EXHIBIT 10.2
Securities Purchase Agreement dated as of May 2004 between Xxxxxxx Xxx, Inc.
and Cornell Capital Partners, LP
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "AGREEMENT"), dated as of May
14, 2004, by and among XXXXXXX XXX, INC., a Nevada corporation, with
headquarters located at 000 Xxxx Xxx Xxxxx, Xxxxx X, Xxxxxx Xxxxx, Xxxxxxxx
00000 (the "COMPANY"), and the Buyers listed on Schedule I attached hereto
(individually, a "BUYER" or collectively "BUYERS").
WITNESSETH:
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WHEREAS, the Company and the Buyer(s) are executing and delivering this
Agreement in reliance upon an exemption from securities registration pursuant to
Section 4(2) and/or Rule 506 of Regulation D ("REGULATION D") as promulgated by
the U.S. Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "1933 ACT");
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Buyer(s),
as provided herein, and the Buyer(s) shall purchase up to One Million One
Hundred Thousand Dollars ($1,100,000) (the "PURCHASE PRICE") of secured
convertible debentures (the "CONVERTIBLE DEBENTURES"), which shall be
convertible into shares of the Company's common stock, par value $0.001 (the
"COMMON STOCK") (as converted, the "CONVERSION SHARES") of which Three Hundred
Thousand Dollars ($300,000) shall be funded (the "FIRST CLOSING") on the fifth
(5th) business day following the date hereof, One Hundred Thousand Dollars
($100,000) shall be funded (the "SECOND CLOSING") on the fifth (5th) business
day following the date a completed Form 211 is filed by a market maker with the
National Association of Securities Dealers, Inc. (the "NASD"), One Hundred
Thousand Dollars ($100,000) shall be funded (the "THIRD CLOSING") on the fifth
(5th) business day following the date the Form 211 is approved by the NASD, Two
Hundred Fifty Thousand Dollars shall be funded (the "FOURTH CLOSING") on the
fifth (5th) business day following the filing of a registration statement (the
"REGISTRATION STATEMENT"), pursuant the Investor Registration Rights Agreement
of even date herewith, with the United States Securities and Exchange Commission
(the "SEC"), and Three Hundred Fifty Thousand Dollars ($350,000) shall be funded
(the "FINAL CLOSING") on the fifth (5th) business day following the date the
Registration Statement is declared effective by the SEC (individually each of
the foregoing date is referred to as a "CLOSING" and are collectively referred
to as the "CLOSINGS") in the respective amounts set forth opposite each Buyer(s)
name on Schedule I (the "SUBSCRIPTION AMOUNT"); and
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Registration Rights
Agreement (the "INVESTOR REGISTRATION RIGHTS AGREEMENT") pursuant to which the
Company has agreed to provide certain registration rights under the 1933 Act and
the rules and regulations promulgated there under, and applicable state
securities laws; and
WHEREAS, the aggregate proceeds of the sale of the Convertible
Debentures contemplated hereby shall be held in escrow pursuant to the terms of
an Escrow Agreement (the "ESCROW AGREEMENT") of even date herewith.
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering Irrevocable Transfer
Agent Instructions (the "IRREVOCABLE TRANSFER AGENT INSTRUCTIONS").
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Security Agreement
(the "SECURITY AGREEMENT") pursuant to which the Company has agreed to provide
the Buyer a security interest in Pledged Collateral (as this term is defined in
the Security Agreement) to secure Company's obligations under this Agreement,
the Convertible Debenture, the Investor Registration Rights Agreement, the
Irrevocable Transfer Agent Instructions, the Security Agreement or any other
obligations of the Company to the Investor.
NOW, THEREFORE, in consideration of the mutual covenants and other
agreements contained in this Agreement the Company and the Buyer(s)hereby agree
as follows:
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1. PURCHASE AND SALE OF CONVERTIBLE DEBENTURES.
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(a) PURCHASE OF CONVERTIBLE DEBENTURES. Subject to the
satisfaction (or waiver) of the terms and conditions of this Agreement, each
Buyer agrees, severally and not jointly, to purchase at Closing (as defined
herein below) and the Company agrees to sell and issue to each Buyer, severally
and not jointly, at Closing, Convertible Debentures in amounts corresponding
with the Subscription Amount set forth opposite each Buyer's name on Schedule I
hereto. Upon execution hereof by a Buyer, the Buyer shall wire transfer the
Subscription Amount set forth opposite his name on Schedule I in same-day funds
or a check payable to "Xxxxxx Xxxxxxxx LLP, as Escrow Agent for Xxxxxxx Xxx,
Inc./Xxxxxxx Capital Partners, LP", which Subscription Amount shall be held in
escrow pursuant to the terms of the Escrow Agreement (as hereinafter defined)
and disbursed in accordance therewith. Notwithstanding the foregoing, a Buyer
may withdraw his Subscription Amount and terminate this Agreement as to such
Buyer at any time after the execution hereof and prior to Closing (as
hereinafter defined).
(b) CLOSING DATE. The First Closing of the purchase and sale
of the Convertible Debentures shall take place at 10:00 a.m. Eastern Standard
Time on the fifth (5th) business day following the date hereof, subject to
notification of satisfaction of the conditions to the First Closing set forth
herein and in Sections 6 and 7 below (or such later date as is mutually agreed
to by the Company and the Buyer(s)) (the "FIRST CLOSING DATE"), the Second
Closing of the purchase and sale of the Convertible Debentures shall take place
at 10:00 a.m. Eastern Standard Time on the fifth (5th) business day following
the date a completed Form 211 is filed by a market maker with the NASD, subject
to notification of satisfaction of the conditions to the Second Closing set
forth herein and in Sections 6 and 7 below (or such later date as is mutually
agreed to by the Company and the Buyer(s)) (the "SECOND CLOSING DATE"), the
Third Closing of the purchase and sale of the Convertible Debentures shall take
place at 10:00 a.m. Eastern Standard Time on the fifth (5th) business day
following the date the Form 211 is approved by the NASD, subject to notification
of satisfaction of the conditions to the Third Closing set forth herein and in
Sections 6 and 7 below (or such later date as is mutually agreed to by the
Company and the Buyer(s)) (the "THIRD CLOSING DATE"), the Fourth Closing of the
purchase and sale of the Convertible Debentures shall take place at 10:00 a.m.
Eastern Standard Time on the fifth (5th) business day following the date the
Registration Statement is filed with the SEC, subject to notification of
satisfaction of the conditions to the Fourth Closing set forth herein and in
Sections 6 and 7 below (or such later date as is mutually agreed to by the
Company and the Buyer(s)) (the "FOURTH CLOSING DATE") and the Final Closing of
the purchase and sale of the Convertible Debentures shall take place at 10:00
a.m. Eastern Standard Time on the fifth (5th) business day following the date
the Registration Statement is declared effective by the SEC, subject to
notification of satisfaction of the conditions to the Final Closing set forth
herein and in Sections 6 and 7 below (or such later date as is mutually agreed
to by the Company and the Buyer(s)) (the "FINAL CLOSING DATE") (collectively
referred to a the "CLOSING DATES"). The Closing shall occur on the respective
Closing Dates at the offices of Xxxxxx Xxxxxxxx, LLP, 0000 Xxxxxx Xxxxxx, Xxxxx
000, Xxxxx, XX 00000 (or such other place as is mutually agreed to by the
Company and the Buyer(s)).
(c) ESCROW ARRANGEMENTS; FORM OF PAYMENT. Upon execution
hereof by Buyer(s) and pending the Closings, the aggregate proceeds of the sale
of the Convertible Debentures to Buyer(s) pursuant hereto shall be deposited in
a non-interest bearing escrow account with Xxxxxx Xxxxxxxx LLP, as escrow agent
(the "ESCROW AGENT"), pursuant to the terms of an escrow agreement between the
Company, the Buyer(s) and the Escrow Agent in the form attached hereto as
EXHIBIT B (the "ESCROW AGREEMENT"). Subject to the satisfaction of the terms and
conditions of this Agreement, on the Closing Dates, (i) the Escrow Agent shall
deliver to the Company in accordance with the terms of the Escrow Agreement such
aggregate proceeds for the Convertible Debentures to be issued and sold to such
Buyer(s), minus structuring fees of $10,000 to the Buyer pursuant to Section
4(h) hereof and $40,000 to the Buyer pursuant to Section 12.4 of the Standby
Equity Distribution Agreement of even date herewith between the Company and the
Buyer(s), of which $25,000 shall be paid directly from the gross proceeds of the
First Closing held in escrow, $15,000 shall be paid directly from the gross
proceeds of the Second Closing and $10,000 shall be paid directly from the gross
proceeds of the Fourth Closing (I.E., the date of the filing of the registration
statement, which may occur prior to the Third Closing), and (ii) the Company
shall deliver to each Buyer, Convertible Debentures which such Buyer(s) is
purchasing in amounts indicated opposite such Buyer's name on Schedule I, duly
executed on behalf of the Company.
