Exhibit 10.1
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "AGREEMENT") dated as of December
28, 2004 by and among ENCLAVES GROUP, INC., a Delaware corporation (the
"Company") and the Buyers listed on Schedule I attached hereto (individually, a
"BUYER" or collectively "BUYERS").
WITNESSETH:
WHEREAS, the Company and the Buyer(s) are executing and delivering this
Agreement in reliance upon an exemption from securities registration pursuant to
Section 4(2) and/or Rule 506 of Regulation D ("REGULATION D") as promulgated by
the U.S. Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "1933 ACT");
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Buyer(s),
as provided herein, and the Buyer(s) shall purchase an aggregate of Five Million
Five Hundred Thousand Dollars ($5,500,000) of secured convertible debentures
(the "CONVERTIBLE DEBENTURES"), which shall be convertible into shares of the
Company's common stock, par value $0.001 (the "COMMON STOCK") (as converted, the
"CONVERSION SHARES"), of which $1,500,000 shall be funded within five (5)
business days after the satisfaction of the conditions set forth in Section 7
herein (the "FIRST CLOSING") applicable to the First Closing, and $1,500,000
shall be funded within five (5) business days after the satisfaction of all
conditions set forth in Section 7 herein (the "SECOND CLOSING") applicable to
the Second Closing, and $2,500,000 shall be funded within five (5) business days
after the satisfaction of all conditions set forth in Section 7 herein (the
"THIRD CLOSING") applicable to the Third Closing, for a total purchase price of
$5,500,000 (the "PURCHASE PRICE") in the respective amounts set forth opposite
each Buyer(s) name on Schedule I (the "SUBSCRIPTION AMOUNT"); and
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Registration Rights
Agreement (the "INVESTOR REGISTRATION RIGHTS AGREEMENT") pursuant to which the
Company has agreed to provide certain registration rights under the 1933 Act and
the rules and regulations promulgated thereunder, and applicable state
securities laws; and
WHEREAS, the aggregate proceeds of the sale of the Convertible Debentures
contemplated hereby shall be held in escrow pursuant to the terms of an Escrow
Agreement (the "ESCROW AGREEMENT") of even date herewith.
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering Irrevocable Transfer
Agent Instructions (the "IRREVOCABLE TRANSFER AGENT INSTRUCTIONS").
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering other related
agreements, including without limitation, a Secured Debenture (the "SECURED
DEBENTURE"), a Guaranty Agreement with Homes for America Holdings, Inc.,
mortgages to the Buyer for the Fort Xxxxx, Florida and Mesquite, Texas
properties and a Security Agreement (the "SECURITY AGREEMENT") pursuant to which
the Company has agreed to provide the Buyer a security interest in Pledged
Collateral (as this term is defined in the Security Agreement) to secure
Company's obligations under this Agreement, the Convertible Debenture, the
Investor Registration Rights Agreement, the Irrevocable Transfer Agent
Instructions, or any other obligations of the Company to the Buyer.
NOW, THEREFORE, in consideration of the mutual covenants and other
agreements contained in this Agreement the Company and the Buyer(s)hereby agree
as follows:
1. PURCHASE AND SALE OF CONVERTIBLE DEBENTURES.
(a) PURCHASE OF CONVERTIBLE DEBENTURES. Subject to the satisfaction
(or waiver) of the terms and conditions of this Agreement, each Buyer agrees,
severally and not jointly, to purchase at each Closing and the Company agrees to
sell and issue to each Buyer, severally and not jointly, at each Closing,
Convertible Debentures in amounts corresponding with the Subscription Amount set
forth opposite each Buyer's name on Schedule I hereto. Upon execution hereof by
a Buyer, the Buyer shall wire transfer the Subscription Amount set forth
opposite his name on Schedule I in same-day funds or a check payable to "Xxxxx
Xxxxxxxx, Esq., as Escrow Agent for Enclaves Group, Inc./Cornell Capital
Partners, LP", which Subscription Amount shall be held in escrow pursuant to the
terms of the Escrow Agreement (as hereinafter defined) and disbursed in
accordance therewith.
(b) CLOSING DATE. The First Closing of the purchase and sale of the
Convertible Debentures shall take place on or before the fifth (5th) business
day following the satisfaction of the conditions to the First Closing set forth
herein and in Sections 6 and 7 below (or such later date as is mutually agreed
to by the Company and the Buyer(s)) (the "FIRST CLOSING DATE"), the Second
Closing of the purchase and sale of the Convertible Debentures shall take place
on or before the fifth (5th) business day after the satisfaction of the
conditions to the Second Closing set forth herein and in Sections 6 and 7 below
(or such later date as is mutually agreed to by the Company and the Buyer(s))
(the "SECOND CLOSING DATE") and the Third Closing of the purchase and sale of
the Convertible Debentures shall take place on or before the fifth (5th)
business day after the satisfaction of the conditions to the Third Closing set
forth herein and in Sections 6 and 7 below (or such later date as is mutually
agreed to by the Company and the Buyer(s)) (the "THIRD CLOSING DATE")
(collectively referred to a the "CLOSING DATES"). The Closings shall occur on
the respective Closing Dates at the offices of Yorkville Advisors, LLC, 000
Xxxxxx Xxxxxx, Xxxxx 0000, Xxxxxx Xxxx, Xxx Xxxxxx 00000 (or such other place as
is mutually agreed to by the Company and the Buyer(s)).
(c) ESCROW ARRANGEMENTS; FORM OF PAYMENT. Upon execution hereof by
Buyer(s) and pending the Closings, the aggregate proceeds of the sale of the
Convertible Debentures to Buyer(s) pursuant hereto shall be deposited in a
non-interest bearing escrow account with Xxxxx Xxxxxxxx, Esq., as escrow agent
(the "ESCROW AGENT"), pursuant to the terms of the Escrow Agreement. Subject to
the satisfaction of the terms and conditions of this Agreement, on the Closing
Dates, (i) the Escrow Agent shall deliver to the Company in accordance with the
terms of the Escrow Agreement such aggregate proceeds for the Convertible
Debentures to be issued and sold to such Buyer(s), minus a structuring fee of
$100,000 to the Buyer pursuant to Section 4(g) hereof and a commitment fee of
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10% of the amount of the Purchase Price funded at each Closing, to the Buyer(s),
pursuant to Section 4(g) hereof, each of which shall be paid from the gross
proceeds of the First Closing, each by wire transfer of immediately available
funds in accordance with the Company's written wire instructions, and (ii) the
Company shall deliver to each Buyer, Convertible Debentures which such Buyer(s)
is purchasing in amounts indicated opposite such Buyer's name on Schedule I,
duly executed on behalf of the Company.
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants, severally and not jointly, that:
(a) INVESTMENT PURPOSE. Each Buyer is acquiring the Convertible
Debentures and, upon conversion of Convertible Debentures, the Buyer will
acquire the Conversion Shares then issuable, for its own account for investment
only and not with a view towards, or for resale in connection with, the public
sale or distribution thereof, except pursuant to sales registered or exempted
under the 1933 Act; provided, however, that by making the representations
herein, such Buyer reserves the right to dispose of the Conversion Shares at any
time in accordance with or pursuant to an effective registration statement
covering such Conversion Shares or an available exemption under the 1933 Act.
(b) ACCREDITED INVESTOR STATUS. Each Buyer is an "ACCREDITED
INVESTOR" as that term is defined in Rule 501(a)(3) of Regulation D.
