D Preferred Stock") shall have the same liquidation
preference, pari passu, therefore each shall be entitled to receive,
before any distribution of assets shall be made to the holders of any
Series C $100 Redeemable 9% Convertible Preferred Stock (the "Series C
Preferred Stock") or Common Stock, but after the liquidation preference
of the Series A $5.00 convertible preferred stock (the "Series A
Preferred Stock"), an amount equal to the Stated Value per share of
Series B Preferred Stock and/or Series D Preferred Stock held by such
Holder (the "Liquidation Pay Out"). After payment of the Liquidation
Pay Out to each Holder and the payment of the respective liquidation
preferences of the other classes of preferred stock of the Corporation,
pursuant to the Corporation's Articles of Incorporation, as amended,
each holder of Series B Preferred Stock and Series D Preferred Stock
shall be entitled to share with the holders of the Series C Preferred
Stock and the holders of the Common Stock, pari passu, on a per share
basis, the remaining assets of the Corporation available for
distribution to the Corporation's stockholders.
b. Ratable Distribution. If upon any liquidation, dissolution
or winding up of the Corporation, the net assets of the Corporation to
be distributed among the Holders and the Series B Holders shall be
insufficient to permit payment in full to such holders, then all
remaining net assets of the Corporation after the provision for the
payment of the Corporation's debts and distribution to any senior
stockholders shall be distributed ratably in proportion to the full
amounts to which they would otherwise be entitled to receive among such
holders of the Series B Preferred Stock and Series D Preferred Stock.
-4-
Exhibit E
Execution Version
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT, dated as of January 31, 2003 (this
"Agreement"), is entered into by and between Stanford Venture Capital Holdings,
Inc., a Delaware corporation (the "Consultant"), and Tangible Asset Galleries,
Inc., a Nevada corporation (the "Company").
RECITALS:
WHEREAS, the Company desires to retain the Consultant to render certain
financial consulting and advisory services; and
WHEREAS, the Consultant is willing to perform such consulting services
on the terms and subject to the conditions herein contained.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. ENGAGEMENT
The Company hereby engages the Consultant, and the Consultant hereby
accepts such engagement, as a consultant to render the consulting services set
forth below, as requested by the Company, and in furtherance of the business
goals of the Company.
2. CONSULTANT DUTIES
a. The Consultant shall, at the request of the Company, provide
financial consulting and advisory services with respect to matters including,
but not necessarily limited to, the following: (a) possible re-capitalization
and reverse stock split; (b) alternative capital structures and additional
funding requirements; (c) market makers and financial public relations
specialists; and (d) strategic transactions that the Company may consider from
time to time.
b. The Consultant may also provide additional services at the request
of the Company upon terms and conditions to be mutually agreed upon by the
parties at the time of such additional engagement.
c. The Consultant agrees to use commercially reasonable efforts to
provide the aforesaid consulting services at the direction of the Company and to
perform such duties that may be required of the Consultant pursuant to the
express and explicit terms of this Agreement to the reasonable satisfaction of
the Company.
d. The Consultant shall not be required to devote a minimum number of
hours to the services rendered hereunder.
1
3. TERM
The term of this Agreement during which such consulting services shall
be provided hereunder shall commence on April 1, 2003 and continue for a period
of three (3) years.
4. COMPENSATION
As compensation for the services to be rendered by the Consultant
hereunder, the Company shall pay the Consultant a fee of $60,000 per year,
payable quarterly in advance in equal installments of $15,000, with the first
such installment due on April 1, 2003. The fee may be paid in cash or common
stock at the option of the Company. The Consultant shall also receive or be
reimbursed for its reasonable travel and other out-of-pocket expenses directly
related to its agreed upon activities in the course of performing its consulting
duties. If the Company chooses to pay any portion of the fee in common stock,
the per-share value of the common stock issued shall be equal to the lowest of
(i) the average of the closing prices for the Company's common stock for the 20
Trading Days (as defined below) immediately preceding the due date for the
relevant installment payment if such stock is publicly traded, (ii) the lowest
issuance price for the Company's common stock during the three-month period
immediately preceding the due date for the relevant installment payment, or
(iii) a per-share price determined by the Company's Board of Directors in good
faith and agreed to by the Consultant. As used herein, "Trading Day" means any
business day on which (A) the market on which the Company's common stock trades
is open for business and (B) the Company's common stock actually trades on such
market. In the event that the Company and the Consultant fail to agree on the
per-share price, the Company shall make the relevant installment payment in
cash.
