NOTE PURCHASE AGREEMENT
Exhibit
4.1
This
NOTE
PURCHASE AGREEMENT dated as of April 21, 2008 (this “Agreement”)
by and
among Interactive Systems Worldwide Inc., a Delaware corporation (the
“Company”),
and
each of the purchasers of the non-negotiable promissory notes of the Company
whose names are set forth on Exhibit
A
attached
hereto (each a “Purchaser”
and
collectively, the “Purchasers”).
The
parties hereto agree as follows:
ARTICLE
I
PURCHASE
AND SALE OF NOTES
Section
1.1 Purchase
and Sale of Notes.
(a) Upon
the
terms and conditions set forth herein, the Company agrees to issue and sell
to
the Purchasers, and the Purchasers, severally but not jointly, agree to purchase
(in the amounts set forth as Exhibit A
hereto)
from the Company, non-negotiable 14% promissory notes due July 31, 2008
in
substantially the form attached hereto as Exhibit
B
(the
“Notes”),
in
the aggregate principal amount of a minimum of Fifty Thousand Dollars ($50,000)
(the “Minimum”) and a maximum of up to Two Hundred Thirty-One Thousand Dollars
($231,000), at a purchase price equal to 100% of the principal amount of the
Notes being purchased. The Company and the Purchasers are executing and
delivering this Agreement in accordance with and in reliance upon the exemption
from securities registration afforded by Section 4(2) of the U.S. Securities
Act
of 1933, as amended, and the rules and regulations promulgated thereunder (the
“Securities
Act”),
including Regulation D (“Regulation
D”),
and/or upon such other exemption from the registration requirements of the
Securities Act as may be available with respect to the investments to be made
hereunder.
Section
1.2 Closing.
The
Notes
may be sold and funded in separate closings (each a “Closing”),
provided that each Purchaser executes a signature page hereto and thereby agrees
to be bound by and subject to the terms and conditions hereof. The initial
Closing under this Agreement (the “Initial
Closing”)
shall
take place on or about April 21, 2008 (the “Initial
Closing Date”)
and
shall be funded in the amount of at least the Minimum. Each subsequent Closing
under this Agreement shall take place upon the mutual agreement of the Company
and such Purchasers, but in no event later than June
30,
2008 (each, a “Subsequent
Closing Date”).
The
Initial Closing Date and each Subsequent Closing Date are sometimes referred
to
in this Agreement as the “Closing
Date”.
Each
Closing shall take place at the offices of Xxxxxxxx Xxxxxx Xxxxxx & Xxxxxxx
LLP (“FKSA”), 0000 Xxxxxxxx (00xx
Xxxxx),
Xxx Xxxx, Xxx Xxxx 00000. At each Closing the Company shall deliver to the
Purchasers acquiring Notes at such Closing its Notes for the principal amount
set forth opposite the name of such Purchaser on Exhibit
A
hereto,
against payment of the purchase price therefor by wire transfer to an account
designated by the Company. The Company shall update Exhibit A hereto to reflect
all Purchasers who have entered into this Agreement. Each Note shall be dated
the applicable Closing Date.
Section
1.3 Release
from Escrow.
Each
Purchaser who has escrowed funds with FKSA pursuant to a letter from FKSA to
such Purchaser, authorizes and directs FKSA to release from the escrow at the
Initial Closing such Purchaser’s escrowed funds, for delivery to the
Company.
ARTICLE
II
REPRESENTATIONS
AND WARRANTIES
Section
2.1 Representations
and Warranties of the Company.
The
Company represents and warrants to the Purchasers, as of the date hereof and
as
of each Closing Date, that:
(a) Organization,
Good Standing and Power.
The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware and has the requisite corporate power
to
own, lease and operate its properties and assets and to conduct its business
as
it is now being conducted.
(b) Authorization
and Power; Enforcement.
The
Company has the requisite power and authority to enter into and perform its
obligations under this Agreement and the Notes (the “Transaction Documents”).
