EXHIBIT 99(ii)
SECURITIES PURCHASE AGREEMENT
Securities Purchase Agreement dated as of August 29, 2007 (this
"AGREEMENT") by and between The X-Change Corporation, a Nevada corporation, with
principal executive offices located at 000 Xxxxxxx Xxxxxxx, Xxxxx, Xxxxx 00000
(the "COMPANY"), and La Jolla Cove Investors, Inc. ("HOLDER").
WHEREAS, Holder desires to purchase from the Company, and the Company
desires to issue and sell to Holder, upon the terms and subject to the
conditions of this Agreement, a Convertible Debenture of the Company in the
aggregate principal amount of $250,000 (the "DEBENTURE");
WHEREAS, in conjunction with the Debenture, the Company is to issue a
Warrant to Purchase Common Stock to the Holder (the "WARRANT" or the "CONVERSION
WARRANT"); and
WHEREAS, upon the terms and subject to the conditions set forth in the
Debenture and the Warrant, the Debenture and Warrant are convertible and
exercisable, respectively, into shares of the Company's Common Stock (the
"COMMON STOCK").
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties hereto, intending to be legally bound,
hereby agree as follows:
I. PURCHASE AND SALE OF DEBENTURE
A. TRANSACTION. Holder hereby agrees to purchase from the Company, and
the Company has offered and hereby agrees to issue and sell to Holder in a
transaction exempt from the registration and prospectus delivery requirements of
the Securities Act of 1933, as amended (the "SECURITIES ACT"), the Debenture.
B. PURCHASE PRICE; FORM OF PAYMENT. The purchase price for the
Debenture to be purchased by Holder hereunder shall be $250,000 (the "PURCHASE
PRICE"). Simultaneously with the execution of this Agreement, Holder shall pay
the Purchase Price by wire transfer of immediately available funds to the
Company. Simultaneously with the execution of this Agreement, the Company shall
deliver the Debenture and the Warrant (which shall have been duly authorized,
issued and executed I/N/O Holder or, if the Company otherwise has been notified,
I/N/O Holder's nominee).
C. ADDITIONAL DEBENTURE. Upon the earlier to occur of (i) the date upon
which the Common Stock Issued at Conversion (as defined in the Debenture) is
registered under the Securities Act, (ii) the date upon which the Common Stock
Issued at Conversion may be sold by Holder pursuant to Rule 144 promulgated by
the SEC pursuant to the Securities Act, as such Rule may be amended from time to
time, or any similar rule or regulation hereafter adopted by the SEC having
substantially the same effect as such Rule, or (iii) the date upon which the
Company receives not less than an aggregate of $150,000 of additional capital
investment made after the date hereof from one or more third party investors,
and provided the Company is then in compliance with the terms of the Debenture
and this Agreement (such earlier date to occur, as described above shall be
referred to herein as the "SECOND DEBENTURE DATE"), the Company shall sell and
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the Holder shall purchase a debenture in the principal amount of $150,000 in
exchange for a purchase price of $150,000 (the "SECOND DEBENTURE") and the
Company shall issue to Holder a Warrant to Purchase Common Stock for the
purchase of 1,500,000 shares of Common Stock of the Company (the "SECOND
WARRANT"), with the form of and terms of the Second Debenture and the Second
Warrant and payment of the purchase price and/or exercise price thereof subject
to the same terms and conditions of this Agreement, the Debenture and the
Warrant, as applicable, and when the Second Debenture is issued, the term
"Debenture" as used in this Agreement shall be deemed to include the Second
Debenture in all respects and when the Second Warrant is issued, the term
"Warrant" as used in this Agreement shall be deemed to include the Second
Warrant in all respects. The closing of the purchase and sale of the Second
Debenture and the issuance of the Second Warrant shall occur within thirty days
of the Second Debenture Date.
II. HOLDER'S REPRESENTATIONS AND WARRANTIES
Holder represents and warrants to and covenants and agrees with the
Company as follows:
1. Holder is purchasing the Debenture and the Common Stock
issuable upon conversion or redemption of the Debenture (the "CONVERSION SHARES"
and, collectively with the Debenture, the Warrant and the Warrant Shares (as
defined below), the "SECURITIES") for its own account, for investment purposes
only and not with a view towards or in connection with the public sale or
distribution thereof in violation of the Securities Act. The "WARRANT SHARES" as
referred to herein means the Common Stock issuable upon exercise of the Warrant.
2. Holder is (i) an "accredited investor" within the meaning
of Rule 501 of Regulation D under the Securities Act, (ii) experienced in making
investments of the kind contemplated by this Agreement, (iii) capable, by reason
of its business and financial experience, of evaluating the relative merits and
risks of an investment in the Securities, and (iv) able to afford the loss of
its investment in the Securities.
3. Holder understands that the Securities are being offered
and sold by the Company in reliance on an exemption from the registration
requirements of the Securities Act and equivalent state securities and "blue
sky" laws, and that the Company is relying upon the accuracy of, and Holder's
compliance with, Holder's representations, warranties and covenants set forth in
this Agreement to determine the availability of such exemption and the
eligibility of Holder to purchase the Securities;
4. Holder understands that the Securities have not been
approved or disapproved by the Securities and Exchange Commission (the
"COMMISSION") or any state or provincial securities commission.
5. This Agreement has been duly and validly authorized,
executed and delivered by Holder and is a valid and binding agreement of Holder
enforceable against it in accordance with its terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
similar laws affecting creditors' rights and remedies generally and except as
rights to indemnity and contribution may be limited by federal or state
securities laws or the public policy underlying such laws.
