THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OFFERED FOR
SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES OR
AN OPINION OF COUNSEL OR OTHER EVIDENCE ACCEPTABLE TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED.
CONVERSION AGREEMENT
THIS CONVERSION AGREEMENT, dated as of June 15, 2005, is made by and
between Xxxxxx Xxxxxxx Promotions, Inc., a Delaware corporation ("Company"), and
Xxxxx Xxxx ("Holder").
WHEREAS, the Company issued to the Holder those certain 10% Promissory
Notes, dated from May 19, 2003 to September 25, 2003 ("Notes"); and
WHEREAS, Company and Holder wish to provide for the terms and conditions
pursuant to which the Notes may be converted to common stock, par value $0.01
per share ("Common Stock"), of the Company;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which the parties hereby acknowledge, the parties agree as
follows:
1. Conversion of Notes. The Company and Holder hereby agree that as of June
15, 2005, the outstanding principal balance of the Notes and interest accrued is
set forth on the attached Schedule ("Balance"). The Company and Holder further
agree that the Holder may convert the entire balance of $625,418.88 of principal
and interest into shares of the Company's Common Stock at a price per share
equal to $.30 (the "Conversion Shares").
2. Closing. At the Closing, Holder shall deliver the Notice of Conversion
and the Notes to the Company and the Company shall deliver a copy of the stock
certificate representing the Conversion Shares to Holder. The actual stock
certificate shall be held at the Company's transfer agent and released to Holder
at his instruction.
3. Further Actions.
a. Transfer. If the Holder wishes to transfer any of the Conversion
Shares to any transferee(s), then upon delivery of the stock certificate
representing the Conversion Shares and a completed assignment of stock power
certificate, the Company shall cause its transfer agent to issue a new stock
certificate within 7 days of receipt to such transferee(s).
b. Legal Opinion. The Company shall cause its counsel to render an
opinion to its transfer agent opining that the Conversion Shares may be sold
without compliance with the registration requirements under Section 5 to the
Securities Act of 1933, as amended ("Securities Act") in accordance with Rule
144 ("144 Opinion") within 7 days of receipt of completed copies of (1) a Form
144, (2) Seller's Representation Letter, (3) Broker Representation's Letter, a
copy of (4) the stock certificate, with respect to the Conversion Shares for the
Holder or any of his transferee(s), and (5) proof of holding period (i.e Notes
or purchase agreement dated more than 1 year) if the stock certificate
representing the Conversion Shares is dated within 1 year of a sale. If legal
counsel has determined that the Conversion Shares may not be sold in accordance
with Rule 144, then such counsel shall deliver a letter to Seller upon which
Seller shall rely, detailing the reason(s) why such sale is not permitted in
accordance with such regulation.
The Company recognizes that the Holder or any of his transferee(s)
("Seller") may experience economic loss if the Company fails to cause the
transfer agent to deliver stock certificates to the transferee(s) within 7 days
of receipt or if the Company fails to cause its counsel to deliver a 144 Opinion
within 5 days of receipt ("Due Date"). As compensation to the Seller for such
loss, the Company agrees to pay (as liquidated damages and not as a penalty) to
the Seller for (1) late delivery of new stock certificates upon transfer of the
Conversion Shares or (2) late delivery of a 144 Opinion in the amount of $10 per
business day after the Due Date for every 1,000,000 Conversion Shares which are
not delivered to Seller or for which a 144 Opinion has not been delivered. The
Company shall pay any payments incurred under this Section in immediately
available funds upon demand or shall otherwise accrue interest at the lesser of
1% or the maximum percentage allowed by law.
Furthermore, in addition to any other remedies which may be available to
the Holder, in the event that the Company fails for any reason to effect
delivery of the Conversion Shares to the Holder or any transferee by the Due
Date or cause the delivery of the 144 Opinion by the Due Date, the Holder will
be entitled to revoke all or part of the relevant Notice of Conversion by
delivery of a notice to such effect to the Company whereupon the Company and the
Holder (with respect to shares held by the Holder) shall each be restored to
their respective positions immediately prior to the delivery of the Notice of
Conversion, except that the liquidated damages described above shall be payable
through the date notice of revocation is given to the Company.
4. Investor Representations and Warranties and Covenants. The Holder
represents, warrants and covenants to the Company as follows:
a. No Registration. Such Holder understands that the Notes, and the
Conversion Shares have not been, and will not be, registered under the
Securities Act of 1933, as amended (the "Securities Act") by reason of a
specific exemption from the registration provisions of the Securities Act, the
availability of which depends upon, among other things, the bona fide nature of
the investment intent and the accuracy of such Holder's representations as
expressed herein or otherwise made pursuant hereto.
b. Investment Intent. Such Holder has acquired the Notes, and is
acquiring the Conversion Shares, for investment for its own account, not as a
nominee or agent.
