SHUMATE INDUSTRIES, INC. STOCK PURCHASE AGREEMENT
▇▇▇▇▇▇▇
INDUSTRIES, INC.
This
Stock Purchase Agreement (“Agreement”)
is
made as of December 2, 2005, but is only effective as of the date of acceptance
of the “Purchaser
Signature Page”
by
and
between ▇▇▇▇▇▇▇ Industries, Inc., a Delaware corporation (the “Company”),
and
the purchaser who executes the Purchaser Signature Page hereto (the
“Purchaser”).
RECITALS
A. The
Company desires to obtain funds from each Purchaser in order to provide working
capital to and further the operations of the Company.
B. In
order
to obtain such funds, the Company is offering up to 416,667 shares (the
“Shares”)
of
common stock, $.001 par value per share (the “Common
Stock”)
and
the right to purchase
up to $50,000 worth of additional securities in the Financing on the same terms
and conditions set forth in the Financing (as defined below) in such Purchaser’s
discretion,
on the
terms and subject to the conditions set forth herein.
AGREEMENT
It
is
agreed as follows:
2. CLOSING(S).
2.1 Date
and Time.
The
closing of the sale of Shares contemplated by this Agreement (each a
“Closing”)
shall
take place at the offices of the Company or at such other place as the Company
and such Purchaser shall agree in writing, on or before December 15, 2005,
unless otherwise extended by the Company (the “Final
Closing Date”).
2.2 Deliveries
by Purchaser.
Each
Purchaser shall deliver the following at such Purchaser’s Closing:
2.2.1 a
completed and executed Purchaser Signature Page.
2.2.2 a
check
or wire transfer to the general account of the Company in the amount of the
Purchase Price for each Share purchased.
2.3 Deliveries
by Company.
At each
Closing, or as soon thereafter as practicable, the Company will deliver to
each
Purchaser the certificates representing the Shares purchased by such Purchaser
against payment of the Purchase Price. Each such Share shall be in definitive
form and registered in the name of the Purchaser, as set forth on the Purchaser
Signature Page, against delivery to the Company by the Purchaser of the items
set forth in paragraph 2.2 above.
2.4 Each
Closing Identical.
Each
Closing shall be upon substantially identical terms and conditions to those
contained herein. Each Closing may be effected at the Company’s sole election
until all of the Shares have been sold, provided that all of such Closings
are
held on or prior to the Final Closing Date.
3. REPRESENTATIONS
AND WARRANTIES OF THE COMPANY.
As
a
material inducement to each Purchaser to enter into this Agreement and to
purchase the Shares, the Company represents and warrants that the following
statements are true and correct in all material respects as of the date hereof
and will be true and correct in all material respects at Closing, except as
expressly qualified or modified herein.
3.1 Organization
and Good Standing.
The
Company is a corporation duly organized, validly existing, and in good standing
under the laws of the State of Delaware and has full corporate power and
authority to enter into and perform its obligations under this Agreement, and
to
own its properties and to carry on its business as presently conducted and
as proposed
to be conducted.
3.2 Capitalization.
The
Company is authorized to issue 50,000,000 shares of Common Stock of which,
as of
November 1, 2005, 11,028,295 shares were issued and outstanding, and 10,000,000
shares of undesignated preferred stock, $0.001 par value, of which none are
issued and outstanding. All outstanding shares of Common Stock have been duly
authorized and validly issued, and are fully paid, nonassessable, and free
of
any preemptive rights.
3.3 Validity
of Transactions.
This
Agreement, and each document executed and delivered by the Company in connection
with the transactions contemplated by this Agreement, including this Agreement,
have been duly authorized, executed and delivered by the Company and is each
the
valid and legally binding obligation of the Company, enforceable in accordance
with its terms, except as limited by applicable bankruptcy, insolvency
reorganization and moratorium laws and other laws affecting enforcement of
creditor’s rights generally and by general principles of equity.
3.4 Valid
Issuance of Shares.
The
Shares that are being issued to each Purchaser hereunder, when issued, sold
and
delivered in accordance with the terms hereof for the consideration expressed
herein, will be duly and validly issued, fully paid and nonassessable and free
of restrictions on transfer, other than restrictions on transfer under this
Agreement and under applicable federal and state securities laws, will be free
of all other liens and adverse claims.
3.5 No
Violation.
The
execution, delivery and performance of this Agreement has been duly authorized
by the Company’s Board of Directors and will not violate any law or any order of
any court or government agency applicable to the Company, as the case may be,
or
the Articles of Incorporation or Bylaws of the Company, and will not result
in
any breach of or default under, or, except as expressly provided herein, result
in the creation of any encumbrance upon any of the assets of the Company
pursuant to the terms of any agreement or instrument by which the Company or
any
of its assets may be bound. No approval of or filing with any governmental
authority is required for the Company to enter into, execute or perform this
Agreement.