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III. THE COMPANY'S REPRESENTATIONS
The Company represents and warrants as of the date hereof to the Holder that,
except as set forth on Schedule III attached hereto, the statements contained in
this Section 3 are complete and accurate as of the date of this Agreement. As
used in this Section 3, the term "Knowledge" shall mean the knowledge of the
members of the board of directors of the Company and/or the officers or
employees of the Company after reasonable investigation.
A. CAPITALIZATION.
1. The authorized capital stock of the Company consists of
100,000,000 shares of Common Stock and 10,000,000 shares of Series A Preferred
Stock of which 30,922,834 shares and 0 shares, respectively, are issued and
outstanding as of the date hereof and are fully paid and nonassessable. The
amount, exercise, conversion or subscription price and expiration date for each
outstanding option and other security or agreement to purchase shares of Common
Stock is accurately set forth on Schedule III.A.1.
2. The Conversion Shares and the Warrant Shares have been duly
and validly authorized and reserved for issuance by the Company, and, when
issued by the Company upon conversion of the Debenture, will be duly and validly
issued, fully paid and nonassessable and will not subject the holder thereof to
personal liability by reason of being such holder.
3. Except as disclosed on Schedule III.A.3., there are no
preemptive, subscription, "call," right of first refusal or other similar rights
to acquire any capital stock of the Company or other voting securities of the
Company that have been issued or granted to any person and no other obligations
of the Company to issue, grant, extend or enter into any security, option,
warrant, "call," right, commitment, agreement, arrangement or undertaking with
respect to any of their respective capital stock.
B. ORGANIZATION; REPORTING COMPANY STATUS.
1. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the state or jurisdiction in
which it is incorporated and is duly qualified as a foreign corporation in all
jurisdictions in which the failure so to qualify would reasonably be expected to
have a material adverse effect on the business, properties, prospects, condition
(financial or otherwise) or results of operations of the Company or on the
consummation of any of the transactions contemplated by this Agreement (a
"MATERIAL ADVERSE EFFECT").
2. The Company is subject to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"). The Common
Stock is traded on the OTC Bulletin Board service of the National Association of
Securities Dealers, Inc. ("OTCBB") and the Company has not received any notice
regarding, and to its Knowledge there is no threat of, the termination or
discontinuance of the eligibility of the Common Stock for such trading.
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C. AUTHORIZATION. The Company (i) has duly and validly authorized and
reserved for issuance shares of Common Stock, which is a number sufficient for
the conversion of the Debenture and the exercise of the Warrant and (ii) at all
times from and after the date hereof shall have a sufficient number of shares of
Common Stock duly and validly authorized and reserved for issuance to satisfy
the conversion of the Debenture in full and the exercise of the Warrant. The
Company understands and acknowledges the potentially dilutive effect on the
Common Stock of the issuance of the Conversion Shares and the Warrant Shares.
The Company further acknowledges that its obligation to issue Conversion Shares
upon conversion of the Debenture and the exercise of the Warrant in accordance
with this Agreement is absolute and unconditional regardless of the dilutive
effect that such issuance may have on the ownership interests of other
stockholders of the Company and notwithstanding the commencement of any case
under 11 U.S.C. ss. 101 et seq. (the "BANKRUPTCY CODE"). In the event the
Company is a debtor under the Bankruptcy Code, the Company hereby waives to the
fullest extent permitted any rights to relief it may have under 11 U.S.C. ss.
362 in respect of the conversion of the Debenture. The Company agrees, without
cost or expense to Holder, to take or consent to any and all action necessary to
effectuate relief under 11 U.S.C. ss. 362.
D. AUTHORITY; VALIDITY AND ENFORCEABILITY. The Company has the
requisite corporate power and authority to enter into the Documents (as such
term is hereinafter defined) and to perform all of its obligations hereunder and
thereunder (including the issuance, sale and delivery to Holder of the
Securities). The execution, delivery and performance by the Company of the
Documents and the consummation by the Company of the transactions contemplated
hereby and thereby (including, without limitation, the issuance of the Debenture
and the issuance and reservation for issuance of the Conversion Shares) have
been duly and validly authorized by all necessary corporate action on the part
of the Company. Each of the Documents has been duly and validly executed and
delivered by the Company and each Document constitutes a valid and binding
obligation of the Company enforceable against it in accordance with its terms,
subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally and except as rights to indemnity and contribution may be
limited by federal or state securities laws or the public policy underlying such
laws. The Securities have been duly and validly authorized for issuance by the
Company and, when executed and delivered by the Company, will be valid and
binding obligations of the Company enforceable against it in accordance with
their respective terms, subject to applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and similar laws affecting creditors'
rights and remedies generally. For purposes of this Agreement, the term
"DOCUMENTS" means (i) this Agreement; (ii) the Debenture; and (iii) the Warrant.
E. VALIDITY OF ISSUANCE OF THE SECURITIES. The Debenture, the
Conversion Shares upon their issuance in accordance with the Debenture, the
Warrant and the Warrant Shares upon their issuance in accordance with the
Warrant will be validly issued and outstanding, fully paid and nonassessable,
and not subject to any preemptive rights, rights of first refusal, tag-along
rights, drag-along rights or other similar rights.
