Exhibit 10.33
Securities Purchase Agreement dated as of November 27, 2002 by and
between the Registrant and the purchasers named therein
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of November 27,
2002, by and among Conectisys Corporation, a Colorado corporation, with
headquarters located at 00000 Xxxxxx Xxxxxxxx, Xxxxx 000, Xxxxxxxx,
Xxxxxxxxxx 00000 (the "Company"), and each of the purchasers set forth on
the signature pages hereto (the "Buyers").
WHEREAS:
A. The Company and the Buyers are executing and delivering this
Agreement in reliance upon an exemption from securities registration
afforded by the rules and regulations as promulgated by the United States
Securities and Exchange Commission (the "SEC") under the Securities Act of
1933, as amended (the "1933 Act");
B. Buyers desire to purchase and the Company desires to issue and
sell, upon the terms and conditions set forth in this Agreement (i) 12%
convertible debentures of the Company, in the form attached hereto as
Exhibit "A", in the aggregate principal amount of Five Hundred Thousand
Dollars ($500,000) (together with any debenture(s) issued in replacement
thereof or as a dividend thereon or otherwise with respect thereto in
accordance with the terms thereof, the "Debentures"), convertible into
shares of common stock, no par value per share, of the Company (the "Common
Stock"), upon the terms and subject to the limitations and conditions set
forth in such Debentures and (ii) warrants, in the form attached hereto as
Exhibit "B", to purchase Two Million, Five Hundred Thousand (2,500,000)
shares of Common Stock (the "Warrants").
C. Each Buyer wishes to purchase, upon the terms and conditions stated
in this Agreement, such principal amount of Debentures and number of
Warrants as is set forth immediately below its name on the signature pages
hereto; and
D. Contemporaneous with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights
Agreement, in the form attached hereto as Exhibit "C" (the "Registration
Rights Agreement"), pursuant to which the Company has agreed to provide
certain registration rights under the 1933 Act and the rules and
regulations promulgated thereunder, and applicable state securities laws.
NOW THEREFORE, the Company and each of the Buyers severally (and not
jointly) hereby agree as follows:
1. PURCHASE AND SALE OF DEBENTURES AND WARRANTS.
a. Purchase of Debentures and Warrants. On the Closing Date (as
defined below), the Company shall issue and sell to each Buyer and each
Buyer severally agrees to purchase from the Company such principal amount
of Debentures and number of Warrants as is set forth immediately below such
Buyer's name on the signature pages hereto.
b. Form of Payment. On the Closing Date (as defined below), (i) each
Buyer shall pay the purchase price for the Debentures and the Warrants to
be issued and sold to it at the Closing (as defined below) (the "Purchase
Price") by wire transfer of immediately available funds to the Company, in
accordance with the Company's written wiring instructions, against delivery
of the Debentures in the principal amount equal to the Purchase Price and
the number of Warrants as is set forth immediately below such Buyer's name
on the signature pages hereto, and (ii) the Company shall deliver such
Debentures and Warrants duly executed on behalf of the Company, to such
Buyer, against delivery of such Purchase Price.
c. Closing Date. Subject to the satisfaction (or written waiver) of
the conditions thereto set forth in Section 6 and Section 7 below, the date
and time of the issuance and sale of the Debentures and the Warrants
pursuant to this Agreement (the "Closing Date") shall be 12:00 noon Pacific
Standard Time on November 27, 2002 or such other mutually agreed upon time.
The closing of the transactions contemplated by this Agreement (the
"Closing") shall occur on the Closing Date at such location as may be
agreed to by the parties.
2. BUYERS' REPRESENTATIONS AND WARRANTIES. Each Buyer severally (and
not jointly) represents and warrants to the Company solely as to such Buyer
that:
a. Investment Purpose. As of the date hereof, the Buyer is purchasing
the Debentures and the shares of Common Stock issuable upon conversion of
or otherwise pursuant to the Debentures (including, without limitation,
such additional shares of Common Stock, if any, as are issuable (i) on
account of interest on the Debentures, (ii) as a result of the events
described in Sections 1.3 and 1.4(g) of the Debentures and Section 2(c) of
the Registration Rights Agreement or (iii) in payment of the Standard
Liquidated Damages Amount (as defined in Section 2(f) below) pursuant to
this Agreement, such shares of Common Stock being collectively referred to
herein as the "Conversion Shares") and the Warrants and the shares of
Common Stock issuable upon exercise thereof (the "Warrant Shares" and,
collectively with the Debentures, Warrants and Conversion Shares, the
"Securities") for its own account and not with a present view towards the
public sale or distribution thereof, except pursuant to sales registered or
exempted from registration under the 1933 Act; provided, however, that by
making the representations herein, the Buyer does not agree to hold any of
the Securities for any minimum or other specific term and reserves the
right to dispose of the Securities at any time in accordance with or
pursuant to a registration statement or an exemption under the 1933 Act.
b. Accredited Investor Status. The Buyer is an "accredited investor"
as that term is defined in Rule 501(a) of Regulation D (an "Accredited
Investor").
c. Reliance on Exemptions. The Buyer understands that the Securities
are being offered and sold to it in reliance upon specific exemptions from
the registration requirements of United States federal and state securities
laws and that the Company is relying upon the truth and accuracy of, and
the Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Buyer set forth herein in order
to determine the availability of such exemptions and the eligibility of the
Buyer to acquire the Securities.
d. Information. The Buyer and its advisors, if any, have been, and
for so long as the Debentures and Warrants remain outstanding will continue
to be, furnished with all materials relating to the business, finances and
operations of the Company and materials relating to the offer and sale of
the Securities which have been requested by the Buyer or its advisors. The
Buyer and its advisors, if any, have been, and for so long as the
Debentures and Warrants remain outstanding will continue to be, afforded
the opportunity to ask questions of the Company. Notwithstanding the
foregoing, the Company has not disclosed to the Buyer any material
nonpublic information and will not disclose such information unless such
information is disclosed to the public prior to or promptly following such
disclosure to the Buyer. Neither such inquiries nor any other due
diligence investigation conducted by Buyer or any of its advisors or
representatives shall modify, amend or affect Buyer's right to rely on the
Company's representations and warranties contained in Section 3 below. The
Buyer understands that its investment in the Securities involves a
significant degree of risk.
e. Governmental Review. The Buyer understands that no United States
federal or state agency or any other government or governmental agency has
passed upon or made any recommendation or endorsement of the Securities.
f. Transfer or Re-sale. The Buyer understands that (i) except as
provided in the Registration Rights Agreement, the sale or re-sale of the
Securities has not been and is not being registered under the 1933 Act or
any applicable state securities laws, and the Securities may not be
transferred unless (a) the Securities are sold pursuant to an effective
registration statement under the 1933 Act, (b) the Buyer shall have
delivered to the Company an opinion of counsel that shall be in form,
substance and scope customary for opinions of counsel in comparable
transactions to the effect that the Securities to be sold or transferred
may be sold or transferred pursuant to an exemption from such registration,
which opinion shall be accepted by the Company, (c) the Securities are sold
or transferred to an "affiliate" (as defined in Rule 144 promulgated under
the 1933 Act (or a successor rule) ("Rule 144")) of the Buyer who agrees to
sell or otherwise transfer the Securities only in accordance with this
Section 2(f) and who is an Accredited Investor, (d) the Securities are sold
pursuant to Rule 144, or (e) the Securities are sold pursuant to Regulation
S under the 1933 Act (or a successor rule) ("Regulation S"), and the Buyer
shall have delivered to the Company an opinion of counsel that shall be in
form, substance and scope customary for opinions of counsel in corporate
transactions, which opinion shall be accepted by the Company; (ii) any sale
of such Securities made in reliance on Rule 144 may be made only in
accordance with the terms of said Rule and further, if said Rule is not
applicable, any re-sale of such Securities under circumstances in which the
seller (or the person through whom the sale is made) may be deemed to be an
underwriter (as that term is defined in the 0000 Xxx) may require
compliance with some other exemption under the 1933 Act or the rules and
regulations of the SEC thereunder; and (iii) neither the Company nor any
other person is under any obligation to register such Securities under the
1933 Act or any state securities laws or to comply with the terms and
conditions of any exemption thereunder (in each case, other than pursuant
to the Registration Rights Agreement). Notwithstanding the foregoing or
anything else contained herein to the contrary, the Securities may be
pledged as collateral in connection with a bona fide margin account or
other lending arrangement. In the event that the Company does not accept
the opinion of counsel provided by the Buyer with respect to the transfer
of Securities pursuant to an exemption from registration, such as Rule 144
or Regulation S, within three (3) business days of delivery of the opinion
to the Company, the Company shall pay to the Buyer liquidated damages of
three percent (3%) of the outstanding amount of the Debentures per month
plus accrued and unpaid interest on the Debentures, prorated for partial
months, in cash or shares at the option of the Buyer ("Standard Liquidated
Damages Amount"). If the Buyer elects to be paid the Standard Liquidated
Damages Amount in shares of Common Stock, such shares shall be issued at
the Conversion Price at the time of payment.
