EXHIBIT 10.1 - PRIVATE EQUITY LINE OF CREDIT AGREEMENT
PRIVATE EQUITY LINE OF CREDIT AGREEMENT
BY AND AMONG
CERTAIN INVESTORS
AND
CONECTISYS CORP.
________________________________________________________________
DATED AS OF APRIL ____, 2001
________________________________________________________________
This PRIVATE EQUITY LINE OF CREDIT AGREEMENT is entered into as of the ___ day
of April, 2001 (this "Agreement"), by and between the various investors
identified on Schedule A hereto (each an "Investor" or "Investors"), and
Conectisys Corp., a corporation organized and existing under the laws of the
State of Colorado (the "Company").
WHEREAS, the parties desire that, upon the terms and subject to the conditions
contained herein, the Company shall issue and sell to each Investor, from time
to time as provided herein, and each Investor shall purchase his Proportionate
Share of up to $15,000,000 of the Common Stock (as defined below).
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1 "Average Daily Price" shall be the price based on the VWAP.
Section 1.2 "Bid Price" shall mean the closing bid price (as reported by
Bloomberg, L.P.) of the Common Stock on the Principal Market.
Section 1.3 "Capital Shares" shall mean the Common Stock and any shares of
any other class of common stock whether now or hereafter authorized, having the
right to participate in the distribution of earnings and assets of the
Company.
Section 1.4 "Closing" shall mean one of the closings of a purchase and sale
of the Common Stock pursuant to Section 2.1.
Section 1.5 "Closing Date" shall mean, with respect to a Closing the
thirteenth (13th) Trading Day following the Optional Purchase Date related to
such Closing and the second Trading Day following the Valuation Period,
provided all conditions to such Closing have been satisfied on or before such
Trading Days.
Section 1.6 "Commitment Amount" shall mean the $15,000,000 up to which the
Investors have agreed to provide to the Company in order to purchase Put Shares
pursuant to the terms and conditions of this Agreement.
Section 1.7 "Commitment Period" shall mean the period commencing on the
earlier to occur of (i) the Effective Date or (ii) such earlier date as the
Company and the Investor may mutually agree in writing, and expiring on the
earliest to occur of (x) the date on which the Investors shall have purchased
Put Shares pursuant to this Agreement for an aggregate Purchase Price of
$15,000,000, (y) the date this Agreement is terminated pursuant to Section 2.5,
or (z) the date occurring thirty-six (36) months from the date of commencement
of the Commitment Period.
Section 1.8 "Common Stock" shall mean the Company's common stock, no par
value per share.
Section 1.9 "Common Stock Equivalents" shall mean any securities that are
convertible into or exchangeable for Common Stock or any warrants, options or
other rights to subscribe for or purchase Common Stock or any such convertible
or exchangeable securities.
Section 1.10 "Condition Satisfaction Date" See Section 7.2.
Section 1.11 "Damages" shall mean any loss, claim, damage, liability, costs
and expenses (including, without limitation, reasonable attorneys' fees and
disbursements and costs and expenses of expert witnesses and investigation).
Section 1.12 "Effective Date" shall mean the date on which the SEC first
declares effective a Registration Statement registering resale of the
Registrable Securities as set forth in Section 7.2(a).
Section 1.13 "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended and the regulations promulgated thereunder.
Section 1.14 "Finder" See Section 14.2.
Section 1.15 "Investment Amount" shall mean the dollar amount (within the
range specified in Section 2.2) to be invested by the Investor to purchase Put
Shares with respect to any Optional Purchase Date as notified by the Company to
the Investor in accordance with Section 2.2 hereof.
Section 1.16 "Legend" See Section 9.1.
Section 1.17 "Low Volume Day" See Section 2.2(f).
Section 1.18 "Material Adverse Effect" shall mean any effect on the
business, operations, properties, prospects, or financial condition of the
Company that is material and adverse to the Company or to the Company and such
other entities controlling or controlled by the Company, taken as a whole,
and/or any condition, circumstance, or situation that would prohibit or
otherwise interfere with the ability of the Company to enter into and perform
its obligations under any of (a) this Agreement and (b) the Registration Rights
Agreement.
Section 1.19 "Maximum Put Amount" shall mean the lesser of (i) Five Hundred
Thousand Dollars ($500,000), unless waived in writing by Investor; or (ii) ten
percent (10%) of the Average Daily Prices for the twenty-two Trading Days
immediately preceding the Optional Purchase Date multiplied by the reported
daily trading volume of the Common Stock on the Principal Market for each such
Trading Day. The Maximum Put Amount represents the aggregate of all
Proportionate Shares of all Investors.
Section 1.20 "NASD" shall mean the National Association of Securities
Dealers, Inc.
Section 1.21 "Optional Purchase Date" shall mean the Trading Day during the
Commitment Period that an Optional Purchase Notice to sell Common Stock to the
Investor is deemed delivered pursuant to Section 2.2(b) hereof.
Section 1.22 "Optional Purchase Notice" shall mean a written notice to the
Investor setting forth the Investment Amount that the Company intends to
sell to the Investor.
Section 1.23 "Outstanding" when used with reference to Common Shares or
Capital Shares (collectively the "Shares"), shall mean, at any date as of which
the number of such Shares is to be determined, all issued and outstanding
Shares, and shall include all such Shares issuable in respect of outstanding
scrip or any certificates representing fractional interests in such Shares;
provided, however, that "Outstanding" shall not mean any such Shares then
directly or indirectly owned or held by or for the account of the Company.
Section 1.24 "Person" shall mean an individual, a corporation, a
partnership, an association, a trust or other entity or organization, including
a government or political subdivision or an agency or instrumentality thereof.
Section 1.25 "Principal Market" shall mean the Nasdaq National Market, the
Nasdaq Small-Cap Market, the NASDAQ OTC Bulletin Board, the American Stock
Exchange or the New York Stock Exchange, whichever is at the time the principal
trading exchange or market for the Common Stock. As of the date of this
Agreement, the OTC Bulletin Board is the Principal Market.
Section 1.26 "Proportionate Share" shall mean the proportion of the
Commitment Amount agreed to be purchased by each Investor as set forth on
Schedule A.
Section 1.27 "Purchase Price" as used in this Agreement shall mean the
following: For each Trading Day during a Valuation Period (or such other date
on which the Purchase Price is calculated in accordance with the terms and
conditions of this Agreement) the Purchase Price shall be 84% of the VWAP.
Section 1.28 "Put" shall mean each occasion the Company elects to exercise
its right to tender an Optional Purchase Notice requiring the Investor to
purchase a discretionary amount as determined by the Company and as limited by
this Agreement of the Company's Common Stock, subject to the terms of this
Agreement, which tender must be given to each Investor for such Investor's
Proportionate Share.
Section 1.29 "Put Shares" shall mean all shares of Common Stock issued or
issuable pursuant to a Put that has occurred or may occur in accordance with
the terms and conditions of this Agreement.
Section 1.30 "Registrable Securities" shall mean the Put Shares and the
Warrant Shares until the Registration Statement has been declared effective by
the SEC and all Put Shares and Warrant Shares have been disposed of pursuant to
the Registration Statement.
Section 1.31 "Registration Rights Agreement" shall mean the agreement
regarding the filing of the Registration Statement for the resale of the
Registrable Securities, entered into between the Company and the Investors as
of the Subscription Date.
Section 1.32 "Registration Statement" shall mean a registration statement on
Form SB-2 (if use of such form is then available to the Company pursuant to the
rules of the SEC and, if not, on such other form promulgated by the SEC for
which the Company then qualifies and which counsel for the Company shall deem
appropriate and which form shall be available for the resale of the Registrable
Securities to be registered thereunder in accordance with the provisions of
this Agreement and the Registration Rights Agreement, and in accordance with
the intended method of distribution of such securities), for the
registration of the resale by the Investor and Warrant Recipient of the
Registrable Securities under the Securities Act.
Section 1.33 "Regulation D" shall mean Regulation D of the Securities Act.
Section 1.34 "SEC" shall mean the Securities and Exchange Commission.
Section 1.35 "Section 4(2)" shall mean Section 4(2) of the Securities Act.
Section 1.36 "Securities Act" shall mean the United States Securities Act of
1933, as amended, and the regulations promulgated thereunder.
Section 1.37 "SEC Documents" shall mean the Company's latest Form 10- KSB as
of the time in question, all Forms 10-QSB and 8-K filed thereafter, and the
Proxy Statement for its latest fiscal year as of the time in question until
such time the Company no longer has an obligation to maintain the effectiveness
of a Registration Statement as set forth in the Registration Rights Agreement.
Section 1.38 "Subscription Date" shall mean the date on which this Agreement
is executed and delivered by the parties hereto.
Section 1.39 "Trading Cushion" shall mean, at any time, the mandatory thirty
(30) calendar days between Optional Purchase Dates and seven (7) Trading Days
after the most recent Closing Date.
Section 1.40 "Trading Day" shall mean any day during which the New York
Stock Exchange shall be open for business.
Section 1.41 "Valuation Event" shall mean an event in which the Company at
any time during a Valuation Period takes any of the following actions:
(a) subdivides or combines its Common Stock;
(b) pays a dividend in its Capital Stock or makes any other distribution of
its Capital Shares;
(c) issues any additional Capital Shares ("Additional Capital Shares"),
otherwise than as provided in the foregoing Subsections (a) and (b) above, at a
price per share less, or for other consideration lower, than the Bid Price in
effect on the Trading Day immediately prior to such issuance, or without
consideration;
(d) issues any warrants, options or other rights to subscribe for or
purchase any Additional Capital Shares and the price per share for which
Additional Capital Shares may at any time thereafter be issuable pursuant to
such warrants, options or other rights shall be less than the Bid Price in
effect immediately prior to such issuance;
(e) issues any securities convertible into or exchangeable for Capital
Shares and the consideration per share for which Additional Capital Shares may
at any time thereafter be issuable pursuant to the terms of such convertible or
exchangeable securities shall be less than the Bid Price in effect immediately
prior to such issuance;
(f) makes a distribution of its assets or evidences of indebtedness to the
holders of its Capital Shares as a dividend in liquidation or by way of return
of capital or other than as a dividend payable out of earnings or surplus
legally available for dividends under applicable law or any distribution to
such holders made in respect of the sale of all or substantially all of the
Company's assets (other than under the circumstances provided for in the
foregoing subsections (a) through (e); or
(g) takes any action affecting the number of Outstanding Capital Shares,
other than an action described in any of the foregoing Subsections (a) through
(f) hereof, inclusive, which in the opinion of the Company's Board of
Directors, determined in good faith, would have a materially adverse effect
upon the rights of the Investor at the time of a Put or Closing Date.
Section 1.42 "Valuation Period" shall mean the period of twenty-two (22)
Trading Days during which the Purchase Price of the Common Stock is determined,
which period shall be with respect to the Purchase Prices on any Optional
Purchase Date, the twenty-two (22) Trading Days following the day on which an
Optional Purchase Notice is deemed to be delivered; provided, however, that if
a Valuation Event occurs during any Valuation Period, a new Valuation Period
shall begin on the Trading Day immediately after the occurrence of such
Valuation Event and end on the fifth Trading Day thereafter.
Section 1.43 "VWAP" shall mean the daily volume weighted average price of
the Common Stock on the Principal Market as reported by Bloomberg, L.P. using
the AQR function.
Section 1.44 "Warrants" shall mean the common stock purchase warrants of the
Company described in Section 13.1, a form of which is annexed hereto as Exhibit
E. Each Warrant shall evidence the right of the holder to purchase one Warrant
Share.
