SUBSCRIPTION AGREEMENT
THIS
SUBSCRIPTION AGREEMENT (this "Agreement"), dated as of July __,
2005, by and among XRG, Inc., a Delaware corporation (the
"Company"), and the subscribers identified on the signature page
hereto (each a "Subscriber" and collectively
"Subscribers").
WHEREAS,
the Company and the Subscribers are executing and delivering this
Agreement in reliance upon an exemption from securities
registration afforded by the provisions of Section 4(2), Section
4(6) and/or Regulation D ("Regulation D") as promulgated by the
United States Securities and Exchange Commission (the "Commission")
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 Subscribers, as provided herein, and the Subscribers shall
purchase, in the aggregate, $600,000 (the "Purchase Price") of the
Company's securities consisting of (i) $450,000 of Promissory Notes
bearing 18% interest due December 31, 2005 (the "Note"), in the
form attached hereto as Exhibit A, (ii) 75,000 shares of the
Company's Common Stock, par value $.001 with a purchase price of
$2.00 per share, subject to adjustment as provided herein (the
"Shares"), and (iii) share purchase warrants to acquire up to
3,750,000 shares of the Company's Common Stock exercisable at $2.00
per share, subject to adjustment as provided in the form attached
hereto as Exhibit B (the "Warrants"), to purchase shares of Common
Stock (the "Warrant Shares"). The Purchase Price shall be payable
to the Company on the Closing Date. The Note, the Shares, the
Warrants and the Warrant Shares are collectively referred to herein
as the "Securities"; and
WHEREAS,
the securities are being offered as Units. Each $60,000 Unit
consists of a $45,000 note, 7,500 shares of the Common Stock with a
purchase price of $2.00 per share, and Warrants to acquire 375,000
shares of the Company's Common Stock exercisable at $2.00, subject
to adjustment.
NOW,
THEREFORE, in consideration of the mutual covenants and other
agreements contained in this Agreement, the Company and the
Subscribers hereby agree as follows:
1.
Purchase and Sale of Notes and Warrants . Subject to the
satisfaction (or waiver) of the conditions to Closing set forth in
this Agreement, each Subscriber shall purchase the Note Shares and
Warrants for the portion of the Purchase Price indicated on the
signature page hereto, and the Company shall sell such Note Shares
and Warrants to the Subscriber. The Purchase Price for the Note
Shares and Warrants shall be paid in cash.
2.
Escrow Arrangements; Form of Payment . Upon execution hereof
by the parties, each Subscriber agrees to make the deliveries
required of such Subscriber the Company agrees to make the
deliveries required of the Company.
3.
Warrants . On the Closing Date the Company will issue
Warrants to the Subscribers in the amounts listed on the signature
pages hereto. The per Warrant Share exercise price to acquire a
Warrant Share upon exercise of a Warrant shall be $2.00. The
Warrants shall be exercisable until ten (10) years after the
Closing Date, will have a cashless exercise feature as described in
Exhibit B hereto.
4.
Subscriber's Representations and Warranties . Each
Subscriber hereby represents and warrants to and agrees with the
Company only as to such Subscriber that:
(a)
Information on Company . The Subscriber has been furnished
with or has had access at the EDGAR Website of the Commission to
the Company's Form 10-KSB for the year ended March 31, 2005 as
filed with the Commission, together with all subsequently filed
Forms 10-QSB, 8-K, and filings made with the Commission available
at the EDGAR website (hereinafter referred to collectively as the
"Reports"). In addition, the Subscriber has received in writing
from the Company such other information concerning its operations,
financial condition and other matters as the Subscriber has
requested in writing (such other information is collectively, the
"Other Written Information"), and considered all factors the
Subscriber deems material in deciding on the advisability of
investing in the Securities.