The execution, delivery and performance of the Transaction Documents by the
Company have been duly and validly authorized by all necessary corporate action.
When executed and delivered by the Company, each of the Transaction Documents
shall constitute valid and binding obligations of the Company enforceable
against the Company in accordance with their terms, except as such
enforceability may be limited by applicable bankruptcy, reorganization,
moratorium, liquidation, conservatorship, receivership or similar laws relating
to, or affecting generally the enforcement of, creditor's rights and remedies
or
by other equitable principles of general application.
Section
2.2 Representations
and Warranties of the Purchasers.
Each
of
the Purchasers represents and warrants to the Company with respect solely to
itself and not with respect to any other Purchaser as of the date hereof and
as
of each Closing Date on which it purchases Notes, that:
(a) Organization
and Standing of the Purchasers.
If the
Purchaser is an entity, such Purchaser is a corporation, limited liability
company or partnership duly incorporated or organized, validly existing and
in
good standing under the laws of the jurisdiction of its incorporation or
organization and has not been organized for the specific purposes of purchasing
the Notes and is not prohibited from doing so.
(b) Authorization
and Power; Enforcement.
Such
Purchaser has the requisite power and authority to enter into and perform its
obligations under this Agreement and to purchase the Notes being sold to it
hereunder. The execution, delivery and performance of this Agreement by such
Purchaser has been duly authorized by all necessary corporate, partnership
or
limited liability company action. When executed and delivered by such Purchaser,
this Agreement shall constitute valid and binding obligations of such Purchaser
enforceable against such Purchaser in accordance with its terms, except as
such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation, conservatorship, receivership or
similar laws relating to, or affecting generally the enforcement of, creditor's
rights and remedies or by other equitable principles of general
application.
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(c) Investment
Purpose.
Such
Purchaser is acquiring the Notes as principal for its own account for investment
only and not with a view toward, or for resale in connection with, the public
sale or distribution thereof.
(d) Accredited
Investor Status.
Such
Purchaser is an “Accredited Investor” as that term is defined in Rule 501(a)(3)
of Regulation D, as further indicated by his or its responses to the Purchaser
Questionnaire which it has submitted to the Company.
(e) Reliance
on Exemptions.
Such
Purchaser understands that the Notes are being offered and sold to it in
reliance on 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 such Purchaser’s compliance with, the
representations, warranties, agreements, acknowledgments and understandings
of
such Purchaser set forth herein in order to determine the availability of such
exemptions and the eligibility of such Purchaser to acquire the
Notes.
(f) Information;
Able to Bear Risk.
Such
Purchaser specifically acknowledges that it has read the Company’s Annual Report
on Form 10-KSB for the year ended September 30, 2007, including without
limitation the Risk Factors section set forth and therein, and all Current
Reports on Form 8-K since the filing of its Annual Report on Form 10-KSB for
the
year ended September 30, 2007. Such Purchaser and its advisors (and/or its
counsel, if any) have been furnished with all materials relating to the
business, finances and operations of the Company and information which it deemed
material to making an informed investment decision regarding its purchase of
the
Notes, which have been requested by such Purchaser. Such Purchaser and its
advisors, if any, have been afforded the opportunity to ask questions of the
Company and its management. Such Purchaser is not relying (for purposes of
making any investment decision or otherwise) upon any advice, information,
or
representations from the Company, written or oral, other than the
representations set forth in this Agreement. Such Purchaser is fully aware
of
the precarious financial condition of the Company and understands that such
Purchaser’s investment in the Notes is speculative and involves an extremely
high degree of risk, and that the Company does not currently have the financial
resources to repay the Notes. Such Purchaser, either alone or with its
representatives, has such knowledge, sophistication and experience in business
and financial matters so as to be capable of evaluating the merits and risks
of
the prospective investment hereunder and such Purchaser is able to bear the
economic risk of such investment, and is able to afford a complete loss of
such
investment. Such Purchaser is in a position regarding the Company, based upon
employment, directorship, family relationship or economic bargaining power,
which enabled and enables such Purchaser to obtain information from the Company
in order to evaluate the merits and risks of this investment. Such Purchaser
has
sought such accounting, legal and tax advice, as it has considered necessary
to
make an informed investment decision with respect to its acquisition of the
Notes. Such Purchaser is not making the investment as a result of any
advertisement, article, notice or other communication published or broadcast
in
any media or any general solicitation or advertising.
