Exhibit 99.1
December , 2005
Xx. Xxx Xxxxxxxx
President
Xxxxxxxx Consulting Group, Inc.
000 Xxxxxxx Xxxxxx
Xxxxx 000
Xxxxxxxxxx, Xxx Xxxx 00000
Re: Subscription Agreement
Dear Sirs:
The undersigned (the "Subscriber") hereby subscribes for the number of
Units (the "Units"), each Unit consisting of (a) 25,000 shares of Series A
Convertible Preferred Stock, par value $.0001 per share (the "Series A Preferred
Stock"), of Xxxxxxxx Consulting Group, Inc., a Delaware corporation (the
"Company"), (b) warrants to purchase 85,100 shares of common stock, par value
$0.0001, per share ("Common Stock") of the Company at an exercise price of $1.10
per share and (c) warrants to purchase 85,100 shares of Common Stock at an
exercise price of $1.65 per share (collectively, the "Warrants") as are set
forth on the signature page of this Agreement, at a purchase price shall be
$250,000 per Unit. The total purchase price for the Units is set forth on the
signature page of this Agreement. The shares of Series A Preferred Stock and
Warrants comprising the Units and the shares of common stock, par value $.0001
per share ("Common Stock"), issuable upon conversion of the Series A Preferred
Stock and Warrants (the "Conversion Shares") are referred to collectively as the
"Securities."
1. (a) The Company is offering 47 Units, on a "best efforts, all or none"
basis to accredited investors, as defined in Rule 501 of the Securities and
Exchange Commission (the "Commission") pursuant to the Securities Act of 1933,
as amended (the "Securities Act"). All proceeds from the sale of the Units will
be held in escrow pursuant to an escrow agreement (the "Escrow Agreement")
between the Company and the Esanu Katsky Xxxxxx & Siger, LLP, as Escrow Agent
(the "Escrow Agent"), until the Escrow Agent shall have cleared funds in the
escrow account of $11,750,000, representing the proceeds from the sale of the 47
Units, at which time the proceeds from the sale of the Units shall, on notice
from the Company, be paid to the Company. Subject to Section 1(f) of this
Agreement, if there is not $11,750,000 in cleared funds by the last day of the
Subscription Period, the funds will be returned to the Subscriber without
interest or deduction. Any interest will be paid to the Company. The date on
which the proceeds from the sale of the Units purchased by the Subscriber are
paid to the Company is referred to as the "Closing Date."
(b) The minimum subscription is one Unit for a purchase price of $250,000
per Unit; however, the Company reserves the right to accept subscriptions for
partial Units; provided, however, that in no event will fractional shares of
Series A Preferred Stock or Warrants to purchase fractional shares be issued.
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(c) The Subscription Period is the period ending on December 31, 2005,
which may be extended by the Company on one or more occasions, for a maximum of
45 additional days.
(d) The Subscriber understands and agrees that, after the Company's
receipt of this Agreement, the Company will review the Subscriber's eligibility
and will determine whether to accept or reject this subscription in whole or in
part. The Company may determine to reject this subscription in whole or in part
in its sole and absolute discretion. In making such determination, the Company
may request, and the Subscriber agrees to provide, additional financial and
other information about the Subscriber. If this subscription is accepted in
whole, then the Company will issue the Units subscribed for to the Subscriber.
If this subscription is rejected in whole, this Agreement and any other
subscription materials will be promptly returned to the Subscriber and the
Subscriber's subscription payment will be refunded to the Subscriber without
interest. In that event, the Subscriber and the Company will have no further
rights or claims against each other by virtue of this Agreement. If this
subscription is accepted in part and rejected in part, the Company is authorized
to amend this Agreement to reflect the number of Units for which this
subscription is accepted, and the Company will issue the Units as to which this
subscription is accepted as if this subscription had been accepted in whole.
(e) The Company will pay a brokerage fee to any brokers that introduce
investors to it of not more than 10% of the proceeds raised, and the Company may
pay a non-accountable expense allowance of not more than 3% of the proceeds. The
Company may also issue warrants to purchase, in the aggregate, not more than 9%
of the number of shares which are issuable upon conversion of the preferred
stock purchased by all subscribers. The terms of the warrants to be issued to
the brokers or finders is set forth in Exhibit A to the PPM, as defined in
Section 3(a) of this Agreement.
