SUBSCRIPTION AGREEMENT CONVERTIBLE PROMISSORY NOTE
Exhibit
10.4
CONVERTIBLE
PROMISSORY NOTE
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1.
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Subscription.
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a. Offering. The
undersigned understands that R SQUARED CONTRACTING, INC., a corporation
organized and existing under the laws of the State of California (the
“Company”), is offering to sell up to an aggregate $750,000.00 principal amount
of unsecured convertible promissory note (the Notes), with a required minimum
raise of $250,000.00. A copy of the Note is attached hereto as Appendix A, and
the terms of the Note are incorporated herein. The proceeds from the
Note will be used to fund the expansion of, and further develop the product
lines of the Company, pay the expenses of the instant transaction, and fund
working capital needs. In addition to this Subscription Agreement,
the undersigned had received and reviewed certain Company documents, including
without limitation the Summary of Company Background and the Investor Risk
Factors attached thereto (hereinafter “Investor Packet” collectively), which
relates to this Offering (hereinafter “Offering”). The undersigned understands
that the minimum Note principal is Two Hundred Fifty Thousand Dollars
($250,000.00).
b. Manner of
Subscription. The undersigned Subscriber hereby subscribes for
and agrees to purchase $50,000.00 principal amount of the Notes on the terms and
conditions described herein. The undersigned hereby delivers to the
Company two executed copies of this Subscription Agreement. Upon
receipt of such funds, the Company agrees to deliver to the undersigned a Note
in the aggregate principal amount of the subscription price then
paid.
c. The
Subscriber represents that the Subscriber is an “Accredited Investor” as such
term is defined in Rule 501 of Regulation D promulgated under the Securities Act
of 1933, as amended (the “Act”) and that the Subscriber is able to bear the
economic risk and illiquidity of an investment in the Securities.
2.
Representation
and Warranties. The undersigned represents and warrants to the
Company as follows:
a. I
have received and read, and I understand, the contents of the Investor Packet as
well as the terms and conditions presented to me by the Company, which contain
important information relating to the Company and the Offering and have relied
solely on those documents; no oral representations have been made or oral
information furnished to the undersigned in connection with the purchase of the
Shares which were in any way inconsistent with the Investor Packet.
b. I
have, or my Purchaser Representative, as defined in Regulation D under the
Securities Act of 1933, as amended (hereinafter “Act”), has had the opportunity
to seek from the Company or its representative(s), and have received from such
parties, all information deemed necessary by the undersigned to evaluate the
merits and risks of the Offering. I have, or my Purchaser
Representative has, had the opportunity to verify the accuracy of the
information contained in the Investor Packet and to seek investment, tax, or
legal counsel prior to investing in the Company.
c. I
understand that the Securities offered by my subscription to the Note will not
be registered for sale under the 1933 Act or registered or qualified under any
state securities laws in reliance upon exemptions from such registration and
qualification, and that such exemptions depend in large part on my
representations and warranties herein.
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d.
If I am acting in a representative capacity for a corporation,
partnership, trust or other entity, or as agent for any person or entity, I have
full authority to execute this Subscription Agreement in such
capacity.
e.
The Securities offered by my subscription to the Note are being purchased for my
own account for investment and not with a view to resale or distribution to any
person, corporation or other entity. I also understand that there
will not be any public market for the sale of such Shares at the time of
execution of this Agreement.
f. I
have carefully reviewed the Investor Packet, and have made my own examination of
the investment, as well as the accounting and tax aspects of this transaction,
and will depend on the advice of my own counsel and accountants, and I agree
that the Company has no responsibility with respect to such matters or such
advice.
g. I
understand the Securities offered by my subscription to the Note are a
speculative investment which involve a substantial degree of risk of loss of a
substantial portion or possibly my entire investment in the
Company. I understand and take full cognizance of the risk factors
related to the purchase of the Shares, including without limitation, those set
forth in the Investor Packet.
h. I
am financially responsible, able to meet all obligations hereunder, and I
acknowledge that this investment will be long-term, and by its nature,
speculative. Additionally, I am capable of bearing the high degree of
economic risks and burdens of this venture including, but not limited to, the
possibility of complete loss of investment and the lack of a public market which
may make it impossible to readily liquidate the investment whenever
desired.
i.
