Regulation D Subscription Agreement


Exhibit 4.3

 



REGULATION
D SUBSCRIPTION AGREEMENT







THE
SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE OR OTHER SECURITIES AUTHORITIES. THEY MAY NOT
BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR
AN EXEMPTION TO THE REGISTRATION REQUIREMENTS OF THOSE SECURITIES
LAWS.




THIS
SUBSCRIPTION AGREEMENT DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION
OF AN OFFER TO PURCHASE, ANY OF THE SECURITIES DESCRIBED HEREIN BY OR TO ANY
PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE
UNLAWFUL. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL, STATE OR
FOREIGN SECURITIES AUTHORITIES, NOR HAVE ANY SUCH AUTHORITIES REVIEWED OR
DETERMINED THE ACCURACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL. 




INVESTMENT
IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK, INCLUDING BUT NOT LIMITED TO
THOSE RISK FACTORS IDENTIFIED IN THE COMPANY’S FORM S-2 FILED ON MAY 10, 2004
WITH THE SECURITIES AND EXCHANGE COMMISSION. INVESTORS MUST RELY ON THEIR OWN
ANALYSIS OF THE INVESTMENT TERMS AND CONDITIONS OF THE PROPOSED INVESTMENT AND
THEIR OWN ASSESSMENT OF THE RISKS INVOLVED.




This
Regulation D Subscription Agreement (the “Agreement”) is executed by the
undersigned (the “Subscriber”) in connection with the offer to the Subscriber
of, and the subscription by the Subscriber for, shares of Common Stock, $.001
par value per share (the “Common Stock”), of NANO-PROPRIETARY, INC., a Texas
corporation (the “Company”). The Company shall sell to the Subscriber ________
shares of the Company’s Common Stock at a price of $_____ per share, for an
aggregate purchase price of $___________ .




The
solicitation of this Subscription by the Company, and if accepted by the
Company, the sale of the shares of Common Stock subscribed for, are being made
on reliance upon the provisions of Regulation D (“Regulation D”) promulgated
under the Securities Act of 1933 (the “Securities Act”).




The
undersigned Subscriber and the Company, upon acceptance of this Agreement,
hereby agree as follows:

























1.    Offering




1.1    Offer
to Subscribe; Purchase Price and Closing; and Placement Fees. Subject
to satisfaction of the conditions to the closing of a purchase and sale of
Common Stock as to each purchaser of Common Stock (the “Closing”) set forth in
Section 1.2 below, the Subscriber hereby offers to subscribe for and purchase
shares of Common Stock, for the aggregate purchase price set forth in Section 8
of this Agreement, all in accordance with the terms and conditions of this
Agreement. The Closing shall be deemed to occur when this Agreement has been
executed by both the Subscriber and the Company, and full payment for the shares
of Common Stock subscribed for shall have been made by the Subscriber, by wire
transfer in United States Dollars or as otherwise agreed between the Subscriber
and the Company, to the Company as set forth in Section 7.1(a) in consideration
for the Company’s delivery of certificates representing the shares of Common
Stock so subscribed for.




1.2    Conditions
to Subscriber’s Obligations. The
Subscriber’s obligations hereunder are conditioned upon the occurrence of all of
the following:





	 	
      (a)
	
      other
      than as described on Schedule
      1.2
      attached hereto, there have been no material adverse changes in the
      Company’s business prospects or financial condition since the date of the
      last balance sheet included in the Disclosure Documents (as defined below
      in Section 4.2);








	 	
      (b)
	
      the
      representations and warranties of the Company shall be true and correct in
      all material respects on the date of Closing, as if made on such date, and
      the Company shall deliver a certificate, signed by an officer of the
      Company, to such effect; and








	 	
      (c)
	
      the
      Subscription Agreement has been accepted by the Company.
  







1.3    Covenant
to Include Stock in Registration Statement on Form S-2. The
Company hereby covenants and agrees that these shares of Common Stock subscribed
for herein will be registered on a registration statement on Form S-2 to be
filed within the Securities and Exchange Commission under the Securities Act of
1933, as amended.




2.    Representations
and Warranties of the Subscriber. The
Subscriber hereby represents and warrants to the Company as follows (which
representations and warranties shall be true as of the date of
Closing):




2.1    Accredited
Investor. The
Subscriber hereby represents and warrants to the Company that it is an
“accredited investor,” as defined in Rule 501 of Regulation D, and has marked
the applicable box set forth in Section 9 of this Agreement signifying such
status.








