INVESTMENT AGREEMENT
INVESTMENT AGREEMENT (this "AGREEMENT"), dated as of June 3, 2005 by and
between XTREME COMPANIES, INCORPORATED, a Nevada corporation (the "COMPANY"),
and Preston Capital Partners, a Delaware Limited Liability Corporation (the
"INVESTOR").
WHEREAS, the parties desire that, upon the terms and subject to the conditions
contained herein, the Investor shall invest up to $5,000,000 to purchase the
Company's common stock, no par value per share (the "COMMON STOCK");
WHEREAS, such investments will be made in reliance upon the provisions of
Section 4(2) under the Securities Act of 1933, as amended (the "1933 ACT"), Rule
506 of Regulation D, and the rules and regulations promulgated thereunder,
and/or upon such other exemption from the registration requirements of the 1933
Act as may be available with respect to any or all of the investments in Common
Stock to be made hereunder; and
WHEREAS, contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement
substantially in the form attached hereto as Exhibit A (the "REGISTRATION RIGHTS
AGREEMENT") pursuant to which the Company has agreed to provide certain
registration rights under the 1933 Act, and the rules and regulations
promulgated thereunder, and applicable state securities laws.
NOW THEREFORE, in consideration of the foregoing recitals, which shall be
considered an integral part of this Agreement, the covenants and agreements set
forth hereafter, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Company and the Investor hereby
agree as follows:
1. DEFINITIONS. As used in this Agreement, the following terms shall have the
following meanings specified or indicated, and such meanings shall be equally
applicable to the singular and plural forms of the defined terms.
"1933 ACT" shall mean the Securities Act of 1933, as it may be amended.
"1934 ACT" shall mean the Securities Exchange Act of 1934, as it may be amended.
"AFFILIATE" shall have the meaning specified in Section 5(h).
"AGREEMENT" shall mean this Investment Agreement.
"BUY-IN" shall have the meaning specified in Section 6.
"BUY-IN ADJUSTMENT AMOUNT" shall have the meaning specified in Section 6.
"CLOSING" shall have the meaning specified in Section 2(h).
"CLOSING DATE" shall mean, as defined in Section 2(h), the date which is seven
(7) Trading Days following the Put Notice Date.
"COMMON STOCK" shall mean the Common Stock of the Company.
"CONTROL" or "CONTROLS" shall have the meaning specified in Section 5(h).
"COVERING SHARES" shall have the meaning specified in Section 6.
"EFFECTIVE DATE" shall mean the date the SEC declares effective under the 1933
Act the Registration Statement covering the Securities.
"ENVIRONMENTAL LAWS" shall have the meaning specified in Section 4(m).
"EXECUTION DATE" shall mean the date all Transaction Documents are executed by
the Company and Investor.
"INDEMNITEES" shall have the meaning specified in Section 10.
"INDEMNIFIED LIABILITIES" shall have the meaning specified in Section 10.
"INEFFECTIVE PERIOD" shall mean any period of time that the Registration
Statement or any Supplemental Registration Statement (as defined in the
Registration Rights Agreement) becomes ineffective or unavailable for use for
the sale or resale, as applicable, of any or all of the Registrable Securities
(as defined in the Registration Rights Agreement) for any reason (or in the
event the prospectus under either of the above is not current and deliverable)
during any time period required under the Registration Rights Agreement.
"INVESTOR" shall mean Preston Capital Partners., a Delaware LLC.
"MAJOR TRANSACTION" shall have the meaning specified in Section 2(g).
"MATERIAL ADVERSE EFFECT" shall have the meaning specified in Section 4(a).
"MATERIAL FACTS" shall have the meaning specified in Section 2(m).
"MAXIMUM COMMON STOCK ISSUANCE" shall have the meaning specified in Section
2(j).
"MINIMUM ACCEPTABLE PRICE" with respect to any Put Notice Date shall mean 75% of
the average of the closing bid prices for the fifteen (15) Trading Day period
immediately preceding such Put Notice Date.
"OPEN PERIOD" shall mean the period beginning on and including the Trading Day
immediately following the Effective Date and ending on the earlier to occur of
(i) the date which is 36 (thirty-six) months from the Effective Date and (ii)
termination of the Agreement in accordance with Section 9.
"PRICING PERIOD" shall mean the period beginning on the Put Notice Date and
ending on and including the date which is five (5) Trading Days after such Put
Notice Date.
"PRINCIPAL MARKET" shall mean the American Stock Exchange, Inc., the National
Association of Securities Dealer's, Inc. OTC-BB, the NASDAQ National Market
System or the NASDAQ Small Cap Market, whichever is the principal market on
which the Common Stock is listed.
"PROSPECTUS" shall mean the prospectus, preliminary prospectus and supplemental
prospectus used in connection with the Registration Statement.
"PURCHASE AMOUNT" shall mean the total amount being paid by the Investor on a
particular Closing Date to purchase the Securities.
"PURCHASE PRICE" shall mean 95% (ninety-five percent) of the average of the Four
lowest posted bid price of the Common Stock during the Pricing Period in a
Trading Day.
"PUT AMOUNT" shall have the meaning set forth in Section 2(b) hereof.
"PUT NOTICE" shall mean a written notice sent to the Investor by the Company
stating the Put Amount of Shares the Company intends to sell to the Investor
pursuant to the terms of the Agreement and stating the current number of Shares
issued and outstanding on such date.
"PUT NOTICE DATE" shall mean the Trading Day immediately following the day on
which the Investor receives a Put Notice, however a Put Notice shall be deemed
delivered on (x) the Trading Day it is received by facsimile or otherwise by the
Investor if such notice is received prior to 2:00 pm Eastern Time, or (y) the
immediately succeeding Trading Day if it is received by facsimile or otherwise
after 2:00 pm Eastern Time on a Trading Day. No Put Notice may be deemed
delivered on a day that is not a Trading Day.
"PUT RESTRICTION" shall mean the days between the end of the Pricing Period and
the date on which the Investor deems the Put closed. During this time, the
Company shall not be entitled to deliver another Put Notice unless there has
been a release of shares.
"REGISTRATION OPINION DEADLINE" shall mean the date that is three (3) Trading
Days prior to each Put Notice Date.
"REGISTRATION PERIOD" shall have the meaning specified in Section 5(c).
"REGISTRATION RIGHTS AGREEMENT" shall mean the Agreement entered into by the
Company with Investor for the registration of the Securities.
"REGISTRATION STATEMENT" means the registration statement of the Company filed
under the 1933 Act covering the Common Stock issuable hereunder.
"RELATED PARTY" shall have the meaning specified in Section 5(h).
"RESOLUTION" shall have the meaning specified in Section 8(f).
"SEC" shall mean the U.S. Securities & Exchange Commission.