Section 1.45 "Warrant Exercise Compensation" See Section 13.
Section 1.46 "Warrant Recipient" See Section 13.1 and Schedule 13.
Section 1.47 "Warrant Shares" shall mean the Common Stock issuable upon
exercise of the Warrants.
ARTICLE II
PURCHASE AND SALE OF COMMON STOCK
Section 2.1 Puts. Upon the terms and conditions set forth herein
(including, without limitation, the provisions of Article III hereof), on any
Optional Purchase Date the Company may exercise a Put by the delivery of an
Optional Purchase Notice. The number of Put Shares that the Investor shall
receive pursuant to such Put shall be determined by dividing the relevant
portions of the Investment Amount specified in the Optional Purchase Notice by
the corresponding Purchase Prices for each Trading Day during the Valuation
Period.
Section 2.2 Mechanics.
(a) Optional Purchase Notice. At any time during the Commitment Period, the
Company may deliver an Optional Purchase Notice to the Investor, subject to the
conditions set forth in Section 7.2; provided, however, the Investment Amount
for each Put as designated by the Company in the applicable Optional Purchase
Notices shall be neither less than $250,000 in the aggregate to all Investors
nor more than the Maximum Put Amount. The Optional Purchase Notice shall state
the commencement date of the Valuation Period.
(b) Date of Delivery of Optional Purchase Notice. An Optional Purchase
Notice shall be deemed delivered on (i) the Trading Day it is received by
facsimile or otherwise by the Investor if such notice is received prior to
12:00 noon New York time, or (ii) the immediately succeeding Trading Day if it
is received by facsimile or otherwise after 12:00 noon New York time on a
Trading Day or at any time on a day which is not a Trading Day. No Optional
Purchase Notice may be deemed delivered on a day that is not a Trading Day.
(c) Determination of Put Shares Issuable. The Purchase Price shall be
based on the Average Daily Price on each separate Trading Day during the
Valuation Period. The number of Put Shares to be purchased by each Investor
with respect to such Investor's Proportionate Share shall be determined on a
daily basis during each Valuation Period and settled on the Closing Date. The
portion of Investment Amount for which Put Shares may be issued for each
Trading Day during the Valuation Period may not exceed one-twenty-second
(1/22nd)of the Investment Amount.
(d) Maximum Optional Purchase Notices/Amount. There shall be a maximum of
thirty-six (36) Optional Purchase Notices given during the term of this
Agreement. Subject to the terms and conditions of this Agreement, the Company
shall have the right to issue each Optional Purchase Notice for an Investment
Amount up to the Maximum Put Amount.
(e) Trading Halt Limitations. Unless the Investor elects in writing to
the contrary, the Investor is not require to purchase Put Shares for any
Trading Day during which trading of the Common Stock is suspended or halted for
three or more hours or for any day during which any of the events described in
Section 6.8 has occurred or is continuing. In such case, one-twenty-second
(1/22nd) of the Investment Amount shall be withdrawn from the Investment Amount
for each such Trading Day. The Investor must notify the Company by facsimile
or otherwise, no later than 6:15 P.M., New York time, on the eleventh (11th)
and twenty-second (22nd) Trading Day of the Valuation Period of the days for
which the foregoing elections are made.
(f) Volume Limitation. If the daily volume of shares of Common Stock
traded on any Trading Day during the Valuation Period is fewer than 100,000
shares of Common Stock ("Low Volume Day), the Investor (each for himself only)
shall not be required to purchase the Put Shares otherwise to be purchased for
such Low Volume Day. In such case, one-twenty-second (1/22nd) of the
Investment Amount shall be withdrawn from the Investment Amount for each such
Low Volume Day, the Valuation Period will be extended one additional Trading
Day for each such Low Volume Day and the withdrawn Investment Amount shall be
applied to the corresponding extended day. The maximum number of Low Volume
Days for which such extensions shall be permitted is five days. Corresponding
adjustments will be made to the Closing Dates. The Investor (each for himself
only) may elect not to have such amount withdrawn from the Investment Amount
and instead purchase Put Shares corresponding to any Low Volume Day. The
Investor's election must be made in writing to the Company no later than the
second business day after each such Low Volume Day.
Section 2.3 Closings. On each Closing Date for a Put the Company shall
deliver to the Investor or to escrow one or more certificates, at the
Investor's option, representing the Put Shares to be purchased by the Investor
pursuant to Section 2.1 herein, after the Optional Purchase Date and on or
prior to such Closing Date, registered in the name of the Investor or, at the
Investor's option, deposit such certificate(s) into such account or accounts
previously designated by the Investor. The Investor shall deliver to escrow
the Investment Amount specified in the Optional Purchase Notice by wire
transfer of immediately available funds to an account designated by the Company
on or before the Closing Date. In addition, on or prior to the Closing Date,
each of the Company and the Investor shall deliver all documents, instruments
and writings required to be delivered or reasonably requested by either of them
pursuant to this Agreement in order to implement and effect the transactions
contemplated herein. Payment of funds to the Company and delivery of the
certificates to the Investor shall occur out of escrow in accordance with the
escrow agreement referred to in Section 7.2(p) following (x) the Company's
deposit into escrow of the certificates representing the Put Shares and (y) the
Investor's deposit into escrow of the Investment Amount; provided, however,
that to the extent the Company has not paid the fees, expenses and
disbursements of the Investor's counsel in accordance with Section 13.1, the
amount of such fees, expenses and disbursements shall be paid in immediately
available funds drawn out of the deposited funds, at the direction of the
Investor, to Investor's counsel with no reduction in the number of Put Shares
issuable to the Investor on such Closing Date.
Section 2.4 Liquidated Damages. In the event the Put Shares are not
delivered by the Company on a Closing Date, the Company will pay the Investor,
as liquidated damages for such failure to deliver, and not as a penalty,
five percent (5%) of the applicable Investment Amount for each seven (7) day
period, or part thereof following such failure, in cash, until such Put Shares
have been delivered. The Escrow Agent shall be directed to pay such liquidated
damages to the Investor out of the Investment Amount delivered by the Investor
to the Escrow Agent.
Section 2.5 Termination of Investment Obligation. The obligation of the
Investor to purchase shares of Common Stock shall terminate permanently
(including with respect to a Closing Date that has not yet occurred) in the
event that (i) there shall occur any stop trade order by the SEC or Principal
Market or suspension by the SEC of the effectiveness of the Registration
Statement for a consecutive five day calendar period or for an aggregate of
twenty (20) Trading Days during the Commitment Period, for any reason, or (ii)
the Company shall at any time fail to comply with the requirements of Article
VI hereof, without regard to any cure period or written notice to cure which
may be permitted or required.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF INVESTOR
Each Investor represents and warrants to the Company that:
Section 3.1 Intent. The Investor is entering into this Agreement for its
own account and the Investor has no present arrangement (whether or not legally
binding) at any time to sell the Common Stock to or through any person or
entity; provided, however, that by making the representations herein, the
Investor does not agree to hold the Common Stock for any minimum or other
specific term and reserves the right to dispose of the Common Stock at any
time in accordance with federal and state securities laws applicable to such
disposition.
Section 3.2 Sophisticated Investor. The Investor is a sophisticated
investor (as described in Rule 506(b)(2)(ii) of Regulation D) or an accredited
investor (as defined in Rule 501 of Regulation D), and Investor has such
experience in business and financial matters that it is capable of evaluating
the merits and risks of an investment in Common Stock. The Investor
acknowledges that an investment in the Common Stock is speculative and involves
a high degree of risk.
Section 3.3 Authority. This Agreement has been duly authorized and
validly executed and delivered by the Investor and is a valid and binding
agreement of the Investor enforceable against it in accordance with its terms,
subject to applicable bankruptcy, insolvency, or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application.
Section 3.4 Not an Affiliate. The Investor is not an officer, director or
to Investor's good faith belief, an "affiliate" (as that term is defined in
Rule 405 of the Securities Act) of the Company.
Section 3.5 Absence of Conflicts. The execution and delivery of this
Agreement and any other document or instrument executed in connection herewith,
and the consummation of the transactions contemplated thereby, and compliance
with the requirements thereof, will not violate any law, rule, regulation,
order, writ, judgment, injunction, decree or award binding on Investor, or, to
the Investor's knowledge, (a) violate any provision of any indenture,
instrument or agreement to which Investor is a party or is subject, or by which
Investor or any of its assets is bound, (b) conflict with or constitute a
material default thereunder, (c) result in the creation or imposition of any
lien pursuant to the terms of any such indenture, instrument or agreement, or
constitute a breach of any fiduciary duty owed by Investor to any third party,
or (d) require the approval of any third-party (which has not been obtained)
pursuant to any material contract, agreement, instrument, relationship or legal
obligation to which Investor is subject or to which any of its assets,
operations or management may be subject.
Section 3.6 Disclosure; Access to Information. Investor has received all
documents, records, books and other information pertaining to Investor's
investment in the Company that have been requested by Investor. The Company is
subject to the periodic reporting requirements of the Exchange Act, and
Investor has had access to copies of any such reports that have been requested
by it.
Section 3.7 Manner of Sale. At no time was Investor presented with or
solicited by or through any leaflet, public promotional meeting, television
advertisement or any other form of general solicitation or advertising.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Investor that:
Section 4.1 Organization of the Company. The Company is a corporation
duly organized and existing in good standing under the laws of the State of
Colorado and has all requisite corporate authority to own its properties and to
carry on its business as now being conducted. Except as set forth in the SEC
Documents, the Company does not have any subsidiaries. The Company is duly
qualified as a foreign corporation to do business and is in good standing in
every jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, other than those in which the
failure so to qualify would not have a Material Adverse Effect.
Section 4.2 Authority. (i) The Company has the requisite corporate power
and authority to enter into and perform its obligations under this Agreement
and the Registration Rights Agreement and to issue the Put Shares and Warrant
Shares; (ii) the execution, issuance and delivery of this Agreement and the
Registration Rights Agreement and the consummation by it of the transactions
contemplated hereby have been duly authorized by all necessary corporate
action and no further consent or authorization of the Company or its Board of
Directors or stockholders is required; and (iii) this Agreement and the
Registration Rights Agreement have been duly executed and delivered by the
Company and constitute valid and binding obligations of the Company enforceable
against the Company in accordance with their terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency, or similar
laws relating to, or affecting generally the enforcement of, creditors'
rights and remedies or by other equitable principles of general application.
Section 4.3 Capitalization. The authorized and outstanding capital stock
of the Company as of the Subscription Date is set forth on Schedule 4.3
hereto. Except as set forth in the SEC Documents or Schedule 4.3, as of the
Subscription Date, there are no options, warrants or rights to subscribe for
securities, rights or obligations convertible into or exchangeable for, or
giving any rights to receive any Capital Shares. 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.
Section 4.4 Common Stock. As of the commencement of and throughout the
Commitment Period, the Company will have registered its Common Stock pursuant
to Section 12(b) or 12(g) of the Exchange Act and be in full compliance with
all reporting requirements of the Exchange Act, and the Company will have
maintained all requirements for the continued listing or quotation of its
Common Stock, and such Common Stock is then listed or quoted on the Principal
Market. As of the date hereof, the Common Stock is listed for trading on the
OTC Bulletin Board.
