EXHIBIT 10.1 SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of March 8,
2006, by and among Conectisys Corporation, a Colorado corporation, with
headquarters located at 00000 Xxxxx Xxxxxxxx Xxxxxxx, Xxxxx 00, Xxxxxxxx, XX
00000 (the "Company"), and each of the purchasers set forth on the signature
pages hereto (the "Buyers").
WHEREAS:
A. The Company and the Buyers are executing and delivering this Agreement in
reliance upon an exemption from securities registration afforded by the rules
and regulations as promulgated by the United States Securities and Exchange
Commission (the "SEC") under the Securities Act of 1933, as amended (the "1933
Act");
B. Buyers desire to purchase and the Company desires to issue and sell, upon
the terms and conditions set forth in this Agreement (i) 6% convertible notes
of the Company, in the form attached hereto as Exhibit "A", in the aggregate
principal amount of One Million Two Hundred and Seventy Thousand Dollars
($1,270,000) (together with any note(s) issued in replacement thereof or as a
dividend thereon or otherwise with respect thereto in accordance with the terms
thereof, the "Notes"), convertible into shares of common stock, no par value
per share, of the Company (the "Common Stock"), upon the terms and subject to
the limitations and conditions set forth in such Notes and (ii) warrants, in
the form attached hereto as Exhibit "B", to purchase Twenty Million Three
Hundred and Twenty Thousand (20,320,000) shares of Common Stock (the
"Warrants").
C. Each Buyer wishes to purchase, upon the terms and conditions stated in this
Agreement, such principal amount of Notes and number of Warrants as is set
forth immediately below its name on the signature pages hereto; and
D. Contemporaneous with the execution and delivery of this Agreement, the
parties hereto are executing and delivering a Registration Rights Agreement, in
the form attached hereto as Exhibit "C" (the "Registration Rights Agreement"),
pursuant to which the Company has agreed to provide certain registration rights
under the 1933 Act and the rules and regulations promulgated thereunder, and
applicable state securities laws.
NOW THEREFORE, the Company and each of the Buyers severally (and not jointly)
hereby agree as follows:
1. PURCHASE AND SALE OF NOTES AND WARRANTS.
a. Purchase of Notes and Warrants. On the Closing Date (as defined below),
the Company shall issue and sell to each Buyer and each Buyer severally agrees
to purchase from the Company such principal amount of Notes and number of
Warrants as is set forth immediately below such Buyer's name on the signature
pages hereto, which, together with the subsequent closings provided in Section
1(d) below, aggregate One Million Two Hundred and Seventy Thousand Dollars
($1,270,000) principal amount of Notes and Warrants to purchase an aggregate of
20,320,000 shares of Common Stock.
b. Form of Payment. On the Closing Date (as defined below), (i) each Buyer
shall pay the purchase price for the Notes and the Warrants to be issued and
sold to it at the Closing (as defined below) (the "Purchase Price") by wire
transfer of immediately available funds to the Company, in accordance with the
Company's written wiring instructions, against delivery of the Notes in the
principal amount equal to the Purchase Price and the number of Warrants as is
set forth immediately below such Buyer's name on the signature pages hereto,
and (ii) the Company shall deliver such Notes and Warrants duly executed on
behalf of the Company, to such Buyer, against delivery of such Purchase Price.
c. Closing Date. Subject to the satisfaction (or written waiver) of the
conditions thereto set forth in Section 6 and Section 7 below, the date and
time of the issuance and sale of the Notes and the Warrants pursuant to this
Agreement (the "Closing Date") shall be 12:00 noon, Eastern Standard Time on
March 8, 2006 or such other mutually agreed upon time. The closing of the
transactions contemplated by this Agreement (the "Closing") shall occur on the
Closing Date at such location as may be agreed to by the parties.
d. Subsequent Closings. On the final business day of each of the nine (9)
months beginning in April 2006 and ending in December 2006 (each, a "Funding
Date"), the Company shall issue and sell to the Buyers and the Buyers severally
agree to purchase from the Company an aggregate of One Hundred Thousand Dollars
($100,000) principal amount of Notes and Warrants to purchase an aggregate of
1,600,000 shares of Common Stock. On each Funding Date, the Buyers will
transfer an aggregate of $100,000 by wire transfer of immediately available
funds to the Company. In addition, on each Funding Date, an authorized officer
of the Company shall deliver to the Buyers a closing certificate in form and
substance satisfactory to the Buyers. Notwithstanding the foregoing, either
the Company or a majority-in-interest of the Buyers may terminate their
obligations under this Section 1(d) upon thirty (30) days written notice to the
other party.
2. BUYERS' REPRESENTATIONS AND WARRANTIES. Each Buyer severally (and not
jointly) represents and warrants to the Company solely as to such Buyer that:
a. Investment Purpose. As of the date hereof, the Buyer is purchasing the
Notes and the shares of Common Stock issuable upon conversion of or otherwise
pursuant to the Notes (including, without limitation, such additional shares of
Common Stock, if any, as are issuable (i) on account of interest on the Notes,
(ii) as a result of the events described in Sections 1.3 and 1.4(g) of the
Notes and Section 2(c) of the Registration Rights Agreement or (iii) in payment
of the Standard Liquidated Damages Amount (as defined in Section 2(f) below)
pursuant to this Agreement, such shares of Common Stock being collectively
referred to herein as the "Conversion Shares") and the Warrants and the shares
of Common Stock issuable upon exercise thereof (the "Warrant Shares" and,
collectively with the Notes, Warrants and Conversion Shares, the "Securities")
for its own account and not with a present view towards the public sale or
distribution thereof, except pursuant to sales registered or exempted from
registration under the 1933 Act; provided, however, that by making the
representations herein, the Buyer does not agree to hold any of the Securities
for any minimum or other specific term and reserves the right to dispose of the
Securities at any time in accordance with or pursuant to a registration
statement or an exemption under the 1933 Act.
b. Accredited Investor Status. The Buyer is an "accredited investor" as that
term is defined in Rule 501(a) of Regulation D (an "Accredited Investor").
c. Reliance on Exemptions. The Buyer understands that the Securities are
being offered and sold to it in reliance upon specific exemptions from the
registration requirements of United States federal and state securities laws
and that the Company is relying upon the truth and accuracy of, and the Buyer's
compliance with, the representations, warranties, agreements, acknowledgments
and understandings of the Buyer set forth herein in order to determine the
availability of such exemptions and the eligibility of the Buyer to acquire the
Securities.
d. Information. The Buyer and its advisors, if any, have been, and for so
long as the Notes and Warrants remain outstanding will continue to be,
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Securities
which have been requested by the Buyer or its advisors. The Buyer and its
advisors, if any, have been, and for so long as the Notes and Warrants remain
outstanding will continue to be, afforded the opportunity to ask questions of
the Company. Notwithstanding the foregoing, the Company has not disclosed to
the Buyer any material nonpublic information and will not disclose such
information unless such information is disclosed to the public prior to or
promptly following such disclosure to the Buyer. Neither such inquiries nor
any other due diligence investigation conducted by Buyer or any of its advisors
or representatives shall modify, amend or affect Buyer's right to rely on the
Company's representations and warranties contained in Section 3 below. The
Buyer understands that its investment in the Securities involves a significant
degree of risk.
e. Governmental Review. The Buyer understands that no United States federal
or state agency or any other government or governmental agency has passed upon
or made any recommendation or endorsement of the Securities.
