Document:

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.

10

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.

11

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

 

 

 

 

 

 

 

 

16Ownership and Registration Rights Agreement

Exhibit 4.4

 

OWNERSHIP
AND REGISTRATION RIGHTS AGREEMENT

Nano-Proprietary,
Inc.

3006
Longhorn Blvd., Suite 107

Austin,
Texas 78758

Ladies
and Gentlemen:

This will
confirm our agreement in connection with the purchase by the undersigned today
(the “Holder”) of _________ shares (the “Shares”) of common stock of
NANO-PROPRIETARY, INC. (“Nano-Proprietary”) from Nano-Proprietary pursuant to
the Regulation D Subscription Agreement entered into between Nano-Proprietary
and the Holder (the “Regulation D Subscription Agreement”).

Section
1. Representations
and Warranties

1.1    The
Holder hereby makes to Nano-Proprietary the representations and warranties made
by the Holder in the Regulation D Subscription Agreement, as though fully set
forth herein.

1.2    Nano-Proprietary
hereby represents and warrants to the Holder that the execution, delivery and
performance of this Agreement by Nano-Proprietary has been duly authorized by
all requisite corporate action and will not violate any provision of law, any
order of any court or other agency of government, the articles of organization
or by-laws of Nano-Proprietary or any provision of any other agreement or
instrument to which it is a party and that this Agreement constitutes the legal,
valid and binding obligation of Nano-Proprietary, enforceable in accordance with
its terms.

Section
2. Shares
Owned

2.1    The
purchase of the Shares by the Holder did not result in the Holder and its
“affiliates,” as defined in Rule 144 of the Securities Exchange Act of 1934, as
amended (the “Securities Exchange Act”), being deemed the owner of more than
9.99% of outstanding shares of common stock of Nano-Proprietary, assuming that
there are at least 97,246,422 shares of Common Stock outstanding immediately
after such purchase.

Section
3. Registration
Rights

3.1    Registration.
Nano-Proprietary shall include the resale of the Shares in a registration
statement on Form S-2 or any comparable or successor form or forms (the
“Registration Statement”) (provided that if the Company is not entitled to use
Form S-2 or any successor thereto it shall file a registration statement on
Form S-1 or comparable or successor form) filed by it with the Securities and
Exchange Commission (“SEC”) by not later than the 30th business
day following the date of this Agreement, subject to the Holder’s compliance
with Section 3.1(j).

(a)    Nano-Proprietary
shall use its best efforts to cause the Registration Statement to be declared
effective within 60 days after its initial filing with the SEC and to remain
effective until the earlier of the date (i) as of which the Holder may sell all
of the Shares without restriction pursuant to Rule 144(k) and (ii) when the
Holder shall have sold all of the Shares.

(b)    Nano-Proprietary
shall prepare and file with the SEC such amendments and supplements to the
Registration Statement and the Prospectus included in the Registration Statement
(the “Prospectus”) as may be necessary to keep the Registration Statement
continuously effective, pursuant to Rule 415, for the period specified in
Section 3(a) above and comply with the provisions of the Securities Act of 1933,
as amended (the “Securities Act”) with respect to the disposition of all the
Shares covered by the Registration Statement in accordance with the Holder’s
intended method of disposition set forth in the Registration Statement for such
period; provided,
however,
notwithstanding the foregoing provisions of this Section 3(b), Nano-Proprietary
may suspend the use of the Registration Statement for a period not to exceed 60
days (whether or not consecutive) in any 12-month period if Nano-Proprietary’s
Board of Directors determines in good faith (after consulting with
Nano-Proprietary’s counsel and, if appropriate, its independent auditors) that
because of valid and material business developments (which, under applicable
securities laws, would be required to be disclosed in an amendment to the
Prospectus), including pending mergers or other business combination
transactions, the planned acquisition or divestiture of assets, pending material
corporate developments and similar events, it is advisable to suspend such use
and, prior to or contemporaneously with suspending such use, Nano-Proprietary
provides the Holder with written notice of such suspension, which notice need
not specify the nature of the event giving rise to such suspension. At the end
of any such suspension period, Nano-Proprietary shall provide Holder with
written notice of the termination of such suspension.

(c)    Nano-Proprietary
shall permit Holder to review and comment upon the Registration Statement and,
upon all future amendments and supplements thereto, at least three days prior to
their filing with the SEC.

(d)    Nano-Proprietary
shall furnish to the Holder such number of copies of the Registration Statement
and the Prospectus as the Holder reasonably may request in order to facilitate
the public sale or other disposition of the Shares pursuant to the
Prospectus.

(e)    Nano-Proprietary
shall cause all Shares covered by the Registration Statement to be eligible for
quotation on the
over the counter bulletin board (or listed on a national securities exchange or
quoted on the Nasdaq Small Cap or National Market) on the same terms and
conditions as Nano-Proprietary Common Shares are then traded, quoted, or listed
(provided that Nano-Proprietary Common Shares are then so traded, listed or
quoted).