(c) RELIANCE ON EXEMPTIONS. Each Buyer understands that the
Convertible Debentures are being offered and sold to it in reliance on specific
exemptions from the registration requirements of United States federal and state
securities laws and that the Company is relying in part upon the truth and
accuracy of, and such Buyer's compliance with, the representations, warranties,
agreements, acknowledgments and understandings of such Buyer set forth herein in
order to determine the availability of such exemptions and the eligibility of
such Buyer to acquire such securities.
(d) INFORMATION. Each Buyer and its advisors (and his or, its
counsel), if any, have been furnished with all materials relating to the
business, finances and operations of the Company and information he deemed
material to making an informed investment decision regarding his purchase of the
Convertible Debentures and the Conversion Shares, which have been requested by
such Buyer. Each Buyer and its advisors, if any, have been afforded the
opportunity to ask questions of the Company and its management. Neither such
inquiries nor any other due diligence investigations conducted by such Buyer or
its advisors, if any, or its representatives shall modify, amend or affect such
Buyer's right to rely on the Company's representations and warranties contained
in Section 3 below. Each Buyer understands that its investment in the
Convertible Debentures and the Conversion Shares involves a high degree of risk.
Each Buyer is in a position regarding the Company, which, based upon employment,
family relationship or economic bargaining power, enabled and enables such Buyer
to obtain information from the Company in order to evaluate the merits and risks
of this investment. Each Buyer has sought such accounting, legal and tax advice,
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as it has considered necessary to make an informed investment decision with
respect to its acquisition of the Convertible Debentures and the Conversion
Shares.
(e) NO GOVERNMENTAL REVIEW. Each Buyer understands that no United
States federal or state agency or any other government or governmental agency
has passed on or made any recommendation or endorsement of the Convertible
Debentures or the Conversion Shares, or the fairness or suitability of the
investment in the Convertible Debentures or the Conversion Shares, nor have such
authorities passed upon or endorsed the merits of the offering of the
Convertible Debentures or the Conversion Shares.
(f) TRANSFER OR RESALE. Each Buyer understands that except as
provided in the Investor Registration Rights Agreement: (i) the Convertible
Debentures have not been and are not being registered under the 1933 Act or any
state securities laws, and may not be offered for sale, sold, assigned or
transferred unless (A) subsequently registered thereunder, or (B) such Buyer
shall have delivered to the Company an opinion of counsel, in a generally
acceptable form, to the effect that such securities to be sold, assigned or
transferred may be sold, assigned or transferred pursuant to an exemption from
such registration requirements; (ii) any sale of such securities made in
reliance on Rule 144 under the 1933 Act (or a successor rule thereto) ("RULE
144") may be made only in accordance with the terms of Rule 144 and further, if
Rule 144 is not applicable, any resale of such securities under circumstances in
which the seller (or the person through whom the sale is made) may be deemed to
be an underwriter (as that term is defined in the 0000 Xxx) may require
compliance with some other exemption under the 1933 Act or the rules and
regulations of the SEC thereunder; and (iii) neither the Company nor any other
person is under any obligation to register such securities under the 1933 Act or
any state securities laws or to comply with the terms and conditions of any
exemption thereunder. The Company reserves the right to place stop transfer
instructions against the shares and certificates for the Conversion Shares.
(g) LEGENDS. Each Buyer understands that the certificates or other
instruments representing the Convertible Debentures and or the Conversion Shares
shall bear a restrictive legend in substantially the following form (and a stop
transfer order may be placed against transfer of such stock certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN
ACQUIRED SOLELY FOR INVESTMENT PURPOSES AND NOT WITH A VIEW
TOWARD RESALE AND MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS, OR AN OPINION OF COUNSEL, IN A GENERALLY
ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER
SAID ACT OR APPLICABLE STATE SECURITIES LAWS.
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The legend set forth above shall be removed and the Company within two (2)
business days shall issue a certificate without such legend to the holder of the
Conversion Shares upon which it is stamped, if, unless otherwise required by
state securities laws, (i) in connection with a sale transaction, provided the
Conversion Shares are registered under the 1933 Act, or (ii) in connection with
a sale transaction, after such holder provides the Company with an opinion of
counsel, which opinion shall be in form, substance and scope customary for
opinions of counsel in comparable transactions, to the effect that a public
sale, assignment or transfer of the Conversion Shares may be made without
registration under the 1933 Act.
Notwithstanding the foregoing, certificates evidencing the Conversion Shares
shall not contain any legend (i) while a registration statement covering the
resale of such security is effective under the 1933 Act, or (ii) following any
sale of such Conversion Shares pursuant to Rule 144, or (iii) if such Conversion
Shares are eligible for sale under Rule 144(k), or (iv) if such legend is not
required under applicable requirements of the 1933 Act (including judicial
interpretations and pronouncements issued by the staff of the SEC); provided,
however, in connection with the issuance of the Conversion Shares, each Buyer,
severally and not jointly, hereby agrees to adhere to and abide by all
prospectus delivery requirements under the 1933 Act and rules and regulations of
the SEC. The Company shall cause its counsel to issue a legal opinion to the
Company's transfer agent promptly after the effective date of the registration
statement filed pursuant to the Investor Registration Rights Agreement if
required by the Company's transfer agent to effect the removal of any legend
from the Conversion Shares. If all or any portion of a Convertible Debenture is
converted at a time when there is an effective registration statement to cover
the resale of the Conversion Shares, or if such Conversion Shares may be sold
under Rule 144(k) or if such legend is not otherwise required under applicable
requirements of the 1933 Act (including judicial interpretations thereof) then
such Conversion Shares shall be issued free of all legends. The Company agrees
that following such time as such legend is no longer required under this Section
2(g), it will, following the delivery by a Buyer to the Company of a certificate
representing Conversion Shares issued with a restrictive legend, deliver or
cause to be delivered to such Buyer a certificate representing such shares that
is free from all restrictive and other legends.
(h) AUTHORIZATION, ENFORCEMENT. This Agreement has been duly and
validly authorized, executed and delivered on behalf of such Buyer and is a
valid and binding agreement of such Buyer enforceable in accordance with its
terms, except as such enforceability may be limited by general principles of
equity or applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation and other similar laws relating to, or affecting generally, the
enforcement of applicable creditors' rights and remedies.
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(i) RECEIPT OF DOCUMENTS. Each Buyer and his or its counsel has
received and read in their entirety: (i) this Agreement and each representation,
warranty and covenant set forth herein, the Security Agreement, the Investor
Registration Rights Agreement, the Escrow Agreement, and the Irrevocable
transfer Agent Instructions; (ii) all due diligence and other information
necessary to verify the accuracy and completeness of such representations,
warranties and covenants; (iii) answers to all questions each Buyer submitted to
the Company regarding an investment in the Company; and each Buyer has relied on
the information contained therein and has not been furnished any other
documents, literature, memorandum or prospectus.
(j) DUE FORMATION OF CORPORATE AND OTHER BUYERS. If the Buyer(s) is a
corporation, trust, partnership or other entity that is not an individual
person, it has been formed and validly exists and has not been organized for the
specific purpose of purchasing the Convertible Debentures and is not prohibited
from doing so.
