EXHIBIT 10.14- Promissory Note Subscription Agreement dated April 12, 2001
between the Registrant and Laurus Master Fund, Ltd.
SUBSCRIPTION AGREEMENT
Dear Subscriber:
You (the "Subscriber") hereby agree to purchase, and Conectisys Corp., a
Colorado corporation (the "Company") hereby agrees to issue and to sell to the
Subscriber, Secured 8% Convertible Notes (the "Notes") convertible in
accordance with the terms thereof into shares of the Company's no par value
common stock (the "Company Shares") for the aggregate consideration as set
forth on the signature page hereof ("Purchase Price"). The form of Convertible
Note is annexed hereto as Exhibit A. (The Company Shares included in the
Securities (as hereinafter defined) are sometimes referred to herein as the
"Shares" or "Common Stock"). (The Notes, the Company Shares, Common Stock
Purchase Warrants ("Warrants") issuable to the recipients identified on
Schedule B hereto, and the Common Stock issuable upon exercise of the Warrants
are collectively referred to herein as, the "Securities"). Upon acceptance of
this Agreement by the Subscriber, the Company shall issue and deliver to the
Subscriber the Note against payment, by federal funds wire transfer of the
Purchase Price.
The following terms and conditions shall apply to this subscription.
1. Subscriber's Representations and Warranties. The Subscriber hereby
represents and warrants to and agrees with the Company that:
(a) Information on Company. The Subscriber has been furnished with the
Company's Form 10-KSB for the year ended September 30, 2000 as filed with the
Securities and Exchange Commission (the "Commission") together with all
subsequently filed forms 10-QSB and other publicly available filings made with
the Commission (hereinafter referred to as the "Reports"). In addition, the
Subscriber has received from the Company such other information concerning its
operations, financial condition and other matters as the Subscriber has
requested in writing, and considered all factors the Subscriber deems material
in deciding on the advisability of investing in the Securities (such
information in writing is collectively, the "Other Written Information").
(b) Information on Subscriber. The Subscriber is an "accredited
investor", as such term is defined in Regulation D promulgated by the
Commission under the Securities Act of 1933, as amended (the "1933 Act"), is
experienced in investments and business matters, has made investments of a
speculative nature and has purchased securities of United States publicly-owned
companies in private placements in the past and, with its representatives, has
such knowledge and experience in financial, tax and other business matters as
to enable the Subscriber to utilize the information made available by the
Company to evaluate the merits and risks of and to make an informed investment
decision with respect to the proposed purchase, which represents a speculative
investment. The Subscriber has the authority and is duly and legally qualified
to purchase and own the Securities.
The Subscriber is able to bear the risk of such investment for an
indefinite period and to afford a complete loss thereof. The information set
forth on the signature page hereto regarding the Subscriber is accurate.
(c) Purchase of Note. On the Closing Date, the Subscriber will purchase
the Note for its own account and not with a view to any distribution thereof.
(d) Compliance with Securities Act. The Subscriber understands and agrees
that the Securities have not been registered under the 1933 Act, by reason of
their issuance in a transaction that does not require registration under the
1933 Act (based in part on the accuracy of the representations and warranties
of Subscriber contained herein), and that such Securities must be held unless a
subsequent disposition is registered under the 1933 Act or is exempt from such
registration.
(e) Company Shares Legend. The Company Shares, and the shares of Common
Stock issuable upon the exercise of the Warrants, shall bear the following
legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. THESE SHARES MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH SECURITIES ACT OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO CONECTISYS CORP. THAT SUCH REGISTRATION IS NOT REQUIRED."
(f) Warrants Legend. The Warrants shall bear the following legend:
"THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS WARRANT
AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID ACT OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO CONECTISYS CORP. THAT SUCH REGISTRATION IS
NOT REQUIRED."
(g) Note Legend. The Note shall bear the following legend:
"THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS NOTE AND
THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THIS NOTE UNDER SAID ACT OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO CONECTISYS CORP. THAT SUCH REGISTRATION IS NOT
REQUIRED."
(h) Communication of Offer. The offer to sell the Securities was directly
communicated to the Subscriber. At no time was the Subscriber presented with
or solicited by any leaflet, newspaper or magazine article, radio or television
advertisement, or any other form of general advertising or solicited or invited
to attend a promotional meeting otherwise than in connection and concurrently
with such communicated offer.
(i) Correctness of Representations. The Subscriber represents that the
foregoing representations and warranties are true and correct as of the date
hereof and, unless the Subscriber otherwise notifies the Company prior to the
Closing Date (as hereinafter defined), shall be true and correct as of the
Closing Date. The foregoing representations and warranties shall survive the
Closing Date.
2. Company Representations and Warranties. The Company represents and
warrants to and agrees with the Subscriber that:
(a) Due Incorporation. The Company and each of its subsidiaries is a
corporation duly organized, validly existing and in good standing under the
laws of the respective jurisdictions of their incorporation and have the
requisite corporate power to own their properties and to carry on their
business as now being conducted. The Company and each of its subsidiaries is
duly qualified as a foreign corporation to do business and is in good standing
in each jurisdiction where the nature of the business conducted or property
owned by it makes such qualification necessary, other than those jurisdictions
in which the failure to so qualify would not have a material adverse effect on
the business, operations or prospects or condition (financial or otherwise) of
the Company.
(b) Outstanding Stock. All issued and outstanding shares of capital stock
of the Company and each of its subsidiaries has been duly authorized and
validly issued and are fully paid and non-assessable.
(c) Authority; Enforceability. This Agreement has been duly authorized,
executed and delivered by the Company and is a valid and binding agreement
enforceable in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights generally and to
general principles of equity; and the Company has full corporate power and
authority necessary to enter into this Agreement and to perform its obligations
hereunder and all other agreements entered into by the Company relating hereto.
(d) Additional Issuances. There are no outstanding agreements or
preemptive or similar rights affecting the Company's common stock or equity and
no outstanding rights, warrants or options to acquire, or instruments
convertible into or exchangeable for, or agreements or understandings with
respect to the sale or issuance of any shares of common stock or equity of the
Company or other equity interest in any of the subsidiaries of the Company,
except as described in the Reports or Other Written Information.
(e) Consents. No consent, approval, authorization or order of any court,
governmental agency or body or arbitrator having jurisdiction over the Company,
or any of its affiliates, the NASD, NASDAQ or the Company's Shareholders is
required for execution of this Agreement, and all other agreements entered into
by the Company relating thereto, including, without limitation issuance and
sale of the Securities, and the performance of the Company's obligations
hereunder.