F. NON-CONTRAVENTION. The execution and delivery by the Company of the
Documents, the issuance of the Securities, and the consummation by the Company
of the other transactions contemplated hereby and thereby do not, and compliance
with the provisions of this Agreement and other Documents will not, conflict
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with, or result in any violation of, or default (with or without notice or lapse
of time, or both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of a material benefit under, or result in
the creation of any Lien (as such term is hereinafter defined) upon any of the
properties or assets of the Company or any of its Subsidiaries under, or result
in the termination of, or require that any consent be obtained or any notice be
given with respect to (i) the Articles or Certificate of Incorporation or
By-Laws of the Company or the comparable charter or organizational documents of
any of its Subsidiaries, in each case as amended to the date of this Agreement,
(ii) any loan or credit agreement, debenture, bond, mortgage, indenture, lease,
contract or other agreement, instrument or permit applicable to the Company or
any of its Subsidiaries or their respective properties or assets or (iii) any
statute, law, rule or regulation applicable to, or any judgment, decree or order
of any court or government body having jurisdiction over, the Company or any of
its Subsidiaries or any of their respective properties or assets. A "LIEN" means
any assignment, transfer, pledge, mortgage, security interest or other
encumbrance of any nature, or an agreement to do so, or the ownership or
acquisition or agreement to acquire any asset or property of any character
subject to any of the foregoing encumbrances (including any conditional sale
contract or other title retention agreement).
G. APPROVALS. No authorization, approval or consent of any court or
public or governmental authority is required to be obtained by the Company for
the issuance and sale of the Securities to Holder as contemplated by this
Agreement, except such authorizations, approvals and consents as have been
obtained by the Company prior to the date hereof.
H. COMMISSION FILINGS. The Company has properly and timely filed with
the Commission all reports, proxy statements, forms and other documents required
to be filed with the Commission under the Securities Act and the Exchange Act
since becoming subject to such Acts (the "COMMISSION FILINGS"). As of their
respective dates, (i) the Commission Filings complied in all material respects
with the requirements of the Securities Act or the Exchange Act, as the case may
be, and the rules and regulations of the Commission promulgated thereunder
applicable to such Commission Filings and (ii) none of the Commission Filings
contained at the time of its filing 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 light of the circumstances under which
they were made, not misleading. The financial statements of the Company included
in the Commission Filings, as of the dates of such documents, were true and
complete in all material respects and complied with applicable accounting
requirements and the published rules and regulations of the Commission with
respect thereto, were prepared in accordance with generally accepted accounting
principles in the United States ("GAAP") (except in the case of unaudited
statements permitted by Form 10-QSB under the Exchange Act) applied on a
consistent basis during the periods involved (except as may be indicated in the
notes thereto) and fairly presented the consolidated financial position of the
Company and its Subsidiaries as of the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended (subject,
in the case of unaudited statements, to normal year-end audit adjustments that
in the aggregate are not material and to any other adjustment described
therein).
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I. FULL DISCLOSURE. There is no fact known to the Company (other than
general economic or industry conditions known to the public generally) that has
not been fully disclosed in the Commission Filings that (i) reasonably could be
expected to have a Material Adverse Effect or (ii) reasonably could be expected
to materially and adversely affect the ability of the Company to perform its
obligations pursuant to the Documents.
J. ABSENCE OF EVENTS OF DEFAULT. No "EVENT OF DEFAULT" (as defined in
any agreement or instrument to which the Company is a party) and no event which,
with notice, lapse of time or both, would constitute an Event of Default (as so
defined), has occurred and is continuing.
K. SECURITIES LAW MATTERS. Assuming the accuracy of the representations
and warranties of Holder set forth in Article II, the offer and sale by the
Company of the Securities is exempt from (i) the registration and prospectus
delivery requirements of the Securities Act and the rules and regulations of the
Commission thereunder and (ii) the registration and/or qualification provisions
of all applicable state and provincial securities and "blue sky" laws. The
Company shall not directly or indirectly take, and shall not permit any of its
directors, officers or Affiliates directly or indirectly to take, any action
(including, without limitation, any offering or sale to any person or entity of
any security similar to the Debenture) which will make unavailable the exemption
from Securities Act registration being relied upon by the Company for the offer
and sale to Holder of the Debenture, the Conversion Shares, the Warrant and the
Warrant Shares as contemplated by this Agreement. No form of general
solicitation or advertising has been used or authorized by the Company or any of
its officers, directors or Affiliates in connection with the offer or sale of
the Debenture (and the Conversion Shares) and/or the Warrant (and the Warrant
Shares) as contemplated by this Agreement or any other agreement to which the
Company is a party. As used in the Documents, "AFFILIATE" has the meaning
ascribed to such term in Rule 12b-2 under the Exchange Act.
L. REGISTRATION RIGHTS. Except as set forth on Schedule III.L., no
Person has, and as of the Closing (as such term is hereinafter defined), no
Person shall have, any demand, "piggy-back" or other rights to cause the Company
to file any registration statement under the Securities Act relating to any of
its securities or to participate in any such registration statement.
M. INTEREST. The timely payment of interest on the Debenture is not
prohibited by the Articles or Certificate of Incorporation or By-Laws of the
Company, in each case as amended to the date of this Agreement, or any
agreement, contract, document or other undertaking to which the Company is a
party.
N. NO MISREPRESENTATION. No representation or warranty of the Company
contained in this Agreement or any of the other Documents, any schedule, annex
or exhibit hereto or thereto or any agreement, instrument or certificate
furnished by the Company to Holder pursuant to this Agreement contains any
untrue statement of a material fact or omits to state a material fact required
to be stated therein or necessary to make the statements therein not misleading.
O. FINDER'S FEE. There is no finder's fee, brokerage commission or like
payment in connection with the transactions contemplated by this Agreement for
which Holder is liable or responsible.