2
c. Investment Experience. Such Holder has substantial experience in
evaluating and investing in private placement transactions of securities in
companies similar to the Company and acknowledges that such Holder can protect
its own interests. Such Holder has such knowledge and experience in financial
and business matters so that such Holder is capable of evaluating the merits and
risks of its investment in the Company.
d. Residency. The residency of the Holder (or, in the case of a
partnership or corporation, such entity's principal place of business) is
correctly set forth on the signature page hereto.
e. Speculative Nature of Investment. Such Holder understands and
acknowledges that the Company has a limited financial and operating history and
that an investment in the Company is highly speculative and involves substantial
risks. Such Holder can bear the economic risk of such Holder's investment and is
able, without impairing such Holder's financial condition, to hold the
Conversion Shares for an indefinite period of time and to suffer a complete loss
of such Holder's investment.
f. Access to Data. The Holder and its advisors, if any, have been
furnished with or have been given access to all materials relating to the
business, finances and operations of the Company and any reasonably requested
materials requested by the Holder, The Holder and its advisors, if any, have
been afforded the opportunity to ask questions of the Company and its management
and have received complete and satisfactory answers to any such inquiries.
Without limiting the generality of the foregoing, the Holder has had the
opportunity to obtain and to review the Company's filings available on the XXXXX
web site of the Securities and Exchange Commission (xxx.xxx.xxx).
g. Accredited Investor. The Holder is an "accredited investor' within
the meaning of Regulation D, Rule 501(a), promulgated by the Securities and
Exchange Commission under the Securities Act and shall submit to the Company
such further assurances of such status as may be reasonably requested by the
Company.
h. Rule 144. Such Holder acknowledges that the Conversion Shares must be
held indefinitely unless subsequently registered under the Securities Act or an
exemption from such registration is available. Such Holder is aware of the
provisions of Rule 144 promulgated under the Securities Act which permit limited
resale of shares purchased in a private placement subject to the satisfaction of
certain conditions, including among other things, the existence of a public
market for the shares, the availability of certain current public information
about the Company, the resale occurring not less than one year after a party has
purchased and paid for the security to be sold, the sale being effected through
a "broker's transaction" or in transactions directly with a "market maker" and
the number of shares being sold during any three-month period not exceeding
specified limitations. Such Holder acknowledges that, in the event all of the
requirements of Rule 144 are not met, registration under the Securities Act or
3
an exemption from registration will be required for any disposition of the
Conversion Shares. Such Holder understands that, although Rule 144 is not
exclusive, the Securities and Exchange Commission has expressed its opinion that
persons proposing to sell restricted securities received in a private offering
other than in a registered offering or pursuant to Rule 144 will have a
substantial burden of proof in establishing that an exemption from registration
is available for such offers or sales and that such persons and the brokers who
participate in the transactions do so at their own risk.
j. Brokers or Finders. Such Holder has not engaged any brokers, finders
or agents, and the Company has not, and will not, incur, directly or indirectly,
as a result of any action taken by the Holder, any liability for brokerage or
finders' fees or agents' commissions or any similar charges in connection with
this Conversion Agreement and the transactions related hereto.
k. Tax Advisors. Such Holder has reviewed with its own tax advisors the
U.S. federal, state, local and foreign tax consequences of this investment and
the transactions contemplated by this Conversion Agreement. With respect to such
matters, such Holder relies solely on such advisors and not on any statements or
representations of the Company or any of its agents, written or oral. The Holder
understands that it (and not the Company) shall be responsible for its own tax
liability that may arise as a result of this investment or the transactions
contemplated by this Conversion Agreement.
l. Legends. The Holder understands and agrees that the certificates
evidencing the Conversion Shares shall bear a legend in substantially the form
as follows (in addition to any legend required by any other applicable agreement
or under applicable state securities laws):
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY
STATE, AND MAY NOT BE SOLD, TRANSFERRED,
ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS AND
UNTIL REGISTERED UNDERDER SUCH ACT AND/OR
APPLICABLE STATE SECURITIES LAWS, OR UNLESS THE
COMPANY HAS RECEIVED AN OPINION OF COUNSEL OR
OTHER EVIDENCE, REASONABLY SATISFACTORY TO THE
COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION
IS NOT REQUIRED."
5. Company Representations and Warranties and Covenants. The Company
represents, warrants and covenants to the Holder as follows:
a. Authorization.