(f) No Violation or Conflict. Assuming the representations and warranties
of the Subscriber in Paragraph 1 are true and correct and the Subscriber
complies with its obligations under this Agreement, neither the issuance and
sale of the Securities nor the performance of its obligations under this
Agreement and all other agreements entered into by the Company relating thereto
by the Company will:
(i) violate, conflict with, result in a breach of, or constitute a default
(or an event which with the giving of notice or the lapse of time or both would
be reasonably likely to constitute a default) under (A) the certificate of
incorporation, charter or bylaws of the Company or any of its affiliates, (B)
to the Company's knowledge, any decree, judgment, order, law, treaty, rule,
regulation or determination applicable to the Company or any of its affiliates
of any court, governmental agency or body, or arbitrator having jurisdiction
over the Company or any of its affiliates or over the properties or assets of
the Company or any of its affiliates, (C) the terms of any bond, debenture,
note or any other evidence of indebtedness, or any agreement, stock option or
other similar plan, indenture, lease, mortgage, deed of trust or other
instrument to which the Company or any of its affiliates is a party, by which
the Company or any of its affiliates is bound, or to which any of the
properties of the Company or any of its affiliates is subject, or (D) the terms
of any "lock-up" or similar provision of any underwriting or similar agreement
to which the Company, or any of its affiliates is a party; or
(ii) result in the creation or imposition of any lien, charge or
encumbrance upon the Securities or any of the assets of the Company, or any of
its affiliates.
(g) The Securities. The Securities upon issuance:
(i) are, or will be, free and clear of any security interests, liens,
claims or other encumbrances, subject to restrictions upon transfer under the
1933 Act and State laws;
(ii) have been, or will be, duly and validly authorized and on the date of
issuance and on the Closing Date, as hereinafter defined, and the date the Note
is converted, and the Warrants are exercised, the Securities will be duly and
validly issued, fully paid and nonassessable (and if registered pursuant to the
1933 Act, and resold pursuant to an effective registration statement will be
free trading and unrestricted, provided that the Subscriber complies with the
Prospectus delivery requirements);
(iii) will not have been issued or sold in violation of any preemptive or
other similar rights of the holders of any securities of the Company; and
(iv) will not subject the holders thereof to personal liability by reason
of being such holders.
(h) Litigation. There is no pending or, to the best knowledge of the
Company, threatened action, suit, proceeding or investigation before any court,
governmental agency or body, or arbitrator having jurisdiction over the
Company, or any of its affiliates that would affect the execution by the
Company or the performance by the Company of its obligations under this
Agreement, and all other agreements entered into by the Company relating
hereto. Except as disclosed in the Reports or Other Written Information, there
is no pending or, to the best knowledge of the Company, threatened action,
suit, proceeding or investigation before any court, governmental agency or
body, or arbitrator having jurisdiction over the Company, or any of its
affiliates.
(i) Reporting Company. The Company is a publicly-held company subject to
reporting obligations pursuant to Sections 15(d) and 13 of the Securities
Exchange Act of 1934, as amended (the "1934 Act") and has a class of common
shares registered pursuant to Section 12(g) of the 1934 Act. The Company's
common stock is trading on the NASD OTC Bulletin Board ("Bulletin Board").
Pursuant to the provisions of the 1934 Act, the Company has filed all reports
and other materials required to be filed thereunder with the Securities and
Exchange Commission during the preceding twelve months except as set forth in
the Reports.
(j) No Market Manipulation. The Company has not taken, and will not take,
directly or indirectly, any action designed to, or that might reasonably be
expected to, cause or result in stabilization or manipulation of the price of
the common stock of the Company to facilitate the sale or resale of the
Securities or affect the price at which the Securities may be issued.
(k) Information Concerning Company. The Reports and Other Written
Information contain all material information relating to the Company and its
operations and financial condition as of their respective dates which
information is required to be disclosed therein. Since the date of the
financial statements included in the Reports, and except as modified in the
Other Written Information, there has been no material adverse change in the
Company's business, financial condition or affairs not disclosed in the
Reports. The Reports and Other Written Information do not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading.
(l) Dilution. The number of Shares issuable upon conversion of the Note
may increase substantially in certain circumstances, including, but not
necessarily limited to, the circumstance wherein the trading price of the
Common Stock declines prior to conversion of the Note. The Company's executive
officers and directors have studied and fully understand the nature of the
Securities being sold hereby and recognize that they have a potential dilutive
effect. The board of directors of the Company has concluded, in its good faith
business judgment, that such issuance is in the best interests of the Company.
The Company specifically acknowledges that its obligation to issue the Shares
upon conversion of the Note and exercise of the Warrants is binding upon the
Company and enforceable, except as otherwise described in this Subscription
Agreement or the Note, regardless of the dilution such issuance may have on the
ownership interests of other shareholders of the Company.
(m) Stop Transfer. The Securities are restricted securities as of the
date of this Agreement. The Company will not issue any stop transfer order or
other order impeding the sale and delivery of the Securities, except as may be
required by federal securities laws.
(n) Defaults. Neither the Company nor any of its subsidiaries is in
violation of its Certificate of Incorporation or ByLaws. Neither the Company
nor any of its subsidiaries is (i) in default under or in violation of any
other material agreement or instrument to which it is a party or by which it or
any of its properties are bound or affected, which default or violation would
have a material adverse effect on the Company, (ii) in default with respect to
any order of any court, arbitrator or governmental body or subject to or party
to any order of any court or governmental authority arising out of any action,
suit or proceeding under any statute or other law respecting antitrust,
monopoly, restraint of trade, unfair competition or similar matters, or (iii)
to its knowledge in violation of any statute, rule or regulation of any
governmental authority which violation would have a material adverse effect on
the Company.
(o) No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would cause the offering of the
Securities pursuant to this Agreement to be integrated with prior offerings by
the Company for purposes of the 1933 Act or any applicable stockholder approval
provisions, including, without limitation, under the rules and regulations of
the Bulletin Board, as applicable, nor will the Company or any of its
affiliates or subsidiaries take any action or steps that would cause the
offering of the Securities to be integrated with other offerings.
(p) No General Solicitation. Neither the Company, nor any of its
affiliates, nor to its knowledge, any person acting on its or their behalf, has
engaged in any form of general solicitation or general advertising (within the
meaning of Regulation D under the Act) in connection with the offer or sale of
the Securities.
(q) Listing. The Company's Common Stock is listed for trading on the
Bulletin Board and satisfies all requirements for the continuation of such
listing. The Company has not received any notice that its common stock will be
delisted from the Bulletin Board or that the Common Stock does not meet all
requirements for the continuation of such listing.
(r) No Undisclosed Liabilities. The Company has no liabilities or
obligations which are material, individually or in the aggregate, which are not
disclosed in the Reports and Other Written Information, other than those
incurred in the ordinary course of the Company's businesses since November 30,
2000 and which, individually or in the aggregate, would not reasonably be
expected to have a material adverse effect on the Company's financial
condition.
(s) No Undisclosed Events or Circumstances. Since November 30, 2000, no
event or circumstance has occurred or exists with respect to the Company or its
businesses, properties, prospects, operations or financial condition, that,
under applicable law, rule or regulation, requires public disclosure or
announcement prior to the date hereof by the Company but which has not been so
publicly announced or disclosed in the Reports.
(t) Capitalization. As of the date hereof, the authorized capital stock
of the Company consists of 250,000,000 shares of Common Stock (no par value),
of which 25,393,938 shares of Common Stock were issued and outstanding as of
January 24, 2001. The Company's Board of Directors is currently authorized to
issue 50,000,000 shares of Preferred Stock. The Board of Directors has
authorized the issuance of 1,000,000 shares of Class A Preferred Stock with 100
to 1 voting rights. As of the date hereof, there are 140,020 shares of Class A
Preferred Stock issued and outstanding. The Board of Directors has authorized
the issuance of 1,000,000 shares of Class B Preferred Stock, which is
convertible at any time at the rate of 10 shares of Common Stock for each share
of Class B Preferred Stock. Except as set forth in the Reports, there are no
options, warrants, or rights to subscribe to, securities, rights or obligations
convertible into or exchangeable for or giving any right to subscribe for any
shares of capital stock of the Company. All of the outstanding shares of
Common Stock of the Company have been duly and validly authorized and issued
and are fully paid and nonassessable.
