EXHIBIT 10.1
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT ("Agreement") is made as of the 12th day of
September 2005, by and among Knockout Holdings, Inc., a Delaware corporation
(the "Company"), and the Purchasers set forth on the signature pages affixed
hereto (each a "Purchaser" and collectively the "Purchasers").
Recitals
A. The Company and the Purchasers are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Section 4(2) under the Securities Act of 1933, as amended ("1933 Act"), and
the provisions of Regulation D ("Regulation D"), as promulgated by the U.S.
Securities and Exchange Commission (the "SEC") under the 1933 Act;
B. The Purchasers have agreed to purchase, and the Company has
agreed to sell and issue to the Purchasers, upon the terms and subject to the
conditions stated in this Agreement, an aggregate of up to $2,800,000 the
Company's 16.66% Senior Convertible Notes due March 31, 2007 in the form annexed
hereto as Exhibit A (each a "Note" and, collectively, the "Notes") in the
respective amounts set forth on the Purchaser's signature page attached hereto;
and
D. Contemporaneous with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Registration Rights
Agreement, in the form annexed hereto as Exhibit B (the "Registration Rights
Agreement"), pursuant to which the Company has agreed to provide certain
registration rights under the 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws.
In consideration of the mutual promises made herein and for other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Definitions. In addition to those terms defined above and elsewhere in
this Agreement, for the purposes of this Agreement, the following terms shall
have the meanings here set forth:
1.1. "Affiliate" means, with respect to any Person, any other Person
which directly or indirectly controls, is controlled by, or is under common
control with, such Person, where "control" means the possession, direct or
indirect, of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting securities, by
contract or otherwise.
1.2. "Agreements" means this Agreement, the Registration Rights
Agreement, the Notes, and any other agreement entered into, now or in the
future, by the Company in connection with this Agreement or any of the other
Agreements.
1.3. "Closing" means the consummation of the transactions
contemplated by this Agreement.
1.4. "Closing Date" is defined in Section 3.1.
1.5. The "Company" shall refer to the Company (as defined in the
first paragraph hereof). -------
1.6. "Conversion Price" shall have the meaning as defined in the
Notes.
1.7. "Disclosure Schedule" is defined in Section 4.
1.8. "Holder" means (i) any Person in whose name a Note is
registered from time to time, or (ii) if the Note is held by a financial
intermediary for the benefit of other Persons, such other Persons as indicated
in the records of such financial intermediary.
1.9. "Material Adverse Effect" means a material adverse effect on
the (i) condition (financial or otherwise), business, assets or results of
operations of the Company; (ii) ability of the Company to perform any of its
material obligations under the terms of the Agreements; or (iii) material rights
and remedies of a Purchaser under the terms of the Agreements.
1.10. "Notes" shall have the meaning set forth in the recitals to
this Agreement.
1.11. "Person" means an individual, corporation, partnership,
limited liability company, trust, business trust, association, joint stock
company, joint venture, pool, syndicate, sole proprietorship, unincorporated
organization, governmental authority or any other form of entity not
specifically listed herein.
1.12. "Required Holders" means the Holders of not less than 50% in
aggregate principal amount of the Notes then outstanding exclusive of any Notes
then owned by either the Company or any of its Affiliates.
1.13. "SEC" means the U.S. Securities and Exchange Commission.
1.14. "SEC Filings" is defined in Section 4.6.
1.15. "Securities" means the Notes and Underlying Shares.
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1.16. "Subsidiary" means each corporation or other Person in which a
Person owns or controls, directly or indirectly, capital stock or other equity
interests representing more than 50% of the outstanding voting stock or other
equity interests.
1.17. "Underlying Shares" means the shares of Common Stock issued or
issuable upon conversion of, as payment for principal and/or interest under, or
otherwise pursuant to, the Notes.
1.18. "1933 Act" shall have the meaning set forth in the recitals to
this Agreement.
1.19. "1934 Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
2. Purchase and Sale of the Notes. Subject to the terms and conditions of
this Agreement and on the basis of the representations and warranties made
herein, each of the Purchasers hereby severally, and not jointly, agrees to
purchase, and the Company hereby agrees to sell and issue to each of the
Purchasers, (a) the Notes in the principal amount set forth on such Purchaser's
signature page attached hereto at the Closing for a purchase price equal to such
principal amount (the "Purchase Price"). The Purchase Price shall be payable by
check, wire transfer or as otherwise agreed to by the Company and the Purchaser.
3. Closing.
3.1. Closing Procedure. Upon receipt by the Company of executed
signature pages to this Agreement from Purchasers for the purchase of
$2,800,000, the Company shall promptly notify such Purchasers and set a date for
the Closing, which shall be on or before September 12, 2005 or as otherwise
mutually agreed to by the Company and the Purchasers (the "Closing Date").
3.2. Closing Date Deliveries.
(a) On the Closing Date, the Company shall deliver to the
Purchasers:
(i) The Notes in the form attached as Exhibit A;
(ii) The executed Registration Rights Agreement in the
form attached as Exhibit B;
(iii) A certificate executed by the Chief Executive
Officer and Chief Financial Officer of the
Company, in the form attached as Exhibit C;
(iv) The opinion of counsel to the Company in the form
attached as Exhibit D;
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(v) All consents and waivers required under or in
respect of any agreement or instrument to which
the Company is a party or by which any of its
properties or assets is bound, or under any
applicable law, that are necessary or appropriate
in connection with the transactions contemplated
by the Agreements, in form and substance
satisfactory to the Purchasers; and
(b) On the Closing Date, the Purchasers shall deliver to the
Company:
(i) The aggregate Purchase Price in an amount equal to
the principal amount of the Notes set forth on the
Purchasers' signature pages hereto for the Notes
to be purchased; and
(ii) The executed Registration Rights Agreement.
