IRREVOCABLE TRANSFER AGENT INSTRUCTIONS
July ___, 2005
Mountain Share Transfer
0000 Xxxxxxx Xxxxx
Xxxxxxxxxx, XX 00000-1147
RE: XSUNX, INC.
Ladies and Gentlemen:
Reference is made to that certain Securities Purchase Agreement (the
"Securities Purchase Agreement") of even date herewith by and between XsunX,
Inc., a Colorado corporation (the "Company"), and the Buyers set forth on
Schedule I attached thereto (collectively the "Buyers") and that certain Pledge
and Escrow Agreement (the "Pledge Agreement") of even date herewith among the
Company, the Buyers and Xxxxx Xxxxxxxx, as escrow agent (the "Escrow Agent").
Pursuant to the Securities Purchase Agreement, the Company shall sell to the
Buyers, an the Buyers shall purchase from the Company, convertible debentures
(collectively, the "Debentures") in the aggregate principal amount of Eight
Hundred Fifty Thousand Dollars ($850,000), plus accrued interest, which are
convertible into shares of the Company's common stock, no par value per share
(the "Common Stock"), at the Buyers discretion. The Company has also issued to
the Buyer warrants to purchase up to ___________ shares of Common Stock, at the
Buyer discretion (the "Warrant"). These instructions relate to the following
stock or proposed stock issuances or transfers:
1. The Company has agreed to issue to the Buyers up to ____________
shares of the Company's Common Stock upon conversion of the
Debentures ("Conversion Shares") plus the shares of Common Stock to
be issued to the Buyers upon conversion of accrued interest and
liquidated damages into Common Stock (the "Interest Shares").
2. The Company has prepared a stock certificate representing
____________ shares and ________[Officer] has prepared a stock
certificate representing _______ shares (collectively, the "Escrowed
Shares") of the Common Stock, that have been delivered to the Escrow
Agent pursuant to the Pledge Agreement and the Officer Pledge
Agreement.
3. Up to ____________ shares of Common Stock to be issued upon the
exercise of the Warrant ("Warrant Shares").
This letter shall serve as our irrevocable authorization and direction to
Mountain Share Transfer (the "Transfer Agent") to do the following:
1. Conversion Shares.
a. Instructions Applicable to Transfer Agent. With respect to the
Conversion Shares and the Interest Shares, the Transfer Agent shall issue
the Conversion Shares and the Interest Shares to the Buyers from time to
time upon delivery to the Transfer Agent of a properly completed and duly
executed Conversion Notice (the "Conversion Notice"), in the form attached
hereto as Exhibit I, delivered on behalf of the Company to the Transfer
Agent by the Escrow Agent. Upon receipt of a Conversion Notice, the
Transfer Agent shall within three (3) Trading Days thereafter (i) issue
and surrender to a common carrier for overnight delivery to the address as
specified in the Conversion Notice, a certificate, registered in the name
of the Buyers or their designees, for the number of shares of Common Stock
to which the Buyers shall be entitled as set forth in the Conversion
Notice or (ii) provided Transfer Agent are participating in The Depository
Trust Company ("DTC") Fast Automated Securities Transfer Program, upon the
request of the Buyers, credit such aggregate number of shares of Common
Stock to which the Buyers shall be entitled to the Buyers' or their
designees' balance account with DTC through its Deposit Withdrawal At
Custodian ("DWAC") system provided the Buyers causes its bank or broker to
initiate the DWAC transaction. For purposes hereof "Trading Day" shall
mean any day on which the Nasdaq Market is open for customary trading.
b. The Company hereby confirms to the Transfer Agent and the Buyers that
certificates representing the Conversion Shares shall not bear any legend
restricting transfer and should not be subject to any stop-transfer
restrictions and shall otherwise be freely transferable on the books and
records of the Company; provided that counsel to the Company delivers (i)
the Notice of Effectiveness set forth in Exhibit II attached hereto and
(ii) an opinion of counsel in the form set forth in Exhibit III attached
hereto, and that if the Conversion Shares and the Interest Shares are not
registered for sale under the Securities Act of 1933, as amended, then the
certificates for the Conversion Shares and Interest Shares shall bear the
following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY
NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS,
OR AN OPINION OF COUNSEL, IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY,
THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE
SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT."