3.6 SEC
Reports and Financial Statements.
3.6.1 The
Company has delivered or made available to each Purchaser accurate and complete
copies (excluding copies of exhibits) of each report, registration statement,
and definitive proxy statement filed by the Company with the United States
Securities and Exchange Commission (“SEC”)
since
January 1, 2004 (collectively, with all information incorporated by reference
therein or deemed to be incorporated by reference therein, the “SEC
Reports”). All
statements, reports, schedules, forms and other documents required to have
been
filed by the Company with the SEC have been so filed on a timely basis, except
as indicated in such SEC Reports. As of the time it was filed with the SEC
(or,
if amended or superseded by a filing prior to the date of this Agreement, then
on the date of such filing): (i) each of the SEC Reports complied in all
material respects with the applicable requirements of the Securities Act of
1933, as amended, or the Securities Exchange Act of 1934, as amended; and (ii)
none of the SEC Reports contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary
in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
3.6.2 Except
for the pro forma financial statements, the consolidated financial statements
contained in the SEC Reports: (i) complied as to form in all material respects
with the published rules and regulations of the SEC applicable thereto; (ii)
were prepared in accordance with GAAP applied on a consistent basis throughout
the periods covered (except as may be indicated in the notes to such financial
statements and, in the case of unaudited statements, as permitted by Form 10-QSB
of the SEC, and except that unaudited financial statements may not contain
footnotes and are subject to normal and recurring year-end audit adjustments
which will not, individually or in the aggregate, be material in amount); and
(iii) fairly present, in all material respects, the consolidated financial
position of the Company and its consolidated subsidiaries as of the respective
dates thereof and the consolidated results of operations of the Company and
its
consolidated subsidiaries for the periods covered thereby. All adjustments
considered necessary for a fair presentation of the financial statements have
been included.
3.7 Securities
Law Compliance.
Assuming the accuracy of the representations and warranties of each Purchaser
set forth in Section 4 of this Agreement, the offer, issue, sale and delivery
of
the Shares will constitute an exempted transaction under the Securities Act
of
1933, as amended and now in effect (the “Securities
Act”),
and
registration of the Shares under the Securities Act is not required. The Company
shall make such filings as may be necessary to comply with the Federal
securities laws and the “blue sky” laws of any state, which filings will be made
in a timely manner.
4. REPRESENTATIONS
AND WARRANTIES OF EACH PURCHASER.
Each
Purchaser hereby represents, warrants and covenants with the Company as
follows:
4.3 Access
to Information.
Each
Purchaser represents that such Purchaser has been given full and complete access
to the Company for the purpose of obtaining such information as such Purchaser
or its qualified representative has reasonably requested in connection with
the
decision to purchase the Shares. Each Purchaser represents that such Purchaser
has received and reviewed copies of the SEC Reports. Each Purchaser represents
that such Purchaser has been afforded the opportunity to ask questions of the
officers of the Company regarding its business prospects and the Shares, all
as
such Purchaser or such Purchaser’s qualified representative have found necessary
to make an informed investment decision to purchase the Shares.
4.4 Restricted
Securities.
4.4.1 Each
Purchaser has been advised that the Shares have not been registered under the
Securities Act or any other applicable
securities laws and that Shares
are being offered and sold pursuant to Section 4(2) of the Securities Act and/or
Rule
506
of Regulation D thereunder, and that the Company’s reliance upon Section
4(2) and/or Rule 506 of Regulation D is predicated in part on such
Purchaser representations as contained herein.
Each
Purchaser acknowledges that the Shares will be issued as “restricted securities”
as defined by Rule 144 promulgated pursuant to the Securities Act. The Shares
may not be resold in the absence of an effective registration thereof under
the
Securities Act and applicable state securities laws unless, in the opinion
of
the Company’s counsel, an applicable exemption from registration is
available.
4.4.2 Each
Purchaser represents that such Purchaser is acquiring the Shares for such
Purchaser’s own account, and not as nominee or agent, for investment purposes
only and not with a view to, or for sale in connection with, a distribution,
as
that term is used in Section 2(11) of the Securities Act, in a manner which
would require registration under the Securities Act or any state securities
laws.
4.4.3 Each
Purchaser understands and acknowledges that the Securities, when issued, will
bear the following legend:
THE
SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE. THE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD OR TRANSFERRED
FOR VALUE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION THEREOF UNDER THE
SECURITIES ACT OF 1933 AND/OR THE SECURITIES ACT OF ANY STATE HAVING
JURISDICTION OR AN OPINION OF COUNSEL ACCEPTABLE TO THE CORPORATION THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR ACTS.
