SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of
June 29, 2001, by and among Insynq, Inc., a Delaware corporation with its
headquarters located at 0000 Xxxxxxxx Xxxxx, Xxxxxx, Xxxxxxxxxx 00000 (the
"Company"), and each of the purchasers set forth on the signature pages
hereto (the "Buyers").
WHEREAS:
A. The Company and the Buyers are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Rule 506 under Regulation D ("Regulation D") as promulgated by the United
States Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "1933 Act");
B. Buyers desire to purchase and the Company desires to issue and sell,
upon the terms and conditions set forth in this Agreement (i) 12% secured
convertible debentures of the Company, in the form attached hereto as
Exhibit "A", in the aggregate principal amount of up to One Million, Two
Hundred Thousand Dollars ($1,200,000) (together with any debenture(s) issued in
replacement thereof or as a dividend thereon or otherwise with respect thereto
in accordance with the terms thereof, the "Debentures"), convertible into
shares of common stock, $0.001 par value per share, of the Company (the "Common
Stock"), upon the terms and subject to the limitations and conditions set forth
in such Debentures and (ii) warrants, in the form attached hereto as Exhibit
"B", to purchase up to Two Million, Four Hundred Thousand (2,400,000) shares of
Common Stock (the "Warrants");
C. Each Buyer wishes to purchase, upon the terms and conditions stated
in this Agreement, such principal amount of Debentures and number of Warrants
as is set forth immediately below its name on the signature pages hereto; and
D. Contemporaneous with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights
Agreement, in the form attached hereto as Exhibit "C" (the "Registration Rights
Agreement"), pursuant to which the Company has agreed to provide certain
registration rights under the 1933 Act and the rules and regulations
promulgated thereunder, and applicable state securities laws.
NOW THEREFORE, the Company and each of the Buyers severally (and not
jointly) hereby agree as follows:
1. PURCHASE AND SALE OF DEBENTURES AND WARRANTS.
a. PURCHASE OF DEBENTURES AND WARRANTS. On the Closing Date (as
defined below), the Company shall issue and sell to each Buyer and each Buyer
severally and not jointly agrees to purchase from the Company such principal
amount of Debentures and number of Warrants as is set forth immediately below
such Buyer's name on the signature pages hereto.
b. FORM OF PAYMENT. On the Closing Date (as defined below),
(i) each Buyer shall pay the purchase price for the Debentures and the Warrants
to be issued and sold to it at the Closing (as defined below) (the "Purchase
Price") by wire transfer of immediately available funds to the Company, in
accordance with the Company's written wiring instructions, against delivery of
the Debentures in the principal amount equal to the Purchase Price and the
number of Warrants as is set forth immediately below such Buyer's name on the
signature pages hereto, and (ii) the Company shall deliver such Debentures and
Warrants duly executed on behalf of the Company, to such Buyer, against
delivery of such Purchase Price.
c. CLOSING DATE. Subject to the satisfaction (or waiver) of the
conditions thereto set forth in Section 6 and Section 7 below, the date and
time of the issuance and sale of the Debentures and the Warrants pursuant to
this Agreement (the "Closing Date") shall be 10:00 a.m. Eastern Standard Time
on June 29, 2001 or such other mutually agreed upon time. The closing of the
transactions contemplated by this Agreement (the "Closing") shall occur on the
Closing Date at the offices of Xxxxxxx Xxxxx Xxxxxxx & Xxxxxxxxx, LLP, 0000
Xxxxxx Xxxxxx, 00xx Xxxxx, Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000-0000 or at such
other location as may be agreed to by the parties.