3.3. Closing Conditions.
(a) The obligations of each Purchaser hereunder in connection
with the Closing are subject to the following conditions being met:
(i) The Company shall have executed each of the
Agreements and delivered the same to the
Purchasers, including, without limitation, the
Notes (in such denominations as such Purchaser
shall request) being purchased by such Purchaser;
(ii) The Common Stock shall be authorized for quotation
on the Nasdaq OTC Bulletin Board, trading in the
Common Stock shall not have been within the last
365 days suspended;
(iii) The representations and warranties of the Company
shall be true and correct in all material respects
(except to the extent that any of such
representations and warranties is already
qualified as to materiality, in which case, such
representations and warranties shall be true and
correct without further qualification) as of the
date when made and as of the Closing Date as
though made at that time (except for
representations and warranties that speak as of a
specific date) and the Company shall have
performed, satisfied and complied with the
covenants, agreements and conditions required by
the Agreements to be performed, satisfied or
complied with by the Company at or prior to the
Closing Date. The Purchasers shall have received a
certificate, executed by the Chief Executive
Officer and the Chief Financial Officer, dated as
of the Closing Date Date, to the foregoing effect
in the form attached hereto as Exhibit C;
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(iv) The Purchasers shall have received an opinion of
counsel to the Company in the form attached as
Exhibit D;
(v) The Board of Directors of the Company shall have
adopted resolutions authorizing and approving the
transactions contemplated by this Agreement and
the other Agreements, including without
limitation, the issuance of the Securities and the
reservation for issuance and the issuance of the
Underlying Shares;
(vi) The Company shall have delivered to such Purchaser
a certificate evidencing the incorporation and
good standing of the Company and each of its
Subsidiaries in such entity's state of
incorporation or organization issued by the
Secretary of State of such state of incorporation
or organization as of a date within ten (10) days
of the Closing Date;
(vii) The Company shall have delivered to such Purchaser
a secretary's certificate dated as of the Closing
Date, as to (A) the resolutions of the Board of
Directors, (B) the Certificate of Incorporation
and (C) the Bylaws, each in effect at the Closing
Date; and
(viii) The Purchasers shall have entered into an
agreement with certain shareholders of the Company
whereby such shareholders shall have agreed to
transfer to the Purchasers in the aggregate 36,250
shares of the Company's Series A Convertible
Preferred Stock.
(b) The obligations of the Company hereunder in connection
with the Closing are subject to the following conditions being met:
(i) Each of the Purchasers shall have executed each of
the Agreements to which it is a party;
(ii) Each of the Purchasers shall have delivered to the
Company the Purchase Price for the Notes being
purchased by such Purchaser by wire transfer of
immediately available funds pursuant to the wire
instructions provided by the Company; and
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(iii) The representations and warranties of each of the
Purchasers shall be true and correct in all
material respects (except to the extent that any
of such representations and warranties is already
qualified as to materiality, in which case, such
representations and warranties shall be true and
correct without further qualification) as of the
date when made and as of the Closing Date as
though made at that time (except for
representations and warranties that speak as of a
specific date) and each of the Purchasers shall
have performed, satisfied and complied with the
covenants, agreements and conditions required by
the Agreements to be performed, satisfied or
complied with by the Purchasers at or prior to the
Closing Date.
4. Representations and Warranties of the Company. Except as disclosed in
the Company's SEC Filings (as defined below) or in the Company disclosure
schedule delivered herewith (the "Disclosure Schedule"), the Company hereby
represents and warrants to the Purchasers that:
4.1 Organization, Good Standing and Qualification. Each of the
Company and its Subsidiaries is a corporation validly existing and in good
standing under the laws of its organization and has all requisite corporate
power and authority to carry on its business as now conducted and own its
properties. Each of the Company and its Subsidiaries is duly qualified to do
business as a foreign corporation and is in good standing in each jurisdiction
in which the conduct of its business or its ownership or leasing of property
makes such qualification or licensing necessary unless the failure to so qualify
would not result in a Material Adverse Effect.
4.2. Authorization. The Company has full corporate power and
authority and has taken all requisite action on the part of the Company
necessary for (i) the authorization, execution and delivery of the Agreements,
(ii) authorization of the performance of all obligations of the Company
hereunder and thereunder, and (iii) the authorization, issuance (or reservation
for issuance) and delivery of the Securities, other than amending its
Certificate of Incorporation as set forth in Section 6.2 below. The Agreements
constitute the legal, valid and binding obligations of the Company, enforceable
against the Company in accordance with their terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability, relating to or affecting creditors' rights generally and
general principles of equity that restrict the availability of equitable or
legal remedies.
4.3. Capitalization. Set forth in Section 4.3 of the Disclosure
Schedule is (a) a description of the authorized capital stock of the Company on
the date hereof; (b) the number of shares of capital stock issued and
outstanding on the date hereof; (c) the number of shares of capital stock
issuable pursuant to the Company's stock plans; and (d) the number of shares of
capital stock issuable and reserved for issuance pursuant to securities (other
than the Notes) exercisable for, or convertible into or exchangeable for any
shares of capital stock (assuming the transactions contemplated herein have been
effected solely for the purpose of computing antidilutive provisions in any such
securities). All of the issued and outstanding shares of the Company's capital
stock have been duly authorized and validly issued and are fully paid and
nonassessable. No Person is entitled to preemptive or similar statutory or
contractual rights with respect to any securities of the Company.
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4.4. Valid Issuance. The Notes and the Underlying Shares are duly
authorized, and such Securities, when issued in accordance herewith and, in
respect of the Underlying Shares, pursuant to the terms of the Notes will be
validly issued, fully paid, non-assessable and free and clear of all
encumbrances and restrictions imposed by or through the Company, except for
restrictions on transfer imposed by applicable securities laws.