4.4.4 Each
Purchaser acknowledges that an investment in the Securities is not liquid and
is
transferable only under limited conditions. Each Purchaser acknowledges that
such securities must be held indefinitely unless they are subsequently
registered under the Securities Act or an exemption from such registration
is
available. Each Purchaser is aware of the provisions of Rule 144
promulgated under the Securities Act, which permits limited resale of restricted
securities subject to the satisfaction of certain conditions and that such
Rule
is not now available and, in the future, may not become available for resale
of
any of the Shares.
4.4.5 Each
Purchaser is an “accredited investor” as defined under Rule 501 under the
Securities Act. The representations made by each Purchaser on the Purchaser
Signature Page are true and correct.
4.5 Purchaser
Sophistication and Ability to Bear Risk of Loss.
Each
Purchaser acknowledges that it is able to protect its interests in connection
with the acquisition of the Shares
and can bear the economic risk of investment in such securities without
producing a material adverse change in such Purchaser’s financial condition.
Each Purchaser, either alone or with such Purchaser’s representative(s),
otherwise has such knowledge and experience in financial or business matters
that such Purchaser is capable of evaluating the merits and risks of the
investment in the Shares.
4.6 Preexisting
Relationship.
Each
Purchaser
has a preexisting personal or business relationship with the Company, one or
more of its officers, directors, or controlling persons, or in the event that
such Purchaser is introduced to the Company by a finder or broker-dealer, such
finder or broker-dealer.
4.7 Purchases
by Groups.
Each
Purchaser represents, warrants and covenants that it is not acquiring the Shares
as part of a group within the meaning of Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended.
5. REGISTRATION.
5.1 Definitions.
As used
in this Section 5, the following terms shall have the following
meanings:
5.1.1 Exchange
Act:
The
Securities Exchange Act of 1934, as amended, and the rules and regulations
of
the SEC promulgated thereunder.
5.1.2 Losses:
See
Section 5.6 hereof.
5.1.3 Prospectus:
The
prospectus included in any Registration Statement (including, without
limitation, a prospectus that discloses information previously omitted from
a
prospectus filed as part of an effective registration statement in reliance
upon
Securities Act Rule 430A), as amended or supplemented by any prospectus
supplement, with respect to the terms of the offering of any portion of the
Registrable Securities covered by such Registration Statement and all other
amendments and supplements to the prospectus, including post-effective
amendments, and all material incorporated by reference or deemed to be
incorporated by reference in such prospectus.
5.1.4 Registration
Expenses:
All
reasonable expenses incurred by the Company in complying with Sections 5.3
and
5.4 hereof, including, without limitation, all registration and filing fees,
printing expenses, fees and disbursements of counsel for the Company,
accountants’ expenses (including, without limitation, any special audits or
“comfort” letters incidental to or required by any such registration), any fees
or disbursements of underwriters customarily paid by issuers or sellers of
securities (but excluding underwriting discounts and commissions) and blue
sky
fees and expenses in all states reasonably designated by the holders of
Registrable Securities.
5.1.5 Registrable
Securities:
The
Shares and any Common Stock issued or issuable in respect of the Shares pursuant
to any stock split, stock dividend, recapitalization, or similar
event.
5.1.6 Registration
Statement:
Any
registration statement of the Company which covers any of the Registrable
Securities pursuant to the provisions of this Agreement, including the
Prospectus, amendments and supplements to such registration statement, including
post-effective amendments, all exhibits and all material incorporated by
reference or deemed to be incorporated by reference in such registration
statement.
5.1.7 Rule
144:
Rule 144
under the Securities Act, as such Rule may be amended from time to time, or
any
similar rule or regulation hereafter adopted by the SEC (excluding Rule
144A).
5.1.8 SEC:
The
Securities and Exchange Commission.
5.1.9 Securities
Act:
The
Securities Act of 1933, as amended, and the rules and regulations promulgated
by
the SEC thereunder.
5.1.10 Underwritten
registration or underwritten offering:
A
registration in which securities of the Company are sold to an underwriter
for
reoffering to the public.
5.2 Securities
Subject to the Registration Rights.
The
securities entitled to the benefits of the Registration Rights set forth in
this
Section 5 are the Registrable Securities.
5.3 Registration
Rights.
If, at
any time after the Final Closing Date and expiring on the fifth (5th)
anniversary of the Final Closing Date, the Company proposes to register any
of
its securities under the Securities Act (except for registrations on Forms
S-8
or S-4 or their equivalent), it will give written notice by registered mail,
at
least thirty (30) days prior to the filing of each such Registration Statement,
to the holders of Registrable Securities of its intention to do so. If any
holders of Registrable Securities notify the Company within twenty (20) days
after receipt of any such notice of its desire to include any Registrable
Securities in such proposed Registration Statement, the Company shall afford
such holders of Registrable Securities the opportunity to have any such
Registrable Securities registered under such Registration Statement. These
rights may be exercised at any time on an unlimited number of occasions prior
to
the fifth (5th)
anniversary of the Final Closing Date, subject to the terms and conditions
set
forth in this Section 5.