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
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Each Buyer represents and warrants, severally and not jointly, that:
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(a) INVESTMENT PURPOSE. Each Buyer is acquiring the
Convertible Debentures and, upon conversion of Convertible Debentures, the Buyer
will acquire the Conversion Shares then issuable, for its own account for
investment only and not with a view towards, or for resale in connection with,
the public sale or distribution thereof, except pursuant to sales registered or
exempted under the 1933 Act; provided, however, that by making the
representations herein, such Buyer reserves the right to dispose of the
Conversion Shares at any time in accordance with or pursuant to an effective
registration statement covering such Conversion Shares or an available exemption
under the 1933 Act.
(b) ACCREDITED INVESTOR STATUS. Each Buyer is an "ACCREDITED
INVESTOR" as that term is defined in Rule 501(a)(3) of Regulation D.
(c) RELIANCE ON EXEMPTIONS. Each Buyer understands that the
Convertible Debentures are being offered and sold to it in reliance on specific
exemptions from the registration requirements of United States federal and state
securities laws and that the Company is relying in part upon the truth and
accuracy of, and such Buyer's compliance with, the representations, warranties,
agreements, acknowledgments and understandings of such Buyer set forth herein in
order to determine the availability of such exemptions and the eligibility of
such Buyer to acquire such securities.
(d) INFORMATION. Each Buyer and its advisors (and his or, its
counsel), if any, have been furnished with all materials relating to the
business, finances and operations of the Company and information he deemed
material to making an informed investment decision regarding his purchase of the
Convertible Debentures and the Conversion Shares, which have been requested by
such Buyer. Each Buyer and its advisors, if any, have been afforded the
opportunity to ask questions of the Company and its management. Neither such
inquiries nor any other due diligence investigations conducted by such Buyer or
its advisors, if any, or its representatives shall modify, amend or affect such
Buyer's right to rely on the Company's representations and warranties contained
in Section 3 below. Each Buyer understands that its investment in the
Convertible Debentures and the Conversion Shares involves a high degree of risk.
Each Buyer is in a position regarding the Company, which, based upon employment,
family relationship or economic bargaining power, enabled and enables such Buyer
to obtain information from the Company in order to evaluate the merits and risks
of this investment. Each Buyer has sought such accounting, legal and tax advice,
as it has considered necessary to make an informed investment decision with
respect to its acquisition of the Convertible Debentures and the Conversion
Shares.
(e) NO GOVERNMENTAL REVIEW. Each Buyer understands that no
United States federal or state agency or any other government or governmental
agency has passed on or made any recommendation or endorsement of the
Convertible Debentures or the Conversion Shares, or the fairness or suitability
of the investment in the Convertible Debentures or the Conversion Shares, nor
have such authorities passed upon or endorsed the merits of the offering of the
Convertible Debentures or the Conversion Shares.
(f) TRANSFER OR RESALE. Each Buyer understands that except as
provided in the Investor Registration Rights Agreement: (i) the Convertible
Debentures have not been and are not being registered under the 1933 Act or any
state securities laws, and may not be offered for sale, sold, assigned or
transferred unless (A) subsequently registered thereunder, or (B) such Buyer
shall have delivered to the Company an opinion of counsel, in a generally
acceptable form, to the effect that such securities to be sold, assigned or
transferred may be sold, assigned or transferred pursuant to an exemption from
such registration requirements; (ii) any sale of such securities made in
reliance on Rule 144 under the 1933 Act (or a successor rule thereto) ("RULE
144") may be made only in accordance with the terms of Rule 144 and further, if
Rule 144 is not applicable, any resale of such securities under circumstances in
which the seller (or the person through whom the sale is made) may be deemed to
be an underwriter (as that term is defined in the 0000 Xxx) may require
compliance with some other exemption under the 1933 Act or the rules and
regulations of the SEC thereunder; and (iii) neither the Company nor any other
person is under any obligation to register such securities under the 1933 Act or
any state securities laws or to comply with the terms and conditions of any
exemption thereunder. The Company reserves the right to place stop transfer
instructions against the shares and certificates for the Conversion Shares.
(g) LEGENDS. Each Buyer understands that the certificates or
other instruments representing the Convertible Debentures and or the Conversion
Shares shall bear a restrictive legend in substantially the following form (and
a stop transfer order may be placed against transfer of such stock
certificates):
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THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN
ACQUIRED SOLELY FOR INVESTMENT PURPOSES AND NOT WITH A VIEW
TOWARD RESALE AND MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS,
OR AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE
STATE SECURITIES LAWS.
The legend set forth above shall be removed and the Company within two (2)
business days shall issue a certificate without such legend to the holder of the
Conversion Shares upon which it is stamped, if, unless otherwise required by
state securities laws, (i) in connection with a sale transaction, provided the
Conversion Shares are registered under the 1933 Act or (ii) in connection with a
sale transaction, after such holder provides the Company with an opinion of
counsel, which opinion shall be in form, substance and scope customary for
opinions of counsel in comparable transactions, to the effect that a public
sale, assignment or transfer of the Conversion Shares may be made without
registration under the 1933 Act.
(h) AUTHORIZATION, ENFORCEMENT. This Agreement has been duly
and validly authorized, executed and delivered on behalf of such Buyer and is a
valid and binding agreement of such Buyer enforceable in accordance with its
terms, except as such enforceability may be limited by general principles of
equity or applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation and other similar laws relating to, or affecting generally, the
enforcement of applicable creditors' rights and remedies.
(i) RECEIPT OF DOCUMENTS. Each Buyer and his or its counsel
has received and read in their entirety: (i) this Agreement and each
representation, warranty and covenant set forth herein, the Security Agreement,
the Investor Registration Rights Agreement, the Escrow Agreement, and the
Irrevocable transfer Agent Instructions; (ii) all due diligence and other
information necessary to verify the accuracy and completeness of such
representations, warranties and covenants; (iii) the Company's Form 10-KSB for
the fiscal year ended December 31, 2003; (iv) the Company's Form 10-QSB for the
fiscal quarter ended September 30, 2003 and (v) answers to all questions each
Buyer submitted to the Company regarding an investment in the Company; and each
Buyer has relied on the information contained therein and has not been furnished
any other documents, literature, memorandum or prospectus.
(j) DUE FORMATION OF CORPORATE AND OTHER BUYERS. If the
Buyer(s) is a corporation, trust, partnership or other entity that is not an
individual person, it has been formed and validly exists and has not been
organized for the specific purpose of purchasing the Convertible Debentures and
is not prohibited from doing so.
(k) NO LEGAL ADVICE FROM THE COMPANY. Each Buyer acknowledges,
that it had the opportunity to review this Agreement and the transactions
contemplated by this Agreement with his or its own legal counsel and investment
and tax advisors. Each Buyer is relying solely on such counsel and advisors and
not on any statements or representations of the Company or any of its
representatives or agents for legal, tax or investment advice with respect to
this investment, the transactions contemplated by this Agreement or the
securities laws of any jurisdiction.
(l) No Buyer makes any representation or warranty regarding
the Company's ability to successfully become a public company or to have any
registration statement filed by the Company pursuant to the Registration Rights
Agreement or otherwise declared effective by the SEC. The Company has the sole
obligation to make any and all such filings as may be necessary to become a
public company and to have any registration statement declared effective by the
SEC.