(u) Correctness of Representations. The Company represents that the
foregoing representations and warranties are true and correct as of the date
hereof in all material respects, will be true and correct as of the Closing
Date, and, unless the Company otherwise notifies the Subscriber prior to the
Closing Date, shall be true and correct in all material respects as of the
Closing Date. The foregoing representations and warranties shall survive the
Closing Date.
3. Regulation D Offering. This Offering is being made pursuant to the
exemption from the registration provisions of the Securities Act of 1933, as
amended, afforded by Rule 506 of Regulation D promulgated thereunder and/or
Section 4(2) thereunder. On the Closing Date, the Company will provide an
opinion acceptable to Subscriber from the Company's legal counsel opining on
the availability of the Regulation D exemption as it relates to the offer and
issuance of the Securities. A form of the legal opinion is annexed hereto as
Exhibit C. The Company will provide, at the Company's expense, such other legal
opinions in the future as are reasonably necessary for the conversion of the
Note and exercise of the Warrants.
4. Reissuance of Securities. The Company agrees to reissue certificates
representing the Securities without the legends set forth in Sections 1(e) and
1(f) above at such time as (a) the holder thereof is permitted to and disposes
of such Securities pursuant to Rule 144(d) and/or Rule 144(k) under the 1933
Act in the opinion of counsel reasonably satisfactory to the Company, or (b)
upon resale subject to an effective registration statement after the Securities
are registered under the 0000 Xxx. The Company agrees to cooperate with the
Subscriber in connection with all resales pursuant to Rule 144(d) and Rule
144(k) and provide legal opinions necessary to allow such resales provided the
Company and its counsel receive all reasonably requested written
representations from the Subscriber and selling broker, if any. If the Company
fails to remove any legend as required by this Section 4 (a "Legend Removal
Failure"), then beginning on the tenth (10th) day following the date that the
Subscriber has requested the removal of the legend and delivered all items
reasonably required to be delivered by the Subscriber, the Company continues to
fail to remove such legend, the Company shall pay to each Subscriber or
assignee holding shares subject to a Legend Removal Failure an amount equal to
one percent (1%) of the Purchase Price of the shares subject to a Legend
Removal Failure per day that such failure continues. If during any twelve (12)
month period, the Company fails to remove any legend as required by this
Section 4 for an aggregate of thirty (30) days, each Subscriber or assignee
holding Securities subject to a Legend Removal Failure may, at its option,
require the Company to purchase all or any portion of the Securities subject to
a Legend Removal Failure held by such Subscriber or assignee at a price per
share equal to 120% of the applicable Purchase Price.
5. Redemption. The Company may not redeem the Securities without the
consent of the holder of the Securities except as otherwise described herein.
6. Fees/Warrants.
(a) The Company shall pay to counsel to the Subscriber its fees of $8,000
for services rendered to Subscribers in connection with this Agreement and the
other Subscription Agreements for aggregate subscription amounts of up to
$300,000 (the "Initial Offering"). The Company will pay the escrow agent for
the Initial Offering a fee of $750. The Company will pay to the Finders
identified on Schedule B hereto a cash fee in the amount of: eight percent (8%)
of the Purchase Price ("Finder's Fee") and of the actual cash proceeds received
by the Company in connection with the exercise of the Warrants issued in
connection with the Initial Offering ("Warrant Exercise Compensation"). The
Finder's Fee must be paid each Closing Date with respect to the Notes issued on
such date. The Warrant Exercise Compensation must be paid to the Finders
identified on Schedule B hereto, within ten (10) days of receipt of the Warrant
exercise "Purchase Price" (as defined in the Warrant). The Finder's Fee and
legal fees will be payable out of funds held pursuant to a Funds Escrow
Agreement to be entered into by the Company, Subscriber and an Escrow Agent.
(b) The Company will also issue and deliver to the Warrant Recipients
identified on Schedule B hereto, Warrants in the amounts designated on Schedule
B hereto in connection with the Initial Offering. A form of Warrant is annexed
hereto as Exhibit D. The per share "Purchase Price" of Common Stock as defined
in the Warrant shall be equal to one hundred and twenty percent (120%) of the
lowest closing bid price of the Common Stock for the ten (10) trading days
preceding but not including the Closing Date as reported on the NASD OTC
Bulletin Board, NASDAQ SmallCap Market, NASDAQ National Market System, American
Stock Exchange, or New York Stock Exchange (whichever of the foregoing is at
the time the principal trading exchange or market for the Common Stock, the
"Principal Market"), or such other principal market or exchange where the
Common Stock is listed or traded. The Warrants designated on Schedule B hereto
must be delivered to the Warrant Recipients on the Closing Date. Failure to
timely deliver the Warrant Exercise Compensation, the Warrants or Finder's Fee
shall be an Event of Default as defined in Article III of the Note.
(c) The Finder's Fee, legal fees and escrow agent's fee will be paid to
the Finders and attorneys only when, as, and if a corresponding subscription
amount is released from escrow to the Company and out of the escrow proceeds.
All the representations, covenants, warranties, undertakings, remedies,
liquidated damages, indemnification, rights in Section 9 hereof, and other
rights but not including registration rights made or granted to or for the
benefit of the Subscriber are hereby also made and granted to the Warrant
Recipients in respect of the Warrants and Company Shares issuable upon exercise
of the Warrants.
(d) The Company on the one hand, and the Subscriber on the other hand,
agree to indemnify the other against and hold the other harmless from any and
all liabilities to any other persons claiming brokerage commissions or finder's
fees except as identified on Schedule B hereto on account of services purported
to have been rendered on behalf of the indemnifying party in connection with
this Agreement or the transactions contemplated hereby and arising out of such
party's actions. Except as set forth on Schedule B hereto, the Company
represents that there are no other parties entitled to receive fees,
commissions, or similar payments in connection with the offering described in
the Subscription Agreement.
7. Covenants of the Company. The Company covenants and agrees with the
Subscriber as follows:
(a) The Company will advise the Subscriber, promptly after it receives
notice of issuance by the Securities and Exchange Commission, any state
securities commission or any other regulatory authority of any stop order or of
any order preventing or suspending any offering of any securities of the
Company, or of the suspension of the qualification of the Common Stock of the
Company for offering or sale in any jurisdiction, or the initiation of any
proceeding for any such purpose.
(b) The Company shall promptly secure the listing of the Company Shares,
and Common Stock issuable upon the exercise of the Warrants 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
shall maintain such listing so long as any other shares of Common Stock shall
be so listed. The Company will maintain the listing of its Common Stock on a
Principal Market, 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 will provide the Subscriber copies of all notices it receives
notifying the Company of the threatened and actual delisting of the Common
Stock from any Principal Market.