2. BUYERS' REPRESENTATIONS AND WARRANTIES. Each Buyer severally (and
not jointly) represents and warrants to the Company solely as to such Buyer
that:
a. INVESTMENT PURPOSE. As of the date hereof, the Buyer is
purchasing the Debentures and the shares of Common Stock issuable upon
conversion of or otherwise pursuant to the Debentures (including, without
limitation, such additional shares of Common Stock, if any, as are issuable as
a result of the events described in Sections 1.3 and 1.4(g) of the Debentures
and Section 2(c) of the Registration Rights Agreement, such shares of Common
Stock being referred to herein as the "Conversion Shares") and the Warrants and
the shares of Common Stock issuable upon exercise thereof (the "Warrant Shares"
and, collectively with the Debentures, Warrants and Conversion Shares, the
"Securities") for its own account and not with a present view towards the
public sale or distribution thereof, except pursuant to sales registered or
exempted from registration under the 1933 Act; provided, however, that by
making the representations herein, the Buyer does not agree to hold any of the
Securities for any minimum or other specific term and reserves the right to
dispose of the Securities at any time in accordance with or pursuant to a
registration statement or an exemption under the 1933 Act.
b. ACCREDITED INVESTOR STATUS. The Buyer is an "accredited
investor" as that term is defined in Rule 501(a) of Regulation D (an
"Accredited Investor").
c. RELIANCE ON EXEMPTIONS. The Buyer understands that the
Securities are being offered and sold to it in reliance upon specific
exemptions from the registration requirements of United States federal and
state securities laws and that the Company is relying upon the truth and
accuracy of, and the Buyer's compliance with, the representations, warranties,
agreements, acknowledgments and understandings of the Buyer set forth herein in
order to determine the availability of such exemptions and the eligibility of
the Buyer to acquire the Securities.
d. INFORMATION. The Buyer and its advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Securities
which have been requested by the Buyer or its advisors. The Buyer and its
advisors, if any, have been afforded the opportunity to ask questions of the
Company. Notwithstanding the foregoing, the Company has not disclosed to the
Buyer any material nonpublic information and will not disclose such information
unless such information is disclosed to the public prior to or promptly
following such disclosure to the Buyer. Neither such inquiries nor any other
due diligence investigation conducted by Buyer or any of its advisors or
representatives shall modify, amend or affect Buyer's right to rely on the
Company's representations and warranties contained in Section 3 below. The
Buyer understands that its investment in the Securities involves a significant
degree of risk.
e. GOVERNMENTAL REVIEW. The Buyer understands that no United
States federal or state agency or any other government or governmental agency
has passed upon or made any recommendation or endorsement of the Securities.
f. TRANSFER OR RE-SALE. The Buyer understands that (i) except as
provided in the Registration Rights Agreement, the sale or re-sale of the
Securities has not been and is not being registered under the 1933 Act or any
applicable state securities laws, and the Securities may not be transferred
unless (a) the Securities are sold pursuant to an effective registration
statement under the 1933 Act, (b) the Buyer shall have delivered to the Company
an opinion of counsel (which opinion shall be in form, substance and scope
customary for opinions of counsel in comparable transactions) to the effect
that the Securities to be sold or transferred may be sold or transferred
pursuant to an exemption from such registration, (c) the Securities are sold or
transferred to an "affiliate" (as defined in Rule 144 promulgated under the
1933 Act (or a successor rule) ("Rule 144")) of the Buyer who agrees to sell or
otherwise transfer the Securities only in accordance with this Section 2(f) and
who is an Accredited Investor, or (d) the Securities are sold pursuant to
Rule 144; (ii) any sale of such Securities made in reliance on Rule 144 may be
made only in accordance with the terms of said Rule and further, if said Rule
is not applicable, any re-sale of such Securities under circumstances in which
the seller (or the person through whom the sale is made) may be deemed to be an
underwriter (as that term is defined in the 0000 Xxx) may require compliance
with some other exemption under the 1933 Act or the rules and regulations of
the SEC thereunder; and (iii) neither the Company nor any other person is under
any obligation to register such Securities under the 1933 Act or any state
securities laws or to comply with the terms and conditions of any exemption
thereunder (in each case, other than pursuant to the Registration Rights
Agreement). Notwithstanding the foregoing or anything else contained herein to
the contrary, the Securities may be pledged as collateral in connection with a
bona fide margin account or other lending arrangement.
g. LEGENDS. The Buyer understands that the Debentures and the
Warrants and, until such time as the Conversion Shares and Warrant Shares have
been registered under the 1933 Act as contemplated by the Registration Rights
Agreement or otherwise may be sold pursuant to Rule 144 without any restriction
as to the number of securities as of a particular date that can then be
immediately sold, the Conversion Shares and Warrant Shares may bear a
restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of the certificates for such Securities):
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended. The
securities may not be sold, transferred or assigned in the
absence of an effective registration statement for the
securities under said Act, or an opinion of counsel, in form,
substance and scope customary for opinions of counsel in
comparable transactions, that registration is not required under
said Act or unless sold pursuant to Rule 144 under said Act."