5.4 Holdback
and Lock-Up Agreements.
5.4.1 Restrictions
on Public Sale by Holders of Registrable Securities.
Each
holder of Registrable Securities whose Registrable Securities are covered by
a
Registration Statement filed pursuant to Section 5.3 hereof agrees, if
requested by the managing underwriters in an underwritten offering (to the
extent timely notified in writing by the Company or the managing underwriters),
not to effect any public sale or distribution of securities of the Company
of
any class included in such Registration Statement, including a sale pursuant
to
Rule 144 (except as part of such underwritten offering), during the 10-day
period prior to, and the 180-day period beginning on, the effective date of
any
underwritten offering made pursuant to such Registration Statement; provided,
however, the foregoing prohibition shall only apply if all Registrable
Securities requested by such holder to be covered by such Registration Statement
are included in such Registration Statement.
5.4.2 The
foregoing provisions shall not apply to any holder of Registrable Securities
if
such holder is prevented by applicable statute or regulation from entering
into
any such agreement; provided, however, that any such holder shall undertake
in
its request to participate in any such underwritten offering not to effect
any
public sale or distribution of the class of Registrable Securities covered
by
such Registration Statement (except as part of such underwritten offering)
during such period unless it has provided five (5) business days prior written
notice of such sale or distribution to the managing underwriters.
5.5 Expenses
and Procedures.
5.5.1 Expenses
of Registration.
All
Registration Expenses (exclusive of underwriting discounts and commissions)
shall be borne by the Company. Each holder of Registrable Securities shall
bear
all underwriting discounts, selling commissions, sales concessions and similar
expenses applicable to the sale of the Registrable Securities sold by such
holder.
5.5.2 Registration
Procedures.
The
Company will keep the holders of Registrable Securities advised as to the
initiation of registration, qualification and compliance and as to the
completion thereof. At its expense, the Company will furnish such number of
Prospectuses and other documents incident thereto as the holders or underwriters
from time to time may reasonably request.
5.5.3 Information.
The
Company may require each seller of Registrable Securities as to which any
registration is being effected to furnish such information regarding the
distribution of such Registrable Securities as the Company may from time to
time
reasonably request and the Company may exclude from such registration the
Registrable Securities of any seller who unreasonably fails to furnish such
information after receiving such request.
5.5.4 Delay
or Suspension.
Notwithstanding anything herein to the contrary, the Company may, at any time,
suspend the effectiveness of any Registration Statement for a period of up
to 60
consecutive days or 90 days in the aggregate in any calendar year, as
appropriate (a “Suspension
Period”),
by
giving notice to each holder of Registrable Securities to be included in the
Registration Statement, if the Company shall have determined, after consultation
with its counsel, that the Company is required to disclose any material
corporate development which the Company determines could reasonably be expected
to have a material effect on the Company. Each holder of Registrable Securities
agrees by acquisition of such Registrable Securities that, upon receipt of
any
notice from the Company of a Suspension Period, such holder shall forthwith
discontinue disposition of such Registrable Securities covered by such
Registration Statement or Prospectus until such holder (i) is advised in
writing by the Company that the use of the applicable Prospectus may be resumed,
(ii) has received copies of a supplemental or amended prospectus, if
applicable, and (iii) has received copies of any additional or supplemental
filings which are incorporated or deemed to be incorporated by reference in
such
Prospectus. The Company shall prepare, file and furnish to each holder of
Registrable Securities immediately upon the expiration of any Suspension Period,
appropriate supplements or amendments, if applicable, to the Prospectus and
appropriate documents, if applicable, incorporated by reference in the
Registration Statement. The Company agrees to use its best efforts to cause
any
Suspension Period to be terminated as promptly as possible.
5.5.5 Blue
Sky.
The
Company will, as expeditiously as possible, use its best efforts to register
or
qualify the Registrable Securities covered by a Registration Statement under
the
securities or blue sky laws of such jurisdictions as the Company deems
appropriate or, in the case of an underwritten public offering, the managing
underwriter shall reasonably request, provided that the Company shall not be
required in connection therewith or as a condition thereto to qualify to do
business in any jurisdiction where it is not so qualified or to take any action
which would subject it to taxation or service of process in any jurisdiction
where it is not otherwise subject to such taxation or service of
process.
5.5.6 Notification
of Material Events.
The
Company will, as expeditiously as possible, immediately notify each holder
of
Registrable Securities under a Registration Statement, at any time when a
prospectus relating thereto is required to be delivered under the Securities
Act, of the happening of any event as a result of which the Prospectus contained
in such Registration Statement, as then in effect, includes an untrue statement
of a material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading in the light
of the circumstances then existing and, as expeditiously as possible, amend
or
supplement such Prospectus to eliminate the untrue statement or the
omission.
5.6 Indemnification.
5.6.1 Indemnification
by Company.