Section 4.5 SEC Documents. The Company has delivered or made available to
the Investor true and complete copies of the SEC Documents (including, without
limitation, proxy information and solicitation materials). The Company has not
provided to the Investor any information that, according to applicable law,
rule or regulation, should have been disclosed publicly prior to the date
hereof by the Company, but which has not been so disclosed. As of their
respective dates, the SEC Documents complied in all material respects with the
requirements of the Securities Act or the Exchange Act, as the case may be, and
rules and regulations of the SEC promulgated thereunder and other federal,
state and local laws, rules and regulations applicable to such SEC Documents,
and none of the SEC Documents 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. The financial statements of the Company
described above and/or included in the SEC Documents comply as to form in all
material respects with applicable accounting requirements and the published
rules and regulations of the SEC or other applicable rules and regulations with
respect thereto. Such financial statements have been prepared in accordance
with generally accepted accounting principles applied on a consistent basis
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 financial position of the Company as of the dates thereof and the results
of operations and cash flows for the periods then ended (subject, in the case
of unaudited statements, to normal year-end audit adjustments).
Section 4.6 Valid Issuances. The sale by the Company and resale of the Put
Shares and Warrant Shares may and will be properly accomplished pursuant to
Section 4(2), Regulation D and/or any applicable state law. When issued, the
Put Shares shall be duly and validly issued, fully paid, and nonassessable.
Neither the sales of the Put Shares and Warrant Shares pursuant to, nor the
Company's performance of its obligations under, this Agreement or the
Registration Rights Agreement will (i) result in the creation or imposition of
any liens, charges, claims or other encumbrances upon the Put Shares or any of
the assets of the Company, or (ii) entitle the holders of Outstanding Capital
Shares to preemptive or other rights to subscribe to or acquire the Capital
Shares or other securities of the Company. The Put Shares and Warrant Shares
shall not subject the Investor or holder to personal liability by reason of the
possession thereof.
Section 4.7 No General Solicitation or Advertising in Regard to this
Transaction. Neither the Company nor any of its affiliates nor any distributor
or any person acting on its or their behalf (i) has conducted or will conduct
any general solicitation (as that term is used in Rule 502(c) of Regulation D)
or general advertising with respect to any of the Put Shares or Warrant Shares,
or (ii) made any offers or sales of any security or solicited any offers to buy
any security under any circumstances that would require registration of the
Common Stock under the Securities Act.
Section 4.8 Corporate Documents. The Company has furnished or made
available to the Investor true and correct copies of the Company's Articles of
Incorporation, as amended and in effect on the date hereof (the "Certificate"),
and the Company's By-Laws, as amended and in effect on the date hereof (the
"By-Laws").
Section 4.9 No Conflicts. The execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby, including, without limitation, the issuance
of Common Stock do not and will not (i) result in a violation of the Company's
Articles of Incorporation or By-Laws or (ii) conflict with, or constitute a
default (or an event that with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any material agreement, indenture, instrument
or any "lock-up" or similar provision of any underwriting or similar agreement
to which the Company is a party, or (iii) result in a violation of any federal,
state, local or foreign law, rule, regulation, order, judgment or decree
(including federal and state securities laws and regulations) applicable to the
Company or by which any property or asset of the Company 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) nor is the Company otherwise in violation of,
conflict with or in default under any of the foregoing; provided that, for
purposes of the Company's representations and warranties as to violations of
foreign law, rule or regulation referenced in clause (iv), such representations
and warranties are made only to the best of the Company's knowledge insofar as
the execution, delivery and performance of this Agreement by the Company and
the consummation by the Company of the transactions contemplated hereby are or
may be affected by the status of the Investor under or pursuant to any such
foreign law, rule or regulation. The business of the Company is not being
conducted in violation of any law, ordinance or regulation of any governmental
entity, except for possible violations that either singly or in the aggregate
do not and will not have a Material Adverse Effect. The Company is not required
under federal, state or local law, rule or regulation to obtain any consent,
authorization or order of, or make any filing or registration with, any court
or governmental agency in order for it to execute, deliver or perform any of
its obligations under this Agreement or issue and sell the Common Stock in
accordance with the terms hereof other than any SEC, NASD, Principal Market or
state securities filings that may be required to be made by the Company
subsequent to any Closing, any registration statement that may be filed
pursuant hereto, and any shareholder approval required by the rules applicable
to companies whose common stock trades on the Principal Market.
Section 4.10 No Material Adverse Change. Since the date of the most recent
financial statements included in the SEC Documents, no Material Adverse Effect
has occurred or exists with respect to the Company, except as disclosed in the
SEC Documents.
Section 4.11 No Undisclosed Liabilities. The Company has no liabilities or
obligations which are material, individually or in the aggregate, and are not
disclosed in the SEC Documents or otherwise publicly announced, other than
those incurred in the ordinary course of the Company's businesses since the
date of the most recent financial statements included in the SEC Documents and
which, individually or in the aggregate, do not or would not have a Material
Adverse Effect on the Company.
Section 4.12 No Undisclosed Events or Circumstances. Since the date of the
most recent financial statements included in the SEC Documents, 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 SEC Documents.
Section 4.13 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, other than pursuant to this Agreement, under circumstances
that would require registration of the Common Stock under the Securities Act.
Section 4.14 Litigation and Other Proceedings. Except as may be set forth in
the SEC Documents, there are no lawsuits or proceedings pending or to the best
knowledge of the current management and Board of Directors of the Company
threatened, against the Company, nor has the Company received any written or
oral notice of any such action, suit, proceeding or investigation, which might
have a Material Adverse Effect. Except as set forth in the SEC Documents, no
judgment, order, writ, injunction or decree or award has been issued by or, so
far as is known by the Company, requested of any court, arbitrator or
governmental agency which might result in a Material Adverse Effect.
Section 4.15 No Misleading or Untrue Communication. The Company and any
Person representing the Company, in connection with the transactions
contemplated by this Agreement, have not made, at any time, any oral or written
communication in connection with same, which contained any untrue statement of
a material fact or omitted to state any material fact necessary in order to
make the statements, in the light of the circumstances under which they were
made, not misleading.
Section 4.16 Material Non-Public Information. The Company is not in
possession of, nor has the Company or its agents disclosed to the Investor, any
material non-public information that (i) if disclosed, would, or could
reasonably be expected to have, an effect on the price of the Common Stock or
(ii) according to applicable law, rule or regulation, should have been
disclosed publicly by the Company prior to the date hereof but which has not
been so disclosed.
ARTICLE V
COVENANTS OF THE INVESTOR
Section 5.1 Compliance with Law. The Investor's trading activities with
respect to shares of the Company's Common Stock will be in compliance with all
applicable state and federal securities laws, rules and regulations and the
rules and regulations of the Principal Market on which the Company's Common
Stock is listed.
ARTICLE VI
COVENANTS OF THE COMPANY
Section 6.1 Registration Rights. The Company shall cause the Registration
Rights Agreement to remain in full force and effect and the Company shall
comply in all respects with the terms thereof.
Section 6.2 Reservation of Common Stock. As of the date hereof, the
Company has reserved and the Company shall continue to reserve and keep
available at all times, free of preemptive rights, shares of Common Stock for
the purpose of enabling the Company to satisfy any obligation to issue the Put
Shares and Warrant Shares; such amount of shares of Common Stock to be
reserved shall be calculated based upon the minimum Purchase Price therefor
under the terms of this Agreement and the amount of shares of Common Stock
issuable upon exercise of the Warrant.
Section 6.3 Listing of Common Stock. The Company shall maintain the
listing of the Common Stock on a Principal Market, and as soon as practicable
(but in any event prior to the commencement of the Commitment Period) to list
the Put Shares and Warrant Shares. The Company further shall, if the Company
applies to have the Common Stock traded on any other Principal Market, include
in such application the Put Shares and Warrant Shares, and shall take such
other action as is necessary or desirable in the opinion of the Investor to
cause the Common Stock to be listed on such other Principal Market as promptly
as possible. The Company shall take all action necessary to continue the
listing and trading of its Common Stock on a Principal Market (including,
without limitation, maintaining sufficient net tangible assets) and will comply
in all respects with the Company's reporting, filing and other obligations
under the bylaws or rules of such Principal Market.
Section 6.4 Exchange Act Registration. The Company shall cause its Common
Stock to continue to be registered under Section 12(g) or 12(b) of the Exchange
Act, will comply in all respects with its reporting and filing obligations
under said Act, and will not take any action or file any document (whether or
not permitted by said Act or the rules thereunder) to terminate or suspend
such registration or to terminate or suspend its reporting and filing
obligations under said Act. The Company will take all action to continue the
listing and trading of its Common Stock on the Principal Market and will
comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the Principal Market.
Section 6.5 Legends. The certificates evidencing the Common Stock to be
sold by the Investor pursuant to Section 9.1 shall be free of legends.
Section 6.6 Corporate Existence. The Company will take all steps necessary
to preserve and continue the corporate existence of the Company.
Section 6.7 Additional SEC Documents. The Company will deliver to the
Investor, as and when the originals thereof are submitted to the SEC for
filing, copies of all SEC Documents so furnished or submitted to the SEC.
Section 6.8 Blackout Period. Subject to the requirements of
Regulation FD under the Exchange Act, the Company will immediately notify the
Investor upon the occurrence of any of the following events in respect of a
Registration Statement or related prospectus in respect of an offering of
Registrable Securities; (i) receipt of any request for additional information
by the SEC or any other federal or state governmental authority during the
period of effectiveness of the Registration Statement for amendments or
supplements to the Registration Statement or related prospectus; (ii) the
issuance by the SEC or any other federal or state governmental authority of any
stop order suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose; (iii) receipt of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose; (iv) the happening of any event that makes any statement made in such
Registration Statement or related prospectus or any document incorporated or
deemed to be incorporated therein by reference untrue in any material respect
or that requires the making of any changes in the Registration Statement,
related prospectus or documents so that, in the case of the Registration
Statement, it will not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading, and that in the case of the related
prospectus, it will not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading; and (v) the Company's reasonable determination that a
post-effective amendment to the Registration Statement would be appropriate;
and the Company will promptly make available to the Investor any such
supplement or amendment to the related prospectus. The Company shall not
deliver to the Investor any Optional Purchase Notice during the continuation of
any of the foregoing events.
Section 6.9 Expectations Regarding Optional Purchase Notices. Within ten
(10) days after the commencement of each calendar quarter occurring
subsequent to the commencement of the Commitment Period, the Company undertakes
to notify the Investor as to its reasonable expectations as to the dollar
amount it intends to raise during such calendar quarter, if any, through the
issuance of Optional Purchase Notices. Such notification shall constitute only
the Company's good faith estimate and shall in no way obligate the Company to
raise such amount, or any amount, or otherwise limit its ability to deliver
Optional Purchase Notices. The failure by the Company to comply with this
provision can be cured by the Company's notifying the Investor at any time as
to its reasonable expectations with respect to the current calendar quarter.
Section 6.10 Consolidation; Merger. The Company shall not, at any time
after the date hereof, effect any merger or consolidation of the Company with
or into, or a transfer of all or substantially all of the assets of the Company
to, another entity (a "Consolidation Event") unless the resulting successor or
acquiring entity (if not the Company) assumes by written instrument the
obligation to deliver to the Investor such shares of stock and/or securities as
the Investor is entitled to receive pursuant to this Agreement.
Section 6.11 Issuance of Put Shares. The sale and issuance of the Put
Shares and Warrant Shares shall be made in accordance with the provisions and
requirements of applicable state law.
ARTICLE VII
CONDITIONS TO DELIVERY OF OPTIONAL PURCHASE NOTICES AND CONDITIONS TO CLOSING
Section 7.1 Conditions Precedent to the Obligation of the Company to Issue
and Sell Common Stock. The obligation hereunder of the Company to issue and
sell the Put Shares to the Investor incident to each Closing is subject to the
satisfaction, at or before each such Closing, of each of the conditions set
forth below.