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(m) The Company acknowledges that the Buyer is relying on the
representations and warranties made by the Company hereunder and that such
representations and warranties are a material inducement to the Buyer purchasing
the Convertible Debentures. The Company further acknowledges that without such
representations and warranties of the Company made hereunder, the Buyer would
not enter into this Agreement.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
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The Company represents and warrants to each of the Buyers that, except
as set forth in the SEC Documents (as defined herein):
(a) ORGANIZATION AND QUALIFICATION. The Company and its
subsidiaries are corporations duly organized and validly existing in good
standing under the laws of the jurisdiction in which they are incorporated, and
have the requisite corporate power to own their properties and to carry on their
business as now being conducted. Each of the Company and its subsidiaries is
duly qualified as a foreign corporation to do business and is in good standing
in every jurisdiction in which the nature of the business conducted by it makes
such qualification necessary, except to the extent that the failure to be so
qualified or be in good standing would not have a material adverse effect on the
Company and its subsidiaries taken as a whole.
(b) AUTHORIZATION, ENFORCEMENT, COMPLIANCE WITH OTHER
INSTRUMENTS. (i) The Company has the requisite corporate power and authority to
enter into and perform this Agreement, the Security Agreement, the Investor
Registration Rights Agreement, the Escrow Agreement, the Irrevocable Transfer
Agent Instructions, and any related agreements, and to issue the Convertible
Debentures and the Conversion Shares in accordance with the terms hereof and
thereof, (ii) the execution and delivery of this Agreement, the Security
Agreement, the Investor Registration Rights Agreement, the Escrow Agreement, the
Irrevocable Transfer Agent Instructions (as defined herein) and any related
agreements by the Company and the consummation by it of the transactions
contemplated hereby and thereby, including, without limitation, the issuance of
the Convertible Debentures the Conversion Shares and the reservation for
issuance and the issuance of the Conversion Shares issuable upon conversion or
exercise thereof, have been duly authorized by the Company's Board of Directors
and no further consent or authorization is required by the Company, its Board of
Directors or its stockholders, (iii) this Agreement, the Security Agreement, the
Investor Registration Rights Agreement, the Escrow Agreement, the Irrevocable
Transfer Agent Instructions and any related agreements have been duly executed
and delivered by the Company, (iv) this Agreement, the Security Agreement, the
Investor Registration Rights Agreement, the Escrow Agreement, the Irrevocable
Transfer Agent Instructions and any related agreements constitute the valid and
binding obligations of the Company enforceable against the Company in accordance
with their terms, except as such enforceability may be limited by general
principles of equity or applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation or similar laws relating to, or affecting generally, the
enforcement of creditors' rights and remedies. The authorized officer of the
Company executing this Agreement, the Security Agreement, the Investor
Registration Rights Agreement, the Escrow Agreement, the Irrevocable Transfer
Agent Instructions and any related agreements knows of no reason why the Company
cannot file the registration statement as required under the Investor
Registration Rights Agreement or perform any of the Company's other obligations
under such documents.
(c) CAPITALIZATION. As of the date hereof, the authorized
capital stock of the Company consists of 200,000,000 shares of Common Stock, par
value $0.001 per share and 5,000,000 shares of Preferred Stock, of which
14,600,000 shares of common stock issued and outstanding and 1,000,000 shares of
Series A Preferred Stock issued and outstanding. All of such outstanding shares
have been validly issued and are fully paid and nonassessable. Except as
disclosed in the SEC Documents (as defined in Section 3(f)), no shares of Common
Stock are subject to preemptive rights or any other similar rights or any liens
or encumbrances suffered or permitted by the Company. Except as disclosed in the
SEC Documents, as of the date of this Agreement, (i) there are no outstanding
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Company or any of its subsidiaries, or contracts,
commitments, understandings or arrangements by which the Company or any of its
subsidiaries is or may become bound to issue additional shares of capital stock
of the Company or any of its subsidiaries or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company or any of its subsidiaries, (ii) there are no outstanding debt
securities and (iii) there are no agreements or arrangements under which the
Company or any of its subsidiaries is obligated to register the sale of any of
their securities under the 1933 Act (except pursuant to the Registration Rights
Agreement) and (iv) there are no outstanding registration statements and there
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are no outstanding comment letters from the SEC or any other regulatory agency.
There are no securities or instruments containing anti-dilution or similar
provisions that will be triggered by the issuance of the Convertible Debentures
as described in this Agreement. The Company has furnished to the Buyer true and
correct copies of the Company's Articles of Incorporation, as amended and as in
effect on the date hereof (the "ARTICLES OF INCORPORATION"), and the Company's
By-laws, as in effect on the date hereof (the "BY-LAWS"), and the terms of all
securities convertible into or exercisable for Common Stock and the material
rights of the holders thereof in respect thereto other than stock options issued
to employees and consultants.
(d) ISSUANCE OF SECURITIES. The Convertible Debentures are
duly authorized and, upon issuance in accordance with the terms hereof, shall be
duly issued, fully paid and nonassessable, are free from all taxes, liens and
charges with respect to the issue thereof. The Conversion Shares issuable upon
conversion of the Convertible Debentures have been duly authorized and reserved
for issuance. Upon conversion or exercise in accordance with the Convertible
Debentures the Conversion Shares will be duly issued, fully paid and
nonassessable.
(e) NO CONFLICTS. Except as disclosed in the SEC Documents,
the execution, delivery and performance of this Agreement, the Security
Agreement, the Investors Registration Rights Agreement, the Escrow Agreement and
the Irrevocable Transfer Agent Instructions by the Company and the consummation
by the Company of the transactions contemplated hereby will not (i) result in a
violation of the Articles of Incorporation, any certificate of designations of
any outstanding series of preferred stock of the Company or the By-laws or (ii)
conflict with or constitute a default (or an event which with notice or lapse of
time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which the Company or any of its subsidiaries is a
party, or result in a violation of any law, rule, regulation, order, judgment or
decree (including federal and state securities laws and regulations and the
rules and regulations of The National Association of Securities Dealers Inc.'s
OTC Bulletin Board on which the Common Stock is quoted) applicable to the
Company or any of its subsidiaries or by which any property or asset of the
Company or any of its subsidiaries is bound or affected. Except as disclosed in
the SEC Documents, neither the Company nor its subsidiaries is in violation of
any term of or in default under its Articles of Incorporation or By-laws or
their organizational charter or by-laws, respectively, or any material contract,
agreement, mortgage, indebtedness, indenture, instrument, judgment, decree or
order or any statute, rule or regulation applicable to the Company or its
subsidiaries. The business of the Company and its subsidiaries is not being
conducted, and shall not be conducted in violation of any material law,
ordinance, or regulation of any governmental entity. Except as specifically
contemplated by this Agreement and as required under the 1933 Act and any
applicable state securities laws, the Company is not required to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or governmental agency in order for it to execute, deliver or perform any
of its obligations under or contemplated by this Agreement or the Registration
Rights Agreement in accordance with the terms hereof or thereof. Except as
disclosed in the SEC Documents, all consents, authorizations, orders, filings
and registrations which the Company is required to obtain pursuant to the
preceding sentence have been obtained or effected on or prior to the date
hereof. The Company and its subsidiaries are unaware of any facts or
circumstance, which might give rise to any of the foregoing.
(f) SEC DOCUMENTS: FINANCIAL STATEMENTS. Since January 1,
2003, the Company has filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC under of the Securities
Exchange Act of 1934, as amended (the "1934 ACT") (all of the foregoing filed
prior to the date hereof or amended after the date hereof and all exhibits
included therein and financial statements and schedules thereto and documents
incorporated by reference therein, being hereinafter referred to as the "SEC
DOCUMENTS"). The Company has delivered to the Buyers or their representatives,
or made available through the SEC's website at xxxx://xxx.xxx.xxx., true and
complete copies of the SEC Documents. As of their respective dates, the
financial statements of the Company disclosed in the SEC Documents (the
"FINANCIAL STATEMENTS") complied as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto. Such financial statements have been prepared in
accordance with generally accepted accounting principles, consistently applied,
during the periods involved (except (i) as may be otherwise indicated in such
Financial Statements or the notes thereto, or (ii) in the case of unaudited
interim statements, to the extent they may exclude footnotes or may be condensed
or summary statements) and, fairly present in all material respects the
financial position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). No other
information provided by or on behalf of the Company to the Buyer which is not
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included in the SEC Documents, including, without limitation, information
referred to in this Agreement, contains any untrue statement of a material fact
or omits to state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
(g) 10(b)-5. The SEC Documents do not include any untrue
statements of material fact, nor do they omit to state any material fact
required to be stated therein necessary to make the statements made, in light of
the circumstances under which they were made, not misleading.
