EXHIBIT 10.2
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "Agreement") is dated as of June
__, 2006, by and among Innuity, Inc., a Utah corporation (the "Company"), and
the purchasers listed on the Schedule of Purchasers (the "Schedule of
Purchasers") attached as Exhibit A hereto (each, including its successors and
assigns, a "Purchaser" and collectively the "Purchasers").
WHEREAS, subject to the terms and conditions set forth in this Agreement
and pursuant to Section 4(2) of the Securities Act and the rules and regulations
promulgated thereunder, including Regulation D and/or upon such other exemption
from the registration requirements of the Securities Act as may be available
with respect to any or all of the investments to be made hereunder, the Company
desires to issue and sell to each Purchaser, and each Purchaser, severally and
not jointly, desires to purchase from the Company, Notes in the principal
amounts and Warrants for the number of shares, each as set forth opposite each
Purchaser's name on the Schedule of Purchasers and as more fully described in
this Agreement.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and each Purchaser agree
as follows:
ARTICLE I.
DEFINITIONS
1.1 Definitions. In addition to the terms defined elsewhere in this
Agreement, for all purposes of this Agreement, the following terms have the
meanings indicated in this Section 1.1:
"Action" shall have the meaning ascribed to such term in Section
3.1(j).
"Affiliate" means any Person that, directly or indirectly through
one or more intermediaries, controls or is controlled by or is under
common control with a Person as such terms are used in and construed under
Rule 144 under the Securities Act. With respect to a Purchaser, any
investment fund or managed account that is managed on a discretionary
basis by the same investment manager as such Purchaser will be deemed to
be an Affiliate of such Purchaser.
"Agreement" shall have the meaning ascribed to such term in the
preamble.
"Closing" shall have the meaning ascribed to such term in Section
2.2(b).
"Closing Date" shall have the meaning ascribed to such term in
Section 2.2(b).
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock of the Company, par value
$0.00025 per share, and any other class of securities into which such
securities may hereafter have been reclassified or changed into.
"Company" shall have the meaning ascribed to such term in the
preamble.
"Company Counsel" means DLA Xxxxx Xxxxxxx Xxxx Xxxx US LLP.
"Conversion Shares" means the shares of Common Stock issuable upon
conversion of the Notes and any shares of Common Stock issued as payment
for accrued interest on the Notes.
"Disclosure Schedules" means the Disclosure Schedules of the Company
delivered concurrently herewith.
"Effective Date" means the date that the initial Registration
Statement filed by the Company pursuant to the Registration Rights
Agreement is first declared effective by the Commission.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"GAAP" shall have the meaning ascribed to such term in Section
3.1(h).
"Initial Closing" shall have the meaning ascribed to such term in
Section 2.2(a).
"Initial Closing Date" shall have the meaning ascribed to such term
in Section 2.2(a).
"Intellectual Property Rights" shall have the meaning ascribed to
such term in Section 3.1(n).
"Liens" means a lien, charge, security interest, encumbrance, right
of first refusal, preemptive right or other restriction.
"Material Adverse Effect" shall have the meaning ascribed to such
term in Section 3.1(b).
"Notes" means collectively the convertible secured promissory notes,
convertible into shares of Common Stock, in substantially the form of Note
attached as Exhibit B hereto.
"Person" means an individual or corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or
subdivision thereof) or other entity of any kind.
"Proceeding" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"Purchase Price" shall have the meaning ascribed to such term in
Section 2.2 and means, as to each Purchaser, the aggregate amount to be
paid for Notes and Warrants purchased hereunder as specified opposite such
Purchaser's name on the Schedule of Purchasers," in United States Dollars
and in immediately available funds.
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"Purchaser" shall have the meaning ascribed to such term in the
preamble.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated the date hereof, among the Company and the Purchasers, in
the form of Exhibit C attached hereto.
"Registration Statement" means a registration statement meeting the
requirements set forth in the Registration Rights Agreement and covering
the resale by the Purchasers of the Conversion Shares and the Warrant
Shares.
"Required Approvals" shall have the meaning ascribed to such term in
Section 3.1(e).
"Rule 144" means Rule 144 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Schedule of Purchasers" shall have the meaning ascribed to such
term in the preamble.
"SEC Reports" shall have the meaning ascribed to such term in
Section 3.1(h).
"Securities" means the Notes, the Warrants, the Conversion Shares
and the Warrant Shares.
"Securities Act" means the Securities Act of 1933, as amended.
"Security Agreement" shall have the meaning ascribed to such term in
Section 2.1(c).
"Short Sales" shall include all "short sales" as defined in Rule 200
of Regulation SHO under the Exchange Act.
"Subsequent Closing" shall have the meaning ascribed to such term in
Section 2.2(b).
"Subsequent Purchaser" shall have the meaning ascribed to such term
in Section 2.2(b).
"Subsidiary" means any subsidiary of the Company.
"Trading Day" means a day on which the Common Stock is traded on a
Trading Market.
"Trading Market" means the following markets or exchanges on which
the Common Stock is listed or quoted for trading on the date in question:
the Nasdaq Capital
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Market, the American Stock Exchange, the New York Stock Exchange, the
Nasdaq National Market or the OTC Bulletin Board.