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c. In the event that counsel to the Company fails or refuses to render an
opinion as required to issue the Conversion Shares in accordance with the
preceding paragraph (either with or without restrictive legends, as
applicable), then the Company irrevocably and expressly authorizes counsel
to the Buyers to render such opinion. The Transfer Agent shall accept and
be entitled to rely on such opinion for the purposes of issuing the
Conversion Shares.
d. Instructions Applicable to Escrow Agent. Upon the Escrow Agent's
receipt of a properly completed conversion notice substantially in the
form attached as an exhibit to the Debentures, the Escrow Agent shall,
within one (1) Trading Day thereafter, send to the Transfer Agent a
Conversion Notice in the form attached hereto as Exhibit I, which shall
constitute an irrevocable instruction to the Transfer Agent to process
such Conversion Notice in accordance with the terms of these instructions.
2. Escrowed Shares.
a. With respect to the Escrowed Shares, upon an event of default as set
forth in the Pledge Agreement, the Escrow Agent shall send written notice
to the Transfer Agent ("Escrow Notice") to transfer such number of Escrow
Shares as set forth in the Escrow Notice to the Buyers. Upon receipt of an
Escrow Notice, the Transfer Agent shall promptly transfer such number of
Escrow Shares to the Buyers as shall be set forth in the Escrow Notice
delivered to the Transfer Agent by the Escrow Agent. Further, the Transfer
Agent shall promptly transfer such shares from the Buyers to any
subsequent transferee promptly upon receipt of written notice from the
Buyers or their counsel. If the Escrow Shares are not registered for sale
under the Securities Act of 1933, as amended, then the certificates for
the Escrow Shares shall bear the legend set forth in Section 1b.
b. In the event that counsel to the Company fails or refuses to render an
opinion as may be required by the Transfer Agent to affect a transfer of
the Escrow Shares (either with or without restrictive legends, as
applicable), then the Company irrevocably and expressly authorizes counsel
to the Buyers to render such opinion. The Transfer Agent shall accept and
be entitles to rely on such opinion for the purpose of transferring the
Escrow Shares.
3. Warrant Shares.
a. Instructions Applicable to Transfer Agent. With respect to the Warrant
Shares, the Transfer Agent shall issue the Warrant Shares to the Buyer
from time to time upon delivery to the Transfer Agent of a properly
completed and duly executed notice of the Buyer's election to exercise the
Warrant (the "Exercise Notice"), in the form attached hereto as Exhibit
IV, specifying the number of Warrant Shares to be issued, delivered on
behalf of the Company to the Transfer Agent by the Xxxxx Xxxxxxxx, Esq.,
as escrow agent (the "Escrow Agent"). Upon receipt of an Exercise Notice,
the Transfer Agent shall use its best efforts to within three (3) Trading
Days thereafter (i) issue and surrender to a common carrier for overnight
delivery to the address as specified in the Exercise Notice, a
certificate, registered in the name of the the Buyer or its designees, for
the number of shares of Common Stock to which the Buyer shall be entitled
as set forth in the Exercise Notice or (ii) provided Transfer Agent are
participating in The Depository Trust Company ("DTC") Fast Automated
Securities Transfer Program, upon the request of the Buyer, credit such
aggregate number of shares of Common Stock to which the Buyer shall be
entitled to the Buyer's or its designees' balance account with DTC through
its Deposit Withdrawal At Custodian ("DWAC") system provided the Buyer
causes its bank or broker to initiate the DWAC transaction. For purposes
hereof "Trading Day" shall mean any day on which the Nasdaq Market is open
for customary trading.
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The Company hereby confirms to the Transfer Agent and Cornell that
certificates representing the Warrant Shares shall not bear any legend
restricting transfer and should not be subject to any stop-transfer
restrictions and shall otherwise be freely transferable on the books and
records of the Company; provided that counsel to the Company delivers (i)
the Notice of Effectiveness set forth in Exhibit II attached hereto and
(ii) an opinion of counsel in the form set forth in Exhibit III attached
hereto, and that if the Warrant Shares are not registered for sale under
the Securities Act of 1933, as amended, then the certificates for the
Warrant Shares shall bear the restrictive legend referenced above in
Section 1b.
b. In the event that counsel to the Company fails or refuses to render an
opinion as required to issue the Warrant Shares in accordance with the
preceding paragraph (either with or without restrictive legends, as
applicable), then the Company irrevocably and expressly authorizes counsel
to the Buyer to render such opinion. The Transfer Agent shall accept and
be entitled to rely on such opinion for the purposes of issuing the
Warrant Shares.
c. Instructions Applicable to Escrow Agent. Upon the Escrow Agent's
receipt of a properly completed exercise notice substantially in the form
attached as an exhibit to the Warrant and the Aggregate Exercise Price (as
defined in the Warrant), the Escrow Agent shall, within one (1) Trading
Day thereafter, send to the Transfer Agent an Exercise Notice in the form
attached hereto as Exhibit I, which shall constitute an irrevocable
instruction to the Transfer Agent to process such Exercise Notice in
accordance with the terms of these instructions.
