EXHIBIT 10.7
ISSUANCE AGREEMENT
THIS ISSUANCE AGREEMENT is made and entered into as of the ___ day of
_________, 2002, by and between Quicktest 5, Inc., a Delaware corporation (the
"Company"), and NDMS Investments, L.P., a Nevada limited partnership ("Lender").
WHEREAS, Lender has agreed to lend a minimum of $150,000 and a maximum
of $300,000 to the Company by means of a Secured Convertible Promissory Note in
a form attached as EXHIBIT A (the "Note") and under the terms of this Issuance
Agreement.
WHEREAS, the Company has agreed to issue up to 1 share of Common Stock
for each $2 Lender lends to the Company (the "Shares").
WHEREAS, the Company has agreed to enter into a Registration Rights
Agreement in the form attached as EXHIBIT B.
WHEREAS, the Company has agreed to guarantee the performance of the
Note pursuant to a Security Agreement in the form attached as EXHIBIT C and
pursuant to a UCC-1 Financing Statement in then form attached as EXHIBIT D (the
"UCC-1").
WHEREAS, for purposes (including investment, conversion and penalty) of
this Agreement and all other agreements referenced herein, each one share of
Common Stock shall be equal to 1.33 shares of Common Stock of XxxxxXxxx.xxx,
Inc. on a post merger basis, regardless of the date of investment up to and
including January 31, 2003.
NOW, THEREFORE, FOR GOOD AND VALUABLE CONSIDERATION THE
SUFFICIENCY OF WHICH IS HEREBY AFFIRMED, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Authorization and Sale of Common Stock.
1.1 Authorization of the Shares. On or before the Initial Closing
Date (as defined in Section 2.1 below), the Company's Board of Directors will
have approved issuance of the Common Stock, the Note, the shares issuable upon
conversion of the Note (the "Note Shares") and the Registration Rights
Agreement.
1.2 Issuance of Shares. In consideration of Lender lending the
Company up to $300,000 under the terms of the Note, the Company shall issue
100,000 shares of Common Stock at par to Lender at the Initial Closing and an
additional 1 share of Common Stock for each additional $2 lent to the Company at
subsequent closings.
2. Closing Date; Delivery.
2.1 Closing Date. The initial closing of the loan and purchase
and sale of the Shares (the "Initial Closing") shall be held at the offices of
the Company, on December 31, 2002 (the "Initial Closing Date"). A second closing
shall be held no later than January 31, 2003 (the "Final Closing Date"). The
Initial Closing Date and the Final Closing Date are sometimes referred to as the
Closings..
2.2 Delivery. At each of the Closings, the Company will deliver
to the Lender a certificate representing the Shares against payment of the
purchase price therefore by check, wire transfer, or by such other form of
payment as may mutually be agreed upon by the Company and Lender.
3. Covenants of the Company.
3.1 Removal of Legend. The Company shall remove any legend on the
Shares or the Note Shares within 10 days of the certificate qualifying for
removal of such legends due to registration, compliance with Rule 144 or
otherwise.
3.2 Opinion of Counsel. The Company may request an opinion of
legal counsel prior to removal of such legend; provided, that this shall not
extend the 10 day requirement set forth in Section 3.1 above.
3.3 Issuance of Debt. The Company covenants not to take on any
additional debt, other than standard trade payables, prior to the conversion or
payment of any Note issued hereunder. In addition to any other remedy provided
by law, a breach of this covenant shall be a deemed a default of the Promissory
Note and it shall be immediately due and payable and the default rate set forth
in Section 11(a) of the Note shall apply. If the covenant has not been restored
after 60 days, the default rate set forth in Section 11(b) shall apply.
3.4 Additional Shares. In the event that the 30 day closing price
of the Company's Common Stock is $1.00 or lower (the "Trading Price"), then
Lender shall receive additional shares such that the effective Conversion Price
and the Shares are equal to 70% of the Trading Price. For example, if the
Trading Price one year from the Initial Closing Date or Closing Date is $1.00,
then Lender shall automatically be issued an additional 3 shares for each 10
shares previously issued as an adjustment to the Conversion Price or the Shares
and for no additional consideration. This provision shall not apply to any
amounts paid and satisfied by the Company under the terms of the Note. The
parties hereby amend the terms of that certain Issuance Agreement dated October
1, 2002, between the Company and Lender and that certain $150,000 Convertible
Note dated October 1, 2002 and issued to Lender, to include this Section 3.4.