(a) Accuracy of the Investor's Representation and Warranties. The
representations and warranties of the Investor shall be true and correct in all
material respects as of the date of this Agreement and as of the date of each
such Closing as though made at each such time.
(b) Performance by the Investor. The Investor shall have performed,
satisfied and complied in all respects with all covenants, agreements and
conditions required by this Agreement to be performed, satisfied or complied
with by the Investor at or prior to such Closing.
Section 7.2 Conditions Precedent to the Right of the Company to Deliver an
Optional Purchase Notice and the Obligation of the Investor to Purchase Put
Shares. The right of the Company to deliver an Optional Purchase Notice and
the obligation of the Investor hereunder to acquire and pay for the Put Shares
incident to a Closing is subject to the satisfaction, on (i) the date of
delivery of such Optional Purchase Notice, (ii) for each day during the
Valuation Period; and (iii) the applicable Closing Date (each a "Condition
Satisfaction Date"), of each of the following conditions:
(a) Registration of the Common Stock with the SEC. As set forth in the
Registration Rights Agreement, the Company shall have filed with the SEC a
Registration Statement with respect to the resale of the Registrable Securities
that shall have been declared effective by the SEC prior to the first Optional
Purchase Date, but in no event later than the date set forth in the
Registration Rights Agreement and shall have filed a prospectus supplement on
the first trading day after each Closing Date.
(b) Effective Registration Statement. As set forth in the Registration
Rights Agreement, the Registration Statement shall have previously become
effective and shall remain effective on each Condition Satisfaction Date and
(i) neither the Company nor the Investor shall have received notice that the
SEC has issued or intends to issue a stop order with respect to the
Registration Statement or that the SEC otherwise has suspended or withdrawn the
effectiveness of the Registration Statement, either temporarily or permanently,
or intends or has threatened to do so, and (ii) no other suspension of the use
or withdrawal of the effectiveness of the Registration Statement or related
prospectus shall exist.
(c) Accuracy of the Company's Representations and Warranties. The
representations and warranties of the Company shall be true and correct in all
material respects as of each Condition Satisfaction Date as though made at each
such time (except for representations and warranties specifically made as of a
particular date) with respect to all periods, and as to all events and
circumstances occurring or existing to and including each Condition
Satisfaction Date, except for any conditions which have temporarily caused any
representations or warranties herein to be incorrect and which have been
corrected with no continuing impairment to the Company or the Investor.
(d) Performance by the Company. The Company shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement and the Registration Rights Agreement
to be performed, satisfied or complied with by the Company at or prior to each
Condition Satisfaction Date.
(e) No Injunction. No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction that prohibits
or directly and adversely affects any of the transactions contemplated by this
Agreement, and no proceeding shall have been commenced that may have the effect
of prohibiting or adversely affecting any of the transactions contemplated by
this Agreement.
(f) Adverse Changes. Since the date of filing of the Company's most
recent SEC Document, no event that had or is reasonably likely to have a
Material Adverse Effect has occurred.
(g) No Suspension of Trading In or Delisting of Common Stock. The trading
of the Common Stock (including without limitation the Put Shares) shall not
have been suspended by the SEC, the Principal Market or the NASD and the
Common Stock (including without limitation the Put Shares) shall have been
approved for listing or quotation on and shall not have been delisted from the
Principal Market. The issuance of shares of Common Stock with respect to the
applicable Closing, if any, shall not violate the shareholder approval
requirements of the Principal Market.
(h) Legal Opinions. The Company shall have caused to be delivered to the
Investor and Finders, within five (5) Trading Days of the effective date of the
Registration Statement, an opinion of the Company's independent counsel in the
form of Exhibit B hereto, addressed to the Investor and Finders; provided,
however, that in the event that such an opinion cannot be delivered by the
Company's independent counsel to the Investor, the Company shall promptly
revise the Registration Statement and shall not deliver an Optional Purchase
Notice. If an Optional Purchase Notice shall have been delivered in good
faith without knowledge by the Company that an opinion of independent counsel
can not be delivered as required, at the option of the Investor, either the
applicable Closing Date shall automatically be postponed for a period of up to
five (5) Trading Days until such an opinion is delivered to the Investor, or
such Closing shall otherwise be canceled. Liquidated damages determined
pursuant to Section 2.4 shall be calculated and payable on the Closing Date.
The Company's independent counsel shall also deliver to the Investor and
Finders upon execution of this Agreement an opinion in form and substance
reasonably satisfactory to the Investor and Finders addressing, among other
things, corporate matters and the exemption from registration under the
Securities Act of the issuance of the Registrable Securities by the Company to
the Investor and Finders under this Agreement.
(i) Due Diligence. No dispute between the Company and the Investor shall
exist pursuant to Section 8.2(c) as to the adequacy of the disclosure contained
in the Registration Statement.
(j) Ten Percent Limitation. On each Closing Date, the number of Put Shares
then to be purchased by the Investor shall not exceed the number of such shares
that, when aggregated with all other shares of Common Stock then owned by the
Investor beneficially or deemed beneficially owned by the Investor, would
result in the Investor owning more than 9.99% of all of such Common Stock as
would be outstanding on such Closing Date, as determined in accordance with
Section 16 of the Exchange Act and the regulations promulgated thereunder. For
purposes of this Section 7.2(j), in the event that the amount of Common Stock
outstanding as determined in accordance with Section 16 of the Exchange Act and
the regulations promulgated thereunder is greater on a Closing Date than on the
date upon which the Optional Purchase Notice associated with such Closing Date
is given, the amount of Common Stock outstanding on such Closing Date shall
govern for purposes of determining whether the Investor, when aggregating all
purchases of Common Stock made pursuant to this Agreement and, if any, Shares,
would own more than 9.99% of the Common Stock following such Closing Date.
(k) Cross Default. The Company shall not be in default of a material
term, covenant, warranty or undertaking of any other agreement to which the
Company and any Investor are parties, nor shall there have occurred an event of
default under any such other agreement
(l) No Knowledge. The Company shall have no knowledge of any event more
likely than not to have the effect of causing such Registration Statement to be
suspended or otherwise ineffective (which event is more likely than not to
occur within the fifteen Trading Days following the Trading Day on which such
Notice is deemed delivered).
(m) Trading Cushion. The Trading Cushion shall have elapsed since the
immediately preceding Optional Purchase Date and Closing Date.
(n) Shareholder Vote. The issuance of shares of Common Stock with respect
to the applicable Closing, if any, and issuance of the Warrants and Warrant
Shares shall not violate the shareholder approval requirements of the Principal
Market or the laws of any jurisdiction to which the Company is subject.
(o) Escrow Agreement. The parties hereto shall have entered into a
mutually approved escrow agreement for the Purchase Price due hereunder and the
Company shall have agreed to pay the fees and expenses of the Escrow Agent and
not be in default of any such payments.
(p) Voting Restrictions. The Investors shall not be subject to voting or
other restrictions arising under any applicable "anti- takeover" laws, rules or
regulations.
(q) Other. On each Condition Satisfaction Date, the Investor shall have
received and been reasonably satisfied with such other certificates and
documents as shall have been reasonably requested by the Investor in order for
the Investor to confirm the Company's satisfaction of the conditions set
forth in this Section 7.2., including, without limitation, a certificate in
substantially the form and substance of Exhibit C hereto, executed in either
case by an executive officer of the Company and to the effect that all the
conditions to such Closing shall have been satisfied as at the date of each
such certificate.
ARTICLE VIII
DUE DILIGENCE REVIEW; NON-DISCLOSURE OF NON-PUBLIC INFORMATION
Section 8.1 Due Diligence Review. The Company shall make available for
inspection and review by the Investor, advisors to and representatives of the
Investor (who may or may not be affiliated with the Investor and who are
reasonably acceptable to the Company), any underwriter participating in any
disposition of the Registrable Securities on behalf of the Investor pursuant to
the Registration Statement, any such registration statement or amendment or
supplement thereto or any blue sky, NASD, Principal Market, or other filing,
all financial and other records, all SEC Documents and other filings with the
SEC, and all other corporate documents and properties of the Company as may be
reasonably necessary for the purpose of such review, and cause the Company's
officers, directors and employees to supply all such information reasonably
requested by the Investor or any such representative, advisor or underwriter in
connection with such Registration Statement (including, without limitation, in
response to all questions and other inquiries reasonably made or submitted by
any of them), prior to and from time to time after the filing and effectiveness
of the Registration Statement for the sole purpose of enabling the Investor and
such representatives, advisors and underwriters and their respective
accountants and attorneys to conduct initial and ongoing due diligence with
respect to the Company and the accuracy of the Registration Statement.
Section 8.2 Non-Disclosure of Non-Public Information.
(a) The Company represents and warrants that the Company and its officers,
directors, employees and agents have not disclosed any non-public information
to the Investor or advisors to or representatives of the Investor. The Company
covenants and agrees that it shall refrain from disclosing, and shall cause its
officers, directors, employees and agents to refrain from disclosing, unless
prior to disclosure of such information the Company identifies such information
as being non-public information and provides the Investor, such advisors and
representatives with the opportunity to accept or refuse to accept such non-
public information for review. The Company may, as a condition to disclosing
any non- public information hereunder, require the Investor's advisors and
representatives to enter into a confidentiality agreement in form reasonably
satisfactory to the Company and the Investor.
(b) The Company acknowledges and understands that the Investor is entering
into this Agreement and the Registration Rights Agreement at the request of
the Company and in good faith reliance on the Company's representation set
forth in Section 4.16 that neither it nor its agents have disclosed to the
Investor any material non-public information.
(c) Nothing herein shall require the Company to disclose non-public
information to the Investor or its advisors or representatives, and the Company
represents that it does not disseminate non-public information to any investors
who purchase stock in the Company in a public offering, to money managers or to
securities analysts, in violation of Regulation FD of the Exchange Act
provided, subject to its compliance with Regulation FD of the Exchange Act,
however, that notwithstanding anything herein to the contrary, the Company
will, as hereinabove provided, immediately notify the advisors and
representatives of the Investor and, if any, underwriters, of any event or the
existence of any circumstance (without any obligation to disclose the specific
event or circumstance) of which it becomes aware, constituting non-public
information (whether or not requested of the Company specifically or generally
during the course of due diligence by such persons or entities), which, if not
disclosed in the prospectus included in the Registration Statement would cause
such prospectus to include a material misstatement or to omit a material fact
required to be stated therein in order to make the statements, therein, in
light of the circumstances in which they were made, not misleading. Nothing
contained in this Section 8.2 shall be construed to mean that such persons or
entities other than the Investor (without the written consent of the Investor
prior to disclosure of such information) may not obtain non-public information
in the course of conducting due diligence in accordance with the terms of this
Agreement and nothing herein shall prevent any such persons or entities from
notifying the Company of their opinion that based on such due diligence by such
persons or entities, that the Registration Statement contains an untrue
statement of a material fact or omits a material fact required to be stated in
the Registration Statement or necessary to make the statements contained
therein, in light of the circumstances in which they were made, not misleading.
Section 8.3 Confidentiality. The Company agrees that it will not publicly
or privately disclose the identities of the Investors, Warrant Recipients or
Finders unless expressly agreed to in writing by the Investor or otherwise
required by law.