f. Transfer or Re-sale. The Buyer understands that (i) except as provided in
the Registration Rights Agreement, the sale or re-sale of the Securities has
not been and is not being registered under the 1933 Act or any applicable state
securities laws, and the Securities may not be transferred unless (a) the
Securities are sold pursuant to an effective registration statement under the
1933 Act, (b) the Buyer shall have delivered to the Company an opinion of
counsel that shall be in form, substance and scope customary for opinions of
counsel in comparable transactions to the effect that the Securities to be sold
or transferred may be sold or transferred pursuant to an exemption from such
registration, which opinion shall be accepted by the Company, (c) the
Securities are sold or transferred to an "affiliate" (as defined in Rule 144
promulgated under the 1933 Act (or a successor rule) ("Rule 144")) of the Buyer
who agrees to sell or otherwise transfer the Securities only in accordance with
this Section 2(f) and who is an Accredited Investor, (d) the Securities are
sold pursuant to Rule 144, or (e) the Securities are sold pursuant to
Regulation S under the 1933 Act (or a successor rule) ("Regulation S"), and the
Buyer shall have delivered to the Company an opinion of counsel that shall be
in form, substance and scope customary for opinions of counsel in corporate
transactions, which opinion shall be accepted by the Company; (ii) any sale of
such Securities made in reliance on Rule 144 may be made only in accordance
with the terms of said Rule and further, if said Rule is not applicable, any
re-sale 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 (in each case, other than pursuant to the Registration Rights
Agreement). Notwithstanding the foregoing or anything else contained herein to
the contrary, the Securities may be pledged as collateral in connection with a
bona fide margin account or other lending arrangement. In the event that the
Company does not accept the opinion of counsel provided by the Buyer with
respect to the transfer of Securities pursuant to an exemption from
registration, such as Rule 144 or Regulation S, within three (3) business days
of delivery of the opinion to the Company, the Company shall pay to the Buyer
liquidated damages of three percent (3%) of the outstanding amount of the Notes
per month plus accrued and unpaid interest on the Notes, prorated for partial
months, in cash or shares at the option of the Buyer ("Standard Liquidated
Damages Amount"). If the Buyer elects to be paid the Standard Liquidated
Damages Amount in shares of Common Stock, such shares shall be issued at the
Conversion Price at the time of payment.
g. Legends. The Buyer understands that the Notes and the Warrants and, until
such time as the Conversion Shares and Warrant Shares have been registered
under the 1933 Act as contemplated by the Registration Rights Agreement or
otherwise may be sold pursuant to Rule 144 or Regulation S without any
restriction as to the number of securities as of a particular date that can
then be immediately sold, the Conversion Shares and Warrant Shares may bear a
restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of the certificates for such Securities):
"The securities represented by this certificate have not been registered under
the Securities Act of 1933, as amended. The securities may not be sold,
transferred or assigned in the absence of an effective registration statement
for the securities under said Act, or an opinion of counsel, in form, substance
and scope customary for opinions of counsel in comparable transactions, that
registration is not required under said Act or unless sold pursuant to Rule 144
or Regulation S under said Act."
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of any Security upon which it is
stamped, if, unless otherwise required by applicable state securities laws, (a)
such Security is registered for sale under an effective registration statement
filed under the 1933 Act or otherwise may be sold pursuant to Rule 144 or
Regulation S without any restriction as to the number of securities as of a
particular date that can then be immediately sold, or (b) such holder provides
the Company with an opinion of counsel, in form, substance and scope customary
for opinions of counsel in comparable transactions, to the effect that a public
sale or transfer of such Security may be made without registration under the
1933 Act, which opinion shall be accepted by the Company so that the sale or
transfer is effected or (c) such holder provides the Company with reasonable
assurances that such Security can be sold pursuant to Rule 144 or Regulation S.
The Buyer agrees to sell all Securities, including those represented by a
certificate(s) from which the legend has been removed, in compliance with
applicable prospectus delivery requirements, if any.
h. Authorization; Enforcement. This Agreement and the Registration Rights
Agreement have been duly and validly authorized. This Agreement has been duly
executed and delivered on behalf of the Buyer, and this Agreement constitutes,
and upon execution and delivery by the Buyer of the Registration Rights
Agreement, such agreement will constitute, valid and binding agreements of the
Buyer enforceable in accordance with their terms.
i. Residency. The Buyer is a resident of the jurisdiction set forth
immediately below such Buyer's name on the signature pages hereto.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and
warrants to each Buyer that:
a. Organization and Qualification. The Company and each of its Subsidiaries
(as defined below), if any, is a corporation duly organized, and, except as set
forth on Schedule 3(a), validly existing and in good standing under the laws
of the jurisdiction in which it is incorporated, with full power and authority
(corporate and other) to own, lease, use and operate its properties and to
carry on its business as and where now owned, leased, used, operated and
conducted. Schedule 3(a) sets forth a list of all of the Subsidiaries of the
Company and the jurisdiction in which each is incorporated. The Company and
each of its Subsidiaries is duly qualified as a foreign corporation to do
business and is in good standing in every jurisdiction in which its ownership
or use of property or the nature of the business conducted by it makes such
qualification necessary except where the failure to be so qualified or in good
standing would not have a Material Adverse Effect. "Material Adverse Effect"
means any material adverse effect on the business, operations, assets,
financial condition or prospects of the Company or its Subsidiaries, if any,
taken as a whole, or on the transactions contemplated hereby or by the
agreements or instruments to be entered into in connection herewith.
"Subsidiaries" means any corporation or other organization, whether
incorporated or unincorporated, in which the Company owns, directly or
indirectly, any equity or other ownership interest.
b. Authorization; Enforcement. (i) The Company has all requisite corporate
power and authority to enter into and perform this Agreement, the Registration
Rights Agreement, the Notes and the Warrants and to consummate the transactions
contemplated hereby and thereby and to issue the Securities, in accordance with
the terms hereof and thereof, (ii) the execution and delivery of this
Agreement, the Registration Rights Agreement, the Notes and the Warrants by the
Company and the consummation by it of the transactions contemplated hereby and
thereby (including without limitation, the issuance of the Notes and the
Warrants and the issuance and reservation for issuance of the Conversion Shares
and Warrant Shares issuable upon conversion or exercise thereof) have been duly
authorized by the Company's Board of Directors and no further consent or
authorization of the Company, its Board of Directors except for the Stockholder
Approval (as defined in Section 4(m)) or its shareholders is required, (iii)
this Agreement has been duly executed and delivered by the Company by its
authorized representative, and such authorized representative is the true and
official representative with authority to sign this Agreement and the other
documents executed in connection herewith and bind the Company accordingly, and
(iv) this Agreement constitutes, and upon execution and delivery by the Company
of the Registration Rights Agreement, the Notes and the Warrants, each of such
instruments will constitute, a legal, valid and binding obligation of the
Company enforceable against the Company in accordance with its terms.