5. CONFIDENTIAL INFORMATION
a. The Company agrees to promptly provide and fully disclose to the
Consultant any and all information regarding the Company which the Consultant
deems pertinent to its engagement hereunder.
b. The Consultant hereby acknowledges that any and all confidential
knowledge or information concerning the Company and its affairs obtained by it,
its principals, employees and/or contractors in the course of its engagement
hereunder will not be disclosed by the Consultant to other persons and entities,
including, but not limited to, competitors of the Company, except (i) as
required by law, court order or other legal proceeding, or (ii) to authorized
employees, officers or directors of the Company or the Consultant or to such
persons to whom disclosure is necessary or appropriate in connection with the
Consultant's performance of its duties hereunder.
c. As used herein, confidential knowledge or information means: (a) all
information regarding the Company which is not generally available to the
public; and (b) all information regarding the Company which was received by the
Consultant from a source with confidentiality obligations to the Company.
d. The covenant of the Consultant under this Section 5 shall not apply
to information or knowledge which (i) at the time of disclosure is in the public
domain; (ii) after such
2
disclosure, becomes a part of the public domain otherwise than through the
Consultant's breach of its obligations under this Section 5; or (iii) was
lawfully in the possession of the Consultant.
6. CONSULTANT STATUS
The parties acknowledge that the Consultant is providing services
hereunder as an independent contractor. Accordingly, the Consultant agrees that
any taxes associated with the performance of its services hereunder shall be its
sole responsibility. The parties further agree that nothing herein shall create
a relationship of partners or joint venturers between the Consultant and the
Company and, except as otherwise set forth herein, nothing herein shall be
deemed to authorize the Consultant to obligate or bind the Company without the
prior written consent of the Company in each instance.
7. INDEMNIFICATION
a. The Company shall hold harmless and indemnify the Consultant, its
affiliates, and each of the directors, employees, agents, partners,
stockholders, and members of the foregoing from and against any and all damages,
losses, liabilities, obligations, fees, costs and expenses, including, but not
limited to, the payment and advancement of reasonable attorney's fees (including
for appellate proceedings) (collectively, the "Indemnified Liabilities"),
resulting from, or incurred in connection with any claim made against the
Consultant relating to the performance of its duties hereunder.
b. Notwithstanding the foregoing, the Company shall have no obligation
to hold harmless and indemnify the Consultant from claims made against the
Consultant which arise out of, or in connection with, the Consultant's gross
negligence or willful misconduct in the performance of its duties hereunder.
c. To the extent that the foregoing undertaking by the Company may be
unenforceable for any reason, the Company shall make the maximum contribution to
the payment and satisfaction of each of the Indemnified Liabilities which is
permissible under applicable law.
d. The provision of this Section 7 shall survive termination of this
Agreement.
8. ASSIGNMENT
The Consultant shall not have the right to assign, sell, pledge, or
dispose of in any way this Agreement or its rights and obligations hereunder
without, and then only in accordance with, the Company's prior written consent.
9. TERMINATION OF AGREEMENT
The termination of this Agreement for any reason, whether initiated by
the Consultant or the Company, shall not release the Consultant or the Company,
as the case may be, from their respective obligations under this Agreement which
by their terms shall continue beyond such termination, including, without
limitation, the Consultant's obligations under Section 5
3
("Confidential Information") and the Company's obligation under Sections 4
("Compensation") and 7 ("Indemnification"). Notwithstanding the foregoing, the
Company shall no longer be obligated to pay any remaining fees under Section 4
("Compensation") if the Consultant terminates this Agreement.
10. ENTIRE AGREEMENT
This Agreement contains the complete arrangement between the parties
with respect to the subject matter hereof. The parties stipulate that neither
has made any representation with respect to the subject matter of this Agreement
or the execution or delivery hereof or any other representations except such
representations as are specifically set forth herein, and each of the parties
hereto acknowledges that it has relied on its own judgment in entering into this
Agreement.
11. WAIVER OR AMENDMENT
No waiver, amendment or modification of this Agreement or any condition
or limitation contained herein shall be valid unless in writing and duly
executed by the party to be charged therewith and no evidence of any waiver,
amendment or modification shall be offered or received in evidence or in any
proceeding, arbitration or litigation between the parties hereto arising out of
or affecting this Agreement, or the rights or obligations of the parties
hereunder, unless such waiver or modification is duly executed in writing. The
parties further agree that the provisions of this section may not be waived
except as set forth herein.
12. GOVERNING LAW AND JURISDICTION
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Florida, without regard to its
principles of conflict of laws. Each party consents to the jurisdiction of the
federal courts in Florida or the state courts of the State of Florida in
connection with any dispute arising under this Agreement or any of the
transactions contemplated hereby, and hereby waives, to the maximum extent
permitted by law, any objection, including any objections based on forum non
conveniens, to the bringing of any such proceeding in such jurisdictions.