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P. SUBSIDIARIES. Other than the Subsidiaries, the Company does not
presently own or control, directly or indirectly, any interest in any other
corporation, association, or other business entity. The Company is not a
participant in any joint venture, partnership, or similar arrangement.
Q. LITIGATION. Other than as disclosed in the Commission Filings, there
is no action, suit, proceeding or investigation pending or, to the Company's
knowledge, currently threatened against the Company or its Subsidiaries that
questions the validity of this Agreement, the Documents, or the right of the
Company to enter into such agreements, or to consummate the transactions
contemplated hereby or thereby, or that might result, either individually or in
the aggregate, in any material adverse changes in the business, assets or
condition of the Company and its Subsidiaries, taken as a whole, financially or
otherwise, or any change in the current equity ownership of the Company or its
Subsidiaries. Neither the Company nor its Subsidiaries are parties or subject to
the provisions of any order, writ, injunction, judgment or decree of any court
or government agency or instrumentality. There is no action, suit, proceeding or
investigation by the Company or its Subsidiaries currently pending or that the
Company or its Subsidiaries intends to initiate.
R. AGREEMENTS. Except for agreements explicitly contemplated hereby, or
disclosed in the Commission Filings, there are no agreements, understandings or
proposed transactions between the Company and any of its officers, directors,
Affiliates, or any affiliate thereof.
S. TAX RETURNS. The Company and each of its Subsidiaries has made and
filed all federal and state income and all other tax returns, reports and
declarations required by any jurisdiction to which it is subject and (unless and
only to the extent that the Company and each of its Subsidiaries has set aside
on its books provisions reasonably adequate for the payment of all unpaid and
unreported taxes) has paid all taxes and other governmental assessments and
charges that are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith
and has set aside on its books provision reasonably adequate for the payment of
all taxes for periods subsequent to the periods to which such returns, reports
or declarations apply. There are no unpaid taxes in any material amount, except
as disclosed in the Commission Filings, claimed to be due by the taxing
authority of any jurisdiction, and the officers of the Company know of no basis
for any such claim.
IV. CERTAIN COVENANTS AND ACKNOWLEDGMENTS
A. FILINGS. The Company shall make all necessary Commission Filings and
"blue sky" filings required to be made by the Company in connection with the
sale of the Securities to Holder as required by all applicable laws, and shall
provide a copy thereof to Holder promptly after such filing.
B. REPORTING STATUS. So long as Holder beneficially owns any of the
Securities, the Company shall timely file all reports required to be filed by it
with the Commission pursuant to Section 13 or 15(d) of the Exchange Act.
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C. LISTING. Except to the extent the Company lists its Common Stock on
The New York Stock Exchange, The American Stock Exchange or The Nasdaq Stock
Market, the Company shall use its best efforts to maintain its listing of the
Common Stock on OTCBB. If the Common Stock is delisted from OTCBB, the Company
will use its best efforts to list the Common Stock on the most liquid national
securities exchange or quotation system that the Common Stock is qualified to be
listed on.
D. RESERVED CONVERSION COMMON STOCK. The Company at all times from and
after the date hereof shall have such number of shares of Common Stock duly and
validly authorized and reserved for issuance as shall be sufficient for the
conversion in full of the Debenture and the exercise in full of the Warrant.
E. INFORMATION. Each of the parties hereto acknowledges and agrees that
Holder shall not be provided with, nor be given access to, any material
non-public information relating to the Company.
F. ACCOUNTING AND RESERVES. The Company shall maintain a standard and
uniform system of accounting and shall keep proper books and records and
accounts in which full, true, and correct entries shall be made of its
transactions, all in accordance with GAAP applied on consistent basis through
all periods, and shall set aside on such books for each fiscal year all such
reserves for depreciation, obsolescence, amortization, bad debts and other
purposes in connection with its operations as are required by such principles so
applied.
G. TRANSACTIONS WITH AFFILIATES. So long as the Debenture is
outstanding, neither the Company nor any of its Subsidiaries shall, directly or
indirectly, enter into any material transaction or agreement with any
stockholder, officer, director or Affiliate of the Company or family member of
any officer, director or Affiliate of the Company, unless the transaction or
agreement is (i) reviewed and approved by a majority of Disinterested Directors
(as such term is hereinafter defined) and (ii) on terms no less favorable to the
Company or the applicable Subsidiary than those obtainable from a nonaffiliated
person. A "SUBSIDIARY" means any entity of which securities or other ownership
interests having ordinary voting power to elect a majority of the board of
directors or other persons performing similar functions are owned directly or
indirectly by the Company. A "DISINTERESTED DIRECTOR" shall mean a director of
the Company who is not and has not been an officer or employee of the Company
and who is not a member of the family of, controlled by or under common control
with, any such officer or employee.
H. CERTAIN RESTRICTIONS. So long as the Debenture is outstanding, no
dividends shall be declared or paid or set apart for payment nor shall any other
distribution be declared or made upon any capital stock of the Company, nor
shall any capital stock of the Company be redeemed, purchased or otherwise
acquired (other than a redemption, purchase or other acquisition of shares of
Common Stock made for purposes of an employee incentive or benefit plan
(including a stock option plan) of the Company or pursuant to any of the
security agreements listed on Schedule IV.H) for any consideration by the
Company, directly or indirectly, nor shall any moneys be paid to or made
available for a sinking fund for the redemption of any Common Stock.