(c) The Company shall notify the SEC, NASD and applicable state
authorities, in accordance with their requirements, if any, of the transactions
contemplated by this Agreement, and shall take all other necessary action and
proceedings as may be required and permitted by applicable law, rule and
regulation, for the legal and valid issuance of the Securities to the
Subscriber and promptly provide copies thereof to Subscriber.
(d) Until at least two (2) years after the effectiveness of the
Registration Statement on Form SB-2 or such other Registration Statement
described in Section 10.1(iv) hereof, the Company will (i) cause its Common
Stock to continue to be registered under Sections 12(b) or 12(g) of the
Exchange Act, (ii) comply in all respects with its reporting and filing
obligations under the Exchange Act, (iii) comply with all reporting
requirements that is applicable to an issuer with a class of Shares registered
pursuant to Section 12(g) of the Exchange Act, and (iv) comply with all
requirements related to any registration statement filed pursuant to this
Agreement. The Company will not take any action or file any document (whether
or not permitted by the Act or the Exchange Act or the rules thereunder) to
terminate or suspend such registration or to terminate or suspend its reporting
and filing obligations under said Acts until the later of (y) two (2) years
after the actual effective date of the Registration Statement on Form SB-2 or
such other Registration Statement described in Section 10.1(iv) hereof, or (z)
the sale by the Subscribers and Warrant Recipients of all the Company Shares
and Securities issuable by the Company pursuant to this Agreement. Until at
least two (2) years after the Warrants have been exercised, the Company will
use its commercial best efforts to continue the listing of the Common Stock on
the Bulletin Board, NASDAQ SmallCap Market, New York Stock Exchange, American
Stock Exchange, or NASDAQ National Market System and will comply in all
respects with the Company's reporting, filing and other obligations under the
bylaws or rules of the NASD and NASDAQ.
(e) The Company undertakes to use the proceeds of the Subscriber's funds
for the purposes set forth on Schedule 7(e) hereto. Purchase Price may not and
will not be used to pay debt or non-trade obligations outstanding on or after
the Closing Date.
(f) The Company undertakes to use its best efforts to acquire, within
three months of the Closing Date, at a commercially reasonable cost, a standard
officers and directors errors and omissions liability insurance policy covering
the transactions contemplated in this Agreement.
(g) The Company undertakes to reserve pro rata on behalf of each holder of
a Note or Warrant, from its authorized but unissued Common Stock, at all times
that Notes or Warrants remain outstanding, a number of Common Shares equal to
not less than 200% of the amount of Common Shares necessary to allow each such
holder to be able to convert all such outstanding Notes, at the then applicable
Conversion Price and one Common Share for each Common Share issuable upon
exercise of the Warrants.
8. Covenants of the Company and Subscriber Regarding Idemnification.
(a) The Company agrees to indemnify, hold harmless, reimburse and defend
Subscriber, Subscriber's officers, directors, agents, affiliates, control
persons, and principal shareholders, against any claim, cost, expense,
liability, obligation, loss or damage (including reasonable legal fees) of any
nature, incurred by or imposed upon Subscriber or any such person which
results, arises out of or is based upon (i) any misrepresentation by Company or
breach of any warranty by Company in this Agreement or in any Exhibits or
Schedules attached hereto, or other agreement delivered pursuant hereto; or
(ii) after any applicable notice and/or cure periods, any breach or default in
performance by the Company of any covenant or undertaking to be performed by
the Company hereunder, or any other agreement entered into by the Company and
Subscribers relating hereto.
(b) Subscriber agrees to indemnify, hold harmless, reimburse and defend
the Company and each of the Company's officers and directors at all times
against any claim, cost, expense, liability, obligation, loss or damage
(including reasonable legal fees) of any nature, incurred by or imposed upon
the Company or any such person which results, arises out of or is based upon
(i) any misrepresentation by Subscriber in this Agreement or in any Exhibits
or Schedules attached hereto, or other agreement delivered pursuant hereto; or
(ii) after any applicable notice and/or cure periods, any breach or default in
performance by Subscriber of any covenant or undertaking to be performed by
Subscriber hereunder, or any other agreement entered into by the Company and
Subscribers relating hereto.
(c) The procedures set forth in Section 10.6 shall apply to the
indemnifications set forth in Sections 8(a) and 8(b) above.
9.1. Conversion of Note.
(a) Upon the conversion of the Note or part thereof, the Company shall, at
its own cost and expense, take all necessary action (including the issuance of
an opinion of counsel) to assure that the Company's transfer agent shall issue
stock certificates in the name of Subscriber (or its nominee) or such other
persons as designated by Subscriber and in such denominations to be specified
at conversion representing the number of shares of common stock issuable upon
such conversion. The Company warrants that no instructions other than these
instructions have been or will be given to the transfer agent of the Company's
Common Stock and that the Shares will be unlegended, free-trading, and freely
transferable, and will not contain a legend restricting the resale or
transferability of the Company Shares provided the Shares are being sold
pursuant to an effective registration statement covering the Shares to be sold
or are otherwise exempt from registration when sold.
(b) Subscriber will give notice of its decision to exercise its right to
convert the Note or part thereof by telecopying an executed and completed
Notice of Conversion (as defined in the Note) to the Company via confirmed
telecopier transmission. The Subscriber will not be required to surrender the
Note until the Note has been fully converted or satisfied. Each date on which
a Notice of Conversion is telecopied to the Company in accordance with the
provisions hereof shall be deemed a Conversion Date. The Company will or cause
the transfer agent to transmit the Company's Common Stock certificates
representing the Shares issuable upon conversion of the Note to the Subscriber
via express courier for receipt by such Subscriber within three (3) business
days after receipt by the Company of the Notice of Conversion (the "Delivery
Date"). A Note representing the balance of the Note not so converted will be
provided to the Subscriber, if requested by Subscriber. To the extent that a
Subscriber elects not to surrender a Note for reissuance upon partial payment
or conversion, the Subscriber hereby indemnifies the Company against any and
all loss or damage attributable to a third-party claim in an amount in excess
of the actual amount then due under the Note.
(c) The Company understands that a delay in the delivery of the Shares in
the form required pursuant to Section 9 hereof, or the Mandatory Redemption
Amount described in Section 9.2 hereof, beyond the Delivery Date or Mandatory
Redemption Payment Date (as hereinafter defined) could result in economic loss
to the Subscriber. As compensation to the Subscriber for such loss, the
Company agrees to pay late payments to the Subscriber for late issuance of
Shares in the form required pursuant to Section 9 hereof upon Conversion of the
Note or late payment of the Mandatory Redemption Amount, in the amount of $100
per business day after the Delivery Date or Mandatory Redemption Payment Date,
as the case may be, for each $10,000 of Note principal amount being converted
or redeemed. The Company shall pay any payments incurred under this Section in
immediately available funds upon demand. Furthermore, in addition to any other
remedies which may be available to the Subscriber, in the event that the
Company fails for any reason to effect delivery of the Shares by the Delivery
Date or make payment by the Mandatory Redemption Payment Date, the Subscriber
will be entitled to revoke all or part of the relevant Notice of
Conversion or rescind all or part of the notice of Mandatory Redemption by
delivery of a notice to such effect to the Company whereupon the Company and
the Subscriber shall each be restored to their respective positions immediately
prior to the delivery of such notice, except that late payment charges
described above shall be payable through the date notice of revocation or
rescission is given to the Company.