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(g) No
Governmental Review.
Such
Purchaser understands that no United States federal or state agency or any
other
government or governmental agency has passed on or made any recommendation
or
endorsement of the Notes, or the fairness or suitability of an investment in
the
Notes, nor have such authorities passed upon or endorsed the merits of the
offering of the Notes.
(h) Transfer
or Resale.
Such
Purchaser understands that: (i) the Notes are non-negotiable and (without the
consent of the Company) non-transferable; (ii) the Notes have not been and
are
not being registered under the Securities Act or any state securities laws,
and
(even if the Company were to consent to a transfer of the Notes) may not be
offered for sale, sold, assigned or transferred by Purchaser unless (A)
subsequently registered for resale thereunder, or (B) such Purchaser shall
have
delivered to the Company an opinion of counsel, in form, substance and scope
acceptable to the Company, to the effect that the Notes to be sold, assigned
or
transferred may be sold, assigned or transferred pursuant to a specified
exemption from such registration requirements; and (iii) neither the Company
nor
any other person is under any obligation to register the Notes under the
Securities Act or any state securities laws or to comply with the terms and
conditions of any exemption thereunder. Such Purchaser acknowledges that it
is
familiar with Rule 144 of the rules and regulations of the Commission, as
amended, promulgated pursuant to the Securities Act (“Rule
144”),
and
that such Purchaser has been advised that Rule 144 permits resales only under
certain circumstances. Such Purchaser understands that to the extent that Rule
144 is not available, such Purchaser will be unable to sell the Notes without
either registration under the Securities Act or the existence of another
exemption from such registration requirement. Such Purchaser understands that
no
public market exists or will exist for the Notes.
(i) Legends.
Such
Purchaser understands that the Notes shall bear a restrictive legend in
substantially the following form:
THIS
NOTE
HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE OFFERED
FOR SALE, SOLD, TRANSFERRED, ASSIGNED, PLEDGED OR OTHERWISE DISPOSED OF IN
THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE NOTES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR AN OPINION OF COUNSEL, IN FORM, SUBSTANCE
AND SCOPE SATISFACTORY TO THE ISSUER OF THIS NOTE, THAT REGISTRATION IS NOT
REQUIRED UNDER SAID ACT.
(j) Receipt
of Documents.
Such
Purchaser and his or its counsel has received and read in their entirety: (i)
the Transaction Documents; (ii) all due diligence and other information which
it
has requested; and (iii) answers to all questions such Purchaser submitted
to
the Company regarding an investment in the Company; and such Purchaser [has
not
been furnished any other documents, literature, memorandum or prospectus and]
has relied only on the representations set forth in the Transaction Documents
and on the Company’s filings with the Securities and Exchange
Commission.
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(k) No
Legal Advice From either Company.
Such
Purchaser acknowledges that it had the opportunity to review this Agreement
and
the transactions contemplated by this Agreement with his or its own legal
counsel and investment and tax advisors. Such Purchaser is relying solely on
such counsel and advisors and not on any statements or representations of the
Company or any of its representatives or agents for legal, tax or investment
advice with respect to this investment, the transactions contemplated by this
Agreement or the securities laws of any jurisdiction.
(l) Use
of
Proceeds.
Such
Purchaser acknowledges that it knows that a substantial portion of the proceeds
of the sale of the Notes will be used to pay past due and current accounts
payable of the Company.