"Transaction Documents" means this Agreement, the Notes, the
Warrants, the Security Agreement and the Registration Rights Agreement.
"Warrants" means collectively the warrants to purchase shares of
Common Stock issued in connection with the Notes.
"Warrant Shares" means the shares of Common Stock issuable upon
exercise of the Warrants, in substantially the form of Warrant attached as
Exhibit D hereto.
ARTICLE II.
PURCHASE AND SALE
2.1 Purchase and Sale of Notes and Warrants.
(a) Upon the terms and subject to the conditions set forth herein,
the Company shall sell, and each Purchaser shall purchase in the aggregate,
severally and not jointly, the Notes in the aggregate principal amount up to
Four Million Dollars ($4,000,000), or such greater amount as determined by the
Company.
(b) Upon the terms and subject to the conditions set forth herein,
the Purchasers shall be issued Warrants to purchase Two Hundred (200) of shares
of Common Stock for each One Thousand Dollars ($1,000) of Notes purchased by
such Purchaser. The Warrants shall have an initial exercise price per share of
$0.01, and shall expire on the earlier of (i) two (2) years from the date
hereof, or (ii) thirty days after the closing bid price of the Common Stock is
greater than $3.00 per share for twenty (20) consecutive trading days and the
average daily trading volume of the Common Stock exceeds 40,000 shares for such
twenty-day period.
(c) Payment of the Notes shall be secured pursuant to the form of
Security Agreement attached hereto as Exhibit E (the "Security Agreement").
2.2 Initial Closing; Subsequent Closing.
(a) Subject to the terms and conditions set forth herein, concurrent
with the execution and delivery of this Agreement by the parties hereto, the
Company agrees to issue and sell to each Purchaser, and each Purchaser,
severally and not jointly, agree to purchase the Notes and Warrants in the
aggregate principal amount (the "Purchase Price") set forth opposite such
Purchaser's name on the Schedule of Purchasers, up to an aggregate Purchase
Price of Four Million Dollars ($4,000,000) , or such greater amount as
determined by the Company. The initial closing of the sale and issuance of the
Notes and Warrants (the "Initial Closing") shall take place at the offices of
Company Counsel on the earlier to occur of (a) the date the Company has received
commitments for not less than $500,000 in principal amount of Notes or (ii) such
date as shall be mutually acceptable to the Company and the Purchasers (the
"Initial Closing Date"). At the Initial Closing, upon satisfaction of the
conditions set forth in Sections 2.3 and 2.4, each Purchaser shall deliver to
the Company via wire transfer immediately available funds equal to its
respective Purchase Price and the Company shall deliver to each Purchaser its
respective Notes
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and Warrants as set forth on the Schedule of Purchasers and the other items set
forth in Section 2.3 deliverable at the Initial Closing.
(b) Subject to the terms and conditions set forth in this Agreement,
the Company will have the right for a period of ninety (90) days following the
Initial Closing to sell up to the balance of the Notes and Warrants not sold at
the Initial Closing to Purchasers (each, a "Subsequent Purchaser"). Any such
sale shall be made on the same terms and conditions as those set forth herein,
and each Subsequent Purchaser shall become a party to this Agreement (and
Exhibit A hereto shall be amended to include such Subsequent Purchaser), the
Security Agreement and the Registration Rights Agreement by affixing their
signatures hereto and thereto, and shall have the rights and obligations, and be
treated as, a Purchaser hereunder and thereunder. The Initial Closing and the
subsequent closings in accordance with this Section 2.2(b) (a "Subsequent
Closing") are referred to herein as the "Closing." The Initial Closing Date and
the date of any Subsequent Closing are referred to herein as the "Closing Date".
Notwithstanding anything to the contrary contained herein, the Company shall be
under no obligation to effect any Subsequent Closing.
2.3 Deliveries.
(a) On the Closing Date, the Company shall deliver or cause to be
delivered to each Purchaser the following:
(i) this Agreement duly executed by the Company;
(ii) a Note (in such denominations as such Purchaser may
request) in the principal amount set forth opposite such Purchaser's
name on the Schedule of Purchasers;
(iii) a Warrant registered in the name of such Purchaser to
purchase up to the number of shares of Common Stock set forth
opposite such Purchaser's name on the Schedule of Purchasers;
(iv) the Registration Rights Agreement, duly executed by the
Company; and
(v) the Security Agreement, duly executed by the Company.
(b) On the Closing Date, each Purchaser shall deliver or cause to be
delivered to the Company the following:
(i) this Agreement duly executed by such Purchaser;
(ii) such Purchaser's Purchase Price by wire transfer to the
account as specified in writing by the Company;
(iii) the Registration Rights Agreement duly executed by such
Purchaser; and
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(iv) the Security Agreement, duly executed by such Purchaser.
2.4 Closing Conditions.
(a) The obligations of the Company hereunder in connection with the
Closing are subject to the following conditions being met or waived:
(i) all of the representations and warranties of the
Purchasers set forth in this Agreement that are qualified as to
materiality shall be true and complete in all respects and each
representation or warranty that is not so qualified shall be true
and complete in all material respects as of the date of this
Agreement and as of the Closing Date;
(ii) all obligations, covenants and agreements of the
Purchasers required to be performed at or prior to the Closing Date
shall have been performed; and
(iii) the delivery by the Purchasers of the items set forth in
Section 2.3(b) of this Agreement.
