EXHIBIT 10.1
COMMON STOCK PURCHASE AGREEMENT
EXHIBIT 10.1
EXECUTION COPY
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COMMON STOCK PURCHASE AGREEMENT
COMMON STOCK PURCHASE AGREEMENT (the "Agreement"), dated as of November
1, 2007, by and between XsunX, Inc., a Colorado corporation (the "Company"), and
Fusion Capital Fund II, LLC, an Illinois limited liability company (the
"Buyer"). Capitalized terms used herein and not otherwise defined herein are
defined in Section 10 hereof.
WHEREAS:
Subject to the terms and conditions set forth in this Agreement, the
Company wishes to sell to the Buyer, and the Buyer wishes to buy from the
Company, up to Twenty One Million Dollars ($21,000,000.00) of the Company's
common stock, no par value (the "Common Stock"). The shares of Common Stock to
be purchased hereunder are referred to herein as the "Purchase Shares."
NOW THEREFORE, the Company and the Buyer hereby agree as follows:
1. PURCHASE OF COMMON STOCK.
Subject to the terms and conditions set forth in this Agreement, the
Company has the right to sell to the Buyer, and the Buyer has the obligation to
purchase from the Company, Purchase Shares as follows:
(a) Initial Purchases; Commencement of Base and Block Purchases of
Common Stock. Within one Business Day after the execution of this Agreement, the
Buyer shall purchase from the Company 3,333,332 Purchase Shares and 3,333,332
common stock purchase warrants (the "Warrants" and the shares of Common Stock
underlying such Warrants, the "Warrant Shares") in the form of Exhibit F
attached hereto (one warrant certificate for 1,666,666 shares at an exercise
price of $0.50 per share and one warrant certificate for 1,666,666 shares at an
exercise price of $0.75 per share) and upon receipt of such Purchase Shares and
Warrants pay to the Company as the purchase price therefor, via wire transfer,
One Million Dollars ($1,000,000.00) (such purchase the "Initial Purchase" and
such Purchase Shares are referred to herein as "Initial Purchase Shares and
together with the Commitment Shares as defined in Section 4(e) hereof, are
referred to herein as the "Initial Shares"). Upon issuance and payment therefor
as provided herein, such 3,333,332 Initial Purchase Shares shall be, validly
issued and are fully paid and nonassessable. The Initial Purchase Shares shall
be issued in certificated form and (subject to Section 5 hereof) shall bear only
the restrictive legend set forth in Section 4(e) hereof. Thereafter, the
purchase and sale of Purchase Shares hereunder shall occur from time to time
upon written notices by the Company to the Buyer on the terms and conditions as
set forth herein following the satisfaction of the conditions (the
"Commencement") as set forth in Sections 6 and 7 below (the date of satisfaction
of such conditions, the "Commencement Date").
(b) The Company's Right to Require Purchases. Any time on or after the
Commencement Date, the Company shall have the right but not the obligation to
direct the Buyer by its delivery to the Buyer of Base Purchase Notices from time
to time to buy Purchase Shares (each such purchase a "Base Purchase") in any
amount up to Eighty Thousand Dollars ($80,000.00) per Base Purchase Notice (the
"Base Purchase Amount") at the Purchase Price on the Purchase Date. The Company
may deliver multiple Base Purchase Notices to the Buyer so long as at least two
(2) Business Days have passed since the most recent Base Purchase was completed.
Notwithstanding the forgoing, any time on or after the Commencement Date, the
Company shall also have the right but not the obligation by its delivery to the
Buyer of Block Purchase Notices from time to time to direct the Buyer to buy
Purchase Shares (each such purchase a "Block Purchase") in any amount up to One
Million Dollars ($1,000,000.00) per Block Purchase Notice at the Block Purchase
Price on the Purchase Date as provided herein. For a Block Purchase Notice to be
valid the following conditions must be met: (1) the Block Purchase Amount shall
not exceed Two Hundred Thousand Dollars ($200,000.00) per Block Purchase Notice,
(2) the Company must deliver the Purchase Shares before 11:00 a.m. eastern time
on the Purchase Date and (3) the Sale Price of the Common Stock must not be
below $0.30 (subject to equitable adjustment for any reorganization,
recapitalization, non-cash dividend, stock split or other similar transaction)
during the Purchase Date, the date of the delivery of the Block Purchase Notice
and during the Business Day prior to the delivery of the Block Purchase Notice.
The Block Purchase Amount may be increased to up to Four Hundred Thousand
Dollars ($400,000.00) per Block Purchase Notice if the Sale Price of the Common
Stock is not below $0.50 (subject to equitable adjustment for any
reorganization, recapitalization, non-cash dividend, stock split or other
similar transaction) during the Purchase Date, the date of the delivery of the
Block Purchase Notice and during the Business Day prior to the delivery of the
Block Purchase Notice. The Block Purchase Amount may be increased to up to Six
Hundred Thousand Dollars ($600,000.00) per Block Purchase Notice if the Sale
Price of the Common Stock is not below $0.80 (subject to equitable adjustment
for any reorganization, recapitalization, non-cash dividend, stock split or
other similar transaction) during the Purchase Date, the date of the delivery of
the Block Purchase Notice and during the Business Day prior to the delivery of
the Block Purchase Notice. The Block Purchase Amount may be increased to up to
One Million Dollars ($1,000,000.00) per Block Purchase Notice if the Sale Price
of the Common Stock is not below $1.25 (subject to equitable adjustment for any
reorganization, recapitalization, non-cash dividend, stock split or other
similar transaction) during the Purchase Date, the date of the delivery of the
Block Purchase Notice and during the Business Day prior to the delivery of the
Block Purchase Notice. As used herein, the term "Block Purchase Price" shall
mean the lesser of (i) the lowest Sale Price of the Common Stock on the Purchase
Date or (ii) the lowest Purchase Price during the previous ten (10) Business
Days prior to the date that the valid Block Purchase Notice was received by the
Buyer. However, if at any time during the Purchase Date, the date of the
delivery of the Block Purchase Notice or during the Business Day prior to the
delivery of the Block Purchase Notice, the Sale Price of the Common Stock is
below the applicable Block Purchase threshold price, such Block Purchase shall
be void and the Buyer's obligations to buy Purchase Shares in respect of that
Block Purchase Notice shall be terminated. Thereafter, the Company shall again
have the right to submit a Block Purchase Notice as set forth herein by delivery
of a new Block Purchase Notice only if the Sale Price of the Common Stock is
above the applicable Block Purchase threshold price during the date of the
delivery of the Block Purchase Notice and during the Business Day prior to the
delivery of the Block Purchase Notice. The Company may deliver multiple Block
Purchase Notices to the Buyer so long as at least two (2) Business Days have
passed since the most recent Block Purchase was completed.
(c) Payment for Purchase Shares. The Buyer shall pay to the Company an
amount equal to the Purchase Amount with respect to such Purchase Shares as full
payment for such Purchase Shares via wire transfer of immediately available
funds on the same Business Day that the Buyer receives such Purchase Shares if
they are received by the Buyer before 11:00 a.m. eastern time or if received by
the Buyer after 11:00 a.m. eastern time, the next Business Day. The Company
shall not issue any fraction of a share of Common Stock upon any purchase. If
the issuance would result in the issuance of a fraction of a share of Common
Stock, the Company shall round such fraction of a share of Common Stock up or
down to the nearest whole share. All payments made under this Agreement shall be
made in lawful money of the United States of America or wire transfer of
immediately available funds to such account as the Company may from time to time
designate by written notice in accordance with the provisions of this Agreement.
Whenever any amount expressed to be due by the terms of this Agreement is due on
any day that is not a Business Day, the same shall instead be due on the next
succeeding day that is a Business Day.
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(d) Purchase Price Floor. The Company and the Buyer shall not effect
any sales under this Agreement on any Purchase Date where the Purchase Price for
any purchases of Purchase Shares would be less than the Floor Price. "Floor
Price" means $0.20, which shall be appropriately adjusted for any
reorganization, recapitalization, non-cash dividend, stock split or other
similar transaction.
(e) Records of Purchases. The Buyer and the Company shall each maintain
records showing the remaining Available Amount at any give time and the dates
and Purchase Amounts for each purchase or shall use such other method,
reasonably satisfactory to the Buyer and the Company.
(f) Taxes. The Company shall pay any and all transfer, stamp or similar
taxes that may be payable with respect to the issuance and delivery of any
shares of Common Stock to the Buyer made under this Agreement.
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
The Buyer represents and warrants to the Company that as of the date
hereof and as of the Commencement Date:
(a) Investment Purpose. The Buyer is entering into this Agreement and
acquiring the Securities (the Purchase Shares, the Commitment Shares, the
Warrant and the Warrant Shares are collectively referred to herein as the
"Securities"), 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; provided however, by making the representations herein, the Buyer does
not agree to hold any of the Securities for any minimum or other specific term
other than as set forth in Section 4(e) with respect to the Commitment Shares.
(b) Accredited Investor Status. The Buyer is an "accredited investor"
as that term is defined in Rule 501(a)(3) of Regulation D.
(c) Reliance on Exemptions. The Buyer understands that the Securities
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 the
Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of the Buyer
to acquire the Securities.
(d) Information. The Buyer has been furnished with all materials
relating to the business, finances and operations of the Company and materials
relating to the offer and sale of the Securities that have been reasonably
requested by the Buyer, including, without limitation, the SEC Documents (as
defined in Section 3(f) hereof). The Buyer understands that its investment in
the Securities involves a high degree of risk. The Buyer (i) is able to bear the
economic risk of an investment in the Securities including a total loss, (ii)
has such knowledge and experience in financial and business matters that it is
capable of evaluating the merits and risks of the proposed investment in the
Securities and (iii) has had an opportunity to ask questions of and receive
answers from the officers of the Company concerning the financial condition and
business of the Company and others matters related to an investment in the
Securities. Neither such inquiries nor any other due diligence investigations
conducted by the Buyer or its representatives shall modify, amend or affect the
Buyer's right to rely on the Company's representations and warranties contained
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in Section 3 below. The 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 Securities.
(e) No Governmental Review. The 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 Securities or the
fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
(f) Transfer or Sale. The Buyer understands that except as provided in
the Registration Rights Agreement (as defined in Section 4(a) hereof): (i) the
Securities 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) an exemption
exists permitting such Securities to be sold, assigned or transferred without
such registration; (ii) any sale of the Securities made in reliance on 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 the 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 ▇▇▇▇ ▇▇▇) 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 the Securities under the 1933 Act or any state securities
laws or to comply with the terms and conditions of any exemption thereunder.
