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EXHIBIT 10
LINE OF CREDIT AGREEMENT dated as of August 10, 1999 (the Agreement)
between the entities listed on Exhibit A attached hereto (collectively referred
to as the "Investor"), GMF HOLDINGS, (the "Finder") MAY XXXXX GROUP, located at
One World Trade Center, New York, New York, a corporation organized under the
laws of New York and (the "Company") Xxxx.Xxx Inc., a corporation organized and
existing under the laws of the State of Nevada.
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Investor,
from time to time as provided herein, and the Investor shall purchase up to
$890,000.00 of Debentures for a total purchase price of $890,000.00; and
WHEREAS, such investments will be made in reliance upon the provisions
of Rule 504 Exemption of the Securities Act of 1933, as amended, and the
regulations promulgated thereunder (the "Securities Act"), and or upon such
other exemption from the registration requirements of the Securities Act as may
be available with respect to any or all of the investments in the Debentures to
be made hereunder; and
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1 "Advance" shall mean each occasion the Company elects to
exercise its right to tender an Advance Notice requiring the Investor to
advance funds to the Company, subject to the terms of this Agreement.
Section 1.2 "Advance Date" shall mean the date of an Advance by the
Investor to the Company.
Section 1.3 "Advance Notice" shall mean a written notice to the
Investor setting forth the Advance Amount that the Company requests from the
Investor and Compliance Certification from the Company as attached hereto as
Exhibit B.
Section 1.4 "Bid Price" shall mean the closing bid price (as reported
by Bloomberg L.P.) of the Common Stock on the Principal Market, provided that
the Common Stock is traded on a Principal market.
Section 1.5 "Closing" shall mean one of the closings of a purchase and
sale of the Debentures pursuant to Section 2.1.
Section 1.6 "Commitment Amount" shall mean the $890,000.00 up to which
the Investor has agreed to provide to the Company in order to purchase the
Debentures pursuant to the terms and conditions of this Agreement.
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Section 1.7 "Commitment Period" shall mean the period commencing on
the earlier to occur of the Effective Date, or (ii) such earlier date as the
Company and the Investor may mutually agree in writing, and expiring on the
earliest to occur of (x) the date on which the Investor shall have purchased
Debentures pursuant to this Agreement in the amount of at least $890,000.00
unless such date is extended by the Investor, (y) the date this Agreement is
terminated pursuant to Section 2.4, or (z) the date occurring twelve (12)
months from the date hereof.
Section 1.8 "Common Stock" shall mean the Company's common stock, par
value $0.001 per share.
Section 1.9 "Condition Satisfaction Date" shall have the meaning set
forth in Section 7.2.
Section 1.10 "Damages" shall mean any loss, claim, damage, liability,
costs and expenses (including, without limitation, reasonable attorney's fees
and disbursements and costs and expenses of expert witnesses and
investigation).
Section 1.11 "Debentures" shall mean the Debenture in the form of
Exhibit C annexed hereto.
Section 1.12 "Effective Date" shall mean the date on which the
Company's Counsel issues a legal opinion stating the stock to be issued to the
investor is free trading.
Section 1.13 "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder.
Section 1.14 "Legend" See Section 8.1.
Section 1.15 "Material Adverse Effect" shall mean any effect on the
business, Bid Price, operations, properties, prospects, or financial condition
of the Company that is material and adverse to the Company and its subsidiaries
and affiliates, taken as a whole, and/or any condition, circumstance, or
situation that would prohibit or otherwise interfere with the ability of the
Company to enter into and perform any of its obligations under this Agreement,
the Debenture, the Registration Rights Agreement or the Escrow Agreement in any
material respect.
Section 1.16 "Maximum Advance Amount" on any Advance Date shall be
equal to the difference between (I) the amount indicated opposite the range of
the 30 Day Average Daily Trading Volume on such Advance Date, as set forth in
the table below and (ii) the sum of the Advances made pursuant to this
Agreement, in the 30 calendar days immediately preceding the Advance Notice:
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30-DAY AVERAGE DAILY TRADING (1) MAXIMUM ADVANCE AMOUNT (2)
-------------------------------- --------------------------
$25,000 - $50,000 $100,000
$50,001 - $100,000 $200,000
$100,001 - $200,000 $300,000
$200,001 - $300,000 $500,000
$300,001 - $400,000 $600,000
$400,001 - $500,000 $700,000
(1) The 30-Day Average Trading Volume shall be equal to the average of the
Bid Price multiplied by the volume for each of the 30 calendar days preceding
the Advance Date.
(2) Assuming that no Advances have been made pursuant to this Agreement
during the preceding 30 calendar days.
Section 1.17 "NASD" shall mean the National Association of Securities
Dealers, Inc.
Section 1.18 "Person" shall mean an individual, a corporation, a
partnership, an association, a trust or other entity or organization, including
a government or political subdivision or an agency or instrumentality thereof.
Section 1.19 "Principal Market" shall mean the Nasdaq Over The Counter
Bulletin board, Nasdaq National Market, the Nasdaq SmallCap Market, the
American Stock Exchange or the New York Stock Exchange, whichever is at the
time the principal trading exchange or market for the Common Stock.
Section 1.20 "Subscription Date" shall mean the date on which this
Agreement is executed and delivered by the parties hereto.
Section 1.21 "Trading Day" shall mean any day during which the New
York Stock Exchange shall be open for business.
ARTICLE II
ADVANCES
Section 2.1 Investments.
(a) Advances. Upon the terms and conditions set forth herein
(including without limitation, the provisions of Article VII hereof), on any
Advance Date the Company may request an Advance by the Investor by the delivery
of an Advance Notice. The amount of the Debenture that the Investor shall
receive pursuant to such Advance shall be equal to the amount of the Advance
specified in the Advance Notice, which Advance shall not exceed the Maximum
Advance Amount on such date.
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Section 2.2 Mechanics.
(a) Advance Notice. At any time during the Commitment
Period, the Company may deliver an Advance Notice to the Investor, subject to
the conditions set forth in Section 2.4; provided, however, the Amount for each
Advance as designated by the Company in the applicable Advance notice shall not
be (I) less than $25,000, or (ii) more than the Maximum Advance Amount. The
aggregate amount of the Advances pursuant to this Agreement shall not exceed
the Commitment Amount, unless otherwise agreed by the Investor in the
Investor's sole and absolute discretion.
(b) Date of Delivery of Advance Notice. An Advance
Notice shall be deemed delivered on (I) the Trading Day it is received by
facsimile or otherwise by the Investor if such notice is received prior to
12:00 noon Eastern Time, or (ii) the immediately succeeding Trading Day if it
is received by facsimile or otherwise after 12:00 noon Eastern Time on a
Trading Day or at any time on a day which is not a Trading Day. No Advance
Notice may be deemed delivered, on a day that is not a Trading Day.