(d) Nothing contained herein or in any document referred to herein or
delivered in connection herewith shall be deemed to establish or require the
payment of a rate of interest or other charges in excess of the maximum
permitted by applicable law. In the event that the rate of interest or
dividends required to be paid or other charges hereunder exceed the maximum
permitted by such law, any payments in excess of such maximum shall be credited
against amounts owed by the Company to the Subscriber and thus refunded to the
Company.
9.2. Mandatory Redemption. In the event the Company is prohibited from
issuing Shares, or fails to timely deliver Shares on a Delivery Date, or upon
the occurrence of an Event of Default (as defined in the Note) or for any
reason other than pursuant to the limitations set forth in Section 9.3 hereof,
or upon the occurrence of an Event of Default as defined in Article III of the
Note, then at the Subscriber's election, the Company must pay to the Subscriber
ten (10) business days after request by the Subscriber or on the Delivery Date
(if requested by the Subscriber) a sum of money determined by multiplying up to
the outstanding principal amount of the Note designated by the Subscriber by
125%, together with accrued but unpaid interest thereon ("Mandatory Redemption
Payment"). The Mandatory Redemption Payment must be received by the Subscriber
on the same date as the Company Shares otherwise deliverable or within ten (10)
business days after request, whichever is sooner ("Mandatory Redemption Payment
Date"). Upon receipt of the Mandatory Redemption Payment, the corresponding
Note principal and interest will be deemed paid and no longer outstanding.
9.3. Maximum Conversion. The Subscriber shall not be entitled to convert
on a Conversion Date that amount of the Note and Put Note in connection with
that number of shares of Common Stock which would be in excess of the sum of
(i) the number of shares of Common Stock beneficially owned by the Subscriber
and its affiliates on a Conversion Date, and (ii) the number of shares of
Common Stock issuable upon the conversion of the Note and Put Note with respect
to which the determination of this provision is being made on a Conversion
Date, which would result in beneficial ownership by the Subscriber and its
affiliates of more than 9.99% of the outstanding shares of Common Stock of the
Company on such Conversion Date. For the purposes of the provision to the
immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulation 13d-3 thereunder. Subject to the foregoing, the
Subscriber shall not be limited to aggregate conversions of only 9.99%. The
Subscriber may void the conversion limitation described in this Section 9.3
upon 75 days prior written notice to the Company. The Subscriber may allocate
which of the equity of the Company deemed beneficially owned by the Subscriber
shall be included in the 9.99% amount described above and which shall be
allocated to the excess above 9.99%.
9.4. Injunction - Posting of Bond. In the event a Subscriber shall elect
to convert a Note or part thereof, the Company may not refuse conversion based
on any claim that such Subscriber or any one associated or affiliated with such
Subscriber has been engaged in any violation of law, or for any other reason,
unless, an injunction from a court, on notice, restraining and or enjoining
conversion of all or part of said Note shall have been sought and obtained and
the Company posts a surety bond for the benefit of such Subscriber in the
amount of 130% of the amount of the Note, which is subject to the injunction,
which bond shall remain in effect until the completion of
arbitration/litigation of the dispute and the proceeds of which shall be
payable to such Subscriber to the extent Subscriber obtains judgment.
9.5. Buy-In. In addition to any other rights available to the Subscriber,
if the Company fails to deliver to the Subscriber such shares issuable upon
conversion of a Note by the Delivery Date and if ten (10) days after the
Delivery Date the Subscriber purchases (in an open market transaction or
otherwise) shares of Common Stock to deliver in satisfaction of a sale by such
Subscriber of the Common Stock which the Subscriber anticipated receiving upon
such conversion (a "Buy- In"), then the Company shall pay in cash to the
Subscriber (in addition to any remedies available to or elected by the
Subscriber) the amount by which (A) the Subscriber's total purchase price
(including brokerage commissions, if any) for the shares of Common Stock so
purchased exceeds (B) the aggregate principal and/or interest amount of the
Note for which such conversion was not timely honored, together with interest
thereon at a rate of 15% per annum, accruing until such amount and any accrued
interest thereon is paid in full (which amount shall be paid as liquidated
damages and not as a penalty). For example, if the Subscriber purchases shares
of Common Stock having a total purchase price of $11,000 to cover a Buy-In with
respect to an attempted conversion of $10,000 of note principal and/or
interest, the Company shall be required to pay the Subscriber $1,000, plus
interest. The Subscriber shall provide the Company written notice indicating
the amounts payable to the Subscriber in respect of the Buy-In.
9.6 Adjustments. The Conversion Price and amount of Shares issuable upon
conversion of the Notes and Put Notes shall be adjusted consistent with
customary anti-dilution adjustments.
10.1. Registration Rights. The Company hereby grants the following
registration rights to holders of the Securities.
(i) On one occasion, for a period commencing 46 days after the Closing
Date, but not later than three years after the Closing Date ("Request Date"),
the Company, upon a written request therefor from any record holder or holders
of more than 50% of the aggregate of the Company's Shares issued and issuable
upon Conversion of the Notes (the Common Stock issued or issuable upon
conversion or exercise of the Notes or issuable by virtue of ownership of the
Note, being, the "Registrable Securities"), shall prepare and file with the SEC
a registration statement under the Act covering the Registrable Securities
which are the subject of such request, unless such Registrable Securities are
the subject of an effective registration statement. In addition, upon the
receipt of such request, the Company shall promptly give written notice to all
other record holders of the Registrable Securities that such registration
statement is to be filed and shall include in such registration statement
Registrable Securities for which it has received written requests within 10
days after the Company gives such written notice. Such other requesting record
holders shall be deemed to have exercised their demand registration right under
this Section 10.1(i). As a condition precedent to the inclusion of Registrable
Securities, the holder thereof shall provide the Company with such information
as the Company reasonably requests. The obligation of the Company under this
Section 10.1(i) shall be limited to one registration statement.
(ii) If the Company at any time proposes to register any of its securities
under the Act for sale to the public, whether for its own account or for the
account of other security holders or both, except with respect to registration
statements on Forms S?4, S?8 or another form not available for registering the
Registrable Securities for sale to the public, provided the Registrable
Securities are not otherwise registered for resale by the Subscriber or Holder
pursuant to an effective registration statement, each such time it will give at
least 30 days' prior written notice to the record holder of the Registrable
Securities of its intention so to do. Upon the written request of the holder,
received by the Company within 20 days after the giving of any such notice by
the Company, to register any of the Registrable Securities, the Company will
cause such Registrable Securities as to which registration shall have been so
requested to be included with the securities to be covered by the registration
statement proposed to be filed by the Company, all to the extent
required to permit the sale or other disposition of the Registrable Securities
so registered by the holder of such Registrable Securities (the "Seller"). In
the event that any registration pursuant to this Section 10.1(ii) shall be, in
whole or in part, an underwritten public offering of common stock of the
Company, the number of shares of Registrable Securities to be included in such
an underwriting may be reduced by the managing underwriter if and to the extent
that the Company and the underwriter shall reasonably be of the opinion that
such inclusion would adversely affect the marketing of the securities to be
sold by the Company therein; provided, however, that the Company shall notify
the Seller in writing of any such reduction. Notwithstanding the foregoing
provisions, or Section 10.4 hereof, the Company may withdraw or delay or suffer
a delay of any registration statement referred to in this Section 10.1(ii)
without thereby incurring any liability to the Seller.