c. Capitalization. As of the date hereof, the authorized capital stock of the
Company consists of (i) 15,000,000,000 shares of Common Stock, of which
12,119,343,132 shares are issued and outstanding, 11,943,654 shares are
reserved for issuance pursuant to the Company's stock option plans, 358,758,842
shares are reserved for issuance pursuant to securities (other than the Notes
and the Warrants) exercisable for, or convertible into or exchangeable for
shares of Common Stock and 2,509,954,372 shares are reserved for issuance upon
conversion of the Notes and exercise of the Warrants (subject to (A)
adjustment pursuant to the Company's covenant set forth in Section 4(h) below)
and (B) the Stockholder Approval (as defined in Section 4(m)); and (ii)
50,000,000 shares of preferred stock, of which 1,000,000 shares have been
designated as Class A Preferred Stock, 215,865 of which are issued and
outstanding with options outstanding to purchase 234,155 shares of Class A
Preferred Stock and of which 1,000,000 shares have been designated as Class B
Preferred Stock of which no shares are issued and outstanding with options
outstanding to purchase 1,000,000 shares of Class B Preferred Stock. All of
such outstanding shares of capital stock are, or upon issuance will be, duly
authorized, validly issued, fully paid and nonassessable. No shares of capital
stock of the Company are subject to preemptive rights or any other similar
rights of the shareholders of the Company or any liens or encumbrances imposed
through the actions or failure to act of the Company. Except as disclosed in
Schedule 3(c), as of the effective date of this Agreement, (i) there are no
outstanding options, warrants, scrip, rights to subscribe for, puts, calls,
rights of first refusal, agreements, understandings, claims or other
commitments or rights of any character whatsoever relating to, or securities or
rights convertible into or exchangeable for any shares of capital stock of the
Company or any of its Subsidiaries, or arrangements by which the Company or any
of its Subsidiaries is or may become bound to issue additional shares of
capital stock of the Company or any of its Subsidiaries, (ii) there are no
agreements or arrangements under which the Company or any of its Subsidiaries
is obligated to register the sale of any of its or their securities under the
1933 Act (except the Registration Rights Agreement) and (iii) there are no
anti-dilution or price adjustment provisions contained in any security issued
by the Company (or in any agreement providing rights to security holders) that
will be triggered by the issuance of the Notes, the Warrants, the Conversion
Shares or Warrant Shares. The Company has furnished to the Buyer true and
correct copies of the Company's Articles of Incorporation as in effect on the
date hereof ("Articles of Incorporation"), 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 of the Company and the material rights of
the holders thereof in respect thereto. The Company shall provide the Buyer
with a written update of this representation signed by the Company's Chief
Executive or Chief Financial Officer on behalf of the Company as of the Closing
Date.
d. Issuance of Shares. Subject to Stockholder Approval (as defined in Section
4(m), the Conversion Shares and Warrant Shares are duly authorized and reserved
for issuance and, upon conversion of the Notes and exercise of the Warrants in
accordance with their respective terms, will be validly issued, fully paid and
non-assessable, and free from all taxes, liens, claims and encumbrances with
respect to the issue thereof and shall not be subject to preemptive rights or
other similar rights of shareholders of the Company and will not impose
personal liability upon the holder thereof.
e. Acknowledgment of Dilution. The Company understands and acknowledges the
potentially dilutive effect to the Common Stock upon the issuance of the
Conversion Shares and Warrant Shares upon conversion of the Note or exercise of
the Warrants. The Company further acknowledges that its obligation to issue
Conversion Shares and Warrant Shares upon conversion of the Notes or exercise
of the Warrants in accordance with this Agreement, the Notes and the Warrants
is absolute and unconditional regardless of the dilutive effect that such
issuance may have on the ownership interests of other shareholders of the
Company.
f. No Conflicts. Subject to Stockholder Approval (as defined in Section 4(m),
the execution, delivery and performance of this Agreement, the Registration
Rights Agreement, the Notes, the Security Agreement and the Warrants by the
Company and the consummation by the Company of the transactions contemplated
hereby and thereby (including, without limitation, the issuance and reservation
for issuance of the Conversion Shares and Warrant Shares) will not (i) conflict
with or result in a violation of any provision of the Articles of Incorporation
or By-laws or (ii) violate or conflict with, or result in a breach of any
provision of, or constitute a default (or an event which with notice or lapse
of time or both could become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture, patent, patent license or instrument to which the Company or any of
its Subsidiaries is a party, or (iii) result in a violation of any law, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations and regulations of any self-regulatory organizations to
which the Company or its securities are subject) applicable to the Company or
any of its Subsidiaries or by which any property or asset of the Company or any
of its Subsidiaries is bound or affected (except for such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations as would
not, individually or in the aggregate, have a Material Adverse Effect).
Neither the Company nor any of its Subsidiaries is in violation of its Articles
of Incorporation, By-laws or other organizational documents and neither the
Company nor any of its Subsidiaries is in default (and no event has occurred
which with notice or lapse of time or both could put the Company or any of its
Subsidiaries in default) under, and neither the Company nor any of its
Subsidiaries has taken any action or failed to take any action that would give
to others any rights of termination, amendment, acceleration or cancellation
of, any agreement, indenture or instrument to which the Company or any of its
Subsidiaries is a party or by which any property or assets of the Company or
any of its Subsidiaries is bound or affected, except for possible defaults as
would not, individually or in the aggregate, have a Material Adverse Effect.
The businesses of the Company and its Subsidiaries, if any, are not being
conducted, and shall not be conducted so long as a Buyer owns any of the
Securities, in violation of any 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, governmental agency,
regulatory agency, self regulatory organization or stock market or any third
party in order for it to execute, deliver or perform any of its obligations
under this Agreement, the Registration Rights Agreement, the Notes or the
Warrants in accordance with the terms hereof or thereof or to issue and sell
the Notes and Warrants in accordance with the terms hereof and to issue the
Conversion Shares upon conversion of the Notes and the Warrant Shares upon
exercise of the Warrants. Except as disclosed in Schedule 3(f), 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 not in violation of the listing
requirements of the Over-the-Counter Bulletin Board (the "OTCBB") and does not
reasonably anticipate that the Common Stock will be delisted by the OTCBB in
the foreseeable future. The Company and its Subsidiaries are unaware of any
facts or circumstances which might give rise to any of the foregoing.
g. SEC Documents; Financial Statements. Except as disclosed in Schedule 3(g),
the Company has timely filed all reports, schedules, forms, statements and
other documents required to be filed by it with the SEC pursuant to the
reporting requirements of the Securities Exchange Act of 1934, as amended (the
"1934 Act") (all of the foregoing filed prior to the date hereof and all
exhibits included therein and financial statements and schedules thereto and
documents (other than exhibits to such documents) incorporated by reference
therein, being hereinafter referred to herein as the "SEC Documents"). The
Company has delivered to each Buyer true and complete copies of the SEC
Documents, except for such exhibits and incorporated documents. As of their
respective dates, the SEC Documents complied in all material respects with the
requirements of the 1934 Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading. None of the
statements made in any such SEC Documents is, or has been, required to be
amended or updated under applicable law (except for such statements as have
been amended or updated in subsequent filings prior the date hereof). As of
their respective dates, the financial statements of the Company included in the
SEC Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto. Such financial statements have been prepared in accordance
with United States 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 not include footnotes or
may be condensed or summary statements) and fairly present in all material
respects the consolidated financial position of the Company and its
consolidated Subsidiaries as of the dates thereof and the consolidated results
of their operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit adjustments). Except as
set forth in the financial statements of the Company included in the SEC
Documents, the Company has no liabilities, contingent or otherwise, other than
(i) liabilities incurred in the ordinary course of business subsequent to
September 30, 2005 and (ii) obligations under contracts and commitments
incurred in the ordinary course of business and not required under generally
accepted accounting principles to be reflected in such financial statements,
which, individually or in the aggregate, are not material to the financial
condition or operating results of the Company.
h. Absence of Certain Changes. Since September 30, 2005, there has been no
material adverse change and no material adverse development in the assets,
liabilities, business, properties, operations, financial condition, results of
operations or prospects of the Company or any of its Subsidiaries.
