EXHIBIT 4.18
Subscription Agreement
FOR CONVERTIBLE DEBENTURE
AND WARRANTS
SUBSCRIPTION AGREEMENT (the "AGREEMENT") dated as of September 6, 2000
among Insynq, Inc., a Delaware corporation ("COMPANY"), and TCA Investments,
Inc. (the "INVESTOR").
WHEREAS, the Company desires to sell to the Investor, and the Investor
desires to purchase: (a) a thirty (30) day convertible debenture (the
"DEBENTURE"), in substantially the form attached hereto as EXHIBIT 1, bearing
interest at the current Bank of America prime rate plus 1/2%, and of which the
principal amount and accrued interest, if any, thereon is convertible (at a
conversion rate of (a) $1.00 per share or (b) sixty percent (60%) of the average
bid price, whichever is less on the date of conversion) into shares of the
Company's Common Stock, $.001 par value (the "COMMON STOCK"); and (b) five (5)
year warrants covering 125,000 shares of Common Stock at an exercise price of
$1.00 per share, in substantially the form attached hereto as EXHIBIT 2 (the
"WARRANTS"); and
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the parties agree as follows:
1. PURCHASE AND SALE OF SECURITIES.
1.1. SALE AND ISSUANCE OF PURCHASED SECURITIES. The Company shall sell to
the Investor and the Investor shall purchase from the Company: (a) the
Debenture, in substantially the form attached hereto as EXHIBIT 1, bearing
interest at the current Bank of America prime rate plus 1/2%, and of which the
principal amount and accrued interest, if any, thereon is convertible at a
conversion rate of (a) $1.00 per share or (b) sixty percent (60%) of the average
bid price, whichever is less on the date of conversion into shares of the
Company's Common Stock, and (b) Warrants covering 125,000 shares of Common
Stock, all for an aggregate purchase price of $125,000. The Debenture (which
shall also refer herein to the shares of Common Stock into which the Debenture
is convertible and the shares to be issued as payment of interest on the
Debenture, except when the context indicates otherwise) and Warrants are
referred to herein collectively as the "PURCHASED SECURITIES", and all shares of
Common Stock subject to the Debenture and Warrants are hereinafter referred to
as "Underlying Shares."
1.2. CLOSING. The purchase and sale of the Purchased Securities hereunder
shall take place at a closing (the "CLOSING DATE") on or before September 11,
2000. At the Closing:
(a) the Investor at such Closing shall deliver to the Company, by wire
transfer, cashier's checks or certified checks from a bank acceptable to the
Company, or such other method of payment as the Company shall approve, an amount
equal to the purchase price of the Purchased Securities; and
(b) the Company shall issue and deliver to the Investor at such
Closing (i) an executed Debenture and (ii) a Warrant Agreement representing the
Warrants to be issued by the Company and purchased by the Investor; and
(c) each of the parties shall deliver an executed copy of this
Agreement.
The parties agree that for purposes of allocating the price paid for the
Purchased Securities, the Warrants have a nominal value.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to the Investor as follows:
2.1. CORPORATE ORGANIZATION; AUTHORITY; DUE AUTHORIZATION.
(a) The Company (i) is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation,
(ii) has the corporate power and authority to own or lease its properties as and
in the places where such business is now conducted and to carry on its business
as now conducted and (iii) is duly qualified and in good standing as a foreign
corporation authorized to do business in every jurisdiction where the failure to
so qualify, individually or in the aggregate, would have a material adverse
effect on the operations, prospects, assets, liabilities, financial condition or
business of the Company (a "COMPANY MATERIAL ADVERSE EFFECT").
(b) The Company (i) has the requisite corporate power and authority to
execute, deliver and perform this Agreement and the other agreements
contemplated hereby to which it is a party and to incur the obligations herein
and therein and (ii) has been authorized by all necessary corporate action to
execute, deliver and perform this Agreement and the other agreements
contemplated hereby to which it is a party and to consummate the transactions
contemplated hereby and thereby (the "CONTEMPLATED TRANSACTIONS"). This
Agreement and each of the other agreements contemplated hereby to which the
Company is a party is a valid and binding obligation of the Company enforceable
in accordance with its terms.
2.2. VALIDITY OF PURCHASED SHARES. The issuance of the Purchased Shares
has been duly authorized, and when issued, sold and delivered in accordance with
the terms and for the consideration expressed herein, the Purchased Shares shall
be validly issued, fully paid and non-assessable.