The
Company shall, without limitation as to time, indemnify and hold harmless,
to
the full extent permitted by law, each holder of Registrable Securities, its
officers, directors, agents and employees, each person who controls such holder
(within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act), and the officers, directors, agents or employees of any such
controlling person, from and against all losses, claims, damages, liabilities,
costs (including, without limitation, all reasonable attorneys’ fees) and
expenses (collectively “Losses”),
as
incurred, arising out of or based upon any untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement, Prospectus
or preliminary prospectus or any amendment or supplement thereto, or arising
out
of or based upon any omission or alleged omission of a material fact required
to
be stated therein or necessary to make the statements therein in light of the
circumstances under which they were made (in the case of any Prospectus) not
misleading, except insofar as the same are based solely upon information
furnished to the Company by such holder for use therein; provided, however,
that
the Company shall not be liable in any such case to the extent that any such
Loss arises out of or is based upon an untrue statement or alleged untrue
statement or omission made in any preliminary prospectus or Prospectus if (i)
such holder failed to send or deliver a copy of the Prospectus or Prospectus
supplement with or prior to the delivery of written confirmation of the sale
of
Registrable Securities and (ii) the Prospectus or Prospectus supplement would
have corrected such untrue statement or omission. If requested, the Company
shall also indemnify underwriters, selling brokers, dealer managers and similar
securities industry professionals participating in the distribution, their
officers, directors, agents and employees and each person who controls such
persons (within the meaning of Section 15 of the Securities Act or Section
20 of
the Exchange Act) to the same extent as provided above with respect to the
indemnification of the holders of Registrable Securities.
5.6.2 Indemnification
by Holder of Registrable Securities.
In
connection with any Registration Statement in which a holder of Registrable
Securities is participating, such holder of Registrable Securities shall furnish
to the Company in writing such information as the Company may reasonably request
for use in connection with any Registration Statement or Prospectus. Such holder
hereby agrees to indemnify and hold harmless, to the full extent permitted
by
law, the Company, and its officers, directors, agents and employees, each person
who controls the Company (within the meaning of Section 15 of the Securities
Act
or Section 20 of the Exchange Act), and the officers, directors, agents or
employees of any such controlling person, from and against all losses, as
incurred, arising out of or based upon any untrue statements or alleged untrue
statement of material fact contained in any Registration Statement, Prospectus
or preliminary prospectus, or arising out of or based upon any omission of
a
material fact required to be stated therein or necessary to make the statements
therein in light of the circumstances under which they were made (in the case
of
any Prospectus) not misleading, to the extent, but only to the extent, that
such
untrue statement or omission is contained in any information so furnished in
writing by such holder to the Company for use in such Registration Statement,
Prospectus or preliminary prospectus. The Company shall be entitled to receive
indemnities from accountants, underwriters, selling brokers, dealer managers
and
similar securities industry professionals participating in the distribution
to
the same extent as provided above with respect to information so furnished
by
such persons specifically for inclusion in any Registration Statement,
Prospectus or preliminary prospectus, provided, that the failure of the Company
to obtain any such indemnity shall not relieve the Company of any of its
obligations hereunder. Notwithstanding any provision of this Section 5.6 to
the contrary, the liability of a holder of Registrable Securities under this
Section 5.6 shall not exceed the purchase price received by such holder for
the Registrable Securities sold pursuant to a Registration Statement or
Prospectus.
5.6.3 Conduct
of Indemnification Proceedings.
If any
action or proceeding (including any governmental investigation or inquiry)
shall
be brought or any claim shall be asserted against any person entitled to
indemnity hereunder (an “indemnified
party”),
such
indemnified party shall promptly notify the party from which such indemnity
is
sought (the “indemnifying
party”)
in
writing, and the indemnifying party shall assume the defense thereof, including
the employment of counsel reasonably satisfactory to the indemnified party
and
the payment of all fees and expenses incurred in connection with the defense
thereof. All such fees and expenses (including any fees and expenses incurred
in
connection with investigation or preparing to defend such action or proceeding)
shall be paid to the indemnified party, as incurred, within 20 days of written
notice thereof to the indemnifying party; provided, however, that if, in
accordance with this Section 5.6, the indemnifying party is not liable to the
indemnified party, such fees and expenses shall be returned promptly to the
indemnifying party. Any such indemnified party shall have the right to employ
separate counsel in any such action, claim or proceeding and to participate
in
the defense thereof, but the fees and expenses of such counsel shall be the
expense of such indemnified party unless (a) the indemnifying party has
agreed to pay such fees and expenses, (b) the indemnifying party shall have
failed promptly to assume the defense of such action, claim or proceeding and
to
employ counsel reasonably satisfactory to the indemnified party in any such
action, claim or proceeding, or (c) the named parties to any such action,
claim or proceeding (including any impleaded parties) include both such
indemnified party and the indemnifying party, and such indemnified party shall
have been advised by counsel that there may be one or more legal defenses
available to it which are different from or additional to those available to
the
indemnifying party (in which case, if such indemnified party notifies the
indemnifying party in writing that it elects to employ separate counsel at
the
expense of the indemnifying party, the indemnifying party shall not have the
right to assume the defense of such action, claim or proceeding on behalf of
such indemnified party, it being understood, however, that the indemnifying
party shall not, in connection with any one such action, claim or proceeding
or
separate but substantially similar or related actions, claims or proceedings
in
the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of more than
one
separate firm of attorneys (together with appropriate local counsel) at any
time
for all such indemnified parties, unless in the opinion of counsel for such
indemnified party a conflict of interest may exist between such indemnified
party and any other of such indemnified parties with respect to such action,
claim or proceeding, in which event the indemnifying party shall be obligated
to
pay the fees and expenses of such additional counsel or counsels). No
indemnifying party will consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the release
of such indemnified party from all liability in respect to such claim or
litigation without the written consent (which consent will not be unreasonably
withheld) of the indemnified party. No indemnified party shall consent to entry
of any judgment or enter into any settlement without the written consent (which
consent will not be unreasonably withheld) of the indemnifying party from which
indemnify or contribution is sought.