"SEC DOCUMENTS" shall have the meaning specified in Section 4(f).
"SECURITIES" shall mean the shares of Common Stock issued pursuant to the terms
of the Agreement.
"SHARES" shall mean the shares of common stock of the Company having no par
value per share.
"SOLD SHARES" shall have the meaning specified in Section 6.
"SUBSIDIARIES" shall have the meaning specified in Section 4(a).
"TRADING DAY" shall mean any day on which the Principal Market for the Company's
common stock is open for trading, from the hours of 9:30 am until 4:00 pm.
"TRANSACTION DOCUMENTS" shall mean this Agreement, the Registration Rights
Agreement, the Investor Agreement and each of the other agreements entered into
by the parties hereto in connection with this Agreement.
"VALUATION EVENT" shall have the meaning specified in Section 2(k).
2. PURCHASE AND SALE OF COMMON STOCK
a. Purchase and Sale of Common Stock. Subject to the terms and conditions set
forth herein, the Company shall issue and sell to the Investor, and the Investor
shall purchase from the Company, up to that number of Shares having an aggregate
Purchase Price of $5,000,000.
b. Delivery of Put Notices. (i) Subject to the terms and conditions of the
Transaction Documents, and from time to time during the Open Period, the Company
may, in its sole discretion, deliver a Put Notice to the Investor which states
the Put Amount (designated in shares of Common Stock) which the Company intends
to sell to the Investor on a Closing Date. The Put Notice shall be in the form
attached hereto as Exhibit "F" and incorporated herein by reference. The Put
Amount designated by the Company in the form of a Put Notice shall be as
follows:
The maximum amount that the Company shall be entitled to Put to the Investor
shall be $100,000 per Put.
During the Open Period, the Company shall not be entitled to submit a Put Notice
until after the previous Closing has been completed. The Purchase Price for the
Common Stock identified in the Put Notice shall be equal to 95% (ninety-five
percent) of the average of four lowest posted bid prices of the Common Stock
during the Pricing Period.
(ii) If the closing bid price during the applicable Pricing Period with respect
to that Put Notice is less than 75% (seventy-five percent) of the closing bid
prices of the Common Stock for the fifteen (15) Trading Days prior to the Put
Notice Date ("MINIMUM ACCEPTABLE PRICE") the Put Notice will terminate, only at
the Company's request, sent via FACSIMILE to the Investor, the Investor will
continue the Put until the FACSIMILE is received by the Investor. In the event
that the closing bid price for the applicable Pricing Period is less than the
Minimum Acceptable Price, the Company may elect in its sole discretion, by
sending written notice to the Investor via facsimile, to cancel that portion of
the Put Notice remaining for that number of Trading Days remaining after the
written cancellation notice is received by the Investors. The written notice
shall be deemed received by the Investors on (i) the Trading Day it is actually
received by facsimile or otherwise by the Investors if such notice is received
on or prior to 9:00 A.M. New York time, or (ii) the immediately succeeding
Trading Day if it is received by facsimile after 9:00
A.M. New York time on a Trading Day or at anytime on a day which is not a
Trading Day. Notwithstanding the foregoing, there shall be a closing with
respect to, and the Company shall be responsible for delivering, that number of
shares of Common Stock to the Investor that were sold by the Investors through
and including the end of the Trading Day the written cancellation notice is
received by the Investor.
(iii) Within Thirteen (13) calendar days after the commencement of each calendar
quarter occurring subsequent to the commencement of the Open Period, the Company
undertakes to notify Investor as to its reasonable expectations as to the Put
Amount it intends to raise during such calendar quarter, if any, through the
issuance of Put Notices. Such notification shall constitute only the Company's
good faith estimate with respect to such calendar quarter and shall in no way
obligate the Company to raise such amount during such calendar quarter or
otherwise limit its ability to deliver Put Notices during such calendar quarter.
The failure by the Company to comply with this provision can be cured by the
Company's notifying Investor at any time as to its reasonable expectations with
respect to the current calendar quarter.
c. Interest. It is the intention of the parties that any interest that may be
deemed to be payable under this Agreement shall not exceed the maximum amount
permitted under any applicable law. If a law, which applies to this Agreement
which sets the maximum interest amount, is finally interpreted so that the
interest in connection with this Agreement exceeds the permitted limits, then:
(1) any such interest shall be reduced by the amount necessary to reduce the
interest to the legally permitted limit; and (2) any sums already collected (if
any) from the Company which exceed the legally permitted limits will be refunded
to the Company. The Investor may choose to make this refund by reducing the
amount that the Company owes under this Agreement or by making a direct payment
to the Company. If a refund reduces the amount that the Company owes the
Investor, the reduction will be treated as a partial payment. In case any
provision of this Agreement is held by a court of competent jurisdiction to be
excessive in scope or otherwise invalid or unenforceable, such provision shall
be adjusted rather than voided, if possible, so that it is enforceable to the
maximum extent possible, and the validity and enforceability of the remaining
provisions of this Agreement will not in any way be affected or impaired
thereby.
d. INVESTOR'S OBLIGATION TO PURCHASE SHARES. Subject to the conditions set forth
in this Agreement, following the Investor's receipt of a validly delivered Put
Notice, the Investor shall be required to purchase from the Company during the
related Pricing Period that number of Shares having an aggregate Purchase Price
equal to the lesser of (i) the Put Amount set forth in the Put Notice, and
(ii) 20% of the aggregate trading volume of the Common Stock during the
applicable Pricing Period times (x) 95% of the average of (4) lowest closing bid
prices of the Company's Common Stock during the specified Pricing Period, but
only if said Shares bear no restrictive legend, are not subject to stop transfer
instructions and are being held in escrow, pursuant to Section 2(h), prior to
the applicable Closing Date. No put shall exceed $100,000.
e. Limitation on Investor's Obligation to Purchase Shares. In no event shall the
Investor purchase Shares other than pursuant to this Agreement until such date
as this Agreement is terminated.
f. Conditions to Investor's Obligation to Purchase Shares. Notwithstanding
anything to the contrary in this Agreement, the Company shall not be entitled to
deliver a Put Notice and the Investor shall not be obligated to purchase any
Shares at a Closing (as defined in Section 2(h)) unless each of the following
conditions are satisfied:
(i) a Registration Statement shall have been declared effective and shall remain
effective and available for the resale of all the Registrable Securities (as
defined in the Registration Rights Agreement) at all times until the Closing
with respect to the subject Put Notice;
(ii) at all times during the period beginning on the related Put Notice Date and
ending on and including the related Closing Date, the Common Stock shall have
been listed on the Principal Market and shall not have been suspended from
trading thereon for a period of five (5) consecutive Trading Days during the
Open Period and the Company shall not have been notified of any pending or
threatened proceeding or other action to delist or suspend the Common Stock;
(iii) the Company has complied with its obligations and is otherwise not in
breach of a material provision of, or in default under, this Agreement, the
Registration Rights Agreement or any other agreement executed in connection
herewith which has not been corrected prior to delivery of the Put Notice Date;
(iv) no injunction shall have been issued and remain in force, or action
commenced by a governmental authority which has not been stayed or abandoned,
prohibiting the purchase or the issuance of the Securities; and
(v) the issuance of the Securities will not violate the shareholder approval
requirements of the Principal Market.