(iii) If, at the time any written request for registration is received by
the Company pursuant to Section 10.1(i), the Company has determined to proceed
with the actual preparation and filing of a registration statement under the
1933 Act in connection with the proposed offer and sale for cash of any of its
securities for the Company's own account, such written request shall be deemed
to have been given pursuant to Section 10.1(ii) rather than Section 10.1(i),
and the rights of the holders of Registrable Securities covered by such written
request shall be governed by Section 10.1(ii).
(iv) The Company shall file with the Commission within 15 days of the
Closing Date (the "Filing Date"), and use its reasonable commercial efforts to
cause to be declared effective an amendment to the Form SB-2 registration
statement filed on March 19, 2001 under file number 333-57192 (or such other
form that it is eligible to use) in order to register the Registrable
Securities for resale and distribution under the Act. The registration
statement described in this paragraph must be declared effective by the
Commission within 60 days of the Closing Date (as defined herein) ("Effective
Date"). The Company will register not less than a number of shares of Common
Stock in the aforedescribed registration statement that is equal to 200% of the
Company Shares issuable at the Conversion Price that would be in effect on the
Closing Date or the date of filing of such registration statement (employing
the Conversion Price which would result in the greater number of Shares),
assuming the conversion of 100% of the Notes. The Registrable Securities shall
be reserved and set aside exclusively for the benefit of the Subscriber, and
not issued, employed or reserved for anyone other than the Subscriber. Such
registration statement will be promptly amended or additional registration
statements will be promptly filed by the Company as necessary to register
additional Company Shares to allow the public resale of all Common Stock
included in and issuable by virtue of the Registrable Securities. No
securities of the Company other than the Registrable Securities will be
included in the registration statement described in this Section 10.1(iv)
except as set forth on Schedule 10.1 hereto, if any.
10.2. Registration Procedures. If and whenever the Company is required by
the provisions hereof to effect the registration of any shares of Registrable
Securities under the Act, the Company will, as expeditiously as possible:
(a) prepare and file with the Commission a registration statement with
respect to such securities and use its best efforts to cause such registration
statement to become and remain effective for the period of the distribution
contemplated thereby (determined as herein provided), and promptly provide to
the holders of Registrable Securities ("Sellers") copies of all filings and
Commission letters of comment;
(b) prepare and file with the Commission such amendments and supplements
to such registration statement and the prospectus used in connection therewith
as may be necessary to keep such registration statement effective
until the latest of: (i) twelve months after the latest Maturity Date of
a Note; or (ii) two years after the Closing Date and comply with the provisions
of the Act with respect to the disposition of all of the Registrable Securities
covered by such registration statement in accordance with the Seller's intended
method of disposition set forth in such registration statement for such period;
(c) furnish to the Seller, and to each underwriter if any, such number of
copies of the registration statement and the prospectus included therein
(including each preliminary prospectus) as such persons reasonably may request
in order to facilitate the public sale or their disposition of the securities
covered by such registration statement;
(d) use its best efforts to register or qualify the Seller's Registrable
Securities covered by such registration statement under the securities or "blue
sky" laws of such jurisdictions as the Seller and in the case of an
underwritten public offering, the managing underwriter shall reasonably
request, provided, however, that the Company shall not for any such purpose be
required to qualify generally to transact business as a foreign corporation in
any jurisdiction where it is not so qualified or to consent to general service
of process in any such jurisdiction;
(e) list the Registrable Securities covered by such registration statement
with any securities exchange on which the Common Stock of the Company is then
listed;
(f) immediately notify the Seller and each underwriter under such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act, of the happening of any event of which
the Company has knowledge as a result of which the prospectus contained in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein
or necessary to make the statements therein not misleading in light of the
circumstances then existing;
(g) make available for inspection by the Seller, any underwriter
participating in any distribution pursuant to such registration statement, and
any attorney, accountant or other agent retained by the Seller or underwriter,
all publicly available, non-confidential financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company's
officers, directors and employees to supply all publicly available, non-
confidential information reasonably requested by the seller, underwriter,
attorney, accountant or agent in connection with such registration statement.
10.3. Provision of Documents.
(a) At the request of the Seller, provided a demand for registration has
been made pursuant to Section 10.1(i) or a request for registration has been
made pursuant to Section 10.1(ii), the Registrable Securities will be included
in a registration statement filed pursuant to this Section 10.
(b) In connection with each registration hereunder, the Seller will
furnish to the Company in writing such information and representation letters
with respect to itself and the proposed distribution by it as reasonably shall
be necessary in order to assure compliance with federal and applicable state
securities laws. In connection with each registration pursuant to Section
10.1(i) or 10.1(ii) covering an underwritten public offering, the Company and
the Seller agree to enter into a written agreement with the managing
underwriter in such form and containing such provisions as are customary in the
securities business for such an arrangement between such underwriter and
companies of the Company's size and investment stature.
10.4. Non-Registration Events. The Company and the Subscriber agree
that the Seller will suffer damages if any registration statement required
under Section 10.1(i) or 10.1(ii) above is not filed within 60 days after
written request by the Holder and not declared effective by the Commission
within 150 days after such request [or the Filing Date and Effective Date,
respectively, in reference to the Registration Statement on Form SB-2 or such
other form described in Section 10.1(iv)], and maintained in the manner and
within the time periods contemplated by Section 10 hereof, and it would not be
feasible to ascertain the extent of such damages with precision. Accordingly,
if (i) the Registration Statement described in Sections 10.1(i) or 10.1(ii) is
not filed within 60 days of such written request, or is not declared effective
by the Commission on or prior to the date that is 150 days after such request,
or (ii) the registration statement on Form SB-2 or such other form described in
Section 10.1(iv) is not filed on or before the Filing Date or not declared
effective on or before the sooner of the Effective Date, or within five
business days of receipt by the Company of a written or oral communication from
the Commission that the registration statement described in Section 10.1(iv)
will not be reviewed, or (iii) any registration statement described in Sections
10.1(i), 10.1(ii) or 10.1(iv) is filed and declared effective but shall
thereafter cease to be effective (without being succeeded immediately by an
additional registration statement filed and declared effective) for a period of
time which shall exceed 30 days in the aggregate per year but not more than 20
consecutive calendar days (defined as a period of 365 days commencing on the
date the Registration Statement is declared effective) (each such event
referred to in clauses (i), (ii) and (iii) of this Section 10.4 is referred to
herein as a "Non-Registration Event"), then, for so long as such Non-
Registration Event shall continue, the Company shall pay, at the Subscriber's
option, in cash or stock at the applicable Conversion Price, as Liquidated
Damages to each holder of any Registrable Securities an amount equal to two
(2%) percent per month or part thereof during the pendency of such Non-
Registration Event, of the principal of the Notes issued in connection with the
Initial Offering, whether or not converted, whether or not converted, then
owned of record by such holder or issuable as of or subsequent to the
occurrence of such Non- Registration Event. Payments to be made pursuant to
this Section 10.4 shall be due and payable within five (5) business days after
demand in immediately available funds. In the event a Mandatory Redemption
Payment is demanded from the Company by the Holder pursuant to Section 9.2 of
this Subscription Agreement, then the Liquidated Damages described in this
Section 10.4 shall no longer accrue on the portion of the Purchase Price
underlying the Mandatory Redemption Payment, from and after the date the Holder
receives the Mandatory Redemption Payment. It shall also be deemed a Non-
Registration Event if at any time a Note is outstanding, there is less than
125% of the amount of Common Shares necessary to allow full conversion of such
Note at the then applicable Conversion Price registered for unrestricted resale
in an effective registration statement.