Section 2.3 Closings. On each Advance Date for an Advance, which
shall be within five (5) Trading Days of an Advance Notice, (I) the Company
shall deliver to the Escrow Agent one or more Debentures at the Investor's
option, representing the amount of the Advance by the Investor pursuant to
Section 2.1 herein, registered in the name of the Investor and (ii) the Investor
shall deliver to escrow the amount of the Advance specified in the Advance
Notice by wire transfer of immediately available funds to the Escrow Agent on or
before the Advance Date. In addition, on or prior to the Advance Date, each of
the Company and the Investor shall deliver to the Escrow Agent all documents,
instruments and writings required to be delivered or reasonably requested by
either of them pursuant to this Agreement in order to implement and effect the
transactions contemplated herein. Payment of funds to the Company and deliver of
the Debentures to the Investor shall occur out of escrow in accordance with the
conditions set forth above and those contained in the Escrow Agreement;
provided, however, that to the extent the Company has not paid the fees,
expenses, and disbursements of the Investor's counsel and the fees to the
Placement Agent in accordance with Section 13.4, the amount of such fees,
expenses, and disbursements shall be paid in immediately available funds, at the
direction of the Investor, to Investors counsel and the Placement Agent with no
reduction in the amount of Debenture on such Advance Date.
Section 2.4 Termination of Investment. The obligation of the
Investor to make an Advance to the Company pursuant to this Agreement shall
terminate permanently (including with respect to a Advance Date that has not
yet occurred) in the event that (I) there shall occur any stop order or
suspension of the effectiveness of the Registration Statement for an aggregate
of twenty (20) Trading Days during the Commitment Period, for any reason other
than deferral or suspensions in accordance with the Registration Rights
Agreement as a result of corporate developments subsequent to the Subscription
Date that would require such Registration Statement to be amended to reflect
such event in order to maintain its compliance with the disclosure requirements
of the Securities Act or (ii) the Company shall at any time fail to comply with
the requirements of Section 6.3, 6.4 or 6.6.
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Section 2.5 Agreement to Advance Funds.
(a) The Investor agrees to advance the amount specified
in the Advance Notice to the Company within five (5) Trading Days after the
completion of each of the following conditions and the other conditions set
forth in this Agreement:
(I) the execution and delivery by the Company,
and the Investor, or this Agreement, and all Exhibits and Attachments hereto;
(ii) delivery into escrow by the Company of the
original Debenture;
(iii) the Company's Registration Statement with
respect to the resale of the Registrable Securities in accordance with the
terms of the Registration Rights Agreement shall have been declared effective
by the SEC;
(iv) the Company shall have obtained all permits
and qualifications required by any state for the offer and sale of the
Registrable Securities, or shall have the availability of exemptions therefrom.
The sale and issuance of the Registrable Securities shall be legally permitted
by all laws and regulations to which the Company is subject; and
(v) payment of fees as set forth in Section
13.4 below.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF INVESTOR
Investor represents and warrants to the Company that:
Section 3.1 Organization and Authorization. Investor is duly
incorporated or organized and validly existing in the country of its
incorporation or organization and has all requisite power and authority to
purchase and hold the securities issuable hereunder. The decision to invest and
the execution and delivery of this Agreement by such Investor, the performance
by such Investor of its obligations hereunder and the consummation by such
Investor of the transactions contemplated hereby have been duly authorized and
requires no other proceedings on the part of the Investor. The undersigned has
all right, power and authority to execute and deliver this Agreement on behalf
of the Investor. This Agreement has been duly executed and delivered by the
Investor and, assuming the execution and delivery hereof and acceptance thereof
by the Company, will constitute the legal, valid and binding obligations of the
Investor, enforceable against the Investor in accordance with its terms.
Section 3.2 Evaluation of Risks. The Investor has such knowledge
and experience in financial and business matters as to be capable of evaluating
the merits and risks of, and bearing the economic risks entailed by, an
investment in the Company and of protecting its interests in connection with
this transaction. It recognizes that its investment in the Company involves a
high degree of risk.
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Section 3.3 Independent Counsel. The Investor acknowledges that
it has been advised to consult with its own attorney regarding legal matters
concerning the Company and to consult with its tax advisor regarding the tax
consequences of acquiring the securities issuable hereunder.
Section 3.4 Investment Intent. The securities are being purchased
by the Investor for its own account, for investment and without any view to the
distribution, assignment or resale to others or fractionalization in whole or
in part. The Investor agrees not to assign or in any way transfer the
Investor's rights to the Securities or any interest therein and acknowledges
that the Company will not recognize any purported assignment or transfer. No
other person has or will have a direct or indirect beneficial interest in the
securities. The Investor agrees not to sell, hypothecate or otherwise transfer
the Investor's securities unless the securities are registered under Federal
and applicable state securities law or unless, in the opinion of counsel
satisfactory to the Company, an exemption from such laws is available.
Section 3.5 Accredited Investor. All of the information that the
Investor has heretofore furnished to the Company or which is set forth herein
with respect to the Investor's financial position and business experience, is
correct, complete and not misleading as of the date hereof and the Investor
will advise the Company immediately in writing of any change in any response
hereto. The Investor understands that this investment is suitable for and is
available only to "accredited Investors," as that term is defined in Regulation
D promulgated under the 1933 Act as set forth in Exhibit D and that the
Investor satisfies at least one of the categories set forth below (please check
applicable box).
[ ] a corporation, business trust, or
partnership not formed for the specific purpose of
acquiring the securities offered, with total assets
in excess of $5,000,000.
[ ] any trust, with total assets in excess of
$5,000,000, not formed for the specific purpose of
acquiring the securities offered, whose purchase is
directed by a sophisticated person who has such
knowledge and experience in financial and business
matters that he is capable of evaluating the merits
and risks of the prospective investment.
an individual, who
[ ] is a director, executive officer or general
partner of the issuer of the securities being
offered or sold or a director, executive officer or
general partner of a general partner of that issuer.
[ ] has an individual net worth, or joint net
worth with that person's spouse, at the time of his
purchase exceeding $1,000,000.
[ ] had an individual income in excess of
$200,000 in each of the two most recent years or
joint income with that person's spouse in excess of
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$300,000 in each of those years and has a reasonable
expectation of reaching the same income level in the
current year.
[ ] any entity in which all of the equity
owners are "accredited investors.
The Investor acknowledges that the information set forth herein is not intended
to be exhaustive and is provided only as a guide to assist each potential
investor in making an independent investigation of the Company and the
Securities being offered.
Section 3.6 SEC Documents. The Investor has carefully read and is
familiar with and has carefully reviewed the SEC Documents. The Investor has
evaluated the merits and risks of the Investor's investment in the securities,
and has determined that the securities are a suitable investment. The Investor
has availed itself of the opportunity to ask question of the Company concerning
the terms and conditions of this offering and obtained such additional
information as the Investor has deemed necessary. The company has answered all
inquiries concerning the terms and conditions of this offering and has afforded
the Investor the opportunity to obtain any additional information (to the
extent that the Company possesses such information or can acquire it without
unreasonable effort expense) necessary to verify the accuracy of the
information.
Section 3.7 No Advertisements. The Investor is not entering into
this Agreement as a result of or subsequent to any advertisement, article,
notice or other communication published in any newspaper, magazine, or similar
media or broadcast over television or radio, or presented at any seminar or
meeting.
Section 3.8 Not an Affiliate. The Investor is not an officer,
director or "affiliate" (as that term is defined in Rule 405 of the Securities
Act) of the Company.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to, and covenants with, the
Investors that the following are true and correct as of the date hereof and as
of the Advance Date:
Section 4.1 Organization: Qualification. The Company is a
corporation duly organized and validly existing under the laws of the State of
Nevada and is in good standing under such laws. The Company has all requisite
corporate power and authority to own, lease and operate its properties and
assets, and to carry on its business as presently conducted. The Company is
qualified to do business as a foreign corporation in each jurisdiction in which
the ownership of its property or the nature of its business requires such
qualification, except where failure to so qualify would not have a material
adverse effect on the Company.