2

















	
      
	
      
	
      2.2
	
      Investment
      Experience; Access to Information; Independent
      Investigation.







2.2.1    Access
to Information. The
Subscriber or its professional advisor has been granted the opportunity to ask
questions of and receive answers from representatives of the Company, and its
officers, directors, employees and agents concerning the terms and conditions of
the Offering, and the Company and its business and prospects, and to obtain any
additional information which the Subscriber or its professional advisor deems
necessary to verify the accuracy of the information received. The foregoing,
however, does not limit or modify the Subscriber’s right to rely upon
representations and warranties of the Company in Section 4 of this
Agreement.




2.2.2    Ability
to Evaluate. The
Subscriber has such knowledge and experience in financial and business matters
that it is fully capable of evaluating the merits and risks of an investment in
the Company, including without limitation those set forth in the Disclosure
Documents (as defined below in Section 4.2).




2.2.3    Disclosure
Documents. The
Subscriber has received and reviewed the Disclosure Documents (as defined below
in Section 4.2). The foregoing, however, does not limit or modify the
Subscriber’s right to rely upon the representations and warranties of the
Company in Section 4 of this Agreement.




2.2.4    Investment
Experience; Fend for Self. The
Subscriber has substantial experience in investing in securities and has made
investments in securities other than those of the Company. The Subscriber
acknowledges that it is able to fend for itself in the transaction contemplated
by this Agreement and that it has the ability to bear the economic risk of its
investment in the Company. The Subscriber has not been organized for the purpose
of investing in securities of the Company.




2.2.5    Not
an Affiliate. The
Subscriber is not an officer, director or “affiliate” (as that term is defined
in Rule 415 of the Securities Act) of the Company.




2.3    Exempt
Offering Under Regulation D




2.3.1    Investment;
No Distribution. The
Subscriber is acquiring the shares of Common Stock subscribed for (the “Common
Shares”) solely for investment purposes for the Subscriber’s own account (or for
beneficiaries’ accounts over which the Subscriber has investment discretion but
no discretionary authority as to voting or disposition) and not with a view to a
distribution of all or any part thereof. The Subscriber is aware that there are
legal and practical limits on its ability to sell or dispose of the Common
Shares and therefore, that the Subscriber must bear the economic risk of its
investment for an indefinite period of time. The Subscriber has adequate means
of providing for its current needs and anticipated contingencies and has no need
for liquidity of this investment. The Subscriber’s commitment to illiquid
investments is reasonable in relation to its net worth.








3
















2.3.2    No
General Solicitation. The
Common Shares were not offered to the Subscriber through, and the Subscriber is
not aware of, any form of general solicitation or general advertising,
including, without limitation, (i) any advertisement, articles, notice or other
communication published in any newspaper, magazine or similar media or broadcast
over television or radio, and (ii) any seminar or meeting whose attendees have
been invited by any general solicitation or general advertising. 




2.3.3    No
Registration of Common Shares. The
Subscriber understands that the Common Shares are not registered and therefore
are “restricted securities” under the federal securities laws inasmuch as they
are being acquired from the Company in a transaction not involving a public
offering, and that, under such laws and applicable regulations, such securities
may not be transferred or resold without registration under the Securities Act
or pursuant to an exemption therefrom. In this connection, the Subscriber
represents that it is familiar with Rule 144 under the Securities Act, as
presently in effect, and understands the resale limitations imposed thereby and
by the Securities Act.




2.3.4    Disposition. Without
in any way limiting the representations set forth above, the Subscriber further
agrees not to make any disposition of all or any portion of the Securities
unless and until:





	 	
      (a)
	
      There
      is then in effect a registration statement under the Securities Act
      covering such proposed disposition and such disposition is made in
      accordance with such Registration Statement;
or








	 	
      (b)
	
      The
      Subscriber shall have notified the Company of the proposed disposition and
      shall have furnished the Company with a detailed statement of the
      circumstances surrounding the proposed disposition, and (ii) if reasonably
      requested by the Company, the Subscriber shall have furnished the Company
      with an opinion of counsel, reasonably satisfactory to the Company, that
      such disposition will not require registration of the Common Shares under
      the Securities Act.







2.4    Due
Authorization.




2.4.1    Authority. The
Subscriber, if executing this Subscription Agreement in a representative or
fiduciary capacity, has full power and authority to execute and deliver this
Subscription Agreement and each other document referred to herein for which a
signature is required in such capacity and on behalf of the subscribing
individual, partnership, trust, estate, corporation or other entity for whom or
which the Subscriber is executing this Subscription Agreement.