4.5. Consents. Except as set forth in the Disclosure Schedule, the
execution, delivery and performance by the Company of the Agreements and,
subject to the truth and accuracy of the representations made by the Purchasers
in Section 5 of this Agreement, the offer, issuance and sale of the Securities,
require no consent of, action by or in respect of, or filing with, any Person,
agency, or official, other than the amendment to the Certificate of
Incorporation referred to in Section 6.2 below and filings that have been made
pursuant to applicable state securities laws and post-sale filings pursuant to
applicable state and federal securities laws.
4.6. SEC Filings; Business. The Company has filed all reports,
schedules, forms, statements and other documents required to be filed by it with
the SEC pursuant to the reporting requirements of the 1934 Act (all of the
foregoing filed prior to or on the date hereof and all registration statements
and exhibits included therein and financial statements and schedules thereto and
documents incorporated by reference therein being hereinafter referred to as the
"SEC Filings"). None of the SEC Filings, as of the date filed and as they may
have been subsequently amended by filings made by the Company with the SEC prior
to the date hereof, contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading. As of their respective dates, the financial
statements of the Company included in the SEC Filings complied as to form in all
material respects with applicable accounting requirements and published rules
and regulations of the SEC with respect thereto. Such financial statements have
been prepared in accordance with generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company and its consolidated
subsidiaries as of the dates thereof and the results of operations and cash
flows for the periods then ended (subject, in the case of unaudited statements,
to normal year-end audit adjustments). The Company is engaged only in the
business described in the SEC Filings and the SEC Filings contain a complete and
accurate description of the business of the Company in all material respects.
4.7. Use of Proceeds. The proceeds of the sale of the Notes
hereunder shall be used by the Company for the following purposes: (a) the
repayment of indebtedness disclosed in the SEC Filings or otherwise disclosed in
Section 4.7 of the Disclosure Schedule, and (b) general corporate purposes and
working capital.
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4.8. No Material Adverse Change. Except as disclosed and described
in the Company's SEC Filings, since December 31, 2004, there has not been:
(a) any change in the consolidated assets, liabilities, financial condition or
operating results of the Company and its Subsidiaries, except changes in the
ordinary course of business which have not had, in the aggregate, a Material
Adverse Effect;
(b) any declaration or payment of any dividend, or any authorization or payment
of any distribution, on any of the capital stock of the Company, or any
redemption or repurchase of any securities of the Company;
(c) any material damage, destruction or loss, whether or not covered by
insurance, to any assets or properties of the Company or its Subsidiaries;
(d) any waiver by the Company or any of its Subsidiaries of a material right or
of a material debt owed to it;
(e) any satisfaction or discharge of any lien, claim or encumbrance or payment
of any obligation by the Company or its Subsidiaries, except in the ordinary
course of business and which is not material to the assets, properties,
financial condition, operating results or business of the Company and its
Subsidiaries taken as a whole (as such business is presently conducted and as it
is proposed to be conducted);
(f) any material change or amendment to or breach or default of a material
contract or arrangement by which the Company, any of its Subsidiaries or any of
its assets or properties is bound or subject;
(g) any material labor difficulties or labor union organizing activities with
respect to employees of the Company or its Subsidiaries;
(h) any material transaction entered into by the Company or its Subsidiaries
other than in the ordinary course of business; or
(i) any other event or condition of any character that the Company believes will
have a Material Adverse Effect.
4.9. No Conflict, Breach, Violation or Default; Compliance with Law.
The execution, delivery and performance of the Agreements by the Company and the
issuance and sale of the Securities will not conflict with or result in a breach
or violation of any of the terms and provisions of, constitute a default under,
require any consent, approval or filing under, result in or require the creation
or imposition of any lien or encumbrance upon or with respect to the Company's
or its Subsidiaries' property under (i) the Company's or its Subsidiaries'
Certificate of Incorporation (including any certificates of designation) or the
Company's or its Subsidiaries' Bylaws, both as in effect on the date hereof,
(ii) any statute, rule, regulation or order of any governmental agency or body
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or any court, domestic or foreign, having jurisdiction over the Company, its
Subsidiaries or any of their properties; or (iii) any material contract, loan or
instrument by which the Company, its Subsidiaries or their property is bound.
Each of the Company and its Subsidiaries (i) is not to its knowledge in
violation of any statute, rule or regulation applicable to it or its assets or
its activities, (ii) is not in violation of any judgment, order or decree
applicable to it or its assets; and (iii) has not received notice from any
Person of any claim, investigation or inquiry, that, if adversely determined,
would render the preceding sentence untrue or incomplete and the Company is
aware of no facts or circumstances which could give rise to such a claim,
investigation or inquiry.
4.10. Tax Matters. Each of the Company and its Subsidiaries has
timely prepared and filed all material tax returns required to have been filed
by the Company or its Subsidiaries with all appropriate governmental agencies
and timely paid all material taxes owed by it, in each case taking into account
permitted extensions and assessments challenged in good faith and disclosed in
the SEC Filings. The charges, accruals and reserves on the books of the Company
and its Subsidiaries in respect of taxes for all fiscal periods are adequate in
all material respects, and there are no material unpaid assessments against the
Company or its Subsidiaries nor, to the knowledge of the Company, any basis for
the assessment of any additional taxes, penalties or interest for any fiscal
period or audits by any federal, state or local taxing authority except such as
which are not material. All material taxes and other assessments and levies that
the Company or any of its Subsidiaries is required to withhold or to collect for
payment have been duly withheld and collected and paid to the proper
governmental entity or third party when due. There are no tax liens or claims
pending or threatened against the Company, any of its Subsidiaries or any of its
respective assets or property. There are no outstanding tax sharing agreements
or other such arrangements between the Company and any other corporation or
entity.