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of any Security upon which it is
stamped, if, unless otherwise required by applicable state securities laws,
(a) such Security is registered for sale under an effective registration
statement filed under the 1933 Act or otherwise may be sold pursuant to
Rule 144 without any restriction as to the number of securities as of a
particular date that can then be immediately sold, or (b) such holder provides
the Company with an opinion of counsel, in form, substance and scope customary
for opinions of counsel in comparable transactions, to the effect that a public
sale or transfer of such Security may be made without registration under the
1933 Act and such sale or transfer is effected or (c) such holder provides the
Company with reasonable assurances that such Security can be sold pursuant to
Rule 144. The Buyer agrees to sell all Securities, including those represented
by a certificate(s) from which the legend has been removed, in compliance with
applicable prospectus delivery requirements, if any.
h. AUTHORIZATION; ENFORCEMENT. This Agreement and the Registration
Rights Agreement have been duly and validly authorized. This Agreement has
been duly executed and delivered on behalf of the Buyer, and this Agreement
constitutes, and upon execution and delivery by the Buyer of the Registration
Rights Agreement, such agreement will constitute, valid and binding agreements
of the Buyer enforceable in accordance with their terms.
i. RESIDENCY. The Buyer is a resident of the jurisdiction set
forth immediately below such Buyer's name on the signature pages hereto.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to each Buyer that:
a. ORGANIZATION AND QUALIFICATION. The Company and each of its
Subsidiaries (as defined below), if any, is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction in
which it is incorporated, with full power and authority (corporate and other)
to own, lease, use and operate its properties and to carry on its business as
and where now owned, leased, used, operated and conducted. Schedule 3(a) sets
forth a list of all of the Subsidiaries of the Company and the jurisdiction in
which each is incorporated. The Company and each of its Subsidiaries is duly
qualified as a foreign corporation to do business and is in good standing in
every jurisdiction in which its ownership or use of property or the nature of
the business conducted by it makes such qualification necessary except where
the failure to be so qualified or in good standing would not have a Material
Adverse Effect. "Material Adverse Effect" means any material adverse effect on
the business, operations, assets, financial condition or prospects of the
Company or its Subsidiaries, if any, taken as a whole, or on the transactions
contemplated hereby or by the agreements or instruments to be entered into in
connection herewith. "Subsidiaries" means any corporation or other
organization, whether incorporated or unincorporated, in which the Company
owns, directly or indirectly, any equity or other ownership interest.
b. AUTHORIZATION; ENFORCEMENT. (i) The Company has all requisite
corporate power and authority to enter into and perform this Agreement, the
Registration Rights Agreement, the Debentures and the Warrants and to
consummate the transactions contemplated hereby and thereby and to issue the
Securities, in accordance with the terms hereof and thereof, (ii) the execution
and delivery of this Agreement, the Registration Rights Agreement, the
Debentures and the Warrants by the Company and the consummation by it of the
transactions contemplated hereby and thereby (including without limitation, the
issuance of the Debentures and the Warrants and the issuance and reservation
for issuance of the Conversion Shares and Warrant Shares issuable upon
conversion or exercise thereof) have been duly authorized by the Company's
Board of Directors and no further consent or authorization of the Company, its
Board of Directors, or its shareholders is required, (iii) this Agreement has
been duly executed and delivered by the Company, and (iv) this Agreement
constitutes, and upon execution and delivery by the Company of the Registration
Rights Agreement, the Debentures and the Warrants, each of such instruments
will constitute, a legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its terms.