(g) Validity; Enforcement. This Agreement has been duly and validly
authorized, executed and delivered on behalf of the Buyer and is a valid and
binding agreement of the Buyer enforceable against the Buyer in accordance with
its terms, subject as to enforceability to general principles of equity and to
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and
other similar laws relating to, or affecting generally, the enforcement of
applicable creditors' rights and remedies.
(h) Residency. The Buyer is a resident of the State of Illinois.
(i) No Prior Short Selling. The Buyer represents and warrants to the
Company that at no time prior to the date of this Agreement has any of the
Buyer, its agents, representatives or affiliates engaged in or effected, in any
manner whatsoever, directly or indirectly, any (i) "short sale" (as such term is
defined in Section 242.200 of Regulation SHO of the Securities Exchange Act of
1934, as amended (the "1934 Act")) of the Common Stock or (ii) hedging
transaction, which establishes a net short position with respect to the Common
Stock.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to the Buyer that as of the date
hereof and as of the Commencement Date:
(a) Organization and Qualification. The Company and its "Subsidiaries"
(which for purposes of this Agreement means any entity in which the Company,
directly or indirectly, owns 50% or more of the voting stock or capital stock or
other similar equity interests) 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 and authority 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 its ownership of
property or 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 could not reasonably be expected to have a Material Adverse
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Effect. As used in this Agreement, "Material Adverse Effect" means any material
adverse effect on any of: (i) the business, properties, assets, operations,
results of operations or financial condition of the Company and its
Subsidiaries, if any, taken as a whole, or (ii) the authority or ability of the
Company to perform its obligations under the Transaction Documents (as defined
in Section 3(b) hereof). The Company has no Subsidiaries except as set forth on
Schedule 3(a).
(b) Authorization; Enforcement; Validity. (i) The Company has the
requisite corporate power and authority to enter into and perform its
obligations under this Agreement, the Registration Rights Agreement, the
Warrants and each of the other agreements entered into by the parties on the
Commencement Date and attached hereto as exhibits to this Agreement
(collectively, the "Transaction Documents"), and to issue the Securities in
accordance with the terms hereof and thereof, (ii) the execution and delivery of
the Transaction Documents by the Company and the consummation by it of the
transactions contemplated hereby and thereby, including without limitation, the
issuance of the Initial Shares and the Warrants and the reservation for issuance
and the issuance of additional Purchase Shares issuable under this Agreement,
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 shareholders, (iii) this Agreement has been, and each other Transaction
Document shall be on the Commencement Date, duly executed and delivered by the
Company and (iv) this Agreement constitutes, and each other Transaction Document
upon its execution on behalf of the Company, shall 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 Board of Directors of the
Company has approved the resolutions (the "Signing Resolutions") substantially
in the form as set forth as Exhibit C-1 attached hereto to authorize this
Agreement and the transactions contemplated hereby. The Signing Resolutions are
valid, in full force and effect and have not been modified or supplemented in
any respect other than by the resolutions set forth in Exhibit C-2 attached
hereto regarding the registration statement referred to in Section 4 hereof. The
Company has delivered to the Buyer a true and correct copy of a unanimous
written consent adopting the Signing Resolutions executed by all of the members
of the Board of Directors of the Company. No other approvals or consents of the
Company's Board of Directors and/or shareholders is necessary under applicable
laws and the Company's Certificate of Incorporation and/or Bylaws to authorize
the execution and delivery of this Agreement or any of the transactions
contemplated hereby, including, but not limited to, the issuance of the Initial
Shares and the issuance of any additional Purchase Shares.
(c) Capitalization. The authorized capital stock of the Company
consists of: 500,000,000 shares of Common Stock, of which as of the date hereof,
157,919,856 shares are issued and outstanding, 20,000,000 shares are reserved
for issuance pursuant to the Company's 2007 stock option plans of which only
approximately 15,500,000 shares remain available for future grants and
15,362,000 shares are issuable and reserved for issuance pursuant to securities
(other than stock options issued pursuant to the Company's stock option plans)
exercisable or exchangeable for, or convertible into, shares of Common Stock and
(ii) 50,000,000 shares of Preferred Stock, $0.01 par value, of which as of the
date hereof no shares are issued and outstanding and no other Preferred Stock is
outstanding. All of such outstanding shares have been, or upon issuance will be,
validly issued and are fully paid and nonassessable. Except as disclosed in
Schedule 3(c), (i) no shares of the Company's capital stock are subject to
preemptive rights or any other similar rights or any liens or encumbrances
suffered or permitted by the Company, (ii) there are no outstanding debt
securities, (iii) 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
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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, (iv) 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 the Registration Rights Agreement
and except for agreements disclosed in Schedule 3 (c)), (v) there are no
outstanding securities or instruments of the Company or any of its Subsidiaries
which contain any redemption or similar provisions, and there are no contracts,
commitments, understandings or arrangements by which the Company or any of its
Subsidiaries is or may become bound to redeem a security of the Company or any
of its Subsidiaries, (vi) there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of
the Securities as described in this Agreement and (vii) the Company does not
have any stock appreciation rights or "phantom stock" plans or agreements or any
similar plan or agreement. The Company has furnished to the Buyer true and
correct copies of the Company's Certificate of Incorporation, as amended and as
in effect on the date hereof (the "Certificate of Incorporation"), and the
Company's By-laws, as amended and as in effect on the date hereof (the
"By-laws"), and summaries of the terms of all securities convertible into or
exercisable for Common Stock, if any, and copies of any documents containing the
material rights of the holders thereof in respect thereto.
(d) Issuance of Securities. The 6,833,332 Initial Shares have been duly
authorized and, upon issuance in accordance with the terms hereof, the Initial
Shares shall be (i) validly issued, fully paid and non-assessable and (ii) free
from all taxes, liens and charges with respect to the issue thereof. 20,000,000
shares of Common Stock have been duly authorized and reserved for issuance upon
purchase under this Agreement after the Commencement. Upon issuance and payment
therefor in accordance with the terms and conditions of this Agreement, the
Purchase Shares shall be validly issued, fully paid and nonassessable and free
from all taxes, liens and charges with respect to the issue thereof, with the
holders being entitled to all rights accorded to a holder of Common Stock. Upon
issuance and payment therefor in accordance with the terms and conditions of the
Warrants, the Warrant Shares shall be validly issued, fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issue thereof, with the holders being entitled to all rights accorded to a
holder of Common Stock. 3,333,332 shares of Common Stock have been duly
authorized and reserved for issuance upon exercise of the Warrants.
(e) No Conflicts. Except as disclosed in Schedule 3(e), the execution,
delivery and performance of the Transaction Documents by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby
(including, without limitation, the reservation for issuance and issuance of the
Purchase Shares) will not (i) result in a violation of the Certificate of
Incorporation, if applicable, any Certificate of Designations, Preferences and
Rights 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 Principal Market 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 in the case of
conflicts, defaults, terminations, amendments, accelerations, cancellations and
violations under clause (ii), which could not reasonably be expected to result
in a Material Adverse Effect. Except as disclosed in Schedule 3(e), neither the
Company nor its Subsidiaries is in violation of any term of or in default under
its Certificate of Incorporation, if applicable, any Certificate of Designation,
Preferences and Rights of any outstanding series of preferred stock of the
Company or By-laws or their organizational charter or by-laws, respectively.
Except as disclosed in Schedule 3(e), neither the Company nor any of its
Subsidiaries is in violation of any term of or is in default under any material
contract, agreement, mortgage, indebtedness, indenture, instrument, judgment,
decree or order or any statute, rule or regulation applicable to the Company or
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its Subsidiaries, except for possible conflicts, defaults, terminations or
amendments which could not reasonably be expected to have a Material Adverse
Effect. The business of the Company and its Subsidiaries is not being conducted,
and shall not be conducted, in violation of any law, ordinance, regulation of
any governmental entity, except for possible violations, the sanctions for which
either individually or in the aggregate could not reasonably be expected to have
a Material Adverse Effect. Except as specifically contemplated by this Agreement
and as required under the 1933 Act or 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 or any
regulatory or self-regulatory agency in order for it to execute, deliver or
perform any of its obligations under or contemplated by the Transaction
Documents in accordance with the terms hereof or thereof. Except as disclosed in
Schedule 3(e), all consents, authorizations, orders, filings and registrations
which the Company is required to obtain pursuant to the preceding sentence shall
be obtained or effected on or prior to the Commencement Date. Except as listed
in Schedule 3(e), since January 1, 2006, the Company has not received nor
delivered any notices or correspondence from or to the Principal Market. The
Principal Market has not commenced any delisting proceedings against the
Company.
(f) SEC Documents; Financial Statements. Except as disclosed in
Schedule 3(f), since January 1, 2006, the Company has timely filed all reports,
schedules, forms, statements and other documents required to be filed by it with
the SEC pursuant to the reporting requirements of the 1934 Act (all of the
foregoing filed prior to 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"). As of
their respective dates (except as they have been correctly amended), the SEC
Documents complied in all material respects with the requirements of the 1934
Act and the rules and regulations of the SEC promulgated thereunder applicable
to the SEC Documents, and none of the SEC Documents, at the time they were filed
with the SEC (except as they may have been properly amended), 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
light of the circumstances under which they were made, not misleading. As of
their respective dates (except as they have been properly amended), the
financial statements of the Company included in the SEC Documents 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). Except as listed in Schedule 3(f), the Company has received no
notices or correspondence from the SEC since January 1, 2006. The SEC has not
commenced any enforcement proceedings against the Company or any of its
subsidiaries.
(g) Absence of Certain Changes. Except as disclosed in Schedule 3(g),
since June 30, 2007, there has been no material adverse change in the business,
properties, operations, financial condition or results of operations of the
Company or its Subsidiaries. The Company has not taken any steps, and does not
currently expect to take any steps, to seek protection pursuant to any
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Bankruptcy Law nor does the Company or any of its Subsidiaries have any
knowledge or reason to believe that its creditors intend to initiate involuntary
bankruptcy or insolvency proceedings.