(h) ABSENCE OF LITIGATION. Except as disclosed in the SEC
Documents, there is no action, suit, proceeding, inquiry or investigation before
or by any court, public board, government agency, self-regulatory organization
or body pending against or affecting the Company, the Common Stock or any of the
Company's subsidiaries, wherein an unfavorable decision, ruling or finding would
(i) have a material adverse effect on the transactions contemplated hereby (ii)
adversely affect the validity or enforceability of, or the authority or ability
of the Company to perform its obligations under, this Agreement or any of the
documents contemplated herein, or (iii) except as expressly disclosed in the SEC
Documents, have a material adverse effect on the business, operations,
properties, financial condition or results of operations of the Company and its
subsidiaries taken as a whole.
(i) ACKNOWLEDGMENT REGARDING BUYER'S PURCHASE OF THE
CONVERTIBLE DEBENTURES. The Company acknowledges and agrees that the Buyer(s) is
acting solely in the capacity of an arm's length purchaser with respect to this
Agreement and the transactions contemplated hereby. The Company further
acknowledges that the Buyer(s) is not acting as a financial advisor or fiduciary
of the Company (or in any similar capacity) with respect to this Agreement and
the transactions contemplated hereby and any advice given by the Buyer(s) or any
of their respective representatives or agents in connection with this Agreement
and the transactions contemplated hereby is merely incidental to such Buyer's
purchase of the Convertible Debentures or the Conversion Shares. The Company
further represents to the Buyer that the Company's decision to enter into this
Agreement has been based solely on the independent evaluation by the Company and
its representatives.
(j) NO GENERAL SOLICITATION. Neither the Company, nor any of
its affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the 0000 Xxx) in connection with the offer or sale of the
Convertible Debentures or the Conversion Shares.
(k) NO INTEGRATED OFFERING. Neither the Company, nor any of
its affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of the
Convertible Debentures or the Conversion Shares under the 1933 Act or cause this
offering of the Convertible Debentures or the Conversion Shares to be integrated
with prior offerings by the Company for purposes of the 1933 Act.
(l) EMPLOYEE RELATIONS. Neither the Company nor any of its
subsidiaries is involved in any labor dispute nor, to the knowledge of the
Company or any of its subsidiaries, is any such dispute threatened. None of the
Company's or its subsidiaries' employees is a member of a union and the Company
and its subsidiaries believe that their relations with their employees are good.
(m) INTELLECTUAL PROPERTY RIGHTS. The Company and its
subsidiaries own or possess adequate rights or licenses to use all trademarks,
trade names, service marks, service xxxx registrations, service names, patents,
patent rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights necessary to conduct their respective
businesses as now conducted. The Company and its subsidiaries do not have any
knowledge of any infringement by the Company or its subsidiaries of trademark,
trade name rights, patents, patent rights, copyrights, inventions, licenses,
service names, service marks, service xxxx registrations, trade secret or other
similar rights of others, and, to the knowledge of the Company there is no
claim, action or proceeding being made or brought against, or to the Company's
knowledge, being threatened against, the Company or its subsidiaries regarding
trademark, trade name, patents, patent rights, invention, copyright, license,
service names, service marks, service xxxx registrations, trade secret or other
infringement; and the Company and its subsidiaries are unaware of any facts or
circumstances which might give rise to any of the foregoing.
8
(n) ENVIRONMENTAL LAWS. The Company and its subsidiaries are
(i) in compliance with any and all applicable foreign, federal, state and local
laws and regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("ENVIRONMENTAL LAWS"), (ii) have received all permits, licenses or
other approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval.
(o) TITLE. Any real property and facilities held under lease
by the Company and its subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and buildings by the
Company and its subsidiaries.
(p) INSURANCE. The Company and each of its subsidiaries are
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as management of the Company believes to be
prudent and customary in the businesses in which the Company and its
subsidiaries are engaged. Neither the Company nor any such subsidiary has been
refused any insurance coverage sought or applied for and neither the Company nor
any such subsidiary has any reason to believe that it will not be able to renew
its existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the condition,
financial or otherwise, or the earnings, business or operations of the Company
and its subsidiaries, taken as a whole.
(q) REGULATORY PERMITS. The Company and its subsidiaries
possess all material certificates, authorizations and permits issued by the
appropriate federal, state or foreign regulatory authorities necessary to
conduct their respective businesses, and neither the Company nor any such
subsidiary has received any notice of proceedings relating to the revocation or
modification of any such certificate, authorization or permit.
(r) INTERNAL ACCOUNTING CONTROLS. The Company and each of its
subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability, and (iii) the recorded amounts for assets is compared with the
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(s) NO MATERIAL ADVERSE BREACHES, ETC. Except as set forth in
the SEC Documents, neither the Company nor any of its subsidiaries is subject to
any charter, corporate or other legal restriction, or any judgment, decree,
order, rule or regulation which in the judgment of the Company's officers has or
is expected in the future to have a material adverse effect on the business,
properties, operations, financial condition, results of operations or prospects
of the Company or its subsidiaries. Except as set forth in the SEC Documents,
neither the Company nor any of its subsidiaries is in breach of any contract or
agreement which breach, in the judgment of the Company's officers, has or is
expected to have a material adverse effect on the business, properties,
operations, financial condition, results of operations or prospects of the
Company or its subsidiaries.
(t) TAX STATUS. Except as set forth in the SEC Documents, 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 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.
(u) CERTAIN TRANSACTIONS. Except as set forth in the SEC
Documents, and except for arm's length transactions pursuant to which the
Company makes payments in the ordinary course of business upon terms no less
favorable than the Company could obtain from third parties and other than the
grant of stock options disclosed in the SEC Documents, none of the officers,
directors, or employees of the Company is presently a party to any transaction
9
with the Company (other than for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any corporation,
partnership, trust or other entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner.
(v) FEES AND RIGHTS OF FIRST REFUSAL. The Company is not
obligated to offer the securities offered hereunder on a right of first refusal
basis or otherwise to any third parties including, but not limited to, current
or former shareholders of the Company, underwriters, brokers, agents or other
third parties.
4. COVENANTS.
----------
(a) BEST EFFORTS. Each party shall use its best efforts timely
to satisfy each of the conditions to be satisfied by it as provided in Sections
6 and 7 of this Agreement.
(b) FORM D. The Company agrees to file a Form D with respect
to the Conversion Shares as required under Regulation D and to provide a copy
thereof to each Buyer promptly after such filing. The Company shall, on or
before the Closing Date, take such action as the Company shall reasonably
determine is necessary to qualify the Conversion Shares, or obtain an exemption
for the Conversion Shares for sale to the Buyers at the Closing pursuant to this
Agreement under applicable securities or "Blue Sky" laws of the states of the
United States, and shall provide evidence of any such action so taken to the
Buyers on or prior to the Closing Date.
(c) REPORTING STATUS. Until the earlier of (i) the date as of
which the Buyer(s) may sell all of the Conversion Shares without restriction
pursuant to Rule 144(k) promulgated under the 1933 Act (or successor thereto),
or (ii) the date on which (A) the Buyer(s) shall have sold all the Conversion
Shares and (B) none of the Convertible Debentures are outstanding (the
"REGISTRATION PERIOD"), the Company shall file in a timely manner all reports
required to be filed with the SEC pursuant to the 1934 Act and the regulations
of the SEC thereunder, and the Company shall not terminate its status as an
issuer required to file reports under the 1934 Act even if the 1934 Act or the
rules and regulations thereunder would otherwise permit such termination.
(d) USE OF PROCEEDS. The Company will use the proceeds from
the sale of the Convertible Debentures for general corporate and working capital
purposes.
