SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "AGREEMENT"), dated as of January 24,
2002, by and among Insynq, Inc., a Delaware corporation with its headquarters
located at 0000 Xxxxxxxx Xxxxx, Xxxxx 00, Xxxxxx, Xxxxxxxxxx 00000 (the
"COMPANY"), and each of the purchasers set forth on the signature pages hereto
(the "BUYERS").
WHEREAS:
A. The Company and the Buyers are executing and delivering this Agreement in
reliance upon the exemption from securities registration afforded by Rule
506 under Regulation D ("REGULATION D") as promulgated by the United States
Securities and Exchange Commission (the "SEC") under the Securities Act of
1933, as amended (the "1933 ACT");
B. Buyers desire to purchase and the Company desires to issue and sell, upon
the terms and conditions set forth in this Agreement (i) 12% secured
convertible debentures of the Company, in the form attached hereto as
EXHIBIT "A", in the aggregate principal amount of up to Five Hundred Fifty
Thousand Dollars ($550,000) (together with any debenture(s) issued in
replacement thereof or as a dividend thereon or otherwise with respect
thereto in accordance with the terms thereof, the "DEBENTURES"),
convertible into shares of common stock, $0.001 par value per share, of the
Company (the "COMMON STOCK"), upon the terms and subject to the limitations
and conditions set forth in such Debentures and (ii) warrants, in the form
attached hereto as EXHIBIT "B", to purchase up to Two Million, Two Hundred
Thousand (2,200,000) shares of Common Stock (the "WARRANTS");
C. Each Buyer wishes to purchase, upon the terms and conditions stated in this
Agreement, such principal amount of Debentures and number of Warrants as is
set forth immediately below its name on the signature pages hereto; and
D. Contemporaneous with the execution and delivery of this Agreement, the
parties hereto are executing and delivering a Registration Rights
Agreement, in the form attached hereto as EXHIBIT "C" (the "REGISTRATION
RIGHTS AGREEMENT"), pursuant to which the Company has agreed to provide
certain registration rights under the 1933 Act and the rules and
regulations promulgated thereunder, and applicable state securities laws.
NOW THEREFORE, the Company and each of the Buyers severally (and not
jointly) hereby agree as follows:
1. PURCHASE AND SALE OF DEBENTURES AND WARRANTS.
A. PURCHASE OF DEBENTURES AND WARRANTS. On the Closing Date (as defined
below), the Company shall issue and sell to each Buyer and each Buyer
severally and not jointly agrees to purchase from the Company such
principal amount of Debentures and number of Warrants as is set forth
immediately below such Buyer's name on the signature pages hereto.
B. FORM OF PAYMENT. On the Closing Date (as defined below), (i) each
Buyer shall pay the purchase price for the Debentures and the Warrants
to be issued and sold to it at the Closing (as defined below) (the
"PURCHASE PRICE") by wire transfer of immediately available funds to
the Company, in accordance with the Company's written wiring
instructions, against delivery of the Debentures in the principal
amount equal to the Purchase Price and the number of Warrants as is
set forth immediately below such Buyer's name on the signature pages
hereto, and (ii) the Company shall deliver such Debentures and
Warrants duly executed on behalf of the Company, to such Buyer,
against delivery of such Purchase Price.
C. CLOSING DATE. Subject to the satisfaction (or waiver) of the
conditions thereto set forth in Section 6 and Section 7 below, the
date and time of the issuance and sale of the Debentures and the
Warrants pursuant to this Agreement (the "CLOSING DATE") shall be
10:00 a.m. Eastern Standard Time on January 24, 2002 or such other
mutually agreed upon time. The closing of the transactions
contemplated by this Agreement (the "CLOSING") shall occur on the
Closing Date at the offices of Xxxxxxx Xxxxx Xxxxxxx & Xxxxxxxxx, LLP,
0000 Xxxxxx Xxxxxx, 00xx Xxxxx, Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000-0000
or at such other location as may be agreed to by the parties.
2. BUYERS' REPRESENTATIONS AND WARRANTIES. Each Buyer severally (and not
jointly) represents and warrants to the Company solely as to such Buyer
that:
A. INVESTMENT PURPOSE. As of the date hereof, the Buyer is purchasing the
Debentures and the shares of Common Stock issuable upon conversion of
or otherwise pursuant to the Debentures (including, without
limitation, such additional shares of Common Stock, if any, as are
issuable as a result of the events described in Sections 1.3 and
1.4(g) of the Debentures and Section 2(c) of the Registration Rights
Agreement, such shares of Common Stock being referred to herein as the
"CONVERSION SHARES") and the Warrants and the shares of Common Stock
issuable upon exercise thereof (the "WARRANT SHARES" and, collectively
with the Debentures, Warrants and Conversion Shares, the "SECURITIES")
for its own account and not with a present view towards the public
sale or distribution thereof, except pursuant to sales registered or
exempted from registration under the 1933 Act; PROVIDED, HOWEVER, that
by making the representations herein, the Buyer does not agree to hold
any of the Securities for any minimum or other specific term and
reserves the right to dispose of the Securities at any time in
accordance with or pursuant to a registration statement or an
exemption under the 1933 Act.
B. ACCREDITED INVESTOR STATUS. The Buyer is an "accredited investor" as
that term is defined in Rule 501(a) of Regulation D (an "ACCREDITED
INVESTOR").
C. RELIANCE ON EXEMPTIONS. The Buyer understands that the Securities are
being offered and sold to it in reliance upon specific exemptions from
the registration requirements of United States federal and state
securities laws and that the Company is relying upon the truth and
accuracy of, and the Buyer's compliance with, the representations,
warranties, agreements, acknowledgments and understandings of the
Buyer set forth herein in order to determine the availability of such
exemptions and the eligibility of the Buyer to acquire the Securities.
D. INFORMATION. The Buyer and its advisors, if any, have been furnished
with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the
Securities which have been requested by the Buyer or its advisors. The
Buyer and its advisors, if any, have been afforded the opportunity to
ask questions of the Company. Notwithstanding the foregoing, the
Company has not disclosed to the Buyer any material nonpublic
information and will not disclose such information unless such
information is disclosed to the public prior to or promptly following
such disclosure to the Buyer. Neither such inquiries nor any other due
diligence investigation conducted by Buyer or any of its advisors or
representatives shall modify, amend or affect Buyer's right to rely on
the Company's representations and warranties contained in Section 3
below. The Buyer understands that its investment in the Securities
involves a significant degree of risk.
E. GOVERNMENTAL REVIEW. The Buyer understands that no United States
federal or state agency or any other government or governmental agency
has passed upon or made any recommendation or endorsement of the
Securities.
F. TRANSFER OR RE-SALE. The Buyer understands that (i) except as provided
in the Registration Rights Agreement, the sale or re-sale of the
Securities has not been and is not being registered under the 1933 Act
or any applicable state securities laws, and the Securities may not be
transferred unless (a) the Securities are sold pursuant to an
effective registration statement under the 1933 Act, (b) the Buyer
shall have delivered to the Company an opinion of counsel (which
opinion shall be in form, substance and scope customary for opinions
of counsel in comparable transactions) to the effect that the
Securities to be sold or transferred may be sold or transferred
pursuant to an exemption from such registration, (c) the Securities
are sold or transferred to an "affiliate" (as defined in Rule 144
promulgated under the 1933 Act (or a successor rule) ("RULE 144")) of
the Buyer who agrees to sell or otherwise transfer the Securities only
in accordance with this Section 2(f) and who is an Accredited
Investor, or (d) the Securities are sold pursuant to Rule 144; (ii)
any sale of such Securities made in reliance on Rule 144 may be made
only in accordance with the terms of said Rule and further, if said
Rule is not applicable, any re-sale of such Securities under
circumstances in which the seller (or the person through whom the sale
is made) may be deemed to be an underwriter (as that term is defined
in the 0000 Xxx) may require compliance with some other exemption
under the 1933 Act or the rules and regulations of the SEC thereunder;
and (iii) neither the Company nor any other person is under any
obligation to register such Securities under the 1933 Act or any state
securities laws or to comply with the terms and conditions of any
exemption thereunder (in each case, other than pursuant to the
Registration Rights Agreement). Notwithstanding the foregoing or
anything else contained herein to the contrary, the Securities may be
pledged as collateral in connection with a BONA FIDE margin account or
other lending arrangement.