(b) The respective obligations of the Purchasers hereunder in
connection with the Closing are subject to the following conditions being
met or waived:
(i) all of the representations and warranties of the Company
set forth in this Agreement that are qualified as to materiality
shall be true and complete in all respects and each representation
or warranty that is not so qualified shall be true and complete in
all material respects as of the date of this Agreement and as of the
Closing Date;
(ii) all obligations, covenants and agreements of the Company
required to be performed at or prior to the Closing Date shall have
been performed; and
(iii) the delivery by the Company of the items set forth in
Section 2.3(a) of this Agreement; and
(iv) from the date hereof to the Closing Date, trading in the
Common Stock shall not have been suspended by the Commission (except
for any suspension of trading of limited duration agreed to by the
Company, which suspension shall be terminated prior to the Closing),
and, at any time prior to the Closing Date, trading in securities
generally as reported by Bloomberg Financial Markets shall not have
been suspended or limited.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company. Except as set forth
under the corresponding section of the disclosure schedules delivered to the
Purchasers concurrently herewith (the "Disclosure Schedules"), which Disclosure
Schedules shall be deemed a part
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hereof, the Company hereby makes the representations and warranties set forth
below to each Purchaser:
(a) Subsidiaries. All of the direct and indirect Subsidiaries of the
Company are as disclosed in the SEC Reports. The Company owns, directly or
indirectly, all of the capital stock or other equity interests of each
Subsidiary free and clear of any Liens, and all the issued and outstanding
shares of capital stock of each Subsidiary are validly issued and are
fully paid, non-assessable and free of preemptive and similar rights to
subscribe for or purchase securities.
(b) Organization and Qualification. The Company and each of the
Subsidiaries is an entity duly incorporated or otherwise organized and
validly existing under the laws of the jurisdiction of its incorporation
or organization (as applicable), with the requisite power and authority to
own and use its properties and assets and to carry on its business as
currently conducted. Neither the Company nor any Subsidiary is in
violation or default of any of the provisions of its respective
certificate or articles of incorporation, bylaws or other organizational
or charter documents. Each of the Company and the Subsidiaries is duly
qualified to conduct business and is in good standing as a foreign
corporation or other entity in each jurisdiction in which the nature of
the business conducted or property owned by it makes such qualification
necessary, except where the failure to be so qualified or in good
standing, as the case may be, could not reasonably be expected to result
in (i) a material adverse effect on the legality, validity or
enforceability of any Transaction Document, (ii) a material adverse effect
on the results of operations, assets, business or financial condition of
the Company and the Subsidiaries, taken as a whole, or (iii) a material
adverse effect on the Company's ability to perform in any material respect
on a timely basis its obligations under any Transaction Document (any of
(i), (ii) or (iii), a "Material Adverse Effect") and no Proceeding has
been instituted in any such jurisdiction revoking, limiting or curtailing
or seeking to revoke, limit or curtail such power and authority or
qualification.
(c) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the
transactions contemplated by each of the Transaction Documents and
otherwise to carry out its obligations hereunder and thereunder. The
execution and delivery of each of the Transaction Documents by the Company
and the consummation by it of the transactions contemplated hereby and
thereby have been duly authorized by all necessary action on the part of
the Company and no further action is required by the Company, its board of
directors or its shareholders in connection therewith other than in
connection with the Required Approvals. Each Transaction Document has been
(or upon delivery will have been) duly executed by the Company and, when
delivered in accordance with the terms hereof and thereof, will constitute
the valid and binding obligation of the Company enforceable against the
Company in accordance with its terms except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of
general application affecting enforcement of creditors' rights generally
and (ii) as limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies.
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(d) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company, the issuance and sale of the
Securities and the consummation by the Company of the other transactions
contemplated hereby and thereby do not and will not (i) conflict with or
violate any provision of the Company's or any Subsidiary's certificate or
articles of incorporation, bylaws or other organizational or charter
documents, or (ii) conflict with or constitute a default under any
material agreement, credit facility, debt or other instrument, or (iii)
subject to the Required Approvals, conflict with or result in a violation
of any law, rule, regulation, order, judgment, injunction, decree or other
restriction of any court or governmental authority to which the Company or
a Subsidiary is subject (including federal and state securities laws and
regulations); except in the case of each of clauses (ii) and (iii), such
as could not reasonably be expected to result in a Material Adverse
Effect.
(e) Filings, Consents and Approvals. The Company is not required to
obtain any consent, waiver, authorization or order of, give any notice to,
or make any filing or registration with, any court or other federal,
state, local or other governmental authority or other Person in connection
with the execution, delivery and performance by the Company of the
Transaction Documents, other than (i) filings required pursuant to Section
4.3 of this Agreement, (ii) filings required pursuant to any state
securities laws, rules or regulations, (iii) the filing with the
Commission of the Registration Statement or any other registration
provisions provided in the Registration Rights Agreement, (iv)
application(s) to each applicable Trading Market for the listing of the
Conversion Shares and Warrant Shares for trading thereon in the time and
manner required thereby, and (v) the filing of Form D with the Commission
and such other filings, consents and approvals which may be required to be
made under applicable state and federal securities laws, rules or
regulations (collectively, the "Required Approvals").