(e) RESERVATION OF SHARES. The Company shall take all action
reasonably necessary to at all times have authorized, and reserved for the
purpose of issuance, such number of shares of Common Stock as shall be necessary
to effect the issuance of the Conversion Shares. If at any time the Company does
not have available such shares of Common Stock as shall from time to time be
sufficient to effect the conversion of all of the Conversion Shares of the
Company shall call and hold a special meeting of the shareholders within sixty
(60) days of such occurrence, for the sole purpose of increasing the number of
shares authorized. The Company's management shall recommend to the shareholders
to vote in favor of increasing the number of shares of Common Stock authorized.
Management shall also vote all of its shares in favor of increasing the number
of authorized shares of Common Stock.
(f) LISTINGS OR QUOTATION. The Company shall promptly secure
the listing or quotation of the Conversion Shares upon each national securities
exchange, automated quotation system or The National Association of Securities
Dealers Inc.'s Over-The-Counter Bulletin Board ("OTCBB") or other market, if
any, upon which shares of Common Stock are then listed or quoted (subject to
official notice of issuance) and shall use its best efforts to maintain, so long
as any other shares of Common Stock shall be so listed, such listing of all
Conversion Shares from time to time issuable under the terms of this Agreement.
The Company shall maintain the Common Stock's authorization for quotation on the
OTCBB.
(g) FEES AND EXPENSES. Each of the Company and the Buyer(s)
shall pay all costs and expenses incurred by such party in connection with the
negotiation, investigation, preparation, execution and delivery of this
Agreement, the Escrow Agreement, the Investor Registration Rights Agreement, the
Security Agreement and the Irrevocable Transfer Agent Instructions. The Buyer(s)
shall be paid a fee of ten percent (10%) of the Purchase Price as a commitment
fee.
10
(h) On the First Closing Date, the Company shall pay to the
Buyer a structuring fee of $10,000 (the "STRUCTURING FEE"). The Structuring Fee
shall be paid directly from the gross proceeds of the First Closing, and shall
be fully earned as of the date hereof. The Structuring Fee shall cover the cost
of structuring and documenting this transaction.
(i) CORPORATE EXISTENCE. So long as any of the Convertible
Debentures remain outstanding, the Company shall not directly or indirectly
consummate any merger, reorganization, restructuring, reverse stock split
consolidation, sale of all or substantially all of the Company's assets or any
similar transaction or related transactions (each such transaction, an
"ORGANIZATIONAL CHANGE") unless, prior to the consummation an Organizational
Change, the Company obtains the written consent of each Buyer. In any such case,
the Company will make appropriate provision with respect to such holders' rights
and interests to insure that the provisions of this Section 4(h) will thereafter
be applicable to the Convertible Debentures.
(j) TRANSACTIONS WITH AFFILIATES. So long as any Convertible
Debentures are outstanding, the Company shall not, and shall cause each of its
subsidiaries not to, enter into, amend, modify or supplement, or permit any
subsidiary to enter into, amend, modify or supplement any agreement,
transaction, commitment, or arrangement with any of its or any subsidiary's
officers, directors, person who were officers or directors at any time during
the previous two (2) years, stockholders who beneficially own five percent (5%)
or more of the Common Stock, or Affiliates (as defined below) or with any
individual related by blood, marriage, or adoption to any such individual or
with any entity in which any such entity or individual owns a five percent (5%)
or more beneficial interest (each a "RELATED PARTY"), except for (a) customary
employment arrangements and benefit programs on reasonable terms, (b) any
investment in an Affiliate of the Company, (c) any agreement, transaction,
commitment, or arrangement on an arms-length basis on terms no less favorable
than terms which would have been obtainable from a person other than such
Related Party, (d) any agreement transaction, commitment, or arrangement which
is approved by a majority of the disinterested directors of the Company, for
purposes hereof, any director who is also an officer of the Company or any
subsidiary of the Company shall not be a disinterested director with respect to
any such agreement, transaction, commitment, or arrangement. "AFFILIATE" for
purposes hereof means, with respect to any person or entity, another person or
entity that, directly or indirectly, (i) has a ten percent (10%) or more equity
interest in that person or entity, (ii) has ten percent (10%) or more common
ownership with that person or entity, (iii) controls that person or entity, or
(iv) shares common control with that person or entity. "CONTROL" or "CONTROLS"
for purposes hereof means that a person or entity has the power, direct or
indirect, to conduct or govern the policies of another person or entity.
(k) TRANSFER AGENT. The Company covenants and agrees that, in
the event that the Company's agency relationship with the transfer agent should
be terminated for any reason prior to a date which is two (2) years after the
Closing Date, the Company shall immediately appoint a new transfer agent and
shall require that the new transfer agent execute and agree to be bound by the
terms of the Irrevocable Transfer Agent Instructions (as defined herein).
(l) RESTRICTION ON ISSUANCE OF THE CAPITAL STOCK. So long as
any Convertible Debentures are outstanding, the Company shall not, without the
prior consent of the Holder, issue or sell to any bona fide, unrelated party (i)
any Common Stock or Preferred Stock for consideration of less than 40% of the
Bid Price on the date of issuance or (ii) issue or sell any warrant, option,
right, contract, call, or other security or instrument granting the holder
thereof the right to acquire Common Stock or Preferred Stock for consideration
of less than 40% of the Bid Price on the date of issuance, (iii) enter into any
security instrument granting the holder a security interest in any of the assets
of the Company, or (iv) file any registration statement on Form S-8 (except with
respect to an employee stock or option plan that registers no more than 5.0% of
the Company's outstanding common stock). With respect to issuances to related
parties (including, without limitations, any officer, director or holder of 10%
or more of the Company's outstanding capital stock or persons that become an
officer, director or holder of 10% or more of the Company's outstanding capital
stock in connection with or as a result of such issuance, but excluding the
Holder), the Company shall not, issue or sell (i) any Common Stock or Preferred
Stock without consideration or for a consideration per share less than the Bid
Price on the date of issuance or (ii) issue or sell any warrant, option, right,
contract, call, or other security or instrument granting the holder thereof the
right to acquire Common Stock or Preferred Stock for consideration per share
less than the Bid Price on the date of issuance.
11
5. TRANSFER AGENT INSTRUCTIONS.
----------------------------
The Company shall issue the Irrevocable Transfer Agent Instructions to
its transfer agent irrevocably appointing Xxxxxx Xxxxxxxx LLP as its agent for
purpose of having certificates issued, registered in the name of the Buyer(s) or
its respective nominee(s), for the Conversion Shares representing such amounts
of Convertible Debentures as specified from time to time by the Buyer(s) to the
Company upon conversion of the Convertible Debentures, for interest owed
pursuant to the Convertible Debenture, and for any and all Liquidated Damages
(as this term is defined in the Investor Registration Rights Agreement). Xxxxxx
Xxxxxxxx LLP shall be paid a cash fee of Fifty Dollars ($50) for every occasion
they act pursuant to the Irrevocable Transfer Agent Instructions. The Company
shall not change its transfer agent without the express written consent of the
Buyer(s), which may be withheld by the Buyer(s) in its sole discretion. Prior to
registration of the Conversion Shares under the 1933 Act, all such certificates
shall bear the restrictive legend specified in Section 2(g) of this Agreement.
The Company warrants that no instruction other than the Irrevocable Transfer
Agent Instructions referred to in this Section 5, and stop transfer instructions
to give effect to Section 2(g) hereof (in the case of the Conversion Shares
prior to registration of such shares under the 0000 Xxx) will be given by the
Company to its transfer agent and that the Conversion Shares shall otherwise be
freely transferable on the books and records of the Company as and to the extent
provided in this Agreement and the Investor Registration Rights Agreement.
Nothing in this Section 5 shall affect in any way the Buyer's obligations and
agreement to comply with all applicable securities laws upon resale of
Conversion Shares. If the Buyer(s) provides the Company with an opinion of
counsel, in form, scope and substance customary for opinions of counsel in
comparable transactions to the effect that registration of a resale by the
Buyer(s) of any of the Conversion Shares is not required under the 1933 Act, the
Company shall within two (2) business days instruct its transfer agent to issue
one or more certificates in such name and in such denominations as specified by
the Buyer. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the Buyer by vitiating the intent and
purpose of the transaction contemplated hereby. Accordingly, the Company
acknowledges that the remedy at law for a breach of its obligations under this
Section 5 will be inadequate and agrees, in the event of a breach or threatened
breach by the Company of the provisions of this Section 5, that the Buyer(s)
shall be entitled, in addition to all other available remedies, to an injunction
restraining any breach and requiring immediate issuance and transfer, without
the necessity of showing economic loss and without any bond or other security
being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
-----------------------------------------------
The obligation of the Company hereunder to issue and sell the
Convertible Debentures to the Buyer(s) at the Closings is subject to the
satisfaction, at or before the Closing Dates, of each of the following
conditions, provided that these conditions are for the Company's sole benefit
and may be waived by the Company at any time in its sole discretion:
(a) Each Buyer shall have executed this Agreement, the
Security Agreement, the Escrow Agreement and the Investor Registration Rights
Agreement and the Irrevocable Transfer Agent Instructions and delivered the same
to the Company.