13. VALID OBLIGATION
This Agreement has been duly authorized, executed, and delivered by the
Company and is a legal, valid, and binding obligation of the Company.
14. WAIVER OF JURY TRIAL
THE PARTIES HERETO HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY
WAIVE THE RIGHT EITHER MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT, OR
ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN)
OR ACTIONS OF
4
EITHER PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES ENTERING
INTO THIS AGREEMENT.
15. ATTORNEYS' FEES AND COSTS
If either party seeks to enforce its rights or remedies hereunder by
litigation, arbitration, or otherwise, the prevailing party shall be entitled to
reasonable attorneys' fees, expenses, and costs incurred in connection
therewith.
16. COUNTERPARTS
This Agreement may be executed in separate counterparts, each of which
so executed and delivered shall constitute an original, but all such
counterparts shall together constitute one and the same instrument.
(The remainder of this page is intentionally left blank.)
5
[SIGNATURE PAGE TO CONSULTING AGREEMENT]
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered as of the date first above written.
STANFORD VENTURE CAPITAL TANGIBLE ASSET GALLERIES, INC.
HOLDINGS, INC.
By: /s/ Xxxxx X. Xxxxx By: /s/ Xxxxxxx XxXxxxxx
------------------------- ---------------------------
Name: Xxxxx X. Xxxxx Name: Xxxxxxx XxXxxxxx
Title: President Title: Chief Executive Officer
6
Exhibit F
January __, 2003
Stanford Venture Capital Holdings, Inc.
c/o Greenberg Xxxxxxx, LLP
0000 Xxxxxxxx Xxxxxx, Xxxxx 000X
Xxxxx Xxxxxx, XX 00000
Attn: ______________
Re: Tangible Asset Galleries, Inc.
Ladies and Gentlemen:
This legal opinion is being delivered to you by us as counsel to
Tangible Asset Galleries, Inc., a Nevada corporation (the "Company"), in
connection with the negotiation, execution and delivery by the Company of that
certain Series D Preferred Stock Purchase and Warrant Exercise Agreement (the
"Agreement"), dated as of even date herewith, by and between you and the
Company, and the transactions contemplated therein. Capitalized terms used
herein and not otherwise defined herein shall have the respective meanings
assigned to such terms in the Agreement.
In so acting, we have examined originals or copies (certified or
otherwise identified to our satisfaction) of (i) the Primary Documents, (ii) the
Articles of Incorporation of the Company as amended through the date hereof (the
"Articles of Incorporation"), (iii) the bylaws of the Company, as in effect on
the date hereof (the "Bylaws"), (iv) a certificate (the "Officers' Certificate")
of officers of the Company concerning certain factual matters, and which
identifies certain material agreements by which the Company is bound (the
"Material Agreements") and (iv) selected corporate records, agreements,
documents and instruments and certificates or comparable documents of public
officials and governmental authorities. We have also made such inquiries of such
officers and representatives of the Company as we have deemed relevant and
necessary as a basis for the opinions hereinafter set forth.
Based upon the foregoing and subject to the assumptions, limitations,
qualifications and exceptions stated herein, we are of the opinion that as of
the date hereof:
1. The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Nevada, has all requisite
corporate power and authority to conduct its business as described in the
Company's Annual Report on Form 10-KSB/A for the
Stanford Venture Capital Holdings, Inc.
January __, 2003
Page 2
fiscal year ended June 30, 2001, and is duly qualified as a foreign corporation
to do business in each jurisdiction in which it maintains an office, leases real
property, or maintains inventory.
2. The Company has the requisite corporate power and authority to
enter into and perform its obligations under the Primary Documents, to reduce
the exercise prices of the Warrants, to issue the Warrant Stock pursuant to the
Agreement, to issue the Series D Preferred Stock and to issue the shares of
Common Stock issuable upon conversion of the Series D Preferred Stock in
accordance with the terms of the Series D Certificate of Designation (the
"Conversion Shares").
3. The filing of the Series D Certificate of Designation, the
execution and delivery of the Primary Documents by the Company and the
consummation by it of the transactions contemplated thereby have been duly
authorized by all necessary corporate actions of the Company's Board of
Directors and no further consent or authorization of the Company, its Board or
Directors, or its stockholders is required.
4. The Primary Documents (other than the Series D Certificate of
Designation) have been duly executed and delivered by the Company.