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4. All Shares.
a. The Transfer Agent shall reserve for issuance to the Buyers the
Conversion Shares, the Escrowed Shares, and the Warrant Shares. All such
shares shall remain in reserve with the Transfer Agent until the Buyers
provides the Transfer Agent instructions that the shares or any part of
them shall be taken out of reserve and shall no longer be subject to the
terms of these instructions.
b. The Transfer Agent shall rely exclusively on the Conversion Notice, the
Escrow Notice, or the Exercise Notice and shall have no liability for
relying on such instructions. Any Conversion Notice, Escrow Notice, or
Exercise Notice delivered hereunder shall constitute an irrevocable
instruction to the Transfer Agent to process such notice or notices in
accordance with the terms thereof. Such notice or notices may be
transmitted to the Transfer Agent by facsimile or any commercially
reasonable method.
c. The Company hereby confirms to the Transfer Agent and the Buyers that
no instructions other than as contemplated herein will be given to
Transfer Agent by the Company with respect to the matters referenced
herein. The Company hereby authorizes the Transfer Agent, and the Transfer
Agent shall be obligated, to disregard any contrary instructions received
by or on behalf of the Company.
Certain Notice Regarding the Escrow Agent. The Company and the Transfer
Agent hereby acknowledge that the Escrow Agent is general counsel to the Buyers,
a partner of the general partner of the Buyers and counsel to the Buyers in
connection with the transactions contemplated and referred herein. The Company
and the Transfer Agent agree that in the event of any dispute arising in
connection with this Agreement or otherwise in connection with any transaction
or agreement contemplated and referred herein, the Escrow Agent shall be
permitted to continue to represent the Buyers and neither the Company nor the
Transfer Agent will seek to disqualify such counsel.
The Company hereby agrees that it shall not replace the Transfer Agent as
the Company's transfer agent without the prior written consent of the Buyers.
Any attempt by Transfer Agent to resign as the Company's transfer agent
hereunder shall not be effective until such time as the Company provides to the
Transfer Agent written notice that a suitable replacement has agreed to serve as
transfer agent and to be bound by the terms and conditions of these Irrevocable
Transfer Agent Instructions.
The Company herby confirms and the Transfer Agent acknowledges that while
any portion of the Debenture remains unpaid and unconverted with the exception
Common Stock issuable to Cornell Capital Partners, LP pursuant to the Standby
Equity Distribution Agreement, the Company and the Transfer Agent shall not,
without the prior consent of the Buyers, (i) issue any Common Stock or Preferred
Stock without consideration or for a consideration per share less than its fair
market value determined immediately prior to its issuance, (ii) issue any
Preferred Stock, warrant, option, right, contract, call, or other security or
instrument granting the holder thereof the right to acquire Common Stock without
consideration or for a consideration per share less than such Common Stock's
fair market value determined immediately prior to its issuance, (iii) issue any
S-8 shares of the Company's Common Stock.
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The Company and the Transfer Agent hereby acknowledge and confirm that
complying with the terms of this Agreement does not and shall not prohibit the
Transfer Agent from satisfying any and all fiduciary responsibilities and duties
it may owe to the Company.
The Company and the Transfer Agent acknowledge that the Buyers is relying
on the representations and covenants made by the Company and the Transfer Agent
hereunder and are a material inducement to the Buyers purchasing convertible
debentures under the Securities Purchase Agreement. The Company and the Transfer
Agent further acknowledge that without such representations and covenants of the
Company and the Transfer Agent made hereunder, the Buyers would not purchase the
Debentures.
Each party hereto specifically acknowledges and agrees that in the event
of a breach or threatened breach by a party hereto of any provision hereof, the
Buyers will be irreparably damaged and that damages at law would be an
inadequate remedy if these Irrevocable Transfer Agent Instructions were not
specifically enforced. Therefore, in the event of a breach or threatened breach
by a party hereto, including, without limitation, the attempted termination of
the agency relationship created by this instrument, the Buyers shall be
entitled, in addition to all other rights or remedies, to an injunction
restraining such breach, without being required to show any actual damage or to
post any bond or other security, and/or to a decree for specific performance of
the provisions of these Irrevocable Transfer Agent Instructions.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties have caused this letter agreement
regarding Irrevocable Transfer Agent Instructions to be duly executed and
delivered as of the date first written above.
