EXHIBIT 4.2 - SECURITIES PURCHASE AGREEMENT DATED AS OF MARCH 29, 2002 BY
AND BETWEEN THE REGISTRANT AND THE PURCHASERS NAMED THEREIN
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of March 29,
2002, by and among Conectisys Corporation, a Colorado corporation, with
headquarters located at 00000 Xxxxxx Xxxxxxxx, Xxxxx 000, Xxxxxxxx,
Xxxxxxxxxx 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) 12%
convertible debentures of the Company, in the form attached hereto as
Exhibit "A", in the aggregate principal amount of Seven Hundred Fifty
Thousand Dollars ($750,000) (together with any debenture(s) issued in
replacement thereof or as a dividend thereon or otherwise with respect
thereto in accordance with the terms thereof, the "Debentures"),
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 Debentures and (ii) warrants, in the form
attached hereto as Exhibit "B", to purchase Three Million, Seven Hundred
Fifty Thousand (3,750,000) 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 Debentures 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 DEBENTURES AND WARRANTS.
a. Purchase of Debentures 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 Debentures and number of Warrants as is set forth immediately below such
Buyer's name on the signature pages hereto.
b. Form of Payment.
On the Closing Date (as defined below), (i) each Buyer shall pay the
purchase price for the Debentures 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
Debentures 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
Debentures 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 Debentures and the Warrants pursuant to this
Agreement (the "Closing Date") shall be 12:00 noon Pacific Standard Time on
March 29, 2002 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.
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 Debentures and the
shares of Common Stock issuable upon conversion of or otherwise pursuant to
the Debentures (including, without limitation, such additional shares of
Common Stock, if any, as are issuable (i) on account of interest on the
Debentures, (ii) as a result of the events described in Sections 1.3 and
1.4(g) of the Debentures 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
Debentures, 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
Debentures 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 Debentures 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 Debentures per month plus accrued and unpaid interest on the
Debentures, 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 Debentures 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
Debentures 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 Debentures 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 Debentures 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, 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
Debentures 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) 250,000,000 shares of Common Stock, of which 36,746,568 shares are
issued and outstanding, 6,243,654 shares are reserved for issuance pursuant
to the Company's stock option plans, 4,214,705 shares are reserved for
issuance pursuant to securities (other than the Debentures and the
Warrants) exercisable for, or convertible into or exchangeable for shares
of Common Stock (plus the shares underlying the convertible notes described
in Schedule 3(c)) and 40,833,334 shares are reserved for issuance upon
conversion of the Debentures and the Additional Debentures (as defined in
Section 4(l)) and exercise of the Warrants and the Additional Warrants (as
defined in Section 4(l)) (subject to adjustment pursuant to the Company's
covenant set forth in Section 4(h) below); and (ii) 50,000,000 shares of
preferred stock of which 1,000,000 shares have been designated as Class A
Preferred Stock, 200,020 of which are issued and outstanding with options
outstanding to purchase 250,000 shares of Class A Preferred Stock and of
which 1,000,000 shares have been designated as Class B Preferred 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 stockholders 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 Debentures, 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.
The Conversion Shares and Warrant Shares are duly authorized and reserved
for issuance and, upon conversion of the Debentures 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 stockholders 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 Debenture or exercise of the Warrants. The
Company further acknowledges that its obligation to issue Conversion Shares
and Warrant Shares upon conversion of the Debentures or exercise of the
Warrants in accordance with this Agreement, the Debentures and the Warrants
is absolute and unconditional regardless of the dilutive effect that such
issuance may have on the ownership interests of other stockholders of the
Company.
f. No Conflicts.
The execution, delivery and performance of this Agreement, the Registration
Rights Agreement, the Debentures 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 Debentures or the Warrants in
accordance with the terms hereof or thereof or to issue and sell the
Debentures and Warrants in accordance with the terms hereof and to issue
the Conversion Shares upon conversion of the Debentures and the Warrant
Shares upon exercise of the Warrants. 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.
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, 2001 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, 2001, 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.
(i) 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.