G. LEGENDS. The Buyer understands that the Debentures and the Warrants
and, until such time as the Conversion Shares and Warrant Shares have
been registered under the 1933 Act as contemplated by the Registration
Rights Agreement or otherwise may be sold pursuant to Rule 144 without
any restriction as to the number of securities as of a particular date
that can then be immediately sold, the Conversion Shares and Warrant
Shares may bear a restrictive legend in substantially the following
form (and a stop-transfer order may be placed against transfer of the
certificates for such Securities):
"The securities represented by this certificate have not been registered under
the Securities Act of 1933, as amended. The securities may not be sold,
transferred or assigned in the absence of an effective registration statement
for the securities under said Act, or an opinion of counsel, in form, substance
and scope customary for opinions of counsel in comparable transactions, that
registration is not required under said Act or unless sold pursuant to Rule 144
under said Act."
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of any Security upon which it is
stamped, if, unless otherwise required by applicable state securities laws, (a)
such Security is registered for sale under an effective registration statement
filed under the 1933 Act or otherwise may be sold pursuant to Rule 144 without
any restriction as to the number of securities as of a particular date that can
then be immediately sold, or (b) such holder provides the Company with an
opinion of counsel, in form, substance and scope customary for opinions of
counsel in comparable transactions, to the effect that a public sale or transfer
of such Security may be made without registration under the 1933 Act and such
sale or transfer is effected or (c) such holder provides the Company with
reasonable assurances that such Security can be sold pursuant to Rule 144. The
Buyer agrees to sell all Securities, including those represented by a
certificate(s) from which the legend has been removed, in compliance with
applicable prospectus delivery requirements, if any.
H. AUTHORIZATION; ENFORCEMENT. This Agreement and the Registration Rights
Agreement have been duly and validly authorized. This Agreement has
been duly executed and delivered on behalf of the Buyer, and this
Agreement constitutes, and upon execution and delivery by the Buyer of
the Registration Rights Agreement, such agreement will constitute,
valid and binding agreements of the Buyer enforceable in accordance
with their terms.
I. RESIDENCY. The Buyer is a resident of the jurisdiction set forth
immediately below such Buyer's name on the signature pages hereto.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and
warrants to each Buyer that:
A. ORGANIZATION AND QUALIFICATION. The Company and each of its
Subsidiaries (as defined below), if any, is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is incorporated, with full power and
authority (corporate and other) to own, lease, use and operate its
properties and to carry on its business as and where now owned,
leased, used, operated and conducted. SCHEDULE 3(A) sets forth a list
of all of the Subsidiaries of the Company and the jurisdiction in
which each is incorporated. The Company and each of its Subsidiaries
is duly qualified as a foreign corporation to do business and is in
good standing in every jurisdiction in which its ownership or use of
property or the nature of the business conducted by it makes such
qualification necessary except where the failure to be so qualified or
in good standing would not have a Material Adverse Effect. "MATERIAL
ADVERSE EFFECT" means any material adverse effect on the business,
operations, assets, financial condition or prospects of the Company or
its Subsidiaries, if any, taken as a whole, or on the transactions
contemplated hereby or by the agreements or instruments to be entered
into in connection herewith. "SUBSIDIARIES" means any corporation or
other organization, whether incorporated or unincorporated, in which
the Company owns, directly or indirectly, any equity or other
ownership interest.
B. AUTHORIZATION; ENFORCEMENT. (i) The Company has all requisite
corporate power and authority to enter into and perform this
Agreement, the Registration Rights Agreement, the Debentures and the
Warrants and to consummate the transactions contemplated hereby and
thereby and to issue the Securities, in accordance with the terms
hereof and thereof, (ii) the execution and delivery of this Agreement,
the Registration Rights Agreement, the Debentures and the Warrants by
the Company and the consummation by it of the transactions
contemplated hereby and thereby (including without limitation, the
issuance of the Debentures and the Warrants and the issuance and
reservation for issuance of the Conversion Shares and Warrant Shares
issuable upon conversion or exercise thereof) have been duly
authorized by the Company's Board of Directors and no further consent
or authorization of the Company, its Board of Directors, or its
shareholders is required, (iii) this Agreement has been duly executed
and delivered by the Company, and (iv) this Agreement constitutes, and
upon execution and delivery by the Company of the Registration Rights
Agreement, the Debentures and the Warrants, each of such instruments
will constitute, a legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its terms.
C. CAPITALIZATION. As of the date hereof, the authorized capital stock of
the Company consists of (i) 250,000,000 shares of Common Stock, of
which 52,039,366 shares are issued and outstanding, 16,331,962 shares
are reserved for issuance pursuant to the Company's stock option
plans, 57,712,847 shares are reserved for issuance pursuant to
securities (other than the Debentures, the Additional Debentures (as
defined in Section 4(l)), the Warrants and the Additional Warrants (as
defined in Section 4(l))) exercisable for, or convertible into or
exchangeable for shares of Common Stock and 121,157,144 shares are
reserved for issuance upon conversion of the Debentures and the
Additional Debentures and exercise of the Warrants and the Additional
Warrants (subject to adjustment pursuant to the Company's covenant set
forth in Section 4(h) below); (ii) 10,000,000 shares of preferred
stock, none of which are issued and outstanding and (iii) 10,000,000
shares of Common Stock Class A, of which 5,400,000 shares are reserved
for the Company's executive stock option plan. All of such outstanding
shares of capital stock are, or upon issuance will be, duly
authorized, validly issued, fully paid and nonassessable. No shares of
capital stock of the Company are subject to preemptive rights or any
other similar rights of the stockholders of the Company or any liens
or encumbrances imposed through the actions or failure to act of the
Company. Except as disclosed in SCHEDULE 3(C), as of the effective
date of this Agreement, (i) there are no outstanding options,
warrants, scrip, rights to subscribe for, puts, calls, rights of first
refusal, agreements, understandings, claims or other commitments or
rights of any character whatsoever relating to, or securities or
rights convertible into or exchangeable for any shares of capital
stock of the Company or any of its Subsidiaries, or arrangements by
which the Company or any of its Subsidiaries is or may become bound to
issue additional shares of capital stock of the Company or any of its
Subsidiaries, (ii) there are no agreements or arrangements under which
the Company or any of its Subsidiaries is obligated to register the
sale of any of its or their securities under the 1933 Act (except the
Registration Rights Agreement) and (iii) there are no anti-dilution or
price adjustment provisions contained in any security issued by the
Company (or in any agreement providing rights to security holders)
that will be triggered by the issuance of the Debentures, the
Warrants, the Conversion Shares or Warrant Shares. The Company has
furnished to the Buyer true and correct copies of the Company's
Certificate of Incorporation as in effect on the date hereof
("CERTIFICATE OF INCORPORATION"), the Company's By-laws, as in effect
on the date hereof (the "BY-LAWS"), and the terms of all securities
convertible into or exercisable for Common Stock of the Company and
the material rights of the holders thereof in respect thereto. The
Company shall provide the Buyer with a written update of this
representation signed by the Company's Chief Executive Officer or
Chief Financial Officer on behalf of the Company as of the Closing
Date.
D. ISSUANCE OF SHARES. The Conversion Shares and Warrant Shares are duly
authorized and reserved for issuance and, upon conversion of the
Debentures and exercise of the Warrants in accordance with their
respective terms, will be validly issued, fully paid and
non-assessable, and free from all taxes, liens, claims and
encumbrances with respect to the issue thereof and shall not be
subject to preemptive rights or other similar rights of stockholders
of the Company and will not impose personal liability upon the holder
thereof.