i. Absence of Litigation. There is no action, suit, claim, proceeding,
inquiry or investigation before or by any court, public board, government
agency, self-regulatory organization or body pending or, to the knowledge of
the Company or any of its Subsidiaries, threatened against or affecting the
Company or any of its Subsidiaries, or their officers or directors in their
capacity as such, that could have a Material Adverse Effect. Schedule 3(i)
contains a complete list and summary description of any pending or threatened
proceeding against or affecting the Company or any of its Subsidiaries, without
regard to whether it would have a Material Adverse Effect. The Company and its
Subsidiaries are unaware of any facts or circumstances which might give rise to
any of the foregoing.
j. Patents, Copyrights, etc. The Company and each of its Subsidiaries owns
or possesses the requisite licenses or rights to use all patents, patent
applications, patent rights, inventions, know-how, trade secrets, trademarks,
trademark applications, service marks, service names, trade names and
copyrights ("Intellectual Property") necessary to enable it to conduct its
business as now operated (and, except as set forth in Schedule 3(j) hereof, to
the best of the Company's knowledge, as presently contemplated to be operated
in the future); there is no claim or action by any person pertaining to, or
proceeding pending, or to the Company's knowledge threatened, which challenges
the right of the Company or of a Subsidiary with respect to any Intellectual
Property necessary to enable it to conduct its business as now operated (and,
except as set forth in Schedule 3(j) hereof, to the best of the Company's
knowledge, as presently contemplated to be operated in the future); to the best
of the Company's knowledge, the Company's or its Subsidiaries' current and
intended products, services and processes do not infringe on any Intellectual
Property or other rights held by any person; and the Company is unaware of any
facts or circumstances which might give rise to any of the foregoing. The
Company and each of its Subsidiaries have taken reasonable security measures to
protect the secrecy, confidentiality and value of their Intellectual Property.
k. No Materially Adverse Contracts, Etc. Neither the Company nor any of its
Subsidiaries is subject to any charter, corporate or other legal restriction,
or any judgment, decree, order, rule or regulation which in the judgment of the
Company's officers has or is expected in the future to have a Material Adverse
Effect. Neither the Company nor any of its Subsidiaries is a party to any
contract or agreement which in the judgment of the Company's officers has or is
expected to have a Material Adverse Effect.
l. Tax Status. Except as set forth on Schedule 3(l), the Company and each of
its Subsidiaries has made or filed all federal, state and foreign income and
all other tax returns, reports and declarations required by any jurisdiction to
which it is subject (unless and only to the extent that the Company and each of
its Subsidiaries has set aside on its books provisions reasonably adequate for
the payment of all unpaid and unreported taxes) and has paid all taxes and
other governmental assessments and charges that are material in amount, shown
or determined to be due on such returns, reports and declarations, except those
being contested in good faith and has set aside on its books provisions
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. The Company has not executed a waiver with respect to the statute
of limitations relating to the assessment or collection of any foreign,
federal, state or local tax. Except as set forth on Schedule 3(l), none of the
Company's tax returns is presently being audited by any taxing authority.
m. Certain Transactions. Except as set forth on Schedule 3(m) and except for
arm's length transactions pursuant to which the Company or any of its
Subsidiaries makes payments in the ordinary course of business upon terms no
less favorable than the Company or any of its Subsidiaries could obtain from
third parties and other than the grant of stock options disclosed on Schedule
3(c), none of the officers, directors, or employees of the Company is presently
a party to any transaction with the Company or any of its Subsidiaries (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.
n. Disclosure. All information relating to or concerning the Company or any
of its Subsidiaries set forth in this Agreement and provided to the Buyers
pursuant to Section 2(d) hereof and otherwise in connection with the
transactions contemplated hereby is true and correct in all material respects
and the Company has not omitted to state any material fact necessary in order
to make the statements made herein or therein, in light of the circumstances
under which they were made, not misleading. No event or circumstance has
occurred or exists with respect to the Company or any of its Subsidiaries or
its or their business, properties, prospects, operations or financial
conditions, which, under applicable law, rule or regulation, requires public
disclosure or announcement by the Company but which has not been so publicly
announced or disclosed (assuming for this purpose that the Company's reports
filed under the 1934 Act are being incorporated into an effective registration
statement filed by the Company under the 1933 Act).
o. Acknowledgment Regarding Buyers' Purchase of Securities. The Company
acknowledges and agrees that the Buyers are acting solely in the capacity of
arm's length purchasers with respect to this Agreement and the transactions
contemplated hereby. The Company further acknowledges that no Buyer is 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
statement made by any Buyer or any of their respective representatives or
agents in connection with this Agreement and the transactions contemplated
hereby is not advice or a recommendation and is merely incidental to the
Buyers' purchase of the Securities. The Company further represents to each
Buyer that the Company's decision to enter into this Agreement has been based
solely on the independent evaluation of the Company and its representatives.
p. 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 in any security or solicited any offers to buy any security
under circumstances that would require registration under the 1933 Act of the
issuance of the Securities to the Buyers. The issuance of the Securities to
the Buyers will not be integrated with any other issuance of the Company's
securities (past, current or future) for purposes of any shareholder approval
provisions applicable to the Company or its securities.
q. No Brokers. The Company has taken no action which would give rise to any
claim by any person for brokerage commissions, transaction fees or similar
payments relating to this Agreement or the transactions contemplated hereby.
r. Permits; Compliance. The Company and each of its Subsidiaries is in
possession of all franchises, grants, authorizations, licenses, permits,
easements, variances, exemptions, consents, certificates, approvals and orders
necessary to own, lease and operate its properties and to carry on its business
as it is now being conducted (collectively, the "Company Permits"), and there
is no action pending or, to the knowledge of the Company, threatened regarding
suspension or cancellation of any of the Company Permits. Neither the Company
nor any of its Subsidiaries is in conflict with, or in default or violation of,
any of the Company Permits, except for any such conflicts, defaults or
violations which, individually or in the aggregate, would not reasonably be
expected to have a Material Adverse Effect. Since September 30, 2005, neither
the Company nor any of its Subsidiaries has received any notification with
respect to possible conflicts, defaults or violations of applicable laws,
except for notices relating to possible conflicts, defaults or violations,
which conflicts, defaults or violations would not have a Material Adverse
Effect.
s. Environmental Matters.
(i) Except as set forth in Schedule 3(s), there are, to the Company's
knowledge, with respect to the Company or any of its Subsidiaries or any
predecessor of the Company, no past or present violations of Environmental Laws
(as defined below), releases of any material into the environment, actions,
activities, circumstances, conditions, events, incidents, or contractual
obligations which may give rise to any common law environmental liability or
any liability under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 or similar federal, state, local or foreign laws and
neither the Company nor any of its Subsidiaries has received any notice with
respect to any of the foregoing, nor is any action pending or, to the Company's
knowledge, threatened in connection with any of the foregoing. The term
"Environmental Laws" means all federal, state, local or foreign laws relating
to pollution or protection of human health or the environment (including,
without limitation, ambient air, surface water, groundwater, land surface or
subsurface strata), including, without limitation, laws relating to emissions,
discharges, releases or threatened releases of chemicals, pollutants
contaminants, or toxic or hazardous substances or wastes (collectively,
"Hazardous Materials") into the environment, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Materials, as well as all authorizations,
codes, decrees, demands or demand letters, injunctions, judgments, licenses,
notices or notice letters, orders, permits, plans or regulations issued,
entered, promulgated or approved thereunder.