(ii) All of the Company's computer software and computer hardware, and
other similar or related items of automated, computerized or software
systems that are used or relied on by the Company in the conduct of its
business or that were, or currently are being, sold or licensed by the
Company to customers (collectively, "Information Technology"), are Year
2000 Compliant. For purposes of this Agreement, the term "Year 2000
Compliant" means, with respect to the Company's Information Technology,
that the Information Technology is designed to be used prior to, during and
after the calendar Year 2000, and the Information Technology used during
each such time period will accurately receive, provide and process date and
time data (including, but not limited to, calculating, comparing and
sequencing) from, into and between the 20th and 21st centuries, including
the years 1999 and 2000, and leap-year calculations, and will not
malfunction, cease to function, or provide invalid or incorrect results as
a result of the date or time data, to the extent that other information
technology, used in combination with the Information Technology, properly
exchanges date and time data with it. The Company has delivered to the
Buyers true and correct copies of all analyses, reports, studies and
similar written information, whether prepared by the Company or another
party, relating to whether the Information Technology is Year 2000
Compliant, if any.
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
stockholder 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, 2001, 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.
The Company, after giving effect to the transactions contemplated by this
Agreement, will be solvent (i.e., the Company is able to pay its debts as
they become due and payable) and currently the Company has no information
that would lead it to reasonably conclude that the Company would not 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 become due and payable. 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 Buyer, until such breach is cured. If the Buyers elect
to be paid 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 (of if 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 Debentures 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 on the later of (i) one hundred
eighty (180) days from the Closing Date and (ii) ninety (90) days from the
date the Registration Statement (as defined in the Registration Rights
Agreement) is declared effective (plus any days in which sales cannot be
made thereunder). 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 Debentures
purchased by it hereunder bears to the aggregate principal amount of
Debentures 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 Common Stock, provided that no registration rights are given
to the 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 Stockholders of the Company. In the
event that the Company completes a Future Offering on terms more favorable
to another investor than the transaction contemplated hereby, the terms of
the Debentures and the Warrants will be amended to reflect such more
favorable terms.
f. Expenses.
At the Closing, the Company shall reimburse Buyers for expenses incurred by
it 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-KSB, its Quarterly Reports on Form 10-QSB 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 stockholders
of the Company, copies of any notices or other information the Company
makes available or gives to such stockholders.
h. Authorization and Reservation of Shares.
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 Debentures
and Warrants and issuance of the Conversion Shares and Warrant Shares in
connection therewith (based on the Conversion Price of the Debentures or
Exercise Price of the Warrants in effect from time to time) and as
otherwise required by the Debentures. The Company shall not reduce the
number of shares of Common Stock reserved for issuance upon conversion of
Debentures 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 Debentures and Additional Debentures and upon exercise of
the Warrants and the Additional Warrants (based on the Conversion Price of
the Debentures 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 stockholders 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 stockholder 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 number of Authorized and Reserved Shares
exceeds the Reserved Amount, 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 Debentures and upon exercise of the
Warrants and as payment of interest accrued on the Debentures 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 Debentures 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, 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 Debentures 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. 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.
l. Subsequent Investments.