(f) Issuance of the Securities. The Securities are duly authorized
and, when issued and paid for in accordance with the terms of the
applicable Transaction Documents, will be validly issued, fully paid and
nonassessable, free and clear of all Liens imposed by the Company other
than restrictions on transfer provided for in the Transaction Documents.
The Company has reserved from its duly authorized capital stock the number
of shares of Common Stock issuable upon conversion of the Notes and upon
exercise of the Warrants.
(g) Capitalization. The capitalization of the Company is as
disclosed in the SEC Reports. No Person has any right of first refusal,
preemptive right, right of participation, or any similar right to
participate in the transactions contemplated by the Transaction Documents.
The issuance and sale of the Securities will not obligate the Company to
issue shares of Common Stock or other securities to any Person (other than
the Purchasers) and will not result in a right of any holder of Company
securities to adjust the exercise, conversion, exchange or reset price
under such securities. All of the outstanding shares of capital stock of
the Company are validly issued, fully paid and nonassessable. No further
approval or authorization of any shareholder, the Board of Directors of
the Company or others is required for the issuance and sale of the
Securities. There are no shareholders agreements, voting agreements or
other similar agreements
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with respect to the Company's capital stock to which the Company is a
party or, to the knowledge of the Company, between or among any of the
Company's shareholders.
(h) SEC Reports; Financial Statements. The Company has filed all
reports, schedules, forms, statements and other documents required to be
filed by it under the Securities Act and the Exchange Act, including
pursuant to Section 13(a) or 15(d) thereof, for the one-year period
preceding the date hereof (or such shorter period as the Company was
required by law to file such material) (the foregoing materials, including
the exhibits thereto and documents incorporated by reference therein,
being collectively referred to herein as the "SEC Reports"). As of their
respective filing dates, the SEC Reports complied in all material respects
with the requirements of the Securities Act and the Exchange Act and the
rules and regulations of the Commission promulgated thereunder, and none
of the SEC Reports, when filed, 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 the light
of the circumstances under which they were made, not misleading. The
financial statements of the Company included in the SEC Reports comply in
all material respects with applicable accounting requirements and the
rules and regulations of the Commission with respect thereto as in effect
at the time of filing. Such financial statements have been prepared in
accordance with United States generally accepted accounting principles
applied on a consistent basis during the periods involved ("GAAP"), except
as may be otherwise specified in such financial statements or the notes
thereto and except that unaudited financial statements may not contain all
footnotes required by GAAP, and fairly present in all material respects
the financial position of the Company and its consolidated subsidiaries as
of and for the dates thereof and the results of operations and cash flows
for the periods then ended, subject, in the case of unaudited statements,
to normal, immaterial, year-end audit adjustments.
(i) Material Changes. Since December 31, 2005, except as
specifically disclosed in the SEC Reports, (i) there has been no event,
occurrence or development that has had or that could reasonably be
expected to result in a Material Adverse Effect, (ii) the Company has not
incurred any liabilities (contingent or otherwise) other than (A) trade
payables and accrued expenses incurred in the ordinary course of business
consistent with past practice and (B) liabilities not required to be
reflected in the Company's financial statements pursuant to GAAP or
required to be disclosed in filings made with the Commission, (iii) the
Company has not altered its method of accounting, (iv) the Company has not
declared or made any dividend or distribution of cash or other property to
its shareholders or purchased, redeemed or made any agreements to purchase
or redeem any shares of its capital stock, and (v) the Company has not
issued any equity securities to any officer, director or Affiliate, except
pursuant to existing Company stock option plans.
(j) Litigation. Except as specifically disclosed in the SEC Reports,
there is no action, suit, inquiry, notice of violation, proceeding or
investigation pending or, to the knowledge of the Company, threatened
against or affecting the Company, any Subsidiary or any of their
respective properties before or by any court, arbitrator, governmental or
administrative agency or regulatory authority (federal, state, county,
local or foreign) (collectively, an "Action") which (i) adversely affects
or challenges the legality, validity
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or enforceability of any of the Transaction Documents or the Securities or
(ii) could, if there were an unfavorable decision, have or reasonably be
expected to result in a Material Adverse Effect. To the knowledge of the
Company, there is not pending or contemplated, any investigation by the
Commission involving the Company or any current or former director or
officer of the Company, nor any stop order or other order suspending the
effectiveness of any registration statement filed by the Company or any
Subsidiary under the Exchange Act or the Securities Act.
(k) Patents and Trademarks. The Company and the Subsidiaries have,
or have rights to use, all patents, patent applications, trademarks,
trademark applications, service marks, trade names, copyrights, licenses
and other similar rights necessary or material for use in connection with
their respective businesses as described in the SEC Reports and which the
failure to so have could reasonably be expected to have a Material Adverse
Effect (collectively, the "Intellectual Property Rights"). Neither the
Company nor any Subsidiary has received a written notice that the
Intellectual Property Rights used by the Company or any Subsidiary
violates or infringes upon the rights of any Person. To the knowledge of
the Company, all such Intellectual Property Rights are enforceable and
there is no existing infringement by another Person of any of the
Intellectual Property Rights.