E. ACKNOWLEDGMENT OF DILUTION. The Company understands and acknowledges
the potentially dilutive effect to the Common Stock upon the issuance
of the Conversion Shares and Warrant Shares upon conversion of the
Debenture, or exercise of the Warrants. The Company further
acknowledges that its obligation to issue Conversion Shares and
Warrant Shares upon conversion of the Debentures or exercise of the
Warrants in accordance with this Agreement, the Debentures and the
Warrants is absolute and unconditional regardless of the dilutive
effect that such issuance may have on the ownership interests of other
stockholders of the Company.
F. NO CONFLICTS. The execution, delivery and performance of this
Agreement, the Registration Rights Agreement, the Debentures and the
Warrants by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby (including, without
limitation, the issuance and reservation for issuance of the
Conversion Shares and Warrant Shares) will not (i) conflict with or
result in a violation of any provision of the Certificate of
Incorporation or By-laws or (ii) violate or conflict with, or result
in a breach of any provision of, or constitute a default (or an event
which with notice or lapse of time or both could become a default)
under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture, patent,
patent license or instrument to which the Company or any of its
Subsidiaries is a party, or (iii) result in a violation of any law,
rule, regulation, order, judgment or decree (including federal and
state securities laws and regulations and regulations of any
self-regulatory organizations to which the Company or its securities
are subject) applicable to the Company or any of its Subsidiaries or
by which any property or asset of the Company or any of its
Subsidiaries is bound or affected (except for such conflicts,
defaults, terminations, amendments, accelerations, cancellations and
violations as would not, individually or in the aggregate, have a
Material Adverse Effect). Except as disclosed on SCHEDULE 3(F),
neither the Company nor any of its Subsidiaries is in violation of its
Certificate of Incorporation, By-laws or other organizational
documents and neither the Company nor any of its Subsidiaries is in
default (and no event has occurred which with notice or lapse of time
or both could put the Company or any of its Subsidiaries in default)
under, and neither the Company nor any of its Subsidiaries has taken
any action or failed to take any action that would give to others any
rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which the Company or any of its
Subsidiaries is a party or by which any property or assets of the
Company or any of its Subsidiaries is bound or affected, except for
possible defaults as would not, individually or in the aggregate, have
a Material Adverse Effect. The businesses of the Company and its
Subsidiaries, if any, are not being conducted, and shall not be
conducted so long as a Buyer owns any of the Securities, in violation
of any law, ordinance or regulation of any governmental entity. Except
as specifically contemplated by this Agreement and as required under
the 1933 Act and any applicable state securities laws, the Company is
not required to obtain any consent, authorization or order of, or make
any filing or registration with, any court, governmental agency,
regulatory agency, self regulatory organization or stock market or any
third party in order for it to execute, deliver or perform any of its
obligations under this Agreement, the Registration Rights Agreement,
the Debentures or the Warrants in accordance with the terms hereof or
thereof or to issue and sell the Debentures and Warrants in accordance
with the terms hereof and to issue the Conversion Shares upon
conversion of the Debentures and the Warrant Shares upon exercise of
the Warrants. Except as disclosed in SCHEDULE 3(F), all consents,
authorizations, orders, filings and registrations which the Company is
required to obtain pursuant to the preceding sentence have been
obtained or effected on or prior to the date hereof. The Company is
not in violation of the listing requirements of the Over-the-Counter
Bulletin Board (the "OTCBB") and does not reasonably anticipate that
the Common Stock will be delisted by the OTCBB in the foreseeable
future. The Company and its Subsidiaries are unaware of any facts or
circumstances which might give rise to any of the foregoing.
G. SEC DOCUMENTS; FINANCIAL STATEMENTS. Except as disclosed on SCHEDULE
3(G), since May 31, 1998, the Company has timely filed all reports,
schedules, forms, statements and other documents required to be filed
by it with the SEC pursuant to the reporting requirements of the
Exchange Act of 1934, as amended (the "1934 ACT") (all of the
foregoing filed prior to the date hereof and all exhibits included
therein and financial statements and schedules thereto and documents
(other than exhibits to such documents) incorporated by reference
therein, being hereinafter referred to herein as the "SEC DOCUMENTS").
The Company has delivered to each Buyer true and complete copies of
the SEC Documents, except for such exhibits and incorporated
documents. As of their respective dates, the SEC Documents complied in
all material respects with the requirements of the 1934 Act and the
rules and regulations of the SEC promulgated thereunder applicable to
the SEC Documents, and none of the SEC Documents, at the time they
were filed with the SEC, contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. None of the
statements made in any such SEC Documents is, or has been, required to
be amended or updated under applicable law (except for such statements
as have been amended or updated in subsequent filings prior the date
hereof). As of their respective dates, the financial statements of the
Company included in the SEC Documents complied as to form in all
material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto. Such
financial statements have been prepared in accordance with United
States generally accepted accounting principles, consistently applied,
during the periods involved (except (i) as may be otherwise indicated
in such financial statements or the notes thereto, or (ii) in the case
of unaudited interim statements, to the extent they may not include
footnotes or may be condensed or summary statements) and fairly
present in all material respects the consolidated financial position
of the Company and its consolidated Subsidiaries as of the dates
thereof and the consolidated results of their operations and cash
flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments). Except as set forth
in the financial statements of the Company included in the SEC
Documents, the Company has no liabilities, contingent or otherwise,
other than (i) liabilities incurred in the ordinary course of business
subsequent to May 31, 2000 and (ii) obligations under contracts and
commitments incurred in the ordinary course of business and not
required under generally accepted accounting principles to be
reflected in such financial statements, which, individually or in the
aggregate, are not material to the financial condition or operating
results of the Company.
H. ABSENCE OF CERTAIN CHANGES. Except as disclosed on SCHEDULE 3(H),
since May 31, 2000, there has been no material adverse change and no
material adverse development in the assets, liabilities, business,
properties, operations, financial condition, results of operations or
prospects of the Company or any of its Subsidiaries.
I. ABSENCE OF LITIGATION. There is no action, suit, claim, proceeding,
inquiry or investigation before or by any court, public board,
government agency, self-regulatory organization or body pending or, to
the knowledge of the Company or any of its Subsidiaries, threatened
against or affecting the Company or any of its Subsidiaries, or their
officers or directors in their capacity as such, that could have a
Material Adverse Effect. SCHEDULE 3(I) contains a complete list and
summary description of any pending or threatened proceeding against or
affecting the Company or any of its Subsidiaries, without regard to
whether it would have a Material Adverse Effect. The Company and its
Subsidiaries are unaware of any facts or circumstances which might
give rise to any of the foregoing.
J. PATENTS, COPYRIGHTS, ETC.
(I) The Company and each of its Subsidiaries owns or possesses the
requisite licenses or rights to use all patents, patent
applications, patent rights, inventions, know-how, trade secrets,
trademarks, trademark applications, service marks, service names,
trade names and copyrights ("INTELLECTUAL PROPERTY") necessary to
enable it to conduct its business as now operated (and, except as
set forth in SCHEDULE 3(J) hereof, to the best of the Company's
knowledge, as presently contemplated to be operated in the
future); there is no claim or action by any person pertaining to,
or proceeding pending, or to the Company's knowledge threatened,
which challenges the right of the Company or of a Subsidiary with
respect to any Intellectual Property necessary to enable it to
conduct its business as now operated (and, except as set forth in
SCHEDULE 3(J) hereof, to the best of the Company's knowledge, as
presently contemplated to be operated in the future); to the best
of the Company's knowledge, the Company's or its Subsidiaries'
current and intended products, services and processes do not
infringe on any Intellectual Property or other rights held by any
person; and the Company is unaware of any facts or circumstances
which might give rise to any of the foregoing. The Company and
each of its Subsidiaries have taken reasonable security measures
to protect the secrecy, confidentiality and value of their
Intellectual Property.