ARTICLE IX
LEGENDS
Section 9.1 Legends. Unless otherwise provided below, each certificate
representing Registrable Securities will bear the following legend (the
"Legend"):
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY OTHER
APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER
SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN
MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED,
HYPOTHECATED OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO A TRANSACTION
THAT IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION. THE HOLDER OF THIS
CERTIFICATE IS THE BENEFICIARY OF CERTAIN OBLIGATIONS OF THE COMPANY SET FORTH
IN A PRIVATE EQUITY LINE OF CREDIT AGREEMENT AMONG CONECTISYS CORP. AND CERTAIN
INVESTORS DATED APRIL ____, 2001. A COPY OF THE PORTION OF THE AFORESAID
AGREEMENT EVIDENCING SUCH OBLIGATIONS MAY BE OBTAINED FROM THE COMPANY'S
EXECUTIVE OFFICES.
Upon the execution and delivery hereof, the Company is issuing to the transfer
agent for its Common Stock (and to any substitute or replacement transfer agent
for its Common Stock upon the Company's appointment of any such substitute or
replacement transfer agent) instructions in substantially the form of Exhibit
D hereto. Such instructions shall be irrevocable by the Company from and after
the date hereof or from and after the issuance thereof to any such substitute
or replacement transfer agent, as the case may be, except as otherwise
expressly provided in the Registration Rights Agreement. It is the intent and
purpose of such instructions, as provided therein, to require the transfer
agent for the Common Stock from time to time upon transfer of Registrable
Securities by the Investor to issue certificates evidencing such Registrable
Securities free of the Legend during the following periods and under the
following circumstances and without consultation by the transfer agent with the
Company or its counsel and without the need for any further advice or
instruction or documentation to the transfer agent by or from the Company or
its counsel or the Investor:
(a) at any time after the Effective Date, upon surrender of one or more
certificates evidencing Common Stock that bear the Legend, to the extent
accompanied by a notice requesting the issuance of new certificates free
of the Legend to replace those surrendered, or prior to issuance of a
certificate; provided that (i) the Registration Statement shall then be
effective; (ii) the Investor confirms to the transfer agent that it has sold,
pledged or otherwise transferred or agreed to sell, pledge or otherwise
transfer such Common Stock in a bona fide transaction to a third party that is
not an affiliate of the Company; and (iii) the Investor or sales agent
confirms to the transfer agent that the Investor or sales agent has complied
with the prospectus delivery requirement; and
(b) at any time upon any surrender of one or more certificates evidencing
Registrable Securities that bear the Legend, to the extent accompanied by a
notice requesting the issuance of new certificates free of the Legend to
replace those surrendered and containing representations that (i) the Investor
is permitted to dispose of such Registrable Securities without limitation as to
amount or manner of sale pursuant to Rule 144(k) under the Securities Act or
(ii) the Investor has sold, pledged or otherwise transferred or agreed to
sell, pledge or otherwise transfer such Registrable Securities in a manner
other than pursuant to an effective registration statement, to a transferee who
will upon such transfer be entitled to freely tradeable securities. Any of the
notices referred to above in this Section 9.1 may be sent by facsimile to the
Company's transfer agent.
Section 9.2 No Other Legend or Stock Transfer Restrictions. No legend other
than the one specified in Section 9.1 has been or shall be placed on the share
certificates representing the Common Stock and no instructions or "stop
transfers orders," so called, "stock transfer restrictions," or other
restrictions have been or shall be given to the Company's transfer agent with
respect thereto other than as expressly set forth in this Article IX.
Section 9.3 Investor's Compliance. Nothing in this Article IX shall affect
in any way the Investor's obligations under any agreement to comply with all
applicable securities laws upon resale of the Common Stock.
ARTICLE X
CHOICE OF LAW/VENUE
Section 10.1 Choice of Law/Venue. This Agreement and the Registration
Rights 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 or the Registration Rights
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.
ARTICLE XI
ASSIGNMENT; ENTIRE AGREEMENT, AMENDMENT; TERMINATION
Section 11.1 Assignment. Neither this Agreement nor any rights of the
Investor or the Company hereunder may be assigned by either party to any other
person. Notwithstanding the foregoing, (a) the provisions of this Agreement
shall inure to the benefit of, and be enforceable by, and be binding upon, any
transferee of any of the Common Stock or Warrants purchased or acquired by the
Investor or Warrant Recipient hereunder with respect to the Common Stock held
by such person unless such Common Stock is free from restrictions on further
transfer of such Common Stock, and (b) the Investor's and Warrant Recipient's
obligations and corresponding rights set forth in this Agreement may be
assigned at any time, in whole or in part, to any other person or entity
(including any affiliate of the Investor or Warrant Recipient) effective upon
written notice to the Company. The Company shall have the right to require any
transferee to execute a counterpart of this Agreement unless the Common Stock
held by such transferee is free from further restrictions on transfer.
Section 11.2 Termination. This Agreement shall terminate thirty-six (36)
months after the commencement of the Commitment Period; provided, however, that
the provisions of Articles VI, VIII, IX, X, XI, XII and XIII shall survive the
termination of this Agreement.
Section 11.3 Entire Agreement, Amendment. This Agreement and the
Registration Rights Agreement constitute the full and entire understanding
and agreement between the parties with regard to the subjects hereof and
thereof, and no party shall be liable or bound to any other party in any manner
by any warranties, representations or covenants except as specifically set
forth in this Agreement or therein. Except as expressly provided in this
Agreement, neither this Agreement nor any term hereof may be amended, waived,
discharged or terminated other than by a written instrument signed by both
parties hereto.
ARTICLE XII
NOTICES; INDEMNIFICATION
Section 12.1 Notices. All notices, demands, requests, consents, approvals,
and other communications required or permitted hereunder shall be in writing
and, unless otherwise specified herein, shall be (i) personally served, (ii)
deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile,
addressed as set forth below or to such other address as such party shall have
specified most recently by written notice. Any notice or other communication
required or permitted to be given hereunder shall be deemed effective (a) upon
hand delivery or delivery by facsimile, with accurate confirmation generated by
the transmitting facsimile machine, at the address or number designated below
(if delivered on a business day during normal business hours where such notice
is to be received), or the first business day following such delivery (if
delivered other than on a business day during normal business hours where such
notice is to be received) or (b) on the second business day following the date
of mailing by express courier service, fully prepaid, addressed to such
address, or upon actual receipt of such mailing, whichever shall first occur.
The addresses for such communications shall be:
If to Conectisys Corp.:
Conectisys Corp. 00000 Xxxxx Xxxxxxxx Xxxxxxx Xxxxx 00 Xxxxxxxx, XX 00000
Telecopier: (000) 000-0000
If to the Investor:
To the address and telecopier number set forth on Schedule A hereto
with a copy to (which communication shall not constitute notice):
Xxxxxxx X. Xxxxxxx, Esq. 000 Xxxxx Xxxxxx, Xxxxx 0000 Xxx Xxxx, Xxx Xxxx 00000
Telecopier: (000) 000-0000
Either party hereto may from time to time change its address or facsimile
number for notices under this Section 12.1 by giving at least ten (10) days'
prior written notice of such changed address or facsimile number to the other
party hereto.
Section 12.2 Indemnification.
(a) The Company agrees to indemnify and hold harmless the Investor, its
partners, Affiliates, officers, directors, employees, and duly authorized
agents, and each Person or entity, if any, who controls the Investor within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act, together with the Controlling Persons (as defined in the Registration
Rights Agreement) from and against any Damages, joint or several, and any
action in respect thereof to which the Investor, its partners, Affiliates,
officers, directors, employees, and duly authorized agents, and any such
Controlling Person becomes subject to, resulting from, arising out of or
relating to any misrepresentation, breach of warranty or nonfulfillment of or
failure to perform any covenant or agreement on the part of Company
contained in this Agreement in any event as such Damages are incurred.
(b) The Investor agrees to indemnify and hold harmless the Company, its
partners, Affiliates, officers, directors, employees, and duly authorized
agents, and each Person or entity, if any, who controls the Investor within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act,
together with the Controlling Persons (as defined in the Registration Rights
Agreement) from and against any Damages, joint or several, and any action in
respect thereof to which the Company, its partners, Affiliates, officers,
directors, employees, and duly authorized agents, and any such Controlling
Person becomes subject to, resulting from, arising out of or relating to any
misrepresentation, breach of warranty or nonfulfillment of or failure to
perform any covenant or agreement on the part of Investor contained in this
Agreement in an aggregate amount not to exceed one-third of each such
Investor's Proportionate Share.
Section 12.3 Method of Asserting Indemnification Claims. All claims for
indemnification by any Indemnified Party (as defined below) under Section 12.2
will be asserted and resolved as follows:
(a) In the event any claim or demand in respect of which any person
claiming indemnification under any provision of Section 12.2 (an "Indemnified
Party") might seek indemnity under Section 12.2 is asserted against or sought
to be collected from such Indemnified Party by a person other than the Company,
the Investor or any affiliate of the Company (a "Third Party Claim"), the
Indemnified Party shall deliver a written notification, enclosing a copy of
all papers served, if any, and specifying the nature of and basis for such
Third Party Claim and for the Indemnified Party's claim for indemnification
that is being asserted under any provision of Section 12.2 against any person
(the "Indemnifying Party"), together with the amount or, if not then reasonably
ascertainable, the estimated amount, determined in good faith, of such Third
Party Claim (a "Claim Notice") with reasonable promptness to the Indemnifying
Party. If the Indemnified Party fails to provide the Claim Notice with
reasonable promptness after the Indemnified Party receives notice of such Third
Party Claim, the Indemnifying Party will not be obligated to indemnify the
Indemnified Party with respect to such Third Party Claim to the extent that the
Indemnifying Party's ability to defend has been irreparably prejudiced by such
failure of the Indemnified Party. The Indemnifying Party will notify the
Indemnified Party as soon as practicable within the period ending thirty (30)
calendar days following receipt by the Indemnifying Party of either a Claim
Notice or an Indemnity Notice (as defined below)(the "Dispute Period") whether
the Indemnifying Party disputes its liability or the amount of its liability to
the Indemnified Party under Section 12.2 and whether the Indemnifying Party
desires, at its sole cost and expense, to defend the Indemnified Party against
such Third Party Claim.
1. If the Indemnifying Party notifies the Indemnified Party within the
Dispute Period that the Indemnifying Party desires to defend the Indemnified
Party with respect to the Third Party Claim pursuant to this Section 12.3(a),
then the Indemnifying Party will have the right to defend, with counsel
reasonably satisfactory to the Indemnified Party, at the sole cost and expense
of the Indemnifying Party, such Third Party Claim by all appropriate
proceedings, which proceedings will be vigorously and diligently prosecuted by
the Indemnifying Party to a final conclusion or will be settled at the
discretion of the Indemnifying Party (but only with the consent of the
Indemnified Party in the case of any settlement that provides for any relief
which affects the Indemnified Party, other than the payment of monetary
damages, or that provides for the payment of monetary damages as to which the
Indemnified Party will not be indemnified in full pursuant to Section 12.2).
The Indemnifying Party will have full control of such defense and proceedings,
including any compromise or settlement thereof; provided, however, that the
Indemnified Party may, at the sole cost and expense of the Indemnified Party,
at any time prior to the Indemnifying Party's delivery of the notice referred
to in the first sentence of this clause 1, file any motion, answer or other
pleadings or take any other action that the Indemnified Party reasonably
believes to be necessary or appropriate to protect its interests; and provided
further, that if requested by the Indemnifying Party, the Indemnified Party
will, at the sole cost and expense of the Indemnifying Party, provide
reasonable cooperation to the Indemnifying Party in contesting any Third Party
Claim that the Indemnifying Party elects to contest. The Indemnified Party may
participate in, but not control, any defense or settlement of any Third Party
Claim controlled by the Indemnifying Party pursuant to this clause 1, and
except as provided in the preceding sentence, the Indemnified Party will bear
its own costs and expenses with respect to such participation. Notwithstanding
the foregoing, the Indemnified Party may take over the control of the defense
or settlement of a Third Party Claim at any time if it irrevocably waives its
right to indemnity under Section 12.2 with respect to such Third Party Claim.