10.5. Expenses. All expenses incurred by the Company in complying with
Section 10, including, without limitation, all registration and filing fees,
printing expenses, fees and disbursements of counsel and independent public
accountants for the Company, fees and expenses (including reasonable counsel
fees) incurred in connection with complying with state securities or "blue sky"
laws, fees of the National Association of Securities Dealers, Inc., transfer
taxes, fees of transfer agents and registrars, and costs of insurance are
called "Registration Expenses". All underwriting discounts and selling
commissions applicable to the sale of Registrable Securities, including any
fees and disbursements of any special counsel to the Seller, are called
"Selling Expenses". The Seller shall pay the fees of its own additional
counsel, if any. The Company will pay all Registration Expenses in connection
with the registration statement under Section 10. All Selling Expenses in
connection with each registration statement under Section 10 shall be borne by
the Seller and may be apportioned among the Sellers in proportion to the number
of shares sold by the Seller relative to the number of shares sold under such
registration statement or as all Sellers thereunder may agree.
10.6. Indemnification and Contribution.
(a) In the event of a registration of any Registrable Securities under the
Act pursuant to Section 10, the Company will indemnify and hold harmless the
Seller, each officer of the Seller, each director of the Seller, each
underwriter of such Registrable Securities thereunder and each other person, if
any, who controls such Seller or underwriter within the meaning of the 1933
Act, against any losses, claims, damages or liabilities, joint or several, to
which the Seller, or such underwriter or controlling person may become subject
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any registration statement under which such Registrable Securities was
registered under the Act pursuant to Section 10, any preliminary prospectus or
final prospectus contained therein, or any amendment or supplement thereof, or
arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Seller, each such
underwriter and each such controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that the
Company shall not be liable to the Seller to the extent that any such damages
arise out of or are based upon an untrue statement or omission made in any
preliminary prospectus if (i) the Seller failed to send or deliver a copy of
the final prospectus delivered by the Company to the Seller with or prior to
the delivery of written confirmation of the sale by the Seller to the person
asserting the claim from which such damages arise, (ii) the final prospectus
would have corrected such untrue statement or alleged untrue statement or such
omission or alleged omission, or (iii) to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission so made in conformity
with information furnished by any such Seller, or any such controlling person
in writing specifically for use in such registration statement or prospectus.
(b) In the event of a registration of any of the Registrable Securities
under the Act pursuant to Section 10, the Seller will indemnify and hold
harmless the Company, and each person, if any, who controls the Company within
the meaning of the Act, each officer of the Company who signs the registration
statement, each director of the Company, each underwriter and each person who
controls any underwriter within the meaning of the Act, against all losses,
claims, damages or liabilities, joint or several, to which the Company or such
officer, director, underwriter or controlling person may become subject under
the Act or otherwise, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in the
registration statement under which such Registrable Securities were registered
under the Act pursuant to Section 10, any preliminary prospectus or final
prospectus contained therein, or any amendment or supplement thereof, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse the Company and each such officer,
director, underwriter and controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action, provided, however, that the
Seller will be liable hereunder in any such case if and only to the extent that
any such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in reliance upon and in conformity with information pertaining to such
Seller, as such, furnished in writing to the Company by such Seller
specifically for use in such registration statement or prospectus, and
provided, further, however, that the liability of the Seller hereunder shall be
limited to the gross proceeds received by the Seller from the sale of
Registrable Securities covered by such registration statement.
(c) Promptly after receipt by an indemnified party hereunder of notice of
the commencement of any action, such indemnified party shall, if a claim in
respect thereof is to be made against the indemnifying party hereunder, notify
the indemnifying party in writing thereof, but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
such indemnified party other than under this Section 10.6(c) and shall only
relieve it from any liability which it may have to such indemnified party under
this Section 10.6(c), except and only if and to the extent the indemnifying
party is prejudiced by such omission. In case any such action shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
in and, to the extent it shall wish, to assume and undertake the defense
thereof with counsel satisfactory to such indemnified party, and, after notice
from the indemnifying party to such indemnified party of its election so to
assume and undertake the defense thereof, the indemnifying party shall not be
liable to such indemnified party under this Section 10.6(c) for any legal
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation and of liaison
with counsel so selected, provided, however, that, if the defendants in any
such action include both the indemnified party and the indemnifying party and
the indemnified party shall have reasonably concluded that there may be
reasonable defenses available to it which are different from or additional to
those available to the indemnifying party or if the interests of the
indemnified party reasonably may be deemed to conflict with the interests of
the indemnifying party, the indemnified parties shall have the right to select
one separate counsel and to assume such legal defenses and otherwise to
participate in the defense of such action, with the reasonable expenses and
fees of such separate counsel and other expenses related to such participation
to be reimbursed by the indemnifying party as incurred.
(d) In order to provide for just and equitable contribution in the event
of joint liability under the Act in any case in which either (i) the Seller, or
any controlling person of the Seller, makes a claim for indemnification
pursuant to this Section 10.6 but it is judicially determined (by the entry of
a final judgment or decree by a court of competent jurisdiction and the
expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that this Section 10.6 provides for indemnification in such case, or (ii)
contribution under the Act may be required on the part of the Seller or
controlling person of the Seller in circumstances for which indemnification is
provided under this Section 10.6; then, and in each such case, the Company and
the Seller will contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after contribution from others) in
such proportion so that the Seller is responsible only for the portion
represented by the percentage that the public offering price of its securities
offered by the registration statement bears to the public offering price of all
securities offered by such registration statement, provided, however, that, in
any such case, (y) the Seller will not be required to contribute any amount in
excess of the public offering price of all such securities offered by it
pursuant to such registration statement; and (z) no person or entity guilty of
fraudulent misrepresentation (within the meaning of Section 10(f) of the Act)
will be entitled to contribution from any person or entity who was not guilty
of such fraudulent misrepresentation.
10.7. Underwriter Liability. Nothing contained in this Agreement or any
document delivered herewith shall require or imply that the Subscriber is or be
an Underwriter as defined in the 1933 Act of 1934 Act, nor a "statutory
underwriter." The Subscriber shall not be required to take any action or
assume any liability or obligation which would or could impose Underwriter or
"statutory underwriter" status or liability on the Subscriber.