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I. SHORT SELLING. So long as the Debenture is outstanding, Holder
agrees and covenants on its behalf and on behalf of its affiliates that neither
Holder nor its affiliates shall at any time engage in any short sales with
respect to the Company's Common Stock, or sell put options or similar
instruments with respect to the Company's Common Stock. The parties acknowledge
that Holder shall be entitled to sell the Common Stock from each Debenture
conversion immediately upon submission of the applicable Debenture Conversion
Notice, and payment of the purchase price, to the Company for such Common Stock,
subject to applicable state and federal securities laws.
V. ISSUANCE OF COMMON STOCK
A. The Company undertakes and agrees that no instruction other than the
instructions referred to in this Article V shall be given to its transfer agent
for the Conversion Shares and the Warrant Shares and that the Conversion Shares
and the Warrant Shares shall otherwise be freely transferable on the books and
records of the Company as and to the extent provided in this Agreement and
applicable law. Nothing contained in this Section V.A. shall affect in any way
Holder's obligations and agreement to comply with all applicable securities laws
upon resale of such Common Stock.
X. Xxxxxx shall have the right to convert the Debenture and exercise
the Warrant by telecopying an executed and completed Conversion Notice (as such
term is defined in the Debenture) or Warrant Notice of Exercise (as such term is
defined in the Warrant) to the Company. Each date on which a Conversion Notice
or Warrant Notice of Exercise is telecopied to and received by the Company in
accordance with the provisions hereof shall be deemed a Conversion Date (as such
term is defined in the Debenture). The Company shall cause the transfer agent to
transmit the certificates evidencing the Common Stock issuable upon conversion
of the Debenture (together with a new debenture, if any, representing the
principal amount of the Debenture not being so converted) or exercise of the
Warrant (together with a new Warrant, if any, representing the amount of the
Warrant not being so exercised) to Holder via express courier, or if a
Registration Statement covering the Common Stock has been declared effective by
the SEC by electronic transfer, within three (3) business days after receipt by
the Company of the Conversion Notice or Warrant Notice of Exercise, as
applicable (the "DELIVERY DATE").
C. Upon the conversion of the Debenture or exercise of the Warrant or
respective part thereof, the Company shall, at its own cost and expense, take
all necessary action (including the issuance of an opinion of counsel) to assure
that the Company's transfer agent shall issue stock certificates in the name of
Holder (or its nominee) or such other persons as designated by Holder and in
such denominations to be specified at conversion or exercise representing the
number of shares of common stock issuable upon such conversion or exercise. The
Company warrants that the Conversion Shares and Warrant Shares will be
unlegended, free-trading, and freely transferable, and will not contain a legend
restricting the resale or transferability of the Company Common Stock provided
the Conversion Shares and Warrant Shares, as applicable, are being sold pursuant
to an effective registration statement covering the Common Stock to be sold or
is otherwise exempt from registration when sold.
D. The Company understands that a delay in the delivery of the Common
Stock in the form required pursuant to this section, or the Mandatory Redemption
Amount described in Section E hereof, beyond the Delivery Date or Mandatory
Redemption Payment Date (as hereinafter defined) could result in economic loss
to the Holder. As compensation to the Holder for such loss, the Company agrees
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to pay late payments to the Holder for late issuance of Common Stock in the form
required pursuant to Section E hereof upon Conversion of the Debenture or late
payment of the Mandatory Redemption Amount, in the amount of $100 per business
day after the Delivery Date or Mandatory Redemption Payment Date, as the case
may be, for each $10,000 of Debenture principal amount being converted or
redeemed. The Company shall pay any payments incurred under this Section in
immediately available funds upon demand. Furthermore, in addition to any other
remedies which may be available to the Holder, in the event that the Company
fails for any reason to effect delivery of the Common Stock by the Delivery Date
or make payment by the Mandatory Redemption Payment Date, the Holder will be
entitled to revoke all or part of the relevant Notice of Conversion or rescind
all or part of the notice of Mandatory Redemption by delivery of a notice to
such effect to the Company whereupon the Company and the Holder shall each be
restored to their respective positions immediately prior to the delivery of such
notice, except that late payment charges described above shall be payable
through the date notice of revocation or rescission is given to the Company.
E. MANDATORY REDEMPTION. In the event the Company is prohibited from
issuing Common Stock, or fails to timely deliver Common Stock on a Delivery
Date, or upon the occurrence of an Event of Default (as defined in the
Debenture) or for any reason other than pursuant to the limitations set forth
herein, then at the Holder's election, the Company must pay to the Holder ten
(10) business days after request by the Holder or on the Delivery Date (if
requested by the Holder) a sum of money determined by multiplying up to the
outstanding principal amount of the Debenture designated by the Holder by 120%,
together with accrued but unpaid interest thereon ("Mandatory Redemption
Payment"). The Mandatory Redemption Payment must be received by the Holder on
the same date as the Company Common Stock otherwise deliverable or within ten
(10) business days after request, whichever is sooner ("MANDATORY REDEMPTION
PAYMENT DATE"). Upon receipt of the Mandatory Redemption Payment, the
corresponding Debenture principal and interest will be deemed paid and no longer
outstanding.