(k) NO LEGAL ADVICE FROM THE COMPANY. Each Buyer acknowledges that it
had the opportunity to review this Agreement and the transactions contemplated
by this Agreement with his or its own legal counsel and investment and tax
advisors. Each Buyer is relying solely on such counsel and advisors and not on
any statements or representations of the Company or any of its representatives
or agents for legal, tax or investment advice with respect to this investment,
the transactions contemplated by this Agreement or the securities laws of any
jurisdiction.
(l) No Buyer makes any representation or warranty regarding the
Company's ability to successfully become a public company or to have any
registration statement filed by the Company pursuant to the Investor
Registration Rights Agreement or otherwise declared effective by the SEC. The
Company has the sole obligation to make any and all such filings as may be
necessary to become a public company and to have any registration statement
declared effective by the SEC.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Buyers that, except as
set forth in the Disclosure Schedule attached as Exhibit "A" hereto:
(a) ORGANIZATION AND QUALIFICATION. The Company is a corporation duly
organized and validly existing in good standing under the laws of the State of
Delaware, and has the requisite corporate power to own their properties and to
carry on their business as now being conducted. The Company is duly qualified as
a foreign corporation to do business and is in good standing in every
jurisdiction in which the nature of the business conducted by it makes such
qualification necessary, except to the extent that the failure to be so
qualified or be in good standing would not be reasonably expected to have a
material adverse effect on the Company.
(b) AUTHORIZATION, ENFORCEMENT, COMPLIANCE WITH OTHER INSTRUMENTS.
(i) The Company has the requisite corporate power and authority to enter into
and perform this Agreement, the Security Agreement, the Investor Registration
Rights Agreement, the Escrow Agreement, the Irrevocable Transfer Agent
Instructions, and any related agreements, and to issue the Convertible
Debentures and the Conversion Shares in accordance with the terms hereof and
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thereof, (ii) the execution and delivery of this Agreement, the Security
Agreement, the Investor Registration Rights Agreement, the Escrow Agreement, the
Irrevocable Transfer Agent Instructions (as defined herein) and any related
agreements by the Company and the consummation by it of the transactions
contemplated hereby and thereby, including, without limitation, the issuance of
the Convertible Debentures the Conversion Shares and the reservation for
issuance and the issuance of the Conversion Shares issuable upon conversion or
exercise thereof, have been duly authorized by the Company's Board of Directors
and no further consent or authorization is required by the Company, its Board of
Directors or its stockholders, (iii) this Agreement, the Security Agreement, the
Investor Registration Rights Agreement, the Escrow Agreement, the Irrevocable
Transfer Agent Instructions and any related agreements have been duly executed
and delivered by the Company, (iv) this Agreement, the Security Agreement, the
Investor Registration Rights Agreement, the Escrow Agreement, the Irrevocable
Transfer Agent Instructions and any related agreements constitute the valid and
binding obligations of the Company enforceable against the Company in accordance
with their terms, except as such enforceability may be limited by general
principles of equity or applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation or similar laws relating to, or affecting generally, the
enforcement of creditors' rights and remedies. The authorized officer of the
Company executing this Agreement, the Security Agreement, the Investor
Registration Rights Agreement, the Escrow Agreement, the Irrevocable Transfer
Agent Instructions and any related agreements knows of no reason why the Company
cannot file the registration statement as required under the Investor
Registration Rights Agreement or perform any of the Company's other obligations
under such documents.
(c) CAPITALIZATION. As of the date hereof, the authorized capital
stock of the Company consists of 100,000,000 shares of stock, of which
90,000,000 shares are designated as Common Stock and 10,000,000 shares are
designated as preferred stock. As of the date hereof, 10,000 shares of Common
Stock are outstanding. All of such outstanding shares have been validly issued
and are fully paid and nonassessable. Except as disclosed in the Disclosure
Schedule, no shares of Common Stock are subject to preemptive rights or any
other similar rights or any liens or encumbrances suffered or permitted by the
Company. Except as disclosed in the Disclosure Schedule, as of the date of this
Agreement, (i) there are no outstanding options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company, or contracts, commitments, understandings or arrangements by which the
Company is or may become bound to issue additional shares of capital stock of
the Company 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, (ii) there are no
outstanding debt securities and (iii) there are no agreements or arrangements
under which the Company is obligated to register the sale of any of their
securities under the 1933 Act (except pursuant to the Investor Registration
Rights Agreement) and (iv) there are no outstanding registration statements and
there are no outstanding comment letters from the SEC or any other regulatory
agency. There are no securities or instruments containing anti-dilution or
similar provisions that will be triggered by the issuance of the Convertible
Debentures as described in this Agreement. The Company has furnished to the
Buyer true and correct copies of the Company's Certificate of Incorporation, as
amended and as in effect on the date hereof (the "CERTIFICATE 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
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other than stock options issued to employees and consultants. The Company is not
the beneficial owner of any equity interest in any other entity, whether a
corporation, limited liability company, partnership, or otherwise, and is not
the beneficial owner of any right to acquire any equity interest in any such
entity.
(d) ISSUANCE OF SECURITIES. The Convertible Debentures are duly
authorized and, upon issuance in accordance with the terms hereof, shall be duly
issued, fully paid and nonassessable, are free from all taxes, liens and charges
with respect to the issue thereof. The Conversion Shares issuable upon
conversion of the Convertible Debentures have been duly authorized and reserved
for issuance. Upon conversion or exercise in accordance with the Convertible
Debentures the Conversion Shares will be duly issued, fully paid and
nonassessable.
(e) NO CONFLICTS. Except as disclosed in the Disclosure Schedule, the
execution, delivery and performance of this Agreement, the Security Agreement,
the Investors Registration Rights Agreement, the Escrow Agreement and the
Irrevocable Transfer Agent Instructions by the Company and the consummation by
the Company of the transactions contemplated hereby will not (i) result in a
violation of the Certificate of Incorporation, any certificate of designations
of any outstanding series of preferred stock of the Company or (ii) conflict
with or constitute a material default (or an event which with notice or lapse of
time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which the Company is a party, or result in a
violation of any law, rule, regulation, order, judgment or decree (including
federal and state securities laws) applicable to the Company or by which any
property or asset of the Company is bound or affected. Except as disclosed in
the Disclosure Schedule, the Company is not in violation of any term of or in
default under its Certificate of Incorporation or By-laws or any material
contract, agreement, mortgage, indebtedness, indenture, instrument, judgment,
decree or order or any statute, rule or regulation applicable to the Company.
The business of the Company is not being conducted, and shall not be conducted
in violation of any material law, ordinance, or regulation of any governmental
entity. Except as specifically contemplated by this Agreement and as required
under the 1933 Act and any applicable state securities laws, the Company is not
required to obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency in order for it to execute,
deliver or perform any of its obligations under or contemplated by this
Agreement or the Investor Registration Rights Agreement in accordance with the
terms hereof or thereof, except where the failure to do so would not result in a
material adverse effect on the Company and its business. Except as disclosed in
the Disclosure Schedule, all consents, authorizations, orders, filings and
registrations which the Company is required to obtain pursuant to the preceding
sentence have been obtained or effected on or prior to the date hereof. The
Company is unaware of any facts or circumstance, which might give rise to any of
the foregoing.