(l) Insurance. The Company and the Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and customary in the businesses
in which the Company and the Subsidiaries are engaged. To the knowledge of
the Company, such insurance contracts and policies are accurate and
complete. Neither the Company nor any Subsidiary has any reason to believe
that it will not be able to renew its existing insurance coverage as and
when such coverage expires or to obtain similar coverage from similar
insurers as may be necessary to continue its business without a
significant increase in cost.
(m) Certain Fees. Except as set forth on Schedule 3.1(m) attached
hereto, no brokerage or finder's fees or commissions are or will be
payable by the Company to any broker, financial advisor or consultant,
finder, placement agent, investment banker, bank or other Person with
respect to the transactions contemplated by the Transaction Documents. To
the knowledge of the Company, the Purchasers shall have no obligation with
respect to any fees or with respect to any claims made by or on behalf of
other Persons for fees of a type contemplated in this Section that may be
due in connection with the transactions contemplated by the Transaction
Documents.
(n) Private Placement. Assuming the accuracy of the Purchasers'
representations and warranties set forth in Section 3.2, no registration
under the Securities Act is required for the offer and sale of the
Securities by the Company to the Purchasers as contemplated hereby. The
issuance and sale of the Securities hereunder does not contravene the
rules and regulations of the Trading Market.
(o) Registration Rights. Except as disclosed in the SEC Reports,
other than each of the Purchasers, no Person has any right to cause the
Company to effect the registration under the Securities Act of any
securities of the Company.
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(p) Listing and Maintenance Requirements. The Company's Common Stock
is registered pursuant to Section 12(g) of the Exchange Act, and the
Company has taken no action designed to, or which to its knowledge is
likely to have the effect of, terminating the registration of the Common
Stock under the Exchange Act nor has the Company received any notification
that the Commission is contemplating terminating such registration.
(q) Tax Status. Except for matters that would not, individually or
in the aggregate, have or reasonably be expected to result in a Material
Adverse Effect, the Company and each Subsidiary has filed all necessary
federal, state and foreign income and franchise tax returns and has paid
or accrued all taxes shown as due thereon, and the Company has no
knowledge of a tax deficiency which has been asserted or threatened
against the Company or any Subsidiary.
3.2 Representations and Warranties of the Purchasers. Each Purchaser
hereby, for itself and for no other Purchaser, represents and warrants as of the
date hereof and as of the Closing Date to the Company as follows:
(a) Organization; Authority. Such Purchaser is an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with full right, corporate or partnership
power and authority to enter into and to consummate the transactions
contemplated by the Transaction Documents and otherwise to carry out its
obligations hereunder and thereunder. The execution, delivery and
performance by such Purchaser of the transactions contemplated by this
Agreement have been duly authorized by all necessary corporate or similar
action on the part of such Purchaser and no further consent or
authorization of such Purchaser or its board of directors, shareholders,
or partners, as the case may be, is required. Each Transaction Document to
which it is a party has been duly executed by such Purchaser, and when
delivered by such Purchaser in accordance with the terms hereof, will
constitute the valid and legally binding obligation of such Purchaser,
enforceable against it in accordance with its terms, except (i) as limited
by general equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors' rights generally, (ii) as limited by laws
relating to the availability of specific performance, injunctive relief or
other equitable remedies and (iii) insofar as indemnification and
contribution provisions may be limited by applicable law.
(b) Own Account. Such Purchaser understands that the Securities are
"restricted securities" and have not been registered under the Securities
Act or any applicable state securities law and is acquiring the Securities
as principal for its own account and not with a view to or for
distributing or reselling such Securities or any part thereof in violation
of the Securities Act or any applicable state securities law, has no
present intention of distributing any of such Securities in violation of
the Securities Act or any applicable state securities law and has no
arrangement or understanding with any other persons regarding the
distribution of such Securities (this representation and warranty not
limiting such Purchaser's right to sell the Securities pursuant to the
Registration Statement or otherwise in compliance with applicable federal
and state securities laws) in violation of the Securities Act or any
applicable state securities law.
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Such Purchaser is acquiring the Securities hereunder in the ordinary
course of its business. Such Purchaser does not have any agreement or
understanding, directly or indirectly, with any Person to distribute any
of the Securities.
(c) Purchaser Status. At the time such Purchaser was offered the
Securities, it was, and at the date hereof it is, and on each date on
which it exercises any Warrants, it will be either: (i) an "accredited
investor" as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8)
under the Securities Act or (ii) a "qualified institutional buyer" as
defined in Rule 144A(a) under the Securities Act. Such Purchaser is not
required to be registered as a broker-dealer under Section 15 of the
Exchange Act.
(d) Experience of Such Purchaser. Such Purchaser, either alone or
together 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 in the
Securities, and has so evaluated the merits and risks of such investment.
Such Purchaser is able to bear the economic risk of an investment in the
Securities and, at the present time, is able to afford a complete loss of
such investment.