3.5 Right to Invest. The Company shall be obligated to accept up
to an additional $150,000 on the same terms set forth herein until January 31,
2002, by Lender or Lender's designee, but Lender shall be under no obligation to
lend the additional $150,000.
4. Representations and Warranties of the Company.
The Company hereby represents and warrants to Lender that:
4.1 Organization and Standing. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. The Company is duly qualified to transact business and is in good
standing in each jurisdiction in which the failure to be so qualified would have
a material adverse effect on its business or properties.
4.2 Authorization. All corporate action on the part of the
Company, its officers, directors and shareholders necessary for the
authorization, execution and delivery of this Agreement, the Registration Rights
Agreement, the Note and the performance of all obligations of the Company
hereunder and thereunder, and the authorization, sale and issuance of the Shares
pursuant hereto has been taken or will be taken prior to the Closing Date. This
Agreement, the Note and the Registration Rights Agreement, when executed and
delivered by the Company, shall constitute valid and binding obligations of the
Company, enforceable in accordance with their respective terms.
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4.3 Valid Issuance of the Shares. The Shares when issued and
delivered in accordance with the terms of this Agreement for the consideration
expressed herein, will be duly and validly issued, fully paid, and
nonassessable, and will be free of restrictions on transfer other than
restrictions on transfer under this Agreement and under applicable state and
federal securities laws. The Note Shares issuable upon conversion of the Note
have been duly and validly reserved for issuance and, upon issuance in
accordance with the terms of the Articles of Incorporation, will be duly and
validly issued, fully paid, and nonassessable and will be free of restrictions
on transfer other than restrictions on transfer under this Agreement and under
applicable state and federal securities laws.
4.4 Assets, Patents, Copyrights, Trademarks. To the best of the
Company's knowledge (after reasonable inquiry, but without having conducted any
special investigation or patent search), the Company has sufficient title and
ownership of all of its assets, intangible property, including all patents,
trademarks, service marks, trade names, copyrights, trade secrets, licenses,
information and proprietary rights and processes ("Proprietary Rights"), or
adequate licenses, rights or purchase options with respect to the foregoing,
necessary for its business as now conducted and as proposed to be conducted,
without any conflict with or infringement of the rights of others; and the
Company has not received any notice of infringement upon or conflict with the
asserted rights of others. Assuming the due authorization, execution and
delivery of any license agreements to which the Company is a party by the other
parties to such agreements, such agreements constitute legal, valid and binding
obligations of the respective parties thereto and are enforceable in accordance
with their respective terms, except as limited by bankruptcy and other laws of
general application affecting the rights and remedies of creditors generally and
except insofar as the availability of equitable remedies may be limited. The
Company has not received any communications alleging that the Company has
violated or, by conducting its business as proposed, would violate any of the
patents, trademarks, service marks, trade names, copyrights, trade secrets or
other proprietary rights of any other person or entity.
4.5 Compliance with Other Instruments. The Company is not in
violation or default of any term of its Articles of Incorporation or Bylaws, or
in any material respect, any contract, agreement, instrument, judgment, decree,
order, statute, rule or regulation (collectively, "Instruments and Laws") to
which the Company is subject and a violation of which would have a material
adverse effect on the condition, financial or otherwise, or operations of the
Company. The execution, delivery and performance of this Agreement, the Note and
the Registration Rights Agreement, and the consummation of the transactions
pursuant hereto and thereto, will not result in a violation of or be in conflict
with or constitute, with or without the passage of time and giving of notice, a
material default under any such Instrument or Law, except where such violations
or defaults, singularly or in the aggregate, would not have a material adverse
effect on the business, operations, property or condition (financial or
otherwise) of the Company, require any consent or waiver (which has not been
obtained) under any such Instrument or Law, or result in the creation of any
lien, encumbrance or charge upon any of the properties or assets of the Company
pursuant to any such Instrument or Law.
4.6 Litigation. There are no actions, suits, proceedings or
investigations ("Actions") pending (or, to the best of the Company's knowledge,
threatened, against the Company, that question the validity of this Agreement,
the Note or the Registration Rights Agreement, or the right of the Company to
enter into such agreements, or to consummate the transactions contemplated
hereby and thereby, or which, either in any case or in the aggregate, might have
a material adverse effect on the business, operations, properties or condition
(financial or otherwise) of the Company. The foregoing includes, without
limitation, actions, suits, proceedings or investigations pending or threatened
(or any basis therefor known to the Company) involving the prior employment of
any of the
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Company's employees, their use in connection with the Company's business of any
information or techniques allegedly proprietary to any of their former
employers, or their obligations under any agreements with prior employers. The
Company is not a party or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality.