2.3. COMMON STOCK ISSUABLE UPON CONVERSION OF DEBENTUIRE AND EXERCISE OF
PURCHASED WARRANTS. The issuance of the shares of Common Stock (the
"UNDERLYING SHARES") issuable upon conversion of the Debenture (including any
interest payment in Common Stock) and exercise of the Purchased Warrants has
been duly
2
authorized and the Underlying Shares have been, and at all times prior to such
conversion or exercise will have been, duly reserved for issuance upon such
conversion or exercise and, when so issued, will be validly issued, fully paid
and non-assessable. The Underlying Shares shall be covered by the provisions of
paragraphs 5.1 and 5.2 of this Agreement.
3. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR. The Investor
represents and warrants to the Company as follows:
3.1. AUTHORIZATION. When executed and delivered by the Investor, this
Agreement will constitute the valid and binding obligation of the Investor.
3.2. BROKERS AND FINDERS. The Investor has not retained any investment
banker, broker or finder in connection with the Contemplated Transactions.
4. SECURITIES LAWS.
4.1. SECURITIES LAWS REPRESENTATIONS AND COVENANTS OF INVESTOR.
(a) The Investor is making this Agreement in reliance upon the
Investor's representation to the Company, which by the Investor's execution of
this Agreement the Investor hereby confirms, that the Purchased Securities to be
received by the Investor will be acquired for investment for the Investor's own
account, not as a nominee or agent, and not with a view to the resale or
distribution of any part thereof such that the Investor would constitute an
"underwriter" under the Securities Act, and that the Investor has no present
intention of selling, granting any participation in or otherwise distributing
the Purchased Securities. By executing this Agreement, Investor further
represents that the Investor does not have any contract, undertaking, agreement
or arrangement with any person to sell, transfer or grant participations to such
person or to any third person with respect to, any of the Purchased Securities.
(b) Each Investor understands and acknowledges that the offering of
the Purchased Securities pursuant to this Agreement will not be registered under
the Securities Act or qualified under any Blue Sky Laws on the grounds that the
offering and sale of the Purchased Securities are exempt from registration and
qualification, respectively, under the Securities Act and the Blue Sky Laws, and
that the Company's reliance upon such exemption is predicated upon the
Investor's representations set forth in this Agreement.
(c) The Investor covenants that, unless the Debentures the Warrants,
the Underlying Shares or any other shares of capital stock of the Company
received in respect of the foregoing have been registered pursuant to the
registration rights granted hereunder, the Investor, will not dispose of such
securities unless and until the Investor shall have notified the Company of the
proposed disposition and shall have furnished the Company with an opinion of
counsel reasonably satisfactory in form and substance to the Company to the
effect that (x) such disposition will not require registration under the
Securities Act and (y) appropriate action necessary for compliance with the
Securities Act and any applicable state, local or foreign law has been taken;
PROVIDED, HOWEVER, that the Investor may dispose of such securities
3
without providing the opinion referred to above if the Company has been provided
with adequate assurance, to its satisfaction, that such disposition is made in
compliance with Rule 144 under the Securities Act (or any similar or analogous
rule) and any applicable state, local or foreign law.
(d) In connection with the investment representations made herein,
the Investor represents that (i) the Investor is able to fend for itself in the
transactions contemplated herein; (ii) the Investor has such knowledge and
experience in financial and business matters as to be capable of evaluating the
merits and risks of the Investor's prospective investment in the Purchased
Securities; (iii) the Investor has the ability to bear the economic risks of the
Investor's prospective investment and can afford the complete loss of such
investment; (iv) the Investor has been furnished with and has had access to such
information together with the opportunity to obtain such additional information
as it has requested to verify the accuracy of the information supplied; and (v)
the Investor has had access to officers of the Company and an opportunity to ask
questions of and receive answers from such officers and has had all questions
that have been asked by the Investor satisfactorily answered by the Company.
(e) The Investor further represents by execution of this Agreement
that the Investor qualifies as an "accredited investor" as such term is defined
under Rule 501 promulgated under the Securities Act. The Investor further
represents by execution of this Agreement that it has not been organized for the
purpose of purchasing the Purchased Securities.
(f) By acceptance hereof, the Investor agrees that the Debenture,
Warrants, the Underlying Shares and any shares of capital stock of the Company
received in respect of the foregoing held by it may not be sold by the Investor
without registration under the Securities Act or an exemption therefrom, and
therefore the Investor may be required to hold such securities for an
indeterminate period.
(g) The Investor agrees that it and its affiliates shall not hold a
short position or engage in short sales or other hedging transactions relating
to the Common Stock of the Company.