(e) General Solicitation. Each Purchaser acknowledges that the
Securities were not offered to such Purchaser by means of any form of
general or public solicitation or general advertising, or publicly
disseminated advertisements or sales literature, including (i) any
advertisement, article, notice or other communication published in any
newspaper, magazine, or similar media, or broadcast over television or
radio, or (ii) any seminar or meeting to which Purchaser was invited by
any of the foregoing means of communication, or any other general
solicitation or general advertisement.
(f) Short Sales and Confidentiality Prior To The Date Hereof. Other
than the transactions contemplated hereunder, such Purchaser has not
directly or indirectly, nor has any Person acting on behalf of or pursuant
to any understanding with such Purchaser, executed any disposition,
including Short Sales (but not including the location and/or reservation
of borrowable shares of Common Stock), in the securities of the Company
during the period commencing from the time that such Purchaser first
received a term sheet from the Company or any other Person setting forth
the material terms of the transactions contemplated hereunder until the
date hereof ("Discussion Time"). Notwithstanding the foregoing, in the
case of a Purchaser that is a multi-managed investment vehicle whereby
separate portfolio managers manage separate portions of such Purchaser's
assets and the portfolio managers have no direct knowledge of the
investment decisions made by the portfolio managers managing other
portions of such Purchaser's assets, the representation set forth above
shall only apply with respect to the portion of assets managed by the
portfolio manager that made the investment decision to purchase the
Securities covered by this Agreement. Other than to other Persons party to
this Agreement, such Purchaser has maintained the confidentiality of all
disclosures made to it in connection with this transaction (including the
existence and terms of this transaction).
(g) Rule 144. Each Purchaser understands that the Securities must be
held indefinitely unless such Securities are registered under the
Securities Act or an exemption
12
from registration is available. Each Purchaser acknowledges that such
person 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. Each Purchaser understands that
to the extent that Rule 144 is not available, such Purchaser will be
unable to sell any Securities without either registration under the
Securities Act or the existence of another exemption from such
registration requirement.
(h) Certain Fees. The Purchasers have not employed any broker or
finder or incurred any liability for any brokerage or investment banking
fees, commissions, finders' structuring fees, financial advisory fees or
other similar fees in connection with the Transaction Documents.
(i) Independent Investment. No Purchaser has agreed to act with any
other Purchaser for the purpose of acquiring, holding, voting or disposing
of the Securities purchased hereunder for purposes of Section 13(d) under
the Exchange Act, and each Purchaser is acting independently with respect
to its investment in the Securities. The decision of each Purchaser to
purchase Securities pursuant to this Agreement has been made by such
Purchaser independently of any other purchase and independently of any
information, materials, statements or opinions as to the business,
affairs, operations, assets, properties, liabilities, results of
operations, condition (financial or otherwise) or prospects of the Company
or of its Subsidiaries which may have made or given by any other Purchaser
or by any agent or employee of any other Purchaser, and no Purchaser or
any of its agents or employees shall have any liability to any Purchaser
(or any other person) relating to or arising from any such information,
materials, statements or opinions. Each Purchaser shall be entitled to
independently protect and enforce its rights, including without
limitation, the rights arising out of this Agreement or out of the other
Transaction Documents, and it shall not be necessary for any other
Purchaser to be joined as an additional party in any proceeding for such
purpose. Nothing contained herein, or in any Transaction Document, and no
action taken by any Purchaser pursuant hereto or thereto, shall be deemed
to constitute the Purchasers as a partnership, an association, a joint
venture or any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert or as a group with respect to
such obligations or the transactions contemplated by the Transaction
Documents. For reasons of administrative convenience only, the Transaction
Documents have been prepared by counsel for one of the Purchasers and such
counsel does not represent all of the Purchasers but only such Purchaser
and the other Purchasers have retained their own individual counsel with
respect to the transactions contemplated hereby.
The Company acknowledges and agrees that each Purchaser does not make or
has not made any representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in this Section 3.2.
13
ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
4.1 Transfer Restrictions.
(a) The Securities may only be disposed of in compliance with state
and federal securities laws. In connection with any transfer of Securities
other than pursuant to an effective registration statement or Rule 144, to
the Company or to an affiliate of a Purchaser, the Company may require the
transferor thereof to provide to the Company an opinion of counsel
selected by the transferor and reasonably acceptable to the Company, the
form and substance of which opinion shall be satisfactory to the Company,
to the effect that such transfer does not require registration of such
transferred Securities under the Securities Act. As a condition of
transfer, any such transferee shall agree in writing to be bound by the
terms of this Agreement and shall have the rights of a Purchaser under
this Agreement and the Registration Rights Agreement.
(b) The Purchasers agree to the imprinting, so long as is required
by this Section 4.1(b), of a legend on any of the Securities in
substantially the following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY,
MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES
LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE ACCEPTABLE TO THE
COMPANY.
(c) The Company agrees that at such time as such legend is no longer
required under Rule 144(k), it will, as soon as practicable, upon a
Purchaser's request, following the delivery by a Purchaser to the Company
or the Company's transfer agent of a certificate representing Conversion
Shares or Warrant Shares, as the case may be, issued with a restrictive
legend, accompanied by detailed written instructions, deliver or cause to
be delivered to the Company's transfer agent irrevocable instructions
instructing the transfer agent to deliver, a certificate representing such
shares that is free from such restrictive legends.