4.11. Title to Properties and Securities. Except as disclosed in the
SEC Filings, each of the Company and its Subsidiaries has good and marketable
title to all properties and assets owned by it and material to its operations,
in each case free from liens, encumbrances and defects that would materially
affect the value thereof or materially interfere with the use made or currently
planned to be made thereof by them; and except as disclosed in the SEC Filings,
each of the Company and its Subsidiaries holds any leased real or personal
property material to the its respective operations under valid and enforceable
leases with no exceptions that would materially interfere with the use made or
currently planned to be made thereof by them.
4.12. Certificates, Authorities and Permits. Each of the Company and
its Subsidiaries possesses adequate certificates, authorities or permits issued
by appropriate governmental agencies or bodies necessary to conduct the business
now operated by it and has not received any notice of proceedings relating to
the revocation or modification of any such certificate, authority or permit
that, if determined adversely to the Company or its Subsidiaries, would
individually or in the aggregate have a Material Adverse Effect.
4.13. No Labor Disputes. No material labor dispute with the
employees of the Company or its Subsidiaries exists or, to the knowledge of the
Company, is imminent.
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4.14. Intellectual Property. Each of the Company and its
Subsidiaries owns or possesses adequate rights or licenses to the inventions,
know-how, patents, patent rights, copyrights, trademarks, trade names, licenses,
approvals, governmental authorizations, trade secrets confidential information
and other intellectual property rights necessary to conduct the business now
operated by it and presently contemplated to be operated by it (collectively,
"Intellectual Property Rights"), free and clear of all liens, security
interests, charges, encumbrances, equities and other adverse claims, and neither
the Company nor any of its Subsidiaries has received any notice of infringement
of or conflict with asserted rights of others with respect to any Intellectual
Property Rights. None of the Company's or its Subsidiaries' Intellectual
Property Rights have expired or terminated, or are expected to expire or
terminate within three years from the date of this Agreement, except where such
expirations or termination would not result, either individually or in the
aggregate, in a Material Adverse Effect. To the knowledge of the Company, the
Company's and its Subsidiaries' patents and other Intellectual Property Rights
and the present activities of the Company and its Subsidiaries do not infringe
any patent, copyright, trademark, trade name or other proprietary rights of any
third party where such infringement may cause a Material Adverse Effect on the
Company or its Subsidiaries, and there is no claim, action or proceeding being
made or brought against, or to the Company's knowledge, being threatened
against, the Company or its Subsidiaries regarding its Intellectual Property
Rights, and the Company is unaware of any facts or circumstances which might
give rise to any of the foregoing. The Company has no knowledge of the material
infringement of its or its Subsidiaries' Intellectual Property Rights by third
parties and has no reason to believe that any such Intellectual Property Rights
is unenforceable, and the Company is unaware of any facts or circumstances which
might give rise to any of the foregoing. Each of the Company and its
Subsidiaries has taken commercially reasonable security measures to protect the
secrecy, confidentiality and value of all of its intellectual properties.
4.15. Environmental Matters. None of the Company and its
Subsidiaries is in violation of any statute, rule, regulation, decision or order
of any governmental agency or body or any court, domestic or foreign, relating
to the use, disposal or release of hazardous or toxic substances or relating to
the protection or restoration of the environment or human exposure to hazardous
or toxic substances (collectively, "Environmental Laws"), owns or operates any
real property contaminated with any substance that is subject to any
Environmental Laws, is liable for any off-site disposal or contamination
pursuant to any Environmental Laws, and is subject to any claim relating to any
Environmental Laws, which violation, contamination, liability or claim would
individually or in the aggregate have a Material Adverse Effect; and the Company
is not aware of any pending investigation that might lead to such a claim.
4.16. Absence of Litigation. Except as set forth in the Company's
SEC Filings, there is no action, suit, proceeding, inquiry or investigation
before or by any court, public board, government agency, self-regulatory
organization or body pending or, to the knowledge of the Company, threatened
against the Company, its Subsidiaries or any of their officers or directors in
their capacities as such, that would reasonably be expected to result in
judgments against the Company or its Subsidiaries in an amount, individually or
in the aggregate, in excess of $50,000.
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4.17. Financial Statements. The financial statements included in the
Company's SEC Filings present fairly and accurately in all material respects the
consolidated financial position of the Company as of the dates shown and its
consolidated results of operations and cash flows for the periods shown, and
such financial statements have been prepared in conformity with generally
accepted accounting principles applied on a consistent basis with the Company's
past practices. Except as set forth in the SEC Filings filed prior to the date
hereof, the Company has no liabilities, contingent or otherwise, except those
(a) not required under generally accepted accounting principles to be reflected
in the Company's financial statements, (b) incurred in the ordinary course of
business, or (c) which individually or in the aggregate are not material to the
financial condition or operating results of the Company.
4.18. Insurance Coverage. Each of the Company and its Subsidiaries
maintains in full force and effect insurance coverage that the Company
reasonably believes to be adequate against all liabilities, claims and risks
against which it is customary for comparably situated companies to insure.
4.19. Brokers and Finders. The Purchasers shall have no liability or
responsibility for the payment of any commission or finder's fee to any third
party in connection with or resulting from this agreement or the transactions
contemplated by this Agreement by reason of any agreement of or action taken by
the Company.
4.20. No General Solicitation. Neither the Company nor any Person
acting on its behalf has conducted any general solicitation or general
advertising (as those terms are used in Regulation D) in connection with the
offer or sale of any of the Securities.