(b)
Information on Subscriber . The Subscriber is, and will be
at the time of the issuance of the Common Stock and exercise of any
of the Warrants, an "accredited investor", as such term is defined
in Regulation D promulgated by the Commission under the 1933 Act,
is experienced in investments and business matters, has made
investments of a speculative nature and has purchased securities of
United States publicly-owned companies in private placements in the
past and, with its representatives, has such knowledge and
experience in financial, tax and other business matters as to
enable the Subscriber to utilize the information made available by
the Company to evaluate the merits and risks of and to make an
informed investment decision with respect to the proposed purchase,
which represents a speculative investment. The Subscriber has the
authority and is duly and legally qualified to purchase and own the
Securities. The Subscriber is able to bear the risk of such
investment for an indefinite period and to afford a complete loss
thereof. The information set forth on the signature page hereto
regarding the Subscriber is accurate. (c) Purchase of Common Stock
and Warrants. On the closing date, the Subscriber will purchase the
Common Stock and Warrants as principal for its own account and not
with a view to any distribution thereof.
(d)
Compliance with Securities Act . The Subscriber understands
and agrees that the Securities have not been registered under the
1933 Act or any applicable state securities laws, by reason of
their issuance in a transaction that does not require registration
under the 1933 Act (based in part on the accuracy of the
representations and warranties of Subscriber contained herein), and
that such Securities must be held indefinitely unless a subsequent
disposition is registered under the 1933 Act or any applicable
state securities laws or is exempt from such
registration.
(e)
Shares Legend . The Note Shares and the Warrant Shares shall
bear the following or similar legend:
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"THE SHARES REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED. THESE SHARES MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH SECURITIES ACT OR ANY APPLICABLE STATE
SECURITIES LAW OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
XRG, INC. THAT SUCH REGISTRATION IS NOT REQUIRED."
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(f)
Warrants Legend . The Warrants shall bear the following or
similar legend:
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"THIS WARRANT AND THE COMMON
SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS
WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS
WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS
WARRANT UNDER SAID ACT OR ANY APPLICABLE STATE SECURITIES LAW OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO XRG, INC. THAT SUCH
REGISTRATION IS NOT REQUIRED."
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(g)
Communication of Offer . The offer to sell the Securities
was directly communicated to the Subscriber by the Company. At no
time was the Subscriber presented with or solicited by any leaflet,
newspaper or magazine article, radio or television advertisement,
or any other form of general advertising or solicited or invited to
attend a promotional meeting otherwise than in connection and
concurrently with such communicated offer.
(h)
Authority; Enforceability . This Agreement and other
agreements delivered together with this Agreement or in connection
herewith have been duly authorized, executed and delivered by the
Subscriber and are valid and binding agreements enforceable in
accordance with their terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights
generally and to general principles of equity; and Subscriber has
full corporate power and authority necessary to enter into this
Agreement and such other agreements and to perform its obligations
hereunder and under all other agreements entered into by the
Subscriber relating hereto.
(i)
Restricted Securities . Subscriber understands that the
Securities have not been registered under the 1933 Act and such
Subscriber will not sell, offer to sell, assign, pledge,
hypothecate or otherwise transfer any of the Securities unless (i)
pursuant to an effective registration statement under the 1933 Act,
(ii) such Subscriber provides the Company with an opinion of
counsel, in a form reasonably acceptable to the Company, to the
effect that a sale, assignment or transfer of the Securities may be
made without registration under the 1933 Act, or (iii) Subscriber
provides the Company with reasonable assurances (in the form of
seller and broker representation letters) that the Shares or the
Warrant Shares, as the case may be, can be sold pursuant to (A)
Rule 144 promulgated under the 1933 Act, or (B) Rule 144(k)
promulgated under the 1933 Act, in each case following the
applicable holding period set forth therein. Notwithstanding
anything to the contrary contained in this Agreement, such
Subscriber may transfer (without restriction and without the need
for an opinion of counsel) the Securities to its Affiliates (as
defined below) provided that each such Affiliate is an "accredited
investor" under Regulation D and such Affiliate agrees to be bound
by the terms and conditions of this Agreement.