(ii) Other than those that are or were stored, used or disposed of in
compliance with applicable law, no Hazardous Materials are contained on or
about any real property currently owned, leased or used by the Company or any
of its Subsidiaries, and no Hazardous Materials were released on or about any
real property previously owned, leased or used by the Company or any of its
Subsidiaries during the period the property was owned, leased or used by the
Company or any of its Subsidiaries, except in the normal course of the
Company's or any of its Subsidiaries' business.
(iii) Except as set forth in Schedule 3(s), there are no underground storage
tanks on or under any real property owned, leased or used by the Company or any
of its Subsidiaries that are not in compliance with applicable law.
t. Title to Property. The Company and its Subsidiaries have good and
marketable title in fee simple to all real property and good and marketable
title to all personal property owned by them which is material to the business
of the Company and its Subsidiaries, in each case free and clear of all liens,
encumbrances and defects except such as are described in Schedule 3(t) or such
as would not have a Material Adverse Effect. Any real property and facilities
held under lease by the Company and its Subsidiaries are held by them under
valid, subsisting and enforceable leases with such exceptions as would not have
a Material Adverse Effect.
u. Insurance. The Company and each of its Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and
customary in the businesses in which the Company and its Subsidiaries are
engaged. Neither the Company nor any such Subsidiary has any reason to believe
that it will not be able to renew its existing insurance coverage as and when
such coverage expires or to obtain similar coverage from similar insurers as
may be necessary to continue its business at a cost that would not have a
Material Adverse Effect. The Company has provided to Buyer true and correct
copies of all policies relating to directors' and officers' liability coverage,
errors and omissions coverage, and commercial general liability coverage.
v. Internal Accounting Controls. The Company and each of its Subsidiaries
maintain a system of internal accounting controls sufficient, in the judgment
of the Company's board of directors, to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken
with respect to any differences.
w. Foreign Corrupt Practices. Neither the Company, nor any of its
Subsidiaries, nor any director, officer, agent, employee or other person acting
on behalf of the Company or any Subsidiary has, in the course of his actions
for, or on behalf of, the Company, used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; made any direct or indirect unlawful payment to any foreign
or domestic government official or employee from corporate funds; violated or
is in violation of any provision of the U.S. Foreign Corrupt Practices Act of
1977, as amended, or made any bribe, rebate, payoff, influence payment,
kickback or other unlawful payment to any foreign or domestic government
official or employee.
x. Solvency. Except as set forth in Schedule 3(x), the Company (after giving
effect to the transactions contemplated by this Agreement) is solvent (i.e.,
its assets have a fair market value in excess of the amount required to pay its
probable liabilities on its existing debts as they become absolute and matured)
and currently the Company has no information that would lead it to reasonably
conclude that the Company would not, after giving effect to the transaction
contemplated by this Agreement, have the ability to, nor does it intend to take
any action that would impair its ability to, pay its debts from time to time
incurred in connection therewith as such debts mature. The Company did not
receive a qualified opinion from its auditors with respect to its most recent
fiscal year end and, after giving effect to the transactions contemplated by
this Agreement, does not anticipate or know of any basis upon which its
auditors might issue a qualified opinion in respect of its current fiscal year.
y. No Investment Company. The Company is not, and upon the issuance and sale
of the Securities as contemplated by this Agreement will not be an "investment
company" required to be registered under the Investment Company Act of 1940 (an
"Investment Company"). The Company is not controlled by an Investment Company.
z. Breach of Representations and Warranties by the Company. If the Company
breaches any of the representations or warranties set forth in this Section 3,
and in addition to any other remedies available to the Buyers pursuant to this
Agreement, the Company shall pay to the Buyer the Standard Liquidated Damages
Amount in cash or in shares of Common Stock at the option of the Company, until
such breach is cured. If the Company elects to pay the Standard Liquidated
Damages Amounts in shares of Common Stock, such shares shall be issued at the
Conversion Price at the time of payment.
4. COVENANTS.
a. Best Efforts. The parties shall use their best efforts to satisfy timely
each of the conditions described in Section 6 and 7 of this Agreement.
b. Form D; Blue Sky Laws. The Company agrees to file a Form D with respect to
the Securities as required under Regulation D and to provide a copy thereof to
each Buyer promptly after such filing. The Company shall, on or before the
Closing Date, take such action as the Company shall reasonably determine is
necessary to qualify the Securities for sale to the Buyers at the applicable
closing pursuant to this Agreement under applicable securities or "blue sky"
laws of the states of the United States (or to obtain an exemption from such
qualification), and shall provide evidence of any such action so taken to each
Buyer on or prior to the Closing Date.
c. Reporting Status; Eligibility to Use Form S-3, SB-2 or Form
S-1. The Company's Common Stock is registered under Section 12(g) of the 1934
Act. The Company represents and warrants that it meets the requirements for the
use of Form S-3 (or if the Company is not eligible for the use of Form S-3 as
of the Filing Date (as defined in the Registration Rights Agreement), the
Company may use the form of registration for which it is eligible at that
time) for registration of the sale by the Buyer of the Registrable Securities
(as defined in the Registration Rights Agreement). So long as the Buyer
beneficially owns any of the Securities, the Company shall timely file all
reports required to be filed with the SEC pursuant to the 1934 Act, 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 permit such termination. The Company further agrees to file all reports
required to be filed by the Company with the SEC in a timely manner so as to
become eligible, and thereafter to maintain its eligibility, for the use of
Form S-3. The Company shall issue a press release describing the materials
terms of the transaction contemplated hereby as soon as practicable following
the Closing Date but in no event more than two (2) business days of the Closing
Date, which press release shall be subject to prior review by the Buyers. The
Company agrees that such press release shall not disclose the name of the
Buyers unless expressly consented to in writing by the Buyers or unless
required by applicable law or regulation, and then only to the extent of such
requirement.
d. Use of Proceeds. The Company shall use the proceeds from the sale of the
Notes and the Warrants in the manner set forth in Schedule 4(d) attached hereto
and made a part hereof and shall not, directly or indirectly, use such proceeds
for any loan to or investment in any other corporation, partnership, enterprise
or other person (except in connection with its currently existing direct or
indirect Subsidiaries).
e. Future Offerings. Subject to the exceptions described below, the Company
will not, without the prior written consent of a majority-in-interest of the
Buyers, not to be unreasonably withheld, negotiate or contract with any party
to obtain additional equity financing (including debt financing with an equity
component) that involves (A) the issuance of Common Stock at a discount to the
market price of the Common Stock on the date of issuance (taking into account
the value of any warrants or options to acquire Common Stock issued in
connection therewith) or (B) the issuance of convertible securities that are
convertible into an indeterminate number of shares of Common Stock or (C) the
issuance of warrants during the period (the "Lock-up Period") beginning on the
Closing Date and ending one hundred and eighty (180) days from the Closing
Date. In addition, subject to the exceptions described below, the Company will
not conduct any equity financing (including debt with an equity component)
("Future Offerings") during the period beginning on the Closing Date and ending
two (2) years after the end of the Lock-up Period unless it shall have first
delivered to each Buyer, at least twenty (20) business days prior to the
closing of such Future Offering, written notice describing the proposed Future
Offering, including the terms and conditions thereof and proposed definitive
documentation to be entered into in connection therewith, and providing each
Buyer an option during the fifteen (15) day period following delivery of such
notice to purchase its pro rata share (based on the ratio that the aggregate
principal amount of Notes purchased by it hereunder bears to the aggregate
principal amount of Notes purchased hereunder) of the securities being offered
in the Future Offering on the same terms as contemplated by such Future
Offering (the limitations referred to in this sentence and the preceding
sentence are collectively referred to as the "Capital Raising Limitations").