If any of the events described in clauses (i) through (v) above occurs during a
Pricing Period, then the Investor shall have no obligation to purchase the Put
Amount of Common Stock set forth in the applicable Put Notice.
g. For purposes of this Agreement, a "MAJOR TRANSACTION" shall be deemed to have
occurred upon the closing of any of the following events: (i) the consolidation,
merger or other business combination of the Company with or into another person
(other than pursuant to a migratory merger effected solely for the purposes of
changing the jurisdiction of incorporation of the Company or other than a
transaction in which the Company is the surviving corporation) (ii) the sale or
transfer of all or substantially all of the Company's assets; or (iii) the
consummation of a purchase, tender or exchange offer made to, and accepted by,
the holders of more than 30% of the economic interest in, or the combined voting
power of all classes of voting stock of, the Company.
h. Mechanics of Purchase of Shares by Investor. Subject to the satisfaction of
the conditions set forth in Sections 2(f), 7 and 8, the closing of the purchase
by the Investor of Shares (a "CLOSING") shall occur on the date which is Seven
(7) Trading Days following the applicable Put Notice Date or when deemed close
by the investor. (each a "CLOSING DATE") Prior to each Closing Date, (i) the
Company shall deliver to the Investor, certificates representing the Shares to
be issued to the Investor on such date and registered in the name of the
Investor and (ii) the Investor shall deliver to the Company the Purchase Price
to be paid for such Shares (after Investor has received such Shares), determined
as set forth in Section 2(b) and (d), by wire transfer. The Company shall
instruct the transfer agent to send the certificate via overnight delivery and
supply the tracking number and amount of shares to Investor via E-mail. In lieu
of delivering physical certificates representing the Securities and provided
that the Company's transfer agent then is participating in The Depository Trust
Company ("DTC") Fast Automated Securities Transfer ("FAST") program, upon
request of the Investor, the Company shall use its commercially reasonable
efforts to cause its transfer agent to electronically transmit the Securities by
crediting the account of the Investor's prime broker (which shall be specified
by the Investor a reasonably sufficient time in advance) with DTC through its
Deposit Withdrawal Agent Commission ("DWAC") system.
The Company understands that a delay in the issuance of Securities beyond the
Closing Date could result in economic loss to the Investor. After the Effective
Date, as compensation to the Investor for such loss, the Company agrees to pay
late payments to the Investor for late issuance of Securities (delivery of
Securities after the applicable Closing Date) in accordance with the following
schedule (where "No. of Days Late" is defined as the number of days beyond the
Closing Date):
Late Payment For Each
No. of Days Late $10,000 of Common Stock
1 $10
2 $20
3 $30
4 $40
5 $50
6 $60
7 $70
8 $80
9 $90
10 $100
Over 10 $100 + $100 for each
Business Day late beyond 10
The Company shall pay any payments incurred under this Section in immediately
available funds upon demand. Nothing herein shall limit the Investor's right to
pursue actual damages for the Company's failure to issue and deliver the
Securities to the Investor, except to the extent that such late payments shall
constitute payment for and offset any such actual damages alleged by the
Investor, and any Buy In Adjustment Amount.
i. Reserved.
j. Overall Limit on Common Stock Issuable. Notwithstanding anything contained
herein to the contrary, if during the Open Period the Company becomes listed on
an exchange that limits the number of shares of Common Stock that may be issued
without shareholder approval, then the number of Shares issuable by the Company
and purchasable by the Investor, including the shares of Common Stock issuable
to the Investors pursuant to Section 11(b), shall not exceed that number of the
shares of Common Stock that may be issuable without shareholder approval,
subject to appropriate adjustment for stock splits, stock dividends,
combinations or other similar recapitalization affecting the Common Stock (the
"MAXIMUM COMMON STOCK ISSUANCE"), unless the issuance of Shares, including any
Common Stock to be issued to the Investors pursuant to Section 11(b), in excess
of the Maximum Common Stock Issuance shall first be approved by the Company's
shareholders in accordance with applicable law and the By-laws and Articles of
Incorporation of the Company, if such issuance of shares of Common Stock could
cause a delisting on the Principal Market. The parties understand and agree that
the Company's failure to seek or obtain such shareholder approval shall in no
way adversely affect the validity and due authorization of the issuance and sale
of Securities or the Investor's obligation in accordance with the terms and
conditions hereof to purchase a number of Shares in the aggregate up to the
Maximum Common Stock Issuance limitation, and that such approval pertains only
to the applicability of the Maximum Common Stock Issuance limitation provided in
this Section 2(j).
3. INVESTOR'S REPRESENTATIONS, WARRANTIES AND COVENANTS.
The Investor represents and warrants to the Company, and covenants, that:
a. Sophisticated Investor. The Investor has, by reason of its business and
financial experience, such knowledge, sophistication and experience in financial
and business matters and in making investment decisions of this type that it is
capable of (A) evaluating the merits and risks of an investment in the
Securities and making an informed investment decision, (B) protecting its own
interest and (C) bearing the economic risk of such investment for an indefinite
period of time.
b. Authorization; Enforcement. This Agreement has been duly and validly
authorized, executed and delivered on behalf of the Investor and is a valid and
binding agreement of the Investor enforceable against the Investor 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.
c. Section 9 of the 1934 Act. During the Open Period, the Investor will comply
with the provisions of Section 9 of the 1934 Act, and the rules promulgated
thereunder, with respect to transactions involving the Common Stock. The
Investor agrees not to short, either directly or indirectly through its
affiliates, principals or advisors, the Company's common stock during the term
of this Agreement, however, it shall not be deemed a short if the Investor sells
common stock after the delivery of the Put Notice from the Company.
d. Accredited Investor. Investor is an "Accredited Investor" as that term is
defined in Rule 501(a)(3) of Regulation D of the 1933 Act.
e. No Conflicts. The execution, delivery and performance of the Transaction
Documents by the Investor and the consummation by the Investor of the
transactions contemplated hereby and thereby will not result in a violation of
the Articles of Incorporation, the By-laws or other organizational documents of
the Investor.
f. The Investor has had an opportunity to discuss the business, management and
financial affairs of the Company with the Company's management and the Investor
has received all documents it has requested from the Company as of the date of
this Agreement;
g. INVESTMENT PURPOSES. The Investor is purchasing the Securities for its own
account for investment purposes and not with a view towards distribution and
agrees to resell or otherwise dispose of the Securities solely in accordance
with the registration provisions of the 1933 Act (or pursuant to an exemption
from such registration provisions).