5. The Primary Documents constitute valid and binding obligations of
the Company enforceable against the Company in accordance with their terms,
except:
a. as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation or similar laws relating to,
or affecting generally, the enforcement of creditors' rights and remedies or by
other equitable principles of general application;
b. as the enforceability of the indemnification and contribution
clauses of the Registration Rights Agreement may be limited by applicable law or
public policy;
c. we express no opinion concerning provisions of the Primary
Documents pertaining to the choice of applicable law, a party's consent to
jurisdiction in a specified state, or waivers of the right to a jury trial.
6. The shares of the Series D Preferred Stock to be issued pursuant to
the Agreement (the "Series D Preferred Shares") have been duly authorized and
validly issued and are fully paid and non-assessable. The reduction of the
exercise prices under the Warrants pursuant to the Agreement and the issuance of
the Warrant Stock have been duly authorized. Upon issuance in accordance with
the Agreement, the Warrant Stock will be validly issued, fully paid and
non-assessable. The Conversion Shares are duly authorized and, upon issuance in
accordance with the terms of the Series D Certificate of Designation, will be
validly issued, fully paid and non-assessable. A number of shares of Common
Stock sufficient to meet the Company's obligations
Stanford Venture Capital Holdings, Inc.
January __, 2003
Page 3
to issue Common Stock upon full conversion of the Series D Preferred Shares has
been duly reserved.
7. As of the date hereof, the authorized capital stock of the Company
consists of (i) 100,000,000 shares of Common Stock; (ii) 1,400,000 shares of
Series A $5.00 Convertible Preferred Stock; and (iii) 3,400,000 shares of Series
B Preferred Stock; (iv) 7,000 shares of Series C Preferred Stock and (iv)
2,000,000 shares of Series D Preferred Stock. To our knowledge no shares of
Common Stock or preferred stock are subject to preemptive rights or any other
similar rights of the stockholders of the Company pursuant to the Articles of
Incorporation, the Bylaws, the Nevada General Corporation Law, any Material
Agreement or any certificate of designation of any stock of the Company.
8. Other than approvals that have been obtained, no authorization,
approval or consent is required to be obtained by the Company for the issuance
and sale of the Series D Preferred Stock as contemplated by the Primary
Documents and the Series D Certificate of Designation or in connection with the
consummation of other transactions contemplated thereby, from: (a) any
governmental body or regulatory agency under California or federal law, (b) any
self-regulatory organization or stock exchange or market, (c) any stockholders
of the Company, (d) any third party under any of the Material Agreements or (e)
to our knowledge, any court.
9. Except as disclosed on Schedule 3(s) attached to the Agreement, to
our knowledge, there is no action, suit, proceeding, inquiry or investigation
before or by any court, public board or body or any governmental agency or
self-regulatory organization pending or threatened against or affecting the
Company or any of its subsidiaries, wherein an unfavorable decision, ruling or
finding would have a material adverse effect on its business, operation or
financial conditions or which would adversely affect the validity or
enforceability of or the authority or ability of the Company to perform its
obligations under the Primary Documents or the Series D Certificate of
Designation.
10. The execution, delivery and performance of and compliance with the
terms of the Primary Documents and the issuance of the Securities do not violate
any provision of the Articles of Incorporation, the Bylaws or any provision of
any applicable federal or California state law, rule or regulation.
11. The execution, delivery and performance of and compliance with the
Primary Documents and the Series D Certificate of Designation and the issuance
of the Securities have not resulted and will not: (i) result in any violation
of, (ii) constitute a default under (or an event which with the passage of time
or the giving of notice or both would constitute a default under), or (iii)
result in the creation of any lien, security interest or encumbrance on the
assets or properties of the Company and which, individually or in the aggregate,
would have a material adverse effect on its business, operation or financial
conditions, or (iv) give under any Material Agreement.
Stanford Venture Capital Holdings, Inc.
January __, 2003
Page 4
In addition, the execution, delivery and performance of and compliance with the
Primary Documents and the Series D Certificate of Designation and the issuance
of the Securities have not resulted and will not give rise, pursuant to any
Material Agreement, to any right of any Person to (a) purchase any additional
securities from the Company, (b) sell any securities, (c) adjust the exercise
price of any warrant, option or any other similar instrument or securities, or
(d) adjust any conversion price or rate or any right, preference or limitation
with respect to any securities of the Company held by such Person.
These opinions are limited to the matters expressly stated herein and
are rendered solely for your benefit and may not be quoted or relied upon for
any other purpose or by an other person.