(f) If a broker deposits the amount of an investor's purchase price net of
the commission and non-accountable expense allowance payable to the broker, for
purposes of determining whether the escrow agent has received $11,750,000, the
escrow agent shall be deemed to have received the gross proceeds from the sale
of those units, and no further commission or non-accountable expense allowance
will be paid to the broker with respect to those units if the Escrow Agent
receives written notice from the Company and the broker, if necessary, setting
forth the gross purchase price and the net purchase price, which shall not be
less than 87% of the gross purchase price and confirming that no cash commission
will be payable with respect to such Units. The Subscriber and the Company
understand that in any purchase where the Escrow Agent receives the purchase
price net of the broker's commission and non-accountable expense allowance, the
purchaser of the Units will pay less for the Units than the purchase price set
forth in the introductory paragraph of this Agreement and the price paid for the
Units by the purchaser may be equal to the net purchase price.
2. The Company represents and warrants to the Subscriber that the issuance
of the Series A Preferred Stock and the issuance of the shares of common stock
issuable upon conversion of the Series A Preferred Stock and exercise of the
Warrants have been duly authorized and reserved for issuance and when issued
pursuant to this Agreement upon payment of the purchase price of the Units or
upon the conversion of the shares of Series A Preferred Stock or exercise of the
Warrants, will be validly issued, fully paid and non-assessable, and that
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the Warrants, when issued pursuant to this Agreement, will constitute the valid,
binding and enforceable obligation of the Company; subject, in each case, to
approval by the Company's stockholders of an amendment to the Company's
certificate of incorporation increasing its authorized Common Stock as described
in the PPM.
3. The Subscriber hereby represents, warrants, covenants and agrees as
follows:
(a) The Subscriber understands that the offer and sale of the Units is
being made only by means of this Agreement and the Company's Confidential
Private Offering Memorandum dated December 9, 2005, including the exhibits
thereto (collectively, the "PPM"), a copy of which has been delivered to and
read and understood by the Subscriber. The Subscriber understands that the
Company has not authorized the use of, and the Subscriber confirms that he is
not relying upon, any other information, written or oral, other than material
contained in this Agreement and in the PPM. The Subscriber is aware that the
purchase of the Shares involves a high degree of risk and that the Subscriber
may sustain, and has the financial ability to sustain, the loss of his or her
entire investment, understands that no assurance can be given that the Company
will be profitable in the future, that there is no active market for the
Company's Series A Preferred Stock, Warrants or Common Stock and there is no
assurance that there will ever be a public market for the Series A Preferred
Stock, Warrants or Common Stock, that the Company may need additional financing
and that the failure of the Company to raise additional funds when required may
have a material adverse effect upon its business. Furthermore, in subscribing
for the Units, the Subscriber acknowledges he or she is not relying upon any
projections or any statements of any kind relating to future revenue, earnings,
operations or cash flow in making an investment in the Units.
(b) The Subscriber represents to the Company that the Subscriber is an
accredited investor within the meaning of Rule 501 of the Commission under the
Securities Act and he or she understands the meaning of the term "accredited
investor." The Subscriber further represents that the Subscriber has such
knowledge and experience in financial and business matters as to enable the
Subscriber to understand the nature and extent of the risks involved in
purchasing the Units. The Subscriber is fully aware that such investments can
and sometimes do result in the loss of the entire investment. The Subscriber has
engaged the Subscriber's own counsel and accountants to the extent that the
Subscriber deems it necessary.
(c) All of the information provided by the Subscriber in the Subscriber's
Confidential Investor Questionnaire is true and correct in all material
respects.
(d) The Subscriber is acquiring the Units pursuant to this Agreement for
investment and not with a view to the sale or distribution thereof, for the
Subscriber's own account and not on behalf of others; has not granted any other
person any interest or participation in or right or option to purchase all or
any portion of the Units; is aware that the Securities are restricted securities
within the meaning of Rule 144 of the Commission under the Securities Act, and
may not be sold or otherwise transferred other than pursuant to an effective
registration statement or an exemption from registration; and understands and
agrees that the certificates for the Securities shall bear the Company's
standard investment legend. The Subscriber understands the meaning of these
restrictions.
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(e) The Subscriber will not transfer any Securities except in compliance
with all applicable federal and state securities laws and regulations, and, in
such connection, the Company may request an opinion of counsel reasonably
acceptable to the Company as to the availability of any exemption.
(f) The Subscriber represents and warrants that no broker or finder was
involved directly or indirectly in connection with the Subscriber's purchase of
the Units pursuant to this Agreement except as disclosed by the Subscriber to
the Company. The Subscriber shall indemnify the Company and hold it harmless
from and against any manner of loss, liability, damage or expense, including
fees and expenses of counsel, resulting from a breach of the Subscriber's
warranty contained in this Section 3(f).