c. CAPITALIZATION. As of the date hereof, the authorized capital
stock of the Company consists of (i) 100,000,000 shares of Common Stock, of
which 33,281,096 shares are issued and outstanding, 13,359,071 shares are
reserved for issuance pursuant to the Company's stock option plans, 17,563,392
shares are reserved for issuance pursuant to securities (other than the
Debentures, the Additional Debentures (as defined in Section 4(l)), the
Warrants and the Additional Warrants (as defined in Section 4(l))) exercisable
for, or convertible into or exchangeable for shares of Common Stock and
35,796,441 shares are reserved for issuance upon conversion of the Debentures
and the Additional Debentures and exercise of the Warrants and the Additional
Warrants (subject to adjustment pursuant to the Company's covenant set forth in
Section 4(h) below); (ii) 10,000,000 shares of preferred stock, none of which
are issued and outstanding and (iii) 10,000,000 shares of Common Stock Class A,
of which 5,400,000 shares are reserved for the Company's executive stock option
plan. All of such outstanding shares of capital stock are, or upon issuance
will be, duly authorized, validly issued, fully paid and nonassessable. No
shares of capital stock of the Company are subject to preemptive rights or any
other similar rights of the stockholders of the Company or any liens or
encumbrances imposed through the actions or failure to act of the Company.
Except as disclosed in Schedule 3(c), as of the effective date of this
Agreement, (i) there are no outstanding options, warrants, scrip, rights to
subscribe for, puts, calls, rights of first refusal, agreements,
understandings, claims or other commitments or rights of any character
whatsoever relating to, or securities or rights convertible into or
exchangeable for any shares of capital stock of the Company or any of its
Subsidiaries, or arrangements by which the Company or any of its Subsidiaries
is or may become bound to issue additional shares of capital stock of the
Company or any of its Subsidiaries, (ii) there are no agreements or
arrangements under which the Company or any of its Subsidiaries is obligated to
register the sale of any of its or their securities under the 1933 Act (except
the Registration Rights Agreement) and (iii) there are no anti-dilution or
price adjustment provisions contained in any security issued by the Company (or
in any agreement providing rights to security holders) that will be triggered
by the issuance of the Debentures, the Warrants, the Conversion Shares or
Warrant Shares. The Company has furnished to the Buyer true and correct copies
of the Company's Certificate of Incorporation as in effect on the date hereof
("Certificate of Incorporation"), the Company's By-laws, as in effect on the
date hereof (the "By-laws"), and the terms of all securities convertible into
or exercisable for Common Stock of the Company and the material rights of the
holders thereof in respect thereto. The Company shall provide the Buyer with a
written update of this representation signed by the Company's Chief Executive
Officer or Chief Financial Officer on behalf of the Company as of the Closing
Date.
d. ISSUANCE OF SHARES. The Conversion Shares and Warrant Shares
are duly authorized and reserved for issuance and, upon conversion of the
Debentures and exercise of the Warrants in accordance with their respective
terms, will be validly issued, fully paid and non-assessable, and free from all
taxes, liens, claims and encumbrances with respect to the issue thereof and
shall not be subject to preemptive rights or other similar rights of
stockholders of the Company and will not impose personal liability upon the
holder thereof.
e. ACKNOWLEDGMENT OF DILUTION. The Company understands and
acknowledges the potentially dilutive effect to the Common Stock upon the
issuance of the Conversion Shares and Warrant Shares upon conversion of the
Debenture, or exercise of the Warrants. The Company further acknowledges that
its obligation to issue Conversion Shares and Warrant Shares upon conversion of
the Debentures or exercise of the Warrants in accordance with this Agreement,
the Debentures and the Warrants is absolute and unconditional regardless of the
dilutive effect that such issuance may have on the ownership interests of other
stockholders of the Company.