(II) All of the Company's computer software and computer hardware, and
other similar or related items of automated, computerized or
software systems that are used or relied on by the Company in the
conduct of its business or that were, or currently are being,
sold or licensed by the Company to customers (collectively,
"INFORMATION TECHNOLOGY"), are Year 2000 Compliant. For purposes
of this Agreement, the term "YEAR 2000 Compliant" means, with
respect to the Company's Information Technology, that the
Information Technology is designed to be used prior to, during
and after the calendar Year 2000 A.D., and the Information
Technology used during each such time period will accurately
receive, provide and process date and time data (including, but
not limited to, calculating, comparing and sequencing) from, into
and between the 20th and 21st centuries, including the years 1999
and 2000, and leap-year calculations, and will not malfunction,
cease to function, or provide invalid or incorrect results as a
result of the date or time data, to the extent that other
information technology, used in combination with the Information
Technology, properly exchanges date and time data with it. The
Company has delivered to the Buyers true and correct copies of
all analyses, reports, studies and similar written information,
whether prepared by the Company or another party, relating to
whether the Information Technology is Year 2000 Compliant.
K. NO MATERIALLY ADVERSE CONTRACTS, ETC. Except as disclosed on SCHEDULE
3(K), neither the Company nor any of its Subsidiaries is subject to
any charter, corporate or other legal restriction, or any judgment,
decree, order, rule or regulation which in the judgment of the
Company's officers has or is expected in the future to have a Material
Adverse Effect. Neither the Company nor any of its Subsidiaries is a
party to any contract or agreement which in the judgment of the
Company's officers has or is expected to have a Material Adverse
Effect.
L. TAX STATUS. Except as set forth on SCHEDULE 3(L), the Company and each
of its Subsidiaries has made or filed all federal, state and foreign
income and all other tax returns, reports and declarations required by
any jurisdiction to which it is subject (unless and only to the extent
that the Company and each of its Subsidiaries has set aside on its
books provisions reasonably adequate for the payment of all unpaid and
unreported taxes) and has paid all taxes and other governmental
assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except
those being contested in good faith and has set aside on its books
provisions reasonably adequate for the payment of all taxes for
periods subsequent to the periods to which such returns, reports or
declarations apply. There are no unpaid taxes in any material amount
claimed to be due by the taxing authority of any jurisdiction, and the
officers of the Company know of no basis for any such claim. The
Company has not executed a waiver with respect to the statute of
limitations relating to the assessment or collection of any foreign,
federal, statue or local tax. Except as set forth on SCHEDULE 3(L),
none of the Company's tax returns is presently being audited by any
taxing authority.
M. CERTAIN TRANSACTIONS. Except as set forth on SCHEDULE 3(M) and except
for arm's length transactions pursuant to which the Company or any of
its Subsidiaries makes payments in the ordinary course of business
upon terms no less favorable than the Company or any of its
Subsidiaries could obtain from third parties and other than the grant
of stock options disclosed on SCHEDULE 3(C), none of the officers,
directors, or employees of the Company is presently a party to any
transaction with the Company or any of its Subsidiaries (other than
for services as employees, officers and directors), including any
contract, agreement or other arrangement providing for the furnishing
of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any
officer, director or such employee or, to the knowledge of the
Company, any corporation, partnership, trust or other entity in which
any officer, director, or any such employee has a substantial interest
or is an officer, director, trustee or partner.
N. DISCLOSURE. All information relating to or concerning the Company or
any of its Subsidiaries set forth in this Agreement and provided to
the Buyers pursuant to Section 2(d) hereof and otherwise in connection
with the transactions contemplated hereby is true and correct in all
material respects and the Company has not omitted to state any
material fact necessary in order to make the statements made herein or
therein, in light of the circumstances under which they were made, not
misleading. No event or circumstance has occurred or exists with
respect to the Company or any of its Subsidiaries or its or their
business, properties, prospects, operations or financial conditions,
which, under applicable law, rule or regulation, requires public
disclosure or announcement by the Company but which has not been so
publicly announced or disclosed (assuming for this purpose that the
Company's reports filed under the 1934 Act are being incorporated into
an effective registration statement filed by the Company under the
1933 Act).
O. ACKNOWLEDGMENT REGARDING BUYERS' PURCHASE OF SECURITIES. The Company
acknowledges and agrees that the Buyers are acting solely in the
capacity of arm's length purchasers with respect to this Agreement and
the transactions contemplated hereby. The Company further acknowledges
that no Buyer is acting as a financial advisor or fiduciary of the
Company (or in any similar capacity) with respect to this Agreement
and the transactions contemplated hereby and any statement made by any
Buyer or any of their respective representatives or agents in
connection with this Agreement and the transactions contemplated
hereby is not advice or a recommendation and is merely incidental to
the Buyers' purchase of the Securities. The Company further represents
to each Buyer that the Company's decision to enter into this Agreement
has been based solely on the independent evaluation of the Company and
its representatives.
P. NO INTEGRATED OFFERING. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly
or indirectly made any offers or sales in any security or solicited
any offers to buy any security under circumstances that would require
registration under the 1933 Act of the issuance of the Securities to
the Buyers. The issuance of the Securities to the Buyers will not be
integrated with any other issuance of the Company's securities (past,
current or future) for purposes of any stockholder approval provisions
applicable to the Company or its securities.
Q. NO BROKERS. The Company has taken no action which would give rise to
any claim by any person for brokerage commissions, transaction fees or
similar payments relating to this Agreement or the transactions
contemplated hereby.
R. PERMITS; COMPLIANCE. Except as disclosed on SCHEDULE 3(R), the Company
and each of its Subsidiaries is in possession of all franchises,
grants, authorizations, licenses, permits, easements, variances,
exemptions, consents, certificates, approvals and orders necessary to
own, lease and operate its properties and to carry on its business as
it is now being conducted (collectively, the "COMPANY PERMITS"), and
there is no action pending or, to the knowledge of the Company,
threatened regarding suspension or cancellation of any of the Company
Permits. Neither the Company nor any of its Subsidiaries is in
conflict with, or in default or violation of, any of the Company
Permits, except for any such conflicts, defaults or violations which,
individually or in the aggregate, would not reasonably be expected to
have a Material Adverse Effect. Since May 31, 2000, neither the
Company nor any of its Subsidiaries has received any notification with
respect to possible conflicts, defaults or violations of applicable
laws, except for notices relating to possible conflicts, defaults or
violations, which conflicts, defaults or violations would not have a
Material Adverse Effect.
S. ENVIRONMENTAL MATTERS.
(I) Except as set forth in SCHEDULE 3(S), there are, to the Company's
knowledge, with respect to the Company or any of its Subsidiaries
or any predecessor of the Company, no past or present violations
of Environmental Laws (as defined below), releases of any
material into the environment, actions, activities,
circumstances, conditions, events, incidents, or contractual
obligations which may give rise to any common law environmental
liability or any liability under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 or similar
federal, state, local or foreign laws and neither the Company nor
any of its Subsidiaries has received any notice with respect to
any of the foregoing, nor is any action pending or, to the
Company's knowledge, threatened in connection with any of the
foregoing. The term "ENVIRONMENTAL LAWS" means all federal,
state, local or foreign laws relating to pollution or protection
of human health or the environment (including, without
limitation, ambient air, surface water, groundwater, land surface
or subsurface strata), including, without limitation, laws
relating to emissions, discharges, releases or threatened
releases of chemicals, pollutants contaminants, or toxic or
hazardous substances or wastes (collectively, "HAZARDOUS
MATERIALS") into the environment, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials, as well
as all authorizations, codes, decrees, demands or demand letters,
injunctions, judgments, licenses, notices or notice letters,
orders, permits, plans or regulations issued, entered,
promulgated or approved thereunder.