The opinions expressed herein are subject to the following assumptions,
limitations, qualification and exceptions:
a. We have assumed the genuineness of all signatures, the
authenticity of all Primary Documents submitted to us as originals, the
conformity with originals of all Primary Documents submitted to us as copies,
the authenticity of certificates of public officials and the due authorization,
execution and delivery of all Primary Documents (except the due authorization,
execution and delivery by the Company of the Primary Documents).
b. We have assumed that each of the parties to the Primary
Documents other than the Company (the "Other Parties") has the legal right,
capacity and power to enter into, enforce and perform all of its obligations
under the Primary Documents. Furthermore, we have assumed the due authorization
by each of the Other Parties of all requisite action and the due execution and
delivery of the Primary Documents by each of the Other Parties, and that the
Primary Documents are valid and binding upon each of the Other Parties and are
enforceable against each Other Party in accordance with their terms.
c. With respect to the statements in paragraphs 7, 8, and 9 above
which are stated to be "to our knowledge," we have, with your consent, advised
you only concerning knowledge obtained by us as a result of the Officers'
Certificate and the actual present knowledge of those attorneys in our firm who
have given substantive attention to the representation described in the
introductory paragraph of this opinion and does not include any knowledge of any
other attorneys within our firm (regardless of whether they have represented or
are representing the Company in connection with any other matters) or any
constructive or imputed knowledge of any matters or items of information. Except
to that limited extent we have, with your consent, made no independent review of
public records or of any of the Company's operations, transactions or
contractual arrangements, except for the Material Agreements.
Stanford Venture Capital Holdings, Inc.
January __, 2003
Page 5
d. With respect to our opinions in paragraphs 9 and 11 relating to
the requirement of obtaining certain authorizations, approvals or consents, or
the violation of certain laws, our opinions are limited to those California and
federal laws that a lawyer practicing in the State of California exercising
customary professional diligence would reasonably recognize as being directly
applicable to the Company or the transactions contemplated by the Primary
Documents.
e. We note that the Agreement provides that it is to be governed by
and construed in accordance with the laws of the State of Florida, except for
issues involving Nevada law. For purposes of this opinion, and with your
consent, we have assumed that the laws of the State of Florida are identical in
all relevant respects to the laws of the State of California.
We are members of the bar of the State of California and do not purport
to be experts in, or to express any opinion concerning, any laws other than the
federal laws, the laws of the State of California and the General Corporation
Laws of the Sate of Nevada. For purposes of our opinions on matters of Nevada
law we have assumed that such law is substantially identical to the General
Corporation Laws of the State of California. No opinion is expressed as to the
laws of any other jurisdiction or the effect which the laws of any other
jurisdiction might have on the subject matter of the opinions expressed herein
under conflict of laws principles or otherwise. In furnishing the opinion
regarding the valid existence and good standing of the Company, we have relied
solely upon good standing certificates issued by the respective Secretaries of
State of the States of California and Nevada.
Stanford Venture Capital Holdings, Inc.
January __, 2003
Page 6
This opinion is being furnished for the sole benefit of the named
addressee. Except as provided above, this opinion may not be relied upon by any
other person or entity or published, quoted or otherwise used for any other
purpose without our prior written consent. This opinion is given as of the date
hereof and we assume no obligation to update or supplement this opinion to
reflect any facts or circumstances which may hereafter come to our attention or
any changes in laws which may hereafter occur.
Respectfully submitted,
/s/ XXXXX & XXXXXX
------------------
XXXXX & XXXXXX
Exhibit G
February __, 2003
Stanford Venture Capital Holdings, Inc.
c/o Greenberg Traurig, LLP
0000 Xxxxxxxx Xxxxxx, Xxxxx 000X
Xxxxx Xxxxxx, XX 00000
ATTN:
Re: $2,000,000.00 sale of Series D $1.00 Convertible Preferred Stock of
Tangible Asset Galleries, Inc., as seller, to Stanford Venture
Capital Holdings, Inc., as buyer.
Ladies and Gentlemen:
This legal opinion is being delivered to you by us as special Nevada
counsel to Tangible Asset Galleries, Inc., a Nevada corporation (the "Company"),
in connection with the negotiation, execution and delivery by the Company of
that certain Series D Preferred Stock Purchase and Warrant Exercise Agreement
(the "Agreement"), dated January 31, 2003, by and between you and the Company
and the transactions contemplated therein. Capitalized terms used herein and not
otherwise defined herein shall have the respective meanings assigned to such
terms in the Agreement.