(f) ACCURACY DISCLOSURE. No information provided by or on behalf of
the Company to the Buyer, including, without limitation, information referred to
in this Agreement, contains any untrue statement of a material fact or omits to
state any material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
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(g) ABSENCE OF LITIGATION. Except as disclosed in the Disclosure
Schedule, there is no action, suit, proceeding, inquiry or investigation before
or by any court, public board, government agency, self-regulatory organization
or body pending against or affecting the Company or the Common Stock, wherein an
unfavorable decision, ruling or finding would (i) have a material adverse effect
on the transactions contemplated hereby (ii) adversely affect the validity or
enforceability of, or the authority or ability of the Company to perform its
obligations under, this Agreement or any of the documents contemplated herein,
or (iii) except as expressly disclosed in the Disclosure Schedule, have a
material adverse effect on the business, operations, properties, financial
condition or results of operations of the Company.
(h) ACKNOWLEDGMENT REGARDING BUYER'S PURCHASE OF THE CONVERTIBLE
DEBENTURES. The Company acknowledges and agrees that the Buyer(s) is acting
solely in the capacity of an arm's length purchaser with respect to this
Agreement and the transactions contemplated hereby. The Company further
acknowledges that the Buyer(s) is not acting as a financial advisor or fiduciary
of the Company (or in any similar capacity) with respect to this Agreement and
the transactions contemplated hereby and any advice given by the Buyer(s) or any
of their respective representatives or agents in connection with this Agreement
and the transactions contemplated hereby is merely incidental to such Buyer's
purchase of the Convertible Debentures or the Conversion Shares. The Company
further represents to the Buyer that the Company's decision to enter into this
Agreement has been based solely on the independent evaluation by the Company and
its representatives.
(i) NO GENERAL SOLICITATION. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the 0000 Xxx) in connection with the offer or sale of the
Convertible Debentures or the Conversion Shares.
(j) NO INTEGRATED OFFERING. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of the
Convertible Debentures or the Conversion Shares under the 1933 Act (except as
provided in the Investor Registration Rights Agreement) or cause this offering
of the Convertible Debentures or the Conversion Shares to be integrated with
prior offerings by the Company for purposes of the 1933 Act.
(k) EMPLOYEE RELATIONS. The Company is not involved in any labor
dispute nor, to the knowledge of the Company, is any such dispute threatened.
None of the Company's employees is a member of a union and the Company and
believes that its relations with its employees are good.
(l) INTELLECTUAL PROPERTY RIGHTS. The Company owns or possesses
adequate rights or licenses to use all trademarks, trade names, service marks,
service xxxx registrations, service names, patents, patent rights, copyrights,
inventions, licenses, approvals, governmental authorizations, trade secrets and
rights necessary to conduct its business as now conducted, except where the
failure to do so would not cause a material adverse effect on the Company or its
business operations. The Company does not have any knowledge of any infringement
by the Company of trademark, trade name rights, patents, patent rights,
copyrights, inventions, licenses, service names, service marks, service xxxx
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registrations, trade secret or other similar rights of others, and, to the
knowledge of the Company there is no claim, action or proceeding being made or
brought against, or to the Company's knowledge, being threatened against, the
Company regarding trademark, trade name, patents, patent rights, invention,
copyright, license, service names, service marks, service xxxx registrations,
trade secret or other infringement; and the Company is unaware of any facts or
circumstances which might give rise to any of the foregoing.
(m) ENVIRONMENTAL LAWS. The Company is (i) in compliance with any and
all applicable foreign, federal, state and local laws and regulations relating
to the protection of human health and safety, the environment or hazardous or
toxic substances or wastes, pollutants or contaminants ("ENVIRONMENTAL LAWS"),
(ii) has received all permits, licenses or other approvals required of it under
applicable Environmental Laws to conduct its business and (iii) is in compliance
with all terms and conditions of any such permit, license or approval.
(n) TITLE. Any real property and facilities held under lease by the
Company is held 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.
(o) INSURANCE. The Company is insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts as
management of the Company believes to be prudent and customary in the businesses
in which the Company is engaged. The Company has not been refused any insurance
coverage sought or applied for and the Company has no any reason to believe that
it will not be able to renew its existing insurance coverage as and when such
coverage expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not materially and
adversely affect the condition, financial or otherwise, or the earnings,
business or operations of the Company, taken as a whole.
(p) REGULATORY PERMITS. The Company possesses all material
certificates, authorizations and permits issued by the appropriate federal,
state or foreign regulatory authorities necessary to conduct its business, and
the Company has not received any notice of proceedings relating to the
revocation or modification of any such certificate, authorization or permit.
(q) NO MATERIAL ADVERSE BREACHES, ETC. Except as set forth in the
Disclosure Schedule, the Company is not subject to any charter, corporate or
other legal restriction, or any judgment, decree, order, rule or regulation
which in the judgment of the Company's officers has or is expected in the future
to have a material adverse effect on the business, properties, operations,
financial condition, results of operations or prospects of the Company. Except
as set forth in the Disclosure Schedule, the Company is not in breach of any
contract or agreement which breach, in the judgment of the Company's officers,
has or is expected to have a material adverse effect on the business,
properties, operations, financial condition, results of operations or prospects
of the Company.
(r) TAX STATUS. Except as set forth in the Disclosure Schedule, the
Company has made and filed all federal and state income and all other tax
returns, reports and declarations required by any jurisdiction to which it is
10
subject and (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) 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.
(s) CERTAIN TRANSACTIONS. Except as set forth in the Disclosure
Schedule, and except for arm's length transactions pursuant to which the Company
makes payments in the ordinary course of business upon terms no less favorable
than the Company could obtain from third parties and other than the grant of
stock options disclosed in the Disclosure Schedule, 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.
(t) FEES AND RIGHTS OF FIRST REFUSAL. The Company is not obligated to
offer the securities offered hereunder on a right of first refusal basis or
otherwise to any third parties including, but not limited to, current or former
shareholders of the Company, underwriters, brokers, agents or other third
parties.
(u) The Company acknowledges that the Buyer is relying on the
representations and warranties made by the Company hereunder and that such
representations and warranties are a material inducement to the Buyer purchasing
the Convertible Debentures. The Company further acknowledges that without such
representations and warranties of the Company made hereunder, the Buyer would
not enter into this Agreement.
4. COVENANTS.
(a) BEST EFFORTS. Each party shall use its best efforts timely to
satisfy each of the conditions to be satisfied by it as provided in Sections 6
and 7 of this Agreement.
(b) FORM D. The Company agrees to file a Form D with respect to the
Convertible Debentures and the Conversion Shares as required under Regulation D
and to provide a copy thereof to each Buyer promptly after such filing. The
Company shall, within fifteen (15) days following each Closing Date, take such
action as the Company shall reasonably determine is necessary to qualify the
Convertible Debentures and underlying Conversion Shares issued on such Closing
Date, or obtain an exemption for the Convertible Debentures and underlying
Conversion Shares then sold to the Buyers pursuant to this Agreement under
applicable securities or "BLUE SKY" laws of the states of the United States, and
shall promptly provide evidence of any such action so taken to the Buyers.