(d) Each Purchaser, severally and not jointly with the other
Purchasers, will offer and sell any and all Securities pursuant to all
applicable federal and state securities laws, including pursuant to either
the registration requirements of the Securities Act, including any
applicable prospectus delivery requirements, or an exemption therefrom,
and agrees that the removal of the restrictive legend from certificates
representing
14
Securities as set forth in this Section 4.1 will be predicated upon the
Company's receipt of Purchaser's and such Purchaser's broker's
representation, as applicable, at the time such legend removal is
requested, that such legend removal is in compliance with Rule 144(k).
4.2 Furnishing of Information. As long as any Purchaser owns Securities,
the Company covenants to file all periodic reports required to be filed by the
Company after the date hereof pursuant to the Exchange Act. As long as any
Purchaser owns Securities, if the Company is not required to file reports
pursuant to the Exchange Act, it will prepare and furnish to the Purchasers and
make publicly available in accordance with Rule 144(c) such information as is
required for the Purchasers to sell the Securities under Rule 144. The Company
further covenants that it will take such commercially reasonable further action
as any holder of Securities may reasonably request, all to the extent required
from time to time to enable such Person to sell such Securities without
registration under the Securities Act within the limitation of the exemptions
provided by Rule 144.
4.3 Securities Laws Disclosure; Publicity. The Company shall, by 9:30 a.m.
Eastern time within two (2) Trading Days following the Closing Date, issue a
press release describing all material terms of the transaction contemplated by
this Agreement, and, within four (4) Trading Days of the Closing Date, file a
Current Report on Form 8-K disclosing the material terms of the transactions
contemplated hereby, and which shall attach the Transaction Documents thereto.
No Purchaser shall issue any press release or otherwise make any such public
statement without the prior consent of the Company, which consent shall not
unreasonably be withheld.
4.4 Use of Proceeds. The Company shall use the net proceeds from the sale
of the Securities hereunder for working capital purposes and other general
corporate purposes. 4.5 Reservation of Common Stock. As of the date hereof, the
Company has reserved and the Company shall continue to reserve and keep
available at all times, free of preemptive rights, a sufficient number of shares
of Common Stock for the purpose of enabling the Company to issue Conversion
Shares pursuant to any conversion of the Notes and Warrant Shares pursuant to
any exercise of the Warrants.
4.6 Listing of Common Stock. The Company hereby agrees to use commercially
reasonable efforts to maintain the listing of the Common Stock on a Trading
Market, and as soon as reasonably practicable following the Closing (but not
later than the earlier of the Effective Date or the first anniversary of the
Closing Date) to use commercially reasonable efforts to list all of the
Conversion Shares and Warrant Shares on such Trading Market. The Company further
agrees, if the Company applies to have the Common Stock traded on any other
Trading Market, it will include in such application all of the Conversion Shares
and Warrant Shares, and will use its commercially reasonable efforts to cause
all of the Conversion Shares and Warrant Shares to be listed on such other
Trading Market as promptly as possible.
4.7 Short Sales and Confidentiality After The Date Hereof. Each Purchaser
severally and not jointly with the other Purchasers covenants that neither it
nor any affiliates acting on its behalf or pursuant to any understanding with it
will execute any Short Sales during the period after the Discussion Time and
ending at the time that the transactions contemplated by this
15
Agreement are first publicly announced as described in Section 4.3. Each
Purchaser, severally and not jointly with the other Purchasers, covenants that
until such time as the transactions contemplated by this Agreement are publicly
disclosed by the Company as described in Section 4.3, such Purchaser will
maintain, the confidentiality of all disclosures made to it in connection with
this transaction (including the existence and terms of this transaction). Each
Purchaser understands and acknowledges, severally and not jointly with any other
Purchaser, that the Commission currently takes the position that coverage of
short sales of shares of the Common Stock "against the box" prior to the
Effective Date of the Registration Statement with the Securities is a violation
of Section 5 of the Securities Act, as set forth in Item 65, Section 5 under
Section A, of the Manual of Publicly Available Telephone Interpretations, dated
July 1997, compiled by the Office of Chief Counsel, Division of Corporation
Finance.
ARTICLE V.
MISCELLANEOUS
5.1 Fees and Expenses. Each party shall pay the fees and expenses of its
advisers, 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 the Transaction Documents. The Company shall pay all
transfer agent fees, stamp taxes and other taxes and duties levied in connection
with the delivery of any Securities.
5.2 Entire Agreement. The Transaction Documents, together with the
exhibits and schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.
5.3 Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
set forth on Exhibit A attached hereto prior to 5:30 p.m. (Seattle time) on a
Trading Day, (b) the next Trading Day after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile number set
forth on Exhibit A attached hereto on a day that is not a Trading Day or later
than 5:30 p.m. (Seattle time) on any Trading Day, (c) the 2nd Trading Day
following the date of mailing, if sent by U.S. nationally recognized overnight
courier service, or (d) upon actual receipt by the party to whom such notice is
required to be given. The address for such notices and communications shall be
as set forth on Exhibit A attached hereto.