(h) Absence of Litigation. There is no action, suit, proceeding,
inquiry or investigation before or by any court, public board, government
agency, self-regulatory organization or body pending or, to the knowledge of the
Company or any of its Subsidiaries, threatened against or affecting the Company,
the Common Stock or any of the Company's Subsidiaries or any of the Company's or
the Company's Subsidiaries' officers or directors in their capacities as such,
which could reasonably be expected to have a Material Adverse Effect. A
description of each action, suit, proceeding, inquiry or investigation before or
by any court, public board, government agency, self-regulatory organization or
body which, as of the date of this Agreement, is pending or threatened in
writing against or affecting the Company, the Common Stock or any of the
Company's Subsidiaries or any of the Company's or the Company's Subsidiaries'
officers or directors in their capacities as such, is set forth in Schedule
3(h).
(i) Acknowledgment Regarding Buyer's Status. The Company acknowledges
and agrees that the Buyer is acting solely in the capacity of arm's length
purchaser with respect to the Transaction Documents and the transactions
contemplated hereby and thereby. The Company further acknowledges that the Buyer
is not acting as a financial advisor or fiduciary of the Company (or in any
similar capacity) with respect to the Transaction Documents and the transactions
contemplated hereby and thereby and any advice given by the Buyer or any of its
representatives or agents in connection with the Transaction Documents and the
transactions contemplated hereby and thereby is merely incidental to the Buyer's
purchase of the Securities. The Company further represents to the Buyer that the
Company's decision to enter into the Transaction Documents has been based solely
on the independent evaluation by the Company and its representatives and
advisors.
(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 ▇▇▇▇ ▇▇▇) in connection with the offer or sale of the
Securities.
(k) Intellectual Property Rights. The Company and its Subsidiaries own
or possess adequate rights or licenses to use all material trademarks, trade
names, service marks, service ▇▇▇▇ 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. Except as set forth on Schedule 3(k), none of the
Company's material trademarks, trade names, service marks, service ▇▇▇▇
registrations, service names, patents, patent rights, copyrights, inventions,
licenses, approvals, government authorizations, trade secrets or other
intellectual property rights have expired or terminated, or, by the terms and
conditions thereof, could expire or terminate within two years from the date of
this Agreement. The Company and its Subsidiaries do not have any knowledge of
any infringement by the Company or its Subsidiaries of any material trademark,
trade name rights, patents, patent rights, copyrights, inventions, licenses,
service names, service marks, service ▇▇▇▇ registrations, trade secret or other
similar rights of others, or of any such development of similar or identical
trade secrets or technical information by others and, except as set forth on
Schedule 3(k), 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 ▇▇▇▇
registrations, trade secret or other infringement, which could reasonably be
expected to have a Material Adverse Effect.
(l) Environmental Laws. The Company and its Subsidiaries (i) are 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
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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, except where, in each of the
three foregoing clauses, the failure to so comply could not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect.
(m) Title. The Company and its Subsidiaries have good and marketable
title in fee simple to all real property and good and marketable title to all
personal property owned by them which is material to the business of the Company
and its Subsidiaries, in each case free and clear of all liens, encumbrances and
defects except such as are described in Schedule 3(m) or such as do not
materially affect the value of such property and do not interfere with the use
made and proposed to be made of such property by the Company and any of its
Subsidiaries. Any real property and facilities held under lease by the Company
and any of 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.
(n) 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.
(o) 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.
(p) Tax Status. The Company and each of its Subsidiaries has made or
filed all federal and state income and all other material tax returns, reports
and declarations required by any jurisdiction to which it is subject (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) and 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.
(q) Transactions With Affiliates. Except as set forth on Schedule 3(q)
and other than the grant or exercise of stock options disclosed on Schedule
3(c), none of the officers, directors, or employees of the Company is presently
a party to any transaction with the Company or any of its Subsidiaries (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
9
knowledge of the Company, any corporation, partnership, trust or other entity in
which any officer, director, or any such employee has an interest or is an
officer, director, trustee or partner.
(r) Application of Takeover Protections. The Company and its board of
directors have taken or will take prior to the Commencement Date all necessary
action, if any, in order to render inapplicable any control share acquisition,
business combination, poison pill (including any distribution under a rights
agreement) or other similar anti-takeover provision under the Certificate of
Incorporation or the laws of the state of its incorporation which is or could
become applicable to the Buyer as a result of the transactions contemplated by
this Agreement, including, without limitation, the Company's issuance of the
Securities and the Buyer's ownership of the Securities.
(s) Foreign Corrupt Practices. Neither the Company, nor any of its
Subsidiaries, nor any director, officer, agent, employee or other person acting
on behalf of the Company or any of its Subsidiaries has, in the course of its
actions for, or on behalf of, the Company, used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expenses relating
to political activity; made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds;
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977, as amended; or made any unlawful bribe, rebate, payoff,
influence payment, kickback or other unlawful payment to any foreign or domestic
government official or employee.
4. COVENANTS.
(a) Filing of Form 8-K and Registration Statement. Subject to the
Buyer's prior approval, the Company agrees that it shall, within the time
required under the 1934 Act file a Report on Form 8-K disclosing this Agreement
and the transaction contemplated hereby. The Company shall also file within
forty-five (45) days (the "Filing Date") from the date hereof a new registration
statement covering the sale of the 6,833,332 Initial Shares and an additional
20,000,000 Purchase Shares (which does not include the 6,833,332 Initial Shares)
in accordance with the terms of the Registration Rights Agreement between the
Company and the Buyer, dated as of the date hereof ("Registration Rights
Agreement").
(b) Blue Sky. The Company shall take such action, if any, as is
reasonably necessary in order to obtain an exemption for or to qualify (i) the
sales of any Purchase Shares or the Warrants to the Buyer under this Agreement
and (ii) any subsequent sales of any Purchase Shares or Warrant Shares by the
Buyer, in each case, under applicable securities or "Blue Sky" laws of the
states of the United States in such states as is reasonably requested by the
Buyer from time to time, and shall provide evidence of any such action so taken
to the Buyer.
(c) Listing. The Company shall promptly secure the listing of all of
the Purchase Shares and the Warrant Shares upon each national securities
exchange and automated quotation system, if any, upon which shares of Common
Stock are then listed (subject to official notice of issuance) and shall
maintain, so long as any other shares of Common Stock shall be so listed, such
listing of all such securities from time to time issuable under the terms of the
Transaction Documents. The Company shall maintain the Common Stock's
authorization for quotation on the Principal Market. Neither the Company nor any
of its Subsidiaries shall take any action that would be reasonably expected to
result in the delisting or suspension of the Common Stock on the Principal
Market. The Company shall promptly, and in no event later than the following
Business Day, provide to the Buyer copies of any notices it receives from the
Principal Market regarding the continued eligibility of the Common Stock for
listing on such automated quotation system or securities exchange. The Company
shall pay all fees and expenses in connection with satisfying its obligations
under this Section.
10
(d) Limitation on Short Sales and Hedging Transactions. The Buyer
agrees that beginning on the date of this Agreement and ending on the date of
termination of this Agreement as provided in Section 11(k), the Buyer and its
agents, representatives and affiliates shall not in any manner whatsoever enter
into or effect, directly or indirectly, any (i) "short sale" (as such term is
defined in Section 242.200 of Regulation SHO of the ▇▇▇▇ ▇▇▇) of the Common
Stock or (ii) hedging transaction, which establishes a net short position with
respect to the Common Stock.
(e) Issuance of Commitment Shares; Limitation on Sales of Commitment
Shares. Immediately upon the execution of this Agreement, the Company shall
issue to the Buyer as consideration for the Buyer entering into this Agreement
3,500,000 shares of Common Stock (the "Commitment Shares"). The Commitment
Shares and the Initial Purchase Shares (referred to herein as the "Initial
Shares") shall be issued in certificated form and (subject to Section 5 hereof)
shall bear only the following restrictive legend:
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 FOR INVESTMENT 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, UNLESS SOLD PURSUANT TO: (1) RULE 144 UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR (2) AN OPINION OF HOLDER'S COUNSEL, IN A CUSTOMARY
FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE
STATE SECURITIES LAWS.
The Buyer agrees that the Buyer shall not pledge, transfer or sell
the Commitment Shares until the earlier of (a) 500 Business Days (25 Monthly
Periods) from the date hereof or (b) the date on which this Agreement has been
terminated, provided, however, that such restrictions shall not apply: (i) in
connection with any transfers to or among affiliates (as defined in the 1934
Act), (ii) in the event that the Commencement does not occur on or before March
1, 2008, due to the failure of the Company to satisfy the conditions set forth
in Section 7 or (iii) if an Event of Default has occurred, or any event which,
after notice and/or lapse of time, would become an Event of Default, including
any failure by the Company to timely issue Purchase Shares under this Agreement.
Notwithstanding the forgoing, the Buyer may transfer Commitment Shares to a
third party in order to settle a sale made by the Buyer where the Buyer
reasonably expects the Company to deliver additional Purchase Shares to the
Buyer under this Agreement so long as the Buyer maintains ownership of at least
3,500,000 shares overall by "replacing" such Commitment Shares so transferred
with new Purchase Shares when the new Purchase Shares are actually issued by the
Company to the Buyer.
(f) Due Diligence. The Buyer shall have the right, from time to time as
the Buyer may reasonably deem appropriate, to perform reasonable due diligence
on the Company during normal business hours. The Company and its officers and
employees shall provide information and reasonably cooperate with the Buyer in
connection with any reasonable request by the Buyer related to the Buyer's due
diligence of the Company, including, but not limited to, any such request made
by the Buyer in connection with (i) the filing of the registration statement
described in Section 4(a) hereof and (ii) the Commencement. Each party hereto
agrees not to disclose any Confidential Information of the other party to any
third party and shall not use the Confidential Information for any purpose other
than in connection with, or in furtherance of, the transactions contemplated
11
hereby. Each party hereto acknowledges that the Confidential Information shall
remain the property of the disclosing party and agrees that it shall take all
reasonable measures to protect the secrecy of any Confidential Information
disclosed by the other party.
5. TRANSFER AGENT INSTRUCTIONS.
Immediately upon the execution of this Agreement, the Company shall
deliver to the Transfer Agent a letter in the form as set forth as Exhibit E
attached hereto with respect to the issuance of the 6,833,332 Initial Shares to
be issued to the Buyer upon execution hereof. On the Commencement Date, the
Company shall cause any restrictive legend on the 6,833,332 Initial Shares to be
removed and all of the remaining Purchase Shares to be issued under this
Agreement shall be issued without any restrictive legend unless the Buyer
expressly consents otherwise. The Company shall issue irrevocable instructions
to the Transfer Agent, and any subsequent transfer agent, to issue Purchase
Shares in the name of the Buyer for the Purchase Shares (the "Irrevocable
Transfer Agent Instructions"). The Company warrants to the Buyer that no
instruction other than the Irrevocable Transfer Agent Instructions expressly
referred to in this Agreement will be given by the Company to the Transfer Agent
with respect to the Warrant Shares, the Commitment Shares or the Purchase Shares
(including the Initial Purchase Shares), and Warrant Shares, the Commitment
Shares and the Purchase Shares (including the Initial Purchase 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 Registration Rights Agreement
subject to the provisions of Section 4(e) in the case of the Commitment Shares.