Section 4.2 Capitalization. The authorized capital stock of the
Company consists of THIRTY MILLION (30,000,000) shares of Common Stock, $0.001
per value per share, of which NINETEEN MILLION THREE HUNDRED AND FORTY THREE
THOUSAND
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(19,343,000) are outstanding. All issued and outstanding shares of Common Stock
have been duly authorized and validly issued and are fully paid and
nonassessable.
Section 4.3. Authorization. The Company has all requisite
corporate right, power and authority to execute and deliver this Agreement and
to consummate the transactions contemplated hereby. All corporate action on the
part of the Company, its directors and stockholders necessary for the
authorization, execution, deliver and performance of this Agreement by the
Company, the authorization, sale, issuance and delivery of the securities
issuable hereunder and the performance of the Company's obligations hereunder
have been taken. This Agreement has been duly executed and delivered by the
Company and constitutes a legal, valid and binding obligation of the Company
enforceable in accordance with its terms, subject to laws of general
application relating to bankruptcy, insolvency and the relief of debtors and
rules of law governing specific performance, injunctive relief or other
equitable remedies, and to limitations of public policy as they may apply to
the indemnification provisions set forth in of this Agreement. Upon their
issuance and delivery pursuant to this Agreement, the shares of Common Stock
issuable upon the conversion of the Debentures will be validly issued, fully
paid and nonassessable and will be free of any liens or encumbrances other than
those created hereunder or by the actions of the Investors; provided, however
that the securities are subject to restrictions on transfer under state and/or
federal securities laws. The issuance and sale of the securities hereunder will
not give rise to any preemptive right or right of first refusal or right to
participation on behalf of any person.
Section 4.4 No Conflict. The execution and delivery of this
Agreement do not, and the consummation of the transactions contemplated hereby
will not, conflict with, or result in any violation of, or default, or give
rise to a right of termination, cancellation or acceleration of any material
obligation or to a loss of a material benefit, under, any provision of the
Articles of Incorporation, and any amendments thereto, Bylaws, Stockholders
Agreements and any amendments thereto of the Company or any material mortgage,
indenture, lease or other agreement, permit, concession, franchise, license,
judgment, order, decree statute, law, ordinance, rule or regulation applicable
to the Company, its properties or assets and which would have a material
adverse effect on the Company's business and financial condition.
Section 4.5 No Undisclosed Liabilities or Events. The Company has
no MATERIAL liabilities or obligations other than those previously disclosed to
the investor, and, in each case, which individually or in the aggregate, do not
or would not have a material adverse effect on the properties, business,
condition (financial or otherwise), results of operations or prospects of the
Company. No event or circumstances has occurred or exists with respect to the
Company or its properties, business, condition (financial or otherwise),
results of operations or prospects, which, under applicable law, rule or
regulation, requires public disclosure or announcement prior to the date hereof
by the Company but which has not been so publicly announced or disclosed.
Section 4.6 No Default. The Company is not in default in the
performance or observance of any material obligation, agreement, covenant or
condition contained in any indenture, mortgage, deed of trust or other material
instrument or agreement to which it is a party or by which it is or its
properly is bound, and neither the execution, nor the delivery by the Company,
nor the performance by the Company of its obligations under this Agreement or
any
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of the Exhibits or attachments hereto, including the conversion provision of
the Debentures, will conflict with or result in the breach or violation of any
of the terms or provisions of, or constitute a default or result in the
creation or imposition of any lien or charge on any assets or properties of the
Company under, any material indenture, mortgage, deed of trust or other
material agreement applicable to the Company or instrument to which the Company
is a party or by which it is bound or any statute or the memorandum or Articles
of the Company, or any decree, judgment, order, rules of regulation of any
court or governmental agency or body having jurisdiction over the Company or
its properties, or in the event that the Common Stock is listed on a Principal
Market, the Company's listing agreement for its Common Stock, in each case
which default, lien or charge is likely to cause a material adverse effect on
the Company's business and financial condition.
Section 4.7 Absence of Events of Default. Except as set forth in
the SEC Documents, the Disclosure Schedule and this Agreement, no Event of
Default, as defined in the respective agreement to which the Company is a
party, and no event which, with the giving of notice or the passage of time or
both, would become an Event of Default (as so defined), has occurred and is
continuing, which would have a material adverse effect on the Company's
business, properties, prospects, financial condition or results of operations.
Section 4.8 Governmental Consent, etc. Except as set forth in the
Disclosure Scheduled, no consent, approval or authorization of or designation,
declaration or filing with any governmental authority on the part of the
Company is required in connection with the valid execution and delivery of this
Agreement, or the offer, sale or issuance of the securities hereunder, or the
consummation of any other transaction contemplated hereby.
Section 4.9 Intellectual Property Rights. Except as disclosed in
the SEC Documents, the Company has sufficient trademarks, trade names, patent
rights, copyrights and licenses to conduct its business as presently conducted
in the SEC Documents, except where failure to have any such intellectual
property would not cause a material adverse effect on the business and
financial condition of the Company. To the Company's knowledge, neither the
Company nor its products ARE infringing or will infringe any trademark, trade
name, patent right, copyright, license, trade secret or other similar right of
others currently in existence; and there is no claim being made against the
Company regarding any trademark, trade name, patent, copyright, license, trade
secret or other intellectual property right which could have a material adverse
effect on the business or financial condition of the Company.
Section 4.10 Material Contracts. Except as set forth in the SEC
Documents and the Disclosure Schedule, the agreements to which the Company is a
party described in the SEC Documents are valid agreements, constitute all of
the Company's material agreements and are in full force and effect and the
Company is not in material breach or material default under any of such
agreements, except where such breach or default would not cause a material
adverse effect on the business and financial condition of the Company.
Section 4.11 Litigation. Except as disclosed in the SEC Documents
and the Disclosure Schedule, there is no action, proceeding or investigation
pending, or to the Company's knowledge threatened, against the Company which
might result, either individually or in the
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aggregate, in any material adverse change in the business, prospects, financial
conditions or operations of the Company. The Company is not a party to or
subject to the provisions of any order, writ, injunction, judgment or decree of
any court or government agency or instrumentality.
Section 4.12 Title to Assets. Except as set forth in the SEC
Documents, the Company has good and marketable title to all properties and
material assets described in the SEC Documents as owned by it, free and clear
of any pledge, lien, security interest, encumbrance, claim or equitable
interest other than such as are not material to the business of the Company.
Section 4.13 Subsidiaries. Except as disclosed in the SEC
Documents, the Company does not presently own or control, directly or
indirectly, any interest in any other corporation, partnership, association or
other business entity.
Section 4.14 Required Governmental Permits. Except as set forth in
the SEC Documents, the Company is in possession of an operating in compliance
with all authorizations, licenses, certificates, consents, orders and permits
from state, federal and other regulatory authorities which are material to the
conduct of its business, all of which are valid and in full force and effect.
Section 4.15 Other Outstanding Securities/Financing Restrictions.