5.6.4 Contribution.
If the
indemnification provided for in this Section 5.6 is unavailable to an
indemnified party under Section 5.6.1 or 5.6.2 hereof (other than by reason
of
exceptions provided in those Sections) in respect of any Losses, then each
applicable indemnifying party in lieu of indemnifying such indemnified party
shall contribute to the amount paid or payable by such indemnified party as
a
result of such Losses, in such proportion as is appropriate to reflect the
relative fault of the indemnifying party and indemnified party in connection
with the actions, statements or omissions which resulted in such Losses as
well
as any other relevant equitable considerations. The relative fault of such
indemnifying party and the indemnified party shall be determined by reference
to, among other things, whether any action in question, including any untrue
statement or alleged untrue statement of a material fact or omission or alleged
omission of a material fact, has been taken or made by, or relates to
information supplied by, such indemnifying party or indemnified party, and
the
parties’ relative intent, knowledge, access to information and opportunity to
correct or prevent such action, statement or omission. The amount paid or
payable by a party as a result of any Losses shall be deemed to include, subject
to the limitations set forth in Section 5.6.3, any legal or other fees or
expenses reasonably incurred by such party in connection with any action, suit,
claim, investigation or proceeding.
The
parties hereto agree that it would not be just and equitable if contribution
pursuant to this Section 5.6.4 were determined by pro rata allocation or by
any
other method of allocation which does not take into account the equitable
considerations referred to in the immediately preceding paragraph. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f)
of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.
5.7 Rule
144.
The
Company shall file the reports required to be filed by it under the Securities
Act and the Exchange Act and the rules and regulations adopted by the SEC
thereunder, and will take such further action as any holder of Registrable
Securities may reasonably request, all to the extent required from time to
time
to enable such holder to sell Registrable Securities without registration under
the Securities Act within the limitation of the exemption provided by Rule
144
or Rule 144A. Upon the request of any holder of Registrable Securities, the
Company shall deliver to such holder a written statement as to whether the
Company has complied with such requirements. Notwithstanding the foregoing,
nothing in this Section 5.7 shall be deemed to require the Company to register
any of its securities under any section of the Exchange Act.
5.8 Underwritten
Registrations.
No
holder of Registrable Securities may participate in any underwritten
registration hereunder unless such person (i) agrees to sell such holder’s
Registrable Securities on the basis provided in any underwriting arrangements
approved by the persons entitled hereunder to approve such arrangements, and
(ii) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents required under the terms of such underwriting
arrangements.
6. COVENANTS
OF THE COMPANY.
6.1 Use
of
Proceeds.
The
Company intends to employ the proceeds from the purchase and sale of the Shares
for the purposes set forth on Schedule
6.1
hereto.
Except as set forth on Schedule
6.1,
the
proceeds from the purchase and sale of the Shares may not and will not be used
for accrued and unpaid officer and director salaries, payment of financing
related debt, redemption of outstanding notes or equity instruments of the
Company, litigation related expenses or settlements, brokerage fees, nor
non-trade obligations outstanding on a Closing Date. Pending the Company’s use
of the proceeds from the purchase and sale of the Shares, the Company intends
to
invest the funds in government securities and insured, short-term,
interest-bearing investments of varying maturities. Schedule
6.1 represents
the Company’s best estimate of the allocation of the proceeds from the purchase
and sale of the Shares. Future events, including the problems, delays, expenses,
and complications frequently encountered by development stage companies such
as
the Company, as well as changes in economic, regulatory, or competitive
conditions, changes in the Company’s planned business (and its success or
failure), and changes in the Company’s product development activities, may
require that it reallocate funds. It is possible that that the estimates in
Schedule
6.1 will
prove inaccurate, that the Company’s efforts to introduce its products and
services will require considerable additional expenditures, or that unforeseen
events will cause the Company to expend more funds than it currently
expects.