g. Legends. The Buyer understands that the Debentures and the
Warrants and, until such time as the Conversion Shares and Warrant Shares
have been registered under the 1933 Act as contemplated by the Registration
Rights Agreement or otherwise may be sold pursuant to Rule 144 or
Regulation S without any restriction as to the number of securities as of a
particular date that can then be immediately sold, the Conversion Shares
and Warrant Shares may bear a restrictive legend in substantially the
following form (and a stop-transfer order may be placed against transfer of
the certificates for such Securities):
"The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended. The securities may not be
sold, transferred or assigned in the absence of an effective registration
statement for the securities under said Act, or an opinion of counsel, in
form, substance and scope customary for opinions of counsel in comparable
transactions, that registration is not required under said Act or unless
sold pursuant to Rule 144 or Regulation S under said Act."
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of any Security upon which it
is stamped, if, unless otherwise required by applicable state securities
laws, (a) such Security is registered for sale under an effective
registration statement filed under the 1933 Act or otherwise may be sold
pursuant to Rule 144 or Regulation S without any restriction as to the
number of securities as of a particular date that can then be immediately
sold, or (b) such holder provides the Company with an opinion of counsel,
in form, substance and scope customary for opinions of counsel in
comparable transactions, to the effect that a public sale or transfer of
such Security may be made without registration under the 1933 Act, which
opinion shall be accepted by the Company so that the sale or transfer is
effected or (c) such holder provides the Company with reasonable assurances
that such Security can be sold pursuant to Rule 144 or Regulation S. The
Buyer agrees to sell all Securities, including those represented by a
certificate(s) from which the legend has been removed, in compliance with
applicable prospectus delivery requirements, if any.
h. Authorization; Enforcement. This Agreement and the Registration
Rights Agreement have been duly and validly authorized. This Agreement has
been duly executed and delivered on behalf of the Buyer, and this Agreement
constitutes, and upon execution and delivery by the Buyer of the
Registration Rights Agreement, such agreement will constitute, valid and
binding agreements of the Buyer enforceable in accordance with their terms.
i. Residency. The Buyer is a resident of the jurisdiction set forth
immediately below such Buyer's name on the signature pages hereto.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to each Buyer that:
a. Organization and Qualification. The Company and each of its
Subsidiaries (as defined below), if any, is a corporation duly organized,
and, except as set forth on Schedule 3(a), validly existing and in good
standing under the laws of the jurisdiction in which it is incorporated,
with full power and authority (corporate and other) to own, lease, use and
operate its properties and to carry on its business as and where now owned,
leased, used, operated and conducted. Schedule 3(a) sets forth a list of
all of the Subsidiaries of the Company and the jurisdiction in which each
is incorporated. The Company and each of its Subsidiaries is duly
qualified as a foreign corporation to do business and is in good standing
in every jurisdiction in which its ownership or use of property or the
nature of the business conducted by it makes such qualification necessary
except where the failure to be so qualified or in good standing would not
have a Material Adverse Effect. "Material Adverse Effect" means any
material adverse effect on the business, operations, assets, financial
condition or prospects of the Company or its Subsidiaries, if any, taken as
a whole, or on the transactions contemplated hereby or by the agreements or
instruments to be entered into in connection herewith. "Subsidiaries"
means any corporation or other organization, whether incorporated or
unincorporated, in which the Company owns, directly or indirectly, any
equity or other ownership interest.
b. Authorization; Enforcement. (i) The Company has all requisite
corporate power and authority to enter into and perform this Agreement, the
Registration Rights Agreement, the Debentures and the Warrants and to
consummate the transactions contemplated hereby and thereby and to issue
the Securities, in accordance with the terms hereof and thereof, (ii) the
execution and delivery of this Agreement, the Registration Rights
Agreement, the Debentures and the Warrants by the Company and the
consummation by it of the transactions contemplated hereby and thereby
(including without limitation, the issuance of the Debentures and the
Warrants and the issuance and reservation for issuance of the Conversion
Shares and Warrant Shares issuable upon conversion or exercise thereof)
have been duly authorized by the Company's Board of Directors, except for
the Stockholder Approval (as defined in Section 4(m)) and no further
consent or authorization of the Company, its Board of Directors, or its
shareholders is required, (iii) this Agreement has been duly executed and
delivered by the Company by its authorized representative, and such
authorized representative is the true and official representative with
authority to sign this Agreement and the other documents executed in
connection herewith and bind the Company accordingly, and (iv) this
Agreement constitutes, and upon execution and delivery by the Company of
the Registration Rights Agreement, the Debentures and the Warrants, each of
such instruments will constitute, a legal, valid and binding obligation of
the Company enforceable against the Company in accordance with its terms.
c. Capitalization. As of the date hereof, the authorized capital
stock of the Company consists of (i) 250,000,000 shares of Common Stock, of
which 86,359,171 shares are issued and outstanding, approximately 6,743,654
shares are reserved for issuance pursuant to the Company's stock option
plans, approximately 16,465,705 shares are reserved for issuance pursuant
to securities (other than the Debentures and the Warrants) exercisable for,
or convertible into or exchangeable for shares of Common Stock (plus the
shares underlying the convertible debenture and notes described in Schedule
3(c)) and 205,000,000 shares are reserved for issuance upon conversion of
the Debentures and the Additional Debentures (as defined in Section 4(l))
and exercise of the Warrants and the Additional Warrants (as defined in
Section 4(l)) (subject to (A) adjustment pursuant to the Company's covenant
set forth in Section 4(h) below and (B) the Stockholder approval (as
defined in Section 4(m)); and (ii) 50,000,000 shares of preferred stock of
which 1,000,000 shares have been designated as Class A Preferred Stock,
200,020 of which are issued and outstanding with options outstanding to
purchase 250,000 shares of Class A Preferred Stock and of which 1,000,000
shares have been designated as Class B Preferred of which no shares are
issued and outstanding with options outstanding to purchase 1,000,000
shares of Class B Preferred Stock. All of such outstanding shares of
capital stock are, or upon issuance will be, duly authorized, validly
issued, fully paid and nonassessable. No shares of capital stock of the
Company are subject to preemptive rights or any other similar rights of the
stockholders of the Company or any liens or encumbrances imposed through
the actions or failure to act of the Company. Except as disclosed in
Schedule 3(c), as of the effective date of this Agreement, (i) there are no
outstanding options, warrants, scrip, rights to subscribe for, puts, calls,
rights of first refusal, agreements, understandings, claims or other
commitments or rights of any character whatsoever relating to, or
securities or rights convertible into or exchangeable for any shares of
capital stock of the Company or any of its Subsidiaries, or arrangements by
which the Company or any of its Subsidiaries is or may become bound to
issue additional shares of capital stock of the Company or any of its
Subsidiaries, (ii) there are no agreements or arrangements under which the
Company or any of its Subsidiaries is obligated to register the sale of any
of its or their securities under the 1933 Act (except the Registration
Rights Agreement) and (iii) there are no anti-dilution or price adjustment
provisions contained in any security issued by the Company (or in any
agreement providing rights to security holders) that will be triggered by
the issuance of the Debentures, the Warrants, the Conversion Shares or
Warrant Shares. The Company has furnished to the Buyer true and correct
copies of the Company's Articles of Incorporation as in effect on the date
hereof ("Articles of Incorporation"), the Company's By-laws, as in effect
on the date hereof (the "By-laws"), and the terms of all securities
convertible into or exercisable for Common Stock of the Company and the
material rights of the holders thereof in respect thereto. The Company
shall provide the Buyer with a written update of this representation signed
by the Company's Chief Executive or Chief Financial Officer on behalf of
the Company as of the Closing Date.