4.2. LEGENDS. All certificates for the Purchased Securities, the
Warrants, the Debentures and the shares of Common Stock issued or issuable upon
the exercise or conversion thereof, and each certificate representing any shares
of capital stock of the Company received in respect of the foregoing, whether by
reason of a stock split or share reclassification thereof, a stock dividend
thereon or otherwise and each certificate for any such securities issued to
subsequent transferees of any such certificate (unless otherwise permitted
herein) shall bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE [SECURITIES REPRESENTED BY THIS
WARRANT] HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 OR ANY APPLICABLE STATE LAW. SUCH SHARES [WARRANTS]
MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF REGISTRATION OR AN OPINION
4
SATISFACTORY TO THE COMPANY THAT NN EXEMPTION THEREFROM UNDER SUCH ACTS ARE
AVAILABLE FOR ANY SUCH SALE OR TRANSFER."
In addition, such certificates shall bear any legend that, in the opinion
of the Company's counsel, is required pursuant to any state, local or foreign
law governing the Purchased Securities, the Debentures, the Warrants or the
Underlying Shares.
5. ADDITIONAL COVENANTS OF THE COMPANY.
5.1 DEMAND REGISTRATION.
(a) No later than September 25, 2000, the Company shall effect a
registration with respect to all of the Underlying Shares subject to the
Debenture and the Warrant, and the Company shall:
(i) within 10 days prior to the filing of the registration
statement, promptly give written notice of the proposed registration to the
Investor; and
(ii) as soon as practicable use its best efforts to register
(including, without limitation, the execution of an undertaking to file post-
effective amendments and any other governmental requirements) all Underlying
Shares subject to the Debenture and the Warrant which the Investor notifies the
Company in writing within fifteen (15) days of receipt of the notice that it
wishes to register; provided, that the Company shall not be obligated to file a
registration statement:
(A) prior to September 25, 2000 ;
(B) within 120 days following the effective date of any
registered offering of the Company's securities to the general public in which
the Investor shall have been able effectively to register all Underlying Shares
as to which registration shall have been requested; and
(C) after the Company has effected one such
registration and such registration has been declared or ordered effective,
except as provided in Section 5.2.
Subject to the foregoing clauses (A) through (C), the Company shall file a
registration statement covering the Underlying Shares so requested to be
registered as soon as practical, but in any event no later than September 25,
2000 and shall use reasonable best efforts to have such registration statement
promptly declared effective by the Commission. Investor shall be entitled to
have the Underlying Shares registered on such registration statement prior to
the time it is able to convert the Debenture into Underlying Shares and prior to
the time it is able to exercise the Warrant for Underlying Shares.
5
5.2. PIGGYBACK REGISTRATION.
(a) If at any time or from time to time, the Company shall determine
to register any of its securities, for its own account or the account of any
other holders of its Common Stock, other than a registration relating solely to
employee benefit plans, or a registration relating solely to an SEC Rule 145
transaction, a transaction relating solely to the sale of debt or convertible
debt instruments or a registration on any form which does not include
substantially the same information as would be required to be included in a
registration statement covering the sale of the Underlying Shares, the Company
will:
(i) give to the Investor written notice thereof as soon as
practicable prior to filing the registration statement; and
(ii) include in such registration and in any underwriting
involved therein, all the Underlying Shares specified in a written request or
requests, made within fifteen (15) days after receipt of such written notice
from the Company, by the Investor, except as set forth in subsection (b) below.
(b) If the registration is for a registered public offering
involving an underwriting, the Company shall so advise the Investor as a part of
the written notice given hereunder. In such event, the right of the Investor to
registration pursuant to this Section 5.2 shall be conditioned upon the
Investor's participation in such underwriting and the inclusion of the
Investor's Underlying Shares in the underwriting to the extent provided herein.
The Investor shall (together with the Company and the other shareholders
distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by the Company. Notwithstanding any other
provision of this Section 5.2, if the managing underwriter determines that
marketing factors require a limitation of the number of shares to be
underwritten, the managing underwriter may limit the number of Underlying Shares
to be included in the registration and underwriting. The Company shall so advise
the Investor and the other shareholders distributing their securities through
such underwriting pursuant to piggyback registration rights similar to this
Section 5.2, and the number of shares of Underlying Shares and other securities
that may be included in the registration and underwriting shall be allocated
among the Investor and other shareholders in proportion, as nearly as
practicable, to the respective amounts of Underlying Shares held by the Investor
and other securities held by other shareholders at the time of filing the
registration statement. If the Investor disapproves of the terms of any such
underwriting, he may elect to withdraw therefrom by written notice to the
Company and the managing underwriter. Any Underlying Shares excluded or
withdrawn from such underwriting shall be withdrawn from such registration.