F. BUY-IN. In addition to any other rights available to the Holder, if
the Company fails to deliver to the Holder such Common Stock issuable upon
conversion of a Debenture or exercise of a Warrant by the Delivery Date and if
ten (10) days after the Delivery Date the Holder purchases (in an open market
transaction or otherwise) shares of Common Stock to deliver in satisfaction of a
sale by the Holder of the Common Stock which the Holder anticipated receiving
upon such conversion (a "BUY-IN"), then the Company shall pay in cash to the
Holder (in addition to any remedies available to or elected by the Holder) the
amount by which (A) the Holder's total purchase price (including brokerage
commissions, if any) for the shares of Common Stock so purchased exceeds (B) the
aggregate principal and/or interest amount of the Debenture or exercise price of
the Warrant for which such conversion or exercise was not timely honored,
together with interest thereon at a rate of 10% per annum, accruing until such
amount and any accrued interest thereon is paid in full (which amount shall be
paid as liquidated damages and not as a penalty). For example, if the Holder
purchases shares of Common Stock having a total purchase price of $11,000 to
cover a Buy-In with respect to an attempted conversion of $10,000 of Debenture
principal and/or interest or the exercise of $10,000 of Warrant Shares, the
Company shall be required to pay the Holder $1,000, plus interest. The Holder
shall provide the Company written notice indicating the amounts payable to the
Holder in respect of the Buy-In.
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G. The Securities shall be delivered by the Company to the Holder
pursuant to Section I.B. hereof on a "delivery-against-payment basis" at the
Closing.
VI. CLOSING DATE
The "CLOSING" shall occur by the delivery: (i) to the Holder of the
documents evidencing the Debenture and all other Documents, and (ii) to the
Company the Purchase Price, and the date on which the Closing occurs shall be
referred to herein as the "CLOSING DATE".
VII. CONDITIONS TO THE COMPANY'S OBLIGATIONS
Holder understands that the Company's obligation to sell the Debenture
on the Closing Date to Holder pursuant to this Agreement is conditioned upon:
A. Delivery by Holder to the Company of the Purchase Price;
B. The accuracy on the Closing Date of the representations and
warranties of Holder contained in this Agreement as if made on the Closing Date
(except for representations and warranties which, by their express terms, speak
as of and relate to a specified date, in which case such accuracy shall be
measured as of such specified date) and the performance by Holder in all
material respects on or before the Closing Date of all covenants and agreements
of Holder required to be performed by it pursuant to this Agreement on or before
the Closing Date; and
C. There shall not be in effect any law or order, ruling, judgment or
writ of any court or public or governmental authority restraining, enjoining or
otherwise prohibiting any of the transactions contemplated by this Agreement.
VIII. CONDITIONS TO HOLDER'S OBLIGATIONS
The Company understands that Holder's obligation to purchase the
Securities on the Closing Date pursuant to this Agreement is conditioned upon:
A. Delivery by the Company of the Debenture and the Warrant (I/N/O
Holder or I/N/O Holder's nominee);
B. The accuracy on the Closing Date of the representations and
warranties of the Company contained in this Agreement as if made on the Closing
Date (except for representations and warranties which, by their express terms,
speak as of and relate to a specified date, in which case such accuracy shall be
measured as of such specified date) and the performance by the Company in all
respects on or before the Closing Date of all covenants and agreements of the
Company required to be performed by it pursuant to this Agreement on or before
the Closing Date, all of which shall be confirmed to Holder by delivery of the
certificate of the chief executive officer of the Company to that effect;
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C. The Company shall have delivered to the Holder a certificate of the
Company executed by an officer of the Company, dated as of the Closing,
certifying the resolutions adopted by the Company's board of directors
authorizing the execution of the Documents, the issuance of the Securities, and
the transactions contemplated hereby, and copies of any required third party
consents, approvals and filings required in connection with the consummation of
the transactions contemplated by this Agreement;
D. There not having occurred (i) any general suspension of trading in,
or limitation on prices listed for, the Common Stock on the OTCBB/Pink Sheet,
(ii) the declaration of a banking moratorium or any suspension of payments in
respect of banks in the United States, (iii) the commencement of a war, armed
hostilities or other international or national calamity directly or indirectly
involving the United States or any of its territories, protectorates or
possessions or (iv) in the case of the foregoing existing at the date of this
Agreement, a material acceleration or worsening thereof;
E. There not having occurred any event or development, and there being
in existence no condition, having or which reasonably and foreseeably could have
a Material Adverse Effect;
F. There shall not be in effect any law, order, ruling, judgment or
writ of any court or public or governmental authority restraining, enjoining or
otherwise prohibiting any of the transactions contemplated by this Agreement;
F. The Company shall have obtained all consents, approvals or waivers
from governmental authorities and third persons necessary for the execution,
delivery and performance of the Documents and the transactions contemplated
thereby, all without material cost to the Company;
X. Xxxxxx shall have received such additional documents, certificates,
payment, assignments, transfers and other deliveries as it or its legal counsel
may reasonably request and as are customary to effect a closing of the matters
herein contemplated;
H. Delivery by the Company of an enforceability opinion with respect to
this Agreement and the transactions contemplated hereunder from its outside
counsel in form and substance satisfactory to Holder; and
I. Delivery by the Company of a valid waiver of any preemptive rights
held by the individuals and/or parties listed on Schedule III.A.3 hereto in form
and substance satisfactory to Holder.
IX. SURVIVAL; INDEMNIFICATION
A. The representations, warranties and covenants made by each of the
Company and Holder in this Agreement, the annexes, schedules and exhibits hereto
and in each instrument, agreement and certificate entered into and delivered by
them pursuant to this Agreement shall survive the Closing and the consummation
of the transactions contemplated hereby. In the event of a breach or violation
of any of such representations, warranties or covenants, the party to whom such
representations, warranties or covenants have been made shall have all rights
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and remedies for such breach or violation available to it under the provisions
of this Agreement or otherwise, whether at law or in equity, irrespective of any
investigation made by or on behalf of such party on or prior to the Closing
Date.