d. Issuance of Shares. Subject to the Stockholder Approval (as
defined in Section 4(m), the Conversion Shares and Warrant Shares are duly
authorized and reserved for issuance and, upon conversion of the Debentures
and exercise of the Warrants in accordance with their respective terms,
will be validly issued, fully paid and non-assessable, and free from all
taxes, liens, claims and encumbrances with respect to the issue thereof and
shall not be subject to preemptive rights or other similar rights of
stockholders of the Company and will not impose personal liability upon the
holder thereof.
e. Acknowledgment of Dilution. The Company understands and
acknowledges the potentially dilutive effect to the Common Stock upon the
issuance of the Conversion Shares and Warrant Shares upon conversion of the
Debenture or exercise of the Warrants. The Company further acknowledges
that its obligation to issue Conversion Shares and Warrant Shares upon
conversion of the Debentures or exercise of the Warrants in accordance with
this Agreement, the Debentures and the Warrants is absolute and
unconditional regardless of the dilutive effect that such issuance may have
on the ownership interests of other stockholders of the Company.
f. No Conflicts. Subject to the Stockholder Approval (as defined in
Section 4(m)), the execution, delivery and performance of this Agreement,
the Registration Rights Agreement, the Debentures and the Warrants by the
Company and the consummation by the Company of the transactions
contemplated hereby and thereby (including, without limitation, the
issuance and reservation for issuance of the Conversion Shares and Warrant
Shares) will not (i) conflict with or result in a violation of any
provision of the Articles of Incorporation or By-laws or (ii) violate or
conflict with, or result in a breach of any provision of, or constitute a
default (or an event which with notice or lapse of time or both could
become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture,
patent, patent license or instrument to which the Company or any of its
Subsidiaries is a party, or (iii) result in a violation of any law, rule,
regulation, order, judgment or decree (including federal and state
securities laws and regulations and regulations of any self-regulatory
organizations to which the Company or its securities are subject)
applicable to the Company or any of its Subsidiaries or by which any
property or asset of the Company or any of its Subsidiaries is bound or
affected (except for such conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations as would not, individually or
in the aggregate, have a Material Adverse Effect). Neither the Company nor
any of its Subsidiaries is in violation of its Articles of Incorporation,
By-laws or other organizational documents and neither the Company nor any
of its Subsidiaries is in default (and no event has occurred which with
notice or lapse of time or both could put the Company or any of its
Subsidiaries in default) under, and neither the Company nor any of its
Subsidiaries has taken any action or failed to take any action that would
give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which the
Company or any of its Subsidiaries is a party or by which any property or
assets of the Company or any of its Subsidiaries is bound or affected,
except for possible defaults as would not, individually or in the
aggregate, have a Material Adverse Effect. The businesses of the Company
and its Subsidiaries, if any, are not being conducted, and shall not be
conducted so long as a Buyer owns any of the Securities, in violation of
any law, ordinance or regulation of any governmental entity. Except as
specifically contemplated by this Agreement and as required under the 1933
Act and any applicable state securities laws, the Company is not required
to obtain any consent, authorization or order of, or make any filing or
registration with, any court, governmental agency, regulatory agency, self
regulatory organization or stock market or any third party in order for it
to execute, deliver or perform any of its obligations under this Agreement,
the Registration Rights Agreement, the Debentures or the Warrants in
accordance with the terms hereof or thereof or to issue and sell the
Debentures and Warrants in accordance with the terms hereof and to issue
the Conversion Shares upon conversion of the Debentures and the Warrant
Shares upon exercise of the Warrants. All consents, authorizations,
orders, filings and registrations which the Company is required to obtain
pursuant to the preceding sentence have been obtained or effected on or
prior to the date hereof. The Company is not in violation of the listing
requirements of the Over-the-Counter Bulletin Board (the "OTCBB") and does
not reasonably anticipate that the Common Stock will be delisted by the
OTCBB in the foreseeable future. The Company and its Subsidiaries are
unaware of any facts or circumstances which might give rise to any of the
foregoing.
g. SEC Documents; Financial Statements. The Company has timely filed
all reports, schedules, forms, statements and other documents required to
be filed by it with the SEC pursuant to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the "1934 Act") (all of the
foregoing filed prior to the date hereof and all exhibits included therein
and financial statements and schedules thereto and documents (other than
exhibits to such documents) incorporated by reference therein, being
hereinafter referred to herein as the "SEC Documents"). The Company has
delivered to each Buyer true and complete copies of the SEC Documents,
except for such exhibits and incorporated documents. As of their
respective dates, the SEC Documents complied in all material respects with
the requirements of the 1934 Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein,
in light of the circumstances under which they were made, not misleading.
None of the statements made in any such SEC Documents is, or has been,
required to be amended or updated under applicable law (except for such
statements as have been amended or updated in subsequent filings prior the
date hereof). As of their respective dates, the financial statements of
the Company included in the SEC Documents complied as to form in all
material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto. Such financial
statements have been prepared in accordance with United States generally
accepted accounting principles, consistently applied, during the periods
involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto, or (ii) in the case of unaudited interim
statements, to the extent they may not include footnotes or may be
condensed or summary statements) and fairly present in all material
respects the consolidated financial position of the Company and its
consolidated Subsidiaries as of the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments). Except as set forth in the financial statements of the
Company included in the SEC Documents, the Company has no liabilities,
contingent or otherwise, other than (i) liabilities incurred in the
ordinary course of business subsequent to September 30, 2001 and (ii)
obligations under contracts and commitments incurred in the ordinary course
of business and not required under generally accepted accounting principles
to be reflected in such financial statements, which, individually or in the
aggregate, are not material to the financial condition or operating results
of the Company.
h. Absence of Certain Changes. Since September 30, 2001, there has
been no material adverse change and no material adverse development in the
assets, liabilities, business, properties, operations, financial condition,
results of operations or prospects of the Company or any of its
Subsidiaries.
i. Absence of Litigation. There is no action, suit, claim,
proceeding, inquiry or investigation before or by any court, public board,
government agency, self-regulatory organization or body pending or, to the
knowledge of the Company or any of its Subsidiaries, threatened against or
affecting the Company or any of its Subsidiaries, or their officers or
directors in their capacity as such, that could have a Material Adverse
Effect. Schedule 3(i) contains a complete list and summary description of
any pending or threatened proceeding against or affecting the Company or
any of its Subsidiaries, without regard to whether it would have a Material
Adverse Effect. The Company and its Subsidiaries are unaware of any facts
or circumstances which might give rise to any of the foregoing.
j. Patents, Copyrights, etc.
(i) The Company and each of its Subsidiaries owns or possesses the
requisite licenses or rights to use all patents, patent applications,
patent rights, inventions, know-how, trade secrets, trademarks, trademark
applications, service marks, service names, trade names and copyrights
("Intellectual Property") necessary to enable it to conduct its business as
now operated (and, except as set forth in Schedule 3(j) hereof, to the best
of the Company's knowledge, as presently contemplated to be operated in the
future); there is no claim or action by any person pertaining to, or
proceeding pending, or to the Company's knowledge threatened, which
challenges the right of the Company or of a Subsidiary with respect to any
Intellectual Property necessary to enable it to conduct its business as now
operated (and, except as set forth in Schedule 3(j) hereof, to the best of
the Company's knowledge, as presently contemplated to be operated in the
future); to the best of the Company's knowledge, the Company's or its
Subsidiaries' current and intended products, services and processes do not
infringe on any Intellectual Property or other rights held by any person;
and the Company is unaware of any facts or circumstances which might give
rise to any of the foregoing. The Company and each of its Subsidiaries
have taken reasonable security measures to protect the secrecy,
confidentiality and value of their Intellectual Property.