h. NO REGISTRATION AS A DEALER. The Investor is not and will not be required to
be registered as a "dealer" under the 1934 Act, either as a result of its
execution and performance of its obligations under this Agreement or otherwise.
i. THE INVESTOR IS A LIMITED PARTNERSHIP, duly organized, validly existing in
good standing in the State of Delaware.
j. THE INVESTOR UNDERSTANDS IT IS LIABLE FOR IT OWN TAX LIABILITIES.
k. THE INVESTOR WILL COMPLY WITH REGULATION M UNDER THE 1934, IF APPLICABLE.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
Except as set forth in the Schedules attached hereto, the Company represents and
warrants to the Investor that:
a. Organization and Qualification. The Company is a corporation duly organized
and validly existing in good standing under the laws of its jurisdiction, and
has the requisite corporate power and authorization to own its properties and to
carry on its 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
would not have a Material Adverse Effect. As used in this Agreement, "MATERIAL
ADVERSE EFFECT" means any material adverse effect on the business, properties,
assets, operations, results of operations, financial condition or prospects of
the Company and its Subsidiaries, if any, taken as a whole, or on the
transactions contemplated hereby or by the agreements and instruments to be
entered into in connection herewith, or on the authority or ability of the
Company to perform its obligations under the Transaction Documents (as defined
in Section 1 and 4(b)below). The Company has no subsidiaries.
b. Authorization; Enforcement; Compliance with Other Instruments. (i) The
Company has the requisite corporate power and authority to enter into and
perform this Agreement, the Registration Rights Agreement, and each of the other
agreements entered into by the parties hereto in connection with the
transactions contemplated by 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 reservation for issuance and the
issuance of the Securities pursuant to this Agreement, have been duly and
validly 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) the Transaction Documents have been duly and validly
executed and delivered by the Company, and (iv) the Transaction Documents
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.
c. Capitalization. As of the date hereof, the authorized capital stock of the
Company consists of (i) 100,000,000 shares of Common Stock, no par value per
share, of which as of the date hereof, 12,684,202 shares are issued and
outstanding; (as of March 1, 2004) shares of Common Stock are issuable upon the
exercise of options, warrants and conversion rights. 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 4(c) which is attached hereto
and made a part hereof, (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 shares of capital stock, options,
warrants, scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into, any shares of
capital stock of the Company or any of its Subsidiaries, or contracts,
commitments, understandings or arrangements by which the Company or any of its
Subsidiaries is or may become bound to issue additional shares of capital stock
of the Company or any of its Subsidiaries or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company or any of its Subsidiaries, (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), (v) there are no outstanding securities 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,
(vii) the Company does not have any stock appreciation rights or "phantom stock"
plans or agreements or any similar plan or agreement and (viii) there is no
dispute as to the class of any shares of the Company's capital stock. The
Company has furnished to the Investor, or the Investor has had access through
▇▇▇▇▇ to, true and correct copies of the Company's Articles of Incorporation, as
in effect on the date hereof (the "ARTICLES OF INCORPORATION"), and the
Company's By-laws, as in effect on the date hereof (the "BY-LAWS '), and the
terms of all securities convertible into or exercisable for Common Stock and the
material rights of the holders thereof in respect thereto.
d. Issuance of Shares. A sufficient number of Shares issuable pursuant to this
Agreement has been duly authorized and reserved for issuance (subject to
adjustment pursuant to the Company's covenant set forth in Section 5(f) below)
pursuant to this Agreement. Upon issuance in accordance with this Agreement, the
Securities will be validly issued, fully paid and nonassessable and free from
all taxes, and liens with respect to the issue thereof. In the event the Company
cannot register a sufficient number of Shares, due to the remaining number of
authorized shares of Common Stock being insufficient, the Company will use its
best efforts to register the maximum number of shares it can based on the
remaining balance of authorized shares and will use its best efforts to increase
the number of its authorized shares as soon as reasonably practicable.
e. No Conflicts. 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 will not (i) result in a violation of the
Articles of Incorporation, 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 material default (or an event
which with notice or lapse of time or both would become a material default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any material agreement, contract, indenture mortgage,
indebtedness 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 United States federal and state securities laws and
regulations and the rules and regulations of the Principal Market or principal
securities exchange or trading market on which the Common Stock is traded or
listed) applicable to the Company or any of its Subsidiaries or by which any
property or asset of the Company or any of its Subsidiaries is bound or
affected. Except as disclosed in Schedule 4(e), neither the Company nor its
Subsidiaries is in violation of any term of, or in default under, the Articles
of Incorporation, any Certificate of Designations, Preferences and Rights of any
outstanding series of preferred stock of the Company or the By-laws or their
organizational charter or by-laws, respectively, or any contract, agreement,
mortgage, indebtedness, indenture, instrument, judgment, decree or order or any
statute, rule or regulation applicable to the Company or its Subsidiaries,
except for possible conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations that would not individually or in
the aggregate have a Material Adverse Effect. The business of the Company is not
being conducted, and shall not be conducted, in violation of any law, statute,
ordinance, rule, order or regulation of any governmental authority or agency,
regulatory or self-regulatory agency, or court, except for possible violations
the sanctions for which either individually or in the aggregate would not have a
Material Adverse Effect. Except as specifically contemplated by this Agreement
and as required under the 1933 Act, the Company is not required to obtain any
consent, authorization, permit or order of, or make any filing or registration
(except the filing of a registration statement and filings to comply with Blue
Sky requirements) with, any court, governmental authority or agency, regulatory
or self-regulatory agency or other third party 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. All
consents, authorizations, permits, orders, filings and registrations which the
Company is required to obtain pursuant to the preceding sentence have been
obtained or effected on or prior to the date hereof and are in full force and
effect as of the date hereof. Except as disclosed in Schedule 4(e), the Company
and its Subsidiaries are unaware of any facts or circumstances which might give
rise to any of the foregoing. The Company is not, and will not be, in violation
of the listing requirements of the Principal Market as in effect on the date
hereof and on each of the Closing Dates and is not aware of any facts which
would reasonably lead to delisting of the Common Stock by the Principal Market
in the foreseeable future.