11. Offering Restrictions. Except (i) as disclosed in the Reports or
Other Written Information prior to the date of this Subscription Agreement, or
(ii) stock or stock options granted to employees or directors of the Company
pursuant to a plan which has been approved by the shareholders of the Company
(these exceptions hereinafter referred to as the "Excepted Issuances"), the
Company will not issue any equity, convertible debt or other securities, prior
to the expiration of (x) the later of a period equal to 180 days during which
the registration statement described in Section 10.1(iv) above has been
effective, or (y) 24 months after the Closing Date.
12. Security Interest. As a condition of Closing, the Company will
deliver to the Subscriber Common Shares of the Company owned by certain
shareholders of the Company, together with signature guaranteed stock powers.
Collectively, the foregoing stock is referred to as "Security Shares." The
Security Shares will be held by the Subscriber pursuant to a Security
Agreement. Subscriber will be granted a security interest in the Security
Shares to be memorialized in a Security Agreement. The shareholders pledging
the Security Shares will execute Forms UCC-1 to be filed at the Company's
expense with such states and counties designated by the Subscribers. The
Company will also execute all such documents reasonably necessary to
memorialize and further protect the security interest described above. The
Company agrees to pay or reimburse the party who files the Forms UCC-1.
13. Miscellaneous.
(a) Notices. All notices or other communications given or made hereunder
shall be in writing and shall be personally delivered or deemed delivered the
first business day after being telecopied (provided that a copy is delivered by
first class mail) to the party to receive the same at its address set forth
below or to such other address as either party shall hereafter give to the
other by notice duly made under this Section: (i) if to the Company, to
Conectisys Corp., 00000 Xxxxx Xxxxxxxx Xxxxxxx, Xxxxx 00, Xxxxxxxx, XX 00000,
telecopier number: (000) 000-0000, and (ii) if to the Subscriber, to the name,
address and telecopy number set forth on the signature page hereto, with a copy
by telecopier only to Xxxxxxx X. Xxxxxxx, Esq., 000 Xxxxx Xxxxxx, Xxxxx 0000,
Xxx Xxxx, Xxx Xxxx 00000, telecopier number: (000) 000-0000.
(b) Closing. The consummation of the transactions contemplated herein
shall take place at the offices of Xxxxxxx X. Xxxxxxx, Esq., 000 Xxxxx Xxxxxx,
Xxxxx 0000, Xxx Xxxx, XX 00000, upon the satisfaction of all conditions to
Closing set forth in this Agreement. The closing date shall be the date that
subscriber funds representing the net amount due the Company from the Purchase
Price are transmitted by wire transfer to the Company (the "Closing Date").
(c) Entire Agreement; Assignment. This Agreement represents the entire
agreement between the parties hereto with respect to the subject matter hereof
and may be amended only by a writing executed by both parties. No right or
obligation of either party shall be assigned by that party without prior notice
to and the written consent of the other party.
(d) Execution. This Agreement may be executed by facsimile transmission,
and in counterparts, each of which will be deemed an original.
(e) Law Governing this Agreement. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without regard
to principles of conflicts of laws. Any action brought by either party against
the other concerning the transactions contemplated by this Agreement shall be
brought only in the state courts of New York or in the federal courts located
in the state of New York. Both parties and the individuals executing this
Agreement and other agreements on behalf of the Company agree to submit to the
jurisdiction of such courts and waive trial by jury. The prevailing party
shall be entitled to recover from the other party its reasonable attorney's
fees and costs. In the event that any provision of this Agreement or any other
agreement delivered in connection herewith is invalid or unenforceable under
any applicable statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed
modified to conform with such statute or rule of law. Any such provision which
may prove invalid or unenforceable under any law shall not affect the validity
or enforceability of any other provision of any agreement.
(f) Specific Enforcement, Consent to Jurisdiction. The Company and
Subscriber acknowledge and agree that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent or cure breaches of the provisions of this Agreement and
to enforce specifically the terms and provisions hereof or thereof, this being
in addition to any other remedy to which any of them may be entitled by law or
equity. Subject to Section 13(e) hereof, each of the Company and Subscriber
hereby waives, and agrees not to assert in any such suit, action or proceeding,
any claim that it is not personally subject to the jurisdiction of such court,
that the suit, action or proceeding is brought in an inconvenient forum or that
the venue of the suit, action or proceeding is improper. Nothing in this
Section shall affect or limit any right to serve process in any other manner
permitted by law.
(g) Confidentiality. The Company agrees that it will not disclose
publicly or privately the identity of the Subscriber unless expressly agreed to
in writing by the Subscriber or only to the extent required by law.
(h) Automatic Termination. This Agreement shall automatically terminate
without any further action of either party hereto if the Closing shall not have
occurred by the tenth (10th) business day following the date this Agreement is
accepted by the Subscriber.
[THIS SPACE INTENTIONALLY LEFT BLANK]
Please acknowledge your acceptance of the foregoing Subscription
Agreement by signing and returning a copy to the undersigned whereupon it shall
become a binding agreement between us.
CONECTISYS CORP. A Colorado Corporation
By: /s/ Xxxxxx X. Xxxxxx
Xxxxxx X. Xxxxxx, CEO
Dated: April 12, 2001
ATTEST:
By: /s/ Xxxxxx Casspi
Xxxxxx Casspi
Purchase Price: $300,000.00
ACCEPTED: Dated as of April 12, 2001
LAURUS MASTER FUND, LTD. - Subscriber A Cayman Island corporation X/x Xxxxxxx
Xxxxxxxxx Xxxxxxxx Xxx. X.X. Xxx 0000 G.T. Xxxxxxxxxx Xxxxx, Xxxxx Xxxxxx
Xxxxxx Xxxxx Xxxxxx, Xxxxxx Xxxxxxx Fax: 000-000-0000
By: /s/ (Unintelligible)
SCHEDULE B TO SUBSCRIPTION AGREEMENT
INITIAL OFFERING - CASH FINDER'S FEES 8% Finder's Fees and Warrant Exercise
Compensation payable in connection with investment and warrant exercise by
Laurus Master Fund Ltd. for which Laurus Capital Management, L.L.C. is the
Fund Manager.
FINDER LAURUS CAPITAL MANAGEMENT, L.L.C. 000 Xxxx 00xx Xxxxxx, Xxxxx
0000 Xxx Xxxx, Xxx Xxxx 00000 Fax: 000-000-0000
WARRANTS LAURUS MASTER FUND, LTD. c/o Onshore Corporate Services Ltd.
P.O. Box 1234 G.T.Queensgate House, South Church Street Grand Cayman,
Cayman Islands Fax: 000-000-0000
WARRANT RECIPIENT WARRANTS IN CONNECTION WITH INITIAL OFFERING Warrants
issuable in connection with investment by Laurus Master Fund Ltd. TOTAL
1,000,000 Warrants
Schedule 7 (e)
Use of Proceeds
The gross proceeds from the funding are estimated to be $300,000.
Assuming net proceeds to the Company of $268,000, the Company intends to
use the proceeds as follows:
Amount___ Anticipated Use of Proceeds_________ Percentage
$ 118,000 Operating Expenses 44%
$ 75,000 Payroll 28%
$ 45,000 H-Net Redesign & Testing 17%
$ 30,000 Outside Consulting 11%
$ 268,000 TOTAL 100%
Schedule 10.1
None.