11
(c) REPORTING STATUS. Commencing on the effectiveness of the
registration statement filed with the SEC pursuant to the Investor Registration
Rights Agreement and until the earlier of (i) the date as of which the Buyer(s)
may sell all of the Conversion Shares without restriction pursuant to Rule
144(k) promulgated under the 1933 Act (or successor thereto), or (ii) the date
on which (A) the Buyer(s) shall have sold all the Conversion Shares and (B) none
of the Convertible Debentures are outstanding (the "REGISTRATION PERIOD"), the
Company shall file in a timely manner all reports required to be filed with the
SEC pursuant to the 1934 Act and the regulations of the SEC thereunder, and the
Company shall not terminate its status as an issuer required to file reports
under the 1934 Act even if the 1934 Act or the rules and regulations thereunder
would otherwise permit such termination.
(d) USE OF PROCEEDS. The Company will use the proceeds from the sale
of the Convertible Debentures for general corporate and working capital
purposes.
(e) RESERVATION OF SHARES. The Company shall take all action
reasonably necessary to at all times have authorized, and reserved for the
purpose of issuance, such number of shares of Common Stock as shall be necessary
to effect the issuance of the Convertible Debentures. If at any time the Company
does not have available such shares of Common Stock as shall from time to time
be sufficient to effect the conversion of all of the Convertible Debentures of
the Company shall call and hold a special meeting of the shareholders within
thirty (30) days of such occurrence, for the sole purpose of increasing the
number of shares authorized. The Company's management shall recommend to the
shareholders to vote in favor of increasing the number of shares of Common Stock
authorized. Management shall also vote all of its shares in favor of increasing
the number of authorized shares of Common Stock.
(f) LISTINGS OR QUOTATION. The Company shall, concurrently with the
effectiveness of the registration statement filed with the SEC pursuant to the
Investor Registration Rights Agreement, secure the listing or quotation of its
Common Stock (including, without limitation, the Conversion Shares) upon a
national securities exchange, automated quotation system or the Over-The-Counter
Bulletin Board ("OTCBB") maintained by the National Association of Securities
Dealers, Inc. The Company shall maintain the listing or quotation of the Common
Stock for so long as the Buyer is the record owner of any Common Stock or
Conversion Shares (whether obtained or to be obtained under this Agreement), the
Convertible Debentures or any other agreement between the Company and the Buyer.
The Company shall maintain the Common Stock's authorization for quotation on the
OTCBB. It shall be an event of default hereunder if the Company fails to
strictly comply with its obligations under this Section 4(f).
(g) FEES AND EXPENSES. Except as set forth below, each of the Company
and the Buyer(s) shall pay all costs and expenses incurred by such party in
connection with the negotiation, investigation, preparation, execution and
delivery of this Agreement, the Escrow Agreement, the Investor Registration
Rights Agreement, the Security Agreement and the Irrevocable Transfer Agent
Instructions. The Buyer(s) shall be entitled to a commitment fee of ten percent
(10%) of the Purchase Price.
The Company shall pay to the Buyer a structuring fee of $100,000 (the
"STRUCTURING FEE") in connection with this transaction, which shall be paid and
deducted from the gross proceeds of the First Closing. The structuring fee shall
be deemed fully earned on the date hereof.
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The Company shall be solely responsible for the contents of any such
registration statement, prospectus or other filing made with the SEC or
otherwise used in the offering of the Company's securities (except as such
disclosure relates solely to the Buyer and then only to the extent that such
disclosure conforms with information furnished in writing by the Buyer to the
Company), even if the Buyer or its agents as an accommodation to the Company
participate or assist in the preparation of such registration statement,
prospectus or other SEC filing. The Company shall retain its own legal counsel
to review, edit, confirm and do all things such counsel deems necessary or
desirable to such registration statement, prospectus or other SEC filing to
ensure that it does not contain an untrue statement or alleged untrue statement
of material fact or omit or alleged to omit a material fact necessary to make
the statements made therein, in light of the circumstances under which the
statements were made, not misleading.
(h) CORPORATE EXISTENCE. So long as any of the Convertible Debentures
remain outstanding, the Company shall not directly or indirectly consummate any
merger, reorganization, restructuring, reverse stock split consolidation, sale
of all or substantially all of the Company's assets or any similar transaction
or related transactions (each such transaction, an "ORGANIZATIONAL CHANGE")
unless, prior to the consummation an Organizational Change, the Company obtains
the written consent of each Buyer. In any such case, the Company will make
appropriate provision with respect to such holders' rights and interests to
insure that the provisions of this Section 4(h) will thereafter be applicable to
the Convertible Debentures.
(i) TRANSACTIONS WITH AFFILIATES. So long as any Convertible
Debentures are outstanding, the Company shall not enter into, amend, modify or
supplementany agreement, transaction, commitment, or arrangement with any of its
officers, directors, person who were officers or directors at any time during
the previous two (2) years, stockholders who beneficially own five percent (5%)
or more of the Common Stock, or Affiliates (as defined below) or with any
individual related by blood, marriage, or adoption to any such individual or
with any entity in which any such entity or individual owns a five percent (5%)
or more beneficial interest (each a "RELATED PARTY"), except for (a) customary
employment arrangements and benefit programs on reasonable terms, (b) any
investment in an Affiliate of the Company, (c) any agreement, transaction,
commitment, or arrangement on an arms-length basis on terms no less favorable
than terms which would have been obtainable from a person other than such
Related Party, (d) any agreement transaction, commitment, or arrangement which
is approved by a majority of the disinterested directors of the Company, for
purposes hereof, any director who is also an officer of the Company shall not be
a disinterested director with respect to any such agreement, transaction,
commitment, or arrangement. "AFFILIATE" for purposes hereof means, with respect
to any person or entity, another person or entity that, directly or indirectly,
(i) has a ten percent (10%) or more equity interest in that person or entity,
(ii) has ten percent (10%) or more common ownership with that person or entity,
(iii) controls that person or entity, or (iv) shares common control with that
person or entity. "CONTROL" or "CONTROLS" for purposes hereof means that a
person or entity has the power, direct or indirect, to conduct or govern the
policies of another person or entity.
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(j) TRANSFER AGENT. The Company covenants and agrees that, in the
event that the Company's agency relationship with the transfer agent should be
terminated for any reason prior to a date which is two (2) years after the
Closing Date, the Company shall immediately appoint a new transfer agent and
shall require that the new transfer agent execute and agree to be bound by the
terms of the Irrevocable Transfer Agent Instructions (as defined herein).
(k) RESTRICTION ON ISSUANCE OF THE CAPITAL STOCK. Prior to the
Company's Common Stock being listed on the Principal Market (as such term is
defined in the Standby Equity Distribution Agreement of even date herewith), the
Company shall not issue shares of Common Stock or Preferred Stock except as
otherwise permitted herein. Once the Company's Common Stock is listed on the
Principal Market, so long as any Convertible Debentures are outstanding, the
Company shall not, without the prior written consent of the Buyer(s), issue or
sell shares of Common Stock or Preferred Stock (i) without consideration or for
a consideration per share less than the closing bid price, as quoted by
Bloomberg, LP, of the Common Stock, or less than the conversion price of the
Preferred Stock, respectively, determined immediately prior to its issuance,
(ii) issue any warrant, option, right, contract, call, or other security
instrument granting the holder thereof, the right to acquire Common Stock
without consideration or for a consideration less than such Common Stock's
closing bid price, as quoted by Bloomberg, LP, immediately prior to its
issuance, (iii) enter into any security instrument granting the holder a
security interest in any and all assets of the Company, except for any security
instrument granting the holder a security interest in any and all assets of the
Company in connection with permanent or construction financing obtained for the
development of any real property, or for any security instruments of a
non-material nature or entered into in the ordinary course of business, provided
that in each case the Company gives the Investor prior notice of such security
interest, or (iv) file any registration statement on Form S-8; notwithstanding
the foregoing, the Company may issue shares of its Series A Convertible
Preferred Stock (the "PREFERRED STOCK") pursuant to its equity incentive plan
(the "Plan"), which is contained in the Disclosure Schedule attached hereto as
Exhibit "A," provided, however, that the total number of shares of Preferred
Stock issued under the Plan shall not exceed fifteen percent (15%) of the total
number of issued and outstanding shares of the Company's Preferred Stock and
provided that any issuances permitted hereunder shall only be issued if the
recipient is the beneficial owner of less than 4.9% of any class of the
Company's capital stock and enters into a lock-up agreement pursuant to which
the recipient shall not sell, transfer or assign any shares of (i) Preferred
Stock or (ii) Common Stock issuable upon the conversion of the Preferred Stock,
for a period commencing on the date of issuance and expiring two (2) years after
the date upon which the SEC declares effective the registration statement
contemplated herein.