I am an “accredited investor” as the term is defined in Regulation D under the
Act or am, otherwise, a sophisticated, knowledgeable investor (either alone or
with the aid of a Purchaser Representative) with adequate net worth and income
for this investment. I have knowledge and experience in financial and
business matters (either alone or with the aid of a purchaser representative),
am capable of evaluating the merits and risks of an investment in the Company
and its proposed activities and have carefully considered the suitability of an
investment in the Company for my particular financial situation and have
determined the Shares are a suitable investment.
j. All
information which I have provided to the Company, including without limitation,
my financial positions and my knowledge of financial and business matters is
true, correct and complete as of the date of execution of this Subscription
Agreement. I understand that the Company will rely, to a material
degree, upon the representations contained herein.
k.
I understand that I will not be able to cancel, terminate, or revoke
this Subscription Agreement and it will survive my death or disability, if I am
an individual.
l.
I am aware that no federal or state agency has made any finding or
determination as to the fairness of investment in, nor any recommendations or
endorsement of, the Shares.
m.
I understand that the Shares are subject to restrictions on
transferability and resale and may not be transferred or resold except as
permitted under the Act and applicable state securities laws, pursuant to
registration or exemption therefrom.
n.
I understand that at no time has it been explicitly or implicitly
represented, guaranteed, or warranted to the undersigned by the Company, the
agents and employees of the Company, or any other person that: (1) the
undersigned will or will not have to remain as owner of the Shares an exact or
approximate length of time; (2) a percentage of profit and/or amount or type of
consideration will be realized as a result of this investment; (3) any case
dividends from Company operations or otherwise will be made to shareholders by
any specific date or will be made at all; or (4) any specific tax benefits will
accrue as a result of any investment in the Company.
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o. The
offer to subscribe to the Note was communicated by the Company in such a manner
that I was able to ask questions of, and receive answer from, the Company
concerning the terms and conditions of this transaction and that at no time was
I presented with, or solicited by, any leaflet, public promotional meeting,
newspaper article or magazine article, radio or television advertisement, or any
other form of advertising or general solicitation.
p. I
certify, under the penalty of perjury, that (1) the Social Security Number or
Tax Identification Number set forth herein is correct and complete; and (2) that
I am not subject to backup withholding as a result of a failure to report all
interest or dividends, or the Internal Revenue Service has notified me that I am
no longer subject to backup withholding.
q. I
acknowledge and understand that the Investor Packet reflects the Company’s
intentions and estimates at the current time and, as with any developing
company, the precise elements of the Company’s places can be expected to change
from time to time.
3. Indemnification. I
hereby indemnify the Company, its affiliates, and its agents, and hold them
harmless from and against any and all loss, damages, liability or expense,
including costs and reasonable attorneys’ fees, incurred by the Company (or its
affiliates or agents) by reason of or in connection with any misrepresentation
made by me, any breach of any of my warranties, or my failure to fulfill any of
my covenants or agreements under this Subscription Agreement. This
Subscription Agreement and the representations and warranties contained herein
shall survive my purchase of the Shares and shall be binding upon my heirs,
executors, administrators, successors, and assigns.
4.
Revocation. I
understand that I may not cancel, terminate, or revoke the offer to subscribe to
the Note for a period of sixty (60) days or any agreement hereunder at any time
and that this Agreement shall survive my death or disability and shall be
binding upon my heirs, executors, administrators, beneficiaries, successors and
assigns.
5.
Acceptance or
Rejection of Subscription. The undersigned understands
that:
a. The
Company reserves the right to reject any subscription, in whole or in part, at
the sole discretion of the Company for any reason;
b. This
subscription will be accepted or rejected within sixty (60) days from receipt
thereof and will be effective only upon acceptance by the Company;
and
c. Upon
acceptance of the subscription by the Company, the subscription will be
irrevocable.
6.
Market
Stand-off Agreement. The undersigned, (on behalf of itself,
its successors, and its assigns), agrees not to sell or otherwise transfer or
dispose of any Shares acquired in the Offering, including any Shares acquired
upon exercise of the Warrants, for a period not to exceed one hundred eighty
(180) days following the effective date of a registration statement of the
Company filed under the Securities Act in connection with an underwritten public
offering of the Company’s Common Stock if so requested by the underwriter of
such offering. The Company may impose stock transfer instructions
with respect to the Securities subject to the foregoing restriction until the
end of such period.
Subscription
Agreement
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7.