2. If the Indemnifying Party fails to notify the Indemnified Party within
the Dispute Period that the Indemnifying Party desires to defend the Third
Party Claim pursuant to Section 12.3(a), or if the Indemnifying Party gives
such notice but fails to prosecute vigorously and diligently or settle the
Third Party Claim, or if the Indemnifying Party fails to give any notice
whatsoever within the Dispute Period, then the Indemnified Party will have the
right to defend, at the sole cost and expense of the Indemnifying Party, the
Third Party Claim by all appropriate proceedings, which proceedings will be
prosecuted by the Indemnified Party in a reasonable manner and in good faith or
will be settled at the discretion of the Indemnified Party (with the consent of
the Indemnifying Party, which consent will not be unreasonably withheld). The
Indemnified Party will have full control of such defense and proceedings,
including any compromise or settlement thereof; provided, however, that if
requested by the Indemnified Party, the Indemnifying Party will, at the sole
cost and expense of the Indemnifying Party, provide reasonable cooperation to
the Indemnified Party and its counsel in contesting any Third Party Claim which
the Indemnified Party is contesting. Notwithstanding the foregoing provisions
of this clause 2, if the Indemnifying Party has notified the Indemnified Party
within the Dispute Period that the Indemnifying Party disputes its liability or
the amount of its liability hereunder to the Indemnified Party with respect to
such Third Party Claim and if such dispute is resolved in favor of the
Indemnifying Party in the manner provided in clause 3 below, the Indemnifying
Party will not be required to bear the costs and expenses of the Indemnified
Party's defense pursuant to this clause 2 or of the Indemnifying Party's
participation therein at the Indemnified Party's request, and the Indemnified
Party will reimburse the Indemnifying Party in full for all reasonable costs
and expenses incurred by the Indemnifying Party in connection with such
litigation. The Indemnifying Party may participate in, but not control, any
defense or settlement controlled by the Indemnified Party pursuant to this
clause 2, and the Indemnifying Party will bear its own costs and expenses with
respect to such participation.
3. If the Indemnifying Party notifies the Indemnified Party that it does
not dispute its liability or the amount of its liability to the Indemnified
Party with respect to the Third Party Claim under Section 12.2 or fails to
notify the Indemnified Party within the Dispute Period whether the Indemnifying
Party disputes its liability or the amount of its liability to the Indemnified
Party with respect to such Third Party Claim, the loss in the amount specified
in the Claim Notice will be conclusively deemed a liability of the Indemnifying
Party under Section 12.2 and the Indemnifying Party shall pay the amount of
such Loss to the Indemnified Party on demand. In the event any Indemnified
Party should have a claim under Section 12.2 against the Indemnifying
Party that does not involve a Third Party Claim, the Indemnified Party shall
deliver a written notification of a claim for indemnity under Section 12.2
specifying the nature of and basis for such claim, together with the amount
or, if not then reasonably ascertainable, the estimated amount, determined in
good faith, of such claim (an "Indemnity Notice") with reasonable promptness to
the Indemnifying Party. The failure by any Indemnified Party to give the
Indemnity Notice shall not impair such party's rights hereunder except to the
extent that the Indemnifying Party demonstrates that it has been irreparably
prejudiced thereby. If the Indemnifying Party notifies the Indemnified Party
that it does not dispute the claim or the amount of the claim described in
such Indemnity Notice or fails to notify the Indemnified Party within the
Dispute Period whether the Indemnifying Party disputes the claim or the amount
of the claim described in such Indemnity Notice, the Loss in the amount
specified in the Indemnity Notice will be conclusively deemed a liability of
the Indemnifying Party under Section 12.2 and the Indemnifying Party shall pay
the amount of such Loss to the Indemnified Party on demand.
Section 12.4 Underwriter Liability. Nothing contained in this Agreement or
any document delivered herewith shall require or imply that the Investor is or
be an Underwriter as defined in the Exchange Act or Securities Act, nor a
"statutory underwriter." The Investor 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 Investor.
ARTICLE XIII
FEES-EXPENSES-WARRANTS
Section 13.1 Warrants. The parties identified on Schedule 13 hereto
("Warrant Recipients") shall receive one Warrant for every two dollars ($2.00)
of Commitment Amount provided by the Investor. A form of Warrant is annexed
hereto as Exhibit E. The Purchase Price (as defined in the Warrant) shall be
equal to one hundred and twenty percent (120%) of the lowest Bid Price during
the portion of the Valuation Period in connection with which the Warrants are
issuable. The Warrants will be exercisable for four years from the Issue Date
as defined in the Warrant. The Warrant Recipients are granted the registration
rights set forth in the Registration Rights Agreement with respect to the
Warrant Shares but only insofar as any Registration Statement or amendment to a
Registration Statement is filed after the issuance of the Warrants or
obligation to issue the Warrants has accrued. The Company's obligations to the
Warrant Recipients is binding even if the Registration Rights Agreement is not
signed by the Warrant Recipients. The Warrants must be delivered to the
Warrant Recipients or an agreed upon escrow agent on each Closing Date. All the
representations, undertakings and covenants made by the Company relating to
the Put Shares and the holder of the Put Shares are also made by the Company to
and for the benefit of the Warrant Recipients and in relation to the Warrant
Shares.
Section 13.2 Timely Delivery. In the event any Warrants are not timely
delivered, the Investor shall have no further obligation to purchase Put Shares
pursuant to this Agreement.
Section 13.3 Fees and Expenses. Each of the Company and the Investor
agrees to pay its own expenses incident to the performance of its obligations
hereunder, except that the Company shall pay the reasonable fees, expenses and
disbursements of the Investor's counsel in an amount of $3,000 which shall be
payable on or before the Subscription Date, $5,500 in connection with each
of the first and second Closings and $1,000 for each Closing thereafter.
Section 13.4 Finders. Each of the parties hereto represents that it has
had no dealings in connection with this transaction with any finder or broker
who will demand payment of any fee or commission from the Company or Investor
except as described on Schedule 13 ("Finder"). The Company agrees to pay
to the Finder a fee equal to ten percent (10%) ("Finder's Fee") of the
Investment Amount received by the Company as set forth on Schedule 13
hereto and ten percent (10%) of the cash proceeds of Warrant exercise ("Warrant
Exercise Compensation"). Said sum shall be paid out of the escrow account
established for deposit of Investment Amounts and within five Trading Days of
the Company's receipt of Warrant exercise proceeds. A default by the Company
of the Company's obligations to the Finders and Warrant Recipients shall be
deemed a default under the Agreement, shall terminate the Investor's obligation
to comply with any Optional Purchase Notices and be deemed an Event of Default
under the Convertible Notes provided such default is not due to a failure
by an escrow agent to comply with his obligations. The Company on the one hand,
and the Investor, 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 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.
Section 13.5 Transfer. At the election and in the sole discretion of
any Finder or Warrant Recipient, the right to receive Finder's Fees and
Warrant Exercise Compensation may be transferred to the Investor or Warrant
Recipient who's investment gives rise to such payment. Upon such transfer, the
Investor may take a credit equal to the Finder's Fee against the Investment
Amount that gives rise to the Finder's Fee. The transferee of Warrant Exercise
Compensation may take a credit against the Purchase Price equal to the Warrant
Exercise Compensation. A Warrant Recipient, at his sole discretion, may
transfer either before or after issuance, all or some of the Warrants to the
Investor whose investment gives rise to the requirement to issue the Warrants.
The transferee of the Warrants will receive all the rights and benefits
granted to the Warrant Recipients pursuant to this Agreement, the Registration
Rights Agreement and any other agreement relating to the Warrants.
ARTICLE XIV
MISCELLANEOUS
Section 14.1 Counterparts. This Agreement may be executed in multiple
counterparts, each of which may be executed by less than all of the parties
and shall be deemed to be an original instrument which shall be enforceable
against the parties actually executing such counterparts and all of which
together shall constitute one and the same instrument. This Agreement may be
delivered by telecopier transmission which such copy shall be deemed an
original executed Agreement.
Section 14.2 Entire Agreement. This Agreement, the Exhibits hereto, the
documents delivered in connection herewith, and the Registration Rights
Agreement set forth the entire agreement and understanding of the parties
relating to the subject matter hereof and supersedes all prior and
contemporaneous agreements, negotiations and understandings between the
parties, both oral and written relating to the subject matter hereof. The
terms and conditions of all Exhibits to this Agreement are incorporated herein
by this reference and shall constitute part of this Agreement as if fully set
forth herein.
Section 14.3 Survival; Severability. The representations, warranties,
covenants and agreements of the parties hereto shall survive each Closing
hereunder. In the event that any provision of this Agreement becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision; provided that such severability shall be ineffective if it
materially changes the economic benefit of this Agreement to any party.
Section 14.4 Title and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
Section 14.5 Reporting Entity for the Common Stock. The reporting entity
relied upon for the determination of the Closing Price, VWAP, trading price or
trading volume of the Common Stock on any given Trading Day for the
purposes of this Agreement shall be Bloomberg, L.P. or any successor thereto.
The written mutual consent of the Investor and the Company shall be required to
employ any other reporting entity.
Section 14.6 Remedies for Breach. The Company and each Investor
acknowledges that the other party's remedy at law for the breach of the
provisions provided in this Agreement is inadequate. Therefore, the Company
and each Investor agrees that a breach or violation of this Agreement by the
Company, on the one hand, and the Investors, on the other hand, will entitle
the other party, as a matter of right, to an injunction or other equitable
relief, issued by any court or arbitration panel of competent jurisdiction,
restraining any further or continued breach or violation of this Agreement.
Such right to an injunction will be cumulative and in addition to, and not in
lieu of, any other remedies to which the Company and the Investors may show
themselves justly entitled.
Section 14.7 Publicity. Except as required by applicable law, neither
the Company nor the Investor shall issue any press release or otherwise make
any public statement or announcement with respect to this Agreement or the
transactions contemplated hereby or the existence of this Agreement without the
prior consent of the other party, which consent shall not be unreasonably
withheld or delayed.
Section 14.8 Confidentiality. Investor agrees to maintain the
confidentiality of all information about the Company received from any
officer, employee or agent of the Company, until such time as that confidential
information is released to the public generally as contemplated by Regulation
FD of the Exchange Act other than as a result of any disclosure by Investor.
[THIS SPACE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the parties hereto have caused this Private Equity Line of
Credit Agreement to be executed by the undersigned, thereunto duly authorized,
as of the date first set forth above.
CONECTISYS CORP.
By:
_______________________________________
Xxxxxx X. Xxxxxx, CEO
_________________________________________
KESHET L.P. - Investor
__________________________________________
LAURUS MASTER FUND LTD. - Investor
SCHEDULE A
INVESTOR SHARE OF COMMITMENT AMOUNT PROPORTIONATE SHARE OF
COMMITMENT AMOUNT
KESHET L.P. $5,000,000 1/3
An Isle of Man Limited
PartnershipRagnall House,
00 Xxxx XxxxXxxxxxx,
Xxxx xx Xxx0X0 0X0,
Xxxxxx Xxxxxxx
Fax:000-00-0000-000000
THE KESHET FUND, L.P. $5,000,000 1/3
A New York Limited Partnership
000 Xxxx 00xx Xxxxxx,
Xxxxx 0000
Xxx Xxxx, XX 00000
Fax: 000-000-0000
LAURUS MASTER FUND, LTD. $5,000,000 1/3
A Cayman Islands Corporation
X/x Xxxxxxx Xxxxxxxxx Xxxxxxxx Xxx.