Other than warrants and options to acquire shares of Common Stock as disclosed
in the SEC Documents, there are registration, which are available for sale as
unrestricted ("free trading") stock.
Section 4.16 Use of Proceeds. The Company represents that the net
proceeds from this offering will be used for working capital purposes and/or
general corporate purposes. However, in no event shall the net proceeds from
this offering be used by the Company for the payment (or loaned to any such
person for the payment) of any judgment, or other liability, incurred by any
executive officer, officer, director, or employee of the Company.
Section 4.17 Full Disclosure. There is no fact known to the
Company (other than general economic conditions known to the public generally)
that has not been disclosed in writing to the Investor that (I) could
reasonably be expected to have a material adverse effect on the financial
condition or in the earnings, business affairs, business prospects, properties
or assets of the Company, or (ii) could reasonably be expected to materially
and adversely affect the ability of the Company to perform its obligations
pursuant to this Agreement.
Section 4.18 Opinion of Counsel. Investor shall receive an opinion
letter from counsel to the Company (updated where applicable) prior to each
Closing to the effect that:
(a) The Company is incorporated and validly existing in
the jurisdiction of its incorporation. The Company and/or its subsidiaries are
duly qualified to do business as a foreign corporation and is in good standing
in all jurisdictions where, to such counsel's knowledge, the Company and/or its
subsidiaries owns or leases properties, maintains employees or conducts
business, except for jurisdictions in which the failure to so qualify would not
have a material
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adverse effect on the Company, and has all requisite corporate power and
authority to own its properties and conducts its business.
(b) To such counsel's knowledge, there is no action,
proceeding or investigation pending, or threatened against the Company which
might result, either individually or in the aggregate, in any material adverse
change in the business or financial condition of the Company, except as has
been described in the SEC Documents.
(c) To such counsel's knowledge, the Company is not a
party to or subject to the provisions of any order, writ, injunction, judgment
or decree of any court or government agency or instrumentality, except as has
been described in the SEC Documents.
(d) To such counsel's knowledge, there is no action,
suit, proceeding or investigation by the Company currently pending, except as
has been described in the SEC Documents.
(e) The shares of Common Stock issuable upon the
conversion of the Debentures have been duly authorized and upon issuance will
be validly issued under the laws of the Company's state of incorporation.
(f) This Agreement, the issuance of the Debentures
hereunder, and the shares of Common Stock issuable upon conversion of the
Debentures, have been duly approved by all required corporate action and that
all such securities, upon execution and delivery that shall be validly issued
and outstanding, fully paid and nonassessable.
(g) The issuance of the Debentures and the shares of
Common Stock issuable upon conversion thereof, will not violate the applicable
listing agreement between the Company and any securities exchange or market on
which the Company's securities are listed.
(h) The authorized capital stock of the Company consists
of THIRTY MILLION (30,000,000) shares of Common Stock, $0.001 par value per
share, of which NINETEEN MILLION THREE HUNDRED AND FORTY THREE THOUSAND
(19,343,000) are outstanding. All issued and outstanding shares of Common Stock
have been duly authorized and validly issued and are fully paid and
nonassessable.
Section 4.19 Opinion of Counsel. The Company will obtain for the
Investor, at the Company's expense, any and all opinions of counsel which may
be required in order to convert, exercise or sell the securities issuable
hereunder, including, but not limited to, obtaining for Investors, at the
Company's expense an opinion of counsel, subject only to receipt of a Notice of
Conversion, duly executed by the Investor which shall be satisfactory to the
Transfer Agent, directing the Transfer Agent to remove the self-liquidating
legend.
Section 4.20 Dilution. The Company is aware and acknowledges that
conversation of the Debentures could cause dilution to existing shareholder and
could significantly increase the outstanding number of shares of Common Stock.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND INVESTOR
Each of the Investors and the Company represent to the other the
following with respect to itself:
Section 5.1 Line of Credit Agreement. This Agreement has been
duly authorized, validly executed and delivered on behalf of the Company and
each of the Investors and is a valid and binding agreement in accordance with
its terms, subject to general principles of equity and to bankruptcy or other
laws affecting the enforcement of creditors' rights generally.
Section 5.2 Non-contravention. The execution and delivery of this
Agreement along with all Exhibits and Attachments, and the consummation of the
issuance of the securities and the transactions contemplated by this Agreement
do not and will not conflict with or result in a breach by the Company or
Investor of any of the terms or provisions of, or constitute a default under,
the articles of incorporation or by-laws of the Company or Investor, or any
indenture, mortgage, deed of trust of other material agreement or instrument to
which the Company or Investor is a party or by which it or any of its
properties or assets are bound, or any existing applicable law, rule or
regulation or any applicable decree, judgment or order of any court, Federal or
State regulatory body, administrative agency or other governmental body having
jurisdiction over the Company or Investor or any of its properties or assets.
Section 5.3 Approvals. Neither the Company nor Investor is aware
of any authorization, approval or consent of any governmental body which is
legally required for the issuance and sale of the securities.
Section 5.4 Indemnification. Each of the Company and the
Investors agree to indemnify the other and to hold the other harmless from and
against any and all losses, damages, liabilities, costs and expenses (Including
reasonable attorneys' fees) which the other may sustain or incur in connection
with the breach by the indemnifying party of any representation, warranty or
covenant made by it in this Agreement.
ARTICLE VI
COVENANTS OF THE COMPANY
Section 6.1 Reservation of Common Stock. As of the date hereof,
the Company has authorized and reserved and the Company shall continue to
reserve and keep available at all times, free of preemptive rights, shares of
Common Stock for the purpose of enabling the Company to satisfy and obligation
to issue shares of Commons Stock underlying the Debentures, such amount of
shares of Common Stock to be reserved shall be calculated based upon the Bid
Price of the Common Stock. The number of shares so reserved from time to time,
as theretofore increased or reduced as hereinafter provided, may be reduced by
the number of shares actually delivered pursuant to the Debentures and the
number of shares so reserved shall be increased or decreased to reflect
potential increases or decreases in the Common Stock that the Company may
thereafter be so obligated to issue.
13
Section 6.2 Listing of Common Stock. In the event that the Common
Stock is listed on a Principal Market, the Company hereby agrees to maintain
the listing of the Common Stock on such Principal Market. The Company further
agrees, if the Company applies to have the Common Stock traded on any other
Principal Market, it will include in such application the shares of Common
Stock issuable upon the conversion of the Debentures and will take such other
action as is necessary or desirable in the opinion of the investor to cause the
Common Stock to be listed on such other Principal Market as promptly as
possible. The Company sill take all action to continue the listing and trading
of its Common Stock on the Principal Market (including, without limitation,
maintaining sufficient net tangible assets) and will comply in all respects
with the Company's reporting, filing and other obligations under the bylaws or
rules of the Principal Market.
Section 6.3 Exchange Act Registration. The Company will cause its
Common Stock to continue to be registered under Section 12 (b) of the Exchange
Act, will use its best efforts to comply in all respects with its reporting and
filing obligations under the Exchange Act, and will not take any action or file
any document (whether or not permitted by Exchange Act or the rules thereunder)
to terminate or suspend such registration or to terminate or suspend its
reporting and filing obligations under said Act.
Section 6.4 Legends. The certificates evidencing the Common
Stock to be sold by the Investor shall be free of legends.