(l) LOCK-UP AGREEMENT. On the date hereof, the Company shall obtain
from each officer and director of the Company a lock-up agreement. Such lock-up
agreement shall prohibit sales of the Company's Common Stock for so long as any
portion of the Convertible Debentures is outstanding and the sales of the
Company's Preferred Stock in accordance with Section 4(k) above.
(m) BUDGET. The Company covenants to the Investor that the net
proceeds to be received by the Company in this transaction shall be used in a
manner consistent with uses described in Budget attached as Exhibit "B" hereto.
The Company in its discretion may deviate up to ten percent (10%) for any single
line described in Exhibit B hereto. The Company covenants to the Investor that
the net proceeds to be received by the Company in this transaction shall be used
in a manner consistent with uses described in Exhibit B hereto. The Company the
discretion to deviate up to ten percent (10%) for any single line described in
the Budget attached as Exhibit "B" hereto.
14
(n) NO OTHER REGISTRATION STATEMENTS. Except for the filing of the
registration statements contemplated in this transaction, any stock dividends or
the Standby Equity Distribution Agreement of even date herewith (the "PERMITTED
REGISTRATION STATEMENTS"), for so long as the Convertible Debenture is
outstanding, the Company shall not file any other registration statements on any
form (including but not limited to forms X-0, XX-0, X-0 and S-8) without the
prior written consent of the Buyer. Further, the Company shall not register for
sale or resale of any shares of capital stock in the Permitted Registration
Statements other than the capital stock beneficially owned by the Buyer or to be
issued to the Buyer upon conversion of the Convertible Debentures, exercise of
warrants or issuance under the Standby Equity Distribution Agreement of even
date herewith.
5. TRANSFER AGENT INSTRUCTIONS.
The Company shall issue the Irrevocable Transfer Agent Instructions to its
transfer agent irrevocably appointing Xxxxx Xxxxxxxx, Esq. as its agent for
purpose of having certificates issued, registered in the name of the Buyer(s) or
its respective nominee(s), for the Conversion Shares representing such amounts
of Convertible Debentures as specified from time to time by the Buyer(s) to the
Company upon conversion of the Convertible Debentures, for interest owed
pursuant to the Convertible Debenture, and for any and all Liquidated Damages
(as this term is defined in the Investor Registration Rights Agreement).
Yorkville Advisors Management, LLC shall be paid a cash fee of Fifty Dollars
($50) for every occasion they act pursuant to the Irrevocable Transfer Agent
Instructions. The Company shall not change its transfer agent without the
express written consent of the Buyer(s), which may be withheld by the Buyer(s)
in its sole discretion. Prior to registration of the Conversion Shares under the
1933 Act, all such certificates shall bear the restrictive legend specified in
Section 2(g) of this Agreement. The Company warrants that no instruction other
than the Irrevocable Transfer Agent Instructions referred to in this Section 5,
and stop transfer instructions to give effect to Section 2(g) hereof (in the
case of the Conversion Shares prior to registration of such shares under the
0000 Xxx) will be given by the Company to its transfer agent and that the
Conversion Shares shall otherwise be freely transferable on the books and
records of the Company as and to the extent provided in this Agreement and the
Investor Registration Rights Agreement. Nothing in this Section 5 shall affect
in any way the Buyer's obligations and agreement to comply with all applicable
securities laws upon resale of Conversion Shares. If the Buyer(s) provides the
Company with an opinion of counsel, in form, scope and substance customary for
opinions of counsel in comparable transactions to the effect that registration
of a resale by the Buyer(s) of any of the Conversion Shares is not required
under the 1933 Act, the Company shall within two (2) business days instruct its
transfer agent to issue one or more certificates in such name and in such
denominations as specified by the Buyer. The Company acknowledges that a breach
by it of its obligations hereunder will cause irreparable harm to the Buyer by
vitiating the intent and purpose of the transaction contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach of its
15
obligations under this Section 5 will be inadequate and agrees, in the event of
a breach or threatened breach by the Company of the provisions of this Section
5, that the Buyer(s) shall be entitled, in addition to all other available
remedies, to an injunction restraining any breach and requiring immediate
issuance and transfer, without the necessity of showing economic loss and
without any bond or other security being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELLER.
The obligation of the Company hereunder to issue and sell the Convertible
Debentures to the Buyer(s) at the Closings is subject to the satisfaction, at or
before the Closing Dates, of each of the following conditions, provided that
these conditions are for the Company's sole benefit and may be waived by the
Company at any time in its sole discretion:
(a) Each Buyer shall have executed this Agreement, the Security
Agreement, the Escrow Agreement and the Investor Registration Rights Agreement
and the Irrevocable Transfer Agent Instructions and delivered the same to the
Company.
(b) The Buyer(s) shall have delivered to the Escrow Agent the
Purchase Price for Convertible Debentures in respective amounts as set forth
next to each Buyer as outlined on Schedule I attached hereto and the Escrow
Agent shall have delivered the net proceeds to the Company by wire transfer of
immediately available U.S. funds pursuant to the wire instructions provided by
the Company.
(c) The representations and warranties of the Buyer(s) shall be true
and correct in all material respects (except to the extent that any of such
representations and warranties is already qualified as to materiality in Section
2 above, in which case, such representations and warranties shall be true and
correct without further qualification) as of the date when made and as of the
Closing Dates as though made at that time (except for representations and
warranties that speak as of a specific date), and the Buyer(s) shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Buyer(s) at or prior to the Closing Dates.
(d) The Company shall have filed a form UCC -1 with regard to the
Pledged Property and Pledged Collateral as detailed in the Security Agreement
dated the date hereof and provided proof of such filing to the Buyer(s).
(e) The Company shall have created the Preferred Stock by filing a
certificate of designations, powers, preferences and other rights and
qualifications of the Preferred Stock, in a form mutually agreed upon by the
parties, with the Secretary of State of the State of Delaware.
7. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The obligation of the Buyer(s) hereunder to purchase the Convertible
Debentures at the First Closing is subject to the satisfaction, at or before the
First Closing Date, of each of the following conditions, provided that these
conditions are for the Buyer's sole benefit and may be waived by the Buyer(s) at
any time in its sole discretion:
16
(a) The Company shall have executed this Agreement, the Security
Agreement, the Secured Debenture, the Security Agreement, the Escrow Agreement,
the Irrevocable Transfer Instructions and the Investor Registration Rights
Agreement, and delivered the same to the Buyer(s).