f. NO CONFLICTS. The execution, delivery and performance of this
Agreement, the Registration Rights Agreement, the Debentures and the Warrants
by the Company and the consummation by the Company of the transactions
contemplated hereby and thereby (including, without limitation, the issuance
and reservation for issuance of the Conversion Shares and Warrant Shares) will
not (i) conflict with or result in a violation of any provision of the
Certificate of Incorporation or By-laws or (ii) violate or conflict with, or
result in a breach of any provision of, or constitute a default (or an event
which with notice or lapse of time or both could become a default) under, or
give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture, patent, patent license or instrument
to which the Company or any of its Subsidiaries is a party, or (iii) result in
a violation of any law, rule, regulation, order, judgment or decree (including
federal and state securities laws and regulations and regulations of any
self-regulatory organizations to which the Company or its securities are
subject) applicable to the Company or any of its Subsidiaries or by which any
property or asset of the Company or any of its Subsidiaries is bound or
affected (except for such conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations as would not, individually or in
the aggregate, have a Material Adverse Effect). Except as disclosed on
Schedule 3(f), neither the Company nor any of its Subsidiaries is in violation
of its Certificate of Incorporation, By-laws or other organizational documents
and neither the Company nor any of its Subsidiaries is in default (and no event
has occurred which with notice or lapse of time or both could put the Company
or any of its Subsidiaries in default) under, and neither the Company nor any
of its Subsidiaries has taken any action or failed to take any action that
would give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which the Company or
any of its Subsidiaries is a party or by which any property or assets of the
Company or any of its Subsidiaries is bound or affected, except for possible
defaults as would not, individually or in the aggregate, have a Material
Adverse Effect. The businesses of the Company and its Subsidiaries, if any, are
not being conducted, and shall not be conducted so long as a Buyer owns any of
the Securities, in violation of any law, ordinance or regulation of any
governmental entity. Except as specifically contemplated by this Agreement and
as required under the 1933 Act and any applicable state securities laws, the
Company is not required to obtain any consent, authorization or order of, or
make any filing or registration with, any court, governmental agency,
regulatory agency, self regulatory organization or stock market or any third
party in order for it to execute, deliver or perform any of its obligations
under this Agreement, the Registration Rights Agreement, the Debentures or the
Warrants in accordance with the terms hereof or thereof or to issue and sell
the Debentures and Warrants in accordance with the terms hereof and to issue
the Conversion Shares upon conversion of the Debentures and the Warrant Shares
upon exercise of the Warrants. Except as disclosed in Schedule 3(f), all
consents, authorizations, orders, filings and registrations which the Company
is required to obtain pursuant to the preceding sentence have been obtained or
effected on or prior to the date hereof. The Company is not in violation of
the listing requirements of the Over-the-Counter Bulletin Board (the "OTCBB")
and does not reasonably anticipate that the Common Stock will be delisted by
the OTCBB in the foreseeable future. The Company and its Subsidiaries are
unaware of any facts or circumstances which might give rise to any of the
foregoing.
g. SEC DOCUMENTS; FINANCIAL STATEMENTS. Except as disclosed on
Schedule 3(g), since May 31, 1998, the Company has timely filed all reports,
schedules, forms, statements and other documents required to be filed by it
with the SEC pursuant to the reporting requirements of the Exchange Act
of 1934, as amended (the "1934 Act") (all of the foregoing filed prior to the
date hereof and all exhibits included therein and financial statements and
schedules thereto and documents (other than exhibits to such documents)
incorporated by reference therein, being hereinafter referred to herein as the
"SEC Documents"). The Company has delivered to each Buyer true and complete
copies of the SEC Documents, except for such exhibits and incorporated
documents. As of their respective dates, the SEC Documents complied in all
material respects with the requirements of the 1934 Act and the rules and
regulations of the SEC promulgated thereunder applicable to the SEC Documents,
and none of the SEC Documents, at the time they were filed with the SEC,
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. None of the statements made in any such SEC Documents is, or
has been, required to be amended or updated under applicable law (except for
such statements as have been amended or updated in subsequent filings prior the
date hereof). As of their respective dates, the financial statements of the
Company included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Such financial statements have
been prepared in accordance with United States generally accepted accounting
principles, consistently applied, during the periods involved (except (i) as
may be otherwise indicated in such financial statements or the notes thereto,
or (ii) in the case of unaudited interim statements, to the extent they may not
include footnotes or may be condensed or summary statements) and fairly present
in all material respects the consolidated financial position of the Company and
its consolidated Subsidiaries as of the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended (subject,
in the case of unaudited statements, to normal year-end audit adjustments).