Section 6.5 Corporate Existence. The Company will take all steps
necessary to preserve and continue the corporate existence of the Company.
Section 6.6 Additional SEC Documents. The Company will deliver to
the Investor, as and when the originals thereof are submitted to the SEC for
filing, copies of all SEC Documents so furnished or submitted to the SEC.
Section 6.7 Notice of Certain Events Affecting Registration:
Suspension of Right to Make an Advance. The Company will immediately notify the
Investor upon the occurrence of any of the following events in respect of a
registration statement or related prospectus relating to an offering of
Registrable Securities; (i) receipt of any request for additional information
by the SEC or any other federal or state governmental authority during the
period of effectiveness of the Registration Statement for amendments or
supplements to the registration statement or related prospectus; (ii) the
issuance by the SEC or any other federal or state governmental authority of any
stop order suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose; (iii) receipt of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose; (iv) the happening of any event that makes any statement made in the
Registration Statement or related prospectus of any document incorporated or
deemed to be incorporated therein by reference untrue in any material respect
or that requires the making of any changes in the Registration Statement,
related prospectus or documents so that, in the case of the Registration
Statement, it will not contain any untrue statement of a material fact or omit
to state any material fact required
14
to be stated therein or necessary to make the statements therein not
misleading, and that in the case of the related prospectus, it will not contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading; and
(v) the Company's reasonable determination that a post-effective amendment to
the Registration Statement would be appropriate; and the Company will promptly
make available to the Investor any such supplement or amendment to the related
prospectus. The Company shall not deliver to the Investor any Advance Notice
during the continuation of any of the foregoing events.
Section 6.8 Expectations Regarding Advance Notices. Within ten
(10) days after the commencement of each calendar quarter occurring subsequent
to the commencement of the Commitment Period, the Company must notify the
Investor, in writing, as to its reasonable expectations as to the dollar amount
it intends to raise during such calendar quarter, if any, through the issuance
of Advance Notices. Such notification shall constitute only the Company's good
faith estimate and shall in no way obligate the Company to raise such amount,
or any amount, or otherwise limit its ability to deliver Advance Notices. The
failure by the Company to comply with this provision can be cured by the
Company's notifying the Investor, in writing, at any time as to its reasonable
expectations with respect to the current calendar quarter.
Section 6.9 Consolidation: Merger. The Company shall not, at any
time after the date hereof, effect any merger or consolidation of the Company
with or into, or a transfer of all or substantially all of the assets of the
Company to, another entity (a "Consolidation Event") unless the resulting
successor or acquiring entity (if not the Company) assumes by written
instrument the obligation to deliver to the Investor such shares of stock
and/or securities as the Investor is entitled to receive pursuant to this
Agreement.
Section 6.10 Issuance of Debentures. The sale of the Debentures
and the issuance of the shares of Commons Stock pursuant to conversion hereof
shall be made in accordance with the provision and requirements of Section 4(2)
of the Securities Act, or Regulation D and any applicable state securities law.
Section 6.11 Legal Opinion of Subscription Date. The Company's
independent counsel shall deliver to the Investor upon execution of this
Agreement an opinion in the form of Exhibit E annexed hereto.
ARTICLE VII
CONDITIONS FOR ADVANCE AND CONDITIONS TO CLOSING
Section 7.1 Conditions Precedent to the Obligation of the Company
to Issue and Sell the Debentures. The obligation hereunder of the Company to
issue and sell the Debentures to the Investor incident to each Closing is
subject to the satisfaction, or waiver by the Company, at or before each such
Closing, of each of the conditions set forth below.
(a) Accuracy of the Investor's Representation and
Warranties. The representations and warranties of the Investor shall be true
and correct in all material respects as
15
of the date of this Agreement and as of the date of each such Closing as though
made at each such time.
(b) Performance by the Investor. The Investor shall have
performed, satisfied and complied in all respects with all covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Investor at or prior to such Closing.
Section 7.2 Conditions Precedent to the Right of the Company to
Deliver an Advance Notice and the Obligation of the Investor to Purchase
Debentures. The right of the Company to deliver an Advance Notice and the
obligation of the Investor hereunder to acquire and pay for the Debentures
incident to a Closing is subject to the satisfaction or waiver by the Investor,
on (i) the date of delivery of such Advance Notice and (ii) the applicable
Advance Date (each a "Condition Satisfaction Date"), of each of the following
conditions:
(a) Authority. The Company shall have obtained all
permits and qualifications required by any state for the offer and sale of the
Debentures and the shares of Common Stock issuable upon the conversion thereof,
or shall have the availability of exemptions therefrom. The sale and issuance
of the Debentures and the shares of Common Stock issuable upon the conversion
thereof shall be legally permitted by all laws and regulations to which the
Company is subject.
(b) Accuracy of the Company's Representations and
Warranties. The representations and warranties of the Company shall be true and
correct in all material respects as of each Condition Satisfaction Date as
though made at each such time (except for representations and warranties
specifically made as of a particular date) with respect to all periods, and as
to all events and circumstances occurring or existing to and including each
Condition Satisfaction Date, except for any conditions which have temporarily
caused any representations or warranties herein to be incorrect and which have
been corrected with no continuing impairment to the Company or the Investor.
(c) Performance by the Company. The Company shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement, the Debenture and the
Registration Rights Agreement to be performed, satisfied or complied with by
the Company at or prior to each Condition Satisfaction Date.
(d) No Injunction. No statute, rule, regulation,
executive order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction that prohibits or directly and adversely affects any of the
transactions contemplated by this Agreement, and no proceeding shall have been
commenced that may have the effect of prohibiting or adversely affecting any of
the transactions contemplated by this Agreement.
16
(e) Adverse Changes. Since the date of filing of the
Company's most recent SEC Document, no event that had or is reasonably likely
to have a Material Adverse Effect has occurred.
(f) No Suspension of Trading In or Delisting of Common
Stock. The trading of the Common Stock is not suspended by the SEC or the
Principal Market (if the Common Stock is traded on a Principal Market). The
issuance of shares of Common Stock with respect to the applicable Closing, if
any, shall not violate the shareholder approval requirements of the Principal
Market (if the Common Stock is traded on a Principal market). The Company shall
not have received any notice threatening the listing of the Common Stock on the
Principal Market (if the Common Stock is traded on a Principal Market).
(g) Maximum Advance Amount. The amount of the advance
requested by the Company does not exceed the Maximum Advance Amount.
(h) No Knowledge. The Company has no knowledge of any
event more likely than not to have the effect of causing such Registration
Statement to be suspended or otherwise ineffective (which event is more likely
than not to occur within the fifteen Trading Days following the Trading Day on
which such Notice is deemed delivered).
(i) Other. On each Condition Satisfaction Date, the
Investor shall have received and been reasonably satisfied with such other
certificates and documents as shall have been reasonably requested by the
Investor in order for the Investor to confirm the Company's satisfaction of the
conditions set forth in this Section 7.2, including, without limitation, a
certificate in substantially the form and substance of Exhibit "B" hereto,
executed in either case by an executive officer of the Company and to the
effect that all the conditions to such Closing shall have been satisfied as at
the date of each such certificate.