(b) The representations and warranties of the Company shall be true
and correct in all material respects (except to the extent that any of such
representations and warranties is already qualified as to materiality in Section
3 above, in which case, such representations and warranties shall be true and
correct without further qualification) as of the date when made and as of the
First Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date) and the Company shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the First Closing Date. If
requested by the Buyer, the Buyer shall have received a certificate of the
Company, executed by the President of the Company, dated as of the Closing
Dates, to the foregoing effect and as to such other matters as may be reasonably
requested by the Buyer including, without limitation an update as of the First
Closing Date regarding the representation contained in Section 3(c) above.
(c) The Company shall have executed and delivered to the Buyer(s) the
Secured Debentures in the respective amounts set forth opposite each Buyer(s)
name on Schedule I attached hereto.
(d) The Buyer(s) shall have received an opinion of counsel in a form
satisfactory to the Buyer(s).
(e) The Company shall have provided to the Buyer(s) a certificate of
good standing from the Secretary of State of Delaware.
(f) As of each Closing Date, the Company shall have reserved out of
its authorized and unissued Common Stock, solely for the purpose of effecting
the conversion of the Convertible Debentures, shares of Common Stock to effect
the conversion of all of the Conversion Shares then outstanding.
(g) The Irrevocable Transfer Agent Instructions, in form and
substance satisfactory to the Buyer, shall have been delivered to and
acknowledged in writing by the Company's transfer agent.
(h) The Company shall have provided to the Buyer an acknowledgement,
to the satisfaction of the Buyer, from ____________, the Company's independent
certified public accountants, as to its ability to provide all consents required
in order to file a registration statement in connection with this transaction.
(i) The Company shall have filed a form UCC -1 with regard to the
Pledged Property and Pledged Collateral as detailed in the Security Agreement
and provided proof of such filing to the Buyer(s).
17
(j) The Company shall have obtained the approval of its board of
directors to adopt Certificate of Designations of Series A Preferred Stock.
(k) The Company shall have submitted the due diligence materials,
which the Buyer has review to its satisfaction.
(l) The Company shall have completed the purchase of the real estate
project in and Mesquite, Texas. In addition, the Company shall have given a
mortgage to the Buyer for such property.
(m) The Company shall have completed the conversion of $600,000 of
the debt into equity interests of the Company that is owed to Homes for America
Holdings, Inc. ("HFA").
(n) HFA shall have guaranteed the obligations by the Company owed to
the Buyer.
(o) As of their respective dates, the financial statements of the
Company (the "FINANCIAL STATEMENTS") for the two most recently completed fiscal
years and any subsequent interim period 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).
(p) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed in
accordance with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset accountability, and (iii) the recorded amounts for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
(q) CONDITIONS TO SECOND CLOSING. The Company shall have completed
the purchase of the real property project located in Fort Xxxxx, Florida, which
property shall have an appraised value of at least $750,000 and the Company
shall have given the Buyer a mortgage on such property. In addition, with regard
to the Second Closing, the Company represents and covenants the following:
a) The representations and warranties of the Company shall be
true and correct in all material respects (except to the
extent that any of such representations and warranties is
already qualified as to materiality in Section 3 above, in
which case, such representations and warranties shall be
true and correct without further qualification) as of the
date when made and as of the Second Closing Date as though
18
made at that time (except for representations and warranties
that speak as of a specific date) and the Company shall have
performed, satisfied and complied in all material respects
with the covenants, agreements and conditions required by
this Agreement to be performed, satisfied or complied with
by the Company at or prior to the Second Closing Date. If
requested by the Buyer, the Buyer shall have received a
certificate of the Company, executed by the President of the
Company, dated as of the Second Closing Date, to the
foregoing effect and as to such other matters as may be
reasonably requested by the Buyer including, without
limitation an update as of the Second Closing Date regarding
the representation contained in Section 3(c) above; and
(r) As of the Second Closing Date, the Company shall have reserved
out of its authorized and unissued Common Stock, solely for the purpose of
effecting the conversion of the Convertible Debentures, shares of Common Stock
to effect the conversion of all of the Convertible Debentures then outstanding.
(s) CONDITIONS TO THIRD CLOSING. The Company shall have completed the
purchase of one or more real estate projects with a combined appraisal value of
at least Two Million Dollars ($2,000,000) and the Company shall have given the
Buyer mortgages for the same. In addition, with regard to the Third Closing, the
Company represents and covenants the following:
b) The representations and warranties of the Company shall be
true and correct in all material respects (except to the
extent that any of such representations and warranties is
already qualified as to materiality in Section 3 above, in
which case, such representations and warranties shall be
true and correct without further qualification) as of the
date when made and as of the Third Closing Date as though
made at that time (except for representations and warranties
that speak as of a specific date) and the Company shall have
performed, satisfied and complied in all material respects
with the covenants, agreements and conditions required by
this Agreement to be performed, satisfied or complied with
by the Company at or prior to the Third Closing Date. If
requested by the Buyer, the Buyer shall have received a
certificate of the Company, executed by the President of the
Company, dated as of the Third Closing Date, to the
foregoing effect and as to such other matters as may be
reasonably requested by the Buyer including, without
limitation an update as of the Third Closing Date regarding
the representation contained in Section 3(c) above; and
c) As of the Third Closing Date, the Company shall have
reserved out of its authorized and unissued Common Stock,
solely for the purpose of effecting the conversion of the
Convertible Debentures, shares of Common Stock to effect the
conversion of all of the Convertible Debentures then
outstanding.
19
8. INDEMNIFICATION.
(a) In consideration of the Buyer's execution and delivery of this
Agreement and acquiring the Convertible Debentures and the Conversion Shares
hereunder, and in addition to all of the Company's other obligations under this
Agreement, the Company shall defend, protect, indemnify and hold harmless the
Buyer(s) and each other holder of the Convertible Debentures and the Conversion
Shares, and all of their officers, directors, employees and agents (including,
without limitation, those retained in connection with the transactions
contemplated by this Agreement) (collectively, the "BUYER INDEMNITEES") from and
against any and all actions, causes of action, suits, claims, losses, costs,
penalties, fees, liabilities and damages, and expenses in connection therewith
(irrespective of whether any such Buyer Indemnitee is a party to the action for
which indemnification hereunder is sought), and including reasonable attorneys'
fees and disbursements (the "INDEMNIFIED LIABILITIES"), incurred by the Buyer
Indemnitees or any of them as a result of, or arising out of, or relating to (a)
any misrepresentation or breach of any representation or warranty made by the
Company in this Agreement, the Convertible Debentures or the Investor
Registration Rights Agreement or any other certificate, instrument or document
contemplated hereby or thereby, (b) any breach of any covenant, agreement or
obligation of the Company contained in this Agreement, or the Investor
Registration Rights Agreement or any other certificate, instrument or document
contemplated hereby or thereby, or (c) any cause of action, suit or claim
brought or made against such Buyer Indemnitee and arising out of or resulting
from the execution, delivery, performance or enforcement of this Agreement or
any other instrument, document or agreement executed pursuant hereto by any of
the Buyer Indemnities, any transaction financed or to be financed in whole or in
part, directly or indirectly, with the proceeds of the issuance of the
Convertible Debentures or the status of the Buyer or holder of the Convertible
Debentures the Conversion Shares, as a Buyer of Convertible Debentures in the
Company. To the extent that the foregoing undertaking by the Company may be
unenforceable for any reason, the Company shall make the maximum contribution to
the payment and satisfaction of each of the Indemnified Liabilities, which is
permissible under applicable law.
