EXHIBIT 10.12
SUBSCRIPTION AGREEMENT
CyNet, Inc.
00000 Xxxxx Xxxx, Xxxxx 000
Xxxxxxx, Xxxxx 00000
Gentlemen:
This subscription agreement (this "AGREEMENT") is intended to set forth
and confirm certain representations, covenants and agreements of the undersigned
("SUBSCRIBER") and CyNet, Inc., a Texas corporation (the "COMPANY"), with
respect to the offering for sale by the Company of a warrant and certain shares
of its Common Stock.
1. SUBSCRIPTION. Subject to the terms and conditions hereof, the
undersigned hereby irrevocably confirms its subscription for: (i) 10,000,000
shares of the Company's Class A Common Stock, no par value (the "CLASS A COMMON
STOCK"), at a price of $1.00 per share (the "SHARES"), and (ii) a five-year
warrant to purchase up to 4,800,000 shares of Class A Common Stock at $1.00 per
share (the "WARRANTS") at a price of $10.00 (the Shares and the Warrant
(including shares of Class A Common Stock issuable upon exercise of the Warrant)
are sometimes referred to herein collectively as the "SECURITIES").
(a) The subscription for the Shares shall be paid in installments in
the amount designated in each Installment Notice (defined below) delivered
by the Company to the Subscriber or in this Agreement. Subscriber has paid
an aggregate of $926,000 prior to the date hereof and has been issued
926,000 Shares. The next installment for 250,000 Shares shall be due and
payable within thirty (30) days after the date of this Agreement.
Thereafter, as needed to meet the capital requirements of the Company
(including those described in Section 4(h) hereof), the Company may from
time to time provide written notice (each, an "INSTALLMENT NOTICE") that
an additional installment is due within twenty (20) days after the date of
the Installment Notice; provided that in any event, all outstanding
installments for which no Installment Notice has been given will be due
and payable on or before December 31, 1998. In the event any such day
should not be a business day (which for purposes hereof shall be a
Saturday, Sunday or legal holiday recognized as such by the government of
the United States or the State of Texas) such installment's purchase shall
take place on the next succeeding business day.
(b) The subscription for the Warrant is being paid concurrently with
the execution of this Agreement.
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(c) In the event the undersigned should fail to timely fund any
installment purchase hereunder (i) the Company may exercise all rights and
remedies available to it, in law and in equity, to enforce that obligation
or receive damages as consequence of such breach by the undersigned and
(ii) the Company may, by written notice to the undersigned, deem the right
of the undersigned to purchase Shares to be forfeited. Notwithstanding
anything to the contrary in this Agreement, the undersigned may, at its
option and from time to time, elect at any time to purchase all or any
outstanding installments by providing written notice to the Company of
such election together with the required payment.
2. ACCEPTANCE OF SUBSCRIPTION; DELIVERY OF SECURITIES. The undersigned
understands and agrees that this subscription is made subject to the following
terms and conditions:
(a) The Company shall have the right to reject this subscription in
whole, but not in part, so that once accepted by the Company, the Company
irrevocably agrees to sell the Securities to the undersigned in accordance
with the terms and conditions of this Subscription Agreement;
(b) The subscription for Securities shall be deemed to be accepted
only when this Subscription Agreement has been accepted in writing by the
Company;
(c) The Securities to be issued and delivered on account of this
subscription will only be issued in the name of, and delivered to, the
undersigned, and the undersigned agrees to comply with the terms of this
Agreement; and
(d) The representations and warranties of the Company set forth
herein shall be true and correct as of the date that the Company accepts
this subscription.
3. REPRESENTATIONS AND WARRANTIES OF THE UNDERSIGNED. The undersigned
hereby represents and warrants to the Company as follows:
(a) The undersigned is acquiring the Securities for its own account,
for investment and not with a view to, or for resale in connection with,
any distribution or public offering thereof within the meaning of the
Securities Act of 1933, as amended (the "ACT"), and applicable state
securities laws.