ARTICLE
III
COVENANTS
The
Company covenants with each Purchaser that:
Section
3.1 Use
of
Proceeds.
The
net
proceeds from the sale of the Notes (after payment of expenses of the offering
of the Notes, including but not limited to the Company’s legal fees) shall be
used by the Company for working capital and general corporate purposes,
including but not limited to payment of past due and current accounts payable
of
the Company.
Section
3.2 Distributions.
Until
the
earlier of (a) payment of all principal and accrued interest on the Notes,
or
(b) August 1, 2008, the Company agrees that it shall not (i) declare or pay
any
cash dividends or make any cash distributions on its common stock or preferred
stock or (ii) purchase or otherwise acquire for value, directly or indirectly,
any of its outstanding common stock or preferred stock.
Section
3.3 Salary
Increases.
Until
the
earlier of (a) payment of all principal and accrued interest on the Notes,
or
(b) August 1, 2008, the Company agrees that it shall not increase the salary
of
any Company officer above the salary which such officer is being paid as of
the
date of this Agreement.
Section
3.4 Stay,
Extension and Usury Laws.
It
shall
not at any time insist upon, plead, or in any manner whatsoever claim or take
the benefit or advantage of, any stay, extension or usury law or other law
wherever enacted, now or at any time hereafter in force, that may affect the
performance of its obligations under the Transaction Documents; and the Company
hereby expressly (a) waives to the extent that it may lawfully do so, all
benefit or advantage of any such law and (b) covenants that it shall not, by
resort to any such law, hinder, delay or impede the execution of any power
granted herein or under the Notes to the Purchasers, but shall suffer and permit
the execution of every such power as though no such law has been
enacted.
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ARTICLE
IV
MISCELLANEOUS
Section
4.1 Fees
and Expenses.
Each
party shall pay the fees and expenses of its advisors, counsel, accountants
and
other experts, if any, and all other expenses, incurred by such party incident
to the negotiation, preparation, execution, delivery and performance of this
Agreement and the Notes.
Section
4.2 Confidentiality
Agreement.
Each
Purchaser agrees with the Company that any Confidentiality Agreement, previously
signed by such Purchaser and the Company, remains in full force and effect
and
shall survive the Closings.
Section
4.3 Entire
Agreement; Amendment.
This
Agreement and the Notes contain the entire understanding and agreement of the
parties with respect to the matters covered hereby and, except as specifically
set forth in the Transaction Documents, neither the Company nor any Purchaser
make any representation, warranty, covenant or undertaking with respect to
such
matters and the Transaction Documents supersede all prior understandings and
agreements with respect to said subject matter, all of which are merged herein.
Any provision of this Agreement or the Notes may be waived or amended by a
written instrument signed by the Company and Purchasers holding not less than
66⅔% of the aggregate principal amount of the Notes then outstanding;
provided
that the
maturity date and interest rate on a Note may not be changed as to a Purchaser
without the written consent of such Purchaser. Subject to the immediately
preceding proviso, any amendment or waiver effected in accordance with this
Section 4.3 shall be binding upon each Noteholder and the Company.
Section
4.4 Notices.
Any
notice, demand, request, waiver or other communication required or permitted
to
be given hereunder shall be in writing and shall be effective (a) upon hand
or
express courier service delivery or by telecopy or facsimile at the address
or
number designated below (if delivered on a business day during normal business
hours where such notice is to be received), or the first business day following
such delivery (if delivered other than on a business day during normal business
hours where such notice is to be received) or (b) on the fifth business day
following the date of mailing, addressed to such address, or upon actual receipt
of such mailing, whichever shall first occur. The addresses for such
communications shall be:
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If
to the Company:
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Interactive
Systems Worldwide Inc.
0
Xxxxxxx Xxxxx
Xxxx
Xxxxxxxx, XX 00000
Attention:
Xxxxxxx Xxxxxxxx
Tel.