4.21. Issuance of Securities. The Securities are duly authorized
and, upon issuance in accordance with the terms of the applicable agreements,
shall be (i) validly issued, fully paid and non-assessable and (ii) free from
all taxes, liens and charges with respect to the issuance thereof (other than
any such taxes, liens and charges created by any Purchaser or assignee or
transferee), and shall not be subject to pre-emptive rights or other similar
rights of shareholders of the Company. Upon their issuance, the Underlying
Shares will be validly issued, fully paid and non-assessable and free from all
taxes, liens and charges with respect to the issue thereof (other than any such
taxes, liens and charges created by any Purchaser or any assignee or
transferee), with the holders being entitled to all rights accorded to a holder
of Common Stock.
5. Representations and Warranties of the Purchaser. Each of the Purchasers
hereby severally, and not jointly, represents and warrants to the Company that:
5.1 Organization, Good Standing, Authorization. If Purchaser is an
entity, it is a corporation, limited liability company, trust or partnership or
other similar entity duly organized, validly existing and in good standing under
the laws of its jurisdiction. Purchaser has full power and authority (corporate
or otherwise) to execute, deliver and enter into this Agreement and the
Registration Rights Agreement. The execution, delivery and performance by the
Purchaser of this Agreement and the Registration Rights Agreement have been duly
authorized and this Agreement and the Registration Rights Agreement will each
constitute the valid and legally binding obligation of the Purchaser,
enforceable against the Purchaser in accordance with their terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability, relating to or affecting creditors'
rights generally and general principles of equity that restrict the availability
of equitable or legal remedies.
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5.2 Purchase Entirely for Own Account. The Securities to be received
by the Purchaser hereunder will be acquired for the Purchaser's own account, not
as nominee or agent, and not with a view to the resale or distribution of any
part thereof and the Purchaser has no present intention of selling, granting any
participation in, or otherwise distributing the same. The Purchaser is not a
registered broker dealer or an entity engaged in the business of being a broker
dealer.
5.3 Investment Experience. The Purchaser acknowledges that it can
bear the economic risk and complete loss of its investment in the Securities and
has such knowledge and experience in financial or business matters and in
private placement transactions of companies similar to the Company so that it is
capable of evaluating the merits and risks of the purchase contemplated hereby.
5.4 Disclosure of Information. The Purchaser has had an opportunity
to receive documents related to the Company and its Subsidiaries and to ask
questions of and receive answers from the Company regarding the Company, its
Subsidiaries, its business and the terms and conditions of the offering of the
Securities and has received and read the SEC Filings filed via XXXXX. Neither
such inquiries nor any other due diligence investigation conducted by the
Purchaser shall modify, amend or affect the Purchaser's right to rely on the
Company's representations and warranties contained in this Agreement or made
pursuant to this Agreement.
5.5 Restricted Securities. The Purchaser understands that the
Securities are characterized as "restricted securities" under the U.S. federal
securities laws inasmuch as they are being acquired from the Company in a
transaction not involving a public offering and that under such laws and
applicable state laws and regulations such securities may be resold without
registration under the 1933 Act only in certain limited circumstances.
5.6 Legends. It is understood that, until registration for resale
pursuant to the Registration Rights Agreement or until sales under Rule 144(k)
under the 1933 Act are permitted, certificates evidencing the Securities may
bear one or all of the following legends or legends substantially similar
thereto:
(a) "The shares represented by this certificate may not be
transferred without (i) the opinion of counsel reasonably satisfactory to the
corporation that such transfer may lawfully be made without registration under
the Securities Act of 1933 or qualification under applicable state securities
laws; or (ii) such registration or qualification."
(b) If required by the authorities of any state in connection
with the issuance of sale of the Securities, the legend required by such state
authority.
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Upon registration for resale pursuant to the Registration Rights
Agreement or upon Rule 144(k) under the 1933 Act becoming available, the Company
shall promptly cause certificates evidencing the Underlying Shares previously
issued to be replaced with certificates which do not bear such restrictive
legends, and all Underlying Shares subsequently issued shall not bear such
restrictive legends and each Purchaser will certify to the Company that it will
thereafter sell the Common Stock evidenced by such unlegended certificates only
pursuant to the Prospectus (as defined in the Registration Rights Agreement) as
permitted under the Registration Rights Agreement or pursuant to Rule 144(k).
5.7 Accredited Investor. The Purchaser is an "accredited investor"
as defined in Rule 501(a) of Regulation D, as amended, under the 0000 Xxx.
5.8 No General Solicitation. The Purchaser did not learn of the
investment in the Securities as a result of any public advertising or general
solicitation.
5.9 No Shorting. Neither the Purchaser nor any of its affiliates and
investment partners has, directly or indirectly, engaged in "short sales" of the
Company's Common Stock or any hedging strategies. Each Purchaser agrees that on
any business day prior to the time such Purchaser no longer holds any
Securities, such Purchaser shall not maintain a Net Short Position. For purposes
hereof, "Net Short Position" shall mean circumstances in which the aggregate
number of shares of Common Stock held in a short position by such Purchaser
exceeds the sum of the number of Underlying Shares then issuable (without regard
to any limitations on conversions or exercise) to such Purchaser.
6. Covenants and Agreements of the Company and the Purchasers.
6.1 Reservation of Common Stock Issuable upon Conversion of Notes.
The Company hereby agrees at all times after the amendment to its Certificate of
Incorporation (as described in Section 6.2 below) to reserve and keep available
out of its authorized but unissued shares of Common Stock, solely for the
purpose of providing for the full conversion of Notes (including payment of
interest thereon), such number of shares of Common Stock as shall equal the
number of shares sufficient to permit the full conversion of Notes (including
payment of interest thereon) in accordance with the terms of the Notes.