(II) Other than those that are or were stored, used or disposed of in
compliance with applicable law, no Hazardous Materials are
contained on or about any real property currently owned, leased
or used by the Company or any of its Subsidiaries, and no
Hazardous Materials were released on or about any real property
previously owned, leased or used by the Company or any of its
Subsidiaries during the period the property was owned, leased or
used by the Company or any of its Subsidiaries, except in the
normal course of the Company's or any of its Subsidiaries'
business.
(III)Except as set forth in SCHEDULE 3(S), there are no underground
storage tanks on or under any real property owned, leased or used
by the Company or any of its Subsidiaries that are not in
compliance with applicable law.
T. TITLE TO PROPERTY. The Company and its Subsidiaries have good and
marketable title in fee simple to all real property and good and
marketable title to all personal property owned by them which is
material to the business of the Company and its Subsidiaries, in each
case free and clear of all liens, encumbrances and defects except such
as are described in SCHEDULE 3(T) or such as would not have a Material
Adverse Effect. Any real property and facilities held under lease by
the Company and its Subsidiaries are held by them under valid,
subsisting and enforceable leases with such exceptions as would not
have a Material Adverse Effect.
U. INSURANCE. The Company is currently operating without officers and
director's insurance, as well as, general liability insurance. It is
uncertain when officers and director coverage will be renewed. The
Company will undertake to use its best efforts to secure general
liability insurance within 30 days after close. Neither the Company
nor any such Subsidiary has any reason to believe that it will not be
able to obtain insurance coverage as may be necessary to continue its
business at a cost that would not have a Material Adverse Effect.
V. INTERNAL ACCOUNTING CONTROLS. The Company and each of its Subsidiaries
maintain a system of internal accounting controls sufficient, in the
judgment of the Company's board of directors, to provide reasonable
assurance that (i) transactions are executed in accordance with
management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to
maintain asset accountability, (iii) access to assets is permitted
only in accordance with management's general or specific authorization
and (iv) the recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
W. FOREIGN CORRUPT PRACTICES. Neither the Company, nor any of its
Subsidiaries, nor any director, officer, agent, employee or other
person acting on behalf of the Company or any Subsidiary has, in the
course of his actions for, or on behalf of, the Company, used any
corporate funds for any unlawful contribution, gift, entertainment or
other unlawful expenses relating to political activity; made any
direct or indirect unlawful payment to any foreign or domestic
government official or employee from corporate funds; violated or is
in violation of any provision of the U.S. Foreign Corrupt Practices
Act of 1977, as amended, or made any bribe, rebate, payoff, influence
payment, kickback or other unlawful payment to any foreign or domestic
government official or employee.
X. SOLVENCY. The Company, after giving effect to the transactions
contemplated by this Agreement, will be solvent (I.E., the Company
will be able to pay its debts as they become due and payable) and
currently the Company has no information that would lead it to
reasonably conclude that the Company would not have the ability to,
nor does it intend to take any action that would impair its ability
to, pay its debts from time to time incurred in connection therewith
as such debts become due and payable. The Company did not receive a
qualified opinion from its auditors with respect to its most recent
fiscal year end.
Y. NO INVESTMENT COMPANY. The Company is not, and upon the issuance and
sale of the Securities as contemplated by this Agreement will not be
an "investment company" required to be registered under the Investment
Company Act of 1940 (an "INVESTMENT COMPANY"). The Company is not
controlled by an Investment Company.
4. COVENANTS.
A. BEST EFFORTS. The parties shall use their best efforts to satisfy
timely each of the conditions described in Section 6 and 7 of this
Agreement.
B. BLUE SKY LAWS. The Company currently owes Blue Sky Data Corp., a
services to which it subscribes, the fees for the 2002 year. Such fees
will be paid within ten (10) days of execution of this Agreement. The
Company is currently covered under Blue Sky Laws in a majority of
states which can be found at the website of Blue Sky Data Corp., and
agrees to register in each state as, and when, necessary and shall
provide a copy thereof to each Buyer promptly after such filing.
C. REPORTING STATUS; ELIGIBILITY TO USE FORM SB-2 OR FORM S-1. The
Company's Common Stock is registered under Section 12(g) of the 1934
Act. The Company represents and warrants that it meets the
requirements for the use of Form SB-2 or Form S-1 for registration of
the sale by the Buyer of the Registrable Securities (as defined in the
Registration Rights Agreement). So long as the Buyer beneficially owns
any of the Securities, the Company shall timely file all reports
required to be filed with the SEC pursuant to the 1934 Act, and the
Company shall not terminate its status as an issuer required to file
reports under the 1934 Act even if the 1934 Act or the rules and
regulations thereunder would permit such termination. The Company
further agrees to file all reports required to be filed by the Company
with the SEC in a timely manner so as to become eligible, and
thereafter to maintain its eligibility, for the use of Form S-3. The
Company shall issue a press release describing the materials terms of
the transaction contemplated hereby as soon as practicable following
the Closing Date but in no event more than two (2) business days of
the Closing Date, and shall file with the SEC a Current Report on Form
8-K describing the material terms of the transaction contemplated
hereby within five (5) business days of the Closing Date, which press
release and Form 8-K shall be subject to prior review by the Buyers.
D. USE OF PROCEEDS. The Company shall use the proceeds from the sale of
the Debentures and the Warrants in the manner set forth in SCHEDULE
4(D) attached hereto and made a part hereof and shall not, directly or
indirectly, use such proceeds for any loan to or investment in any
other corporation, partnership, enterprise or other person (except in
connection with its currently existing direct or indirect
Subsidiaries).
E. FUTURE OFFERINGS. Subject to the exceptions described below, the
Company will not, without the prior written consent of a
majority-in-interest of the Buyers, negotiate or contract with any
party to obtain additional equity financing (including debt financing
with an equity component) that involves (A) the issuance of Common
Stock or (B) the issuance of convertible securities that are
convertible into an indeterminate number of shares of Common Stock or
(C) the issuance of warrants during the period (the "LOCK-UP PERIOD")
beginning on the Closing Date and ending one hundred eighty (180) days
from the date the Registration Statement (as defined in the
Registration Rights Agreement) is declared effective (plus any days in
which sales cannot be made thereunder). In addition, subject to the
exceptions described below, the Company will not conduct any equity
financing (including debt with an equity component) ("FUTURE
OFFERINGS") during the period beginning on the Closing Date and ending
two (2) years after the end of the Lock-up Period unless it shall have
first delivered to each Buyer, at least fifteen (15) business days
prior to the closing of such Future Offering, written notice
describing the proposed Future Offering, including the terms and
conditions thereof and proposed definitive documentation to be entered
into in connection therewith, and providing each Buyer an option
during the ten (10) day period following delivery of such notice to
purchase its pro rata share (based on the ratio that the aggregate
principal amount of Debentures purchased by it hereunder bears to the
aggregate principal amount of Debentures purchased hereunder) of the
securities being offered in the Future Offering on the same terms as
contemplated by such Future Offering (the limitations referred to in
this sentence and the preceding sentence are collectively referred to
as the "CAPITAL RAISING LIMITATIONS"). In the event the terms and
conditions of a proposed Future Offering are amended in any respect
after delivery of the notice to the Buyers concerning the proposed
Future Offering, the Company shall deliver a new notice to each Buyer
describing the amended terms and conditions of the proposed Future
Offering and each Buyer thereafter shall have an option during the ten
(10) day period following delivery of such new notice to purchase its
pro rata share of the securities being offered on the same terms as
contemplated by such proposed Future Offering, as amended. The
foregoing sentence shall apply to successive amendments to the terms
and conditions of any proposed Future Offering. The Capital Raising
Limitations shall not apply to the issuance of securities upon
exercise or conversion of the Company's options, warrants or other
convertible securities outstanding as of the date hereof or to the
grant of additional options or warrants, or the issuance of additional
securities, under any Company stock option or restricted stock plan
approved by the Stockholders of the Company. In the event that the
Company completes a Future Offering on terms more favorable than the
transaction contemplated hereby, the terms of the Debentures, the
Additional Debentures, the Warrants and the Additional Warrants will
be amended to reflect such more favorable terms.