6. CONDITIONS TO THE COMPANY'S RIGHT TO COMMENCE
SALES OF SHARES OF COMMON STOCK UNDER THIS AGREEMENT.
The right of the Company hereunder to commence sales of the Purchase
Shares is subject to the satisfaction of each of the following conditions on or
before the Commencement Date (the date that the Company may begin sales):
(a) The Buyer shall have executed each of the Transaction Documents and
delivered the same to the Company;
(b) A registration statement covering the sale of all of the Commitment
Shares and Purchase Shares (including the Initial Purchase Shares), shall have
been declared effective under the 1933 Act by the SEC and no stop order with
respect to the registration statement shall be pending or threatened by the SEC.
7. CONDITIONS TO THE BUYER'S OBLIGATION TO MAKE
PURCHASES OF SHARES OF COMMON STOCK.
The obligation of the Buyer to buy Purchase Shares (other than the
Initial Purchase Shares) under this Agreement is subject to the satisfaction of
each of the following conditions on or before the Commencement Date (the date
that the Company may begin sales other than the Initial Purchase Shares) and
once such conditions have been initially satisfied, there shall not be any
ongoing obligation to satisfy such conditions after the Commencement has
occurred:
12
(a) The Company shall have executed each of the Transaction Documents
and delivered the same to the Buyer;
(b) The Company shall have issued to the Buyer the Initial Shares and
shall have removed the restrictive transfer legend from the certificate
representing all the Initial Shares;
(c) The Common Stock shall be authorized for quotation on the Principal
Market, trading in the Common Stock shall not have been within the last 365 days
suspended by the SEC or the Principal Market and the Purchase Shares and the
Warrant Shares shall be approved for listing upon the Principal Market, if
applicable;
(d) The Buyer shall have received the opinions of the Company's legal
counsel dated as of the Commencement Date substantially in the form of Exhibit A
attached hereto;
(e) 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
Commencement Date as though made at that time (except for representations and
warranties that speak as of a specific date) and the Company shall have
performed, satisfied and complied with the covenants, agreements and conditions
required by the Transaction Documents to be performed, satisfied or complied
with by the Company at or prior to the Commencement Date. The Buyer shall have
received a certificate, executed by the CEO, President or CFO of the Company,
dated as of the Commencement Date, to the foregoing effect in the form attached
hereto as Exhibit B;
(f) The Board of Directors of the Company shall have adopted
resolutions in the form attached hereto as Exhibit C which shall be in full
force and effect without any amendment or supplement thereto as of the
Commencement Date;
(g) As of the Commencement Date, the Company shall have reserved out of
its authorized and unissued Common Stock, solely for the purpose of effecting
future purchases of Purchase Shares hereunder, 20,000,000 shares of Common Stock
not including the Initial Purchase Shares;
(h) The Irrevocable Transfer Agent Instructions, in form acceptable to
the Buyer shall have been delivered to and acknowledged in writing by the
Company and the Company's Transfer Agent;
(i) The Company shall have delivered to the Buyer a certificate
evidencing the incorporation and good standing of the Company in the State of
Colorado issued by the Secretary of State of the State of Colorado as of a date
within ten (10) Business Days of the Commencement Date and the Company shall
have delivered to the Buyer a certificate evidencing good standing of the
Company in the State of California issued by the Secretary of State of the State
of California as of a date within ten (10) Business Days of the Commencement
Date;
(j) The Company shall have delivered to the Buyer a certified copy of
the Certificate of Incorporation as certified by the Secretary of State of the
State of Colorado within ten (10) Business Days of the Commencement Date;
13
(k) The Company shall have delivered to the Buyer a secretary's
certificate executed by the Secretary of the Company, dated as of the
Commencement Date, in the form attached hereto as Exhibit D;
(l) A registration statement covering the sale of all of the Commitment
Shares and any Purchase Shares shall have been declared effective under the 1933
Act by the SEC and no stop order with respect to the registration statement
shall be pending or threatened by the SEC. The Company shall have prepared and
delivered to the Buyer a final and complete form of prospectus, dated and
current as of the Commencement Date, to be used by the Buyer in connection with
any sales of any Commitment Shares or any Purchase Shares, and to be filed by
the Company one Business Day after the Commencement Date. The Company shall have
made all filings under all applicable federal and state securities laws
necessary to consummate the issuance of the Warrants, the Commitment Shares and
the Purchase Shares pursuant to this Agreement in compliance with such laws;
(m) No Event of Default has occurred, or any event which, after notice
and/or lapse of time, would become an Event of Default has occurred;
(n) On or prior to the Commencement Date, the Company shall take all
necessary action, if any, and such actions as reasonably requested by the Buyer,
in order to render inapplicable any control share acquisition, business
combination, shareholder rights plan or poison pill (including any distribution
under a rights agreement) or other similar anti-takeover provision under the
Certificate of Incorporation or the laws of the state of its incorporation which
is or could become applicable to the Buyer as a result of the transactions
contemplated by this Agreement, including, without limitation, the Company's
issuance of the Securities and the Buyer's ownership of the Securities; and
(o) The Company shall have provided the Buyer with the information
requested by the Buyer in connection with its due diligence requests made prior
to, or in connection with, the Commencement, in accordance with the terms of
Section 4(g) hereof.
8. INDEMNIFICATION.
In consideration of the Buyer's execution and delivery of the
Transaction Documents and acquiring the Securities hereunder and in addition to
all of the Company's other obligations under the Transaction Documents, the
Company shall defend, protect, indemnify and hold harmless the Buyer and all of
its affiliates, shareholders, officers, directors, employees and direct or
indirect investors and any of the foregoing person's agents or other
representatives (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement) (collectively, the
"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 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 any Indemnitee 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 the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby, (b) any breach of any covenant,
agreement or obligation of the Company contained in the Transaction Documents or
any other certificate, 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 the Transaction Documents or any other certificate, instrument or
14
document contemplated hereby or thereby, other than with respect to Indemnified
Liabilities which directly and primarily result from the gross negligence or
willful misconduct of the Indemnitee. 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.
9. EVENTS OF DEFAULT.
An "Event of Default" shall be deemed to have occurred at any time as
any of the following events occurs:
(a) while any registration statement is required to be maintained
effective pursuant to the terms of the Registration Rights Agreement, the
effectiveness of such registration statement lapses for any reason (including,
without limitation, the issuance of a stop order) or is unavailable to the Buyer
for sale of all of the Registrable Securities (as defined in the Registration
Rights Agreement) in accordance with the terms of the Registration Rights
Agreement, and such lapse or unavailability continues for a period of ten (10)
consecutive Business Days or for more than an aggregate of thirty (30) Business
Days in any 365-day period;
(b) the suspension from trading or failure of the Common Stock to be
listed on the Principal Market for a period of three (3) consecutive Business
Days;
(c) the delisting of the Company's Common Stock from the Principal
Market, provided, however, that the Common Stock is not immediately thereafter
trading on the New York Stock Exchange, the Nasdaq Global Market, the Nasdaq
Capital Market, or the American Stock Exchange;
(d) the failure for any reason by the Transfer Agent to issue Purchase
Shares to the Buyer within five (5) Business Days after the applicable Purchase
Date which the Buyer is entitled to receive;
(e) the Company breaches any representation, warranty, covenant or
other term or condition under any Transaction Document if such breach could have
a Material Adverse Effect and except, in the case of a breach of a covenant
which is reasonably curable, only if such breach continues for a period of at
least five (5) Business Days;
(f) if any Person commences a proceeding against the Company pursuant
to or within the meaning of any Bankruptcy Law;
(g) if the Company pursuant to or within the meaning of any Bankruptcy
Law; (A) commences a voluntary case, (B) consents to the entry of an order for
relief against it in an involuntary case, (C) consents to the appointment of a
Custodian of it or for all or substantially all of its property, (D) makes a
general assignment for the benefit of its creditors, (E) becomes insolvent, or
(F) is generally unable to pay its debts as the same become due; or
(h) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that (A) is for relief against the Company in an involuntary
case, (B) appoints a Custodian of the Company or for all or substantially all of
its property, or (C) orders the liquidation of the Company or any Subsidiary.
In addition to any other rights and remedies under applicable law and this
Agreement, including the Buyer termination rights under Section 11(k) hereof, so
long as an Event of Default has occurred and is continuing, or if any event
15
which, after notice and/or lapse of time, would become an Event of Default, has
occurred and is continuing, or so long as the Purchase Price is below the
Purchase Price Floor, the Buyer shall not be obligated to purchase any shares of
Common Stock under this Agreement. If pursuant to or within the meaning of any
Bankruptcy Law, the Company commences a voluntary case or any Person commences a
proceeding against the Company, a Custodian is appointed for the Company or for
all or substantially all of its property, or the Company makes a general
assignment for the benefit of its creditors, (any of which would be an Event of
Default as described in Sections 9(f), 9(g) and 9(h) hereof) this Agreement
shall automatically terminate without any liability or payment to the Company
without further action or notice by any Person. No such termination of this
Agreement under Section 11(k)(i) shall affect the Company's or the Buyer's
obligations under this Agreement with respect to pending purchases and the
Company and the Buyer shall complete their respective obligations with respect
to any pending purchases under this Agreement.
10. CERTAIN DEFINED TERMS.
For purposes of this Agreement, the following terms shall have the
following meanings:
(a) "1933 Act" means the Securities Act of 1933, as amended.
(b) "Available Amount" means initially Twenty One Million Dollars
($21,000,000.00) in the aggregate which amount shall be reduced by the Purchase
Amount each time the Buyer purchases shares of Common Stock pursuant to Section
1 hereof including the Initial Purchase.
(c) "Bankruptcy Law" means Title 11, U.S. Code, or any similar federal
or state law for the relief of debtors.
(d) "Base Purchase Notice" shall mean an irrevocable written notice
from the Company to the Buyer directing the Buyer to buy up to the Base Purchase
Amount in Purchase Shares as specified by the Company therein at the applicable
Purchase Price on the Purchase Date.