(ii) All of the Company's computer software and computer hardware, and
other similar or related items of automated, computerized or software
systems that are used or relied on by the Company in the conduct of its
business or that were, or currently are being, sold or licensed by the
Company to customers (collectively, "Information Technology"), are Year
2000 Compliant. For purposes of this Agreement, the term "Year 2000
Compliant" means, with respect to the Company's Information Technology,
that the Information Technology is designed to be used prior to, during and
after the calendar Year 2000, and the Information Technology used during
each such time period will accurately receive, provide and process date and
time data (including, but not limited to, calculating, comparing and
sequencing) from, into and between the 20th and 21st centuries, including
the years 1999 and 2000, and leap-year calculations, and will not
malfunction, cease to function, or provide invalid or incorrect results as
a result of the date or time data, to the extent that other information
technology, used in combination with the Information Technology, properly
exchanges date and time data with it. The Company has delivered to the
Buyers true and correct copies of all analyses, reports, studies and
similar written information, whether prepared by the Company or another
party, relating to whether the Information Technology is Year 2000
Compliant, if any.
k. No Materially Adverse Contracts, Etc. Neither the Company nor any
of its Subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation which in
the judgment of the Company's officers has or is expected in the future to
have a Material Adverse Effect. Neither the Company nor any of its
Subsidiaries is a party to any contract or agreement which in the judgment
of the Company's officers has or is expected to have a Material Adverse
Effect.
l. Tax Status. Except as set forth on Schedule 3(l), the Company and
each of its Subsidiaries has made or filed all federal, state and foreign
income and all other tax returns, reports and declarations required by any
jurisdiction to which it is subject (unless and only to the extent that the
Company and each of its Subsidiaries has set aside on its books provisions
reasonably adequate for the payment of all unpaid and unreported taxes) and
has paid all taxes and other governmental assessments and charges that are
material in amount, shown or determined to be due on such returns, reports
and declarations, except those being contested in good faith and has set
aside on its books provisions reasonably adequate for the payment of all
taxes for periods subsequent to the periods to which such returns, reports
or declarations apply. There are no unpaid taxes in any material amount
claimed to be due by the taxing authority of any jurisdiction, and the
officers of the Company know of no basis for any such claim. The Company
has not executed a waiver with respect to the statute of limitations
relating to the assessment or collection of any foreign, federal, state or
local tax. Except as set forth on Schedule 3(l), none of the Company's tax
returns is presently being audited by any taxing authority.
m. Certain Transactions. Except as set forth on Schedule 3(m) and
except for arm's length transactions pursuant to which the Company or any
of its Subsidiaries makes payments in the ordinary course of business upon
terms no less favorable than the Company or any of its Subsidiaries could
obtain from third parties and other than the grant of stock options
disclosed on Schedule 3(c), none of the officers, directors, or employees
of the Company is presently a party to any transaction with the Company or
any of its Subsidiaries (other than for services as employees, officers and
directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental of
real or personal property to or from, or otherwise requiring payments to or
from any officer, director or such employee or, to the knowledge of the
Company, any corporation, partnership, trust or other entity in which any
officer, director, or any such employee has a substantial interest or is an
officer, director, trustee or partner.
n. Disclosure. All information relating to or concerning the Company
or any of its Subsidiaries set forth in this Agreement and provided to the
Buyers pursuant to Section 2(d) hereof and otherwise in connection with the
transactions contemplated hereby is true and correct in all material
respects and the Company has not omitted to state any material fact
necessary in order to make the statements made herein or therein, in light
of the circumstances under which they were made, not misleading. No event
or circumstance has occurred or exists with respect to the Company or any
of its Subsidiaries or its or their business, properties, prospects,
operations or financial conditions, which, under applicable law, rule or
regulation, requires public disclosure or announcement by the Company but
which has not been so publicly announced or disclosed (assuming for this
purpose that the Company's reports filed under the 1934 Act are being
incorporated into an effective registration statement filed by the Company
under the 1933 Act).
o. Acknowledgment Regarding Buyers' Purchase of Securities. The
Company acknowledges and agrees that the Buyers are acting solely in the
capacity of arm's length purchasers with respect to this Agreement and the
transactions contemplated hereby. The Company further acknowledges that no
Buyer is acting as a financial advisor or fiduciary of the Company (or in
any similar capacity) with respect to this Agreement and the transactions
contemplated hereby and any statement made by any Buyer or any of their
respective representatives or agents in connection with this Agreement and
the transactions contemplated hereby is not advice or a recommendation and
is merely incidental to the Buyers' purchase of the Securities. The
Company further represents to each Buyer that the Company's decision to
enter into this Agreement has been based solely on the independent
evaluation of the Company and its representatives.
p. No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales in any security or solicited any offers
to buy any security under circumstances that would require registration
under the 1933 Act of the issuance of the Securities to the Buyers. The
issuance of the Securities to the Buyers will not be integrated with any
other issuance of the Company's securities (past, current or future) for
purposes of any stockholder approval provisions applicable to the Company
or its securities.
q. No Brokers. The Company has taken no action which would give rise
to any claim by any person for brokerage commissions, transaction fees or
similar payments relating to this Agreement or the transactions
contemplated hereby.
r. Permits; Compliance. The Company and each of its Subsidiaries is
in possession of all franchises, grants, authorizations, licenses, permits,
easements, variances, exemptions, consents, certificates, approvals and
orders necessary to own, lease and operate its properties and to carry on
its business as it is now being conducted (collectively, the "Company
Permits"), and there is no action pending or, to the knowledge of the
Company, threatened regarding suspension or cancellation of any of the
Company Permits. Neither the Company nor any of its Subsidiaries is in
conflict with, or in default or violation of, any of the Company Permits,
except for any such conflicts, defaults or violations which, individually
or in the aggregate, would not reasonably be expected to have a Material
Adverse Effect. Since September 30, 2001, neither the Company nor any of
its Subsidiaries has received any notification with respect to possible
conflicts, defaults or violations of applicable laws, except for notices
relating to possible conflicts, defaults or violations, which conflicts,
defaults or violations would not have a Material Adverse Effect.
s. Environmental Matters.
(i) Except as set forth in Schedule 3(s), there are, to the Company's
knowledge, with respect to the Company or any of its Subsidiaries or any
predecessor of the Company, no past or present violations of Environmental
Laws (as defined below), releases of any material into the environment,
actions, activities, circumstances, conditions, events, incidents, or
contractual obligations which may give rise to any common law environmental
liability or any liability under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 or similar federal, state, local or
foreign laws and neither the Company nor any of its Subsidiaries has
received any notice with respect to any of the foregoing, nor is any action
pending or, to the Company's knowledge, threatened in connection with any
of the foregoing. The term "Environmental Laws" means all federal, state,
local or foreign laws relating to pollution or protection of human health
or the environment (including, without limitation, ambient air, surface
water, groundwater, land surface or subsurface strata), including, without
limitation, laws relating to emissions, discharges, releases or threatened
releases of chemicals, pollutants contaminants, or toxic or hazardous
substances or wastes (collectively, "Hazardous Materials") into the
environment, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials, as well as all authorizations, codes, decrees, demands
or demand letters, injunctions, judgments, licenses, notices or notice
letters, orders, permits, plans or regulations issued, entered, promulgated
or approved thereunder.
(ii) Other than those that are or were stored, used or disposed of in
compliance with applicable law, no Hazardous Materials are contained on or
about any real property currently owned, leased or used by the Company or
any of its Subsidiaries, and no Hazardous Materials were released on or
about any real property previously owned, leased or used by the Company or
any of its Subsidiaries during the period the property was owned, leased or
used by the Company or any of its Subsidiaries, except in the normal course
of the Company's or any of its Subsidiaries' business.
(iii) Except as set forth in Schedule 3(s), there are no underground
storage tanks on or under any real property owned, leased or used by the
Company or any of its Subsidiaries that are not in compliance with
applicable law.
t. Title to Property. The Company and its Subsidiaries have good and
marketable title in fee simple to all real property and good and marketable
title to all personal property owned by them which is material to the
business of the Company and its Subsidiaries, in each case free and clear
of all liens, encumbrances and defects except such as are described in
Schedule 3(t) or such as would not have a Material Adverse Effect. Any
real property and facilities held under lease by the Company and its
Subsidiaries are held by them under valid, subsisting and enforceable
leases with such exceptions as would not have a Material Adverse Effect.
u. Insurance. The Company and each of its Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as management of the Company believes to be
prudent and customary in the businesses in which the Company and its
Subsidiaries are engaged. Neither the Company nor any such Subsidiary has
any reason to believe that it will not be able to renew its existing
insurance coverage as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue its business
at a cost that would not have a Material Adverse Effect. The Company has
provided to Buyer true and correct copies of all policies relating to
directors' and officers' liability coverage, errors and omissions coverage,
and commercial general liability coverage.
v. Internal Accounting Controls. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient,
in the judgment of the Company's board of directors, to provide reasonable
assurance that (i) transactions are executed in accordance with
management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain
asset accountability, (iii) access to assets is permitted only in
accordance with management's general or specific authorization and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
w. Foreign Corrupt Practices. Neither the Company, nor any of its
Subsidiaries, nor any director, officer, agent, employee or other person
acting on behalf of the Company or any Subsidiary has, in the course of his
actions for, or on behalf of, the Company, used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expenses
relating to political activity; made any direct or indirect unlawful
payment to any foreign or domestic government official or employee from
corporate funds; violated or is in violation of any provision of the U.S.