6.2 Board
Representation.
The
Company shall increase the number of its authorized directors to seven (7).
The
Purchaser is entitled to nominate one (1) person to fill one of the vacancies
created by the increase in the number of directors, and the Company shall
appoint such nominee as a director of the Company to fill the vacancy on the
board of directors, his or her term of office to commence immediately upon
such
appointment, and to continue until his successor is duly elected and
qualified.
6.3 Legal
Fees.
After
the Final Closing Date, the Company will promptly reimburse the Purchasers
for
reasonable legal expenses incurred by the firm of _______________ not to exceed
$5,000, incurred in connection with the transactions contemplated by this
Agreement, plus out-of-pocket expenses incurred, provided that the firm of
_________________ delivers the invoices containing a detailed statement of
services to the Company at the address provided in Section 7.7 of this
Agreement. The Company will pay such invoices within ten (10) business days
after submission of such invoices. The Company will be solely responsible for
its own legal costs incurred in performing its obligations in this
transaction.
7. MISCELLANEOUS.
7.1 Indemnification.
Each
Purchaser agrees to defend, indemnify and hold the Company harmless against
any
liability, costs or expenses arising as a result of any dissemination of any
of
the Shares by such Purchaser in violation of the Securities Act or applicable
state securities law.
7.2 Governing
Law.
This
Agreement shall be governed by and construed under the laws of the State of
Delaware.
7.3 Successors
and Assigns.
Except
as otherwise expressly provided herein, the provisions hereof shall inure to
the
benefit of, and be binding upon, the successors, assigns, heirs, executors,
and
administrators of the parties hereto.
7.7 Notices.
All
notices and other communications required or permitted hereunder shall be in
writing and shall be effective when delivered personally, or sent by telex
or
telecopier (with receipt confirmed), provided that a copy is mailed by
registered mail, return receipt requested, or when received by the addressee,
if
sent by Express Mail, Federal Express or other express delivery service (receipt
requested) in each case to the appropriate address set forth below:
| If to the Company: | ▇▇▇▇▇▇▇ Industries, Inc. |
| ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇ | |
| If to the Purchaser: | At the address set forth on the Purchaser’s Signature Page |
7.8 Faxes
and Counterparts.
This
Agreement may be executed in one or more counterparts. Delivery of an executed
counterpart of the Agreement or any exhibit attached hereto by facsimile
transmission shall be equally as effective as delivery of an executed hard
copy
of the same. Any party delivering an executed counterpart of this Agreement
or
any exhibit attached hereto by facsimile transmission shall also deliver an
executed hard copy of the same, but the failure by such party to deliver such
executed hard copy shall not affect the validity, enforceability or binding
nature effect of this Agreement or such exhibit.
7.9 Titles
and Subtitles.
The
titles of the paragraphs and subparagraphs of this Agreement are for convenience
of reference only and are not to be considered in construing this
Agreement.
IN
WITNESS WHEREOF, the parties have executed this Agreement as of the date set
forth on the Purchase Signature Page hereto.
| PURCHASER | ||
| (By Counterpart Form - SP Pages) | ||
|
COMPANY
|
||
| ▇▇▇▇▇▇▇ INDUSTRIES, INC. | ||
| |
|
|
| By: | /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ | |
| ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ | ||
| Chief Financial Officer | ||
PURCHASER
SIGNATURE PAGE
The
undersigned Purchaser has read the Stock Purchase Agreement dated as of December
2, 2005 and acknowledges that execution of this Purchaser Signature Page shall
constitute the undersigned’s execution of such agreement.
I
hereby
subscribe for an aggregate of 416,667 Shares at $0.60 per Share and hereby
deliver good funds with respect to this subscription for the
Shares.
I
am a
resident of the State of Texas.
A.
▇▇▇▇
▇▇▇▇▇
| My address is: | [REDACTED] |
SP-1
I
acknowledge that the offering of the Shares is subject to the Federal securities
laws of the United States and state securities laws of those states in which
the
Shares are offered, and that, pursuant to the U.S. Federal securities laws
and
state securities laws, the Shares may be purchased by persons who come within
the definition of an “Accredited
Investor”
as
that
term is defined in Rule 501(a) of Regulation D promulgated under the Securities
Act (“Regulation
D”).
By
initialing one of the categories below, I represent and warrant that I come
within the category so initialed and have truthfully set forth the factual
basis
or reason I come within that category. All information in response to this
paragraph will be kept strictly confidential. I agree to furnish any additional
information that the Company deems necessary in order to verify the answers
set
forth below.