(b) The undersigned understands that (A) the Securities (1) have not
been registered under the Act or any state securities laws, (2) will be
issued in reliance upon an exemption from the registration and prospectus
delivery requirements of the Act pursuant to Section 4(2) thereof and/or
Regulation D thereunder, (3) will be issued in reliance upon exemptions
from the registration and prospectus delivery requirements of state
securities laws which relate to private offerings and (4) must be held by
the undersigned indefinitely, and (B) the undersigned must therefore bear
the economic risk of such investment indefinitely unless
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a subsequent disposition thereof is registered under the Act and
applicable state securities laws or is exempt therefrom. The undersigned
further understands that such exemptions depend upon, among other things,
the BONA FIDE nature of the investment intent of the undersigned expressed
herein. Pursuant to the foregoing, the undersigned acknowledges that the
certificates representing the Securities acquired by the undersigned shall
bear a restrictive legend substantially as follows:
"The Securities represented by this certificate are subject to
restrictions on transfer under the Securities Act of 1933, as
amended, and state securities laws, and may not be offered for
sale, sold, assigned, transferred, pledged or otherwise
disposed of unless registered under the applicable securities
laws or until the Company has received advice of its counsel
that the Securities may be transferred without such
registration."
In addition, the Warrants shall bear a restrictive legend
substantially as follows:
"The Transfer of this Warrant and the Shares of Common Stock
issuable upon exercise hereof is subject to compliance with
the conditions specified in this Warrant, and no transfer of
this Warrant or such shares shall be valid until such
conditions have been satisfied."
(c) The undersigned has knowledge, skill and experience in
financial, business and investment matters relating to an investment of
this type and is capable of evaluating the merits and risks of such
investment and protecting the undersigned's interest in connection with
the acquisition of the Securities. The undersigned understands that the
acquisition of the Securities is a speculative investment and involves
substantial risks and that the undersigned could lose its entire
investment in the Securities. To the extent deemed necessary by the
undersigned, the undersigned has retained, at its own expense, and relied
upon, appropriate professional advice regarding the investment, tax and
legal merits and consequences of purchasing and owning the Securities. The
undersigned has the ability to bear the economic risks of its investment
in the Company, including a complete loss of the investment, and the
undersigned has no need for liquidity in such investment.
(d) The undersigned has been furnished by the Company all
information (or provided access to all information) regarding the business
and financial condition of the Company, its expected plans for future
business activities, the attributes of the Securities and the merits and
risks of an investment in the Securities which the undersigned has
requested or which is otherwise required to provide full disclosure of
material facts regarding an investment in the Securities. Such disclosures
include, without limitation, information concerning the Rescission Offer
(defined in Section 4(h) hereof) and the liabilities of the Company
associated therewith, as set forth in the draft dated July ___, 1998, of
the
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Company's Registration Statement on Form SB-2 (the "REGISTRATION
STATEMENT"), a copy of which has been received and reviewed by the
undersigned.
(e) In making the proposed investment decision, the undersigned is
relying solely on investigations made by the undersigned and the
undersigned's representatives. The offer to sell the Securities was
communicated to the undersigned in such a manner that the undersigned was
able to ask questions of and receive answers from the management of the
Company concerning the terms and conditions of the proposed transaction
and that at no time was the undersigned presented with or solicited by or
through any leaflet, public promotional meeting, television advertisement
or any other form of general or public advertising or solicitation.
(f) The undersigned acknowledges that the undersigned has been
advised that:
THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF ANY REPRESENTATIONS BY THE COMPANY. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
IN MAKING AN INVESTMENT DECISION THE UNDERSIGNED MUST
RELY ON ITS OWN EXAMINATION OF THE COMPANY AND THE TERMS OF
THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THE
SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE
SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE,
THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR
DETERMINED THE ADEQUACY OF ANY REPRESENTATION. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SECURITIES ARE SUBJECT TO RESTRICTIONS ON
TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR
RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND APPLICABLE STATE SECURITIES LAWS, PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM. THE UNDERSIGNED IS AWARE
THAT IT MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS
INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
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(g) The undersigned acknowledges and is aware that there has never
been any representation, guarantee or warranty made by the Company or any
officer, director, employee or agent or representative of the Company,
expressly or by implication, as to (i) the approximate or exact length of
time that the undersigned will be required to remain an owner of the
Securities; (ii) the amount of or type of consideration, profit or loss to
be realized, if any, as a result of this investment; or (iii) that the
past performance or experience of the Company, or any future expectations,
will in any way indicate predictable results of the ownership of
Securities or of the overall financial performance of the Company.
(h) The undersigned agrees to furnish the Company such other
information as the Company may reasonably request in order to verify the
accuracy of the information contained herein and agrees to notify the
Company immediately of any material change in the information provided
herein that occurs prior to the Company's acceptance of this subscription.