ARTICLE VIII
DUE DILIGENCE REVIEW; NON-DISCLOSURE OF NON-PUBLIC INFORMATION
Section 8.1 Due Diligence Review. The Company shall make
available for inspection and review by the Investor, advisors to and
representatives of the Investor, any underwriter participating in any
disposition of the Registrable Securities on behalf of the Investor pursuant to
the Registration Statement, any such registration statement or amendment or
supplement thereto or any blue sky, NASD or other filing, all financial and
other records, all SEC Documents and other filings with the SEC, and all other
corporate documents and properties of the Company as may be reasonably
necessary for the purpose of such review, and cause the Company's officers,
directors and employees to supply all such information reasonably requested by
the Investor or any such representative, advisor or underwriter in connection
with such Registration Statement (including, without limitation, in response to
all questions and other inquiries reasonably made or submitted by any of them),
prior to and from time to time after the filing and effectiveness of the
Registration Statement for the sole purpose of enabling the Investor and such
representatives, advisors and underwriters and their respective accountants and
attorneys to conduct initial and ongoing due diligence with respect to the
Company and the accuracy of the Registration Statement.
17
Section 8.2 Non-Disclosure of Non-Public Information.
(a) The Company shall not disclose non-public
information to the Investor, advisors to or representatives of the Investor
unless prior to disclosure of such information the Company identifies such
information as being non-public information and provides the Investor, such
advisors and representatives with the opportunity to accept or refuse to accept
such non-public information for review. The Company may, as a condition to
disclosing any non-public information hereunder, require the Investor's
advisors and representatives to enter into a confidentiality agreement in form
reasonably satisfactory to the Company and the Investor.
(b) Nothing herein shall require the Company to disclose
non-public information to the Investor or its advisors or representatives, and
the Company represents that it does not disseminate non-public information to
any investors who purchase stock in the Company in a public offering, to money
managers or to securities analysts, provided, however, that notwithstanding
anything herein to the contrary, the Company will, as hereinabove provided,
immediately notify the advisors and representatives of the Investor and, if
any, underwriters, of any event or the existence of any circumstance (without
any obligation to disclose the specific event or circumstance) of which it
becomes aware, constituting non-public information (whether or not requested of
the Company specifically or generally during the course of due diligence by
such persons or entities), which, if not disclosed in the prospectus included
in the Registration Statement would cause such prospectus to include a material
misstatement or to omit a material fact required to be stated therein in order
to make the statements, therein, in light of the circumstances in which they
were made, not misleading. Nothing contained in this Section 8.2 shall be
construed to mean that such persons or entities other than the Investor
(without the written consent of the Investor prior to disclosure of such
information) may not obtain non-public information in the course of conducting
due diligence in accordance with the terms of this Agreement and nothing herein
shall prevent any such persons or entities from notifying the Company of their
opinion that based on such due diligence by such persons or entities, that the
Registration Statement contains an untrue statement of material fact or omits a
material fact required to be stated in the Registration Statement or necessary
to make the statements contained therein, in light of the circumstances in
which they were made, not misleading.
ARTICLE IX
CHOICE OF LAW/JURISDICTION
Section 9.1 Choice of Law: Venue: Jurisdiction. This Agreement will be
construed and enforced in accordance with and governed by the laws of the State
of New York, except for matters arising under the Act, without reference to
principles of conflicts of law. Each of the parties consents to the
jurisdiction of the U.S. District Court sitting in the Southern District of the
State of New York or the state courts of the State of New York sitting in
Manhattan in connection with any dispute arising under this Agreement and
hereby waives, to the maximum extent permitted by law, any objection, including
any objection based on forum non conveniens
18
to the bringing of any such proceeding in such jurisdictions. Each party hereby
agrees that if another party to this Agreement obtains a judgment against it in
such a proceeding, the party which obtained such judgment may enforce same by
summary judgment in the courts of any country having jurisdiction over the
party against whom such judgment was obtained, and each party hereby waives any
defenses available to it under local law and agrees to the enforcement of such
a judgment. Each party to this Agreement irrevocably consents to the service of
process in any such proceeding by the mailing of copies thereof by registered
or certified mail, postage prepaid, to such party at its address set forth
herein. Nothing herein shall affect the right of any party to serve process in
any other manner permitted by law.
ARTICLE X
ASSIGNMENT; TERMINATION
Section 10.1 Assignment. Neither this Agreement nor any rights of
the Investor or the Company hereunder may be assigned by either party to any
other person. Notwithstanding the foregoing, (a) the provisions of this
Agreement shall insure to the benefit of, and be enforceable by, any transferee
of any of the Debentures purchased or acquired by the Investor hereunder with
respect to the Common Stock held by such person, and (b) upon the prior written
consent of the Company, which consent shall not unreasonably be withheld, the
Investor's interest in this Agreement may be assigned at any time, in whole or
in part, to any other person or entity (including any affiliate of the
Investor) who agrees to make the representations and warranties contained in
Article III and who agrees to be bound by the covenants of Article V.
Section 10.2 Termination. This Agreement shall terminate twelve
(12) months after the date hereof; provided, however, that the provision of
Articles III, IV, V, VI, VII, VIII, IX, X, XI, and XII shall survive the
termination of this Agreement.
ARTICLE XI
NOTICES
Section 11.1 Notices. All notices, demands, requests, consents,
approvals and other communications required or permitted hereunder shall be in
writing and, unless otherwise specified herein, shall be (I) personally served,
(ii) deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile,
addressed as set forth below or to such other address as such party shall have
specified most recently by written notice.
Any notice or other communication requested or permitted to be given
hereunder shall be deemed effective (a) upon hand delivery or delivery by
facsimile, with accurate confirmation generated by the transmitting facsimile
machine, at the address or number designed below (if delivered on a business
day during normal business hours where such notice is to be received), or the
first business day following such delivery (if delivered other than on a
business day during
19
normal business hours where such notice is to be received) or (b) on the second
business day following the date of mailing by reputable courier service, fully
prepaid, addressed to such address, or upon actual receipt of such mailing,
whichever shall first occur. The addresses for such communications shall be:
If to the Company: 000 Xxxxxxx Xxxxxx X.X.
0xx Xxxxx
Xxxxxxxxxxx, Xxx Xxxxxx 00000
If to the Investor, at the address listed on Schedule A.
Either party hereto may from time to time change its address or
facsimile number for notices under this Section 11.1 by giving at least ten
(10) days" prior written notice of such changed address or facsimile number to
the other party hereto.
ARTICLE XII
MISCELLANEOUS
Section 12.1 Counterparts/Facsimile/Amendments. This Agreement may
be executed in multiple counterparts, each of which may be executed by less
than all of the parties and shall be deemed to be an original instrument which
shall be enforceable against the parties actually executing such counterparts
and all of which together shall constitute one and the same instrument. Except
as otherwise stated herein, in lieu of the original documents, a facsimile
transmission or copy of the original documents shall be as effective and
enforceable as the original This Agreement may be amended only by a writing
executed by all parties.
Section 12.2 Entire Agreement. This Agreement, the Exhibits or
Attachments hereto, which include but are not limited to the Debenture, the
Escrow Agreement, and the Registration Rights Agreement set forth the entire
agreement and understanding of the parties relating to the subject matter
hereof and supersedes all prior and contemporaneous agreements, negotiations
and understanding between the parties, both oral and writing relating to the
Section 12.3 Reporting Entity for the Common Stock. The reporting
entity relied upon for the determination of the trading price or trading volume
of the Common Stock on any given Trading Day for the purposes of this Agreement
shall be Bloomberg, L.P. or any successor thereto. The written mutual consent
of the Investor and the Company shall be required to employ any other reporting
entity.