4
















2.4.2    Due
Authorization. The
Subscriber, if an entity, is duly and validly organized, validly existing and in
good standing as such entity under the laws of the jurisdiction of its
organization, with full power and authority to purchase the Common Shares
subscribed for and to execute and deliver this Agreement.





	
      
	
      3.
	
      Acknowledgments.
      The Subscriber is aware of the following:







3.1    Risks
of Investment. The
Subscriber recognizes that investment in the Company involves certain risks,
including the potential loss of the Subscriber’s investment herein. The
Subscriber recognizes that this Agreement and the exhibits hereto do not purport
to contain all the information which would be contained in a registration
statement under the Securities Act;




3.2    No
Government Approval. The
Subscriber acknowledges that no federal, state or foreign agency has passed upon
or reviewed the terms and conditions of the Offering or made any finding or
determination as to the fairness of the Offering;




3.3    Restrictions
on Transfer. The
Subscriber may not sell, transfer, assign, pledge or otherwise dispose of all or
any portion of the Securities in the absence of either an effective registration
statement or an exemption from the registration requirements of the Securities
Act and applicable state securities law;




3.4    Exempt
Transaction. The
Common Shares are being offered and sold in reliance on specific exemptions from
the registration requirements of federal and state law and the Subscriber’s
representations, warranties, agreements, acknowledgments and applicability of
such exemptions and the suitability of the Subscriber to acquire Common
Shares.




3.5    Legends. It is
understood that any certificates evidencing the Common Shares shall bear the
following legend:




“THE
SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, NOR THE SECURITIES
LAWS OF ANY OTHER JURISDICTION. THEY MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THOSE SECURITIES LAWS OR AN
OPINION OF COUNSEL, REASONABLY SATISFACTORY TO THE COMPANY, THAT THE SALE OR
TRANSFER IS PURSUANT TO AN EXEMPTION TO THE REGISTRATION REQUIREMENTS OF THOSE
SECURITIES LAWS.”




4.    Representations
and Warranties of the Company. The
Company hereby makes the following representations and warranties to the
Subscriber, except as disclosed in the Disclosure Documents or otherwise
disclosed to Subscriber, which representations and warranties shall be true as
of the date of acceptance of this Agreement by the Company and as of
Closing:








5



















4.1    Organization,
Good Standing, and Qualification. The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of Texas and has all requisite corporate power and
authority to carry on its business as now conducted and as currently proposed to
be conducted. The Company is duly qualified to transact business and is in good
standing in each jurisdiction in which the failure to so qualify would have a
material adverse effect on the business or properties of the Company and its
subsidiaries taken as a whole. The Company is not the subject of any pending or,
to its knowledge, threatened or contemplated investigation or administrative or
legal proceeding by the Internal Revenue Service, the taxing authorities of any
state or local jurisdiction, or the Securities and Exchange Commission, or any
state securities commission, or any other governmental entity, which are
required to be disclosed in the Disclosure Documents and have not been
disclosed.




4.2    Corporate
Condition. The
Company has timely filed all forms, and reports and documents with the
Securities and Exchange Commission required to be filed by it under the
Securities Exchange Act 1934, as amended (the “Exchange Act”) through the date
hereof (collectively, the “SEC Reports”). Each of the SEC Reports, at the time
filed, complied in all material respects with the requirements of the Exchange
Act. The Company has made available to the Subscriber a copy of the Company’s
Form 10-KSB for the fiscal year ended December 31, 2003, and a copy of the
Company’s Forms 10-QSB, 8-K and S-2 filed by the Company since January 1, 2004
(the “Most Recent Filings Report”). Other than as set forth in Schedule
4.2 attached
hereto and made a part hereof, there have been no material adverse changes in
the Company’s business, prospects, operations or financial condition since the
date of the Most Recent Filings Report. The SEC Reports, together with Schedule
4.2 and any other documents listed on Schedule 4.2(a) attached hereto and made a
part hereof and furnished herewith by the Company to the Subscriber are referred
to collectively as the “Disclosure Documents.” The financial statements
contained in the Disclosure Documents have been prepared in accordance with
generally accepted accounting principles, consistently applied, and fairly
present in all material respects the consolidated financial condition of the
Company as of the dates of the balance sheets included therein and the
consolidated results of its operations and cash flows for the periods then
ended. Without limiting the foregoing, there are no material liabilities,
contingent or actual that are not disclosed in the Disclosure Documents (other
than liabilities incurred by the Company in the ordinary course of its business,
consistent with its past practice, after the periods covered by the Disclosure
Documents). The Company has paid all material taxes which are due, except for
taxes which it reasonably disputes. There is no material claim, litigation, or
administrative proceeding pending, or, to the best of the Company’s knowledge,
threatened or contemplated against the Company, except as disclosed in the
Disclosure Documents. This Agreement and the Disclosure Documents do not contain
any untrue statement of material fact and do not omit to state any material fact
required to be stated therein or herein necessary to make the statements
contained therein or herein not misleading in the light of the circumstances
under which they were made.