In the event the terms and conditions of a proposed Future Offering are amended
in any respect after delivery of the notice to the Buyers concerning the
proposed Future Offering, the Company shall deliver a new notice to each Buyer
describing the amended terms and conditions of the proposed Future Offering and
each Buyer thereafter shall have an option during the fifteen (15) day period
following delivery of such new notice to purchase its pro rata share of the
securities being offered on the same terms as contemplated by such proposed
Future Offering, as amended. The foregoing sentence shall apply to successive
amendments to the terms and conditions of any proposed Future Offering. The
Capital Raising Limitations shall not apply to any transaction involving (i)
issuances of securities in a firm commitment underwritten public offering
(excluding a continuous offering pursuant to Rule 415 under the 1933 Act), (ii)
issuances of securities as consideration for a merger, consolidation or
purchase of assets, or in connection with any strategic partnership or joint
venture (the primary purpose of which is not to raise equity capital), or in
connection with the disposition or acquisition of a business, product or
license by the Company or (iii) issuances of restricted securities at a
discount to the market price of the Company's Common Stock, provided that no
registration rights are given to such purchaser. The Capital Raising
Limitations also shall not apply to the issuance of securities upon exercise or
conversion of the Company's options, warrants or other convertible securities
outstanding as of the date hereof or to the grant of additional options or
warrants, or the issuance of additional securities, under any Company stock
option or restricted stock plan approved by the shareholders of the Company.
f. Expenses. At the Closing, the Company shall reimburse Buyers for expenses
incurred by them in connection with the negotiation, preparation, execution,
delivery and performance of this Agreement and the other agreements to be
executed in connection herewith ("Documents"), including, without limitation,
attorneys' and consultants' fees and expenses, transfer agent fees, fees for
stock quotation services, fees relating to any amendments or modifications of
the Documents or any consents or waivers of provisions in the Documents, fees
for the preparation of opinions of counsel, escrow fees, and costs of
restructuring the transactions contemplated by the Documents. When possible,
the Company must pay these fees directly, otherwise the Company must make
immediate payment for reimbursement to the Buyers for all fees and expenses
immediately upon written notice by the Buyer or the submission of an invoice by
the Buyer If the Company fails to reimburse the Buyer in full within three (3)
business days of the written notice or submission of invoice by the Buyer, the
Company shall pay interest on the total amount of fees to be reimbursed at a
rate of 15% per annum.
g. Financial Information. The Company agrees to send the following reports to
each Buyer until such Buyer transfers, assigns, or sells all of the Securities:
(i) within ten (10) days after the filing with the SEC, a copy of its Annual
Report on Form 10-K, its Quarterly Reports on Form 10-Q and any Current Reports
on Form 8-K; (ii) within one (1) day after release, copies of all press
releases issued by the Company or any of its Subsidiaries; and (iii)
contemporaneously with the making available or giving to the shareholders of
the Company, copies of any notices or other information the Company makes
available or gives to such shareholders.
h. Authorization and Reservation of Shares. Subject to the Stockholder
Approval (as defined in Section 4(m), the Company shall at all times have
authorized, and reserved for the purpose of issuance, a sufficient number of
shares of Common Stock to provide for the full conversion or exercise of the
outstanding Notes and Warrants and issuance of the Conversion Shares and
Warrant Shares in connection therewith (based on the Conversion Price of the
Notes or Exercise Price of the Warrants in effect from time to time) and as
otherwise required by the Notes. The Company shall not reduce the number of
shares of Common Stock reserved for issuance upon conversion of Notes and
exercise of the Warrants without the consent of each Buyer. The Company shall
at all times maintain the number of shares of Common Stock so reserved for
issuance at an amount ("Reserved Amount") equal to no less than two (2) times
the number that is then actually issuable upon full conversion of the Notes and
Additional Notes and upon exercise of the Warrants and the Additional Warrants
(based on the Conversion Price of the Notes or the Exercise Price of the
Warrants in effect from time to time). If at any time the number of shares of
Common Stock authorized and reserved for issuance ("Authorized and Reserved
Shares") is below the Reserved Amount, the Company will promptly take all
corporate action necessary to authorize and reserve a sufficient number of
shares, including, without limitation, calling a special meeting of
shareholders to authorize additional shares to meet the Company's obligations
under this Section 4(h), in the case of an insufficient number of authorized
shares, obtain shareholder approval of an increase in such authorized number of
shares, and voting the management shares of the Company in favor of an increase
in the authorized shares of the Company to ensure that the number of authorized
shares is sufficient to meet the Reserved Amount. If the Company fails to
obtain such shareholder approval within thirty (30) days following the date on
which the Reserved Amount exceeds the number ofAuthorized and Reserved Shares ,
the Company shall pay to the Borrower the Standard Liquidated Damages Amount,
in cash or in shares of Common Stock at the option of the Buyer. If the Buyer
elects to be paid the Standard Liquidated Damages Amount in shares of Common
Stock, such shares shall be issued at the Conversion Price at the time of
payment. In order to ensure that the Company has authorized a sufficient
amount of shares to meet the Reserved Amount at all times, the Company must
deliver to the Buyer at the end of every month a list detailing (1) the current
amount of shares authorized by the Company and reserved for the Buyer; and (2)
amount of shares issuable upon conversion of the Notes and upon exercise of the
Warrants and as payment of interest accrued on the Notes for one year. If the
Company fails to provide such list within five (5) business days of the end of
each month, the Company shall pay the Standard Liquidated Damages Amount, in
cash or in shares of Common Stock at the option of the Buyer, until the list is
delivered. If the Buyer elects to be paid the Standard Liquidated Damages
Amount in shares of Common Stock, such shares shall be issued at the Conversion
Price at the time of payment.
i. Listing. The Company shall promptly secure the listing of the Conversion
Shares and Warrant Shares upon each national securities exchange or automated
quotation system, if any, upon which shares of Common Stock are then listed
(subject to official notice of issuance) and, so long as any Buyer owns any of
the Securities, shall maintain, so long as any other shares of Common Stock
shall be so listed, such listing of all Conversion Shares and Warrant Shares
from time to time issuable upon conversion of the Notes or exercise of the
Warrants. The Company will obtain and, so long as any Buyer owns any of the
Securities, maintain the listing and trading of its Common Stock on the OTCBB
or any equivalent replacement exchange, the Nasdaq National Market ("Nasdaq"),
the Nasdaq SmallCap Market ("Nasdaq SmallCap"), the New York Stock Exchange
("NYSE"), or the American Stock Exchange ("AMEX") and will comply in all
respects with the Company's reporting, filing and other obligations under the
bylaws or rules of the National Association of Securities Dealers ("NASD") and
such exchanges, as applicable. The Company shall promptly provide to each
Buyer copies of any notices it receives from the OTCBB and any other exchanges
or quotation systems on which the Common Stock is then listed regarding the
continued eligibility of the Common Stock for listing on such exchanges and
quotation systems.
j. Corporate Existence. So long as a Buyer beneficially owns any Notes or
Warrants, the Company shall maintain its corporate existence and shall not sell
all or substantially all of the Company's assets, except in the event of a
merger or consolidation or sale of all or substantially all of the Company's
assets, where the surviving or successor entity in such transaction (i) assumes
the Company's obligations hereunder and under the agreements and instruments
entered into in connection herewith and (ii) is a publicly traded corporation
whose Common Stock is listed for trading on the OTCBB, Nasdaq, Nasdaq SmallCap,
NYSE or AMEX.