In so acting, we have examined originals or copies (certified or
otherwise identified to our satisfaction) of the following documents:
1. Series D Preferred Stock Purchase and Warrant Exercise Agreement,
Certificate of Designation of Series D $1.00 Convertible Preferred
Stock of the Company, the Registration Rights Agreement and the
Stanford Consulting Agreement ("Primary Documents");
2. Articles of Incorporation of the Company, as amended, and in effect
as of the date hereof;
3. Restated Bylaws of the Company, as amended, and in effect as of the
date hereof;
4. Certificate of Designation of the Rights, Preferences, Privileges
and Restrictions of the Series A $5.00 Redeemable 8% Convertible
Preferred Stock of the Company;
5. Certificate of Designation of Series B $1.00 Convertible Preferred
Stock of the Company;
Stanford Venture Capital Holdings, Inc.
February __, 2003
Page 2
6. Certificate of Designation of Series C $1.00 Redeemable 9%
Convertible Preferred Stock of the Company;
7. Share Exchange and Note Modification Agreement.
The documents listed above are hereinafter collectively referred to as
the "Transaction Documents".
In addition to the Transaction Documents, we have examined such other
documents and certificates of public officials and representatives of the
Company as we have deemed necessary as a basis for the opinions expressed
herein. As to questions of fact material to such opinions, we have, when
relevant facts were not independently established, relied upon certificates of
representatives of the Company. Additionally, we have relied, with your consent,
on the opinion of the law firm Xxxxx & Xxxxxx, LLP, as to the factual matters
expressed therein, without any independent investigation of the matters covered
therein.
We have assumed, without investigation or inquiry, the genuineness of
all signatures and documents submitted to us as originals, that all copies
submitted to us conform to the originals, the legal capacity of all natural
persons and that such persons have been identified by their full and correct
legal names, and, as to documents executed by parties other than the Company,
such parties' power to enter into and perform their obligations under such
documents, that such documents have been duly authorized, executed and delivered
by, and are binding upon and enforceable against, such parties.
We have further assumed that the Primary Documents accurately reflect
the intent and business purposes of the parties thereunder and that there are no
agreements, understandings or negotiations between the parties not set forth in
the Primary Documents that would modify the terms or rights and obligations of
the parties thereunder, and there is not now and has not in the past
negotiations been any mistake of fact or misunderstanding, fraud, duress or
undue influence.
Based on the foregoing and subject to the limitations, qualifications
and exceptions set forth below, it is our opinion that:
1. The Company is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of Nevada.
2. The Company has corporate power to enter into and perform its
obligations under the Primary Documents, to own is properties and assets and to
carry on its business as it is currently being conducted.
3. The Primary Documents have been duly authorized by all necessary
corporate action on the part of the Company and have been duly executed and
delivered by the Company.
Stanford Venture Capital Holdings, Inc.
February __, 2003
Page 3
4. The Series D Certificate of Designation is in appropriate form for
execution and filing by the Company with the Secretary of State of the State of
Nevada in accordance with the requirements of Chapter 78 of Nevada Revised
Statutes (hereinafter, "Nevada General Corporation Law").
5. The rights, preferences and privileges of the Series D Preferred
Stock are as set forth in the Series D Certificate of Designation and are not in
violation of the Articles of Incorporation, the Bylaws or any Certificate of
Designation of any other stock of the Company or the Nevada General Corporation
Law.
6. No authorization, approval or consent is required to be obtained by
the Company for the issuance and sale of the Series D Preferred Stock as
contemplated by the Primary Documents or in connection with the consummation of
other transactions contemplated thereby, from any governmental body or
regulatory agency under the Nevada General Corporation Law.
7. None of the Articles of Incorporation, the Bylaws or any Certificate
of Designation for any stock of the Company is in violation of the Nevada
General Corporation Law. The execution, delivery and performance of and
compliance with the terms of the Primary Documents and the issuance of the
Securities do not violate any provision of the Nevada General Corporation Law.
The opinions expressed herein are subject to the following limitations,
qualifications and exceptions:
1. With respect to our opinions in paragraphs 6 and 7 above, relating
to the requirement of obtaining certain authorizations, approvals or consents,
or the violation of certain laws, our opinions are limited to those Nevada laws
that a lawyer practicing in the State of Nevada exercising customary
professional diligence would reasonably recognize as being directly applicable
to the Company or the transactions contemplated by the Primary Documents.
2. With respect to our opinions in paragraph 5, 6 and 7 above, you are
advised that the liquidation preferences in the Series D Certificate of
Designation conflict with those set forth in the Certificate of Designation for
the Company's outstanding Series B Preferred Stock. We express no opinion
concerning the effect of such conflict, and such opinions are qualified by the
effect of such conflict.