The foregoing representations and warranties and undertakings are made by
the undersigned and on behalf of the undersigned with the intent that they be
relied upon in determining its suitability as an investor and the undersigned
hereby agrees that such representations and warranties shall survive its
purchase of the Securities.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to the undersigned as follows:
(a) The Company is duly incorporated, validly existing and in good
standing under the laws of its state of incorporation, and is duly
qualified to do business as a foreign corporation in all jurisdictions in
which the failure to be so qualified would materially and adversely affect
the business or financial condition, properties or operations of the
Company. The Company has all requisite corporate power and authority (i)
to own and lease the properties and assets it currently owns and leases
and it contemplates owning and leasing and (ii) to conduct its activities
as such activities are currently conducted and as currently contemplated
to be conducted.
(b) The Company has duly authorized the issuance and sale of the
Securities in accordance with the terms of this Agreement by all requisite
corporate action, including the authorization of the Company's Board of
Directors of the issuance and sale of the Securities in accordance
herewith, and the execution, delivery and performance of any other
agreements and instruments executed in connection herewith.
(c) The Securities, when issued and paid for in accordance with this
Agreement, will represent duly authorized, validly issued and fully paid
and nonassessable shares of Class A Common Stock of the Company, and the
issuance thereof will not conflict with the articles
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of incorporation or bylaws of the Company and will be in full compliance
with all federal and state securities laws applicable to such issuance and
sale.
(d) Except for matters relating to the Rescission Offer, there is no
litigation or governmental proceeding pending or threatened against the
Company which would materially and adversely affect the business or
financial condition, properties or operations of the Company. Except for
matters relating to the Recession Offer, the Company has complied with all
laws, rules, regulations and orders applicable to its business,
operations, properties, assets, products and services, and the Company has
all necessary permits, licenses and other authorizations required to
conduct its business as conducted, except in all cases (other than the
Rescission Offer) for those laws, rules, regulations and orders and those
permits, licenses and authorizations the failure to comply with or the
failure to hold or obtain would not have a material adverse effect on the
business or financial condition, properties or operations of the Company.
(e) Except as disclosed in the Registration Statement, the Company
is not in default in the performance of any obligation, agreement or
condition contained in any agreement of the Company or in any agreement by
which the Company or any of its property is bound, except for those
defaults which would not have a material adverse effect on the business or
financial condition, properties or operations of the Company.
(f) The execution and delivery of this Agreement, the fulfillment of
the terms set forth herein and the consummation of the transactions
contemplated hereby will not conflict with, or constitute a breach of or
default under, any agreement, indenture or instrument by which the Company
is bound or any law, administrative rule, regulation or decree of any
court or any governmental body or administrative agency applicable to the
Company.
(g) This Agreement and the information provided pursuant hereto do
not contain, as of the date hereof, an untrue statement of a material fact
and do not omit a material fact necessary to make the statements contained
therein not misleading. There is no fact which the Company has not
disclosed to the undersigned and of which the Company is aware which
materially and adversely affects or could, in the Company's reasonable
opinion, materially and adversely affect the business, prospects,
financial condition, operations, property or affairs of the Company.
(h) The Company intends to use the proceeds from the sale of the
Securities for various corporate purposes, including (i) working capital,
(ii) equipment purchases and other capital expenditures, (iii) the payment
of accrued but unpaid dividends payable on the Company's preferred stock
and (iv) the funding of the Company's obligations to repurchase certain of
its securities pursuant to a rescission offer (the "RESCISSION OFFER") to
be conducted by the Company after the date hereof.
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5. REGISTRATION RIGHTS AGREEMENT. Simultaneously with the acceptance of
the subscription for the Securities, the Company and Subscriber are entering
into a Registration Rights Agreement in the form attached hereto as Exhibit A.
6. MISCELLANEOUS.
(a) This Agreement shall be governed by and construed in accordance
with the laws of Texas, notwithstanding principles of conflicts of laws.
(b) This Agreement constitutes the entire agreement among the
parties hereto with respect to the subject matter hereof, and may be
amended only by a writing executed by all parties hereto.
(c) This Agreement and the representations and warranties contained
herein shall be binding upon the heirs, executors, legal representatives,
administrators, successors and permitted assigns of the undersigned.
IN WITNESS WHEREOF, the undersigned has executed this Agreement as of July
__, 1998.
CYNET HOLDINGS, LLC
By:/s/XXXXXXX X. XXXXX, XX.
Xxxxxxx X. Xxxxx, Xx., President
The Company hereby accepts the foregoing subscription subject to the terms and
conditions hereof as of July 22, 1998.
CYNET, INC.
By:/s/XXXXXX X. XXXXX
Xxxxxx X. Xxxxx, Vice President
and General Counsel
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