6
















4.3    Authorization. All
corporate action on the part of the Company by its officers, directors and
shareholders necessary for the authorization, execution and delivery of this
Agreement, the performance of all obligations of the Company hereunder and the
authorization, issuance and delivery of the Common Shares have been taken, and
this Agreement constitutes valid and legally binding obligations of the Company,
enforceable in accordance with their terms; provided, however that
enforceability is subject to: (i) applicable bankruptcy, reorganization,
insolvency, moratorium, fraudulent conveyance, and similar federal and state
laws affecting the rights and remedies of creditors generally, and (ii) general
principles of equity limiting the availability of equitable remedies (including
but not limited to the remedy of specific performance), whether considered in a
proceeding at law or in equity. The Company has obtained all consents and
approvals required for it to execute, deliver and perform this
Agreement.




4.4    Valid
Issuance of Common Shares. The
Common Shares, when issued, sold and delivered in accordance with the terms
hereof, for the consideration expressed herein, will be validly issued, fully
paid and nonassessable and, based in part upon the representations of the
Subscriber in this Agreement, will be issued in compliance with all applicable
federal and state securities laws. The Common Shares will be issued free of any
preemptive rights.




4.5    Compliance
with Other Instruments. The
Company is not in violation or default of any provisions of its Restated
Articles of Incorporation or Bylaws as amended and in effect on and as of the
date of this Agreement or of any material provision of any material instrument
or contract to which it is a party or by which it is bound or, to its knowledge,
of any provision of any federal or state judgment, writ, decree, order, statute,
rule or governmental regulation applicable to the Company, which would have a
material adverse effect on the Company’s business or prospects, except as
described in the Disclosure Documents. The execution, delivery and performance
of this Agreement and the consummation of the transactions contemplated hereby
will not result in any such violation or be in conflict with or constitute, with
or without the passage of time and giving of notice, either a default under any
such provision, instrument or contract or an event which results in the creation
of any lien, charge or encumbrance upon any assets of the Company.




4.6    Reporting
Company. The
Company is subject to the reporting requirements of the Exchange Act, and has a
class of securities registered under Section 12 or Section 15 of the Exchange
Act. When requested by the Subscriber, the Company shall furnish copies of
reports filed by the Company with the Securities and Exchange
Commission.




4.7    Authorized
and Issued Shares. The
authorized and issued shares of the Company preferred stock, Common Stock and
warrants, options, and instruments convertible into Common Stock as of December
31, 2004 are as set forth on Exhibit
A.




4.8    Use of
Proceeds. As of
the date hereof, the Company expects to use the proceeds from the Offering (less
fees and expenses) for the purposes set forth on Exhibit
B hereto.
These purposes are estimates and are subject to change, but represent the
Company’s good faith best estimate of anticipated uses.




4.9    Compliance
with Laws. As of
the date hereof, the conduct of the business of the Company complies in all
material respects with all material statutes, laws, regulations, ordinances,
rules, judgments, orders or decrees applicable thereto. The Company has not
received notice of any alleged violation of any statute, law, regulations,
ordinance, rule, judgment, order or decree from any governmental authority. The
Company shall comply with all applicable securities laws with respect to the
Offering.








7
















4.10    No
Rights of Participation. No
person or entity, including, but not limited to, current or former shareholders
of the Company, underwriters, brokers, agents or other third parties, has any
right of first refusal, preemptive right, right of participation, or any similar
right to participate in the Offering which has not been waived.




4.11    Disclosures. There
is no fact known to the Company (other than general economic conditions known to
the public generally) that has not been disclosed in the Disclosure Documents
that (a) could reasonably be expected to have a material adverse effect on the
business, financial condition or results of operations of the Company, or which
could reasonably be expected to materially and adversely affect the properties
or assets of the Company or (b) could reasonably be expected to materially and
adversely affect the ability of the Company to perform its obligations pursuant
to this Agreement and the issuance of the Securities.