3. The opinions expressed herein are limited by bankruptcy, insolvency,
reorganization, arrangement, moratorium, fraudulent conveyance and other similar
laws relating to or affecting the rights of creditors. We advise you that the
enforceability of the Primary Documents may be limited by (i) certain equitable,
legal or statutory principles affecting the enforcement of contractual rights
generally, regardless of whether such enforcement is considered in a proceeding
in equity or at law, including without limitation, concepts of notice,
materiality, impairment of security, reasonableness, good faith and fair
dealing, jurisdiction, service of process, venue and applicable statutes of
limitation and (ii) judicial discretion or
Stanford Venture Capital Holdings, Inc.
February __, 2003
Page 4
statutory limitations with respect to the availability of equitable remedies or
defenses, the calculation of damages and the entitlement to attorneys' fees and
other costs. The provisions referred to above which may be limited or rendered
ineffective include, without limitation, those which (i) purport to waive
statutory or common law rights, (ii) provide for indemnification to the extent
such indemnification is against public policy, (iii) provide for one party to
act as attorney in fact for another party, and (v) provide for the exercise of
set-off or similar rights.
4. We specifically express no opinion herein regarding the following
matters:
a. Federal securities laws and regulations administered by the
Securities and Exchange Commission (other than the Public Utility Holding
Company Act of 1935), state "Blue Sky" laws and regulations relating to
commodity (and other) futures and indices and other similar instruments;
b. Federal Reserve Board margin regulations;
c. Pension and employee benefit laws and regulations (e.g., ERISA);
d. Federal and state antitrust and unfair competition laws and
regulations;
e. Federal and state laws and regulations concerning filing and notice
requirements (e.g., Xxxx-Xxxxx-Xxxxxx and Exon-Xxxxxx), other than requirements
applicable to charter-related documents such as a certificate of merger;
f. Compliance with fiduciary duty requirements;
g. Fraudulent transfer and fraudulent conveyance laws;
h. Federal and state tax laws and regulations;
i. Federal and state racketeering laws and regulations (e.g., RICO);
j. Federal and state laws, regulations and policies concerning (i)
national and local emergency, (ii) possible judicial deference to acts of
sovereign states, and (iii) criminal and civil forfeiture laws;
k. Other Federal and state statutes of general application to the extent
they provide for criminal prosecution (e.g., mail fraud and wire fraud
statutes); and
l. Any matter which may be governed by the law of any jurisdiction other
than the internal laws of the State of Nevada.
Although some members of the firm are licensed to practice law in other
jurisdictions, we do not purport to be experts in, or to express any opinion
herein concerning, any law other than
Stanford Venture Capital Holdings, Inc.
February __, 2003
Page 5
the law of the State of Nevada, both statutory law and published and distributed
case law. This opinion is limited to the matters expressly set forth herein, and
no opinion is implied or may be inferred beyond the matters expressly stated
herein.
This opinion is being furnished for the sole benefit of the named
addressee. Except as provided above, this opinion may not be relied upon by any
other person or entity or published, quoted or otherwise used for any other
purpose without our prior written consent. This opinion is given as of the date
hereof and we assume no obligation to update or supplement this opinion to
reflect any facts or circumstances which may hereafter come to our attention or
any changes in laws which may hereafter occur.
Very truly yours,
/s/ Xxxxxxx & Xxxxxxx, Chtd.
-------------------------------
Xxxxxxx & Xxxxxxx, Chtd.
Exhibit H
TANGIBLE ASSET GALLERIES, INC.
CLOSING CERTIFICATE
The undersigned, Xxxxxxx XxXxxxxx and Xxxx Biberkraut, hereby jointly and
severally certify to Stanford Venture Capital Holdings, Inc., a Delaware
corporation ("Stanford"), that they are the duly elected and acting Chief
Executive Office and Chairman, and Chief Financial Officer, respectively, of
Tangible Asset Galleries, Inc., a Nevada corporation (the "Company"), and hereby
further jointly and severally certify to Stanford as follows (all capitalized
terms used herein and not otherwise defined shall have the meanings ascribed
thereto in the Stock Purchase and Warrant Exercise Agreement dated January 31,
2003, by and among the Company, Stanford, Xxxxxxx XxXxxxxx, and the other named
Warrant Holders (the "Purchase Agreement")):
1. Representations and Warranties. The representations and warranties
contained in Section 3 of the Purchase Agreement are true and correct
in all respects on and as of the date hereof, as though made on and as
of such date, except to the extent that any such representation or
warranty relates solely to an earlier date, in which case such
representation or warranty is true and correct in all respects on and
as of such earlier date.
2. Financial Statements. We have under our supervision and our control,
reviewed all available audited and unaudited financial statements for
the Company.