4.7 Governmental Consent, etc. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company is required in connection with the consummation of the transactions
contemplated by this Agreement.
5. Representations and Warranties of the Lenders.
Lender hereby represents and warrants to the Company as follows:
5.1 Authority. It is a Nevada limited partnership and is duly
organized, validly existing and in good standing under the laws of the state of
its organization. Lender has now, and will have at the Closing Date, full legal
power and authority to enter into this Agreement and the Registration Rights
Agreement, to purchase the Shares hereunder and to perform its obligations under
the terms of this Agreement.
5.2 Authorization. All partnership action on the part of Lender
necessary for the execution of this Agreement, the Note, the Registration Rights
Agreement and the purchase of the Shares and the performance of Lender's
obligations hereunder has been taken or will be taken prior to the Closing Date.
This Agreement, when executed and delivered by Lender, will constitute a valid
and legally binding obligation of Lender, enforceable in accordance with its
terms.
5.3 Investment Representations. This Agreement is made with
Lender upon the understanding as a specific representation to the Company by
Lender that:
(a) The Shares purchased hereunder and the Note Shares
(collectively, the "Securities") will be acquired for Lender's own account, not
as a nominee or agent, and not with a view to the resale or distribution of any
part thereof, and that Lender has no present intention of selling, granting
participation in, or otherwise distributing the same. By executing this
Agreement, Lender further represents that Lender does not have any contract,
undertaking, agreement or arrangement with any person to sell, transfer or grant
participations to such person or to any third person, with respect to any of the
Securities. Lender has not been organized for the purpose of investing in
securities of the Company, although such investment is consistent with its
purposes.
(b) Lender acknowledges that it is able to fend for itself,
can bear the economic risk of its investment, and has such knowledge and
experience in financial or business matters that it is capable of evaluating the
merits and risks of the investment in the Shares.
(b) Lender understands that the Shares will not be
registered under the Securities Act of 1933, as amended (the "Securities Act"),
by reason of, among other things, reliance upon certain exemptions therefrom,
and that the reliance of the Company on such exemptions is predicated upon,
among other things, the bona fide nature of Lender's investment intent as
expressed herein.
(c) Lender is experienced in evaluating and investing in
securities of companies in the development stage and has made investments in
securities other than those of the
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Company. Lender acknowledges that by reason of Lender's business or financial
experience, Lender has the ability to bear the economic risk of Lender's
investment pursuant to this Agreement.
(f) Lender is an Accredited Investor as defined in
Regulation D promulgated under the Securities Act.
5.4 Rule 144. Lender understands that the Shares (and the Note
Shares issuable upon conversion of the Shares) are "restricted securities"
within the meaning of Rule 144 promulgated under the Securities Act ("Rule 144")
inasmuch as they are being acquired from the Company in a transaction not
involving a public offering and that, under such laws and applicable
regulations, such securities may be resold without registration under the
Securities Act only in certain limited circumstances. In this connection, Lender
represents that it is familiar with SEC Rule 144, as presently in effect, and
understands the resale limitations imposed thereby and by the Securities Act.
5.6 Legends. It is understood that the certificates evidencing
the Securities may bear one or all of the following legends:
(a) "These securities have not been registered under the
Securities Act of 1933, as amended. They may not be sold, offered for sale,
pledged or hypothecated in the absence of a registration statement in effect
with respect to the securities under such Act or an opinion of counsel
satisfactory to the Company that such registration is not required or unless
sold pursuant to Rule 144 of such Act."
(b) Any legend required by the laws of the State of
California, including any legend required by the California Department of
Corporations and Sections 417 and 418 of the California Corporations Code.
6. Conditions to Closing.
6.1 Conditions to Lenders' Obligations. The obligation of Lender
to purchase the Shares at the Closing is subject to the fulfillment on or prior
to the Closing Date of the following conditions, the waiver of which shall not
be effective against any Lender who does not consent in writing thereto:
(a) Representations and Warranties Correct; Performance of
Obligations. The representations and warranties made by the Company in Section 4
hereof shall be true and correct when made, and shall be true and correct on the
Closing Date with the same force and effect as if they had been made on and as
of said date, subject to changes contemplated by this Agreement; and the Company
shall have performed and complied with all agreements, obligations and
conditions contained in this Agreement that are required to be performed or
complied with by it on or prior to the Closing Date.