(f)    While a
Prospectus relating to the Shares is required to be delivered under the
Securities Act, Nano-Proprietary shall promptly notify the Holder of the
happening of any event of which Nano-Proprietary has knowledge and as a result
of which the Prospectus, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing.

(g)    The
Holder agrees that, upon receipt of any notice from Nano-Proprietary of the
happening of any event of the kind specified in Sections 3.1(b) or (f), the
Holder will immediately discontinue disposition of the Shares pursuant to the
Prospectus until the Holder’s receipt of the copies of the supplemented or
amended Prospectus contemplated by Section 3.1(b), and, if so directed by
Nano-Proprietary, the Holder will deliver to Nano-Proprietary, or alternatively
certify that it has destroyed, all copies, other than permanent file copies then
in Holder’s possession, of the most recent Prospectus at the time of receipt of
such notice.

(h)    Nano-Proprietary
shall make available for inspection by the Holder, and any attorney, accountant
or other agent retained by the Holder, all financial and other records,
pertinent corporate documents and properties of Nano-Proprietary, and cause
Nano-Proprietary’s officers, directors and employees to supply all information
reasonably requested by the Holder or such attorney, accountant or agent in
connection with the Registration Statement, provided appropriate confidentiality
agreements are first received by Nano-Proprietary.

(i)    The
Holder shall furnish to Nano-Proprietary in writing such information with
respect to it and the proposed distribution by it, as reasonably shall be
necessary and reasonably requested by Nano-Proprietary’s counsel in writing, in
order to assure compliance with applicable federal and state securities laws.
The Holder shall provide notice to Nano-Proprietary at the address set forth
above within three business days of the sale of all of the Shares registered
pursuant to this Ownership and Registration Rights Agreement.

3.2    Expenses.
Nano-Proprietary shall pay all Registration Expenses (as defined below) and the
Holder will pay all Selling Expenses (as defined below). All expenses incurred
by Nano-Proprietary in complying with Section 3.1 including, without limitation,
all registration and filing fees, printing expenses, fees and disbursements of
counsel and independent public accountants for Nano-Proprietary, fees and
expenses (including counsel fees) incurred in connection with complying with
state securities or “blue sky” laws, Nasdaq fees, fees of transfer agents and
registrars, and costs of issuing the Shares, but excluding any Selling Expenses
and fees and disbursements of any counsel, or any accountant or agent of the
Holder, are called “Registration Expenses.” All underwriting discounts and
selling commissions applicable to the sale of the Shares are called “Selling
Expenses.”

Section
4. Indemnification.

4.1    Indemnification. (a) In
connection with the registration and sale of the Shares pursuant to the
Registration Statement, to the fullest extent permitted by law, Nano-Proprietary
will indemnify and hold harmless the Holder together with the Holder’s officers,
directors, members, partners, employees and agents, and each other person, if
any, who controls Holder within the meaning of the Securities Act (each a
“Controlling Person”), against any losses, claims, damages or liabilities, joint
or several, to which the Holder and the Holder’s officers, directors, members,
partners, employees and agents, or controlling person may become subject under
the Securities Act or otherwise, insofar as such losses, claims,

damages
or liabilities (or actions in respect thereof) arise out of or are based upon
(i) any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement or the Prospectus or any amendment or
supplement thereof, or (ii) the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or (iii) any violation or alleged violation by
Nano-Proprietary of the Securities Act, any state securities law, or any rule or
regulation thereunder relating to the offer or sale of the Shares pursuant to
the Registration Statement (but not the Holder’s failure to comply with the
prospectus delivery requirements or other rules and regulations under the
Securities Exchange Act of 1934 relating to the Holder’s conduct in offering and
selling the Shares). Nano-Proprietary will promptly reimburse the Holder and
each Controlling Person for any legal or other expenses reasonably incurred by
them in connection with investigation or defending any such loss, claim, damage,
liability or action; provided,
however, that
Nano-Proprietary will not be liable in any such case if and to the extent that
any such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission so
made in conformity with information furnished by the Holder or a Controlling
Person in writing specifically for use in the Registration Statement or the
Prospectus. Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of the indemnified party.