6.2 Amendment to Certificate of Incorporation. Within 90 days of the
Closing, the Company shall (i) amend its Certificate of Incorporation to
increase the number of its authorized shares of Common Stock to 300,000,000
shares in accordance with preliminary Schedule 14C Information Statement filed
by the Company with the SEC on May 4, 2005, and (ii) immediately thereafter
reserve for issuance such number of shares of Common Stock as shall be necessary
for issuance upon conversion of the Notes.
6.3 Press Releases. Any press release or other publicity originating
from the Company concerning this Agreement or the transactions contemplated by
this Agreement shall be submitted to the Purchasers for comment one business day
prior to issuance and shall not identify any Purchaser without the prior consent
of such Purchaser. No press release or other public disclosure relating to this
Agreement or the transactions contemplated by this Agreement may be issued or
made by or on behalf of any Purchaser without prior consultation with and
written consent from the Company.
13
6.4 No Conflicting Agreements. The Company will not, without
obtaining prior approval from the Required Holders, take any action, enter into
any agreement or make any commitment that would conflict or interfere in any
material respect with the obligations to the Purchasers under the Agreements.
6.5 Insurance. For so long as any Purchaser beneficially owns any of
the Securities, the Company shall have in full force and effect (a) insurance
reasonably believed by the Company to be adequate on all assets and activities,
covering property damage and loss of income by fire or other casualty, and (b)
insurance reasonably believed to be adequate protection against all liabilities,
claims and risks against which it is customary for companies similarly situated
as the Company to insure (other than key man insurance).
6.6 Compliance with Laws. So long as the Purchasers beneficially own
any Securities, the Company will use reasonable efforts to comply with all
applicable laws, rules, regulations, orders and decrees of all governmental
authorities, except to the extent non-compliance (in one instance or in the
aggregate) would not have a Material Adverse Effect.
6.7 Corporate Existence. So long as any Notes remain outstanding,
the Company shall maintain its corporate existence, except in the event of a
merger, consolidation or sale of all or substantially all of the Company's
assets so long as the surviving or successor entity in such transaction (a)
assumes the Company's obligations hereunder and under the agreements and
instruments entered into in connection herewith, regardless of whether or not
the Company would have had a sufficient number of shares of Common Stock
authorized and available for issuance in order to fulfill its obligations
hereunder and effect the conversion (including payment of interest thereon) in
full of all Notes outstanding as of the date of such transaction; (b) has no
legal, contractual or other restrictions on its ability to perform the
obligations of the Company hereunder and under the agreements and instruments
entered into in connection herewith; and (c)(i) is a publicly traded corporation
whose common stock and the shares of capital stock issuable upon conversion and
exercise of the Notes are (or would be upon issuance thereof) listed for trading
on the Nasdaq National Market, Nasdaq Small Cap Market, New York Stock Exchange,
the American Stock Exchange or the Nasdaq OTC Bulletin Board or (ii) if not such
a publicly traded corporation, then the buyer agrees that it will, at the
election of the Purchasers, purchase such Purchasers' Securities at a price
equal to the greater of (a) 120% of the Purchase Price of such Securities or (b)
the fair market value of such Securities on an as-converted and as-exercised
basis based on the closing price immediately preceding such transaction or the
redemption date, whichever is greater.
6.8 Current Report. On or before the 5th business day following the
Closing Date, the Company shall file a Current Report on Form 8-K with the SEC
describing the material terms of the transactions contemplated by the Agreements
and including as exhibits to such report this Agreement, the form of the Notes
and the Registration Rights Agreement in the form required by the 1934 Act (with
such exhibits, a "Required Report").
14
6.9 Incurrence of Indebtedness. So long as any of the Notes are
outstanding, the Company shall not, without obtaining prior approval from the
Required Holders, enter into, create, incur, assume or suffer to exist any
indebtedness of any kind other than (a) indebtedness existing on the date
hereof; (b) indebtedness of the Company to its Subsidiary; (c) indebtedness
arising out of trade accounts payable and other accrued liabilities arising in
the ordinary course of business that are not overdue by 90 days or more or are
being contested in good faith; (d) indebtedness arising from the honoring by a
bank or other financial institution of a check, draft or similar instrument; (e)
indebtedness which is subject and subordinate in right of payment to the right
of the Holders to receive the prior indefeasible payment and satisfaction in
full of the obligations under the Notes; (f) indebtedness arising under
customary inventory and receivable bank financing; and (g) indebtedness the net
proceeds from which is used to pay the outstanding Notes in full in accordance
with their terms. The Company shall not (a) modify the terms or maturity of any
indebtedness in any material respect, except the Company may modify the terms of
such indebtedness to extend the maturity thereof, to defer the timing of any
payments in respect thereof, to cancel any portion of such indebtedness (other
than pursuant to payments in the form of cash or other assets of the Company) or
to reduce the interest rate or any fees in connection therewith, or (b) prepay
any material indebtedness in the form of cash or other assets of the Company
without obtaining the approval from the Required Holders.
6.10 Purchaser Covenants. Each Purchaser covenants and agrees with
the Company as follows:
(a) Confidentiality. The Purchaser agrees that it will not disclose, and
will not include in any public announcement, the name of the Company, unless
expressly agreed to by the Company or unless and until such disclosure is
required by law or applicable regulation, and then only to the extent of such
requirement.
(b) Non-Public Information. The Purchaser agrees not to effect any
purchases or sales in the shares of the Company's Common Stock while in
possession of material, non-public information regarding the Company if such
sales would violate applicable securities law.