No.: (000) 000-0000
Fax
No.: (000) 000-0000
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With
a copy (which copy shall not constitute notice to the Company)
to:
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Xxxxxxxx
Xxxxxx Xxxxxx & Xxxxxxx LLP
0000
Xxxxxxxx
Xxx
Xxxx, XX 00000
Attention:
Xxxxxxx X. Xxxxxxx, Esq.
Tel.
No.: (000) 000-0000
Fax
No.: (000) 000-0000
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If
to any Purchaser:
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At
the address or number of such Purchaser set forth on Exhibit
A
to
this Agreement.
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Any
party
hereto may from time to time change its address for notices by giving written
notice of such changed address to the other party hereto pursuant to the
provisions of this Section 4.4.
Section
4.5 Waivers.
No
waiver
by a party of any default with respect to any provision, condition or
requirement of this Agreement or the Notes shall be deemed to be a continuing
waiver in the future or a waiver of any other provision, condition or
requirement hereof, nor shall any delay or omission of any party to exercise
any
right hereunder or thereunder in any manner impair the exercise of any such
right accruing to it thereafter.
Section
4.6 Headings.
The
article, section and subsection headings in this Agreement are for convenience
only and shall not constitute a part of this Agreement for any other purpose
and
shall not be deemed to limit or affect any of the provisions
hereof.
Section
4.7 Successors
and Assigns.
This
Agreement shall be binding upon and inure to the benefit of the parties and
their successors and permitted assigns. The rights and obligations under this
Agreement may not be assigned by a Purchaser.
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Section
4.8 No
Third Party Beneficiaries.
This
Agreement is intended for the benefit of the parties hereto and their respective
successors and permitted assigns and is not for the benefit of, nor may any
provision hereof be enforced by, any other person.
Section
4.9 Governing
Law.
This
Agreement shall be governed by and construed in accordance with the internal
laws of the State of New York, without giving effect to any of the conflicts
of
law principles which would result in the application of the substantive law
of
another jurisdiction. This Agreement shall not be interpreted or construed
with
any presumption against the party causing this Agreement to be
drafted.
Section
4.10 Survival.
The
representations and warranties of the Company and the Purchasers hereunder
shall
survive the Closings.
Section
4.11 Counterparts.
This
Agreement may be executed in any number of counterparts and by facsimile, all
of
which taken together shall constitute one and the same instrument and shall
become effective as to the Company and a Purchaser when counterparts have been
signed by the Company and such Purchaser and delivered by the one to the other,
it being understood that all parties need not sign the same
counterpart.
Section
4.12 Severability.
The
provisions of the Transaction Documents are severable and, in the event that
any
court of competent jurisdiction shall determine that any one or more of the
provisions or part of the provisions contained in the Transaction Documents
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision or part of a provision of the Transaction Documents and the
Transaction Documents shall be reformed and construed as if such invalid or
illegal or unenforceable provision, or part of such provision, had never been
contained herein, so that such provisions would be valid, legal and enforceable
to the maximum extent possible.
Section
4.13 Further
Assurances.
From
and
after the date of this Agreement, upon the request of the Purchasers or the
Company, the Company and each Purchaser shall execute and deliver such
instruments, documents and other writings as may be reasonably necessary or
desirable to confirm and carry out and to effectuate fully the intent and
purposes of this Agreement and the Notes.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
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IN
WITNESS WHEREOF, the parties hereto have caused this Note Purchase Agreement
to
be duly executed as of the date first above written.
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INTERACTIVE
SYSTEMS WORLDWIDE INC.
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By:
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Name:
Xxxxxxx Xxxxxxxx
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Title:
Chairman of the Board,
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President and Chief Executive Officer
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PURCHASER:
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By:
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Name:
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Title:
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EXHIBIT
A
LIST
OF
PURCHASERS
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Names
and Addresses (including Fax No.
or E-Mail Address) of Purchasers |
Principal
Amount of
Notes Purchased |
Closing
Date
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