The Company and the Buyers agree that, upon the filing by the Company of
the Registration Statement to be filed pursuant to the Registration Rights
Agreement (the "Filing Date"), the Buyers shall purchase additional
debentures (the "Filing Debentures") in the aggregate principal amount of
One Hundred Fifty Thousand Dollars ($150,000) and additional warrants (the
"Filing Warrants") to purchase an aggregate of 750,000 shares of Common
Stock, for an aggregate purchase price of One Hundred Fifty Thousand
Dollars ($150,000), with the closing of such purchase to occur within
fifteen (15) days of the Filing Date; provided, however, that the
obligation of each Buyer to purchase the Filing Debentures and the Filing
Warrants is subject to the satisfaction, at or before the closing of such
purchase and sale, of the conditions set forth in Section 7. The Company
and the Buyers further agree that, upon the declaration of effectiveness of
the Registration Statement to be filed pursuant to the Registration Rights
Agreement (the "Effective Date"), the Buyers shall purchase additional
debentures (the "Effectiveness Debentures" and, collectively with the
Filing Debentures, the "Additional Debentures") in the aggregate principal
amount of Three Hundred Thousand Dollars ($300,000) and additional warrants
(the "Effectiveness Warrants" and, collectively with the Filing Warrants,
the "Additional Warrants") to purchase an aggregate of 1,500,000 shares of
Common Stock, for an aggregate purchase price of Three Hundred Thousand
Dollars ($300,000), with the closing of such purchase to occur within five
(5) days of the Effective Date; provided, however, that the obligation of
each Buyer to purchase the Effectiveness Debentures and the Effectiveness
Warrants is subject to the satisfaction, at or before the closing of such
purchase and sale, of the conditions set forth in Section 7; and, provided,
further, that there shall not have been a Material Adverse Effect as of
such effective date. The terms of the Additional Debentures and the
Additional Warrants shall be identical to the terms of the Debentures and
Warrants to be issued on the Closing Date. The Common Stock underlying the
Additional Debentures and the Additional Warrants shall be Registrable
Securities (as defined in the Registration Rights Agreement) and shall be
included in the Registration Statement to be filed pursuant to the
Registration Rights Agreement.
m. 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
Buyer, until such breach is cured. If the Buyers elect to be paid 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
Debentures 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 Debentures
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 Debentures 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
Debentures (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 enforceable
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 Xxxxxx Xxxxxxxx
Xxxxx 000
Xxxxxxxx, Xxxxxxxxxx 00000
Attention: Chief Executive Officer
Telephone: 000-000-0000
Facsimile: 000-000-0000
Email: xxxxxxx@xxxxxxxxxx.xxx
With 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
and
Lone Wolf Business Services
00000 Xxxxxxxxx Xxxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxx Xxxx
Telephone: 000-000-0000
Facsimile: 000-000-0000
Email: xxxx@xxxxx.xxx
If to a Buyer: To the address set forth immediately below such Buyer's
name on the signature pages hereto.
With copy to:
Xxxxxxx Xxxxx Xxxxxxx & Ingersoll, 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 X. Xxxxxx
Xxxxxx X. Xxxxxx
Chief Executive Officer
AJW PARTNERS, LLC
By: SMS Group, LLC
/s/ Xxxxx X. Xxxxxxxx
Xxxxx X. Xxxxxxxx
Manager
RESIDENCE: Delaware
ADDRESS:
000 Xxxxx Xxxxxx, Xxxxx X
Xxxxxxx, Xxx Xxxx 00000
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Principal Amount of Debentures: $80,000
Number of Warrants: 400,000
Aggregate Purchase Price: $80,000
NEW MILLENNIUM CAPITAL PARTNERS II, LLC
By: First Street Manager II, LLC
/s/ Xxxxx X. Xxxxxxxx
Xxxxx X. Xxxxxxxx
Manager
RESIDENCE: New York
ADDRESS:
000 Xxxxx Xxxxxx, Xxxxx X
Xxxxxxx, Xxx Xxxx 00000
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Principal Amount of Debentures: $80,000
Number of Warrants: 400,000
Aggregate Purchase Price: $80,000
AJW/NEW MILLENNIUM OFFSHORE, LTD.
By: First Street Manager II, LLC
/s/ Xxxxx X. Xxxxxxxx
Xxxxx X. Xxxxxxxx
Manager
RESIDENCE: Cayman Islands
ADDRESS:
AJW/New Millennium Offshore, Ltd.
P.O. Box 32021 SMB
Grand Cayman, Cayman Island, B.W.I.
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Principal Amount of Debentures: $90,000
Number of Warrants: 450,000
Aggregate Purchase Price: $90,000
PEGASUS CAPITAL PARTNERS, LLC
By: Pegasus Manager, LLC
/s/ Xxxxx X. Xxxxxxxx
Xxxxx X. Xxxxxxxx
Manager
RESIDENCE: New York
ADDRESS:
Pegasus Capital Partners, LLC
000 Xxxxx Xxxxxx, Xxxxx X
Xxxxxxx, Xxx Xxxx 00000
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Principal Amount of Debentures: $50,000
Number of Warrants: 250,000
Aggregate Purchase Price: $50,000