X.X. Xxx 0000
G.T.Queensgate House
South Church Street
Grand Cayman, Cayman Islands
Fax: 000-000-0000
TOTAL $15,000,000.00 100%
EXHIBIT B
FORM OF OPINION OF THE COMPANY'S INDEPENDENT COUNSEL WITHIN 5 TRADING
DAYS FOLLOWING EFFECTIVE DATE OF REGISTRATION STATEMENT
TO:
We have acted as counsel to __________________, a ___________
corporation (the "Company"), in connection with the Private Equity Line
of Credit Agreement between the Company and you, dated as of
______________, 2001 (the "Line of Credit Agreement"), pursuant to
which the Company will issue to you from time to time shares of
Common Stock, $____ par value (the "Put Shares") and the Registration
Rights Agreement between you and the Company, dated __________, 2001
(the "Registration Rights Agreement," and together with the Line of
Credit Agreement, the "Agreements"). This opinion is rendered to
you pursuant to Section 7.2(h) of the Line of Credit Agreement.
Capitalized terms used without definition in this opinion have the
meanings given to them in the Line of Credit Agreement.
In connection with this opinion, we have assumed the authenticity of all
records, documents, and instruments submitted to us as originals, the
genuineness of all signatures, the legal capacity of natural
persons and the conformity to the originals of all records,
documents, and instruments submitted to us as copies. We have also
assumed that there are no facts or circumstances relating to you that
might prevent you from enforcing any of the rights to which our
opinion relates. We have based our opinion upon our review of the
following records, documents and instruments:
(a) The Articles of Incorporation of the Company, as amended to date
(the "Articles"), certified by the Secretary of State [the jurisdiction
of incorporation] as of ____________, 2001 and certified to us by an
officer of the Company as being complete and in full force and
effect as of the date of this opinion;
(b) The Bylaws of the Company certified to us by an officer of the
Company as being complete and in full force and effect as of the
date of this opinion (the "Bylaws");
(c) Records certified to us by an officer of the Company as
constituting all records of proceedings and actions of the Board of
Directors and the shareholders of the Company relating to the
transactions contemplated by the Agreement;
(d) The Agreements;
(e) A certificate related to the good standing of the Company issued
by the Secretary of State of the State of [the jurisdiction of
incorporation] dated __________, 2001;
(f) A Certificate of the Chief Executive Officer of the Company as
to certain factual matters (the "Officer's Certificate");
(g) The SEC Documents.
With your consent, we have based our opinion expressed in paragraph 1
below as to the good standing of the Company solely upon the documents
enumerated in (e) and (f) above.
Where our opinion relates to our "knowledge," such knowledge is based
upon our examination of the records, documents, instruments, and
certificates enumerated or described above and the actual knowledge of
attorneys in this firm who are currently involved in substantive
legal representation of the Company on matters related to the
Agreements. With your consent, we have not examined any records of
any court, administrative tribunal or other similar entity in connection
with our opinion expressed in paragraph 2 of Part III below. We have
assumed for purposes of our opinion to the effect that the Put Shares
are fully paid and that the consideration for such Put Shares will
be received by the Company in accordance with the Line of Credit
Agreement.
We express no opinion as to any anti-fraud provisions of applicable
federal or state securities laws, any tax, anti-trust, land use,
export, safety, environmental or hazardous materials laws, rules or
regulations.
This opinion is limited to the federal laws of the United States of
America and the laws of the States of [jurisdiction of
incorporation] and New York. We disclaim any opinion as to the laws
of any other jurisdiction and we further disclaim any opinion as to any
statute, rule, regulation, ordinance, order or other promulgation of any
regional or local governmental body.
Based upon the foregoing and our examination of such questions of law as
we have deemed necessary or appropriate for the purpose of this
opinion, and subject to the limitations and qualifications expressed
below, it is our opinion that:
1. The Company has been duly incorporated and is validly existing
and in good standing under the laws of the State of [jurisdiction
of incorporation] and has all requisite power and authority to carry on
its business and to own, lease and operate its properties and assets as
described in the SEC Documents. To our knowledge the Company does not
have any subsidiaries other than as set forth in the SEC Documents.
2. To our knowledge, except as described in the SEC Documents,
there are no claims, actions, suits, proceedings or investigations
that are pending against the Company or its properties, or to our
knowledge, any officer or director of the Company in his or her
capacity as such, nor to our knowledge has the Company received any
written threat of any such claims, actions, suits, proceedings or
investigations.
3. To our knowledge, except as described in the Company's
representations and warranties contained in Article IV of the
Line of Credit Agreement, there are no outstanding options,
warrants, calls or commitments of any character whatsoever relating to,
or securities, rights or obligations convertible into or exchangeable
for, or giving any right to subscribe for or acquire, any shares
of Common Stock, or contracts, commitments, understanding, or
arrangements by which the Company is or may become bound to issue
additional shares of Common Stock, or securities or rights convertible
or exchangeable into shares of Common Stock.
4. Subject to the accuracy of your representations in Article III
of the Line of Credit Agreement on the date hereof and on the date of
issuance of any Put Shares, Warrant Shares, and the statement in the
Officer's Certificate that the Company has not offered or sold, and
will not offer or sell, any Put Shares by means of advertising or
public solicitation, the issuance of the Put Shares and Warrant Shares
in conformity with the terms of the Line of Credit Agreement
constitutes transactions exempt from the registration requirements
of Section 5 of the Securities Act of 1933, as amended. The Put Shares
when issued in compliance with the Line of Credit Agreement, and
the Warrant Shares when issued in compliance with the Line of Credit
Agreement and Registration Rights Agreement, will be duly
authorized, validly issued, fully paid, and non-assessable and free of
preemptive rights set forth in the Articles, Bylaws and any
agreement filed as an exhibit to the SEC Documents, provided, however,
that the Put Shares and Warrant Shares may be subject to restrictions
on transfer under state and federal securities laws, but only to
the extent set forth in the Line of Credit Agreement.
5. The Company has the requisite corporate power and authority to
enter into and perform its obligations under the Agreements and
to issue the Put Shares, Warrants and Warrant Shares.
Each of the Agreements has been duly authorized, executed and delivered
by the Company and the consummation by it of the transactions
contemplated thereby has been duly authorized by all necessary corporate
action and no further consent or authorization of the Company's
board of directors or shareholders is required. Each of the
Agreements has been duly executed and delivered on the part of the
Company and is a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, subject,
as to enforcement, (i) to bankruptcy, insolvency, reorganization,
arrangement, moratorium, and other laws of general applicability
relating to or affecting creditors' rights, (ii) to general
principles of equity, whether such enforcement is considered in a
proceeding in equity or at law, and (iii) to limitations imposed by
applicable law or public policy on the enforceability of the
indemnification provisions contained in the Agreements.
6. The execution, delivery and performance of and compliance with the
respective terms of each of the Agreements, and issuance of the Put
Shares and Warrant Shares in accordance with the Line of Credit
Agreement, will not violate any provision of the Articles or Bylaws
or any law applicable to the Company.
7. The holders of the Common Stock and Warrant Shares will not
be subject to the provisions of the States of [states of
incorporation and principal office location] anti-takeover
statutes.
In connection with the registration of the Put Shares and Warrant
Shares, we advised the Company as to the requirements of the
Securities Act and the applicable Rules and Regulations and rendered
other legal advice and assistance in the course of preparation of
the Registration Statement and Prospectus, including review and
discussion of the contents thereof. On the basis of the
information that was developed in the course of the performance
of such services considered in the light of our understanding of
the Securities Act, including the requirements of Forms S-3 and SB-2, we
have no reason to believe that (i) the Registration Statement (other
than the financial statements and related statements and
schedules, as to which we express no belief) as of its Effective
Date contained any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary
in order to make the statements therein not misleading, or (ii) the
Prospectus (other than the financial statements and related
statements and schedules, as to which we express no belief) as of the
Effective Date of the Registration Statement contained any untrue
statement of a material fact or omitted to state any 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. The limitations inherent in the independent
verification of factual matters and the character of
determinations involved in the registration process are such, however,
that except as set forth in this opinion letter we do not assume any
responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement or the Prospectus.
Our opinions expressed above are specifically subject to the following
limitations, exceptions, qualifications and assumptions:
A. The effect of bankruptcy, insolvency, reorganization, moratorium
and other similar laws relating to or affecting the relief of debtors
or the rights and remedies of creditors generally, including without
limitation the effect of statutory or other law regarding fraudulent
conveyances and preferential transfers.
B. Limitations imposed by state law, federal law or general
equitable principles upon the specific enforceability of any of the
remedies, covenants or other provisions of any applicable agreement
and upon the availability of injunctive relief or other equitable
remedies, regardless of whether enforcement of any such agreement is
considered in a proceeding in equity or at law.
C. This opinion letter is governed by, and shall be interpreted in
accordance with, the Legal Opinion Accord (the "Accord") of the ABA
Section of Business Law (1991). As a consequence, it is subject to a
number of qualifications, exceptions, definitions, limitations on
coverage and other limitations, all as more particularly described in
the Accord, including the General Qualifications and the Equitable
Principles Limitation, and this opinion letter should be read in
conjunction therewith.
This opinion is rendered as of the date first written above, is solely
for your benefit in connection with the Agreement and may not be
relief upon or used by, circulated, quoted, or referred to nor may any
copies hereof by delivered to any other person without our prior
written consent. We disclaim any obligation to update this opinion
letter or to advise you of facts, circumstances, events or
developments which hereafter may be brought to our attention and
which may alter, affect or modify the opinions expressed herein.
Very truly yours,
EXHIBIT C
COMPLIANCE CERTIFICATE __________________________________
The undersigned, _______________, hereby certifies, with respect to the
shares of Common Stock of _____________________ (the "Company") issuable
in connection with the Optional Purchase Notice, dated (the "Notice"),
delivered pursuant to Article II of the Private Equity Line of Credit
Agreement, dated _____________, 2001, by and among the Company
and certain Investors (the "Agreement"), as follows:
1. The undersigned is the duly elected __________________________ of
the Company.
2. The representations and warranties of the Company set forth in
the Agreement are true and correct in all material respects as though
made on and as of the date hereof.
3. The Company has performed in all material respects all covenants
and agreements to be performed by the Company on or prior to the
Closing Date related to the Notice and has complied in all material
respects with all obligations and conditions contained in the
Agreement.
4. The amount of Common Stock remaining registered in an effective
registration statement on behalf of each Investor as of this date is set
forth on the schedule hereto.
5. The purchase price of the Common Stock previously issued to each
of the Investors is set forth on the schedule hereto.
The undersigned has executed this Certificate this ____ day of ________,
2001.
____________________________________
By:______________________________________
Name:
Title:
EXHIBIT D
INSTRUCTIONS TO TRANSFER AGENT _____________________________________
[TRANSFER AGENT]
Dear Sirs:
Reference is made to the Private Equity Line of Credit Agreement (the
"Agreement"), dated as of ________________, 2001 among certain
Investors (the "Investor")and _____________________ (the
"Company"). Pursuant to the Agreement, subject to the terms and
conditions set forth in the Agreement the Investor has agreed to
purchase from the Company and the Company has agreed to sell to the
Investor from time to time during the term of the Agreement shares
of Common Stock of the Company, $____ par value (the "Common Stock").