5.3 EXPENSES OF REGISTRATION. All expenses incurred in connection with one
registration hereof including without limitation all registration, filing and
qualification fees, printing expenses, fees and disbursements of counsel for the
Company and expenses of any special audits of the Company's financial statements
incidental to or required by such registration, shall be borne by the Company,
except that the Company shall not be required to
6
pay underwriters' fees, discounts or commissions relating to Underlying Shares
or fees of a separate legal counsel of the Investor.
6. MISCELLANEOUS.
6.1. ENTIRE AGREEMENT; SUCCESSORS AND ASSIGNS. This Agreement, the
Warrants, the Debentures and the registration rights contained herein constitute
the entire contract between the parties relative to the subject matter hereof
and no party shall be liable or bound to the other in any manner by any
warranties, representations or covenants except as specifically set forth
herein. Any previous agreement among the parties with respect to the sale of the
Purchased Securities is superseded by this Agreement and the Exhibits attached
hereto. The terms and conditions of this Agreement shall inure to the benefit of
and be binding upon the respective executors, administrators, heirs, successors
and assigns of the parties. Except as expressly provided herein, nothing in this
Agreement, expressed or implied, is intended to confer upon any party, other
than the parties hereto, any rights, remedies, obligations or liabilities under
or by reason of this Agreement.
6.2. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Notwithstanding any right
of the Investor fully to investigate the affairs of the Company and
notwithstanding any knowledge of facts determined or determinable by the
Investor pursuant to such right of investigation or right of investigation, each
Investor has the right to rely fully upon the representations, warranties,
covenants and agreements of the Company contained in this Agreement or in any
documents delivered pursuant to this Agreement. All such representations and
warranties of the Company shall survive the execution and delivery of this
Agreement and the Closing hereunder and shall continue in full force and effect
until the lapse of any applicable statute of limitations (taking into account
any waiver or tolling thereof) with respect to claims which may arise thereunder
or relate thereto shall have run and the provisions of this Section 6.2 shall
constitute a waiver by the Company of any such applicable statute of
limitations.
6.3. GOVERNING LAW; JURISDICTION. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware without regard to
principles of conflicts of law. Each party hereby irrevocably consents and
submits to the jurisdiction of any Washington State or United States Federal
Court sitting in the State of Washington, County of Xxxxxx, over any action or
proceeding arising out of or relating to this Agreement and irrevocably consents
to the service of any and all process in any such action or proceeding by
registered mail addressed to such party at its address specified in Section
8(b). Each party further waives any objection to venue in Washington and any
objection to an action or proceeding in such state and county on the basis of
forum non conveniens. Each party also waives any right to trial by jury.
6.4. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
6.5. HEADINGS. The headings of the sections of this Agreement are for
convenience and shall not by themselves determine the interpretation of this
Agreement.
7
6.6. NOTICES. Any notice required or permitted hereunder shall be given
in writing and shall be deemed effectively given upon personal delivery and if a
fax number has been provided, upon delivery (with answerback confirmed),
addressed to a party at its address and the fax number, if any, shown below or
at such other address and fax number as such party may designate by three days
advance notice to the other party.
Any notice to the Investor shall be sent to:
TCA Invesments, Inc.
0000 Xxxxxxxxxx, Xxxxx 000
Xxxxxxx, Xxxxx 00000
Fax Number: (000) 000-0000
Attention: Xxxxxxxx X. Xxxxxx, Xx.
Any notice to the Company shall be sent to:
InsynQ, Inc.
0000 Xxxxxxxx Xxxxx
Xxxxxx, XX 00000
Fax Number: 000-000-0000
Attention: Xxxx X. Xxxxx, Chief Executive Officer
with a copy to:
Xxxxx Liddell & Xxxx LLP
0000 Xxxx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000
Fax Number: (00) 000-0000
Attention:. Xxxx X. Xxxxxxx, Esq.
6.7. RIGHTS OF TRANSFEREES. Any and all rights and obligations of the
Investor herein incident to the ownership of Purchased Securities shall pass
successively to all subsequent transferees of such Purchased Securities until
extinguished pursuant to the terms hereof.
6.8. SEVERABILITY. Whenever possible, each provision of this Agreement
shall be interpreted in such a manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be deemed
prohibited or invalid under such applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, and such
prohibition or invalidity shall not invalidate the remainder of such provision
or any other provision of this Agreement.
8
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
INSYNQ, INC.
By: _________________________________
Xxxx X. Xxxxx
Its: Chief Executive Officer
TCA INVESTMENTS, INC.
By: _________________________________
Its:_________________________________
9