5.4 Amendments; Waivers. No provision of this Agreement may be waived or
amended except in a written instrument signed, in the case of an amendment, by
the Company and Purchasers representing a majority of the Conversion Shares then
outstanding; provided, however, that in the event the Company shall deliver
written notice to a Purchaser with respect to a requested waiver or amendment,
such Purchaser shall be deemed to have consented and agreed to such amendment or
waiver if such Purchaser does not provide written notice to the Company
indicating such Purchaser's non-consent within ten (10) days of delivery by the
Company of such written notice. No waiver of any default with respect to any
provision, condition or requirement of this Agreement shall be deemed to be a
continuing waiver in the future or a waiver of any subsequent default or a
waiver of any other provision, condition or
16
requirement hereof, nor shall any delay or omission of either party to exercise
any right hereunder in any manner impair the exercise of any such right.
5.5 Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof. 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.
5.6 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their successors and permitted assigns. The
Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of each Purchaser. Any Purchaser may assign
any or all of its rights under this Agreement to any Person to whom such
Purchaser assigns or transfers any Securities, provided such transferee agrees
in writing to be bound, with respect to the transferred Securities, by the
provisions hereof that apply to the "Purchasers".
5.7 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.
5.8 Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents shall be governed by
and construed and enforced in accordance with the internal laws of the State of
Washington, without regard to the principles of conflicts of law thereof. Each
party agrees that all legal proceedings concerning the interpretations,
enforcement and defense of the transactions contemplated by this Agreement and
any other Transaction Documents (whether brought against a party hereto or its
respective affiliates, directors, officers, shareholders, employees or agents)
shall be commenced exclusively in the state and federal courts sitting in King
County, Washington. Each party hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in King County, Washington
for the adjudication of any dispute hereunder or in connection herewith or with
any transaction contemplated hereby or discussed herein (including with respect
to the enforcement of any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper or inconvenient venue for such
proceeding. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof via registered or certified mail or overnight delivery
(with evidence of delivery) to such party at the address in effect for notices
to it under this Agreement and agrees that such service shall constitute good
and sufficient service of process and notice thereof. Nothing contained herein
shall be deemed to limit in any way any right to serve process in any manner
permitted by law. The parties hereby waive all rights to a trial by jury. If
either party shall commence an action or proceeding to enforce any provisions of
the Transaction Documents, then the prevailing party in such action or
proceeding shall be reimbursed by the other party for its attorneys' fees and
other costs and expenses incurred with the investigation, preparation and
prosecution of such action or proceeding.
17
5.9 Survival. The representations, warranties and covenants contained
herein shall survive the Closing and the delivery of the Securities.
5.10 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile signature page
were an original thereof.
5.11 Severability. If any provision of this Agreement is held to be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.
5.12 Replacement of Securities. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof, or in lieu of and substitution therefor, a new certificate
or instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested. The applicants for a new certificate or instrument
under such circumstances shall also pay any reasonable third-party costs
associated with the issuance of such replacement Securities.
5.13 Construction. The parties agree that each of them and/or their
respective counsel has reviewed and had an opportunity to revise the Transaction
Documents and, therefore, the normal rule of construction to the effect that any
ambiguities are to be resolved against the drafting party shall not be employed
in the interpretation of the Transaction Documents or any amendments hereto.
(Signature Pages Follow)
18
IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
INNUITY, INC. Address for Notice:
By: ________________________________ 0000 000xx Xxxxxx XX
Name: __________________________ Xxxxxxx, Xxxxxxxxxx 00000
Title: _________________________ (000) 000-0000
Fax: (000) 000-0000
With a copy to (which shall not constitute notice):
DLA Xxxxx Xxxxxxx Xxxx Xxxx US LLP
000 Xxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxxxxx 00000
Attn: Xxxxxxx Xxxxxxxxx
(000) 000-0000
Fax: (000) 000-0000
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR PURCHASER FOLLOWS]
[PURCHASER SIGNATURE PAGES TO INNUITY, INC.
SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.
Name of Purchaser: ________________________________________________________
Signature of Authorized Signatory of Purchaser: _______________________________
Name of Authorized Signatory: __________________________________________________
Title of Authorized Signatory: _________________________________________________
Email Address of Purchaser:________________________________________________
Fax Number of Purchaser: _________________________________________________
Address for Notice of Purchaser:
Address for Delivery of Securities for Purchaser (if not same as above):
EXHIBIT A
SCHEDULE OF PURCHASERS
PRINCIPAL AMOUNT COMMON
PURCHASER OF NOTES STOCK WARRANTS
--------- ---------------- ---------------
--------- ---------------- ---------------
--------- ---------------- ---------------
--------- ---------------- ---------------
--------- ---------------- ---------------
--------- ---------------- ---------------
--------- ---------------- ---------------
--------- ---------------- ---------------
--------- ---------------- ---------------
--------- ---------------- ---------------
TOTAL $ 4,000,000.00 800,000
--------- ---------------- ---------------
EXHIBIT B
FORM OF NOTE
EXHIBIT C
FORM OF REGISTRATION RIGHTS AGREEMENT
EXHIBIT D
FORM OF WARRANT
EXHIBIT E
FORM OF SECURITY AGREEMENT