COMPANY:
XSUNX, INC.
By:
------------------------------------
Name: Xxx Xxxxxxxxx
Title: Chief Executive Officer
---------------------------------------
Xxxxx Xxxxxxxx, Esq.
MOUNTAIN SHARE TRANSFER
By:
------------------------------------
Name:
------------------------------------
Title:
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SCHEDULE I
SCHEDULE OF BUYERS
ADDRESS/FACSIMILE
NAME SIGNATURE NUMBER OF BUYERS
---------------------------- -------------------------------- --------------------------------
Cornell Capital Partners, LP By: Yorkville Advisors, LLC 000 Xxxxxx Xxxxxx - Xxxxx 0000
Xxx: Xxxxxxx Xxxxxxx Xxxxxx Xxxx, XX 00000
Facsimile: (000) 000-0000
By:
----------------------------
Name: Xxxx Xxxxxx
Its: Portfolio Manager
SCHEDULE I-1
EXHIBIT I
TO IRREVOCABLE TRANSFER AGENT INSTRUCTIONS
FORM OF CONVERSION NOTICE
Reference is made to the Securities Purchase Agreement (the "Securities
Purchase Agreement") between XsunX, Inc., (the "Company"), and the Buyers set
forth on Schedule I attached thereto dated July ____ 2005. In accordance with
and pursuant to the Securities Purchase Agreement, the undersigned hereby elects
to convert convertible debentures into shares of common stock, no par value per
share (the "Common Stock"), of the Company for the amount indicated below as of
the date specified below.
Conversion Date:
--------------------------
Amount to be converted: $
--------------------------
Conversion Price: $
--------------------------
Shares of Common Stock Issuable:
--------------------------
Amount of Debenture unconverted: $
--------------------------
Amount of Interest Converted: $
--------------------------
Conversion Price of Interest: $
--------------------------
Shares of Common Stock Issuable:
--------------------------
Amount of Liquidated Damages: $
--------------------------
Conversion Price of Liquidated Damages: $
--------------------------
Shares of Common Stock Issuable:
--------------------------
Total Number of shares of Common Stock to be issued:
--------------------------
EXHIBIT I-1
Please issue the shares of Common Stock in the following name and to the
following address:
Issue to:
--------------------------
Authorized Signature:
--------------------------
Name:
--------------------------
Title:
--------------------------
Phone #:
--------------------------
Broker DTC Participant Code:
--------------------------
Account Number*:
--------------------------
* NOTE THAT RECEIVING BROKER MUST INITIATE TRANSACTION ON DWAC SYSTEM.
EXHIBIT I-2
EXHIBIT II
TO IRREVOCABLE TRANSFER AGENT INSTRUCTIONS
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
_________, 2005
_________
Attention:
RE: XSUNX, INC.
Ladies and Gentlemen:
We are counsel to XsunX, Inc., (the "Company"), and have represented the
Company in connection with that certain Securities Purchase Agreement, dated as
of July __, 2005 (the "Securities Purchase Agreement"), entered into by and
among the Company and the Buyers set forth on Schedule I attached thereto
(collectively the "Buyers") pursuant to which the Company has agreed to sell to
the Buyers up to Eight Hundred Fifty Thousand Dollars ($850,000) of secured
convertible debentures, which shall be convertible into shares (the "Conversion
Shares") of the Company's common stock, no par value per share (the "Common
Stock"), in accordance with the terms of the Securities Purchase Agreement.
Pursuant to the Securities Purchase Agreement, the Company also has entered into
a Registration Rights Agreement, dated as of June ___, 2005, with the Buyers
(the "Investor Registration Rights Agreement") pursuant to which the Company
agreed, among other things, to register the Conversion Shares under the
Securities Act of 1933, as amended (the "1933 Act"). In connection with the
Company's obligations under the Securities Purchase Agreement and the
Registration Rights Agreement, on _______, 2005, the Company filed a
Registration Statement (File No. ___-_________) (the "Registration Statement")
with the Securities and Exchange Commission (the "SEC") relating to the sale of
the Conversion Shares.
In connection with the foregoing, we advise the Transfer Agent that a
member of the SEC's staff has advised us by telephone that the SEC has entered
an order declaring the Registration Statement effective under the 1933 Act at
____ P.M. on __________, 2005 and we have no knowledge, after telephonic inquiry
of a member of the SEC's staff, that any stop order suspending its effectiveness
has been issued or that any proceedings for that purpose are pending before, or
threatened by, the SEC and the Conversion Shares are available for sale under
the 1933 Act pursuant to the Registration Statement.