F. EXPENSES. At the Closing, the Company shall reimburse Buyers for
expenses incurred by it in connection with the negotiation,
preparation, execution, delivery and performance of this Agreement and
the other agreements to be executed in connection herewith, including,
without limitation, attorneys' and consultants' fees and expenses.
G. FINANCIAL INFORMATION. The Company agrees to send the following
reports to each Buyer until such Buyer transfers, assigns, or sells
all of the Securities: (i) within ten (10) days after the filing with
the SEC, a copy of its Annual Report on Form 10-KSB, its Quarterly
Reports on Form 10-QSB and any Current Reports on Form 8-K; (ii)
within one (1) day after release, copies of all press releases issued
by the Company or any of its Subsidiaries; and (iii) contemporaneously
with the making available or giving to the stockholders of the
Company, copies of any notices or other information the Company makes
available or gives to such stockholders.
H. RESERVATION OF SHARES. The Company shall at all times have authorized,
and reserved for the purpose of issuance, a sufficient number of
shares of Common Stock to provide for the full conversion or exercise
of the outstanding Debentures and Additional Debentures (including all
accrued unpaid interest thereon) and the Warrants and Additional
Warrants and issuance of the Conversion Shares and Warrant Shares in
connection therewith (based on the Conversion Price or Exercise Price
in effect from time to time) and as otherwise required by the
Debentures. The Company shall not reduce the number of shares of
Common Stock reserved for issuance upon conversion of Debentures and
Additional Debentures and exercise of the Warrants and Additional
Warrants without the consent of each Buyer. The Company shall use its
best efforts at all times to maintain the number of shares of Common
Stock so reserved for issuance at no less than two (2) times the
number that is then actually issuable upon full conversion of the
Debentures and Additional Debentures and upon exercise of the Warrants
and Additional Warrants (based on the Conversion Price or the Exercise
Price in effect from time to time and including all accrued and unpaid
interest on the Debentures). If at any time the number of shares of
Common Stock authorized and reserved for issuance is below the number
of Conversion Shares and Warrant Shares issued and issuable upon
conversion of the Debentures and Additional Debentures and exercise of
the Warrants and Additional Warrants (based on the Conversion Price or
the Exercise Price then in effect and including all accrued and unpaid
interest on the Debentures), the Company will promptly take all
corporate action necessary to authorize and reserve a sufficient
number of shares, including, without limitation, calling a special
meeting of stockholders to authorize additional shares to meet the
Company's obligations under this Section 4(h), in the case of an
insufficient number of authorized shares, and using its best efforts
to obtain stockholder approval of an increase in such authorized
number of shares.
I. LISTING. The Company shall promptly secure the listing, as allowed, of
the Conversion Shares and Warrant Shares upon each national securities
exchange or automated quotation system, if any, upon which shares of
Common Stock are then listed (subject to official notice of issuance)
and, so long as any Buyer owns any of the Securities, shall maintain,
so long as any other shares of Common Stock shall be so listed, such
listing of all Conversion Shares and Warrant Shares from time to time
issuable upon conversion of the Debentures or exercise of the
Warrants. The Company will obtain and, so long as any Buyer owns any
of the Securities, maintain the listing and trading of its Common
Stock on the OTCBB, the Nasdaq National Market ("NASDAQ"), the Nasdaq
SmallCap Market ("NASDAQ SMALLCAP"), the New York Stock Exchange
("NYSE"), or the American Stock Exchange ("AMEX") and will comply in
all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the National Association of
Securities Dealers ("NASD") and such exchanges, as applicable. The
Company shall promptly provide to each Buyer copies of any notices it
receives from the OTCBB and any other exchanges or quotation systems
on which the Common Stock is then listed regarding the continued
eligibility of the Common Stock for listing on such exchanges and
quotation systems.
J. CORPORATE EXISTENCE. So long as a Buyer beneficially owns any
Debentures or Warrants, the Company shall maintain its corporate
existence and shall not sell all or substantially all of the Company's
assets, except in the event of a merger or consolidation or sale of
all or substantially all of the Company's assets, where the surviving
or successor entity in such transaction (i) assumes the Company's
obligations hereunder and under the agreements and instruments entered
into in connection herewith and (ii) is a publicly traded corporation
whose Common Stock is listed for trading on the OTCBB, Nasdaq, Nasdaq
SmallCap, NYSE or AMEX.
K. NO INTEGRATION. The Company shall not make any offers or sales of any
security (other than the Securities) under circumstances that would
require registration of the Securities being offered or sold hereunder
under the 1933 Act or cause the offering of the Securities to be
integrated with any other offering of securities by the Company for
the purpose of any stockholder approval provision applicable to the
Company or its securities.
L. SUBSEQUENT INVESTMENTS. The Company and the Buyers agree that, upon
the declaration of effectiveness of the Registration Statement to be
filed pursuant to the Registration Rights Agreement (the "EFFECTIVE
DATE"), the Buyers shall purchase additional debentures ("ADDITIONAL
DEBENTURES") in the aggregate principal amount of Two Hundred Fifty
Thousand Dollars ($250,000) and additional warrants ("ADDITIONAL
WARRANTS") to purchase an aggregate of 1,000,000 shares of Common
Stock, for an aggregate purchase price of Two Hundred Fifty Thousand
Dollars ($250,000), with the closing of such purchase to occur within
ten (10) days of the Effective Date; PROVIDED, HOWEVER, that the
obligation of each Buyer to purchase the Additional Debentures and the
Additional Warrants is subject to the satisfaction, at or before the
closing of such purchase and sale, of the conditions set forth in
Section 7; and, PROVIDED, FURTHER, that there shall not have been a
Material Adverse Effect as of the Effective Date. The terms of the
Additional Debentures and the Additional Warrants shall be identical
to the terms of the Debentures and Warrants to be issued on the
Closing Date. The Common Stock underlying the Additional Debentures
and the Additional Warrants shall be Registrable Securities (as
defined in the Registration Rights Agreement) and shall be included in
the Registration Statement to be filed pursuant to the Registration
Rights Agreement.
M. STOCKHOLDER APPROVAL. The Company shall file a preliminary proxy
statement with the SEC no later than February 15, 2002 and shall hold
an annual or special meeting of its stockholders no later than May 1,
2002 and use its best efforts to obtain at such meeting such approvals
of the Company's stockholders as may be required to increase the
authorized Common Stock of the Company to a level necessary to allow
the Company to issue up to two (2) times the shares of Common Stock
issuable upon conversion or exercise of, or otherwise with respect to,
the Debentures, the Additional Debentures, the Warrants and the
Additional Warrants in accordance with Delaware law and any applicable
rules or regulations of the OTCBB and Nasdaq (the "STOCKHOLDER
APPROVAL"). The Company shall furnish to Buyer and its legal counsel
promptly (but in no event more than two (2) business days) after the
same is prepared and filed with the SEC or received by the Company,
one copy of the preliminary proxy statement and any amendment thereto
and each letter written by or on behalf of the Company to the SEC or
the staff of the SEC, and each item of correspondence from the SEC or
the staff of the SEC, in each case relating to such preliminary proxy
statement (other than any portion of thereof which contains
information for which the Company has sought confidential treatment).