k. [Intentionally Omitted]
l. No Integration. The Company shall not make any offers or sales of any
security (other than the Securities) under circumstances that would require
registration of the Securities being offered or sold hereunder under the 1933
Act or cause the offering of the Securities to be integrated with any other
offering of securities by the Company for the purpose of any stockholder
approval provision applicable to the Company or its securities.
m. Stockholder Approval. The Company shall file a proxy statement or
information statement with the SEC no later than June 30, 2006 and use its best
efforts to obtain, on or before August 31, 2006 such approvals of the Company's
stockholders as may be required to issue all of the shares of Common Stock
issuable upon conversion or exercise of, or otherwise with respect to, the
Notes and the Warrants in accordance with Colorado law and any applicable rules
or regulations of the OTCBB and Nasdaq, either through a reverse stock split of
the Common Stock or an increase in authorized capital (the "Stockholder
Approval").
n. Breach of Covenants. If the Company breaches any of the covenants set
forth in this Section 4, and in addition to any other remedies available to the
Buyers pursuant to this Agreement, the Company shall pay to the Buyers the
Standard Liquidated Damages Amount, in cash or in shares of Common Stock at the
option of the Company, until such breach is cured. If the Company elects to
pay the Standard Liquidated Damages Amount in shares, such shares shall be
issued at the Conversion Price at the time of payment.
5. TRANSFER AGENT INSTRUCTIONS. The Company shall issue irrevocable
instructions to its transfer agent to issue certificates, registered in the
name of each Buyer or its nominee, for the Conversion Shares and Warrant Shares
in such amounts as specified from time to time by each Buyer to the Company
upon conversion of the Notes or exercise of the Warrants in accordance with the
terms thereof (the "Irrevocable Transfer Agent Instructions"). Prior to
registration of the Conversion Shares and Warrant Shares under the 1933 Act or
the date on which the Conversion Shares and Warrant Shares may be sold pursuant
to Rule 144 without any restriction as to the number of Securities as of a
particular date that can then be immediately sold, 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(f) hereof (in the case of the Conversion Shares and
Warrant Shares, prior to registration of the Conversion Shares and Warrant
Shares under the 1933 Act or the date on which the Conversion Shares and
Warrant Shares may be sold pursuant to Rule 144 without any restriction as to
the number of Securities as of a particular date that can then be immediately
sold), will be given by the Company to its transfer agent and that the
Securities shall otherwise be freely transferable on the books and records of
the Company as and to the extent provided in this Agreement and the
Registration Rights Agreement. Nothing in this Section shall affect in any way
the Buyer's obligations and agreement set forth in Section 2(g) hereof to
comply with all applicable prospectus delivery requirements, if any, upon re-
sale of the Securities. If a Buyer provides the Company with (i) an opinion of
counsel in form, substance and scope customary for opinions in comparable
transactions, to the effect that a public sale or transfer of such Securities
may be made without registration under the 1933 Act and such sale or transfer
is effected or (ii) the Buyer provides reasonable assurances that the
Securities can be sold pursuant to Rule 144, the Company shall permit the
transfer, and, in the case of the Conversion Shares and Warrant Shares,
promptly instruct its transfer agent to issue one or more certificates, free
from restrictive legend, in such name and in such denominations as specified by
such Buyer. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the Buyers, by vitiating the intent
and purpose of the transactions contemplated hereby. Accordingly, the Company
acknowledges that the remedy at law for a breach of its obligations under this
Section 5 may be inadequate and agrees, in the event of a breach or threatened
breach by the Company of the provisions of this Section, that the Buyers shall
be entitled, in addition to all other available remedies, to an injunction
restraining any breach and requiring immediate 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 SELL. The obligation of the
Company hereunder to issue and sell the Notes and Warrants to a Buyer at the
Closing is subject to the satisfaction, at or before the Closing Date of each
of the following conditions thereto, 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. The applicable Buyer shall have executed this Agreement and the
Registration Rights Agreement, and delivered the same to the Company.
b. The applicable Buyer shall have delivered the Purchase Price in accordance
with Section 1(b) above.
c. The representations and warranties of the applicable Buyer shall be true
and correct in all material respects as of the date when made and as of the
Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date), and the applicable Buyer 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 applicable Buyer at or prior to
the Closing Date.
d. No litigation, statute, rule, regulation, executive order, decree, ruling
or injunction shall have been enacted, entered, promulgated or endorsed by or
in any court or governmental authority of competent jurisdiction or any self-
regulatory organization having authority over the matters contemplated hereby
which prohibits the consummation of any of the transactions contemplated by
this Agreement.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE. The obligation of each
Buyer hereunder to purchase the Notes and Warrants at the Closing is subject to
the satisfaction, at or before the Closing Date of each of the following
conditions, provided that these conditions are for such Buyer's sole benefit
and may be waived by such Buyer at any time in its sole discretion:
a. The Company shall have executed this Agreement and the Registration Rights
Agreement, and delivered the same to the Buyer.
b. The Company shall have delivered to such Buyer duly executed Notes (in such
denominations as the Buyer shall request) and Warrants in accordance with
Section 1(b) above.
c. The Irrevocable Transfer Agent Instructions, in form and substance
satisfactory to a majority-in-interest of the Buyers, shall have been delivered
to and acknowledged in writing by the Company's Transfer Agent.
d. The representations and warranties of the Company shall be true and correct
in all material respects as of the date when made and as of the Closing Date as
though made at such 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 Closing Date. The Buyer shall have received a
certificate or certificates, executed by the chief executive officer of the
Company, dated as of the Closing Date, to the foregoing effect and as to such
other matters as may be reasonably requested by such Buyer including, but not
limited to certificates with respect to the Company's Articles of
Incorporation, By-laws and Board of Directors' resolutions relating to the
transactions contemplated hereby.
e. No litigation, statute, rule, regulation, executive order, decree, ruling
or injunction shall have been enacted, entered, promulgated or endorsed by or
in any court or governmental authority of competent jurisdiction or any self-
regulatory organization having authority over the matters contemplated hereby
which prohibits the consummation of any of the transactions contemplated by
this Agreement.
f. No event shall have occurred which could reasonably be expected to have a
Material Adverse Effect on the Company.
g. The Conversion Shares and Warrant Shares shall have been authorized for
quotation on the OTCBB and trading in the Common Stock on the OTCBB shall not
have been suspended by the SEC or the OTCBB.
h. The Buyer shall have received an opinion of the Company's counsel, dated as
of the Closing Date, in form, scope and substance reasonably satisfactory to
the Buyer and in substantially the same form as Exhibit "D" attached hereto.
i. The Buyer shall have received an officer's certificate described in Section
3(c) above, dated as of the Closing Date.
8. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law. THIS AGREEMENT SHALL BE ENFORCED, GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS
MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICT OF LAWS. THE PARTIES HERETO HEREBY SUBMIT TO THE
EXCLUSIVE JURISDICTION OF THE UNITED STATES FEDERAL COURTS LOCATED IN NEW YORK,
NEW YORK WITH RESPECT TO ANY DISPUTE ARISING UNDER THIS AGREEMENT, THE
AGREEMENTS ENTERED INTO IN CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY. BOTH PARTIES IRREVOCABLY WAIVE THE DEFENSE OF AN
INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH SUIT OR PROCEEDING. BOTH PARTIES
FURTHER AGREE THAT SERVICE OF PROCESS UPON A PARTY MAILED BY FIRST CLASS MAIL
SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON THE PARTY IN
ANY SUCH SUIT OR PROCEEDING. NOTHING HEREIN SHALL AFFECT EITHER PARTY'S RIGHT
TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. BOTH PARTIES AGREE THAT
A FINAL NON-APPEALABLE JUDGMENT IN ANY SUCH SUIT OR PROCEEDING SHALL BE
CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON SUCH JUDGMENT
OR IN ANY OTHER LAWFUL MANNER. THE PARTY WHICH DOES NOT PREVAIL IN ANY DISPUTE
ARISING UNDER THIS AGREEMENT SHALL BE RESPONSIBLE FOR ALL FEES AND EXPENSES,
INCLUDING ATTORNEYS' FEES, INCURRED BY THE PREVAILING PARTY IN CONNECTION WITH
SUCH DISPUTE.
b. Counterparts; Signatures by Facsimile. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an original but all of
which shall constitute one and the same agreement and shall become effective
when counterparts have been signed by each party and delivered to the other
party. This Agreement, once executed by a party, may be delivered to the other
party hereto by facsimile transmission of a copy of this Agreement bearing the
signature of the party so delivering this Agreement.
c. Headings. The headings of this Agreement are for convenience of reference
only and shall not form part of, or affect the interpretation of, this
Agreement.
d. Severability. In the event that any provision of this Agreement is invalid
or unenforceable under any applicable statute or rule of law, then such
provision shall be deemed inoperative to the extent that it may conflict
therewith and shall be deemed modified to conform with such statute or rule of
law. Any provision hereof which may prove invalid or unenforceable under any
law shall not affect the validity or enforceability of any other provision
hereof.
e. Entire Agreement; Amendments. 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 the 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 required or permitted to be given under the terms of
this Agreement shall be sent by certified or registered mail (return receipt
requested) or delivered personally or by courier (including a recognized
overnight delivery service) or by facsimile and shall be effective five days
after being placed in the mail, if mailed by regular United States mail, or
upon receipt, if delivered personally or by courier (including a recognized
overnight delivery service) or by facsimile, in each case addressed to a party.
The addresses for such communications shall be:
If to the Company:
Conectisys Corporation
00000 Xxxxx Xxxxxxxx Xxxxxxx, Xxxxx 00
Xxxxxxxx, XX 00000
Attention: Xxxxxx Xxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Email: xxxxxxx@xxxxxxxxxx.xxx
With a copy to:
Xxxxx & Xxxxxx, LLP
000 Xxxxx Xxxxxxxxx, Xxxxx 0000
Xxxxx Xxxx, Xxxxxxxxxx 00000
Attention: Xxxxx Xxxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Email: Xxxxxxxx@xxxxx.xxx
If to a Buyer: To the address set forth immediately below such Buyer's name on
the signature pages hereto.
With a copy to:
Xxxxxxx Xxxxx Xxxxxxx & Xxxxxxxxx, LLP
0000 Xxxxxx Xxxxxx 00xx Xxxxx
Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000
Attention: Xxxxxx X. Xxxxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Email:xxxxxxxx@xxxxxxxxxxxx.xxx
Each party shall provide notice to the other party of any change in address.
g. Successors and Assigns. This Agreement shall be binding upon and inure to
the benefit of the parties and their 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. Notwithstanding the
foregoing, subject to Section 2(f), any Buyer may assign its rights hereunder
to any person that purchases Securities in a private transaction from a Buyer
or to any of its "affiliates," as that term is defined under the 1934 Act,
without the consent of the Company.
h. 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. The representations and warranties of the Company and the
agreements and covenants set forth in Sections 3, 4, 5 and 8 shall survive the
closing hereunder notwithstanding any due diligence investigation conducted by
or on behalf of the Buyers. The Company agrees to indemnify and hold harmless
each of the Buyers and all their officers, directors, employees and agents for
loss or damage arising as a result of or related to any breach or alleged
breach by the Company of any of its representations, warranties and covenants
set forth in Sections 3 and 4 hereof or any of its covenants and obligations
under this Agreement or the Registration Rights Agreement, including
advancement of expenses as they are incurred.
j. Publicity. The Company and each of the Buyers shall have the right to
review a reasonable period of time before issuance of any press releases, SEC,
OTCBB or NASD filings, or any other public statements with respect to the
transactions contemplated hereby; provided, however, that the Company shall be
entitled, without the prior approval of each of the Buyers, to make any press
release or SEC, OTCBB (or other applicable trading market) or NASD filings with
respect to such transactions as is required by applicable law and regulations
(although each of the Buyers shall be consulted by the Company in connection
with any such press release prior to its release and shall be provided with a
copy thereof and be given an opportunity to comment thereon).
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. 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.
m. Remedies. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the Buyers 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 obligations under this
Agreement will be inadequate and agrees, in the event of a breach or threatened
breach by the Company of the provisions of this Agreement, that the Buyers
shall be entitled, in addition to all other available remedies at law or in
equity, and in addition to the penalties assessable herein, to an injunction or
injunctions restraining, preventing or curing any breach of this Agreement and
to enforce specifically the terms and provisions hereof, without the necessity
of showing economic loss and without any bond or other security being required.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the undersigned Buyers and the Company have caused this
Agreement to be duly executed as of the date first above written.
CONECTISYS CORPORATION
/s/ XXXXXX XXXXXX
----------------------
Xxxxxx Xxxxxx
President and Chief Executive Officer
AJW PARTNERS, LLC
By: SMS Group, LLC
/s/ XXXXX X. XXXXXXXX
----------------------
Xxxxx X. Xxxxxxxx
Manager
RESIDENCE: Delaware
ADDRESS: 0000 Xxxxxxxx Xxxxxxxxx
Xxxxx 000
Xxxxxx, Xxx Xxxx 00000
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Principal Amount of Notes: $ 139,700
Number of Warrants: 2,235,200
Aggregate Purchase Price: $ 139,700
NEW MILLENNIUM CAPITAL PARTNERS II, LLC
By: First Street Manager II, LLC
/s/ XXXXX X. XXXXXXXX
----------------------
Xxxxx X. Xxxxxxxx
Manager
RESIDENCE: New York
ADDRESS: 0000 Xxxxxxxx Xxxxxxxxx
Xxxxx 000
Xxxxxx, Xxx Xxxx 00000
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Principal Amount of Notes: $ 12,700
Number of Warrants: 203,200
Aggregate Purchase Price: $ 12,700
AJW OFFSHORE, LTD.
By: First Street Manager II, LLC
/s/ XXXXX X. XXXXXXXX
----------------------
Xxxxx X. Xxxxxxxx
Manager
RESIDENCE: Cayman Islands
ADDRESS: X.X. Xxx 00000 XXX
Xxxxx Xxxxxx, Xxxxxx Xxxxxx, B.W.I.
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Principal Amount of Notes: $ 774,700
Number of Warrants: 12,395,200
Aggregate Purchase Price: $ 774,700
AJW QUALIFIED PARTNERS, LLC
By: AJW Manager, LLC
/s/ XXXXX X. XXXXXXXX
----------------------
Xxxxx X. Xxxxxxxx
Manager
RESIDENCE: New York
ADDRESS: 0000 Xxxxxxxx Xxxxxxxxx
Xxxxx 000
Xxxxxx, Xxx Xxxx 00000
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Principal Amount of Notes: $ 342,900
Number of Warrants: 5,486,400
Aggregate Purchase Price: $ 342,900