(e) "Block Purchase Amount" shall mean such Block Purchase Amount as
specified by the Company in a Block Purchase Notice subject to Section 1(b)
hereof.
(f) "Block Purchase Notice" shall mean an irrevocable written notice
from the Company to the Buyer directing the Buyer to buy the Block Purchase
16
Amount in Purchase Shares as specified by the Company therein at the Block
Purchase Price as of the Purchase Date subject to Section 1 hereof.
(d) "Business Day" means any day on which the Principal Market is open
for trading including any day on which the Principal Market is open for trading
for a period of time less than the customary time.
(e) "Closing Sale Price" means, for any security as of any date, the
last closing trade price for such security on the Principal Market as reported
by the Principal Market, or, if the Principal Market is not the principal
securities exchange or trading market for such security, the last closing trade
price of such security on the principal securities exchange or trading market
where such security is listed or traded as reported by the Principal Market.
(f) "Confidential Information" means any information disclosed by
either party to the other party, either directly or indirectly, in writing,
orally or by inspection of tangible objects (including, without limitation,
documents, prototypes, samples, plant and equipment), which is designated as
"Confidential," "Proprietary" or some similar designation. Information
communicated orally shall be considered Confidential Information if such
information is confirmed in writing as being Confidential Information within ten
(10) business days after the initial disclosure. Confidential Information may
also include information disclosed to a disclosing party by third parties.
Confidential Information shall not, however, include any information which (i)
was publicly known and made generally available in the public domain prior to
the time of disclosure by the disclosing party; (ii) becomes publicly known and
made generally available after disclosure by the disclosing party to the
receiving party through no action or inaction of the receiving party; (iii) is
already in the possession of the receiving party at the time of disclosure by
the disclosing party as shown by the receiving party's files and records
immediately prior to the time of disclosure; (iv) is obtained by the receiving
party from a third party without a breach of such third party's obligations of
confidentiality; (v) is independently developed by the receiving party without
use of or reference to the disclosing party's Confidential Information, as shown
by documents and other competent evidence in the receiving party's possession;
or (vi) is required by law to be disclosed by the receiving party, provided that
the receiving party gives the disclosing party prompt written notice of such
requirement prior to such disclosure and assistance in obtaining an order
protecting the information from public disclosure.
(g) "Custodian" means any receiver, trustee, assignee, liquidator or
similar official under any Bankruptcy Law.
(h) "Maturity Date" means the date that is 500 Business Days (25
Monthly Periods) from the Commencement Date.
(i) "Monthly Period" means each successive 20 Business Day period com-
mencing with the Commencement Date.
(j) "Person" means an individual or entity including any limited
liability company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a government or any department or agency
thereof.
(k) "Principal Market" means the Nasdaq OTC Bulletin Board; provided
however, that in the event the Company's Common Stock is ever listed or traded
on the Nasdaq Global Market, the Nasdaq Capital Market, the New York Stock
Exchange or the American Stock Exchange, then the "Principal Market" shall mean
such other market or exchange on which the Company's Common Stock is then listed
or traded.
(l) "Purchase Amount" means, with respect to any particular purchase
made hereunder, the portion of the Available Amount to be purchased by the Buyer
pursuant to Section 1 hereof in connection with the Initial Purchases or as set
forth in a valid Base Purchase Notice or a valid Block Purchase Notice which the
Company delivers to the Buyer.
(m) "Purchase Date" means with respect to any particular purchase made
hereunder, the Business Day after receipt by the Buyer of a valid Base Purchase
Notice or a valid Block Purchase Notice that the Buyer is to buy Purchase Shares
pursuant to Section 1 hereof.
(n) "Purchase Price" means the lower of the (A) the lowest Sale Price
of the Common Stock on the Purchase Date and (B) the arithmetic average of the
three (3) lowest Closing Sale Prices for the Common Stock during the twelve (12)
consecutive Business Days ending on the Business Day immediately preceding such
17
Purchase Date (to be appropriately adjusted for any reorganization,
recapitalization, non-cash dividend, stock split or other similar transaction).
(o) "Sale Price" means, any trade price for the shares of Common Stock
on the Principal Market as reported by the Principal Market.
(q) "SEC" means the United States Securities and Exchange Commission.
(r) "Transfer Agent" means the transfer agent of the Company as set
forth in Section 11(f) hereof or such other person who is then serving as the
transfer agent for the Company in respect of the Common Stock.
11. MISCELLANEOUS.
(a) Governing Law; Jurisdiction; Jury Trial. The corporate laws of the
State of Colorado shall govern all issues concerning the relative rights of the
Company and its shareholders. All other questions concerning the construction,
validity, enforcement and interpretation of this Agreement and the other
Transaction Documents shall be governed by the internal laws of the State of
Illinois, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of Illinois or any other jurisdictions)
that would cause the application of the laws of any jurisdictions other than the
State of Illinois. Each party hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in the City of Chicago, for
the adjudication of any dispute hereunder or under the other Transaction
Documents or in connection herewith or therewith, or with any transaction
contemplated hereby or discussed herein, and hereby irrevocably waives, and
agrees not to assert in any suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of any such court, that such suit, action
or proceeding is brought in an inconvenient forum or that the venue of such
suit, action or proceeding is improper. Each party hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof to such party at the
address for such notices to it under this Agreement and agrees that such service
shall constitute good and sufficient service of process and notice thereof.
Nothing contained herein shall be deemed to limit in any way any right to serve
process in any manner permitted by law. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY
RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION
OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS
AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
(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; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original, not
a facsimile signature.
(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
18
that jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.
(e) Entire Agreement. With the exception of the Mutual Nondisclosure
Agreement between the parties, this Agreement supersedes all other prior oral or
written agreements between the Buyer, the Company, their affiliates and persons
acting on their behalf with respect to the matters discussed herein, and this
Agreement, the other Transaction Documents 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 the Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. The Company acknowledges
and agrees that is has not relied on, in any manner whatsoever, any
representations or statements, written or oral, other than as expressly set
forth in this Agreement.
(f) Notices. Any notices, consents 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 receipt when sent by facsimile (provided confirmation of
transmission is mechanically or electronically generated and kept on file by the
sending party); or (iii) one Business 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:
XsunX, Inc.
▇▇ ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Phone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
Attention: Chief Executive Officer
With a copy to:
K & L Gates LLP
Miami Center, 20th Floor,
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇.
▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: 305-358-7095
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
If to the Holder:
Fusion Capital Fund II, LLC
▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇-▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
19
If to the Transfer Agent:
Mountain Share Transfer
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇
or at such other address and/or facsimile number and/or to the attention of such
other person as the recipient party has specified by written notice given to
each other party three (3) Business Days prior to the effectiveness of such
change. Written confirmation of receipt (A) given by the recipient of such
notice, consent or other communication, (B) mechanically or electronically
generated by the sender's facsimile machine containing the time, date, and
recipient facsimile number or (C) provided by a nationally recognized overnight
delivery service, shall be rebuttable evidence of personal service, receipt by
facsimile or receipt from a nationally recognized overnight delivery service in
accordance with clause (i), (ii) or (iii) above, respectively.
(g) Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and assigns.
The Company shall not assign this Agreement or any rights or obligations
hereunder without the prior written consent of the Buyer, including by merger or
consolidation. The Buyer may not assign its rights or obligations under this
Agreement.
(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) Publicity. The Buyer shall have the right to approve before
issuance any press release, SEC filing or any other public disclosure made by or
on behalf of the Company whatsoever with respect to, in any manner, the Buyer,
its purchases hereunder or any aspect of this Agreement or the transactions
contemplated hereby; provided, however, that the Company shall be entitled,
without the prior approval of the Buyer, to make any press release or other
public disclosure (including any filings with the SEC) with respect to such
transactions as is required by applicable law and regulations so long as the
Company and its counsel consult with the Buyer in connection with any such press
release or other public disclosure at least two (2) Business Days prior to its
release. The Buyer must be provided with a copy thereof at least two (2)
Business Days prior to any release or use by the Company thereof. The Company
agrees and acknowledges that its failure to fully comply with this provision
constitutes a material adverse effect on its ability to perform its obligations
under this Agreement.
(j) 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.
20
(k) Termination. This Agreement may be terminated only as follows:
(i) By the Buyer any time an Event of Default exists without
any liability or payment to the Company. However, if pursuant to or
within the meaning of any Bankruptcy Law, the Company commences a
voluntary case or any Person commences a proceeding against the
Company, a Custodian is appointed for the Company or for all or
substantially all of its property, or the Company makes a general
assignment for the benefit of its creditors, (any of which would be an
Event of Default as described in Sections 9(f), 9(g) and 9(h) hereof)
this Agreement shall automatically terminate without any liability or
payment to the Company without further action or notice by any Person.
No such termination of this Agreement under this Section 11(k)(i) shall
affect the Company's or the Buyer's obligations under this Agreement
with respect to pending purchases and the Company and the Buyer shall
complete their respective obligations with respect to any pending
purchases under this Agreement.
(ii) In the event that the Commencement shall not have
occurred, the Company shall have the option to terminate this Agreement
for any reason or for no reason without any liability whatsoever of any
party to any other party under this Agreement.
(iii) In the event that the Commencement shall not have
occurred on or before March 1, 2008, due to the failure to satisfy the
conditions set forth in Sections 6 and 7 above with respect to the
Commencement, at any time prior to Commencement either party shall have
the option to terminate this Agreement at the close of business on such
date or thereafter without any liability whatsoever of any party to any
other party under this Agreement.
(iv) At any time after the Commencement Date, the Company
shall have the option to terminate this Agreement for any reason or for
no reason by delivering notice (a "Company Termination Notice") to the
Buyer electing to terminate this Agreement without any liability
whatsoever of any party to any other party under this Agreement. The
Company Termination Notice shall not be effective until one (1)
Business Day after it has been received by the Buyer.
(v) This Agreement shall automatically terminate on the date
that the Company sells and the Buyer purchases the full Available
Amount as provided herein, without any action or notice on the part of
any party and without any liability whatsoever of any party to any
other party under this Agreement.
(vi) If by the Maturity Date for any reason or for no reason
the full Available Amount under this Agreement has not been purchased
as provided for in Section 1 of this Agreement, this Agreement shall
automatically terminate on the Maturity Date, without any action or
notice on the part of any party and without any liability whatsoever of
any party to any other party under this Agreement.