(b) In consideration of the Company's execution and delivery of this
Agreement, and in addition to all of the Buyer's other obligations under this
Agreement, the Buyer shall defend, protect, indemnify and hold harmless the
Company and all of its officers, directors, employees and agents (including,
without limitation, those retained in connection with the transactions
contemplated by this Agreement) (collectively, the "COMPANY INDEMNITEES") from
and against any and all Indemnified Liabilities incurred by the Indemnitees or
any of them as a result of, or arising out of, or relating to (a) any
misrepresentation or breach of any representation or warranty made by the
Buyer(s) in this Agreement or the Investor Registration Rights Agreement or any
other certificate, instrument or document contemplated hereby or thereby, (b)
any breach of any covenant, agreement or obligation of the Buyer(s) contained in
this Agreement, the Investor Registration Rights Agreement or any other
certificate, instrument or document contemplated hereby or thereby executed by
the Buyer, or (c) any cause of action, suit or claim brought or made against
such Company Indemnitee based on material misrepresentations or due to a
material breach and arising out of or resulting from the execution, delivery,
performance or enforcement of this Agreement, the Investor Registration Rights
Agreement or any other instrument, document or agreement executed pursuant
hereto by any of the Company Indemnities. To the extent that the foregoing
undertaking by each Buyer may be unenforceable for any reason, each Buyer shall
20
make the maximum contribution to the payment and satisfaction of each of the
Indemnified Liabilities, which is permissible under applicable law.
9. GOVERNING LAW: MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of New Jersey without
regard to the principles of conflict of laws. The parties further agree that any
action between them shall be heard exclusively in Xxxxxx County, New Jersey, and
expressly consent to the jurisdiction and venue of the Superior Court of New
Jersey, sitting in Xxxxxx County and the United States District Court for the
District of New Jersey sitting in Newark, New Jersey for the adjudication of any
civil action asserted pursuant to this Paragraph.
(b) COUNTERPARTS. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party. In the event any signature page is
delivered by facsimile transmission, the party using such means of delivery
shall cause four (4) additional original executed signature pages to be
physically delivered to the other party within five (5) days of the execution
and delivery hereof.
(c) HEADINGS. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
(d) SEVERABILITY. If any provision of this Agreement shall be invalid
or unenforceable in any jurisdiction, such invalidity or unenforceability shall
not affect the validity or enforceability of the remainder of this Agreement in
that jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.
(e) ENTIRE AGREEMENT, AMENDMENTS. This Agreement supersedes all other
prior oral or written agreements between the Buyer(s), the Company, their
affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced herein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor any Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. No provision of this
Agreement may be waived or amended other than by an instrument in writing signed
by the party to be charged with enforcement.
(f) NOTICES. Any notices, consents, waivers, or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered (i) upon receipt, when
delivered personally; (ii) upon confirmation of receipt, when sent by facsimile;
(iii) three (3) days after being sent by U.S. certified mail, return receipt
requested, or (iv) one (1) day after deposit with a nationally recognized
overnight delivery service, in each case properly addressed to the party to
receive the same. The addresses and facsimile numbers for such communications
shall be:
21
If to the Company, to: Enclaves Group, Inc.
Xxx Xxxxx Xxxxx
Xxxxxxx, Xxx Xxxx 00000
Attention: Xxxxxx X. Xxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
With a copy to: Xxxxxx Xxxxxxxx Frome Xxxxxxxxxx & Xxxxxxx LLP
Park Avenue Tower
00 Xxxx 00xx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxx X. Xxxxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to the Transfer Agent, to: Continental Stock Transfer & Trust Company
00 Xxxxxxx Xxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxx Xxxxxxxxxx, Vice President
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to the Buyer(s), to its address and facsimile number on Schedule I, with
copies to the Buyer's counsel as set forth on Schedule I. Each party shall
provide five (5) days' prior written notice to the other party of any change in
address or facsimile number.
(g) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and assigns.
Neither the Company nor any Buyer shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other party
hereto.
(h) NO THIRD PARTY BENEFICIARIES. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
(i) SURVIVAL. Unless this Agreement is terminated under Section 9(l),
the representations and warranties of the Company and the Buyer(s) contained in
Sections 2 and 3, the agreements and covenants set forth in Sections 4, 5 and 9,
and the indemnification provisions set forth in Section 8, shall survive the
Closing for a period of two (2) years following the date on which the
Convertible Debentures are converted in full. The Buyer(s) shall be responsible
only for its own representations, warranties, agreements and covenants
hereunder.
(j) PUBLICITY. The Company and the Buyer(s) shall have the right to
approve, before issuance any press release or any other public statement with
respect to the transactions contemplated hereby made by any party; provided,
however, that the Company shall be entitled, without the prior approval of the
Buyer(s), to issue any press release or other public disclosure with respect to
such transactions required under applicable securities or other laws or
regulations (the Company shall use its best efforts to consult the Buyer(s) in
22
connection with any such press release or other public disclosure prior to its
release and Buyer(s) shall be provided with a copy thereof upon release
thereof).
(k) FURTHER ASSURANCES. Each party shall do and perform, or cause to
be done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
(l) TERMINATION. In the event that the Closing shall not have
occurred with respect to the Buyers on or before five (5) business days from the
date hereof due to the Company's or the Buyer's failure to satisfy the
conditions set forth in Sections 6 and 7 above (and the non-breaching party's
failure to waive such unsatisfied condition(s)), the non-breaching party shall
have the option to terminate this Agreement with respect to such breaching party
at the close of business on such date without liability of any party to any
other party.
(m) NO STRICT CONSTRUCTION. The language used in this Agreement will
be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.
[REMAINDER PAGE INTENTIONALLY LEFT BLANK]
23
IN WITNESS WHEREOF, the Buyers and the Company have caused this Securities
Purchase Agreement to be duly executed as of the date first written above.
COMPANY:
ENCLAVES GROUP, INC.
By:
--------------------------
Name Xxxxxx X. Xxxxx
Title: CEO
THE BUYER'S(S') SIGNATURES ARE
CONTAINED ON SCHEDULE I HERETO
24
EXHIBIT A
DISCLOSURE SCHEDULE
EXHIBIT A-1
EXHIBIT B
BUDGET
2
SCHEDULE I
SCHEDULE OF BUYERS
Address/facsimile Amount of
Name Signature Number of Buyer Subscription
--------------------------------- ----------------------------- ------------------------------ --------------
Cornell Capital Partners, LP By: Yorkville Advisors, LLC 000 Xxxxxx Xxxxxx - Xxxxx 0000 $5,500,000
Its: General Partner Xxxxxx Xxxx, XX 00000
Facsimile: (000) 000-0000
By: With a copy to:
------------------------
Name: Xxxx X. Xxxxxx Xxxxxxx Capital Partners, LP
Its: Portfolio Manager 000 Xxxxxx Xxxxxx, Xxxxx 0000
Xxxxxx Xxxx, XX 00000
Attention: Xxxx X. Xxxxx, Esq.
Facsimile: (000) 000-0000
SCHEDULE I-1