(b) The Buyer(s) shall have delivered to the Escrow Agent the
Purchase Price for Convertible Debentures in respective amounts as set forth
next to each Buyer as outlined on Schedule I attached hereto and the Escrow
Agent shall have delivered the net proceeds to the Company by wire transfer of
immediately available U.S. funds pursuant to the wire instructions provided by
the Company.
(c) The representations and warranties of the Buyer(s) shall
be true and correct in all material respects as of the date when made and as of
the Closing Dates as though made at that time (except for representations and
warranties that speak as of a specific date), and the Buyer(s) shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Buyer(s) at or prior to the Closing Dates.
12
(d) The Company shall have filed a form UCC-1 with regard to
the Pledged Property and Pledged Collateral as detailed in the Security
Agreement dated the date hereof and provided proof of such filing to the
Buyer(s).
7. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
-------------------------------------------------
The obligation of the Buyer(s) hereunder to purchase the Convertible
Debentures at the Closing is subject to the satisfaction, at or before the
Closing Date, of each of the following conditions:
(a) The Company shall have executed this Agreement, the
Security Agreement, the Convertible Debenture, the Escrow Agreement, the
Irrevocable Transfer Instructions and the Investor Registration Rights
Agreement, and delivered the same to the Buyer(s).
(b) With regard to the Second Closing, a completed Form 211
shall have been filed with the NASD and shall have executed and delivered to the
Buyer(s) a Convertible Debenture in the amount of the amount funded at the
Second Closing.
(c) With regard to the Third Closing, the Form 211 shall be
approved by the NASD and quotations in the Company's Common Stock shall have
commenced on the Principal Market and shall have executed and delivered to the
Buyer(s) a Convertible Debenture in the amount of the amount funded at the Third
Closing.
(d) With regard to the Fourth Closing, the Company shall have
filed a Registration Statement with the SEC as described in the Investor
Registration Rights Agreement and shall have executed and delivered to the
Buyer(s) a Convertible Debenture in the amount of the amount funded at the
Fourth Closing.
(e) With respect to the Final Closing, the Registration
Statement shall be effective and there is no stop order suspending the
effectiveness of the Registration Statement or the initiation of any proceeding
for that purpose and shall have executed and delivered to the Buyer(s) a
Convertible Debenture in the amount of the amount funded at the Final Closing.
(f) The Company shall have increased the number of shares of
common stock it is authorized to issue to 200,000,000, and shall have amended
its articles of incorporation to increase its authorized common stock to
200,000,000 shares.
(g) The representations and warranties of the Company shall be
true and correct in all material respects (except to the extent that any of such
representations and warranties is already qualified as to materiality in Section
3 above, in which case, such representations and warranties shall be true and
correct without further qualification) as of the date when made and as of the
Closing Dates as though made at that time (except for representations and
warranties that speak as of a specific date) and the Company shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the Closing Dates. If requested
by the Buyer, the Buyer shall have received a certificate, executed by the
President of the Company, dated as of the Closing Dates, to the foregoing effect
and as to such other matters as may be reasonably requested by the Buyer
including, without limitation an update as of the Closing Dates regarding the
representation contained in Section 3(c) above.
(h) The Company shall have executed and delivered to the
Buyer(s) the Convertible Debentures in the respective amounts set forth opposite
each Buyer(s) name on Schedule I attached hereto.
(i) The Buyer(s) shall have received an opinion of counsel
from Xxxxx Xxxxx in a form satisfactory to the Buyer(s).
(j) The Company shall have provided to the Buyer(s) a
certificate of good standing from the secretary of state from the state in which
the company is incorporated.
13
(k) As of the Closing Date, the Company shall have reserved
out of its authorized and unissued Common Stock, solely for the purpose of
effecting the conversion of the Convertible Debentures, shares of Common Stock
to effect the conversion of all of the Conversion Shares then outstanding.
(l) The Irrevocable Transfer Agent Instructions, in form and
substance satisfactory to the Buyer, shall have been delivered to and
acknowledged in writing by the Company's transfer agent.
(m) The Company shall have provided to the Investor an
acknowledgement, to the satisfaction of the Investor, from Xxxxxxx Xxxxxx &
Company, LLP as to its ability to provide all consents required in order to file
a registration statement in connection with this transaction.
(n) The Company shall have filed a form UCC-1 or such other
forms as may be required to perfect the Buyer's interest in the Pledged Property
and Pledged Collateral as detailed in the Security Agreement of even date
herewith and provided proof of such filing to the Buyer(s).
8. INDEMNIFICATION.
----------------
(a) In consideration of the Buyer's execution and delivery of
this Agreement and acquiring the Convertible Debentures and the Conversion
Shares hereunder, and in addition to all of the Company's other obligations
under this Agreement, the Company shall defend, protect, indemnify and hold
harmless the Buyer(s) and each other holder of the Convertible Debentures and
the Conversion Shares, and all of their officers, directors, attorneys,
employees and agents (including, without limitation, those retained in
connection with the transactions contemplated by this Agreement) (collectively,
the "BUYER Indemnitees") from and against any and all actions, causes of action,
suits, claims, losses, costs, penalties, fees, liabilities and damages, and
expenses in connection therewith (irrespective of whether any such Buyer
Indemnitee is a party to the action for which indemnification hereunder is
sought), and including reasonable attorneys' fees and disbursements (the
"INDEMNIFIED LIABILITIES"), incurred by the Buyer Indemnitees or any of them as
a result of, or arising out of, or relating to (a) any misrepresentation or
breach of any representation or warranty made by the Company in this Agreement,
the Convertible Debentures, the Security Agreement, the Investor Registration
Rights Agreement or any other certificate, agreement, instrument or document
contemplated hereby or thereby, (b) any breach of any covenant, agreement or
obligation of the Company contained in this Agreement, the Convertible
Debentures, the Security Agreement, the Investor Registration Rights Agreement
or any other certificate, agreement, instrument or document contemplated hereby
or thereby, or (c) any cause of action, suit or claim brought or made against
such Indemnitee and arising out of or resulting from the execution, delivery,
performance or enforcement of this Agreement, the Convertible Debentures, the
Security Agreement, the Investor Registration Rights Agreement or any other
certificate, agreement, instrument or document contemplated hereby or thereby,
any transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Convertible Debentures or
the status of the Buyer or holder of the Convertible Debentures or the
Conversion Shares. To the extent that the foregoing undertaking by the Company
may be unenforceable for any reason, the Company shall make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities, which is permissible under applicable law.
(b) In consideration of the Company's execution and delivery
of this Agreement, and in addition to all of the Buyer's other obligations under
this Agreement, the Buyer shall defend, protect, indemnify and hold harmless the
Company and all of its officers, directors, employees and agents (including,
without limitation, those retained in connection with the transactions
contemplated by this Agreement) (collectively, the "COMPANY INDEMNITEES") from
and against any and all Indemnified Liabilities incurred by the Indemnitees or
any of them as a result of, or arising out of, or relating to (a) any
misrepresentation or breach of any representation or warranty made by the
Buyer(s) in this Agreement, (b) any breach of any covenant, agreement or
obligation of the Buyer(s) contained in this Agreement, the Investor
Registration Rights Agreement or any other certificate, instrument or document
contemplated hereby or thereby executed by the Buyer, or (c) any cause of
action, suit or claim brought or made against such Company Indemnitee based on
material misrepresentations or due to a material breach and arising out of or
resulting from the execution, delivery, performance or enforcement of this
Agreement, the Investor Registration Rights Agreement or any other instrument,
document or agreement executed pursuant hereto by any of the Company
Indemnities. To the extent that the foregoing undertaking by each Buyer may be
unenforceable for any reason, each Buyer shall make the maximum contribution to
the payment and satisfaction of each of the Indemnified Liabilities, which is
permissible under applicable law.