4
i. The Company has all requisite power and authority to execute and
deliver this Conversion Agreement, and to carry out and perform its obligations
under the terms hereof. All action on the part of the Company necessary for the
authorization, execution, delivery and performance of this Conversion Agreement,
and the performance of all of the Company's obligations herein, has been taken.
ii. This Conversion Agreement, when executed and delivered by the
Company, will constitute valid and legally binding obligations of the Company,
enforceable in accordance with its terms except: (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors' rights generally, and (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief or other equitable remedies or by general principles of equity.
iii. No consent, approval, authorization, order, filing, registration
or qualification of or with any court, governmental authority or third person is
required to be obtained by the Company in connection with the execution and
delivery of this Conversion Agreement by the Company or the performance of the
Company's obligations hereunder.
b. The Securities. The Conversion Shares upon issuance under this
Agreement:
i. are, or will be, free and clear of any security interests, liens,
claims or other encumbrances, subject to restrictions upon transfer under the
Securities Act, and any applicable state securities laws;
ii. have been, or will be, duly and validly authorized and on the date
of issuance of the Conversion Shares, the Conversion Shares will be duly and
validly issued, fully paid and nonassessable and if registered pursuant to the
Securities Act, are tradeable in accordance with Rule 144 under the Securities
Act;
iii. will not have been issued or sold in violation of any preemptive
or other similar rights of the holders of any securities of the Company; and
iv. will not subject the holders thereof to personal liability by
reason of being such holders.
c. Brokers or Finders. The Company has not engaged any brokers, finders
or agents, and Holder has not, and will not, incur, directly or indirectly, as a
result of any action taken by the Company, any liability for brokerage or
finders' fees or agents' commissions or any similar charges in connection with
this Conversion Agreement and the transactions related hereto.
5
d. Reporting Company. The Company is a publicly-held company subject to
reporting obligations pursuant to Section 13 of the 1934 Act and has a class of
common shares registered pursuant to Section 12(g) of the 1934 Act. Pursuant to
the provisions of the Securities Exchange Act of 1934, as amended, the Company
has timely filed all reports and other materials required to be filed thereunder
with the Securities & Exchange Commission during the preceding twelve months.
[the remainder of this page has been left blank]
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their respective officers thereonto duly authorized as of the day
and year first above written.
XXXXXX XXXXXXX PROMOTIONS, INC.
By /s/Xxxxxx Xxxxxxx
-----------------
Xxxxxx Xxxxxxx
President
/s/Xxxxx Xxxx
-------------
Xxxxx Xxxx
Address: 000 X. 00xx
Xxxxxxxxx 0000
Xxx Xxxx, Xxx Xxxx 00000
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ANNEX A
NOTICE OF CONVERSION
The undersigned hereby elects to convert all principal under the 10% Notes of
Xxxxxx Xxxxxxx Promotions, Inc., a Delaware corporation (the "Company"), issued
from May 19, 2003 to September 25, 2003, into shares of common stock, $0.01 par
value per share (the "Common Stock"), of the Company according to the conditions
hereof, as of the date written below. If shares are to be issued in the name of
a person other than the undersigned, the Company will pay all transfer taxes
payable with respect thereto and is delivering herewith such certificates and
opinions as reasonably requested by the Company in accordance therewith. No fee
will be charged to the holder for any conversion.
The undersigned agrees to comply with the prospectus delivery requirements under
the applicable securities laws in connection with any transfer of the aforesaid
shares of Common Stock.
Conversion calculations:
Date to Effect Conversion:
June 15, 2005
Principal Amount of Debentures to be Converted:
$525,000
Payment of Interest in Common Stock _X_ yes __ no
If yes, $100,418.88 of
Interest Accrued on Account of Conversion at Issue.
Number of shares of Common Stock to be issued:
2,084,730
Signature: /s/Xxxxx Xxxx
-------------
Name: Xxxxx Xxxx
Address: 000 X. 00xx
Xxxxxxxxx 0000
Xxx Xxxx, Xxx Xxxx 00000
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SCHEDULE A
2005 Accrd Interest &
Notes & Loans N/P at N/P at Accrd Interest Interest Exp or Debt Issuance
payables Date loaned Due Date 12-31-04 6-06-05 Rate xx 00-00-00 to Maturity at 6-06-05
----------------- ------------ ---------- ------------ ----------- --------- ------------ ------------ -----------------
2407 Xxxxx Xxx 05/19/20030 8/15/03 95,000.00 95,000.00 10.00% 15,358.33 4,320.55 19,678.88
2407 Xxxxx Xxx 05/29/20030 8/15/03 105,000.00 105,000.00 10.00% 16,683.33 4,775.34 21,458.68
2407 Xxxxx Xxx 06/06/20030 8/15/03 60,000.00 60,000.00 10.00% 9,416.64 2,728.77 12,145.40
2407 Xxxxx Xxx 08/12/2003 10/13/03 110,000.00 110,000.00 10.00% 15,247.22 5,002.74 20,249.96
2407 Xxxxx Xxx 09/10/2003 12/08/03 25,000.00 25,000.00 10.00% 3,270.83 1,136.99 4,407.82
2407 Xxxxx Xxx 09/10/2003 12/08/03 25,000.00 25,000.00 10.00% 3,270.83 1,136.99 4,407.82
2407 Xxxxx Xxx 09/25/2003 12/23/03 55,000.00 55,000.00 10.00% 6,961.64 2,501.37 9,463.01
2407 Xxxxx Xxx 09/25/2003 01/05/04 50,000.00 50,000.00 10.00% 6,333.33 2,273.97 8,607.31
525,000.00 100,418.88
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