Certain
Securities Law Matters.
a. The
Securities offered by my subscription to the Note shall not be sold, assigned,
transferred or pledged except upon satisfaction of the conditions specified in
this Section 7, which conditions are intended to ensure compliance with the
provisions of the Act. The undersigned will cause any proposed
purchaser, assignee, transferee, or pledge of the Shares held by the undersigned
to agree to take and hold such securities subject to the provisions and
conditions of this Section 7.
b. Each
certificate representing (1) the Shares and (2) any other securities issued in
respect of the Securities offered by my subscription to the Note, upon any stock
split, stock dividend, recapitalization, merger, consolidation, or similar
event, shall (unless otherwise permitted by the provisions of Section 7c below)
be stamped or otherwise imprinted with a legend substantially in the following
form (in additional to any legend required under applicable state securities
laws):
THE
SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. SUCH
SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR
UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL OR OTHER EVIDENCE REASONABLY
ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT. COPIES
OF THE AGREEMENT COVERING THE PURCHASE OF THESE SHARES AND RESTRICTING THEIR
TRANSFER MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF
RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE CORPORATION AT THE PRINCIPAL
EXECUTIVE OFFICES OF THE CORPORATION.
The
undersigned consents to the Company making a notation on its records and giving
instructions to any transfer agent of the Shares in order to implement the
restrictions on transfer established in this Section 7.
c. The
undersigned agrees to comply in all respects with the provisions of this Section
7. Prior to any proposed sale, assignment, transfer or pledge of any
Shares, unless there is in effect a registration statement under the Act
covering the proposed transfer, the undersigned thereof shall give written
notice to the Company of the undersigned’s intention to effect such transfer,
sale, assignment, pledge. Each such notice shall describe the manner
and circumstances of the proposed transfer, sale, assignment, or pledge in
sufficient detail, and shall be accompanied with, at the undersigned’s expense,
evidence satisfactory to the Company of the effect that the proposed transfer of
the Shares without registration under the 1933 Act or applicable state
securities law.
8.
Investor
Information. The Company may only accept subscriptions from
persons who meet certain suitability standards; accordingly the undersigned
shall complete and return to Company the Investor Questionnaire which has been
provided herewith.
9.
Miscellaneous.
a. All
notices or other communications given or made hereunder shall be in writing and
shall be delivered or mailed by registered or certified mail, return receipt
requested, postage prepaid, to the Company and the undersigned at the address as
set forth below.
Subscription
Agreement
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b. This
Agreement shall be governed by and construed in accordance with the laws of the
State of California without reference to conflict of law
principles. Further, all parties hereto agree to the exclusive
personal jurisdiction of the Courts of the State of California, County of Los
Angeles and/or the United States District Court, Central District of
California.
c. This
Agreement constitutes the entire understanding between the parties hereto with
respect to the subject matter hereof and supersedes any prior or contemporaneous
understandings, representations, warranties, or agreements (whether oral or
written) and may be amended only by a writing executed by all
parties.
d. The
undersigned acknowledges that Company may, in its sole and absolute discretion,
accept or reject this subscription offer, whether in whole or in
part.
10.
Certification. The
undersigned represents to Company that (1) the information contained herein or
provided hereunder is complete and accurate as of the date hereof and may be
relied upon by Company; and (2) the undersigned will notify Company immediately
of any change in any such information occurring prior to the acceptance of the
subscription and will promptly send you written confirmation of such
change. The undersigned hereby further certifies that he has read and
understands, and has had sufficient time to read, consult with independent
counsel, and understand, the contents of the Investor Packet and this
Subscription Agreement.
IN
WITNESS WHEREOF, the undersigned has executed this Subscription Agreement as of
the date first set forth above.
Subscriber’s
Name: ________________________________________
(print
or type)
Subscriber’s
Signature: _____________________________________
Name: ___________________________________________
(name
of authorized representative, if applicable)
Its:
______________________________________________
(title
of authorized representative, if applicable)
Social
Security Number: ___________________________________
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Subscriber’s
Note Amount:
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Check
One:
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$
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Check enclosed
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Wire transfer initiated on
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Amount previously sent on
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Subscriber’s
Mailing Address:
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Subscriber’s
Alternative Address:
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(for
formal notice)
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Attention:
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Attention:
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Telephone:
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Telephone:
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Facsimile:
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Facsimile:
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Subscription
Agreement
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APPENDIX
A
NEITHER
THIS NOTE NOR THE SHARES OF EQUITY INTEREST ISSUABLE UPON CONVERSION
OF PRINCIPAL HEREOF OR INTEREST HEREON HAVE BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 OR UNDER THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION
(TOGETHER, THE “SECURITIES LAWS”) AND MAY NOT BE OFFERED FOR SALE, SOLD OR
OTHERWISE TRANSFERRED OR ENCUMBERED IN THE ABSENCE OF COMPLIANCE WITH SUCH
SECURITIES LAWS AND UNTIL THE ISSUER THEREOF SHALL HAVE RECEIVED AN OPINION FROM
COUNSEL ACCEPTABLE TO IT THAT THE PROPOSED DISPOSITION WILL NOT VIOLATE ANY
APPLICABLE SECURITIES LAWS.