Section 12.4 Fees and Expenses. On each Advance Date of an Advance
the Company shall pay twelve (12) percent of proceeds to May Xxxxx Group as a
finder's fees
Section 12.5 Brokerage. Each of the parties hereto represents that
it has had no dealings in connection with this transaction with any finder or
broker who will demand payment of any fee or commission from the other party.
The Company on the one hand, and the Investor, on the other hand, agree to
indemnify the other against and hold the other harmless from any and all
liabilities to any person claiming brokerage commissions or finder's fees on
account of
20
services purported to have been rendered on behalf of the indemnifying party in
connection with this Agreement or the transactions contemplated hereby.
Section 12.6 Confidentiality. If for any reason the transactions
contemplated by this Agreement are not consummated, each of the parties hereto
shall keep confidential any information obtained from any other party (except
information publicly available or in such party's domain prior to the date
hereof, and except as required by court order) and shall promptly return to the
other parties all schedules, documents, instruments, work papers or other
written information without retaining copies thereof, previously furnished by
it as a result of this Agreement or in connection herein.
IN WITNESS WHEREOF, the parties hereto have caused this Line of Credit
Agreement to be executed by the undersigned, thereunto duly authorized, as of
the date first set forth above.
FINDER:
MAY XXXXX GROUP
BY: /s/ XXXXXXX XXXXXX
---------------------------------------
Name: Xxxxxxx Xxxxxx
Title: Managing Director
COMPANY:
XXXX.XXX, INC.
BY: /s/ XXXXXXX X. XXXXX
---------------------------------------
Name: Xxxxxxx X. Xxxxx
Title: President and CEO
INVESTOR:
GMF HOLDINGS
BY: /s/ XXXXX XXXXX
---------------------------------------
Name: Xxxxx Xxxxx
Title: Director
21
EXHIBIT A
LIST OF INVESTORS
GMF HOLDINGS
000 Xxxxxxxx Xxxxxx
Xxxxxx, Xxxxxxx.
22
EXHIBIT B
ADVANCE NOTICE/COMPLIANCE CERTIFICATE
Xxxx.Xxx, Inc.
The undersigned, Xxxxxxx X. Xxxxx, hereby certifies, with respect to the sale
of Debentures of Xxxx.Xxx, Inc., (the "Company") issuable in connection with
this Advance Notice and Compliance Certificate dated ______ (the "Notice"),
delivered pursuant to the Line of Credit Agreement (the "Agreement"), as
follows;
1. The undersigned is the duly elected Chief Executive Officer of the
Company.
2. The representations and warranties of the Company set forth in the
Agreement dated as of ______________________ are true and correct in
all material respects as though made on and as of the date hereof.
3. The Company has performed in all material respects all covenants and
agreements to be performed by the Company on or prior to the Advance
Date related to the Notice and has complied in all material respects
with all obligations and conditions contained in the Agreement.
4. The Advance requested is ________________________.
The undersigned has executed this Certificate this _____ day of _______________.
XXXX.XXX, INC.
BY:
-------------------------
Name:
Title:
EXHIBIT C
DEBENTURE
XXXX.XXX, INC.
1999 4% Subordinated Convertible Debenture
Due August , 2002
No.000____________ $ _________________
23
This Debenture is issued by Xxxx.Xxx, Inc. (The "Company") to GMF
Holdings (the "Debenture holder") pursuant to exemptions from registration
under the U.S. Securities Act of 1933.
ARTICLE I
1.01 Principal and Interest. The Company, for value received
hereby confers the right upon Debenture holder to convert the sum of
___________________ dollars ($_____________) into the common stock of the
Company (the "Common Stock") on or before August ____, 2002 as set forth
herein, and to pay interest thereon from the date of issue at the rate of four
percent (4%) per annum. The Company shall pay interest on the outstanding
principal amount of the Debenture from the date of issue until the date of
maturity or conversion; the Company shall pay interest only upon the
outstanding balance of the Debenture at the rate of four percent (4%) per
annum. Interest will be computed based on a 365 day year.
1.02 Reservation of Common Stock. The Company shall reserve and
keep available out of its authorized but unissued shares of Common Stock,
solely for the purpose of effecting the conversion of this Debenture, such
number of shares of Common Stock as shall from time to time be sufficient to
effect such conversion.
1.03 Interest Payments. The interest so payable will be paid to
the person in whose name this Debenture is registered at the close of business
on ________________, 2002, except that interest accrued on principal amounts
which have matured or are converted will be paid on the maturity or Conversion
Date. The Company, in its sole discretion, may elect to pay interest in cash
(via wire transfer or certified funds) or in the form of Common Stock. If paid
in the form of Common Stock, the amount of stock to be issued will be
calculated as follows: the value of the stock shall be greater of the average
closing bid price as reported by NASDAQ on the five days preceding: (I) the
date the interest payment is due; or (ii) if the interest payment is not made
when due, the date the interest payment is made. A number of shares of Common
Stock with a value equal to the amount of interest due shall be issued. No
fractional shares will be issued; therefore, in the event that the value of the
Common Stock per share does not equal the total interest due, the Company will
pay the balance in cash.
1.04 Paying Agent and Registrar. Initially, the Company will act
as Paying Agent and Registrar. The Company may change any Paying Agent,
Registrar, or Company-registrar without notice. The Company may act in any such
capacity.
1.05 Subordinated Nature of Debenture. This Debenture and all
payments hereon, including principal or interest, shall be subordinate and
junior in right of payment to all Company Debt (as defined hereinafter), but
only to the extent set forth as follows:
(a) upon the maturity of any Company Debt, or any installment
thereof then due by lapse of time, acceleration or otherwise, all Company Debt
then due shall first be paid in full (or provision made for payment in full
thereof) before any additional payment on account of principal or interest is
made on this Debenture; and
24
(b) in the event of any insolvency or bankruptcy proceedings
affecting the Company, or any receivership, liquidation, reorganization or
other similar proceedings affecting the Company, and in the event of any
proceedings for voluntary liquidation, dissolution or other winding up of the
Company, whether or not involving insolvency or bankruptcy, then the holders of
Company Debt shall be entitled to receive payment in full of all principal of
and interest on all Company Debt before the holder of this Debenture is
entitled to receive any payment on account of principal, interest or premium on
this Debenture.
The provisions of the preceding paragraphs are solely for the purpose
of defining the relative rights of the holders of Company Debt on the one hand
and the holder of this Debenture on the other hand and nothing herein shall
impair, as between the Company and the holder of this Debenture, the obligation
of the Company, which is unconditional and absolute, to pay the holder of this
Debenture the principal, interest and premiums hereon in accordance with its
terms, nor shall anything herein prevent the holder of this Debenture from
exercising all remedies otherwise permitted by law or hereunder upon default
hereunder, subject to the relative rights of the holders of Company Debt
expressed in the preceding paragraphs.
For the purpose of this Note, the term "Company Debt" shall mean and
include current bank debt and all indebtedness acquired by the Company
subsequent to the date hereof, other than indebtedness to any officer, director
or other person who has beneficial ownership of 10% or more of the Company's
issued and outstanding shares of Common Stock.