Except as set forth in the financial statements of the Company included in the
SEC Documents, the Company has no liabilities, contingent or otherwise, other
than (i) liabilities incurred in the ordinary course of business subsequent to
May 31, 2000 and (ii) obligations under contracts and commitments incurred in
the ordinary course of business and not required under generally accepted
accounting principles to be reflected in such financial statements, which,
individually or in the aggregate, are not material to the financial condition
or operating results of the Company.
h. ABSENCE OF CERTAIN CHANGES. Except as disclosed on
Schedule 3(h), since May 31, 2000, there has been no material adverse change
and no material adverse development in the assets, liabilities, business,
properties, operations, financial condition, results of operations or prospects
of the Company or any of its Subsidiaries.
i. ABSENCE OF LITIGATION. There is no action, suit, claim,
proceeding, inquiry or investigation before or by any court, public board,
government agency, self-regulatory organization or body pending or, to the
knowledge of the Company or any of its Subsidiaries, threatened against or
affecting the Company or any of its Subsidiaries, or their officers or
directors in their capacity as such, that could have a Material Adverse Effect.
Schedule 3(i) contains a complete list and summary description of any pending
or threatened proceeding against or affecting the Company or any of its
Subsidiaries, without regard to whether it would have a Material Adverse
Effect. The Company and its Subsidiaries are unaware of any facts or
circumstances which might give rise to any of the foregoing.
j. PATENTS, COPYRIGHTS, ETC.
(i) The Company and each of its Subsidiaries owns or possesses
the requisite licenses or rights to use all patents, patent applications,
patent rights, inventions, know-how, trade secrets, trademarks, trademark
applications, service marks, service names, trade names and copyrights
("Intellectual Property") necessary to enable it to conduct its business as now
operated (and, except as set forth in Schedule 3(j) hereof, to the best of the
Company's knowledge, as presently contemplated to be operated in the future);
there is no claim or action by any person pertaining to, or proceeding pending,
or to the Company's knowledge threatened, which challenges the right of the
Company or of a Subsidiary with respect to any Intellectual Property necessary
to enable it to conduct its business as now operated (and, except as set forth
in Schedule 3(j) hereof, to the best of the Company's knowledge, as presently
contemplated to be operated in the future); to the best of the Company's
knowledge, the Company's or its Subsidiaries' current and intended products,
services and processes do not infringe on any Intellectual Property or other
rights held by any person; and the Company is unaware of any facts or
circumstances which might give rise to any of the foregoing. The Company and
each of its Subsidiaries have taken reasonable security measures to protect the
secrecy, confidentiality and value of their Intellectual Property.
(ii) All of the Company's computer software and computer
hardware, and other similar or related items of automated, computerized or
software systems that are used or relied on by the Company in the conduct of
its business or that were, or currently are being, sold or licensed by the
Company to customers (collectively, "Information Technology"), are Year 2000
Compliant. For purposes of this Agreement, the term "Year 2000 Compliant"
means, with respect to the Company's Information Technology, that the
Information Technology is designed to be used prior to, during and after the
calendar Year 2000 A.D., and the Information Technology used during each such
time period will accurately receive, provide and process date and time data
(including, but not limited to, calculating, comparing and sequencing) from,
into and between the 20th and 21st centuries, including the years 1999 and
2000, and leap-year calculations, and will not malfunction, cease to function,
or provide invalid or incorrect results as a result of the date or time data,
to the extent that other information technology, used in combination with the
Information Technology, properly exchanges date and time data with it. The
Company has delivered to the Buyers true and correct copies of all analyses,
reports, studies and similar written information, whether prepared by the
Company or another party, relating to whether the Information Technology is
Year 2000 Compliant.