(b) Issuance of the Shares. Lender shall have received the
Shares.
(c) Execution of Agreements. Lender shall receive executed
originals of this Purchase Agreement, the Note, the Registration Rights
Agreement and the UCC-1.
6.2 Conditions to Obligations of the Company. The Company's
obligation to sell and issue the Shares at the Closing is subject to the
fulfillment on or prior to the Closing Date of each of the following conditions:
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(a) Representations and Warranties Correct; Performance of
Obligations. The representations and warranties of Lender in Section 5 hereof
shall be true and correct when made, and shall be true and correct on the
Closing Date with the same force and effect as if they had been made on and as
of said date, subject to changes contemplated by this Agreement; and Lender
shall have performed and complied with all agreements, obligations and
conditions contained in this Agreement that are required to be performed or
complied with by it on or prior to the Closing Date.
(b) Transfer of Funds. Lender shall have transferred funds
to the Company or, at a minimum, initiate a federal wire funds transfer by 5:00
p.m. Pacific Time and provide notice to the Company of such transfer
confirmation via facsimile.
7. Miscellaneous.
7.1 Governing Law. This Agreement shall be governed in all
respects by the laws of the State of California without application of
principles of conflicts of laws.
7.2 Survival. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by any Lender and
the closing of the transactions contemplated hereby.
7.3 Successors and Assigns. Lender may assign its right to lend
the additional $150,000 to other persons it so designates in its sole
discretion; provided, however, such persons agree to be bound to the terms of a
Issuance Agreement and other documents contemplated herein. Except as otherwise
expressly provided herein, the provisions hereof shall inure to the benefit of,
and be binding upon, the respective successors and assigns of the parties hereto
(including transferees of any Securities). Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
7.4 Entire Agreement; Amendment.
(b) This Agreement and the other documents delivered
pursuant hereto constitute the full and entire understanding and agreement
between the parties with regard to the subjects hereof and thereof. This
Agreement may only be amended in writing by the parties.
7.5 Notices, etc. Unless otherwise provided, all notices and
other communications required or permitted under this Agreement shall be in
writing and shall be deemed effectively given upon personal delivery to the
party to be notified or upon deposit with the United States Post Office, by
registered or certified mail, postage prepaid, or on the day sent by facsimile
transmission if a true and correct copy is deposited the same day with the
United States Post Office, by registered or certified mail, postage prepaid, or
by dispatch by an internationally recognized express courier service, and in
each case addressed to the parties as set forth on the signature page of this
Agreement or as otherwise changed from time to time in writing to the other
party.
7.6 Expenses. Irrespective of whether the Closing is effected,
the each party shall bear their own costs in connection with this Agreement;
provided, however, that the Company shall pay 5,000 shares of Common Stock
pursuant to the Company's Stock Option Plan as attorney's fees at the Initial
Closing and the Company agrees to include such shares in the Company's Form S-8
registration statement. If any action at law or in equity is necessary to
enforce or interpret the terms of
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this Agreement, the Note or the Registration Rights Agreement, the prevailing
party shall be entitled to reasonable attorneys' fees, costs and necessary
disbursements in addition to any other relief to which such party may be
entitled.
7.7 Sole Agreement; Severability. Any invalidity, illegality or
limitation on the enforceability of any part of this Agreement shall in no way
affect or impair the validity, legality or enforceability of this Agreement. If
one or more provisions of this Agreement are held to be unenforceable under
applicable law, such provision shall be excluded from this Agreement and the
balance of the Agreement shall be interpreted as if such provision were so
excluded and shall be enforceable in accordance with its terms.
7.8 Titles and Subtitles. The titles and subtitles used in this
Agreement are for convenience of reference only and are not to be considered in
construing or interpreting this Agreement.
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7.9 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
The undersigned Lender acknowledges that this subscription shall not be
effective unless accepted by the Company as indicated below.
LENDER QUICK TEST 5, INC.
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Xxxxxx X. Xxxxx, Partner By: Xxxxxxx X. Xxxxx
Its: CEO
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EXHIBIT A
PROMISSORY NOTE
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EXHIBIT B
REGISTRATION RIGHTS AGREEMENT
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EXHIBIT C
SECURITY AGREEMENT
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