4.12    Representations
True and Correct. The
foregoing representations, warranties and agreements are true, correct and
complete in all material respects, and shall survive the Closing and the
issuance of the Common Shares.




4.13    Underwriter’s
Fees and Rights of First Refusal. The
Company is not obligated to pay any compensation or other fees, costs or related
expenditures in cash or securities to any underwriter, broker, agent or other
representative in connection with the Offering.




5. Covenants
of the Company




5.1    Independent
Auditors. The
Company shall, until at least two (2) years after the date of the Closing,
maintain as its independent auditors an accounting firm authorized to practice
before the Securities and Exchange Commission.




5.2    Corporate
Existence and Taxes. The
Company shall, until at least two (2) years after the date of the Closing,
maintain its corporate existence in good standing (provided, however, that the
foregoing covenant shall not prevent the Company from entering into any merger
or corporate reorganization so long as the surviving entity in such transaction,
if not the Company, assumes all of the Company’s obligations with respect to the
Securities) and shall pay all its taxes when due, except for taxes which the
Company disputes.




5.3    Filings
with Securities and Exchange Commission. The
Company shall, upon request, provide the Subscriber with copies of its annual
reports on Form 10-KSB, quarterly reports on Form 10-QSB and current reports on
Form 8-K for as long as the Common Shares remain outstanding.








8
















5.4    Listing. The
Company shall use its best efforts to maintain the listing of its Common Stock
on the OTC Bulletin Board or a national securities exchange or national
quotation system.




6.    Miscellaneous




6.1    Representations
and Warranties Survive the Closing; Severability. The
Subscriber’s and the Company’s representations and warranties shall survive the
Closing of the transaction provided for hereby notwithstanding any due diligence
investigation made by or on behalf of the party seeking to rely thereon. 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.




6.2    Successors
and Assigns. The
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties. Nothing in
this Agreement, express or implied, is intended to confer upon any party other
than the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement. Neither party may assign its
rights hereunder without the prior written consent of the other
parties.




6.3    Governing
Law. This
Agreement shall be governed by and construed under the laws of the State of
Texas without respect to conflict of laws.




6.4    Execution
in Counterparts Permitted. This
Agreement may be executed in any number of counterparts, each of which shall be
enforceable against the parties actually executing such counterparts, and all of
which together shall constitute one (1) instrument.




6.5    Titles
and Subtitles; Gender. 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. The use
in this Agreement of a masculine, feminine or neither pronoun shall be deemed to
include a reference to the others.




6.6    Written
Notices, Etc. Any
notice, demand or request required or permitted to be given by the Company or
the Subscriber pursuant to the terms of this Agreement shall be in writing and
shall be deemed given when delivered personally, or by facsimile (with a hard
copy to follow by overnight or two (2) day courier), addressed to the parties at
the addresses and/or facsimile telephone number of the parties set forth at the
end of this Agreement or such other address as a party may request by notifying
the other in writing.




6.7    Expenses. Each of
the Company and the Subscriber shall pay all costs and expenses that it
respectively incurs, with respect to the negotiation, execution, delivery and
performance of this Agreement.








9
















6.8    Entire
Agreement; Written Amendments Required. This
Agreement, the Common Stock certificates and the other documents delivered
pursuant hereto 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 herein. Neither
this Agreement nor any terms hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the party against whom
enforcement of any such amendment, waiver, discharge or termination is
sought.




7.    Subscription
and Wiring Instructions; Irrevocability.




7.1    Subscription





	 	
      
	
      
	
      (a)
	
      Wire
      transfer of Subscription Funds.
      Subscriber shall send its subscription funds by wire transfer to the
      Company as follows, unless otherwise agreed with the
    Company:








	 	
      Bank:
	
      Chase
      Bank Texas

	 	
      Account
      Name:
	
      Nano-Proprietary,
      Inc.

	 	
      Account
      No.:
	
      081-00053751

	 	
      ABA
      Routing No.:
	
      113000609

	 	 	 







	 	
      
	
      
	
      (b)
	
      Irrevocable
      Subscription.
      The Subscriber hereby acknowledges and agrees, subject to the provisions
      of any applicable laws providing for the refund of subscription amounts
      submitted by the Subscriber, that this Agreement is irrevocable and that
      the Subscriber is not entitled to cancel, terminate or revoke this
      Agreement; provided, however, that if the conditions to Closing are not
      satisfied or if the Disclosure Documents are discovered prior to Closing
      to contain statements which are materially inaccurate, or omit statements
      of material facts, the Subscriber may revoke or cancel this
      Agreement.