Except as set forth in Sections 11(k)(i) (in respect of an Event of Default
under Sections 9(f), 9(g) and 9(h)) and 11(k)(vi), any termination of this
Agreement pursuant to this Section 11(k) shall be effected by written notice
from the Company to the Buyer, or the Buyer to the Company, as the case may be,
setting forth the basis for the termination hereof. The representations and
warranties of the Company and the Buyer contained in Sections 2, 3 and 5 hereof,
the indemnification provisions set forth in Section 8 hereof and the agreements
and covenants set forth in Section 11, shall survive the Commencement and any
termination of this Agreement. No termination of this Agreement shall affect the
Company's or the Buyer's rights or obligations (i) under the Registration Rights
21
Agreement which shall survive any such termination or (ii) under this Agreement
with respect to pending purchases and the Company and the Buyer shall complete
their respective obligations with respect to any pending purchases under this
Agreement.
(l) Financial Advisor, Placement Agent, Broker or Finder. The Company
shall be responsible for the payment of any fees or commissions, if any, of any
financial advisor, placement agent, broker or finder relating to or arising out
of the transactions contemplated hereby. The Company shall pay, and hold the
Buyer harmless against, any liability, loss or expense (including, without
limitation, attorneys' fees and out of pocket expenses) arising in connection
with any such claim.
(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.
(n) Remedies, Other Obligations, Breaches and Injunctive Relief. The
Buyer's remedies provided in this Agreement shall be cumulative and in addition
to all other remedies available to the Buyer under this Agreement, at law or in
equity (including a decree of specific performance and/or other injunctive
relief), no remedy of the Buyer contained herein shall be deemed a waiver of
compliance with the provisions giving rise to such remedy and nothing herein
shall limit the Buyer's right to pursue actual damages for any failure by the
Company to comply with the terms of this Agreement. The Company acknowledges
that a breach by it of its obligations hereunder will cause irreparable harm to
the Buyer and that the remedy at law for any such breach may be inadequate. The
Company therefore agrees that, in the event of any such breach or threatened
breach, the Buyer shall be entitled, in addition to all other available
remedies, to an injunction restraining any breach, without the necessity of
showing economic loss and without any bond or other security being required.
(o) Enforcement Costs. If: (i) this Agreement is placed by the Buyer
in the hands of an attorney for enforcement or is enforced by the Buyer through
any legal proceeding; or (ii) an attorney is retained to represent the Buyer in
any bankruptcy, reorganization, receivership or other proceedings affecting
creditors' rights and involving a claim under this Agreement; or (iii an
attorney is retained to represent the Buyer in any other proceedings whatsoever
in connection with this Agreement, then the Company shall pay to the Buyer, as
incurred by the Buyer, all reasonable costs and expenses including attorneys'
fees incurred in connection therewith, in addition to all other amounts due
hereunder.
(p) Failure or Indulgence Not Waiver. No failure or delay in the
exercise of any power, right or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such power, right or
privilege preclude other or further exercise thereof or of any other right,
power or privilege.
* * * * *
22
IN WITNESS WHEREOF, the Buyer and the Company have caused this Common
Stock Purchase Agreement to be duly executed as of the date first written above.
THE COMPANY:
XsunX, Inc.
By:______________________
Name:
Title:
BUYER:
Fusion Capital Fund II, LLC
By: Fusion Capital Partners, LLC
By: Rockledge Capital Corporation
By:_______________________
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
Title: President
23
SCHEDULES
Schedule 3(a) Subsidiaries
The Company has no subsidiaries and operates as a Colorado corporation qualified
to conduct business as a foreign corporation in the states of California.
Schedule 3(c) Capitalization
The authorized capital stock of the Company consists of: 500,000,000 shares of
Common Stock, of which as of the date hereof, 157,919,856 shares are issued and
outstanding, 20,000,000 shares are reserved for issuance pursuant to the
Company's 2007 stock option plans of which only approximately 15,500,000 shares
remain available for future grants and 15,362,000 shares are issuable and
reserved for issuance pursuant to securities (other than stock options issued
pursuant to the Company's stock option plans) exercisable or exchangeable for,
or convertible into, shares of Common Stock and (ii) 50,000,000 shares of
Preferred Stock, $0.01 par value, of which as of the date hereof no shares are
issued and outstanding and no other Preferred Stock is outstanding.
Schedule 3(e) Conflicts
None
Schedule 3(f) 1934 Act Filings
No notices other than routine correspondence.
Schedule 3(g) Material Changes
No material changes.
Schedule 3(h) Litigation
None to the best current actual knowledge of the Company after due inquiry but
without specific investigation.
Schedule 3(k) Intellectual Property
Under a license agreement with MVSystems, Inc. dated September 17, 2004 in which
the Company licensed certain intellectual property rights pertaining to
deposition technologies, the Company has until September 17, 2009 to realize
$200,000 dollars cumulative revenue in a bona fide arms-length commercial
setting or relationship, or the execution of a bona fide binding contract for
over $200,000 with a company with assets over $1,000,000.
Under a license agreement with Sencera, LLC dated January 1, 2007 in which the
Company licensed certain intellectual property rights pertaining to deposition
technologies, the Company must, within eighteen (18) months from the date of
completion of development of the deposition technology, pay to Sencera
approximately $3,750,000 in royalties required to maintain license rights to the
technology. As of the date of this Agreement the completion of development of
the licensed technologies is unknown and as such the calendar dates for the 18
month period in which the Company must generate royalties is yet to be defined.
The Company does not currently contemplate the use of these licensed
technologies in its business within the next two (2) years.
Under an agreement dated May 6, 2004 the Company has the right to acquire the
trade ▇▇▇▇ name "Power Glass" and the domain URL "▇▇▇▇▇▇▇▇▇▇.▇▇▇" for the amount
of $50,000 dollars up to November 6, 2007. Under the Company's current business
plan XsunX does not envision the exercise of this option right to acquire the
trade name and URL.
The Company has not applied for nor been issued registered trademarks for its
"XsunX" trade name.
Schedule 3(m) Liens
None to the best current actual knowledge of the Company after due inquiry but
without specific investigation.
Schedule 3(q) Certain Transactions
None
EXHIBITS
Exhibit A Form of Company Counsel Opinion
Exhibit B Form of Officer's Certificate
Exhibit C Form of Resolutions of Board of Directors of the Company
Exhibit D Form of Secretary's Certificate
Exhibit E Form of Letter to Transfer Agent
Exhibit F Form of Warrant
EXHIBIT A
FORM OF COMPANY COUNSEL OPINION
Capitalized terms used herein but not defined herein, have the meaning
set forth in the Common Stock Purchase Agreement. Based on the foregoing, and
subject to the assumptions and qualifications set forth herein, we are of the
opinion that:
1. The Company is a corporation existing and in good standing
under the laws of the State of Colorado. The Company is qualified to do business
as a foreign corporation and is in good standing in the State of California.
2. The Company has the corporate power to execute and deliver,
and perform its obligations under, each Transaction Document to which it is a
party. The Company has the corporate power to conduct its business as, to the
best of our knowledge, it is now conducted, and to own and use the properties
owned and used by it.
3. The execution, delivery and performance by the Company of
the Transaction Documents to which it is a party have been duly authorized by
all necessary corporate action on the part of the Company. The execution and
delivery of the Transaction Documents by the Company, the performance of the
obligations of the Company thereunder and the consummation by it of the
transactions contemplated therein have been duly authorized and approved by the
Company's Board of Directors and no further consent, approval or authorization
of the Company, its Board of Directors or its stockholders is required. The
Transaction Documents to which the Company is a party have been duly executed
and delivered by the Company and are 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, liquidation or similar laws relating to, or
affecting creditor's rights and remedies.
4. The execution, delivery and performance by the Company of
the Transaction Documents, the consummation by the Company of the transactions
contemplated thereby including the offering, sale and issuance of the Purchase
Shares in accordance with the terms and conditions of the Common Stock Purchase
Agreement, and fulfillment and compliance with terms of the Transaction
Documents, does not and shall not: (i) conflict with, constitute a breach of or
default (or an event which, with the giving of notice or lapse of time or both,
constitutes or could constitute a breach or a default), under (a) the
Certificate of Incorporation or the Bylaws of the Company, (b) any material
agreement, note, lease, mortgage, deed or other material instrument to which to
our knowledge the Company is a party or by which the Company or any of its
assets are bound, (ii) result in any violation of any statute, law, rule or
regulation applicable to the Company, or (iii) to our knowledge, violate any
order, writ, injunction or decree applicable to the Company or any of its
subsidiaries.
5. The issuance of the Purchase Shares, the Warrants and the
Warrant Shares pursuant to the terms and conditions of the Transaction Documents
has been duly authorized and the Initial Shares are validly issued, fully paid
and non-assessable, to our knowledge, free of all taxes, liens, charges,
restrictions, rights of first refusal and preemptive rights. _____________
shares of Common Stock have been properly reserved for issuance under the Common
Stock Purchase Agreement for future issuances of Purchase Shares. 3,333,332
shares of Common Stock have been properly reserved for issuance under the
Warrants for future issuances upon exercise of the Warrants. The Initial Shares
have been issued and paid for in accordance with the Common Stock Purchase
Agreement, the Initial Shares are validly issued, fully paid and non-assessable,
to our knowledge, free of all taxes, liens, charges, restrictions, rights of
first refusal and preemptive rights. When issued and paid for in accordance with
the Common Stock Purchase Agreement, the Purchase Shares (other than the Initial
Purchase Shares) shall be validly issued, fully paid and non-assessable, to our
knowledge, free of all taxes, liens, charges, restrictions, rights of first
refusal and preemptive rights. When issued and paid for in accordance with the
Warrant, the Warrant Shares shall be validly issued, fully paid and
non-assessable, to our knowledge, free of all taxes, liens, charges,
restrictions, rights of first refusal and preemptive rights. To our knowledge,
the execution and delivery of the Registration Rights Agreement do not, and the
performance by the Company of its obligations thereunder shall not, give rise to
any rights of any other person for the registration under the 1933 Act of any
shares of Common Stock or other securities of the Company which have not been
waived.
6. As of the date hereof, the authorized capital stock of the
Company consists of 500,000,000 shares of common stock, no par value, of which
to our knowledge __________ shares are issued and outstanding. Except as set
forth on Schedule 3(c) of the Common Stock Purchase Agreement, to our knowledge,
there are no outstanding shares of capital stock or other securities convertible
into or exchangeable or exercisable for shares of the capital stock of the
Company.