k. NO MATERIALLY ADVERSE CONTRACTS, ETC. Except as disclosed on
Schedule 3(k), neither the Company nor any of its Subsidiaries is subject to
any charter, corporate or other legal restriction, or any judgment, decree,
order, rule or regulation which in the judgment of the Company's officers has
or is expected in the future to have a Material Adverse Effect. Neither the
Company nor any of its Subsidiaries is a party to any contract or agreement
which in the judgment of the Company's officers has or is expected to have a
Material Adverse Effect.
l. TAX STATUS. Except as set forth on Schedule 3(l), the Company
and each of its Subsidiaries has made or filed all federal, state and foreign
income and all other tax returns, reports and declarations required by any
jurisdiction to which it is subject (unless and only to the extent that the
Company and each of its Subsidiaries has set aside on its books provisions
reasonably adequate for the payment of all unpaid and unreported taxes) and has
paid all taxes and other governmental assessments and charges that are material
in amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and has set aside on
its books provisions reasonably adequate for the payment of all taxes for
periods subsequent to the periods to which such returns, reports or
declarations apply. There are no unpaid taxes in any material amount claimed
to be due by the taxing authority of any jurisdiction, and the officers of the
Company know of no basis for any such claim. The Company has not executed a
waiver with respect to the statute of limitations relating to the assessment or
collection of any foreign, federal, statue or local tax. Except as set forth
on Schedule 3(l), none of the Company's tax returns is presently being audited
by any taxing authority.
m. CERTAIN TRANSACTIONS. Except as set forth on Schedule 3(m) and
except for arm's length transactions pursuant to which the Company or any of
its Subsidiaries makes payments in the ordinary course of business upon terms
no less favorable than the Company or any of its Subsidiaries could obtain from
third parties and other than the grant of stock options disclosed on
Schedule 3(c), none of the officers, directors, or employees of the Company is
presently a party to any transaction with the Company or any of its
Subsidiaries (other than for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any corporation,
partnership, trust or other entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner.
n. DISCLOSURE. All information relating to or concerning the
Company or any of its Subsidiaries set forth in this Agreement and provided to
the Buyers pursuant to Section 2(d) hereof and otherwise in connection with the
transactions contemplated hereby is true and correct in all material respects
and the Company has not omitted to state any material fact necessary in order
to make the statements made herein or therein, in light of the circumstances
under which they were made, not misleading. No event or circumstance has
occurred or exists with respect to the Company or any of its Subsidiaries or
its or their business, properties, prospects, operations or financial
conditions, which, under applicable law, rule or regulation, requires public
disclosure or announcement by the Company but which has not been so publicly
announced or disclosed (assuming for this purpose that the Company's reports
filed under the 1934 Act are being incorporated into an effective registration
statement filed by the Company under the 1933 Act).
o. Acknowledgment Regarding Buyers' Purchase of Securities.
The Company acknowledges and agrees that the Buyers are acting solely in the
capacity of arm's length purchasers with respect to this Agreement and the
transactions contemplated hereby. The Company further acknowledges that no
Buyer is acting as a financial advisor or fiduciary of the Company (or in any
similar capacity) with respect to this Agreement and the transactions
contemplated hereby and any statement made by any Buyer or any of their
respective representatives or agents in connection with this Agreement and the
transactions contemplated hereby is not advice or a recommendation and is
merely incidental to the Buyers' purchase of the Securities. The Company
further represents to each Buyer that the Company's decision to enter into this
Agreement has been based solely on the independent evaluation of the Company
and its representatives.
p. NO INTEGRATED OFFERING. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales in any security or solicited any offers to
buy any security under circumstances that would require registration under
the 1933 Act of the issuance of the Securities to the Buyers. The issuance of
the Securities to the Buyers will not be integrated with any other issuance of
the Company's securities (past, current or future) for purposes of any
stockholder approval provisions applicable to the Company or its securities.
q. NO BROKERS. The Company has taken no action which would give
rise to any claim by any person for brokerage commissions, transaction fees or
similar payments relating to this Agreement or the transactions contemplated
hereby.