For
the purposes of this Agreement, an "Affiliate" of any specified
Subscriber means any other person or entity directly or indirectly
controlling, controlled by or under direct or indirect common
control with such specified Subscriber. For purposes of this
definition, "control" means the power to direct the management and
policies of such person or firm, directly or indirectly, whether
through the ownership of voting securities, by contract or
otherwise.
(j)
No Governmental Review . Each Subscriber understands that no
United States federal or state agency or any other governmental or
state agency has passed on or made recommendations or endorsement
of the Securities or the suitability of the investment in the
Securities nor have such authorities passed upon or endorsed the
merits of the offering of the Securities.
(k)
Correctness of Representations . Each Subscriber represents
as to such Subscriber that the foregoing representations and
warranties are true and correct as of the date hereof and, unless a
Subscriber otherwise notifies the Company prior to the Closing Date
(as hereinafter defined), shall be true and correct as of the
Closing Date.
(l)
Survival . The foregoing representations and warranties
shall survive the Closing Date for a period of two
years.
5.
Company Representations and Warranties . The Company
represents and warrants to and agrees with each Subscriber
that:
(a)
Due Incorporation . The Company and each of its subsidiaries
is a corporation duly organized, validly existing and in good
standing under the laws of the respective jurisdictions of their
incorporation and have the requisite corporate power to own their
properties and to carry on their business as now being conducted.
The Company and each of its subsidiaries is duly qualified as a
foreign corporation to do business and is in good standing in each
jurisdiction where the nature of the business conducted or property
owned by it makes such qualification necessary, other than those
jurisdictions in which the failure to so qualify would not have a
material adverse effect. For purposes of this Agreement, a
"material adverse effect" shall mean a material adverse effect on
the financial condition, results of operations, properties or
business of the Company taken as a whole.
(b)
Outstanding Stock . All issued and outstanding shares of
capital stock of the Company and each of its subsidiaries have been
duly authorized and validly issued and are fully paid and
nonassessable.
(c)
Authority; Enforceability . This Agreement, the Common
Stock, the Warrants, the Escrow Agreement and any other agreements
delivered together with this Agreement or in connection herewith
(collectively "Transaction Documents") have been duly authorized,
executed and. delivered by the Company and are valid and binding
agreements enforceable in accordance with their terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or
affecting creditors' rights generally and to general principles of
equity. The Company has full corporate power and authority
necessary to enter into and deliver the Transaction Documents and
to perform its obligations thereunder.
(d)
Additional Issuances . There are no outstanding agreements
or preemptive or similar rights affecting the Company's common
stock or equity and no outstanding rights, warrants or options to
acquire, or instruments convertible into or exchangeable for, or
agreements or understandings with respect to the sale or issuance
of any shares of common stock or equity of the Company or other
equity interest in any of the subsidiaries of the Company except as
described in the Reports.
(e)
Consents . No consent, approval, authorization or order of
any court, governmental agency or body or arbitrator having
jurisdiction over the Company, or any of its affiliates, the
American Stock Exchange, the National Association of Securities
Dealers, Inc., Nasdaq, SmallCap Market, the OTC Bulletin Board
("Bulletin Board") nor the Company's shareholders is required for
the execution by the Company of the Transaction Documents and
compliance and performance by the Company of its obligations under
the Transaction Documents, including, without limitation, the
issuance and sale of the Securities.