7. Assuming the accuracy of the representations and your
compliance with the covenants made by you in the Transaction Documents, the
offering, sale and issuance of the 6,833,332 Initial Shares and the Warrants to
you pursuant to the Transaction Documents was exempt from registration under the
1933 Act and the securities laws and regulations of the State of Colorado and
the State of California.
8. Other than that which has been obtained and completed prior
to the date hereof, no authorization, approval, consent, filing or other order
of any federal or state governmental body, regulatory agency, or stock exchange
or market, or any court, or, to our knowledge, any third party is required to be
obtained by the Company to enter into and perform its obligations under the
Transaction Documents or for the Company to issue and sell the Purchase Shares
as contemplated by the Transaction Documents.
9. The Common Stock is registered pursuant to Section 12(g) of
the 1934 Act. To our knowledge, since January 1, 2006, the Company has not
received any written notice from the Principal Market stating that the Company
has not been in compliance with any of the rules and regulations (including the
requirements for continued listing) of the Principal Market.
We further advise you that to our knowledge, except as disclosed on
Schedule 3(h) in the Common Stock Purchase Agreement, there is no action, suit,
proceeding, inquiry or investigation before or by any court, public board or
body, any governmental agency, any stock exchange or market, or self-regulatory
organization, which has been threatened in writing or which is currently pending
against the Company, any of its subsidiaries, any officers or directors of the
Company or any of its subsidiaries or any of the properties of the Company or
any of its subsidiaries.
In addition, we have participated in the preparation of the
Registration Statement (SEC File #________) covering the sale of the Warrant
Shares and the Purchase Shares (including the Initial Shares), including the
prospectus dated ____________, contained therein and in conferences with
officers and other representatives of the Company (including the Company's
independent auditors) during which the contents of the Registration Statement
and related matters were discussed and reviewed and, although we are not passing
upon and do not assume any responsibility for the accuracy, completeness or
fairness of the statements contained in the Registration Statement, on the basis
of the information that was developed in the course of the performance of the
services referred to above, considered in the light of our understanding of the
applicable law, nothing came to our attention that caused us to believe that the
Registration Statement (other than the financial statements and schedules and
the other financial and statistical data included therein, as to which we
express no belief), as of their dates, contained any untrue statement of a
material fact or omitted 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.
EXHIBIT B
FORM OF OFFICER'S CERTIFICATE
This Officer's Certificate ("Certificate") is being delivered
pursuant to Section 7(e) of that certain Common Stock Purchase Agreement dated
as of _________, ("Common Stock Purchase Agreement"), by and between XsunX,
Inc., a Colorado corporation (the "Company"), and Fusion Capital Fund II, LLC
(the "Buyer"). Terms used herein and not otherwise defined shall have the
meanings ascribed to them in the Common Stock Purchase Agreement.
The undersigned, ___________, ______________ of the Company, hereby
certifies as follows:
1. I am the _______________ of the Company and make the state-
ments contained in this Certificate;
2. The representations and warranties of the Company are true
and correct in all material respects (except to the extent that any of
such representations and warranties is already qualified as to
materiality or pursuant to the schedules referenced in Section 3 of the
Common Stock Purchase Agreement, in which case, such representations
and warranties are true and correct without further qualification) as
of the date when made and as of the Commencement Date as though made at
that time (except for representations and warranties that speak as of a
specific date);
3. The Company has performed, satisfied and complied in all
material respects with covenants, agreements and conditions required by
the Transaction Documents to be performed, satisfied or complied with
by the Company at or prior to the Commencement Date.
4. The Company has not taken any steps, and does not currently
expect to take any steps, to seek protection pursuant to any Bankruptcy
Law nor does the Company or any of its Subsidiaries have any knowledge
or reason to believe that its creditors intend to initiate involuntary
bankruptcy or insolvency proceedings. The Company is financially
solvent and is generally able to pay its debts as they become due.
IN WITNESS WHEREOF, I have hereunder signed my name on this ___ day of
___________.
----------------------
Name:
Title:
The undersigned as Secretary of ________, a ________ corporation,
hereby certifies that ___________ is the duly elected, appointed, qualified and
acting ________ of _________ and that the signature appearing above is his
genuine signature.
-----------------------------------
Secretary
EXHIBIT C-1
FORM OF COMPANY RESOLUTIONS
FOR SIGNING PURCHASE AGREEMENT
UNANIMOUS WRITTEN CONSENT OF
XsunX, Inc.
Pursuant to Section ______ of the _________, the undersigned, being all
of the directors of XsunX, Inc., a Colorado corporation (the "Corporation") do
hereby consent to and adopt the following resolutions as the action of the Board
of Directors for and on behalf of the Corporation and hereby direct that this
Consent be filed with the minutes of the proceedings of the Board of Directors:
WHEREAS, there has been presented to the Board of Directors of the
Corporation a draft of the Common Stock Purchase Agreement (the "Purchase
Agreement") by and between the Corporation and Fusion Capital Fund II, LLC
("Fusion"), providing for the purchase by Fusion of up to Twenty One Million
Dollars ($21,000,000.00) of the Corporation's common stock, no par value (the
"Common Stock"); and
WHEREAS, after careful consideration of the Purchase Agreement, the
documents incident thereto and other factors deemed relevant by the Board of
Directors, the Board of Directors has determined that it is advisable and in the
best interests of the Corporation to engage in the transactions contemplated by
the Purchase Agreement, including, but not limited to, the issuance and sale of
shares of Common Stock to Fusion up to the available amount under the Purchase
Agreement (the "Purchase Shares").
Transaction Documents
NOW, THEREFORE, BE IT RESOLVED, that the transactions described in the
Purchase Agreement are hereby approved and ____________ and ______________ (the
"Authorized Officers") are severally authorized to execute and deliver the
Purchase Agreement, and any other agreements or documents contemplated thereby
including, without limitation, the common stock purchase warrants (the
"Warrants" and the shares of Common Stock underlying such Warrants, the "Warrant
Shares") described in the Purchase Agreement, a registration rights agreement
(the "Registration Rights Agreement") providing for the registration of the
shares of the Company's Common Stock issuable in respect of the Purchase
Agreement and the Warrants on behalf of the Corporation, with such amendments,
changes, additions and deletions as the Authorized Officers may deem to be
appropriate and approve on behalf of, the Corporation, such approval to be
conclusively evidenced by the signature of an Authorized Officer thereon; and
FURTHER RESOLVED, that the terms and provisions of the Warrants by the
Corporation to be issued to Fusion are hereby approved and the Authorized
Officers are authorized to execute and deliver the Warrants (pursuant to the
terms of the Purchase Agreement), with such amendments, changes, additions and
deletions as the Authorized Officer may deem appropriate and approve on behalf
of, the Corporation, such approval to be conclusively evidenced by the signature
of an Authorized Officer thereon; and
FURTHER RESOLVED, that the terms and provisions of the Registration
Rights Agreement by and among the Corporation and Fusion are hereby approved and
the Authorized Officers are authorized to execute and deliver the Registration
Rights Agreement (pursuant to the terms of the Purchase Agreement), with such
amendments, changes, additions and deletions as the Authorized Officer may deem
appropriate and approve on behalf of, the Corporation, such approval to be
conclusively evidenced by the signature of an Authorized Officer thereon; and
FURTHER RESOLVED, that the terms and provisions of the Form of Transfer
Agent Instructions (the "Instructions") are hereby approved and the Authorized
Officers are authorized to execute and deliver the Instructions (pursuant to the
terms of the Purchase Agreement), with such amendments, changes, additions and
deletions as the Authorized Officers may deem appropriate and approve on behalf
of, the Corporation, such approval to be conclusively evidenced by the signature
of an Authorized Officer thereon; and
Execution of Purchase Agreement
FURTHER RESOLVED, that the Corporation be and it hereby is authorized
to execute and deliver the Purchase Agreement providing for the purchase of
common stock of the Corporation having an aggregate value of up to
$21,000,000.00; and
Issuance of Common Stock and Warrants
FURTHER RESOLVED, that the Corporation is hereby authorized to issue
the Warrants under the Purchase Agreement in accordance with the terms of the
Purchase Agreement and that, upon issuance of the Warrants pursuant to the
Purchase Agreement, the Warrants will be duly authorized, validly issued, fully
paid and nonassessable with no personal liability attaching to the ownership
thereof; and
FURTHER RESOLVED, that the Corporation is hereby authorized to issue
the Warrant Shares under the Warrants in accordance with the terms of the
Warrants and that, upon issuance of the Warrant Shares pursuant to the Warrants,
the Warrant Shares will be duly authorized, validly issued, fully paid and
nonassessable with no personal liability attaching to the ownership thereof; and
FURTHER RESOLVED, that the Corporation shall initially reserve
3,333,332 shares of Common Stock for issuance as Warrant Shares under the
Warrants,.
FURTHER RESOLVED, that the Corporation is hereby authorized to issue
shares of Common Stock upon the purchase of Purchase Shares up to the available
amount under the Purchase Agreement in accordance with the terms of the Purchase
Agreement and that, upon issuance of the Purchase Shares pursuant to the
Purchase Agreement, the Purchase Shares will be duly authorized, validly issued,
fully paid and nonassessable with no personal liability attaching to the
ownership thereof; and
FURTHER RESOLVED, that the Corporation shall initially reserve
___________ shares of Common Stock for issuance as Purchase Shares after the
Commencement under the Purchase Agreement (not including the 3,333,332 Initial
Purchase Shares as defined in the Agreement),.
Approval of Actions
FURTHER RESOLVED, that, without limiting the foregoing, the Authorized
Officers are, and each of them hereby is, authorized and directed to proceed on
behalf of the Corporation and to take all such steps as deemed necessary or
appropriate, with the advice and assistance of counsel, to cause the Corporation
to consummate the agreements referred to herein and to perform its obligations
under such agreements; and
FURTHER RESOLVED, that the Authorized Officers be, and each of them
hereby is, authorized, empowered and directed on behalf of and in the name of
the Corporation, to take or cause to be taken all such further actions and to
execute and deliver or cause to be executed and delivered all such further
agreements, amendments, documents, certificates, reports, schedules,
applications, notices, letters and undertakings and to incur and pay all such
fees and expenses as in their judgment shall be necessary, proper or desirable
to carry into effect the purpose and intent of any and all of the foregoing
resolutions, and that all actions heretofore taken by any officer or director of
the Corporation in connection with the transactions contemplated by the
agreements described herein are hereby approved, ratified and confirmed in all
respects.