14
9. GOVERNING LAW: MISCELLANEOUS.
-----------------------------
(a) GOVERNING LAW. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of New Jersey without
regard to the principles of conflict of laws. The parties further agree that any
action between them shall be heard in Xxxxxx County, New Jersey, and expressly
consent to the jurisdiction and venue of the Superior Court of New Jersey,
sitting in Xxxxxx County and the United States District Court for the District
of New Jersey sitting in Newark, New Jersey for the adjudication of any civil
action asserted pursuant to this Paragraph.
(b) COUNTERPARTS. This Agreement may be executed in two or
more identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party. In the event any signature page is
delivered by facsimile transmission, the party using such means of delivery
shall cause four (4) additional original executed signature pages to be
physically delivered to the other party within five (5) days of the execution
and delivery hereof.
(c) HEADINGS. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.
(d) SEVERABILITY. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
(e) ENTIRE AGREEMENT, AMENDMENTS. This Agreement supersedes
all other prior oral or written agreements between the Buyer(s), the Company,
their affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced herein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor any Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. No provision of this
Agreement may be waived or amended other than by an instrument in writing signed
by the party to be charged with enforcement.
(f) NOTICES. Any notices, consents, waivers, or other
communications required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered (i) upon
receipt, when delivered personally; (ii) upon confirmation of receipt, when sent
by facsimile; (iii) three (3) days after being sent by U.S. certified mail,
return receipt requested, or (iv) one (1) day after deposit with a nationally
recognized overnight delivery service, in each case properly addressed to the
party to receive the same. The addresses and facsimile numbers for such
communications shall be:
If to the Company, to: Xxxxxxx Xxx, Inc.
000 Xxxx Xxx Xxxxx, Xxxxx X
Xxxxxx Xxxxx, Xxxxxxxx 00000
Attention: Xxxxxxxxx XxXxxx, President
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
With a copy to: Xxxxxxxxxxx & Xxxxxxxx LLP
000 Xxxxx Xxxxxxxx Xxxxxxxxx - Xxxxx 0000
Xxxxx, XX 00000-0000
Attention: Xxxxxxx X. Xxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
15
If to the Buyer, to: Cornell Capital Partners, LP
000 Xxxxxx Xxxxxx - Xxxxx 0000
Xxxxxx Xxxx, XX 00000
Attention: Xxxx Xxxxxx
Portfolio Manager
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
With Copy to: Cornell Capital Partners, LP
000 Xxxxxx Xxxxxx - Xxxxx 0000
Xxxxxx Xxxx, Xxx Xxxxxx 00000
Attention: Xxxx X. Xxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to the Buyer(s), to its address and facsimile number on Schedule I,
with copies to the Buyer's counsel as set forth on Schedule I. Each party shall
provide five (5) days' prior written notice to the other party of any change in
address or facsimile number.
(g) SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the parties and their respective successors and
assigns. Neither the Company nor any Buyer shall assign this Agreement or any
rights or obligations hereunder without the prior written consent of the other
party hereto.
(h) NO THIRD PARTY BENEFICIARIES. This Agreement is intended
for the benefit of the parties hereto and their respective permitted successors
and assigns, and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.
(i) SURVIVAL. Unless this Agreement is terminated under
Section 9(l), the representations and warranties of the Company and the Buyer(s)
contained in Sections 2 and 3, the agreements and covenants set forth in
Sections 4, 5 and 9, and the indemnification provisions set forth in Section 8,
shall survive the Closing for a period of two (2) years following the date on
which the Convertible Debentures are converted in full. The Buyer(s) shall be
responsible only for its own representations, warranties, agreements and
covenants hereunder.
(j) PUBLICITY. The Company and the Buyer(s) shall have the
right to approve, before issuance any press release or any other public
statement with respect to the transactions contemplated hereby made by any
party; provided, however, that the Company shall be entitled, without the prior
approval of the Buyer(s), to issue any press release or other public disclosure
with respect to such transactions required under applicable securities or other
laws or regulations (the Company shall use its best efforts to consult the
Buyer(s) in connection with any such press release or other public disclosure
prior to its release and Buyer(s) shall be provided with a copy thereof upon
release thereof).
(k) FURTHER ASSURANCES. Each party shall do and perform, or
cause to be done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates, instruments and
documents, as the other party may reasonably request in order to carry out the
intent and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
(l) TERMINATION. In the event that the Closing shall not have
occurred with respect to the Buyers on or before five (5) business days from the
date hereof due to the Company's or the Buyer's failure to satisfy the
conditions set forth in Sections 6 and 7 above (and the non-breaching party's
failure to waive such unsatisfied condition(s)), the non-breaching party shall
have the option to terminate this Agreement with respect to such breaching party
at the close of business on such date without liability of any party to any
other party; provided, however, that if this Agreement is terminated by the
Company pursuant to this Section 9(l), the Company shall remain obligated to
reimburse the Buyer(s) for the fees and expenses of Xxxxxx Xxxxxxxx described in
Section 4(g) above.
16
(m) NO STRICT CONSTRUCTION. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.
[REMAINDER PAGE INTENTIONALLY LEFT BLANK]
17
IN WITNESS WHEREOF, the Buyers and the Company have caused this
Securities Purchase Agreement to be duly executed as of the date first written
above.
COMPANY:
XXXXXXX XXX, INC.
By: /S/ Xxxxxxxxx Xxxxxx
--------------------
Name Xxxxxxxxx XxXxxx
Title: President
18
EXHIBIT A
FORM OF INVESTOR REGISTRATION RIGHTS AGREEMENT
----------------------------------------------
EXHIBIT B
FORM OF ESCROW AGREEMENT
------------------------
EXHIBIT C
TRANSFER AGENT INSTRUCTIONS
---------------------------
SCHEDULE I
----------
SCHEDULE OF BUYERS
------------------
ADDRESS/FACSIMILE AMOUNT OF
NAME SIGNATURE NUMBER OF BUYER SUBSCRIPTION
---------------------------- -------------------------------- --------------------------------- ------------
Cornell Capital Partners, LP By: Yorkville Advisors, LLC 000 Xxxxxx Xxxxxx - Xxxxx 0000 $1,100,000
Its: General Partner Xxxxxx Xxxx, XX 00000
Facsimile: (000) 000-0000
By: /S/ Xxxx Xxxxxx
---------------
Name: Xxxx Xxxxxx
Its: Portfolio Manager
AMENDMENT TO SECURITIES PURCHASE AGREEMENT
------------------------------------------
THIS AMENDMENT TO SECURITIES PURCHASE AGREEMENT (the "AMENDMENT") dated
as of August 26, 2004, by and between XXXXXXX XXX, INC. (the "COMPANY") and
CORNELL CAPITAL PARTNERS, LP (the "BUYER").
RECITALS:
---------
WHEREAS, the parties hereto entered into a Securities Purchase
Agreement (the "SECURITIES PURCHASE AGREEMENT") dated as of May 14, 2004,
pursuant to which the Buyer was to purchase from the Company a total of
$1,100,000 of convertible debentures (the "CONVERTIBLE DEBENTURES"). To date,
the Buyer has purchased a total of $400,000.
WHEREAS, this Amendment is being entered into in order to resolve
certain disputes.
NOW, THEREFORE, in consideration of the mutual covenants and other
Amendments contained in this Amendment, the parties hereto agree as follows:
AMENDMENT:
----------
1. RECITALS. The Recitals set forth above are true and correct.
2. WITHDRAWAL OF REGISTRATION STATEMENT. The Company has withdrawn the
Registration Statement on Form SB-2 (File No. 333-117790).