Foreign Corrupt Practices Act of 1977, as amended, or made any bribe,
rebate, payoff, influence payment, kickback or other unlawful payment to
any foreign or domestic government official or employee.
x. Solvency. Except as set forth in Schedule 3(x), the Company, after
giving effect to the transactions contemplated by this Agreement, will be
solvent (i.e., the Company is able to pay its debts as they become due and
payable) and currently the Company has no information that would lead it to
reasonably conclude that the Company would not have the ability to, nor
does it intend to take any action that would impair its ability to, pay its
debts from time to time incurred in connection therewith as such debts
become due and payable. The Company did not receive a qualified opinion
from its auditors with respect to its most recent fiscal year end and,
after giving effect to the transactions contemplated by this Agreement,
does not anticipate or know of any basis upon which its auditors might
issue a qualified opinion in respect of its current fiscal year.
y. No Investment Company. The Company is not, and upon the issuance
and sale of the Securities as contemplated by this Agreement will not be an
"investment company" required to be registered under the Investment Company
Act of 1940 (an "Investment Company"). The Company is not controlled by an
Investment Company.
z. Breach of Representations and Warranties by the Company. If the
Company breaches any of the representations or warranties set forth in this
Section 3, and in addition to any other remedies available to the Buyers
pursuant to this Agreement, the Company shall pay to the Buyer the Standard
Liquidated Damages Amount in cash or in shares of Common Stock at the
option of the Buyer, until such breach is cured. If the Buyers elect to be
paid the Standard Liquidated Damages Amounts in shares of Common Stock,
such shares shall be issued at the Conversion Price at the time of payment.
4. COVENANTS.
a. Best Efforts. The parties shall use their best efforts to satisfy
timely each of the conditions described in Section 6 and 7 of this
Agreement.
b. Form D; Blue Sky Laws. The Company agrees to file a Form D with
respect to the Securities as required under Regulation D and to provide a
copy thereof to each Buyer promptly after such filing. The Company shall,
on or before the Closing Date, take such action as the Company shall
reasonably determine is necessary to qualify the Securities for sale to the
Buyers at the applicable closing pursuant to this Agreement under
applicable securities or "blue sky" laws of the states of the United States
(or to obtain an exemption from such qualification), and shall provide
evidence of any such action so taken to each Buyer on or prior to the
Closing Date.
c. Reporting Status; Eligibility to Use Form S-3, SB-2 or Form
S-1. The Company's Common Stock is registered under Section 12(g) of the
1934 Act. The Company represents and warrants that it meets the
requirements for the use of Form S-3 (of if Company is not eligible for the
use of Form S-3 as of the Filing Date (as defined in the Registration
Rights Agreement), the Company may use the form of registration for which
it is eligible at that time) for registration of the sale by the Buyer of
the Registrable Securities (as defined in the Registration Rights
Agreement). So long as the Buyer beneficially owns any of the Securities,
the Company shall timely file all reports required to be filed with the SEC
pursuant to the 1934 Act, and the Company shall not terminate its status as
an issuer required to file reports under the 1934 Act even if the 1934 Act
or the rules and regulations thereunder would permit such termination. The
Company further agrees to file all reports required to be filed by the
Company with the SEC in a timely manner so as to become eligible, and
thereafter to maintain its eligibility, for the use of Form S-3. The
Company shall issue a press release describing the materials terms of the
transaction contemplated hereby as soon as practicable following the
Closing Date but in no event more than two (2) business days of the Closing
Date, which press release shall be subject to prior review by the Buyers.
The Company agrees that such press release shall not disclose the name of
the Buyers unless expressly consented to in writing by the Buyers or unless
required by applicable law or regulation, and then only to the extent of
such requirement.
d. Use of Proceeds. The Company shall use the proceeds from the sale
of the Debentures and the Warrants in the manner set forth in Schedule 4(d)
attached hereto and made a part hereof and shall not, directly or
indirectly, use such proceeds for any loan to or investment in any other
corporation, partnership, enterprise or other person (except in connection
with its currently existing direct or indirect Subsidiaries)
e. Future Offerings. Subject to the exceptions described below, the
Company will not, without the prior written consent of a majority-in-
interest of the Buyers, not to be unreasonably withheld, negotiate or
contract with any party to obtain additional equity financing (including
debt financing with an equity component) that involves (A) the issuance of
Common Stock at a discount to the market price of the Common Stock on the
date of issuance (taking into account the value of any warrants or options
to acquire Common Stock issued in connection therewith) or (B) the issuance
of convertible securities that are convertible into an indeterminate number
of shares of Common Stock or (C) the issuance of warrants during the period
(the "Lock-up Period") beginning on the Closing Date and ending on the
later of (i) one hundred eighty (180) days from the Closing Date and (ii)
ninety (90) days from the date the Registration Statement (as defined in
the Registration Rights Agreement) is declared effective (plus any days in
which sales cannot be made thereunder). In addition, subject to the
exceptions described below, the Company will not conduct any equity
financing (including debt with an equity component) ("Future Offerings")
during the period beginning on the Closing Date and ending two (2) years
after the end of the Lock-up Period unless it shall have first delivered to
each Buyer, at least twenty (20) business days prior to the closing of such
Future Offering, written notice describing the proposed Future Offering,
including the terms and conditions thereof and proposed definitive
documentation to be entered into in connection therewith, and providing
each Buyer an option during the fifteen (15) day period following delivery
of such notice to purchase its pro rata share (based on the ratio that the
aggregate principal amount of Debentures purchased by it hereunder bears to
the aggregate principal amount of Debentures purchased hereunder) of the
securities being offered in the Future Offering on the same terms as
contemplated by such Future Offering (the limitations referred to in this
sentence and the preceding sentence are collectively referred to as the
"Capital Raising Limitations"). In the event the terms and conditions of a
proposed Future Offering are amended in any respect after delivery of the
notice to the Buyers concerning the proposed Future Offering, the Company
shall deliver a new notice to each Buyer describing the amended terms and
conditions of the proposed Future Offering and each Buyer thereafter shall
have an option during the fifteen (15) day period following delivery of
such new notice to purchase its pro rata share of the securities being
offered on the same terms as contemplated by such proposed Future Offering,
as amended. The foregoing sentence shall apply to successive amendments to
the terms and conditions of any proposed Future Offering. The Capital
Raising Limitations shall not apply to any transaction involving (i)
issuances of securities in a firm commitment underwritten public offering
(excluding a continuous offering pursuant to Rule 415 under the 1933 Act),
(ii) issuances of securities as consideration for a merger, consolidation
or purchase of assets, or in connection with any strategic partnership or
joint venture (the primary purpose of which is not to raise equity
capital), or in connection with the disposition or acquisition of a
business, product or license by the Company or (iii) issuances of
restricted securities at a discount to the market price of the Common
Stock, provided that no registration rights are given to the purchaser.