IN WITNESS WHEREOF, the Board of Directors has executed and delivered
this Consent effective as of __________, 2007.
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being all of the directors of XsunX, Inc.
EXHIBIT C-2
FORM OF COMPANY RESOLUTIONS APPROVING REGISTRATION STATEMENT
UNANIMOUS WRITTEN CONSENT OF
XsunX, Inc.
Pursuant to Section ______ of the _________, the undersigned, being all
of the directors of XsunX, Inc., a Colorado corporation (the "Corporation") do
hereby consent to and adopt the following resolutions as the action of the Board
of Directors for and on behalf of the Corporation and hereby direct that this
Consent be filed with the minutes of the proceedings of the Board of Directors.
WHEREAS, there has been presented to the Board of Directors of the
Corporation a Common Stock Purchase Agreement (the "Purchase Agreement") by and
among the Corporation and Fusion Capital Fund II, LLC ("Fusion"), providing for
the purchase by Fusion of up to Twenty One Million Dollars ($21,000,000.00) of
the Corporation's common stock, no par value (the "Common Stock"); and
WHEREAS, after careful consideration of the Purchase Agreement, the
documents incident thereto and other factors deemed relevant by the Board of
Directors, the Board of Directors has approved the Purchase Agreement and the
transactions contemplated thereby and the Company has executed and delivered the
Purchase Agreement to Fusion; and
WHEREAS, in connection with the transactions contemplated pursuant to
the Purchase Agreement, the Company has agreed to file a registration statement
with the Securities and Exchange Commission (the "Commission") registering the
Warrant Shares (as defined in the Purchase Agreement) and the Purchase Shares
(as defined in the Purchase Agreement);
WHEREAS, the management of the Corporation has prepared and presented
to the Board of Directors the attached draft of a Registration Statement on Form
___ (the "Registration Statement") in order to register the sale of the Purchase
Shares and the Warrant Shares (collectively, the "Shares"); and
WHEREAS, the Board of Directors has determined to approve the
Registration Statement and to authorize the appropriate officers of the
Corporation to take all such actions as they may deem appropriate to effect the
offering.
NOW, THEREFORE, BE IT RESOLVED, that the officers and directors of the
Corporation be, and each of them hereby is, authorized and directed, with the
assistance of counsel and accountants for the Corporation, to prepare, execute
and file with the Commission the Registration Statement, which Registration
Statement shall be filed substantially in the form presented to the Board of
Directors, with such changes therein as the Chief Executive Officer of the
Corporation or any Vice President of the Corporation shall deem desirable and in
the best interest of the Corporation and its shareholders (such officer's
execution thereof including such changes shall be deemed to evidence
conclusively such determination); and
FURTHER RESOLVED, that the officers of the Corporation be, and each of
them hereby is, authorized and directed, with the assistance of counsel and
accountants for the Corporation, to prepare, execute and file with the
Commission all amendments, including post-effective amendments, and supplements
to the Registration Statement, and all certificates, exhibits, schedules,
documents and other instruments relating to the Registration Statement, as such
officers shall deem necessary or appropriate (such officer's execution and
filing thereof shall be deemed to evidence conclusively such determination); and
FURTHER RESOLVED, that the execution of the Registration Statement and
of any amendments and supplements thereto by the officers and directors of the
Corporation be, and the same hereby is, specifically authorized either
personally or by the authorized officers as such officer's or director's true
and lawful attorneys-in-fact and agents; and
FURTHER RESOLVED, that the authorized officers are hereby designated as
"Agent for Service" of the Corporation in connection with the Registration
Statement and the filing thereof with the Commission, and the authorized
officers hereby are authorized to receive communications and notices from the
Commission with respect to the Registration Statement; and
FURTHER RESOLVED, that the officers of the Corporation be, and each of
them hereby is, authorized and directed to pay all fees, costs and expenses that
may be incurred by the Corporation in connection with the Registration
Statement; and
FURTHER RESOLVED, that it is desirable and in the best interest of the
Corporation that the Shares be qualified or registered for sale in various
states; that the officers of the Corporation be, and each of them hereby is,
authorized to determine the states in which appropriate action shall be taken to
qualify or register for sale all or such part of the Shares as they may deem
advisable; that said officers be, and each of them hereby is, authorized to
perform on behalf of the Corporation any and all such acts as they may deem
necessary or advisable in order to comply with the applicable laws of any such
states, and in connection therewith to execute and file all requisite papers and
documents, including, but not limited to, applications, reports, surety bonds,
irrevocable consents, appointments of attorneys for service of process and
resolutions; and the execution by such officers of any such paper or document or
the doing by them of any act in connection with the foregoing matters shall
conclusively establish their authority therefor from the Corporation and the
approval and ratification by the Corporation of the papers and documents so
executed and the actions so taken; and
FURTHER RESOLVED, that if, in any state where the securities to be
registered or qualified for sale to the public, or where the Corporation is to
be registered in connection with the public offering of the Shares, a prescribed
form of resolution or resolutions is required to be adopted by the Board of
Directors, each such resolution shall be deemed to have been and hereby is
adopted, and the Secretary is hereby authorized to certify the adoption of all
such resolutions as though such resolutions were now presented to and adopted by
the Board of Directors; and
FURTHER RESOLVED, that the officers of the Corporation with the
assistance of counsel be, and each of them hereby is, authorized and directed to
take all necessary steps and do all other things necessary and appropriate to
effect the listing of the Shares on the Nasdaq OTC Bulletin Board market, if
any.
Approval of Actions
FURTHER RESOLVED, that, without limiting the foregoing, the authorized
officers are, and each of them hereby is, authorized and directed to proceed on
behalf of the Corporation and to take all such steps as are deemed necessary or
appropriate, with the advice and assistance of counsel, to cause the Corporation
to take all such action referred to herein and to perform its obligations
incident to the registration, listing and sale of the Shares; and
FURTHER RESOLVED, that the authorized officers be, and each of them
hereby is, authorized, empowered and directed on behalf of and in the name of
the Corporation, to take or cause to be taken all such further actions and to
execute and deliver or cause to be executed and delivered all such further
agreements, amendments, documents, certificates, reports, schedules,
applications, notices, letters and undertakings and to incur and pay all such
fees and expenses as in their judgment shall be necessary, proper or desirable
to carry into effect the purpose and intent of any and all of the foregoing
resolutions, and that all actions heretofore taken by any officer or director of
the Corporation in connection with the transactions contemplated by the
agreements described herein are hereby approved, ratified and confirmed in all
respects.
IN WITNESS WHEREOF, the Board of Directors has executed and delivered this
Consent effective as of __________, 2007.
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being all of the directors of XsunX, Inc.
EXHIBIT D
FORM OF SECRETARY'S CERTIFICATE
This Secretary's Certificate ("Certificate") is being delivered
pursuant to Section 7(k) of that certain Common Stock Purchase Agreement dated
as of __________, ("Common Stock Purchase Agreement"), by and between XsunX,
Inc., a Colorado corporation (the "Company") and Fusion Capital Fund II, LLC
(the "Buyer"), pursuant to which the Company may sell to the Buyer up to Twenty
One Million Dollars ($21,000,000) of the Company's Common Stock, no par value
(the "Common Stock"). Terms used herein and not otherwise defined shall have the
meanings ascribed to them in the Common Stock Purchase Agreement.
The undersigned, ____________, Secretary of the Company, hereby
certifies as follows:
1. I am the Secretary of the Company and make the statements
contained in this Secretary's Certificate.
2. Attached hereto as Exhibit A and Exhibit B are true,
correct and complete copies of the Company's bylaws ("Bylaws") and
Certificate of Incorporation ("Articles"), in each case, as amended
through the date hereof, and no action has been taken by the Company,
its directors, officers or shareholders, in contemplation of the filing
of any further amendment relating to or affecting the Bylaws or
Articles.
3. Attached hereto as Exhibit C are true, correct and complete
copies of the resolutions duly adopted by the Board of Directors of the
Company on _____________, at which a quorum was present and acting
throughout. Such resolutions have not been amended, modified or
rescinded and remain in full force and effect and such resolutions are
the only resolutions adopted by the Company's Board of Directors, or
any committee thereof, or the shareholders of the Company relating to
or affecting (i) the entering into and performance of the Common Stock
Purchase Agreement, or the issuance, offering and sale of the Purchase
Shares, the Warrants and the Warrant Shares and (ii) and the
performance of the Company of its obligation under the Transaction
Documents as contemplated therein.
4. As of the date hereof, the authorized, issued and reserved
capital stock of the Company is as set forth on Exhibit D hereto.
IN WITNESS WHEREOF, I have hereunder signed my name on this ___ day of
____________.
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Secretary
The undersigned as ___________ of __________, a ________ corporation, hereby
certifies that ____________ is the duly elected, appointed, qualified and acting
Secretary of _________, and that the signature appearing above is his genuine
signature.
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EXHIBIT E
FORM OF LETTER TO THE TRANSFER AGENT FOR THE ISSUANCE OF THE
COMMITMENTS SHARES AT SIGNING OF THE PURCHASE AGREEMENT
[COMPANY LETTERHEAD]
[DATE]
[TRANSFER AGENT]
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Re: Issuance of Common Shares to Fusion Capital Fund II, LLC
Dear ________,
On behalf of XsunX, Inc., (the "Company"), you are hereby instructed to issue as
soon as possible 6,833,332 shares of our common stock in the name of Fusion
Capital Fund II, LLC. The share certificate should be dated [DATE OF THE COMMON
STOCK PURCHASE AGREEMENT]. I have included a true and correct copy of a
unanimous written consent executed by all of the members of the Board of
Directors of the Company adopting resolutions approving the issuance of these
shares. The shares should be issued subject only to the following restrictive
legend:
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 FOR INVESTMENT 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, UNLESS SOLD PURSUANT TO: (1) RULE 144 UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR (2) AN OPINION OF HOLDER'S COUNSEL, IN A CUSTOMARY
FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE
STATE SECURITIES LAWS.
The share certificate should be sent as soon as possible via overnight mail to
the following address:
Fusion Capital Fund II, LLC
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Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇
Thank you very much for your help. Please call me at ______________ if you have
any questions or need anything further.
XsunX, Inc.
BY:_____________________________
[name]
[title]
EXHIBIT F
FORM OF WARRANT
Attached hereto.