ARTICLE II
2.01 Amendments and Waiver of Default. The Debenture may be
amended with the consent of the Debenture holder. Without the consent of the
Debenture holder, the Debenture may be amended to cure any ambiguity, defect or
inconsistency, to provide for assumption of the Company obligations to the
Debenture holder or to make any change that does not adversely affect the
rights of the Debenture holder.
ARTICLE III
3.01 Events of Default. An Event of Default is defined as follows:
failure by the Company to pay the maturity or Conversion Amount within ten (10)
days of the maturity of Conversion Date, respectively; failure by the Company
to advise its transfer agent to issue Common Stock to the Debenture holder
within two (2) business days of the Company's receipt of the attached Notice of
Conversion from Debenture holder; or failure by the Company for thirty (30)
days after notice to it to comply with any of its other agreements in the
Debenture; and events of bankruptcy or insolvency. The Debenture holder may not
enforce the Debenture except as provided herein.
3.02 Successor Corporation. If a successor corporation assumes all
the obligations of this predecessor, Xxxx.Xxx, Inc., the predecessor
corporation will be released from those obligations under the Debenture.
25
3.03 Waiver and Release. A director, officer, employee or
stockholders, as such, of the Company shall not have any liability for any
obligations of the Company under the Debenture or for any claim based on, in
respect of, or by reason of such obligations or their creation. The Debenture
holder, by accepting a Debenture waives and releases all such liability. The
waiver and release are part of the consideration for the issue of the
Debenture.
ARTICLE IV
4.01 Rights and Terms of Conversion. This Debenture, in whole or
in part, may be converted at any time following the date of closing, into
shares of Common Stock at a price equal to following Conversion Price: 75% of
the average closing bid price for the five days prior to conversion.
In lieu of any fractional share to which the Debenture holder would
otherwise be entitled, the Company will pay the balance in cash.
4.02 Reissuance of Debenture. When the Debenture holder elects to
convert a part of the Debenture, then the Company shall reissue a new Debenture
in the same form as this Debenture to reflect the new principal amount.
4.03 Termination of Conversion Rights. The Debenture holder's
right to convert the Debenture into the Common Stock in accordance with
paragraph 4.01 shall terminate on August __, 2002 Any remaining amount of
Debenture not converted by August __, 2002 shall be automatically converted on
that date in accordance with the formula set forth in Section 4.01 hereof, and
the appropriate shares of common stock and amount of interest shall be issued
to the Debenture holder.
ARTICLE V
5.01 Notice. Notices regarding this Debenture shall be sent to the
parties at the following addresses, unless a party notifies the other parties,
in writing, of a change of address:
If to the Company: XXXX.XXX, INC
000 Xxxxxxx Xxxxxx X.X.
0xx Xxxxx
Xxxxxxxxxxx, Xxx Xxxxxx 00000.
If to Debenture holder: GMF HOLDINGS
000 Xxxxxxxxx Xxxxxx
Xxxxxx, Xxxxxxx
5.02 Governing Law. This Debenture shall be deemed to be made
under and shall be construed in accordance with the laws of the State of Nevada
without giving effect to the principals of conflict of laws thereof.
26
5.03 Severability. The invalidity of any of the provisions of this
Debenture shall not invalidate or otherwise affect any of the other provisions
of this Debenture, which shall remain in full force and effect.
5.04 Entire Agreement and Amendments. This Debenture represents
the entire agreement between the parties hereto with respect to the subject
matter hereof and there are no representations, warranties or commitments,
except as set forth herein. This Debenture may be amended only by an instrument
in writing executed by the parties hereto.
5.05 Counterparts. This Debenture may be executed in multiple
counterparts, each of which shall be an original, but all of which shall be
deemed to constitute on instrument.
IN WITNESS WHEREOF, with the intent to be legally bound hereby, the
parties hereto have executed this Debenture as of _____________________, 1999.
ATTEST: XXXX.XXX, INC.
------------------------------ ---------------------------------
Title:
--------------------------
27
EXHIBIT D
DEFINITION OF "ACCREDITED INVESTOR"
Pursuant to Rule 501 (a) of Regulation D, the term "Accredited Investor" is
defined as follows:
1. Any bank as defined in section 3(a)(2) of the Securities Act of 1933
(the "Act"), or any savings and loan association or other institution as
defined in section 3(a)(5)(A) of the Act whether acting in its individual or
fiduciary capacity; any broker or dealer registered pursuant to section 15 of
the Securities Exchange Act of 1934; any insurance company as defined in
section 2(13) of the Act; any investment company registered under the
Investment Company Act of 1940 or a business development company as defined in
section 2(a)(48) of that Act; Small Business Investment Company licensed by the
U.S.. Small Business Administration under section 301(c) or (d) of the Small
Business Investment Act of 1958; any plan established and maintained by a
state, its political subdivisions, or any agency or instrumentality of a state
or its political subdivisions for the benefits of its employees, if such plan
has total assets in excess of $5,000,000; employee benefit plan within the
meaning oft he Employee Retirement Income Security Act of 1974, if the
investment decision is made by a plan fiduciary, as defined in section 3(21) of
such Act, which is either a bank, savings and loan association, insurance
company, or registered investment adviser, or if the employee benefit plan has
total assets in excess of $5,000,000 or, if a self directed plan, with
investment decisions made solely by persons that are accredited investors.
2. Any private business development company as defined in section
202(a)(22) of the Investment Advisers Act of 1940.
3. Any organization described in section 501(c)(3) of the Internal
Revenue Code, corporation, Massachusetts or similar business trust, or
partnership, not formed for the specific purpose of acquiring the securities
offered, with total assets in excess of $5,000,000.
4. Any director, executive officer, or general partner of the issuer of
the securities being offered or sold, or any director, executive officer or
general partner of a general partner of that issuer.
5. Any natural person whose individual net worth, or joint net worth with
that person's spouse, at the time of his purchase exceeds $1,000,000.
6. Any natural person who had an individual income in excess of $200,000
in each of the two most recent years or joint income with that person's spouse
in excess of $300,000 in each of those years and has a reasonable expectation
of reaching the same income level in the current year.
7. Any trust, with total assets in excess of $5,000,000, not formed for
the specific purpose of acquiring the securities offered, whose purchase is
directed by a sophisticated person as described in section (b)(2)(ii) of Rule
506.
8. Any entity in which all of the equity owners are accredited investors.
28
Exhibit E
[XXXXXXXX & PARNALL, LLC LETTERHEAD]
VIA FACSIMILE
XXXXXXX X. XXXXX August 10, 1999
000 XXXXXXX X.X. 0XX XXXXX
XXXXXXXXXXX. XX 00000
Re: XxXx.xxx
DEAR Xxxx,
You asked this firm's opinion whether XxXx.xxx is able to issue free
trading shares because of its present non-reporting status stemming from its
exemption from Securities Act registration under Rule 504 of Regulation D. 17
CFR 230.50 1 et seq. Currently. Rule 504 permits a non-reporting issuer to offer
and sell securities to persons without regard to experience and without delivery
of specified information in a public offering. This rule is subject to certain
limitations of an aggregate offering within a l2-month period. Accordingly,
XxXx.xxx can issue free trading shares. This opinion is for the use and benefit
of XxXx.xxx.
Thank you very much for contacting us.