EXHIBIT II-1
The Buyers has confirmed it shall comply with all securities laws and
regulations applicable to it including applicable prospectus delivery
requirements upon sale of the Conversion Shares.
Very truly yours,
By:
------------------------------------
EXHIBIT II-2
EXHIBIT III
TO IRREVOCABLE TRANSFER AGENT INSTRUCTIONS
FORM OF OPINION
________________, 2005
VIA FACSIMILE AND REGULAR MAIL
________________
Attention:
RE: XSUNX, INC.
Ladies and Gentlemen:
We have acted as special counsel to XsunX, Inc. (the "Company"), in
connection with the registration of ___________shares (the "Shares") of its
common stock with the Securities and Exchange Commission (the "SEC"). We have
not acted as your counsel. This opinion is given at the request and with the
consent of the Company.
In rendering this opinion we have relied on the accuracy of the Company's
Registration Statement on Form SB-2, as amended (the "Registration Statement"),
filed by the Company with the SEC on _________ ___, 2005. The Company filed the
Registration Statement on behalf of certain selling stockholders (the "Selling
Stockholders"). This opinion relates solely to the Selling Shareholders listed
on Exhibit "A" hereto and number of Shares set forth opposite such Selling
Stockholders' names. The SEC declared the Registration Statement effective on
__________ ___, 2005.
We understand that the Selling Stockholders acquired the Shares in a
private offering exempt from registration under the Securities Act of 1933, as
amended. Information regarding the Shares to be sold by the Selling Shareholders
is contained under the heading "Selling Stockholders" in the Registration
Statement, which information is incorporated herein by reference. This opinion
does not relate to the issuance of the Shares to the Selling Stockholders. The
opinions set forth herein relate solely to the sale or transfer by the Selling
Stockholders pursuant to the Registration Statement under the Federal laws of
the United States of America. We do not express any opinion concerning any law
of any state or other jurisdiction.
EXHIBIT III-1
In rendering this opinion we have relied upon the accuracy of the
foregoing statements.
Based on the foregoing, it is our opinion that the Shares have been
registered with the Securities and Exchange Commission under the Securities Act
of 1933, as amended, and that ________ may remove the restrictive legends
contained on the Shares. This opinion relates solely to the number of Shares set
forth opposite the Selling Stockholders listed on Exhibit "A" hereto.
This opinion is furnished to Transfer Agent specifically in connection
with the issuance of the Shares, and solely for your information and benefit.
This letter may not be relied upon by Transfer Agent in any other connection,
and it may not be relied upon by any other person or entity for any purpose
without our prior written consent. This opinion may not be assigned, quoted or
used without our prior written consent. The opinions set forth herein are
rendered as of the date hereof and we will not supplement this opinion with
respect to changes in the law or factual matters subsequent to the date hereof.
Very truly yours,
EXHIBIT III-2
EXHIBIT IV
TO IRREVOCABLE TRANSFER AGENT INSTRUCTIONS
FORM OF WARRANT EXERCISE NOTICE
TO BE EXECUTED
BY THE REGISTERED HOLDER TO EXERCISE THIS WARRANT
XSUNX, INC.
The undersigned holder hereby exercises the right to purchase
______________ of the shares of Common Stock ("Warrant Shares") of XsunX, Inc.,
a Colorado corporation (the "Company"), evidenced by the attached Warrant (the
"Warrant"). Capitalized terms used herein and not otherwise defined shall have
the respective meanings set forth in the Warrant.
Specify Method of exercise by check mark:
1. ___ Cash Exercise
(a) Payment of Warrant Exercise Price. The holder shall pay the
Aggregate Exercise Price of $______________ to the Company in
accordance with the terms of the Warrant.
(b) Delivery of Warrant Shares. The Company shall deliver to the
holder _________ Warrant Shares in accordance with the terms of the
Warrant.
2. ___ Cashless Exercise
(a) Payment of Warrant Exercise Price. In lieu of making payment of
the Aggregate Exercise Price, the holder elects to receive upon such
exercise the Net Number of shares of Common Stock determined in
accordance with the terms of the Warrant.
(b) Delivery of Warrant Shares. The Company shall deliver to the
holder _________ Warrant Shares in accordance with the terms of the
Warrant.
Date: _______________ __, ______
Name of Registered Holder
By:
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Name:
--------------------------------------
Title:
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EXHIBIT IV
EXHIBIT "A"
(LIST OF SELLING STOCKHOLDERS)
NAME: NO. OF SHARES:
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EXHIBIT A