(g) The Subscriber represents and warrants that the address set forth on
the signature page is his or her true and correct address, and understands that
the Company will rely on this representation in making filings under state
securities or blue sky laws.
(h) Exhibit A to this Agreement sets forth the criteria for an accredited
investor. The Subscriber has indicated on the signature page of this Agreement
the criteria on which his or her status as an accredited investor is based. The
Subscriber understands that the Company will reject the Subscriber's
subscription if the Subscriber is not an accredited investor.
4. (a) The Subscriber shall have the registration rights set forth on
Exhibit B to this Agreement.
(b) The Subscriber hereby advises the Company that it desires to have his
or her Registrable Common Stock included in the registration statement provided
for in Section 2(a) of Exhibit B.
5. The Company will call for a meeting of stockholders, and will file
proxy materials with the Commission not later than 30 days after the closing of
Merger, and will schedule such meeting as soon as practical after the Company
may release its proxy material. At the meeting, the stockholders will vote on:
(a) The election of five directors;
(b) The approval of an amendment to the Company's certificate of
incorporation which (a) changes the corporate name to a name determined by the
Company and (b) increases the authorized capital stock to 10,000,000 shares of
preferred stock and 50,000,000 shares of Common Stock.
(c) The approval of the Company's 2005 Long-Term Incentive Plan, covering
2,000,000 shares of Common Stock.
(d) The approval of the selection of an auditing firm reasonably
acceptable to the holders of the Series A Preferred Stock.
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6. (a) This Agreement constitutes the entire agreement between the parties
relating to the subject matter hereof, superseding any and all prior or
contemporaneous oral and prior written agreements, understandings and letters of
intent. This Agreement may not be modified or amended nor may any right be
waived except by a writing which expressly refers to this Agreement, states that
it is a modification, amendment or waiver and is signed by all parties with
respect to a modification or amendment or the party granting the waiver with
respect to a waiver. No course of conduct or dealing and no trade custom or
usage shall modify any provisions of this Agreement. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York
applicable to contracts made and to be performed entirely within such State.
(b) All notices provided for in this Agreement shall be in writing signed
by the party giving such notice, and delivered personally or sent by overnight
courier or messenger against receipt thereof or sent by registered or certified
mail (air mail if overseas), return receipt requested or by telecopier if
receipt of transmission is confirmed by the recipient or if transmission is
confirmed by mail as provided in this Section 6(b). Notices shall be deemed to
have been received on the date of receipt. Notices shall be sent to the Company
at 000 Xxxxxxx Xxxxxx, Xxxxx 000, Xxxxxxxxxx, Xxx Xxxx 00000, facsimile (516)
374-5393, Attention of Xx. Xxx Xxxxxxxx, President, and to Subscriber at the
address and telecopier number set forth on the signature page or to such other
address as either party shall designate in the manner provided in this Section
6(b).
(c) If the Subscriber is a resident of a state set forth in Exhibit C to
this Agreement or if the Subscriber negotiates the purchase of the Units from or
receives this Agreement while in Florida, the provisions of such Exhibit
relating to the Subscriber's purchase of the Units are incorporated as if set
forth in full in this Agreement.
(d) This Agreement shall be binding upon and inure to the benefit of the
parties hereto, and their respective successors and permitted assigns.
(e) This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original but all of which together shall constitute one
and the same document.
(f) The various representations, warranties, and covenants set forth in
this Agreement or in any other writing delivered in connection therewith shall
survive the issuance of the Units.
[Signatures on following page]
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Please confirm your agreement with the foregoing by signing this Agreement
where indicated.
Very truly yours,
Units Subscribed for:__________________
_______________________
Gross Purchase Price: [Subscriber Name]
__________________
[Units subscribed for multiplied by
$250,000]
By: ___________________
Name: _________________
Title: ________________
Address: _______________________________________________________________________
Telecopier Number:______________________________________
e-mail: ________________________________________________
Social Security or Taxpayer ID No.:
_____________________________________
Accepted this day of , 2005
XXXXXXXX CONSULTING GROUP, INC.
By: ______________________________________
Xxx Xxxxxxxx
President
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Exhibit A
Accredited Investors
A Subscriber who meets any one of the following tests is an accredited investor:
(a) The Subscriber is an individual who has a net worth, or joint net
worth with the Subscriber's spouse, of at least $1,000,000.