The Company will promptly (but in no event more than two (2) business
days) respond to any and all comments received from the SEC (which
comments shall promptly be made available to Buyer). The Company shall
comply with the filing and disclosure requirements of Section 14 under
the 1934 Act in connection with the solicitation, acquisition and
disclosure of the Stockholder Approval. The Company represents and
warrants that its Board of Directors has approved, and will recommend
that the Company's stockholders approve, the proposal contemplated by
this Section 4(m) and shall indicate such recommendation in the proxy
statement used to solicit the Stockholder Approval. The Company shall
use its best efforts to cause its officers and directors to vote in
favor of the proposal contemplated by this Section 4(m).
5. TRANSFER AGENT INSTRUCTIONS. The Company shall issue irrevocable
instructions to its transfer agent to issue certificates, registered
in the name of each Buyer or its nominee, for the Conversion Shares
and Warrant Shares in such amounts as specified from time to time by
each Buyer to the Company upon conversion of the Debentures or
exercise of the Warrants in accordance with the terms thereof (the
"IRREVOCABLE TRANSFER AGENT INSTRUCTIONS"). Prior to registration of
the Conversion Shares and Warrant Shares under the 1933 Act or the
date on which the Conversion Shares and Warrant Shares may be sold
pursuant to Rule 144 without any restriction as to the number of
Securities as of a particular date that can then be immediately sold,
all such certificates shall bear the restrictive legend specified in
Section 2(g) of this Agreement. The Company warrants that no
instruction other than the Irrevocable Transfer Agent Instructions
referred to in this Section 5, and stop transfer instructions to give
effect to Section 2(f) hereof (in the case of the Conversion Shares
and Warrant Shares, prior to registration of the Conversion Shares and
Warrant Shares under the 1933 Act or the date on which the Conversion
Shares and Warrant Shares may be sold pursuant to Rule 144 without any
restriction as to the number of Securities as of a particular date
that can then be immediately sold), will be given by the Company to
its transfer agent and that the Securities shall otherwise be freely
transferable on the books and records of the Company as and to the
extent provided in this Agreement and the Registration Rights
Agreement. Nothing in this Section shall affect in any way the Buyer's
obligations and agreement set forth in Section 2(g) hereof to comply
with all applicable prospectus delivery requirements, if any, upon
re-sale of the Securities. If a Buyer provides the Company with (i) an
opinion of counsel in form, substance and scope customary for opinions
in comparable transactions, to the effect that a public sale or
transfer of such Securities may be made without registration under the
1933 Act and such sale or transfer is effected or (ii) the Buyer
provides reasonable assurances that the Securities can be sold
pursuant to Rule 144, the Company shall permit the transfer, and, in
the case of the Conversion Shares and Warrant Shares, promptly
instruct its transfer agent to issue one or more certificates, free
from restrictive legend, in such name and in such denominations as
specified by such Buyer. The Company acknowledges that a breach by it
of its obligations hereunder will cause irreparable harm to the
Buyers, by vitiating the intent and purpose of the transactions
contemplated hereby. Accordingly, the Company acknowledges that the
remedy at law for a breach of its obligations under this Section 5
will be inadequate and agrees, in the event of a breach or threatened
breach by the Company of the provisions of this Section, that the
Buyers shall be entitled, in addition to all other available remedies,
to an injunction restraining any breach and requiring immediate
transfer, without the necessity of showing economic loss and without
any bond or other security being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The obligation of the
Company hereunder to issue and sell the Debentures and Warrants to a Buyer
at the Closing is subject to the satisfaction, at or before the Closing
Date of each of the following conditions thereto, provided that these
conditions are for the Company's sole benefit and may be waived by the
Company at any time in its sole discretion:
A. The applicable Buyer shall have executed this Agreement and the
Registration Rights Agreement, and delivered the same to the Company.
B. The applicable Buyer shall have delivered the Purchase Price in
accordance with Section 1(b) above.
C. The representations and warranties of the applicable Buyer shall be
true and correct in all material respects as of the date when made and
as of the Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date), and
the applicable Buyer shall have performed, satisfied and complied in
all material respects with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with
by the applicable Buyer at or prior to the Closing Date.
D. No litigation, statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or
endorsed by or in any court or governmental authority of competent
jurisdiction or any self-regulatory organization having authority over
the matters contemplated hereby which prohibits the consummation of
any of the transactions contemplated by this Agreement.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE. The obligation of each
Buyer hereunder to purchase the Debentures and Warrants at the Closing is
subject to the satisfaction, at or before the Closing Date of each of the
following conditions, provided that these conditions are for such Buyer's
sole benefit and may be waived by such Buyer at any time in its sole
discretion:
A. The Company shall have executed this Agreement and the Registration
Rights Agreement, and delivered the same to the Buyer.
B. The Company shall have delivered to such Buyer duly executed
Debentures (in such denominations as the Buyer shall request) and
Warrants in accordance with Section 1(a) above or duly executed
Additional Debentures (in such denominations as the Buyer shall
request) and Additional Warrants, as the case may be.
C. The Irrevocable Transfer Agent Instructions, in form and substance
satisfactory to a majority-in-interest of the Buyers, shall have been
delivered to and acknowledged in writing by the Company's Transfer
Agent.
D. The representations and warranties of the Company shall be true and
correct in all material respects as of the date when made and as of
the Closing Date as though made at such time (except for
representations and warranties that speak as of a specific date) and
the Company shall have performed, satisfied and complied in all
material respects with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with
by the Company at or prior to the Closing Date. The Buyer shall have
received a certificate or certificates, executed by the chief
executive officer of the Company, dated as of the Closing Date, to the
foregoing effect and as to such other matters as may be reasonably
requested by such Buyer including, but not limited to certificates
with respect to the Company's Certificate of Incorporation, By-laws
and Board of Directors' resolutions relating to the transactions
contemplated hereby.
E. No litigation, statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or
endorsed by or in any court or governmental authority of competent
jurisdiction or any self-regulatory organization having authority over
the matters contemplated hereby which prohibits the consummation of
any of the transactions contemplated by this Agreement.
F. The Conversion Shares and Warrant Shares shall have been authorized
for quotation on the OTCBB and trading in the Common Stock on the
OTCBB shall not have been suspended by the SEC or the OTCBB.
G. The Buyer shall have received an opinion of the Company's counsel,
dated as of the Closing Date, in form, scope and substance reasonably
satisfactory to the Buyer and in substantially the same form as
EXHIBIT "D" attached hereto.
H. The Buyer shall have received an officer's certificate described in
Section 3(c) above, dated as of the Closing Date.
8. GOVERNING LAW; MISCELLANEOUS.
A. GOVERNING LAW. THIS AGREEMENT SHALL BE ENFORCED, GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK
APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITH SUCH
STATE, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS. THE
PARTIES HERETO HEREBY SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE
UNITED STATES FEDERAL COURTS LOCATED IN NEW YORK, NEW YORK WITH
RESPECT TO ANY DISPUTE ARISING UNDER THIS AGREEMENT, THE AGREEMENTS
ENTERED INTO IN CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY. BOTH PARTIES IRREVOCABLY WAIVE THE DEFENSE OF AN
INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH SUIT OR PROCEEDING. BOTH
PARTIES FURTHER AGREE THAT SERVICE OF PROCESS UPON A PARTY MAILED BY
FIRST CLASS MAIL SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF
PROCESS UPON THE PARTY IN ANY SUCH SUIT OR PROCEEDING. NOTHING HEREIN
SHALL AFFECT EITHER PARTY'S RIGHT TO SERVE PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW. BOTH PARTIES AGREE THAT A FINAL NON-APPEALABLE
JUDGMENT IN ANY SUCH SUIT OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE
ENFORCED IN OTHER JURISDICTIONS BY SUIT ON SUCH JUDGMENT OR IN ANY
OTHER LAWFUL MANNER. THE PARTY WHICH DOES NOT PREVAIL IN ANY DISPUTE
ARISING UNDER THIS AGREEMENT SHALL BE RESPONSIBLE FOR ALL FEES AND
EXPENSES, INCLUDING ATTORNEYS' FEES, INCURRED BY THE PREVAILING PARTY
IN CONNECTION WITH SUCH DISPUTE.