The Capital Raising Limitations also shall not apply to the issuance of
securities upon exercise or conversion of the Company's options, warrants
or other convertible securities outstanding as of the date hereof or to the
grant of additional options or warrants, or the issuance of additional
securities, under any Company stock option or restricted stock plan
approved by the Stockholders of the Company. In the event that the Company
completes a Future
Offering on terms more favorable to another investor than the transaction
contemplated hereby, the terms of the Debentures and the Warrants will be
amended to reflect such more favorable terms.
f. Expenses. At the Closing, the Company shall reimburse Buyers for
expenses incurred by it in connection with the negotiation, preparation,
execution, delivery and performance of this Agreement and the other
agreements to be executed in connection herewith ("Documents"), including,
without limitation, attorneys' and consultants' fees and expenses, transfer
agent fees, fees for stock quotation services, fees relating to any
amendments or modifications of the Documents or any consents or waivers of
provisions in the Documents, fees for the preparation of opinions of
counsel, escrow fees, and costs of restructuring the transactions
contemplated by the Documents. When possible, the Company must pay these
fees directly, otherwise the Company must make immediate payment for
reimbursement to the Buyers for all fees and expenses immediately upon
written notice by the Buyer or the submission of an invoice by the Buyer
If the Company fails to reimburse the Buyer in full within three (3)
business days of the written notice or submission of invoice by the Buyer,
the Company shall pay interest on the total amount of fees to be reimbursed
at a rate of 15% per annum.
g. Financial Information. The Company agrees to send the following
reports to each Buyer until such Buyer transfers, assigns, or sells all of
the Securities: (i) within ten (10) days after the filing with the SEC, a
copy of its Annual Report on Form 10-KSB, its Quarterly Reports on Form 10-
QSB and any Current Reports on Form 8-K; (ii) within one (1) day after
release, copies of all press releases issued by the Company or any of its
Subsidiaries; and (iii) contemporaneously with the making available or
giving to the stockholders of the Company, copies of any notices or other
information the Company makes available or gives to such stockholders.
h. Authorization and Reservation of Shares. Subject to the
Stockholder Approval (as defined in Section 4(m)), the Company shall at all
times have authorized, and reserved for the purpose of issuance, a
sufficient number of shares of Common Stock to provide for the full
conversion or exercise of the outstanding Debentures and Warrants and
issuance of the Conversion Shares and Warrant Shares in connection
therewith (based on the Conversion Price of the Debentures or Exercise
Price of the Warrants in effect from time to time) and as otherwise
required by the Debentures. The Company shall not reduce the number of
shares of Common Stock reserved for issuance upon conversion of Debentures
and exercise of the Warrants without the consent of each Buyer. The
Company shall at all times maintain the number of shares of Common Stock
so reserved for issuance at an amount ("Reserved Amount") equal to no less
than two (2) times the number that is then actually issuable upon full
conversion of the Debentures and Additional Debentures and upon exercise of
the Warrants and the Additional Warrants (based on the Conversion Price of
the Debentures or the Exercise Price of the Warrants in effect from time to
time). If at any time the number of shares of Common Stock authorized and
reserved for issuance ("Authorized and Reserved Shares") is below the
Reserved Amount, the Company will promptly take all corporate action
necessary to authorize and reserve a sufficient number of shares,
including, without limitation, calling a special meeting of stockholders to
authorize additional shares to meet the Company's obligations under this
Section 4(h), in the case of an insufficient number of authorized shares,
obtain stockholder approval of an increase in such authorized number of
shares, and voting the management shares of the Company in favor of an
increase in the authorized shares of the Company to ensure that the number
of authorized shares is sufficient to meet the Reserved Amount. If the
Company fails to obtain such shareholder approval within thirty (30) days
following the date on which the number of Authorized and Reserved Shares
exceeds the Reserved Amount, the Company shall pay to the Borrower the
Standard Liquidated Damages Amount, in cash or in shares of Common Stock at
the option of the Buyer. If the Buyer elects to be paid the Standard
Liquidated Damages Amount in shares of Common Stock, such shares shall be
issued at the Conversion Price at the time of payment. In order to ensure
that the Company has authorized a sufficient amount of shares to meet the
Reserved Amount at all times, the Company must deliver to the Buyer at the
end of every month a list detailing (1) the current amount of shares
authorized by the Company and reserved for the Buyer; and (2) amount of
shares issuable upon conversion of the Debentures and upon exercise of the
Warrants and as payment of interest accrued on the Debentures for one year.
If the Company fails to provide such list within five (5) business days of
the end of each month, the Company shall pay the Standard Liquidated
Damages Amount, in cash or in shares of Common Stock at the option of the
Buyer, until the list is delivered. If the Buyer elects to be paid the
Standard Liquidated Damages Amount in shares of Common Stock, such shares
shall be issued at the Conversion Price at the time of payment.
i. Listing. The Company shall promptly secure the listing of the
Conversion Shares and Warrant Shares upon each national securities exchange
or automated quotation system, if any, upon which shares of Common Stock
are then listed (subject to official notice of issuance) and, so long as
any Buyer owns any of the Securities, shall maintain, so long as any other
shares of Common Stock shall be so listed, such listing of all Conversion
Shares and Warrant Shares from time to time issuable upon conversion of the
Debentures or exercise of the Warrants. The Company will obtain and, so
long as any Buyer owns any of the Securities, maintain the listing and
trading of its Common Stock on the OTCBB, the Nasdaq National Market
("Nasdaq"), the Nasdaq SmallCap Market ("Nasdaq SmallCap"), the New York
Stock Exchange ("NYSE"), or the American Stock Exchange ("AMEX") and will
comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the National Association of
Securities Dealers ("NASD") and such exchanges, as applicable. The Company
shall promptly provide to each Buyer copies of any notices it receives from
the OTCBB and any other exchanges or quotation systems on which the Common
Stock is then listed regarding the continued eligibility of the Common
Stock for listing on such exchanges and quotation systems.
j. Corporate Existence. So long as a Buyer beneficially owns any
Debentures or Warrants, the Company shall maintain its corporate existence
and shall not sell all or substantially all of the Company's assets, except
in the event of a merger or consolidation or sale of all or substantially
all of the Company's assets, where the surviving or successor entity in
such transaction (i) assumes the Company's obligations hereunder and under
the agreements and instruments entered into in connection herewith and (ii)
is a publicly traded corporation whose Common Stock is listed for trading
on the OTCBB, Nasdaq, Nasdaq SmallCap, NYSE or AMEX.
k. No Integration. The Company shall not make any offers or sales of
any security (other than the Securities) under circumstances that would
require registration of the Securities being offered or sold hereunder
under the 1933 Act or cause the offering of the Securities to be integrated
with any other offering of securities by the Company for the purpose of any
stockholder approval provision applicable to the Company or its securities.
l. Subsequent Investments. The Company and the Buyers agree that,
upon the filing by the Company of the Registration Statement to be filed
pursuant to the Registration Rights Agreement (the "Filing Date"), the
Buyers shall purchase additional debentures (the "Filing Debentures") in
the aggregate principal amount of One Hundred Fifty Thousand Dollars
($150,000) and additional warrants (the "Filing Warrants") to purchase an
aggregate of 750,000 shares of Common Stock, for an aggregate purchase
price of One Hundred Fifty Thousand Dollars ($150,000), with the closing of
such purchase to occur within fifteen (15) days of the Filing Date;
provided, however, that the obligation of each Buyer to purchase the Filing
Debentures and the Filing Warrants is subject to the satisfaction, at or
before the closing of such purchase and sale, of the conditions set forth
in Section 7. The Company and the Buyers further agree that, upon the
declaration of effectiveness of the Registration Statement to be filed
pursuant to the Registration Rights Agreement (the "Effective Date"), the
Buyers shall purchase additional debentures (the "Effectiveness Debentures"
and, collectively with the Filing Debentures, the "Additional Debentures")
in the aggregate principal amount of One Hundred Fifty Thousand Dollars
($150,000) and additional warrants (the "Effectiveness Warrants" and,
collectively with the Filing Warrants, the "Additional Warrants") to
purchase an aggregate of 750,000 shares of Common Stock, for an aggregate
purchase price of One Hundred Fifty Thousand Dollars ($150,000), with the
closing of such purchase to occur within five (5) days of the Effective
Date; provided, however, that the obligation of each Buyer to purchase the
Effectiveness Debentures and the Effectiveness Warrants is subject to the
satisfaction, at or before the closing of such purchase and sale, of the
conditions set forth in Section 7; and, provided, further, that there shall
not have been a Material Adverse Effect as of such effective date. The
terms of the Additional Debentures and the Additional Warrants shall be
identical to the terms of the Debentures and Warrants to be issued on the
Closing Date. The Common Stock underlying the Additional Debentures and
the Additional Warrants shall be Registrable Securities (as defined in the
Registration Rights Agreement) and shall be included in the Registration
Statement to be filed pursuant to the Registration Rights Agreement.
m. Stockholder Approval. The Company shall file a proxy statement or
information statement with the SEC no later than January 15, 2003 and use
its best efforts to obtain, on or before February 28, 2003 such approvals
of the Company's stockholders as may be required to issue all of the shares
of Common Stock issuable upon conversion or exercise of, or otherwise with
respect to, the Debentures and the Warrants in accordance with Colorado law
and any applicable rules or regulations of the OTCBB and Nasdaq, either
through a reverse stock split of the Common Stock or an increase in
authorized capital (the "Stockholder Approval"). The Company shall furnish
to each Buyer and its legal counsel promptly (but in no event less than two
(2) business days) before the same is filed with the SEC, one copy of the
proxy statement or information statement and any amendment thereto, and
shall deliver to each Buyer promptly each letter written by or on behalf of
the Company to the SEC or the staff of the SEC, and each item of
correspondence from the SEC or the staff of the SEC, in each case relating
to such proxy statement or information statement (other than any portion
thereof which contains information for which the Company has sought
confidential treatment). The Company will promptly (but in no event more
than three (3) business days) respond to any and all comments received from
the SEC (which comments shall promptly be made available to each Buyer).