3. Outstanding Debt. We have under our supervision and control, prepared
a list, attached hereto as Exhibit 1 and incorporated herein by this
reference, of all outstanding debt of the Company as of January 22,
2003. For the purposes of this Section 3, "outstanding debt" shall
mean all debt obligations of the Company in excess of $5,000, on a
consolidated basis, pursuant to borrowing arrangements, excluding
trade payables and accrued liabilities extended by vendors in the
ordinary course of business, accrued interest on any debt obligations,
repurchase agreements and deferred revenues, that are required to be
accrued and disclosed in the consolidated financial statements
(including footnotes thereto) of the Company as prepared in accordance
with generally accepted accounting principles in the United States of
America.
4. Recent Events. Except as disclosed in the Purchase Agreement, since
December 31, 2002, there has not been any material change in the
financial condition of the Company. The Company has not engaged in any
practice, taken any action, or entered into any transaction outside
its ordinary course of business.
5. Contracts. We have under our supervision and control, reviewed all
written contracts and other written agreements to which the Company is
a party and which are material to its business.
-1-
6. Tax Matters.
a. The Company has filed all Tax Returns that it was required to
file, and has paid all Taxes shown thereon as owing, except where
the failure to file Tax Returns or to pay Taxes would not have a
Material Adverse Effect on the Company.
b. The Company has not waived any statute of limitations with
respect to any Taxes or agreed to any extension of time with
respect to a Tax assessment or deficiency.
c. Company is not a party to any Tax allocation or sharing
agreement.
7. Powers of Attorney. There are no outstanding general powers of
attorney executed on behalf of the Company.
IN WITNESS WHEREOF, the undersigned have executed this Officer's
Certificate on behalf of the Company on and as of the ___ day of January, 2003.
/s/ Xxxxxxx XxXxxxxx /s/ Xxxx Biberkraut
---------------------------------- ----------------------------------
Xxxxxxx XxXxxxxx, Xxxx Biberkraut,
Chief Executive Officer and Chairman Chief Financial Officer
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TANGIBLE ASSET GALLERIES, INC.
CLOSING CERTIFICATE
EXHIBIT 1 - OUTSTANDING DEBT
General Motors Acceptance Corporation loan secured by a delivery van, bearing
interest at the rate of 5.9% per annum and payable in monthly installments of
$456.54 principal and interest. Balance as of January 22, 2003 is $13,875.89
plus accrued interest.
Xxxxxxx XxXxxxxx, chief executive officer and principal stockholder (`CEO"),
note payable secured by the Company's inventory and receivables and bearing
interest at rate of 9% per annum. Balance as of January 22, 2003 is $1,000,000
plus accrued interest.
A-Xxxx Auction Galleries, Inc. note payable secured by the assets of the
Company's subsidiary, Superior Galleries, Inc., bearing interest at the rate of
12% per annum, and payable in monthly installments of $19,132.99 principal and
interest. Balance as of January 22, 2003 is $147,863.44 plus accrued interest.
Estate of Xxxx Xxxxxx English revolving line of credit secured by all assets of
the Company and a personal guarantee of the CEO and bearing interest at the
prime rate of interest plus 7% per annum. Balance as of January 22, 2003 is
$2,500,000 plus accrued interest.
Xxxxx Xxxxxx Rare Coins promissory note secured by rare coin inventory bearing
interest at the rate of 2.5% per month. Balance as of January 22, 2003 is
$786,975 plus accrued interest. (Repaid on February 4, 2003)
Xxxxx Xxxxxx Rare Coins promissory note secured by rare coin inventory bearing
interest at the rate of 1.5% per month. Balance as of January 22, 2003 is $
179,350 plus accrued interest.
Xxxxxxx XxXxxxxx, CEO, promissory note bearing interest at 12% and payable on
demand. Balance as of January 22, 2003 is $289,969.77 plus accrued interest
Xxxxxxx XxXxxxxx, CEO, promissory note bearing interest at 12% and payable on
demand. Balance as of January 22, 2003 is $70,000.00 plus accrued interest
KSH Strategic Investment Fund I, LP, secured promissory note dated July 3, 2001,
in the original principal amount of $275,000, bearing interest at the rate of
10% per annum, payable at the earlier of the receipt of the proceeds of a
private placement memorandum or July 3, 2002. In August 2002, KSH and Company
agreed to extend the payment terms of the secured promissory note on a month to
month basis. The balance of the promissory at January 22, 2002 was $31,250 plus
accrued interest.
Total Balance: $5,019,283.90 plus
accrued interest
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