(b)    In
connection with the registration and sale of the Shares pursuant to the
Registration Statement, the Holder will indemnify and hold harmless
Nano-Proprietary, each person, if any, who controls Nano-Proprietary within the
meaning of the Securities Act, each officer of Nano-Proprietary who signs the
Registration Statement, and each director of Nano-Proprietary, against all
losses, claims, damages or liabilities, joint or several, to which
Nano-Proprietary or such officer, director, or controlling person may become
subject under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon (i) any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement, the Prospectus contained therein, or
any amendment or supplement thereof, or (ii) the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will promptly reimburse
Nano-Proprietary and each such officer, director, and controlling person for any
legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided,
however, that
the Holder will have no liability hereunder unless such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in reliance upon and in
conformity with information pertaining to the Holder and furnished in writing to
Nano-Proprietary by the Holder specifically for use in the Registration
Statement or the Prospectus; and provided,
further,
however, that
the liability of the Holder hereunder shall be limited to the proportion of any
such loss, claim, damage, liability or expense which is equal to the proportion
that the public offering price of the Shares sold by the Holder under the
Registration Statement bears to the total public offering price of all
securities sold thereunder, but not in any event to exceed an amount equal to
the net proceeds received by the Holder from the sale of the Shares covered by
the Registration Statement.

(c)    Promptly
after receipt by an indemnified party hereunder of notice of the commencement of
any action, such indemnified party shall, if a claim in respect thereof is to be
made against the indemnifying party hereunder, notify the indemnifying party in
writing thereof, but the omission so to notify the indemnifying party shall not
relieve it from any liability which it may have to such indemnified party under
this Section 3.3 except and to the extent the indemnifying party is prejudiced
by such omission. In case any such action shall be brought against any
indemnified party and it shall notify the indemnifying party of the commencement
thereof, the indemnifying party shall be entitled to participate in and, to the
extent it shall wish, to assume and undertake the defense thereof with counsel
reasonably satisfactory to such indemnified party, and, after notice from the
indemnifying party to such indemnified party of its election so to assume and
undertake the defense thereof, the indemnifying party shall not be liable to
such indemnified party under this Section 3.3 for any legal expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation and of liaison with counsel
so selected; provided,
however, that if
the defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be reasonable defenses available to it which are different from
or additional to those available to the indemnifying party or if the interests
of the indemnified party reasonably may be deemed to conflict with the interests
of the indemnifying party, the indemnified party shall have the right to select
a separate counsel and to assume such legal defenses and otherwise to
participate in the defense of such action, with the expenses and fees of such
separate counsel and other expenses related to such participation to be
reimbursed by the indemnifying party as incurred.

(d)    In order
to provide for just and equitable contribution to joint liability under the
Securities Act in any case in which either (i) Holder or any controlling person
of the Holder makes a claim for indemnification pursuant to this Section 3.3 but
it is judicially determined (by the entry of a final judgment or decree by a
court of competent jurisdiction as to which time to appeal or the denial of the
last right of appeal has expired) that such indemnification may not be enforced
in such case notwithstanding the fact that this Section 3.3 provides for
indemnification in such case, or (ii) contribution under the Securities Act may
be required on the part of the Holder or any such controlling person in
circumstances for which indemnification is provided under this Section 3.3,
then, and in each such case, Nano-Proprietary and the Holder will contribute to
the aggregate losses, claims, damages or liabilities to which they may be
subject (after contribution from others) in proportion to their relative fault
provided,
however, that,
in any such case, (A) the Holder shall not be required to contribute any amount
in excess of an amount equal to one half of the public offering price of all the
Shares offered by it pursuant to the Registration Statement; and (B) no person
or entity guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) will be entitled to contribution from any person or
entity who was not guilty of such fraudulent misrepresentation.

4.2    Enforcement. Each
Party acknowledges that there is no adequate remedy at law for failure by it to
comply with the provisions of this Section 3 and that such failure would not be
adequately compensable in damages, and therefore agrees that its agreements
contained in this Section 3 may be specifically enforced. In the event that
Nano-Proprietary fails to comply with its obligations and agreements in this
Section 3, then, in addition to any other rights or remedies the Holder may have
at law or in equity, Nano-Proprietary shall indemnify and hold harmless the
Holder from and against any and all manner of loss which it may incur as a
result of such a failure. In addition, Nano-Proprietary shall also reimburse the
Holder for any and all reasonable legal fees and expenses incurred by it in
enforcing its rights pursuant to this Section 3, regardless of whether any
litigation was commenced.

Section
5.    Choice
of Law  This
Agreement shall be governed by and interpreted in accordance with the laws of
the State of New York without regard to the principles of conflict of
laws.

Section
6.     Counterparts This
Agreement may be executed in two or more identical counterparts, all of which
shall be considered one and the same instrument and shall become effective when
counterparts have been signed by each party and delivered to the other
party.

[Signature
Page Follows.]

Signature
Page to

Ownership
and Registration Rights

Agreement

	
      Dated:
      _________, 200_
	
      AGREED:

       

      ________________

       

      By:
      _________________

       

      By:______________________________

Agreed:

Nano-Proprietary,
Inc.

By:
_________________________

Douglas
P. Baker

Vice
President and Secretary

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