The Company shall comply with the filing and disclosure requirements of
Section 14 under the 1934 Act in connection with the Stockholder Approval.
The Company represents and warrants that its Board of Directors has
approved the proposal contemplated by this Section 4(m) and shall indicate
such approval in the proxy statement or information statement used in
connection with the Stockholder Approval.
n. Breach of Covenants. If the Company breaches any of the covenants
set forth in this Section 4, and in addition to any other remedies
available to the Buyers pursuant to this Agreement, the Company shall pay
to the Buyers the Standard Liquidated Damages Amount, in cash or in shares
of Common Stock at the option of the Buyer, until such breach is cured. If
the Buyers elect to be paid the Standard Liquidated Damages Amount in
shares, such shares shall be issued at the Conversion Price at the time of
payment.
5. TRANSFER AGENT INSTRUCTIONS. The Company shall issue irrevocable
instructions to its transfer agent to issue certificates, registered in the
name of each Buyer or its nominee, for the Conversion Shares and Warrant
Shares in such amounts as specified from time to time by each Buyer to the
Company upon conversion of the Debentures or exercise of the Warrants in
accordance with the terms thereof (the "Irrevocable Transfer Agent
Instructions"). Prior to registration of the Conversion Shares and Warrant
Shares under the 1933 Act or the date on which the Conversion Shares and
Warrant Shares may be sold pursuant to Rule 144 without any restriction as
to the number of Securities as of a particular date that can then be
immediately sold, all such certificates shall bear the restrictive legend
specified in Section 2(g) of this Agreement. The Company warrants that no
instruction other than the Irrevocable Transfer Agent Instructions referred
to in this Section 5, and stop transfer instructions to give effect to
Section 2(f) hereof (in the case of the Conversion Shares and Warrant
Shares, prior to registration of the Conversion Shares and Warrant Shares
under the 1933 Act or the date on which the Conversion Shares and Warrant
Shares may be sold pursuant to Rule 144 without any restriction as to the
number of Securities as of a particular date that can then be immediately
sold), will be given by the Company to its transfer agent and that the
Securities shall otherwise be freely transferable on the books and records
of the Company as and to the extent provided in this Agreement and the
Registration Rights Agreement. Nothing in this Section shall affect in any
way the Buyer's obligations and agreement set forth in Section 2(g) hereof
to comply with all applicable prospectus delivery requirements, if any,
upon re-sale of the Securities. If a Buyer provides the Company with (i)
an opinion of counsel in form, substance and scope customary for opinions
in comparable transactions, to the effect that a public sale or transfer of
such Securities may be made without registration under the 1933 Act and
such sale or transfer is effected or (ii) the Buyer provides reasonable
assurances that the Securities can be sold pursuant to Rule 144, the
Company shall permit the transfer, and, in the case of the Conversion
Shares and Warrant Shares, promptly instruct its transfer agent to issue
one or more certificates, free from restrictive legend, in such name and in
such denominations as specified by such Buyer. The Company acknowledges
that a breach by it of its obligations hereunder will cause irreparable
harm to the Buyers, by vitiating the intent and purpose of the transactions
contemplated hereby. Accordingly, the Company acknowledges that the remedy
at law for a breach of its obligations under this Section 5 may be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section, that the Buyers shall be
entitled, in addition to all other available remedies, to an injunction
restraining any breach and requiring immediate transfer, without the
necessity of showing economic loss and without any bond or other security
being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The obligation of
the Company hereunder to issue and sell the Debentures and Warrants to a
Buyer at the Closing is subject to the satisfaction, at or before the
Closing Date of each of the following conditions thereto, provided that
these conditions are for the Company's sole benefit and may be waived by
the Company at any time in its sole discretion:
a. The applicable Buyer shall have executed this Agreement and the
Registration Rights Agreement, and delivered the same to the Company.
b. The applicable Buyer shall have delivered the Purchase Price in
accordance with Section 1(b) above.
c. The representations and warranties of the applicable Buyer shall be
true and correct in all material respects as of the date when made and as
of the Closing Date as though made at that time (except for representations
and warranties that speak as of a specific date), and the applicable Buyer
shall have performed, satisfied and complied in all material respects with
the covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the applicable Buyer at or prior
to the Closing Date.
d. No litigation, statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or
endorsed by or in any court or governmental authority of competent
jurisdiction or any self-regulatory organization having authority over the
matters contemplated hereby which prohibits the consummation of any of the
transactions contemplated by this Agreement.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE. The obligation
of each Buyer hereunder to purchase the Debentures and Warrants at the
Closing is subject to the satisfaction, at or before the Closing Date of
each of the following conditions, provided that these conditions are for
such Buyer's sole benefit and may be waived by such Buyer at any time in
its sole discretion:
a. The Company shall have executed this Agreement and the Registration
Rights Agreement, and delivered the same to the Buyer.
b. The Company shall have delivered to such Buyer duly executed
Debentures (in such denominations as the Buyer shall request) and Warrants
in accordance with Section 1(b) above.
c. The Irrevocable Transfer Agent Instructions, in form and substance
satisfactory to a majority-in-interest of the Buyers, shall have been
delivered to and acknowledged in writing by the Company's Transfer Agent.
d. The representations and warranties of the Company shall be true and
correct in all material respects as of the date when made and as of the
Closing Date as though made at such time (except for representations and
warranties that speak as of a specific date) and the Company shall have
performed, satisfied and complied in all material respects with the
covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the Company at or prior to the
Closing Date. The Buyer shall have received a certificate or certificates,
executed by the chief executive officer of the Company, dated as of the
Closing Date, to the foregoing effect and as to such other matters as may
be reasonably requested by such Buyer including, but not limited to
certificates with respect to the Company's Articles of Incorporation, By-
laws and Board of Directors' resolutions relating to the transactions
contemplated hereby.
e. No litigation, statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or
endorsed by or in any court or governmental authority of competent
jurisdiction or any self-regulatory organization having authority over the
matters contemplated hereby which prohibits the consummation of any of the
transactions contemplated by this Agreement.
f. No event shall have occurred which could reasonably be expected to
have a Material Adverse Effect on the Company.
g. The Conversion Shares and Warrant Shares shall have been authorized
for quotation on the OTCBB and trading in the Common Stock on the OTCBB
shall not have been suspended by the SEC or the OTCBB.
h. The Buyer shall have received an opinion of the Company's counsel,
dated as of the Closing Date, in form, scope and substance reasonably
satisfactory to the Buyer and in substantially the same form as Exhibit "D"
attached hereto.
i. The Buyer shall have received an officer's certificate described in
Section 3(c) above, dated as of the Closing Date.
8. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law. THIS AGREEMENT SHALL BE ENFORCED, GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE
TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT
REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS. THE PARTIES HERETO HEREBY
SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES FEDERAL COURTS
LOCATED IN NEW YORK, NEW YORK WITH RESPECT TO ANY DISPUTE ARISING UNDER
THIS AGREEMENT, THE AGREEMENTS ENTERED INTO IN CONNECTION HEREWITH OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. BOTH PARTIES IRREVOCABLY WAIVE
THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH SUIT OR
PROCEEDING. BOTH PARTIES FURTHER AGREE THAT SERVICE OF PROCESS UPON A
PARTY MAILED BY FIRST CLASS MAIL SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE
SERVICE OF PROCESS UPON THE PARTY IN ANY SUCH SUIT OR PROCEEDING. NOTHING
HEREIN SHALL AFFECT EITHER PARTY'S RIGHT TO SERVE PROCESS IN ANY OTHER
MANNER PERMITTED BY LAW. BOTH PARTIES AGREE THAT A FINAL NON-APPEALABLE
JUDGMENT IN ANY SUCH SUIT OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE
ENFORCED IN OTHER JURISDICTIONS BY SUIT ON SUCH JUDGMENT OR IN ANY OTHER
LAWFUL MANNER. THE PARTY WHICH DOES NOT PREVAIL IN ANY DISPUTE ARISING
UNDER THIS AGREEMENT SHALL BE RESPONSIBLE FOR ALL FEES AND EXPENSES,
INCLUDING ATTORNEYS' FEES, INCURRED BY THE PREVAILING PARTY IN CONNECTION
WITH SUCH DISPUTE.
b. Counterparts; Signatures by Facsimile. This Agreement may be
executed in one or more counterparts, each of which shall be deemed an
original but all of which shall constitute one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party. This Agreement, once executed by a party,
may be delivered to the other party hereto by facsimile transmission of a
copy of this Agreement bearing the signature of the party so delivering
this Agreement.
c. Headings. The headings of this Agreement are for convenience of
reference only and shall not form part of, or affect the interpretation of,
this Agreement.
d. Severability. In the event that any provision of this Agreement is
invalid or enforceable under any applicable statute or rule of law, then
such provision shall be deemed inoperative to the extent that it may
conflict therewith and shall be deemed modified to conform with such
statute or rule of law. Any provision hereof which may prove invalid or
unenforceable under any law shall not affect the validity or enforceability
of any other provision hereof.
e. Entire Agreement; Amendments. This Agreement and the instruments
referenced herein contain the entire understanding of the parties with
respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither the Company nor the Buyer
makes any representation, warranty, covenant or undertaking with respect to
such matters. No provision of this Agreement may be waived or amended
other than by an instrument in writing signed by the party to be charged
with enforcement.
f. Notices. Any notices required or permitted to be given under the
terms of this Agreement shall be sent by certified or registered mail
(return receipt requested) or delivered personally or by courier (including
a recognized overnight delivery service) or by facsimile and shall be
effective five days after being placed in the mail, if mailed by regular
United States mail, or upon receipt, if delivered personally or by courier
(including a recognized overnight delivery service) or by facsimile, in
each case addressed to a party. The addresses for such communications
shall be:
If to the Company:
Conectisys Corporation
00000 Xxxxxx Xxxxxxxx
Xxxxx 000
Xxxxxxxx, Xxxxxxxxxx 00000
Attention: Chief Executive Officer
Telephone: 000-000-0000
Facsimile: 000-000-0000
Email: xxxxxxx@xxxxxxxxxx.xxx
With copy to:
Xxxxx & Xxxxxx, LLP
000 Xxxxx Xxxxxxxxx
Xxxxx 0000
Xxxxx Xxxx, Xxxxxxxxxx 00000
Attention: Xxxxx Xxxxxxx, Esq.
Telephone: 000-000-0000
Facsimile: 000-000-0000
Email: xxxxxxxx@xxxxx.xxx
If to a Buyer: To the address set forth immediately below such Buyer's
name on the signature pages hereto.
With copy to:
Xxxxxxx Xxxxx Xxxxxxx & Xxxxxxxxx, LLP
0000 Xxxxxx Xxxxxx
00xx Xxxxx
Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000
Attention: Xxxxxx X. Xxxxxxxx, Esq.
Telephone: 000-000-0000
Facsimile: 000-000-0000
Email: xxxxxxxx@xxxxxxxxxxxx.xxx
Each party shall provide notice to the other party of any change in
address.
g. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and assigns.
Neither the Company nor any Buyer shall assign this Agreement or any rights
or obligations hereunder without the prior written consent of the other.
Notwithstanding the foregoing, subject to Section 2(f), any Buyer may
assign its rights hereunder to any person that purchases Securities in a
private transaction from a Buyer or to any of its "affiliates," as that
term is defined under the 1934 Act, without the consent of the Company.
h. Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.
i. Survival. The representations and warranties of the Company and
the agreements and covenants set forth in Sections 3, 4, 5 and 8 shall
survive the closing hereunder notwithstanding any due diligence
investigation conducted by or on behalf of the Buyers. The Company agrees
to indemnify and hold harmless each of the Buyers and all their officers,
directors, employees and agents for loss or damage arising as a result of
or related to any breach or alleged breach by the Company of any of its
representations, warranties and covenants set forth in Sections 3 and 4
hereof or any of its covenants and obligations under this Agreement or the
Registration Rights Agreement, including advancement of expenses as they
are incurred.
j. Publicity. The Company and each of the Buyers shall have the right
to review a reasonable period of time before issuance of any press
releases, SEC, OTCBB or NASD filings, or any other public statements with
respect to the transactions contemplated hereby; provided, however, that
the Company shall be entitled, without the prior approval of each of the
Buyers, to make any press release or SEC, OTCBB (or other applicable
trading market) or NASD filings with respect to such transactions as is
required by applicable law and regulations (although each of the Buyers
shall be consulted by the Company in connection with any such press release
prior to its release and shall be provided with a copy thereof and be given
an opportunity to comment thereon).
k. Further Assurances. Each party shall do and perform, or cause to
be done and performed, all such further acts and things, and shall execute
and deliver all such other agreements, certificates, instruments and
documents, as the other party may reasonably request in order to carry out
the intent and accomplish the purposes of this Agreement and the
consummation of the transactions contemplated hereby.
l. No Strict Construction. The language used in this Agreement will
be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any
party.
m. Remedies. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the Buyers by
vitiating the intent and purpose of the transaction contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach
of its obligations under this Agreement will be inadequate and agrees, in
the event of a breach or threatened breach by the Company of the provisions
of this Agreement, that the Buyers shall be entitled, in addition to all
other available remedies at law or in equity, and in addition to the
penalties assessable herein, to an injunction or injunctions restraining,
preventing or curing any breach of this Agreement and to enforce
specifically the terms and provisions hereof, without the necessity of
showing economic loss and without any bond or other security being
required.
IN WITNESS WHEREOF, the undersigned Buyers and the Company have caused this
Agreement to be duly executed as of the date first above written.
CONECTISYS CORPORATION
/s/ Xxxxxx X. Xxxxxx
Xxxxxx X. Xxxxxx
Chief Executive Officer
AJW PARTNERS, LLC
By: SMS Group, LLC
/s/ Xxxxx X. Xxxxxxxx
Xxxxx X. Xxxxxxxx
Manager
RESIDENCE:Delaware
ADDRESS:
0000 Xxxxxxxx Xxxxxxxxx
Xxxxx 000
Xxxxxx, XX 00000
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Principal Amount of Debentures: $ 66,666
Number of Warrants: 333,330
Aggregate Purchase Price: $ 66,666
AJW OFFSHORE, LTD.
By: First Street Manager II, LLC
/s/ Xxxxx X. Xxxxxxxx
Xxxxx X. Xxxxxxxx
Manager
RESIDENCE: New York
ADDRESS:
0000 Xxxxxxxx Xxxxxxxxx
Xxxxx 000
Xxxxxx, XX 00000
Facsimile: (000) 000-0000
Telephone: (000) 000-0000.
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Principal Amount of Debentures: $ 66,666
Number of Warrants: 333,330
Aggregate Purchase Price: $ 66,666
AJW QUALIFIED PARTNERS, LLC
By: AJW Manager, LLC
/s/ Xxxxx X. Xxxxxxxx
Xxxxx X. Xxxxxxxx
Manager
RESIDENCE: New York
ADDRESS:
0000 Xxxxxxxx Xxxxxxxxx
Xxxxx 000
Xxxxxx, XX 00000
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Principal Amount of Debentures: $ 66,668
Number of Warrants: 333,340
Aggregate Purchase Price: $ 66,668