B. COUNTERPARTS; SIGNATURES BY FACSIMILE. This Agreement may be executed
in one or more counterparts, each of which shall be deemed an original
but all of which shall constitute one and the same agreement and shall
become effective when counterparts have been signed by each party and
delivered to the other party. This Agreement, once executed by a
party, may be delivered to the other party hereto by facsimile
transmission of a copy of this Agreement bearing the signature of the
party so delivering this Agreement.
C. HEADINGS. The headings of this Agreement are for convenience of
reference only and shall not form part of, or affect the
interpretation of, this Agreement.
D. SEVERABILITY. In the event that any provision of this Agreement is
invalid or enforceable under any applicable statute or rule of law,
then such provision shall be deemed inoperative to the extent that it
may conflict therewith and shall be deemed modified to conform with
such statute or rule of law. Any provision hereof which may prove
invalid or unenforceable under any law shall not affect the validity
or enforceability of any other provision hereof.
E. ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the instruments
referenced herein contain the entire understanding of the parties with
respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither the Company nor the
Buyer makes any representation, warranty, covenant or undertaking with
respect to such matters. No provision of this Agreement may be waived
or amended other than by an instrument in writing signed by the party
to be charged with enforcement.
F. NOTICES. Any notices required or permitted to be given under the terms
of this Agreement shall be sent by certified or registered mail
(return receipt requested) or delivered personally or by courier
(including a recognized overnight delivery service) or by facsimile
and shall be effective five days after being placed in the mail, if
mailed by regular United States mail, or upon receipt, if delivered
personally or by courier (including a recognized overnight delivery
service) or by facsimile, in each case addressed to a party. The
addresses for such communications shall be:
If to the Company:
Insynq, Inc.
0000 Xxxxxxxx Xxxxx, Xxxxx 00
Xxxxxx, Xxxxxxxxxx 00000
Attention: Chief Executive Officer
Facsimile No.: (000) 000-0000
With copy to:
Xxxxx Xxxxxxx & Xxxx LLP
000 Xxxx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000
Attention: Xxxxxx Xxxx, Esq.
Facsimile No.: (000) 000-0000
If to a Buyer: To the address set forth immediately below such Buyer's name
on the signature pages hereto.
With copy to:
Xxxxxxx Xxxxx Xxxxxxx & Ingersoll
0000 Xxxxxx Xxxxxx, 00xx Xxxxx
Xxxxxxxxxxxx, XX 00000
Attention: Xxxxxx X. Xxxxxxxx, Esq.
Facsimile No.: (000) 000-0000
Each party shall provide notice to the other party of any change in
address.
G. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure
to the benefit of the parties and their successors and assigns.
Neither the Company nor any Buyer shall assign this Agreement or any
rights or obligations hereunder without the prior written consent of
the other. Notwithstanding the foregoing, subject to Section 2(f), any
Buyer may assign its rights hereunder to any person that purchases
Securities in a private transaction from a Buyer or to any of its
"affiliates," as that term is defined under the 1934 Act, without the
consent of the Company.
H. THIRD PARTY BENEFICIARIES. This Agreement is intended for the benefit
of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof
be enforced by, any other person.
I. SURVIVAL. The representations and warranties of the Company and the
agreements and covenants set forth in Sections 3, 4, 5 and 8 shall
survive the closing hereunder notwithstanding any due diligence
investigation conducted by or on behalf of the Buyers. The Company
agrees to indemnify and hold harmless each of the Buyers and all their
officers, directors, employees and agents for loss or damage arising
as a result of or related to any breach or alleged breach by the
Company of any of its representations, warranties and covenants set
forth in Sections 3 and 4 hereof or any of its covenants and
obligations under this Agreement or the Registration Rights Agreement,
including advancement of expenses as they are incurred.
J. PUBLICITY. The Company and each of the Buyers shall have the right to
review a reasonable period of time before issuance of any press
releases, SEC, OTCBB or NASD filings, or any other public statements
with respect to the transactions contemplated hereby; PROVIDED,
HOWEVER, that (i) the Company shall be entitled, without the prior
approval of each of the Buyers, to make any press release or SEC,
OTCBB (or other applicable trading market) or NASD filings with
respect to such transactions as is required by applicable law and
regulations (although each of the Buyers shall be consulted by the
Company in connection with any such press release prior to its release
and shall be provided with a copy thereof and be given an opportunity
to comment thereon) and (ii) the Company will not disclose any
material nonpublic information to any of Buyers unless such
information is disclosed to the public prior to or promptly following
such disclosure to any of the Buyers.
K. FURTHER ASSURANCES. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates,
instruments and documents, as the other party may reasonably request
in order to carry out the intent and accomplish the purposes of this
Agreement and the consummation of the transactions contemplated
hereby.
L. NO STRICT CONSTRUCTION. The language used in this Agreement will be
deemed to be the language chosen by the parties to express their
mutual intent, and no rules of strict construction will be applied
against any party.
M. REMEDIES. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the Buyers by
vitiating the intent and purpose of the transaction contemplated
hereby. Accordingly, the Company acknowledges that the remedy at law
for a breach of its obligations under this Agreement will be
inadequate and agrees, in the event of a breach or threatened breach
by the Company of the provisions of this Agreement, that the Buyers
shall be entitled, in addition to all other available remedies at law
or in equity, and in addition to the penalties assessable herein, to
an injunction or injunctions restraining, preventing or curing any
breach of this Agreement and to enforce specifically the terms and
provisions hereof, without the necessity of showing economic loss and
without any bond or other security being required.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the undersigned Buyers and the Company have caused this
Agreement to be duly executed as of the date first above written.
INSYNQ, INC.
/s/ Xxxx X. Xxxxx
--------------------
Xxxx X. Xxxxx
Chief Executive Officer
AJW PARTNERS, LLC
By: SMS Group, LLC
--------------------------------------
Xxxxx X. Xxxxxxxx
Manager
RESIDENCE: Delaware
ADDRESS:
AJW Partners, LLC
000 Xxxxx Xxxxxx, Xxxxx X
Xxxxxxx, Xxx Xxxx 00000
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Principal Amount of Debentures: $50,000
Number of Warrants: 100,000
Aggregate Purchase Price: $50,000
NEW MILLENNIUM CAPITAL PARTNERS II, LLC
By: First Street Manager II, LLC
--------------------------------------
Xxxxx X. Xxxxxxxxx
Manager
RESIDENCE: New York
ADDRESS:
New Millennium Capital Partners II, LLC
000 Xxxxx Xxxxxx, Xxxxx X
Xxxxxxx, Xxx Xxxx 00000
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Principal Amount of Debentures: $50,000
Number of Warrants: 100,000
Aggregate Purchase Price: $50,000
AJW/NEW MILLENNIUM OFFSHORE, LTD.
By: First Street Manager II, LLC
--------------------------------------
Xxxxx X. Xxxxxxxxx
Manager
RESIDENCE: Cayman Islands
ADDRESS:
AJW/New Millennium Offshore, Ltd.
P.O. Box 32021 SMB
Grand Cayman, Cayman Island, B.W.I.
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Principal Amount of Debentures: $100,000
Number of Warrants: 400,000
Aggregate Purchase Price: $100,000
PEGASUS CAPITAL PARTNERS, LLC
By: Pegasus Manager, LLC
------------------------------------
Xxxxx X. Xxxxxxxxx
Manager
RESIDENCE:
ADDRESS:
Pegasus Capital Partners, LLC
000 Xxxxx Xxxxxx, Xxxxx X
Xxxxxxx, Xxx Xxxx 00000
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Principal Amount of Debentures: $100,000
Number of Warrants: 400,000
Aggregate Purchase Price: $100,000