(f)
No Violation or Conflict . Assuming the representations and
warranties of the Subscribers in Section 4 are true and correct,
neither the issuance and sale of the Securities nor the performance
of the Company's obligations under the Transaction Documents by the
Company will:
(i) violate,
conflict with, result in a breach of, or constitute a default (or
an event which with the giving of notice or the lapse of time or
both would be reasonably likely to constitute a default) under (A)
the articles or certificate of incorporation, charter or bylaws of
the Company, (B) to the Company's knowledge, any decree, judgment,
order, law, treaty, rule, regulation or determination applicable to
the Company of any court, governmental agency or body, or
arbitrator having jurisdiction over the Company or any of its
subsidiaries or over the properties or assets of the Company or any
of its affiliates, (C) the terms of any bond, debenture, note or
any other evidence of indebtedness, or any agreement, stock option
or other similar plan, indenture, lease, mortgage, deed of trust or
other instrument to which the Company or any of its affiliates or
subsidiaries is a party, by which the Company or any of its
affiliates or subsidiaries is bound, or to which any of the
properties of the Company or any of its affiliates or subsidiaries
is subject, or (D) the terms of any "lock-up" or similar provision
of any underwriting or similar agreement to which the Company, or
any of its affiliates or subsidiaries is a party except the
violation, conflict, breach, or default of which would not have a
material adverse effect on the Company; or
(ii) result
in the creation or imposition of any lien, charge or encumbrance
upon the Securities or any of the assets of the Company, its
subsidiaries or any of its affiliates; or
(iii) result
in the activation of any anti-dilution rights or a reset or
repricing of any debt or security instrument of any other creditor
or equity holder of the Company, nor result in the acceleration of
the due date of any obligation of the Company; or
(iv) result
in the activation of any piggy-back registration rights of any
person or entity holding securities of the Company or having the
right to receive securities of the Company.
(g)
The Securities . The Securities upon issuance:
(i) are,
or will be, free and clear of any security interests, liens, claims
or other encumbrances, subject to restrictions upon transfer under
the 1933 Act and any applicable state securities laws;
(ii)
have been, or will be, duly and validly authorized and on the date
of issuance of the Shares and upon exercise of the Warrants, the
Shares and Warrant Shares will be duly and validly issued, fully
paid and nonassessable (and if registered pursuant to the 1933 Act,
and resold pursuant to an effective registration statement will be
free trading and unrestricted, provided that each Subscriber
complies with the prospectus delivery requirements of the 1933
Act);
(iii) will
not have been issued or sold in violation of any preemptive or
other similar rights of the holders of any securities of the
Company; and
(iv) will
not subject the holders thereof to personal liability by reason of
being such holders.
(h)
Litigation . There is no pending or, to the best knowledge
of the Company, threatened action, suit, proceeding or
investigation before any court, governmental agency or body, or
arbitrator having jurisdiction over the Company, or any of its
affiliates that would affect the execution by the Company or the
performance by the Company of its obligations under the Transaction
Documents. Except as disclosed in the Reports, there is no pending
or, to the best knowledge of the Company, basis for or threatened
action, suit, proceeding or investigation before any court,
governmental agency or body, or arbitrator having jurisdiction over
the Company, or any of its affiliates which litigation if adversely
determined would have a material adverse effect on the
Company.
(i)
Reporting Company . The Company is a publicly-held company
subject to reporting obligations pursuant to Section 13 of the
Securities Exchange Act of 1934, as amended (the "1934 Act") and
has a class of common shares registered pursuant to Section 12(g)
of the 1934 Act. Pursuant to the provisions of the 1934 Act, the
Company has timely filed all reports and other materials required
to be filed thereunder with the Commission during the preceding
twelve months.
(j)
No Market Manipulation . The Company has not taken, and will
not take, directly or indirectly, any action designed to, or that
might reasonably be expected to, cause or result in stabilization
or manipulation of the price of the common stock of the Company to
facilitate the sale or resale of the Securities or affect the price
at which the Securities may be issued or resold.
(k)
Information Concerning Company . The Reports contain all
material information relating to the Company and its operations and
financial condition as of their respective dates which information
is required to be disclosed therein. Since the date of the
financial statements included in the Reports, and except as
modified in the Other Written Information or in the Schedules
hereto, there has been no material adverse change in the Company's
business, financial condition or affairs not disclosed in the
Reports. The Reports do not contain any untrue statement of a
material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading in . light of the circumstances when made.
(l)
Stop Transfer . The Securities, when issued, will be
restricted securities. The Company will not issue any stop transfer
order or other order impeding the sale, resale or delivery of any
of the Securities, except as may be required by any applicable
federal or state securities laws and unless contemporaneous notice
of such instruction is given to the Subscriber.