CONVERTIBLE
NOTE
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Principal
Amount: $25,000.00
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October
22, 2009
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For Value Received, R
SQUARED CONTRACTING, INC., a California Corporation (the “Company”), hereby
promises to pay to the order of Xxxxxx Xxxxxxxxx (“Holder”), the principal sum
of Twenty Five Thousand AND NO/100 DOLLARS ($25,000.00), together with interest
on the unpaid principal balance thereof at the annual rate of eight percent
(8%), payable semi-annually in arrears in cash.
Article
1
Payments
1.1 Principal and
Interest. The
entire outstanding principal amount of the Notes, together with accrued but
unpaid interest thereon, will be due and payable on the earlier of: (1)
twenty-four (24) months from the date of issuance or (2) upon receipt by either
Company of financing, whether through debt or equity, resulting in gross
proceeds of at least $3 million.
1.2 Manner of
Payment. All
payments of principal and interest shall be made at such place as Holder shall
designate to the Company in writing. If any payment of principal or
interest on this Note is due on a day that is not a Business Day, such payment
shall be due on the next succeeding Business Day, and such extension of time
shall not be taken into account in calculating the amount of interest payable
under this Note. “Business Day” means any day other
than a Saturday, Sunday or legal holiday in the District of
Columbia.
Article
2
Conversion
2.1 Conversion. Should
Company complete any financings, debt or equity, which include any equity
component or provide for a right to convert into equity, and if the entire
principal of the loan remains outstanding, the Holder (investor) shall have the
option to convert, on an all-or-none basis, the entire principal and outstanding
interest of this Note into said financing at a price equal to eighty-five
percent (85%) of the purchase price of said financing.
Article
3
Registration
of Shares
3.1 Registration. If the Company or
any successor or parent company shall determine at any time to proceed with the
preparation and filing with the SEC of a Registration Statement in connection
with the proposed offer and sale of any of its securities by it or any of its
security holders (other than a registration statement on Form X-0, X-0 or other
similar limited purpose form), the Company will give written notice of its
determination to Holder. Upon receipt of a written request from
Holder within thirty (30) days after receipt of any such notice from the
Company, the Company will, except as herein provided, at its sole cost and
expense (other than customary underwriting discounts or commissions) cause all
Shares to be included in such Registration Statement, all to the extent required
to permit the sale or other disposition by Holder of such Shares. The obligation
of the Company under this provision shall be unlimited as to the number of
Registration Statements to which it applies, but shall terminate 4 years after
issuance of the Loan.
Subscription
Agreement
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Article
4
Holder
Qualifications
4.1
Qualified
Holder. The Holder of this note is a qualified entity or
individual, having sufficient funds, as set forth in the Company’s materials
provided, to make the Loan pursuant to this Note. Holder attests that
no part of the funds used by Holder to fund this Note or to acquire shares in
the Company by Conversion of the Note constitutes assets of any “employee
benefit plan” within the meaning of Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended, or other “benefit plan investor” (as
defined in U.S. Department of Labor Reg. Section 2510.3-101 et seq, as amended) or assets
allocated to any insurance company separate account or general account in which
any such employee benefit plan or benefit plan investor (or related trust) has
any interest.
4.2
Company
Materials. The Holder has received and reviewed the Company
Material provided contemporaneously with this Note, and has reviewed and
completed the attached Investor Qualification Statement prior to funding the
Note; the Holder has answered the Investor Qualification Statement completely
and accurately and has had an opportunity to, and has, sought professional
advice prior to funding the Note.
4.3 Risk
Factors. Included in the Company Materials provided to Holder
is a document entitled Risk Factors. Holder has reviewed the Risk
Factors associated with ownership of shares in the Company, upon Conversion, and
understands said risk factors. Prior to funding the Note, Holder has
had an opportunity to, and has, reviewed the Risk Factors with professional
advisors of Holder’s choosing, and a subsequent Conversion election by Holder is
made with full knowledge and understanding of said Risk Factors.