(c) Confidential Information. The Company from time to time may disclose
to the Purchaser pursuant to this Agreement certain confidential technical and
nontechnical business information ("Confidential Information"). Notwithstanding
any other provision of this Agreement, including provisions regarding the
termination of this Agreement or particular terms of this Agreement, the
Purchaser shall not disclose such Confidential Information to third parties
until the earliest of (i) the date upon which such information ceases to be
Confidential Information through no fault of the Purchaser, (ii) the date such
information is required to be disclosed by law or a court of competent
jurisdiction, or (iii) the fifth anniversary of the date of disclosure by the
Company to the Purchaser. In the event that the Purchaser or any of its
representatives is requested or required to disclose any of the Confidential
Information referred to above, the Purchaser will provide the Company with
prompt notice of such request or requirement so that the Company (if it so
desires) may seek a protective order. The Purchaser further acknowledges and
understands that any information so obtained which may be considered "inside"
non-public information will not be utilized by the Purchaser in connection with
15
purchases and/or sales of the Company's securities except in compliance with
applicable state and federal securities laws. Confidential Information shall not
include information that (A) was previously known to the receiving party prior
to disclosure thereof by the other party, (B) is independently developed without
the use of such Confidential Information, (C) at the time of disclosure to the
receiving party is, or thereafter becomes, generally available to the public
other than as a result of a disclosure by the receiving party or its
representatives in violation of this Section 6.8(c), or (D) becomes available to
the receiving party on a non-confidential basis from a third party provided that
such third party is not bound by an obligation of confidentiality to the
Company.
7. Survival. All representations and warranties contained in this
Agreement shall survive for eighteen (18) months following the Closing of the
transactions contemplated hereby.
8. Miscellaneous.
8.1 Successors and Assigns. This Agreement may not be assigned by
the Company. A Purchaser may assign its rights and delegate its duties hereunder
in whole or in part to any Person (who is not a competitor or vendor of the
Company) to which such Purchaser has transferred or assigned all or part of its
Notes in accordance with the terms of the Notes, provided in each case that such
transferee or assignee acknowledges in writing to the Company that the
representations and warranties contained herein shall apply to such transferee
or assignee. The terms and conditions of this Agreement shall inure to the
benefit of and be binding upon the respective permitted successors and assigns
of the parties. 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.
8.2 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. Delivery of an executed
counterpart of this Agreement by fax shall have the same force and effect as
delivery of an original executed counterpart of this Agreement.
8.3 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
8.4 Notices. Any and all notices or other communications or
deliveries to be provided by the Holder hereunder shall be in writing and
delivered personally, by confirmed facsimile, or by a nationally recognized
overnight courier service to the Company at the facsimile telephone number or
address of the principal place of business of the Company as set forth below.
Any and all notices or other communications or deliveries to be provided by the
Company hereunder shall be in writing and delivered personally, by facsimile, or
by a nationally recognized overnight courier service addressed to the Purchasers
at the facsimile telephone number or address of the Purchasers set forth below.
Any notice or other communication or deliveries hereunder shall be deemed
delivered (i) upon receipt, when delivered personally, (ii) when sent by
facsimile, upon receipt if received on a Business Day prior to 5:00 p.m.
(Eastern Time), or on the first Business Day following such receipt if received
on a Business Day after 5:00 p.m. (Eastern Time) or (iii) upon receipt, when
deposited with a nationally recognized overnight courier service.
16
If to the Company:
Knockout Holdings, Inc.
000 X. Xxxxxxxxx Xxxxxx
Xxxxxxxxx, XX 00000
Fax: (000) 000-0000
Attn: President
With a copy to:
Xxxxxxxxx Xxxxx Xxxx & Xxxxx PLLC
000 Xxxx Xxxxxx Xxxxx
Xxx Xxxx, XX 00000
Fax: (000) 000-0000
Attn: Xxxx Xxxx, Esq.
If to the Purchasers, to the addresses set forth on
the signature pages hereto.
8.5 Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Required
Holders. Any amendment or waiver effected in accordance with this Section shall
be binding upon Holders, future Holders and the Company.
8.6 Severability. 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 this Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
8.7 Entire Agreement. This Agreement, including the exhibits and
schedules hereto, the Registration Rights Agreement, the Notes and the other
documents contemplated hereby constitute the entire agreement among the parties
hereof with respect to the subject matter hereof and thereof and supersede all
prior agreements and understandings, both oral and written, between the parties
with respect to the subject matter hereof and thereof.
8.8 Further Assurances. The parties shall execute and deliver all
such further instruments and documents and take all such other actions as may
reasonably be required to carry out the transactions contemplated hereby and to
evidence the fulfillment of the agreements herein contained.
17
8.9 Applicable Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York without regard
to principles of conflicts of laws.
8.10 Remedies. The Purchasers shall be entitled to specific
performance of the Company's obligations under the Agreements.
8.11 Like Treatment of Purchasers and Holders. The Company shall
not, directly or indirectly, redeem any Securities unless such offer of
redemption is made pro rata to all Purchasers or holders of Securities, as the
case may be, on identical terms. For clarification purposes, this provision
constitutes a separate right granted to each Purchaser by the Company and
negotiated separately by each Purchaser, and shall not in any way be construed
as the Purchasers acting in concert or as a group with respect to the purchase,
disposition or voting of Securities or otherwise.
8.12 Actions of Purchasers. The obligations of each Purchaser
hereunder and under the documents contemplated hereby are several and not joint
with the obligations of any other Purchaser, and no Purchaser shall in any way
be responsible for the performance of the obligations of any other Purchaser
under any such document. Nothing contained herein or in any other document
contemplated hereby, and no action taken by any Purchaser pursuant hereto or
thereto, shall be deemed to constitute any of the Purchasers as a partnership,
an association, a joint venture or any other kind of entity, or create a
presumption that the Purchasers are in any way acting in concert or as a group
with respect to such obligations or the transactions contemplated hereby or
thereby. Each Purchaser confirms that it has independently participated in the
negotiation of the transaction contemplated hereby with the advice of its own
counsel and advisors. Each Purchaser shall be entitled to independently protect
and enforce its rights, including, without limitation, the rights arising out of
this Agreement or out of any other document contemplated hereby, and it shall
not be necessary for any other Purchaser to be joined as an additional party in
any proceeding for such purpose.