As a condition to the effectiveness of the Agreement, the Company has
agreed to issue to you, as the transfer agent for the Common Stock
(the "Transfer Agent"), these instructions relating to the Common Stock
to be issued to the Investor (or a permitted assignee) pursuant to the
Agreement. All terms used herein and not otherwise defined shall
have the meaning set forth in the Agreement.
1. ISSUANCE OF COMMON STOCK WITHOUT THE LEGEND
Pursuant to the Agreement, the Company is required to prepare and file
with the Commission, and maintain the effectiveness of, a
registration statement or registration statements registering the
resale of the Common Stock to be acquired by the Investor under the
Agreement. The Company will advise the Transfer Agent in writing
of the effectiveness of any such registration statement promptly upon
its being declared effective. The Transfer Agent shall be entitled
to rely on such advice and shall assume that the effectiveness of such
registration statement remains in effect unless the Transfer Agent is
otherwise advised in writing by the Company and shall not be
required to independently confirm the continued effectiveness of such
registration statement. In the circumstances set forth in the following
two paragraphs, the Transfer Agent shall deliver to the Investor
certificates representing Common Stock not bearing the Legend without
requiring further advice or instruction or additional documentation from
the Company or its counsel or the Investor or its counsel or any other
party (other than as described in such paragraphs).
At any time after the effective date of the applicable registration
statement (provided that the Company has not informed the Transfer
Agent in writing that such registration statement is not
effective) upon any surrender of one or more certificates evidencing
Common Stock which bear the Legend, to the extent accompanied by a
notice requesting the issuance of new certificates free of the Legend to
replace those surrendered, the Transfer Agent shall deliver to the
Investor the certificates representing the Common Stock not bearing
the Legend, in such names and denominations as the Investor shall
request, provided that:
(a) in connection with such event, the Investor (or its permitted
assignee) shall confirm in writing to the Transfer Agent that (i)
the Investor confirms to the transfer agent that it has sold, pledged or
otherwise transferred or agreed to sell, pledge or otherwise transfer
such Common Stock in a bona fide transaction to a transferee that
is not an affiliate of the Company; and (ii) the Investor confirms to
the transfer agent that the Investor has complied with the
prospectus delivery requirement;
(b) the Investor (or its permitted assignee) shall represent that it
is permitted to dispose thereof with limitation as to amount of manner
of sale pursuant to Rule 144(k) under the Securities Act; or
(c) the Investor, its permitted assignee, or either of their brokers
confirms to the transfer agent that (i) the Investor has held the
shares of Common Stock for at least one year, (ii) counting the shares
surrendered as being sold upon the date the unlegended Certificates
would be delivered to the Investor (or the Trading Day immediately
following if such date is not a Trading Day), the Investor will not
have sold more than the greater of (a) one percent (1%) of the
total number of outstanding shares of Common Stock or (b) the
average weekly trading volume of the Common Stock for the preceding
four weeks during the three months ending upon such delivery date
(or the Trading Day immediately following if such date is not a Trading
Day), and (iii) the Investor has complied with the manner of sale and
notice requirements of Rule 144 under the Securities Act.
Any advice, notice or instructions to the Transfer Agent required or
permitted to be given hereunder may be transmitted via facsimile to
the Transfer Agent's facsimile number of __________.
2. MECHANICS OF DELIVERY OF CERTIFICATES REPRESENTING COMMON STOCK
In connection with any Closing pursuant to which the Investor acquires
Common Stock under the Agreement, the Transfer Agent shall deliver
certificates representing Common Stock (with or without the Legend, as
appropriate) as promptly as practicable, but in no event later than
three business days, after such Closing.
3. FEES OF TRANSFER AGENT; INDEMNIFICATION
The Company agrees to pay the Transfer Agent for all fees incurred in
connection with these Irrevocable Instructions. The Company agrees
to indemnify the Transfer Agent and its officers, employees and agents,
against any losses, claims, damages or liabilities, joint or several,
to which it or they become subject based upon the performance by
the Transfer Agent of its duties in accordance with the Irrevocable
Instructions.
4. THIRD PARTY BENEFICIARY
The Company and the Transfer Agent acknowledge and agree that the
Investor is an express third party beneficiary of these Irrevocable
Instructions and shall be entitled to rely upon, and enforce, the
provisions hereof.
[THE COMPANY]
By:_______________________________________
Name:
Title:
AGREED:
[TRANSFER AGENT]
By:_______________________________
Schedule 4.3
CAPITALIZATION
The following table sets forth the capitalization of the Company
at April 30, 2001.
Common Stock issued and Outstanding as of April 30 2001:
29,916,182
The Common Stock
The Company is authorized to issue 250,000,000 shares of no par
value Common Stock.
ConectiSys Corporation's holders of Common Stock are each
entitled to cast one vote for each Share held of record on all
matters presented to shareholders. Cumulative voting is not
allowed; hence, the holders of a majority of the
outstanding Common Stock can elect all directors. There
are however 140,020 shares of Class A Preferred Stock, $1.00 par
value, outstanding and up to One (1) million shares is
authorized that can be issued with super voting rights of
100 to 1 (100 votes for each share of Class A Preferred Stock).
Holders of Common Stock are entitled to receive such dividends
as may be declared by the Board of Directors out of funds
legally available therefore and, in the event of liquidation, to
share pro rata in any distribution of the Company's assets
after payment of liabilities. The Board of Directors in
not obligated to declare a dividend and it is not
anticipated that dividends will be paid until the Company is in
profit.
Holders of Common Stock do not have preemptive rights to
subscribe to additional shares if issued by the Company. There
are no conversion, redemptions, sinking fund or similar
provisions regarding the Common Stock. All of the outstanding
Shares of Common Stock are fully paid and non-assessable and all
of the Shares of Common Stock offered thereby will be, upon
issuance, fully paid and non-assessable.
Holders of Shares of Common Stock will have full rights to vote
on all matters brought before shareholders for their approval,
subject to preferential rights of holders of any series
of Preferred Stock. The holders of Common Stock will
have no conversion, preemptive or other subscription rights.
As of April 24, 2001, there were over 3000 shareholders of
record of the Company's common stock.
The Preferred Stock
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.
At the present time there is 140,020 shares of Class A Preferred
Stock issued and outstanding, all of which is owned by the CEO
of the Company, Xxxxxx X. Xxxxxx.
Further 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. Such
Preferred Stock may have the effect of delaying or
preventing a change in control of the Company without further
shareholder action and may adversely affect the rights and
powers, including voting rights, of the holders of Common Stock.
Reserved:
The Company has options outstanding to purchase 6,805,459 shares
of restricted stock and 1,000,000 shares of Class B Preferred
Stock, which is convertible at a rate of 10 to 1 into
restricted Common Stock or 10,000,000 shares of restricted
Common Stock. The Company has a total of 16,805,459 Options for
restricted common stock including the Options for Class B
Preferred Stock.
The Company has 1,513,055 warrants to purchase one (1) share of
restricted Common Stock each at $2.00 per share; 513,000 are
exercisable until November 1, 2001, 446,305 are exercisable
until September 1, 2002 and the remainder 599,250 are
exercisable until March 3, 2003.
The Company has 1,000,000 warrants to purchase one (1) share of
restricted Common Stock each at $0.192 per share exercisable
until April 11, 2005.
The Company has 100,000 shares of common stock options to
various Consultants at a 15% discount to the markets that are
exercisable until September 1, 2001.
The Company has 1,000,000 shares of Class B Preferred Stock
Options to purchase one (1) share of Class B Preferred
Stock, which is convertible to ten (10) shares of restricted
Common Stock, at a price of $5.00 per share of Class B Preferred
Stock or if converted $.50 per share of restricted common
stock; These Options are exercisable until November 1, 2001.
The Company has 9,980 shares of Class A Preferred Stock Options
to purchase one (1) share of Class A Preferred Stock, at a price
of $1.00 per share; These Options are exercisable until December
1, 2001 and are vested with the Company's President and CEO,
Xxxxxx X. Xxxxxx.
The Company has an additional 4,143,654 options to purchase one
(1) of restricted Common Stock held by various Directors and
Officers of the Company as indicated below:
Common Stock No. Options Exercise Price Expiration Date
Xxxxxx X. Xxxxxx 1,443,654 $.3864 12/2/00
Xxxxxx X. Xxxxxxxxx 100,000 $.38 3/11/02
Xxxxxxxx Xxxxxxxx 2,000,000 $.50 12/31/02
Xxxxxxxx Xxxxxx 500,000 $.38 8/31/04
Xxxxxxx Xxxxx 100,000 $.38 12/31/02
Class A Preferred Stock
No. Options Exercise Price Expiration Date
Xxxxxx X. Xxxxxx 9,980 $1.00 12/2/01
Capitalization Totals:
Common Stock issued and Outstanding as of April 30, 2001 29,916,182
Warrants & Options Outstanding 16,805,459
Reserved shares for the Credit Agreement 50,000,000
Total shares outstanding & reserved 96,721,641
Shares of Common Stock Authorized 250,000,000
Shares of Preferred Stock Authorized 2,000,000
SCHEDULE 13
FINDERS CASH FINDERS FEE (1) WARRANT EXERCISE COMPENSATION (2)
LAURUS CAPITAL MANAGEMENT, LLC Cash Finder's Fees payable in connection with Warrant Exercise Compensation payable
000 Xxxx 00xx Xxxxxx, investments by Laurus Master Fund LLC of in connection with investments by
Suite 1700 which Laurus Capital Management LLC is the Laurus Master Fund LLC
Xxx Xxxx, XX 00000 Funds Manager.
Fax: 000-000-0000
ALON ENTERPRISES LTD. Cash Finder's Fees payable in connection with Warrant ExerciseCompensation payable
An Isle of Man investments by Keshet L.P. and The Keshet Fund L.P. in connection with investments by
CorporationRagnall House, Keshet L.P. and The Keshet Fund L.P.
00 Xxxx XxxxXxxxxxx,
Xxxx xx Xxx 0X0 0X0,
Xxxxxx Xxxxxxx
Fax: 000-00-0000-000000
TOTAL 10% 10%
(1) Total Finder's Fee represents 10% of the Commitment Amount.
(2) Warrant Exercise Compensation is equal to 10% of the aggregate cash
proceeds received by the Company from cash based Warrant exercise.
WARRANT RECIPIENTS PROPORTIONATE SHARE OF WARRANTS *
LAURUS MASTER FUND, LTD. Warrants issuable in connection with
A Cayman Islands Corporation investments by Laurus Master Fund Ltd.
X/x Xxxxxxx Xxxxxxxxx Xxxxxxxx Xxx.
X.X. Xxx 0000 G.T.Queensgate House, South Church Street
Grand Cayman, Cayman Islands
Fax:000-000-0000
TALBIYA B. INVESTMENTS LTD. Warrants issuable in connection with
An Isle of Man Corporation investments by Keshet L.P., The Keshet Fund L.P.,
Ragnall House, 18 Peel RoadDouglas, Nesher Ltd., and Talbiya B. Investments Ltd.
Xxxx xx Xxx 0X0 0X0,
Xxxxxx Xxxxxxx
Fax: 000-00-0000-000000
TOTAL 100%
* One Warrant shall be issued for each $2.00 of Commitment Amount provided by
the Investors.