Article
5
Default
and Remedies
5.1
Default. The
occurrence of any of the following events shall constitute a “Default” under
this Note:
(a)
Company’s failure to remit to Holder the principal or interest hereof as the
same becomes due hereunder;
(b)
Company’s assignment for the benefit of creditors, or
filing of a petition in bankruptcy or for reorganization or to effect a plan or
arrangement with creditors;
(c)
Company’s application for, or voluntary permission of, the
appointment of a receiver of trustee for any or all Company
property;
Subscription
Agreement
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(d)
any action or proceeding described in the foregoing paragraphs (b)
and (c) is commenced against Company and such action or proceeding is not
vacated within 60 days of its commencement;
(e)
Company’s dissolution or liquidation; or
5.2
Remedies Upon
Default. Upon
any Default:
(a)
Holder may without further notice declare the entire remaining Principal
Amount of this Note, together with all interest accrued thereon, immediately due
and payable; and Holder’s failure to declare the entire remaining principal sum
of this Note, together with all interest accrued thereon, immediately due and
payable shall not constitute a waiver by Holder of its right to so declare at
any other time;
(b)
Holder may employ an attorney to enforce its rights and remedies hereunder and
Company hereby agrees to pay Holder’s reasonable attorneys’ fees and other
reasonable expenses incurred by Holder in exercising any of Holder’s rights and
remedies upon Default; and
(c)
Holder’s rights and remedies provided hereunder shall be cumulative and may be
pursued singly, successively or together in Holder’s sole discretion; and
Holder’s failure to exercise any such right or remedy shall not be a waiver or
release of such rights or remedies or the right to exercise any of them at
another time.
Article
6
General
Provisions
6.1 Waiver of Protest,
Presentment and Notice. The
Company hereby waives presentment, demand for payment, notice of nonpayment or
dishonor, protest, and notice of protest, and agrees to continue to be bound for
the payment of principal, interest and all other sums due under this Note
notwithstanding any extension or alteration of the time or terms of payment
hereon, any renewal or any acceptance of security of any
kind. Company also hereby waives the right to protest the
domestication or collection of any judgment obtained against the Company with
respect to this Note in any jurisdiction where the Company may now or hereafter
maintain assets or be registered or qualified to transact business.
6.2 Obligations
Absolute. Company’s
obligations hereunder are absolute, and Company hereby waives any and all rights
to offset, deduct or withhold any payments or charges due hereunder for any
reason whatsoever.
6.3 Priority. The Loan
evidenced by this Note shall be senior to all existing debt and preferred
issuances.
6.4
Entire Agreement-
Governing Law. This
Note constitutes the full and entire understanding and agreement between the
parties with regard to the subject matter hereof. This Note shall be governed by
and construed in accordance with the laws of the State of California without
regard to its conflicts-of-law principles.
6.5
Severability. If
any provision in this Note is held invalid or unenforceable by a court of
competent jurisdiction, the other provisions of this Note will remain in full
force and effect. Any provision of this Note held invalid or
unenforceable only in part or degree will remain in full force and effect to the
extent not held invalid or unenforceable.
Subscription
Agreement
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6.6
Waiver of Right or
Remedy. No
waiver of any right or remedy under this Note shall be valid unless in writing
executed by the Holder hereof, and any such waiver shall be effective only in
the specific instance and for the specific purpose given. All rights
and remedies of all present and future Holders of this Note shall be cumulative
and may be exercised singly, concurrently or successively. This Note
shall bind the Company and its successors and assigns.
6.7
Notices. Any
notice required or permitted to be given hereunder shall be made as
follows:
To the
Company:
Xx. Xxxx
Xxxxx
R Squared
Contracting, Inc.
0000
Xxxxx Xx Xxxxxx; Xxxxx X
Xxx
Xxxxx, XX 00000
To the
Holder:
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6.8
Construction. The
headings of Sections in this Convertible Note are provided for convenience only
and will not affect its construction or interpretation. All
references to Articles or Sections refer to Articles and Sections of this Note
unless otherwise specified.
6.9 Attachment
1. Attachment 1 is hereby incorporated by reference as a part of this
Convertible Note. Attachment 1 sets forth the Holder’s status as an accredited
investor and the Risk Factors referenced in Article 4, above.
In Witness Whereof, the
Company has executed and delivered this Convertible Note as of the date first
set forth above.
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Holder
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Name
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R
SQUARED CONTRACTING, INC.
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By:
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Name:
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Title:
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Subscription
Agreement
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