(m)
Defaults . The Company is not in violation of its articles
of incorporation or bylaws. The Company is (i) not in default under
or in violation of any other material agreement or instrument to
which it is a party or by which it or any of its properties are
bound or affected, which default or violation would have a material
adverse effect on the Company, (ii) not in default with respect to
any order of any court, arbitrator or governmental body or subject
to or party to any order of any court or governmental authority
arising out of any action, suit or proceeding under any statute or
other law respecting antitrust, monopoly, restraint of trade,
unfair competition or similar matters, or (iii) to its knowledge
not in violation of any statute, rule or regulation of any
governmental authority which violation would have a material
adverse effect on the Company.
(n)
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 cause the offer of the Securities pursuant to this Agreement
to be integrated with prior offerings by the Company for purposes
of the 1933 Act or any applicable stockholder approval provisions,
including, without limitation, under the rules and regulations of
the Bulletin Board which if so integrated would eliminate the
exemption for the Offering as described in the second paragraph of
this Agreement. The Company will not conduct any offering other
than the transactions contemplated hereby that will be integrated
with the offer or issuance of the Securities which if so integrated
would eliminate the exemption for the Offering as described in the
second paragraph of this Agreement.
(o)
No General Solicitation . Neither the Company, nor any of
its affiliates, nor to its knowledge, 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
1933 Act) in connection with the offer or sale of the
Securities.
(p)
Listing . The Company's common stock is quoted on the
Bulletin Board. The Company has not received any oral or written
notice that its common stock is not eligible nor will become
ineligible for quotation on the Bulletin Board nor that its common
stock does not meet all requirements for the continuation of such
quotation and the Company satisfies and as of the Closing Date, the
Company will satisfy all the requirements for the continued
quotation of its common stock on the Bulletin Board.
(q)
No Undisclosed Liabilities . The Company has no liabilities
or obligations which are material, individually or in the
aggregate, which are not disclosed in the Reports and Other Written
Information, other than those incurred in the ordinary course of
the Company's businesses since March 31, 2004 and which,
individually or in the aggregate, would reasonably be expected to
have a material adverse effect on the Company's financial
condition.
(r)
No Undisclosed Events or Circumstances . Since March 31,
2004, no event or circumstance has occurred or exists with respect
to the Company or its businesses, properties, operations or
financial condition, that, under applicable law, rule or
regulation, requires public disclosure or announcement prior to the
date hereof by the Company but which has not been so publicly
announced or disclosed in the Reports.
(s)
Capitalization . The authorized and outstanding capital
stock of the Company as of the date of this Agreement and the
Closing Date is set forth in the Reports and Other Written
Information. There are no options, warrants, or rights to subscribe
to, securities, rights or obligations convertible into or
exchangeable for or giving any right to subscribe for any shares of
capital stock of the Company except as set forth in the Reports.
All of the outstanding shares of Common Stock of the Company have
been duly and validly authorized and issued and are fully paid and
nonassessable.
(t)
Correctness of Representations . The Company represents that
the foregoing representations and warranties are true and correct
as of the date hereof in all material respects, and, unless the
Company otherwise notifies the Subscribers prior to the Closing
Date, shall be true and correct in all material respects as of the
Closing Date.
(u)
Survival . The foregoing representations and warranties
shall survive the Closing Date for a period of two
years.
6.
Regulation D Offering . The offer and issuance of the
Securities to the Subscribers is being made pursuant to the
exemption from the registration provisions of the 1933 Act afforded
by Section 4(2) or Section 4(6) of the 1933 Act and/or Rule 506 of
Regulation D promulgated thereunder. On the Closing Date, the
Company will provide an opinion reasonably acceptable to Subscriber
from the Company's legal counsel opining on the availability of an
exemption from registration under the 1933 Act as it relates to the
offer and issuance of the Securities and other matters reasonably
requested by Subscribers. A form of the legal opinion is annexed
hereto as Exh