(b) The Subscriber is an individual who had individual income of more than
$200,000 (or $300,000 jointly with the Subscriber's spouse) for the past two
years, and the Subscriber has a reasonable expectation of having income of at
least $200,000 (or $300,000 jointly with the Subscriber's spouse) for the
current year.
(c) The Subscriber is an officer or director of the Company.
(d) The Subscriber is a bank as defined in section 3(a)(2) of the
Securities Act or any savings and loan association or other institution as
defined in section 3(a)(5)(A) of the Securities Act whether acting in its
individual or fiduciary capacity.
(e) The Subscriber is a broker or dealer registered pursuant to section 15
of the Securities Exchange Act of 1934.
(f) The Subscriber is an insurance company as defined in section 2(13) of
the Securities Act.
(g) The Subscriber is an investment company registered under the
Investment Company Act of 1940 or a business development company as defined in
section 2(a)(48) of that Act.
(h) The Subscriber is a small Business Investment Company licensed by the
U.S. Small Business Administration under section 301(c) or (d) of the Small
Business Investment Act of 1958.
(i) The Subscriber is an employee benefit plan within the meaning of Title
I of the Employee Retirement Income Security Act of 1974, if the investment
decision is made by a plan fiduciary, as defined in section 3(21) of such Act,
which is either a bank, savings and loan association, insurance company, or
registered investment adviser, or if the employee benefit plan has total assets
in excess of $5,000,000 or, if a self-directed plan, with investment decisions
made solely by persons that are accredited investors.
(j) The Subscriber is a private business development company as defined in
section 202(a)(22) of the Investment Advisers Act of 1940.
(k) The Subscriber is an organization described in Section 501(c)(3) of
the Internal Revenue Code, corporation, Massachusetts or similar business trust,
or partnership, not formed for the specific purpose of acquiring the securities
offered, with total assets in excess of $5,000,000.
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(l) The Subscriber is a trust, with total assets in excess of $5,000,000,
not formed for the specific purpose of acquiring the securities offered, whose
purchase is directed by a sophisticated person as described in Rule
506(b)(2)(ii) of the Commission under the Securities Act.
(m) The Subscriber is an entity in which all of the equity owners are
accredited investors (i.e., all of the equity owners meet one of the tests for
an accredited investor).
If an individual investor qualifies as an accredited investor, such
individual may purchase the Units in the name of his or her individual
retirement account ("XXX").
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Exhibit B
Registration Rights
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Exhibit C
State Representations
The following provisions are an integral part of this Agreement if the
Subscriber is a resident of the following state(s).
1. Florida
If the Subscriber is a Florida resident or if the offer or sale occurs in
Florida or if the Disclosure Material is delivered in Florida, the following
shall apply:
Pursuant to Section 517.061(11)(a)(5) of the Florida Statutes, Florida
investors have a three day right to rescission. If a Florida resident has
executed a subscription agreement, he or she may elect, within three business
days after signing the subscription agreement, to withdraw from the subscription
agreement and receive a full refund and return (without interest) of any money
paid by him or her. A Florida resident's withdrawal will be without any further
liability to any person. To accomplish such withdrawal, a Florida resident need
only send a letter or telegram to the issuer at 0 Xxxxxxxx Xxxxx Xxxx, Xxxxxxxx,
Xxx Xxxx 00000, Attention of Xx. Xxx Xxxxxxxx, Chief Executive Officer,
indicating his or her intention to withdraw. Such letter or telegram must be
sent and postmarked prior to the end of the aforementioned third business day.
If a Florida resident sends a letter, it is prudent to sent it by certified
mail, return receipt requested, to insure that it is received and also to
evidence the time and date when it is mailed. Should a Florida resident make
this request orally, he or she should ask for written confirmation that his or
her request has been received.
2. Pennsylvania
If the Subscriber is a Pennsylvania resident, the following shall apply:
Each person who accepts an offer to purchase securities exempted from
registration by Section 203(d) of the Pennsylvania Securities Act of 1972, as
amended, directly from the issuer or affiliate of the issuer, shall have the
right to withdraw his or her acceptance without incurring any liability to the
seller, underwriter (if any) or any other person within two business days from
the date of receipt by the issuer of his or her written binding contract of
purchase or, in the case of a transaction in which there is no binding contract
of purchase, within two business days after he or she makes the initial payment
for the securities being offered.
Each Pennsylvania investor is prohibited from selling his or her Units for
a period of twelve months from the date of his or her purchase.
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