8.13 No Strict Construction. The parties hereto have participated
jointly in the negotiation and drafting of this Agreement. In the event an
ambiguity or question of intent or interpretation arises, this Agreement shall
be construed as if drafted jointly by the parties hereto and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any provisions of this Agreement.
8.14 Reimbursement of Expense. At the Closing, the Company shall pay
Royal Capital Management LLC ("Royal") an expense allowance of $10,000 which
amount shall be withheld by the Purchasers affiliated with Royal from their
Purchase Price to be paid at Closing.
[Signature Pages Follows]
18
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
The Company:
KNOCKOUT HOLDINGS, INC.
By: /s/ Xxxxxxx Xxx
------------------------------------
Name: Xxxxxxx Xxx
Title: CFO
19
Purchaser:
VICIS CAPITAL MASTER FUND
----------------------------------------
Name
By: Vicis Capital, LLC
/s/ Xxxx Xxxxxxxx
----------------------------------------
By
Member
----------------------------------------
Title
Principal Amount of Notes being purchased: $1,130,000.00
-------------
Address: Vicis Capital Master Fund
-------------------------------------------
Xxxxx 00, Xxxxx 000
-------------------------------------------
000 Xxxx 00xx Xxxxxx
-------------------------------------------
Xxx Xxxx, XX 00000
-------------------------------------------
Attention: Xxxx Xxxxxxxx, Managing Director
-------------------------------------------
Fax:
-------------------------------------------
with a copy to:
-------------------------------------------
-------------------------------------------
-------------------------------------------
-------------------------------------------
20
Purchaser:
GAMMA OPPORTUNITY CAPITAL
PARTNERS, LP
----------------------------------------
Name
/s/ Xxxxxxxx X. Xxxxxx
----------------------------------------
By
President Gamma Capital Advisors Ltd,
as Agent
----------------------------------------
Title
Principal Amount of Notes being purchased: $450,000.00
-----------
Address: Gamma Opportunity Capital Partners, LP
-------------------------------------------
0000 Xxxxxxxx-Xxxx Xxxx Xxxx
-------------------------------------------
Xxxxxxxx, XX 00000
-------------------------------------------
Attention: Xxxxxxxx X. Xxxxxx, President
-------------------------------------------
Fax:
-------------------------------------------
with a copy to:
-------------------------------------------
-------------------------------------------
-------------------------------------------
-------------------------------------------
21
Purchaser:
BUSHIDO CAPITAL MASTER FUND LP
----------------------------------------
Name
/s/ Xxxxxxxxxxx Xxxxxxx
----------------------------------------
By
Managing Director, Bushido Capital
Partners
----------------------------------------
Title
Principal Amount of Notes being purchased: $450,000.00
-----------
Address: Bushido Capital Master Fund LP
-------------------------------------------
000 Xxxxxxx Xxxxxx, Xxx 0000
-------------------------------------------
Xxx Xxxx, XX 00000
-------------------------------------------
Attention: Xxxxx Xxxxxxx, Director
-------------------------------------------
Fax:
-------------------------------------------
with a copy to:
-------------------------------------------
-------------------------------------------
-------------------------------------------
-------------------------------------------
22
Purchaser:
ROYAL CAPITAL VALUE FUND LP
----------------------------------------
Name
/s/ Yale Fergang
----------------------------------------
By
Managing Member
----------------------------------------
Title
Principal Amount of Notes being purchased: $49,000.00
----------
Address: Royal Capital Value Fund LP
-------------------------------------------
000 Xxxxxxxxx Xxxxxx, 0xx Floor
-------------------------------------------
Xxx Xxxx, XX 00000
-------------------------------------------
Attention: Yale Fergang, Portfolio Manager
-------------------------------------------
Fax:
-------------------------------------------
with a copy to:
-------------------------------------------
-------------------------------------------
-------------------------------------------
-------------------------------------------
23
Purchaser:
ROYAL CAPITAL VALUE FUND (QP) LP
----------------------------------------
Name
/s/ Yale Fergang
----------------------------------------
By
Managing Member
----------------------------------------
Title
Principal Amount of Notes being purchased: $516,000.00
-----------
Address: Royal Capital Value Fund (QP) LP
-------------------------------------------
000 Xxxxxxxxx Xxxxxx, 0xx Floor
-------------------------------------------
Xxx Xxxx, XX 00000
-------------------------------------------
Attention: Yale Fergang, Portfolio Manager
-------------------------------------------
Fax:
-------------------------------------------
with a copy to:
-------------------------------------------
-------------------------------------------
-------------------------------------------
-------------------------------------------
24
Purchaser:
ROYALCAP VALUE FUND LTD
----------------------------------------
Name
/s/ Yale Fergang
----------------------------------------
By
Managing Member
----------------------------------------
Title
Principal Amount of Notes being purchased: $205,000.00
-----------
Address: RoyalCap Value Fund Ltd
-------------------------------------------
000 Xxxxxxxxx Xxxxxx, 0xx Floor
-------------------------------------------
Xxx Xxxx, XX 00000
-------------------------------------------
Attention: Yale Fergang, Portfolio Manager
-------------------------------------------
Fax:
-------------------------------------------
with a copy to:
-------------------------------------------
-------------------------------------------
-------------------------------------------
-------------------------------------------
25