f. SEC Documents; Financial Statements. Since at least January 1999, the Company
has 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"). The Company has delivered to the Investor or its representatives,
or they have had access through ▇▇▇▇▇ to, true and complete copies of the SEC
Documents. As of their respective dates, 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,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading. As of
their respective dates, 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). No other written
information provided by or on behalf of the Company to the Investor which is not
included in the SEC Documents, including, without limitation, information
referred to in Section 4(d) of this Agreement, contains any untrue statement of
a material fact or omits to state any material fact necessary to make the
statements therein, in the light of the circumstance under which they are or
were made, not misleading. Neither the Company nor any of its Subsidiaries or
any of their officers, directors, employees or agents have provided the Investor
with any material, nonpublic information which was not publicly disclosed prior
to the date hereof and any material, nonpublic information provided to the
Investor by the Company or its Subsidiaries or any of their officers, directors,
employees or agents prior to any Closing Date shall be publicly disclosed by the
Company prior to such Closing Date.
g. Absence of Certain Changes. Except as disclosed in Schedule 4(g), the Company
does not intend to change the business operations of the Company. 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 its
Subsidiaries have any knowledge or reason to believe that its creditors intend
to initiate involuntary bankruptcy proceedings.
h. Absence of Litigation. Except as set forth in Schedule 4(h), 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 executive officers of 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, in which an
adverse decision could have a Material Adverse Effect.
i. Acknowledgment Regarding Investor's Purchase of Shares. The Company
acknowledges and agrees that the Investor 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 Investor 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
Investor or any of its respective representatives or agents in connection with
the Transaction Documents and the transactions contemplated hereby and thereby
is merely incidental to the Investor's purchase of the Securities. The Company
further represents to the Investor 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.
j. No Undisclosed Events, Liabilities, Developments or Circumstances. Since June
30, 2003, no event, liability, development or circumstance has occurred or
exists, or to the Company's knowledge is contemplated to occur, with respect to
the Company or its Subsidiaries or their respective business, properties,
assets, prospects, operations or financial condition, that would be required to
be disclosed by the Company under applicable securities laws on a registration
statement filed with the SEC relating to an issuance and sale by the Company of
its Common Stock and which has not been publicly announced.
k. Employee Relations. Neither the Company nor any of its Subsidiaries is
involved in any union labor dispute nor, to the knowledge of the Company or any
of its Subsidiaries, is any such dispute threatened. Neither the Company nor any
of its Subsidiaries is a party to a collective bargaining agreement, and the
Company and its Subsidiaries believe that relations with their employees are
good. No executive officer (as defined in Rule 501(f) of the ▇▇▇▇ ▇▇▇) has
notified the Company that such officer intends to leave the Company's employ or
otherwise terminate such officer's employment with the Company.
l. Intellectual Property Rights. The Company and its Subsidiaries own or possess
adequate rights or licenses to use all 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 4(l), none of the Company's 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 necessary to conduct its
business as now or as proposed to be conducted have expired or terminated, or
are expected to 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 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 4(l), 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; and the Company and its Subsidiaries are unaware of any
facts or circumstances which might give rise to any of the foregoing. The
Company and its Subsidiaries have taken reasonable security measures to protect
the secrecy, confidentiality and value of all of their intellectual properties.
m. Environmental Laws. The Company (i) is in compliance with any and all
applicable foreign, federal, state and local laws and regulations relating to
the protection of human health and safety, the environment or hazardous or toxic
substances or wastes, pollutants or contaminants ("ENVIRONMENTAL LAWS"), (ii)
have received all permits, licenses or other approvals required of them under
applicable Environmental Laws to conduct their respective businesses and (iii)
are in compliance with all terms and conditions of any such permit, license or
approval where, in each of the three foregoing cases, the failure to so comply
would have, individually or in the aggregate, a Material Adverse Effect.
n. Title. The Company has 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 4(n) 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 Any real property and
facilities held under lease by the Company are held by it 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.
o. 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 reasonably 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 have a Material Adverse Effect.
p. Regulatory Permits. The Company and its Subsidiaries have in full force and
effect all certificates, approvals, authorizations and permits from the
appropriate federal, state, local or foreign regulatory authorities and
comparable foreign regulatory agencies, necessary to own, lease or operate their
respective properties and assets and 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,
approval, authorization or permit, except for such certificates, approvals,
authorizations or permits which if not obtained, or such revocations or
modifications which, would not have a Material Adverse Effect.
q. Internal Accounting Controls. The Company and each of its Subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
management's general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain asset accountability,
(iii) access to assets is permitted only in accordance with management's general
or specific authorization and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
r. No Materially Adverse Contracts, Etc. Neither the Company nor any of its
Subsidiaries is subject to any charter, corporate or other legal restriction, or
any judgment, decree, order, rule or regulation which in the judgment of the
Company's officers has or is expected in the future to have a Material Adverse
Effect. Neither the Company nor any of its Subsidiaries is a party to any
contract or agreement which in the judgment of the Company's officers has or is
expected to have a Material Adverse Effect.
s. Tax Status. The Company has made or filed all United States federal and state
income and all other tax returns, reports and declarations required by any
jurisdiction to which it is subject (unless and only to the extent that the
Company 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.
t. Certain Transactions. Except as set forth on Schedule 4(t) and in the SEC
Documents filed at least ten days prior to the date hereof and except for arm's
length transactions pursuant to which the Company makes payments in the ordinary
course of business upon terms no less favorable than the Company could obtain
from third parties and except for transactions that do not exceed $10,000 in one
year, and other than the grant of stock options disclosed on Schedule 4(c), none
of the officers, directors, or employees of the Company is presently a party to
any transaction with the Company (other than for services as employees, officers
and directors), including any contract, agreement or other arrangement providing
for the furnishing of services to or by, providing for rental of real or
personal property to or from, or otherwise requiring payments to or from any
officer, director or such employee or, to the knowledge of the Company, any
corporation, partnership, trust or other entity in which any officer, director,
or any such employee has a substantial interest or is an officer, director,
trustee or partner.
u. Dilutive Effect. The Company understands and acknowledges that the number of
shares of Common Stock issuable upon purchases pursuant to this Agreement will
increase in certain circumstances including, but not necessarily limited to, the
circumstance wherein the trading price of the Common Stock declines during the
period between the Effective Date and the end of the Open Period. The Company's
executive officers and directors have studied and fully understand the nature of
the transactions contemplated by this Agreement and recognize that they have a
potential dilutive effect. The board of directors of the Company has concluded,
in its good faith business judgment that such issuance is in the best interests
of the Company. The Company specifically acknowledges that, subject to such
limitations as are expressly set forth in the Transaction Documents, its
obligation to issue shares of Common Stock upon purchases pursuant to this
Agreement is absolute and unconditional regardless of the dilutive effect that
such issuance may have on the ownership interests of other shareholders of the
Company.
v. No General Solicitation. Neither the Company, nor any of its affiliates, nor
any person acting on its behalf, has engaged in any form of general solicitation
or general advertising (within the meaning of Regulation D) in connection with
the offer or sale of the Common Stock offered hereby.
w. NO FINDERS OR FINANCIAL ADVISORY FEES will be paid by the Company to the
Investor with respect to the transactions contemplated by this Agreement.