NOTE:
You must either initial that at least ONE
category.
Individual
Purchaser:
(A
Subscriber who is an individual may initial either Category I, II, or
III)
|
Category
I
|
I
am a director or executive officer of the Company.
|
||
|
Category II
|
X
|
I am an individual (not a partnership, corporation, etc.) whose individual net worth, or joint net worth with my spouse, presently exceeds $1,000,000. | |
|
Explanation.
In
calculation of net worth, you may include equity in personal property
and
real estate, including your principal residence, cash, short term
investments, stocks and securities. Equity in personal property and
real
estate should be based on the fair market value of such property
less debt
secured by such property.
|
|||
| Category III |
I
am an individual (not a partnership, corporation, etc.) who had an
individual income in excess of $200,000 in 2003 and 2004, or joint
income
with my spouse in excess of $300,000 in 2003 and 2004, and I have
a
reasonable expectation of reaching the same income level in
2005.
|
||
SP-2
Entity
Purchasers:
(A
Purchaser which is a corporation, limited liability company, partnership, trust,
or other entity may initial
either Category IV, V, VI, VII or VIII)
|
Category
IV
|
The Purchaser is an entity in which all of the equity owners are “Accredited Investors” as defined in Rule 501(a) of Regulation D. If relying upon this category alone, each equity owner must complete a separate copy of this Agreement. | ||
|
(describe
entity)
|
|||
|
Category
V
|
The Purchaser is a trust, with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the Shares offered, whose purchase is directed by a “Sophisticated Person” as described in Rule 506(b)(2)(ii) of Regulation D. | ||
|
(describe
entity)
|
|||
| Category VI |
The
Purchaser is an organization described in Section 501(c)(3) of the
Internal Revenue Code, corporation, Massachusetts or similar business
trust, or partnership, not formed for the specific purpose of acquiring
the Shares, with total assets in excess of $5,000,000.
|
||
|
(describe
entity)
|
|||
| Category VII |
The
Purchaser is a private business development company as defined
in Section 202(a)(22) of the Investment Advisers Act of 1940.
|
||
|
(describe
entity)
|
|||
SP-3
Executed
this 2nd
day of
December, 2005 at Houston, Texas.
SIGNATURES
INDIVIDUAL
|
A.
▇▇▇▇ ▇▇▇▇▇
|
||
| Name | ||
|
/s/
A. ▇▇▇▇ ▇▇▇▇▇
|
[REDACTED]
|
|
|
Signature
(Individual)
|
Street address | |
|
Address
to Which Correspondence Should be Directed
|
||
|
[REDACTED]
|
||
| Signature (All record holders should sign) |
City,
State and Zip Code
|
|
|
[REDACTED]
|
||
| Name(s) Typed or Printed | Tax Identification or Social Security Number | |
| ( ) [REDACTED] | ||
|
Telephone
Number
|
||
| Name(s) Typed or Printed (All recorded holders should sign) |
SP-4
CORPORATION,
PARTNERSHIP, TRUST ENTITY OR OTHER
|
Address
to Which Correspondence Should be Directed:
|
||
| Type of Entity (i.e., corporation, partnership, etc.) | Street Address | |
| By: | ||
| *Signature | Tax Identification or Social Security Number | |
| State of Formation of Entity | City, State and Zip Code | |
| Name Typed or Printed | ||
| Its: | ( ) | |
| Title | Telephone Number |
*If
Shares are being subscribed for by an entity, the Certificate of Signatory
must
also be completed.
SP-5
CERTIFICATE
OF SIGNATORY
To
be
completed if Shares of Common Stock are being subscribed for by an
entity.
I,__________________________________,
am the ___________________________ of ___________________________
(the “Entity”).
I
certify
that I am empowered and duly authorized by the Entity to execute and carry
out
the terms of the Stock Purchase Agreement and to purchase and hold the shares
of
Common Stock. The Stock Purchase Agreement has been duly and validly executed
on
behalf of the Entity and constitutes a legal and binding obligation of the
Entity.
IN
WITNESS WHEREOF, I have hereto set my hand this ______ day of December,
2005.
|
Signature
|
SP-6
ACCEPTANCE
AGREED
AND ACCEPTED:
▇▇▇▇▇▇▇
INDUSTRIES, INC.
| By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ |
|
▇▇▇▇▇▇▇
▇. ▇▇▇▇▇▇▇▇
|
|
Chief
Financial Officer
|
| Date: December 2, 2005 |
SP-7
SCHEDULE
6.1
USE
OF PROCEEDS
| $200,000 |
Loan
to HemiWedge Valve Corporation, a wholly-owned subsidiary of
the Company,
(“HemiWedge”)
to acquire intellectual property assets pursuant to an asset
purchase
agreement by and among HemiWedge and certain sellers dated on
or about
December 2, 2005
|
| $50,000 | Working Capital |
Schedule
6.1