B. The Company hereby agrees to indemnify and hold harmless the Holder,
its affiliates and their respective officers, directors, employees, consultants,
partners and members (collectively, the "HOLDER INDEMNITEES") from and against
any and all losses, claims, damages, judgments, penalties, liabilities and
deficiencies (collectively, "LOSSES") and agrees to reimburse Holder Indemnitees
for all reasonable out-of-pocket expenses (including the reasonable fees and
expenses of legal counsel), in each case promptly as incurred by Holder
Indemnitees and to the extent arising out of or in connection with:
1. any misrepresentation, omission of fact or breach of any of
the Company's representations or warranties contained in this Agreement
or the other Documents, or the annexes, schedules or exhibits hereto or
thereto or any instrument, agreement or certificate entered into or
delivered by the Company pursuant to this Agreement or the other
Documents;
2. any failure by the Company to perform any of its covenants,
agreements, undertakings or obligations set forth in this Agreement or
the other Documents or any instrument, certificate or agreement entered
into or delivered by the Company pursuant to this Agreement or the
other Documents;
3. the purchase of the Debenture, the conversion of the
Debenture, the payment of interest on the Debenture, the purchase of
the Warrant, the exercise of the Warrant, the issuance of the Warrant
Shares, the consummation of the transactions contemplated by this
Agreement and the other Documents, the use of any of the proceeds of
the Purchase Price by the Company, the purchase or ownership of any or
all of the Securities, the performance by the parties hereto of their
respective obligations hereunder and under the Documents or any claim,
litigation, investigation, proceedings or governmental action relating
to any of the foregoing, whether or not Holder is a party thereto; or
4. resales of the Common Stock by Holder in the manner and as
contemplated by this Agreement and the Documents;
provided however, that the Company shall not indemnify or hold harmless
any Holder Indemnitee from any Losses that are directly a result of the
gross negligence or willful misconduct of Holder.
C. Promptly after receipt by either party hereto seeking
indemnification pursuant to this Article VIII (an "INDEMNIFIED PARTY") of
written notice of any investigation, claim, proceeding or other action in
respect of which indemnification is being sought (each, a "CLAIM"), the
Indemnified Party promptly shall notify the party against whom indemnification
pursuant to this Article VIII is being sought (the "INDEMNIFYING PARTY") of the
commencement thereof, but the omission so to notify the Indemnifying Party shall
not relieve it from any liability that it otherwise may have to the Indemnified
Party except to the extent that the Indemnifying Party is materially prejudiced
and forfeits substantive rights or defenses by reason of such failure. In
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connection with any Claim as to which both the Indemnifying Party and the
Indemnified Party are parties, the Indemnifying Party shall be entitled to
assume the defense thereof. Notwithstanding the assumption of the defense of any
Claim by the Indemnifying Party, the Indemnified Party shall have the right to
employ separate legal counsel and to participate in the defense of such Claim,
and the Indemnifying Party shall bear the reasonable fees, out-of-pocket costs
and expenses of such separate legal counsel to the Indemnified Party if (and
only if): (x) the Indemnifying Party shall have agreed to pay such fees,
out-of-pocket costs and expenses, (y) the Indemnified Party and the Indemnifying
Party reasonably shall have concluded that representation of the Indemnified
Party and the Indemnifying Party by the same legal counsel would not be
appropriate due to actual or, as reasonably determined by legal counsel to the
Indemnified Party, potentially differing interests between such parties in the
conduct of the defense of such Claim, or if there may be legal defenses
available to the Indemnified Party that are in addition to or disparate from
those available to the Indemnifying Party or (z) the Indemnifying Party shall
have failed to employ legal counsel reasonably satisfactory to the Indemnified
Party within a reasonable period of time after notice of the commencement of
such Claim. If the Indemnified Party employs separate legal counsel in
circumstances other than as described in clauses (x), (y) or (z) above, the
fees, costs and expenses of such legal counsel shall be borne exclusively by the
Indemnified Party. Except as provided above, the Indemnifying Party shall not,
in connection with any Claim in the same jurisdiction, be liable for the fees
and expenses of more than one firm of legal counsel for the Indemnified Party
(together with appropriate local counsel). The Indemnifying Party shall not,
without the prior written consent of the Indemnified Party (which consent shall
not unreasonably be withheld), settle or compromise any Claim or consent to the
entry of any judgment that does not include an unconditional release of the
Indemnified Party from all liabilities with respect to such Claim or judgment.
D. In the event one party hereunder should have a claim for
indemnification that does not involve a claim or demand being asserted by a
third party, the Indemnified Party promptly shall deliver notice of such claim
to the Indemnifying Party. If the Indemnified Party disputes the claim, such
dispute shall be resolved by mutual agreement of the Indemnified Party and the
Indemnifying Party or by binding arbitration conducted in accordance with the
procedures and rules of the American Arbitration Association. Judgment upon any
award rendered by any arbitrators may be entered in any court having competent
jurisdiction thereof.
X. GOVERNING LAW
This Agreement shall be governed by and interpreted in accordance with
the laws of the State of California, without regard to the conflicts of law
principles of such state.
XI. SUBMISSION TO JURISDICTION
Each of the parties hereto consents to the exclusive jurisdiction of
the federal courts whose districts encompass any part of the City of San Diego
or the state courts of the State of California sitting in the City of San Diego
in connection with any dispute arising under this Agreement and the other
Documents. Each party hereto hereby irrevocably and unconditionally waives, to
the fullest extent it may effectively do so, any defense of an inconvenient
forum or improper venue to the maintenance of such action or proceeding in any
such court and any right of jurisdiction on account of its place of residence or
domicile. Each party hereto irrevocably and unconditionally consents to the
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service of any and all process in any such action or proceeding in such courts
by the mailing of copies of such process by registered or certified mail (return
receipt requested), postage prepaid, at its address specified in Article XVII.