	 	
      (c)
	
      Company’s
      Right to Reject Subscription.
      This Agreement shall be accepted by the Company when the Company
      countersigns this Agreement. The Subscriber hereby confirms that the
      Company has full right in its sole discretion to accept or reject the
      subscription of the Subscriber, in whole or in part, provided that, if the
      Company decides to reject such subscription, the Company must do so
      promptly and in writing. In the case of rejection, the Company will
      promptly return any rejected payments and (if rejected in whole) copies of
      all executed subscription documents (including without limitation this
      Agreement) to Subscriber.











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7.2    Acceptance
of Subscription. In the
case of acceptance of this subscription, ownership of the number of securities
being purchased hereby will pass to the Subscriber upon the
Closing.




7.3    Subscriber
to Forward Original Signed Subscription Agreement to Company. The
Subscriber agrees to courier to the Company its original inked signed
Subscription Agreement within three (3) days after faxing said signed Agreement
to the Company.




8.    Number
of Shares and Purchase Price. The
undersigned Subscriber hereby subscribes for and agrees to purchase ________
shares of Common Stock for a total purchase price (to be paid by wire transfer)
in the amount of ______________ dollars ($__________) (the “Purchase
Price”).




9.    Accredited
Investor. The
Subscriber is (please check applicable box):





	 	
      (a)
	
      [
       ]
	
      a
      corporation, business trust, limited liability company, or partnership not
      formed for the specific purpose of acquiring the securities offered, with
      total assets in excess of $5,000,000.

	 	 	 	 
	 	
      (b)
	
      [ 
      ]
	
      any
      trust, with total assets in excess of $5,000,000, not formed for the
      specific purpose of acquiring the securities offered, whose purchase is
      directed by a sophisticated person who has such knowledge and experience
      in financial and business matters that he is capable of evaluating the
      merits and risks of the prospective investment.

	 	 	 	 
	 	
      (c)
	
      [ 
      ]
	
      an
      individual, who

	 	 	 	 
	 	 	
      [ 
      ]
	
      is
      a director, executive officer or general partner of the issuer of the
      securities being offered or sold or a director, executive officer or
      general partner of a general partner of that issuer.

	 	 	 	 
	 	 	
      [
       ]
	
      has
      an individual net worth, or joint net worth with that person’s spouse, at
      the time of the purchase exceeding $1,000,000.

	 	 	 	 
	 	 	
      [ 
      ]
	
      had
      an individual income in excess of $200,000 in each of the two most recent
      years or joint income with that person’s spouse in excess of $300,000 in
      each of those years and has a reasonable expectation of reaching the same
      income level in the current year.

	 	 	 	 
	 	
      (d)
	
      [ 
      ]
	
      an
      entity, each owner of which is an entity described in (a) or (b) above or
      is an individual described in (c) above.














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The
undersigned acknowledges that this Agreement and the subscription represented
hereby shall not be effective unless accepted by the Company as indicated
below.

 




(The
remainder of this page is intentionally left blank.)








12















IN
WITNESS WHEREOF, the undersigned Subscriber does hereby execute this
Agreement
effective the ____ day of __________, 200_.







SUBSCRIBER







_________________________

Name:










DELIVERY
INSTRUCTIONS
















ACCEPTANCE
BY COMPANY:







THIS
SUBSCRIPTION IS ACCEPTED BY THE COMPANY AND THE COMPANY AGREES TO BE BOUND BY
THE TERMS AND CONDITIONS THEREOF THIS ___ DAY OF _________, 200_.










By:_____________________________________________




Name:
Douglas P. Baker

Title:
Vice President and Secretary











13













EXHIBIT
“A”







CAPITALIZATION











	 	
      Shares

      Outstanding
      on

      December
      31, 2004
	 	
      Number
      of Shares

      of
      Common Stock

      issuable
      upon

      conversion
      or exercise

	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	
      Shares
      of Common Stock:
	
      97,246,422
	 	 
	
      Common
      Stock Options:
	 	 	
      4,648,703

	 	 	 	 
	
      Common
      Stock Warrants :
	 	 	
       95,000




















14













EXHIBIT
“B”




USE OF
PROCEEDS




Working
Capital














15













Schedule
1.2




MATERIAL
ADVERSE CHANGES




None




 

 

 

 

 

 

 

 

16