5. COVENANTS OF THE COMPANY
a. Best Efforts. The Company shall use its best efforts timely to satisfy each
of the conditions to be satisfied by it as provided in Section 7 of this
Agreement.
b. Blue Sky. The Company shall, at its sole cost and expense, on or before each
of the Closing Dates, take such action as the Company shall reasonably determine
is necessary to qualify the Securities for, or obtain exemption for the
Securities for, sale to the Investor at each of the Closings pursuant to this
Agreement under applicable securities or "Blue Sky" laws of such states of the
United States, as reasonably specified by Investor, and shall provide evidence
of any such action so taken to the Investor on or prior to the Closing Date. The
Company shall, at its sole cost and expense, make all filings and reports
relating to the offer and sale of the Securities required under the applicable
securities or "Blue Sky" laws of such states of the United States following each
of the Closing Dates.
c. Reporting Status. Until the earlier to occur of (i) the first date which is
after the date this Agreement is terminated pursuant to Section 9 and on which
the Holders (as that term is defined in the Registration Rights Agreement) may
sell all of the Securities without restriction pursuant to Rule 144(k)
promulgated under the 1933 Act (or successor thereto), and (ii) the date on
which (A) the Holders shall have sold all the Securities and (B) this Agreement
has been terminated pursuant to Section 9 (the "REGISTRATION PERIOD"), the
Company shall file all reports required to be filed with the SEC pursuant to the
1934 Act, and the Company shall not terminate its status as a reporting company
under the 1934 Act.
d. Use of Proceeds. The Company will use the proceeds from the sale of the
Shares (excluding amounts paid by the Company for fees as set forth in the
Transaction Documents) for general corporate and working capital purposes or
other appropriate uses as approved by the Company's Board of Directors.
e. Financial Information. The Company agrees to make available to the Investor
via ▇▇▇▇▇ or other electronic means the following to the Investor during the
Registration Period: (i) within five (5) Trading Days after the filing thereof
with the SEC, a copy of its Annual Reports on Form 10-KSB, its Quarterly Reports
on Form 10-QSB, any Current Reports on Form 8-K and any Registration Statements
or amendments filed pursuant to the 1933 Act; (ii) on the same day as the
release thereof, facsimile copies of all press releases issued by the Company or
any of its Subsidiaries, (iii) copies of any notices and other information made
available or given to the shareholders of the Company generally,
contemporaneously with the making available or giving thereof to the
shareholders and (iv) within two (2) calendar days of filing or delivery
thereof, copies of all documents filed with, and all correspondence sent to, the
Principal Market, any securities exchange or market, or the National Association
of Securities Dealers, Inc., unless such information is material nonpublic
information.
f. Reservation of Shares. Subject to the following sentence, the Company shall
take all action necessary to at all times have authorized, and reserved for the
purpose of issuance, a sufficient number of shares of Common Stock to provide
for the issuance of the Securities hereunder. In the event that the Company
determines that it does not have a sufficient number of authorized shares of
Common Stock to reserve and keep available for issuance as described in this
Section 5(f), the Company shall use its best efforts to increase the number of
authorized shares of Common Stock by seeking shareholder approval for the
authorization of such additional shares.
g. Listing. The Company shall promptly secure and maintain the listing of all of
the Registrable Securities (as defined in the Registration Rights Agreement)
upon the Principal Market and each other 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, such listing
of all Registrable 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 which would be reasonably expected to
result in the delisting or suspension of the Common Stock on the Principal
Market (excluding suspensions of not more than one trading day resulting from
business announcements by the Company). The Company shall promptly provide to
the Investor 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 5(g).
h. Reserved.
i. Filing of Form 8-K. On or before the date which is three (3) Trading Days
after the Execution Date, the Company shall file a Current Report on Form 8-K
with the SEC describing the terms of the transaction contemplated by the
Transaction Documents in the form required by the 1934 Act, if such filing is
required.
j. Corporate Existence. The Company shall use its best efforts to preserve and
continue the corporate existence of the Company.
k. Notice of Certain Events Affecting Registration; Suspension of Right to Make
a Put. The Company shall promptly notify Investor upon the occurrence of any of
the following events in respect of a Registration Statement or related
prospectus in respect of an offering of the Securities: (i) receipt of any
request for additional information by the SEC or any other federal or state
governmental authority during the period of effectiveness of the Registration
Statement for amendments or supplements to the Registration Statement or related
prospectus; (ii) the issuance by the SEC or any other federal or state
governmental authority of any stop order suspending the effectiveness of any
Registration Statement or the initiation of any proceedings for that purpose;
(iii) receipt of any notification with respect to the suspension of the
qualification or exemption from qualification of any of the Securities for sale
in any jurisdiction or the initiation or threatening of any proceeding for such
purpose; (iv) the happening of any event that makes any statement made in such
Registration Statement or related prospectus or any document incorporated or
deemed to be incorporated therein by reference untrue in any material respect or
that requires the making of any changes in the Registration Statement, related
prospectus or documents so that, in the case of a Registration Statement, it
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, and that in the case of the related prospectus, it will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; and (v) the Company's reasonable determination that a post-effective
amendment to the Registration Statement would be appropriate, and the Company
shall promptly make available to Investor any such supplement or amendment to
the related prospectus. The Company shall not deliver to Investor any Put Notice
during the continuation of any of the foregoing events.
6. COVER. If the number of Shares represented by any Put Notices become
restricted or are no longer freely trading for any reason, and after the
applicable Closing Date, the Investor purchases, in an open market transaction
or otherwise, the Company's Common Stock (the "Covering Shares") in order to
make delivery in satisfaction of a sale of Common Stock by the Investor (the
"Sold Shares"), which delivery such Investor anticipated to make using the
Shares represented by the Put Notice (a "Buy-In"), the Company shall pay to the
Investor the Buy-In Adjustment Amount (as defined below). The "Buy-In Adjustment
Amount" is the amount equal to the excess, if any, of (a) the Investor's total
purchase price (including brokerage commissions, if any) for the Covering Shares
over (b) the net proceeds (after brokerage commissions, if any) received by the
Investor from the sale of the Sold Shares. The Company shall pay the Buy-In
Adjustment Amount to the Investor in immediately available funds immediately
upon demand by the Investor. By way of illustration and not in limitation of the
foregoing, if the Investor purchases Common Stock having a total purchase price
(including brokerage commissions) of $11,000 to cover a Buy-In with respect to
the Common Stock it sold for net proceeds of $10,000, the Buy-In Adjustment
Amount which the Company will be required to pay to the Investor will be $1,000
7. CONDITIONS OF THE COMPANY'S OBLIGATION TO SELL.
The obligation hereunder of the Company to issue and sell the Securities to the
Investor is further subject to the satisfaction, at or before each Closing Date,
of each of the following conditions set forth below. These conditions are for
the Company's sole benefit and may be waived by the Company at any time in its
sole discretion.