Each party hereto agrees that a final judgment in any such action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law.
XII. WAIVER OF JURY TRIAL
TO THE FULLEST EXTENT PERMITTED BY LAW, EACH OF THE PARTIES HERETO
HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ITS RESPECTIVE RIGHTS TO
A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS
AGREEMENT OR ANY OTHER DOCUMENT OR ANY DEALINGS BETWEEN THEM RELATING TO THE
SUBJECT MATTER OF THIS AGREEMENT AND OTHER DOCUMENTS. EACH PARTY HERETO (I)
CERTIFIES THAT NEITHER OF THEIR RESPECTIVE REPRESENTATIVES, AGENTS OR ATTORNEYS
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH PARTY WOULD NOT, IN THE EVENT
OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS AND (II) ACKNOWLEDGES THAT
IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE
MUTUAL WAIVERS AND CERTIFICATIONS HEREIN.
XIII. COUNTERPARTS; EXECUTION
This Agreement may be executed in counterparts, each of which when so
executed and delivered shall be an original, but both of which counterparts
shall together constitute one and the same instrument. A facsimile transmission
of this signed Agreement shall be legal and binding on both parties hereto.
XIV. HEADINGS
The headings of this Agreement are for convenience of reference and
shall not form part of, or affect the interpretation of, this Agreement.
XV. SEVERABILITY
In the event any one or more of the provisions contained in this
Agreement or in the other Documents should be held invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein or therein shall not in any way be
affected or impaired thereby. The parties shall endeavor in good-faith
negotiations to replace the invalid, illegal or unenforceable provisions with
valid provisions, the economic effect of which comes as close as possible to
that of the invalid, illegal or unenforceable provisions.
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XVI. ENTIRE AGREEMENT; REMEDIES, AMENDMENTS AND WAIVERS
This Agreement and the Documents constitute the entire agreement
between the parties hereto pertaining to the subject matter hereof and supersede
all prior agreements, understandings, negotiations and discussions, whether oral
or written, of such parties. No supplement, modification or waiver of this
Agreement shall be binding unless executed in writing by both parties. No waiver
of any of the provisions of this Agreement shall be deemed or shall constitute a
waiver of any other provision hereof (whether or not similar), nor shall such
waiver constitute a continuing waiver unless otherwise expressly provided.
XVII. NOTICES
Except as may be otherwise provided herein, any notice or other
communication or delivery required or permitted hereunder shall be in writing
and shall be delivered personally, or sent by telecopier machine or by a
nationally recognized overnight courier service, and shall be deemed given when
so delivered personally, or by telecopier machine or overnight courier service
as follows:
A. If to the Company, to:
The X-Change Corporation
000 Xxxxxxx Xxxxxxx
Xxxxx, Xxxxx 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
B. If to Holder, to:
La Jolla Cove Investors, Inc.
0000 Xxxxxxxx Xxxxxx, Xxxxx 000
Xx Xxxxx, Xxxxxxxxxx 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
The Company or Holder may change the foregoing address by notice given pursuant
to this Article XVII.
XVIII. CONFIDENTIALITY
Each of the Company and Holder agrees to keep confidential and not to
disclose to or use for the benefit of any third party the terms of this
Agreement or any other information which at any time is communicated by the
other party as being confidential without the prior written approval of the
other party; provide, however, that this provision shall not apply to
information which, at the time of disclosure, is already part of the public
domain (except by breach of this Agreement) and information which is required to
be disclosed by law (including, without limitation, pursuant to Item 601(b)(10)
of Regulation S-K under the Securities Act and the Exchange Act).
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XIX. ASSIGNMENT
This Agreement shall not be assignable by the Company without the prior
written consent of the Holder. The Holder may assign this Agreement upon 10 days
prior written notice to the Company.
IN WITNESS WHEREOF, the parties hereto have duly caused this Agreement
to be executed and delivered on the date first above written.
The X-Change Corporation La Jolla Cove Investors, Inc.
By: /s/ Xxxxxxxx Xxxxxxx By: /s/ Xxxxxx X. Xxxx
---------------------------- ---------------------------
Title: Chief Operating Officer Title: Portfolio Manager
---------------------------- ------------------------
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SCHEDULE III A. 1
Outstanding Warrants at Date Of Agreement
-----------------------------------------
Price Expires Qty
----- ------- ---
2007 PPM* Investors (A) $0.60 2012 3,325,000
2007 PPM Investors (B) $0.84 2012 3,325,000
Convertible Debt Rights at Date Of Agreement
--------------------------------------------
Principal Conv. Price Potential Shares
--------- ----------- ----------------
Shareholder Note (due Aug 2008) $797,794 $0.825 967,023
Employee Stock Incentive Plan at Date Of Agreement
--------------------------------------------------
Total Share Options
-------------------
Total Approved Shares under plan 6,000,000
(of which 4,800,000 granted at
weighted avg. price of $0.21)
* PPM indicates Private Placement Memorandum
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SCHEDULE III A 3
PREEMPTIVE RIGHTS
None
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SCHEDULE III L.
REGISTRATION RIGHTS
As of Date of Agreement
-----------------------
2007 PPM Investors (scheduled to close September 30, 2007. See full disclosure
in Form 10Q filed with SEC for period ending June 30, 2007)
- Committed at this time
- Shares 3,225,000
- Warrant (A) 3,325,000
- Warrant (B) 3,325,000
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SCHEDULE III H.
SECURITY AGREEMENTS
None
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