3. FILE A NEW REGISTRATION STATEMENT. The Company hereby agrees to file
with the Securities and Exchange Commission (the "SEC") a new registration
statement (the "INITIAL REGISTRATION STATEMENT") on or before August 27, 2004 to
register all shares of Common Stock to be issued under all $1,100,000 of
convertible debentures to the extent permitted by the SEC under applicable
securities laws. After the Initial Registration Statement has been declared
effective, the Company agrees to file another registration statement to register
the shares of Common Stock to be issued to Buyer under the Standby Equity
Distribution Amendment dated as of June 10, 2004, including, without limitation,
the shares underlying the $740,000 convertible debenture issued to Buyer in
connection therewith and the $10,000 convertible debenture issued to Newbridge
Securities Corporation in connection therewith within 10 days of the Company's
Common Stock being quoted on the Over-the-Counter Bulletin Board or Nasdaq.
4. COVENANTS. The Company hereby agrees to, and covenants with, the
Buyer as follows:
a. NO PAYMENT OF MANAGEMENT FEES. The Company shall not make
any payments of (i) salaries, management fees, commissions or any other
remuneration to Xxxx Xxxxxxx, Xxxxxxxxx XxXxxx, Quest Manufacturing, Inc. Castle
Hill Advisory Group or any person or entity that is an "affiliate" of any such
person or entity (the "MANAGEMENT GROUP") or (ii), except as set forth on
SCHEDULE 4(a) hereto, on any notes, accounts payable or other obligations or
1
liabilities owed to any member of Management Group until the Initial
Registration Statement has been effective (as declared by the Securities and
Exchange Commission) for a period of at least 90 days (the "PROHIBITION
PERIOD").
b. LIMITATION ON CERTAIN EXPENDITURES. Further, during the
Prohibition Period, the Company shall limit expenses (and reimbursements) for
travel, entertainment and meals to no more than $2,000, except upon written
approval by Buyer.
5. FUNDING. Notwithstanding the timing of the payments in the
Securities Purchase Agreement, the Buyer shall fund the payment identified as
the Fourth Closing (as defined in the Securities Purchase Agreement) as follows:
a. The Buyer shall purchase from the Company $125,000 of
Convertible Debentures within ten (10) days of the Company filing the Initial
Registration Statement; PROVIDED such filing is on or before August 27, 2004.
The net proceeds to be received by the Company from this installment (less the
10% commitment fee and $5,000, which is one-half of the remaining balance of the
structuring fee due to Buyer) shall be used to pay back payroll of approximately
$97,000 to employees other than the Management Group and the remainder to be
applied toward payment of accounts payable set forth on Schedule 5(a) hereto.
b. The Buyer shall purchase from the Company $125,000 of
Convertible Debentures within five (5) days of the Company filing with the SEC
the first amendment to the Initial Registration Statement responding to the
SEC's first set of comments relating to the Initial Registration Statement. The
Buyer shall deduct the 10% commitment fee and the $5,000 balance of the
structuring fee from the gross proceeds of this installment.
6. REAFFIRMATION. The Company hereby reaffirms its obligations under
the $300,000, $100,000 and $740,000 Convertible Debentures, all three issued to
Buyer prior to the date hereof, as well as its obligations under the Securities
Purchase Agreement, the Standby Equity Distribution Agreement and all documents
executed in connection therewith. The Company hereby waives any offsets from or
defenses to the enforcement of the obligations owed by the Company to Buyer.
7. GOVERNING LAW. This Amendment shall be governed by and interpreted
in accordance with the laws of the State of New Jersey without regard to the
principles of conflict of laws. The parties further agree that any action
between them shall be heard in Xxxxxx County, New Jersey, and expressly consent
to the jurisdiction and venue of the Superior Court of New Jersey, sitting in
Xxxxxx County and the United States District Court for the District of New
Jersey sitting in Newark, New Jersey for the adjudication of any civil action
asserted pursuant to this Paragraph.
2
8. Notices. Copies of notices, consents, waivers, or other
communications required or permitted to be given to the Company under the terms
of the Securities Purchase Agreement and all documents executed in connection
therewith shall, in addition to those entities listed therein, be provided to:
Levenfeld Xxxxxxxxxx, LLC
000 Xxxxxxxx Xxxx - Xxxxx 000
Xxxxxxxxxx, XX 00000
Attention: Xxxxxx X. Xxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
9. COUNTERPARTS. This Amendment may be executed in two or more
identical counterparts, all of which shall be considered one and the same
Amendment and shall become effective when counterparts have been signed by each
party and delivered to the other party.
10. FURTHER ASSURANCES. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other amendments, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Amendment and the consummation of the
transactions contemplated hereby.
11. NO STRICT CONSTRUCTION. The language used in this Amendment will be
deemed to be the language chosen by the parties to express their mutual intent,
and no rules of strict construction will be applied against any party.
[REMAINDER PAGE INTENTIONALLY LEFT BLANK]
3
IN WITNESS WHEREOF, the Buyers and the Company have caused this
Securities Purchase Amendment to be duly executed as of the date first written
above.
COMPANY:
XXXXXXX XXX, INC.
By: /S/ Xxxxxxxxx XxXxxx
--------------------
Name Xxxxxxxxx XxXxxx
Title: President
CORNELL CAPITAL PARTNERS, LP
By: Yorkville Advisors, LP
Its: General Partner
By: /S/ Xxxx Xxxxxx
---------------
Name Xxxx Xxxxxx
Title: Portfolio Manager
4
SCHEDULE 4(a)
-------------
EXCEPTIONS TO SECTION 4 A (ii) OF THE AMENDMENT
-----------------------------------------------
REIMBURSEMENTS TO
-----------------
QUEST MANUFACTURING, INC. INCLUDE THE FOLLOWING AND OTHER SIMILAR CASH ADVANCES
-------------------------------------------------------------------------------
TO THE COMPANY AND SIMILAR BUSINESS EXPENSES TO BE PAID:
--------------------------------------------------------
INVOICE DATE DESCRIPTION AMOUNT
------- ---- ----------- ------
32143 6/11/04 Wire transfer to Yorkville Advisors Management $5,000.00
32144 6/1/04 T-Mobile service from 5/2/04-6/1/04 $1,043.45
32154 7/1/04 Sublease #4 Pacific Funding $1,360.91
32155 7/1/04 Sublease Agreement #2 $2,389.37
32156 7/1/04 Sublease #1 Dell Financial $346.90
32157 7/1/04 Sublease #3 Harbour Capital $2,041.51
32158 6/15/04 Check written to Silicon Film for $3,000 to
pay expenses: AE-$1,652.95
BMP Manuf.-$825.00
Peoples Energy-$49.97
Quill-$266.32
Telogy-$205.76 $3,000.00
32173 6/30/04 Midwest limo Service for June 2004 $302.55
32177 7/1/04 T-Mobile through 6/16/04 $1,260.85
32178 7/15/04 Check to Voyager to cover interest payment
on loans (Xxxxx-$1,250, Xxxx-$500.00) $1,750.00
32187 7/21/04 Advance to pay AE xxxx $461.98
32188 7/21/04 Advance to pay ComEd, FedEx and People's En. $1,084.04
32189 8/1/04 Sublease #1 Dell Financial $346.90
32190 8/1/04 Sublease Agreement #2 $2,230.50
32191 8/1/04 Sublease #3 Harbour Capital $2,041.51
32192 8/1/04 Sublease #4 Pacific Funding $1,360.91
32195 7/23/04 Money transferred to Xxxxxxx Xxx Account
Xxxxxxx-$19,519.75 SEC-$7,194.00 $27,500.00
32196 7/27/04 Money to cover Voyager A/P (Telogy) $250.00
32199 7/29/04 Consulting Fees-Xxxxx Xxxxxxxx $2,500.00
TOTAL ..................................................................................$56,271.38
5
Schedule 5(a)
XXXXXXX XXX, INC. SUMMARY
USE OF $125,000
Total Pay Balance
arena 4,712.94 (1,570.98) 3,141.96
Xxxxxxx Xxxxxx & XxXxxx, LLC 2,408.00 (2,408.00) -
Xxxxx & Xxxxx 5,775.00 (5,775.00) -
---------------- ------------- ---------
TOTAL 12,895.94 (9,753.98) 3,141.96
Payroll (approx) * (97,000.00)
Cornell Fee 10% (12,500.00)
Cornell Obligation (5,000.00)
Total (124,253.98)
o Exact number will be known after ADP runs Payroll and calculates all
taxes, workers comp and their fee.
6