a. The Investor shall have executed each of this Agreement and the Registration
Rights Agreement and delivered the same to the Company.
b. The Investor shall have delivered to the Investor the Purchase Price for the
Securities being purchased by the Investor at the Closing (after receipt of
confirmation of delivery of such Securities) by wire transfer of immediately
available funds pursuant to the wire instructions provided by the Investor.
c. The representations and warranties of the Investor shall be true and correct
as of the date when made and as of the applicable Closing Date as though made at
that time (except for representations and warranties that speak as of a specific
date), and the Investor 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 Investor at or prior to such
Closing Date.
d. No statute, rule, regulation, executive order, decree, ruling or injunction
shall have been enacted, entered, promulgated or endorsed by any court or
governmental authority of competent jurisdiction which prohibits the
consummation of any of the transactions contemplated by this Agreement.
e. No Valuation Event shall have occurred since the applicable Put Notice Date.
8. FURTHER CONDITIONS OF THE INVESTOR'S OBLIGATION TO PURCHASE.
The obligation of the Investor hereunder to purchase Shares is subject to the
satisfaction, on or before each Closing Date, of each of the following
conditions set forth below.
a. The Company shall have executed each of the Transaction Documents and
delivered the same to the Investor.
b. The Common Stock shall be authorized for quotation on the Principal Market
and trading in the Common Stock shall not have been suspended by the Principal
Market or the SEC, at any time beginning on the date hereof and through and
including the respective Closing Date (excluding suspensions of not more than
one Trading Day resulting from business announcements by the Company, provided
that such suspensions occur prior to the Company's delivery of the Put Notice
related to such Closing).
c. The representations and warranties of the Company shall be true and correct
as of the date when made and as of the applicable Closing Date as though made at
that time (except for (i) representations and warranties that speak as of a
specific date and (ii) with respect to the representations made in Sections
4(g), (h) and (j) and the third sentence of Section 4(k) hereof, events which
occur on or after the date of this Agreement and are disclosed in SEC filings
made by the Company at least ten (10) Trading Days prior to the applicable Put
Notice 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 on or before such
Closing Date. The Investor may request an update as of such Closing Date
regarding the representation contained in Section 4(c) above.
d. reserved
e. The Company shall have executed and delivered to the Investor the
certificates representing, or have executed electronic book-entry transfer of,
the Securities (in such denominations as such Investor shall request) being
purchased by the Investor at such Closing.
f. The Board of Directors of the Company shall have adopted resolutions
consistent with Section 4(b)(ii) above (the "RESOLUTIONS") and such Resolutions
shall not have been amended or rescinded prior to such Closing Date.
g. reserved
h. No statute, rule, regulation, executive order, decree, ruling or injunction
shall have been enacted, entered, promulgated or endorsed by any court or
governmental authority of competent jurisdiction which prohibits the
consummation of any of the transactions contemplated by this Agreement.
i. The Registration Statement shall be effective on each Closing Date and no
stop order suspending the effectiveness of the Registration statement shall be
in effect or shall be pending or threatened. Furthermore, on each Closing Date
(i) neither the Company nor Investor shall have received notice that the SEC has
issued or intends to issue a stop order with respect to such Registration
Statement or that the SEC otherwise has suspended or withdrawn the effectiveness
of such Registration Statement, either temporarily or permanently, or intends or
has threatened to do so (unless the SEC's concerns have been addressed and
Investor is reasonably satisfied that the SEC no longer is considering or
intends to take such action), and (ii) no other suspension of the use or
withdrawal of the effectiveness of such Registration Statement or related
prospectus shall exist.
j. At the time of each Closing, the Registration Statement (including
information or documents incorporated by reference therein) and any amendments
or supplements thereto shall not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading or which would require public
disclosure or an update supplement to the prospectus.
k. If applicable, the shareholders of the Company shall have approved the
issuance of any Shares in excess of the Maximum Common Stock Issuance in
accordance with Section 2(j).
l. The conditions to such Closing set forth in Section 2(f) shall have been
satisfied on or before such Closing Date.
m. The Company shall have certified to the Investor the number of shares of
Common Stock outstanding as of a date within ten (10) Trading Days prior to such
Closing Date.
n. The Company shall have delivered to such Investor such other documents
relating to the transactions contemplated by this Agreement as such Investor or
its counsel may reasonably request upon reasonable advance notice.
o. On or before the execution of this Agreement, the Company shall have a draft
of the Registration Statement covering the Securities.
9. TERMINATION. This Agreement shall terminate upon any of the following events:
(i) when the Investor has purchased an aggregate of $5,000,000 in the Common
Stock of the Company pursuant to this Agreement; provided that the Company's
representations, warranties and covenants contained in this Agreement insofar as
applicable to the transactions consummated hereunder prior to such termination,
shall survive the termination of this Agreement for the period of any applicable
statute of limitations,
(ii) on the date which is 36 (thirty-six) months after the Effective Date;
(iii) the trading of the Common Stock is suspended by the SEC, the Principal
Market or the NASD for a period of five (5) consecutive Trading Days during the
Open Period;
(iv) the Company shall not have filed with the SEC the initial Registration
Statement with respect to the resale of the Registrable Securities in accordance
with the terms of the initial Registration Rights Agreement within One Hundred
and twenty (120) calendar days of the date hereof or the Registration Statement
has not been declared effective within one hundred eighty (180) calendar days of
the date hereof; or
(v) The Common Stock ceases to be registered under the 1934 Act or listed or
traded on the Principal Market; or Upon the occurrence of one of the
above-described events, the Company shall send written notice of such event to
the Investor.
10. INDEMNIFICATION. In consideration of the Investor's execution and delivery
of the this Agreement and the Registration Rights Agreement and acquiring the
Shares 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 Investor and all of their shareholders, officers, directors,
employees, counsel, 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 (i) 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
(ii) 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, (iii) any cause of action, suit or
claim brought or made against such Indemnitee by a third party and arising out
of or resulting from the execution, delivery, performance or enforcement of the
Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby, (iv) any transaction financed or to be financed
in whole or in part, directly or indirectly, with the proceeds of the issuance
of the Securities or (v) the status of the Investor or holder of the Securities
as an investor in the Company, except insofar as any such misrepresentation,
breach or any untrue statement, alleged untrue statement, omission or alleged
omission is made in reliance upon and in conformity with written information
furnished to the Company by the Investor which is specifically intended by the
Investor for use in the preparation of any such Registration Statement,
preliminary prospectus or prospectus or based on illegal or alleged illegal
trading of the Shares by the Investor. 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. The
indemnity provisions contained herein shall be in addition to any cause of
action or similar rights the Investor may have, and any liabilities the Investor
may be subject to.
11. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law. This Agreement shall be governed by and interpreted in
accordance with the laws of the Commonwealth of Massachusetts without regard to
the principles of conflict of laws. Each party hereby irrevocably submits to the
exclusive jurisdiction of the state and federal courts sitting in the City of
Boston, County of Suffolk, for the adjudication of any dispute hereunder or in
connection herewith 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.
If any provision of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement in that jurisdiction or the
validity or enforceability of any provision of this Agreement in any other
jurisdiction.
b. Legal Fees;
(i) Except as otherwise set forth in the Transaction Documents, each party shall
pay the fees and expenses of its advisers, counsel, the accountants and other
experts, if any, and all other expenses incurred by such party incident to the
negotiation, preparation, execution, delivery and performance of this Agreement.
Any attorneys' fees and expenses incurred by either the Company or by the
Investor in connection with the preparation, negotiation, execution and delivery
of any amendments to this Agreement or relating to the enforcement of the rights
of any party, after the occurrence of any breach of the terms of this Agreement
by another party or any default by another party in respect of the transactions
contemplated hereunder, shall be paid on demand by the party which breached the
Agreement and/or defaulted, as the case may be. The Company shall pay all stamp
and other taxes and duties levied in connection with the issuance of any
Securities.
c. 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.
d. Headings; Singular/Plural. The headings of this Agreement are for convenience
of reference and shall not form part of, or affect the interpretation of, this
Agreement. Whenever required by the context of this Agreement, the singular
shall include the plural and masculine shall include the feminine.
e. Severability. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.
f. Entire Agreement; Amendments. This Agreement supersedes all other prior oral
or written agreements between the Investor, the Company, their affiliates and
persons acting on their behalf with respect to the matters discussed herein, and
this Agreement and the instruments referenced herein (including the other
Transaction Documents) 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 Investor makes any
representation, warranty, covenant or undertaking with respect to such matters.
No provision of this Agreement may be amended other than by an instrument in
writing signed by the Company and the Investor, and no provision hereof may be
waived other than by an instrument in writing signed by the party against whom
enforcement is sought.
g. Notices. Any notices 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 (1) day after deposit with a nationally recognized overnight
delivery service, in each case properly addressed to the party to receive the
same. The addresses and facsimile numbers for such communications shall be:
IF TO THE COMPANY:
▇▇▇▇▇ ▇▇▇▇
Chief Executive Officer and Chairman
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
▇▇▇ ▇▇▇▇▇▇▇, Esq.
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
IF TO THE INVESTOR:
▇▇▇▇ ▇▇▇▇▇▇
▇▇ ▇▇▇▇▇▇ ▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Each party shall provide five (5) days' prior written notice to the other party
of any change in address or facsimile number.
h. No Assignment. This Agreement may not be assigned.
i. No Third Party Beneficiaries. This Agreement is intended for the benefit of
the parties hereto and is not for the benefit of, nor may any provision hereof
be enforced by, any other person.
j. Survival. The representations and warranties of the Company and the Investor
contained in Sections 2 and 3, the agreements and covenants set forth in
Sections 4 and 5, and the indemnification provisions set forth in Section 10,
shall survive each of the Closings and the termination of this Agreement.
k. Publicity. The Company and Investor shall consult with each other in issuing
any press releases or otherwise making public statements with respect to the
transactions contemplated hereby and no party shall issue any such press release
or otherwise make any such public statement without the prior consent of the
other parties, which consent shall not be unreasonably withheld or delayed,
except that no prior consent shall be required if such disclosure is required by
law, in which such case the disclosing party shall provide the other parties
with prior notice of such public statement. Notwithstanding the foregoing, the
Company shall not publicly disclose the name of Investor without the prior
written consent of such Investor, except to the extent required by law. Investor
acknowledges that this Agreement and all or part of the Transaction Documents
may be deemed to be "material contracts" as that term is defined by Item
601(b)(10) of Regulation S-K, and that the Company may therefore be required to
file such documents as exhibits to reports or registration statements filed
under the Securities 1933 Act or the 1934 Act. Investor further agrees that the
status of such documents and materials as material contracts shall be determined
solely by the Company, in consultation with its counsel.
l. 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.
m. Placement Agent. The Company agrees to pay U.S. Euro Securities, ("USE") a
registered broker dealer, 1% of the Put Amount on each draw as a fee, until an
aggregate amount of $7,500. USE will also act as an unaffiliated broker dealer.
The Investor shall have no obligation with respect to any fees or with respect
to any claims made by or on behalf of other persons or entities for fees of a
type contemplated in this Section that may be due in connection with the
transactions contemplated by the Transaction Documents. The Company shall
indemnify and hold harmless the Investor, their employees, officers, directors,
agents, and partners, and their respective affiliates, from and against all
claims, losses, damages, costs (including the costs of preparation and
attorney's fees) and expenses incurred in respect of any such claimed or
existing fees, as such fees and expenses are incurred.
n. 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.
o. Remedies. The Investor and each holder of the Shares shall have all rights
and remedies set forth in this Agreement and the Registration Rights Agreement
and all rights and remedies which such holders have been granted at any time
under any other agreement or contract and all of the rights which such holders
have under any law. Any person having any rights under any provision of this
Agreement shall be entitled to enforce such rights specifically (without posting
a bond or other security), to recover damages by reason of any default or breach
of any provision of this Agreement, including the recovery of reasonable
attorneys fees and costs, and to exercise all other rights granted by law.
p. Payment Set Aside. To the extent that the Company makes a payment or payments
to the Investor hereunder or the Registration Rights Agreement or the Investor
enforces or exercises its rights hereunder or thereunder, and such payment or
payments or the proceeds of such enforcement or exercise or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside,
recovered from, disgorged by or are required to be refunded, repaid or otherwise
restored to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
q. Pricing of Common Stock. For purposes of this Agreement, the bid price of the
Common Stock in this Agreement shall be as reported on Bloomberg.
XTREME COMPANIES, INCORPORATED
INVESTMENT AGREEMENT SIGNATURE PAGE
Your signature on this Signature Page evidences your agreement to be bound by
the terms and conditions of the Investment Agreement and the Registration Rights
Agreement.
1. The undersigned signatory hereby certifies that he/she has read and
understands the Investment Agreement, and the representations made by the
undersigned in this Investment Agreement are true and accurate.
PRESTON CAPITAL PARTNERS, LLC
By: /s/ ▇▇▇▇ ▇ ▇▇▇▇▇▇
--------------------
Name: ▇▇▇▇ ▇ ▇▇▇▇▇▇
Title: A Managing Member
XTREME COMPANIES, INCORPORATED
By: /s/ ▇▇▇▇▇ ▇▇▇▇
--------------------
▇▇▇▇▇ ▇▇▇▇, CEO