r. PERMITS; COMPLIANCE. Except as disclosed on Schedule 3(r), the
Company and each of its Subsidiaries is in possession of all franchises,
grants, authorizations, licenses, permits, easements, variances, exemptions,
consents, certificates, approvals and orders necessary to own, lease and
operate its properties and to carry on its business as it is now being
conducted (collectively, the "Company Permits"), and there is no action pending
or, to the knowledge of the Company, threatened regarding suspension or
cancellation of any of the Company Permits. Neither the Company nor any of its
Subsidiaries is in conflict with, or in default or violation of, any of the
Company Permits, except for any such conflicts, defaults or violations which,
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect. Since May 31, 2000, neither the Company nor any of
its Subsidiaries has received any notification with respect to possible
conflicts, defaults or violations of applicable laws, except for notices
relating to possible conflicts, defaults or violations, which conflicts,
defaults or violations would not have a Material Adverse Effect.
s. ENVIRONMENTAL MATTERS.
(i) Except as set forth in Schedule 3(s), there are, to the
Company's knowledge, with respect to the Company or any of its Subsidiaries or
any predecessor of the Company, no past or present violations of Environmental
Laws (as defined below), releases of any material into the environment,
actions, activities, circumstances, conditions, events, incidents, or
contractual obligations which may give rise to any common law environmental
liability or any liability under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 or similar federal, state, local or
foreign laws and neither the Company nor any of its Subsidiaries has received
any notice with respect to any of the foregoing, nor is any action pending or,
to the Company's knowledge, threatened in connection with any of the foregoing.
The term "Environmental Laws" means all federal, state, local or foreign laws
relating to pollution or protection of human health or the environment
(including, without limitation, ambient air, surface water, groundwater, land
surface or subsurface strata), including, without limitation, laws relating to
emissions, discharges, releases or threatened releases of chemicals, pollutants
contaminants, or toxic or hazardous substances or wastes (collectively,
"Hazardous Materials") into the environment, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Materials, as well as all authorizations,
codes, decrees, demands or demand letters, injunctions, judgments, licenses,
notices or notice letters, orders, permits, plans or regulations issued,
entered, promulgated or approved thereunder.
(ii) Other than those that are or were stored, used or disposed
of in compliance with applicable law, no Hazardous Materials are contained on
or about any real property currently owned, leased or used by the Company or
any of its Subsidiaries, and no Hazardous Materials were released on or about
any real property previously owned, leased or used by the Company or any of its
Subsidiaries during the period the property was owned, leased or used by the
Company or any of its Subsidiaries, except in the normal course of the
Company's or any of its Subsidiaries' business.
(iii) Except as set forth in Schedule 3(s), there are no
underground storage tanks on or under any real property owned, leased or used
by the Company or any of its Subsidiaries that are not in compliance with
applicable law.
t. TITLE TO PROPERTY. The Company and its Subsidiaries have good
and marketable title in fee simple to all real property and good and marketable
title to all personal property owned by them which is material to the business
of the Company and its Subsidiaries, in each case free and clear of all liens,
encumbrances and defects except such as are described in Schedule 3(t) or such
as would not have a Material Adverse Effect. Any real property and facilities
held under lease by the Company and its Subsidiaries are held by them under
valid, subsisting and enforceable leases with such exceptions as would not have
a Material Adverse Effect.
u. INSURANCE. The Company is currently operating without officers
and director's insurance, as well as, general liability insurance. It is
uncertain when officers and director coverage will be renewed. The Company
will undertake to use its best efforts to secure general liability insurance
within 30 days after close. Neither the Company nor any such Subsidiary has
any reason to believe that it will not be able to obtain insurance coverage as
may be necessary to continue its business at a cost that would not have a
Material Adverse Effect.
v. INTERNAL ACCOUNTING CONTROLS. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient, in
the judgment of the Company's board of directors, to provide reasonable
assurance that (i) transactions are executed in accordance with management's
general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability,
(iii) access to assets is permitted only in accordance with management's
general or specific authorization and (iv) the recorded accountability for
assets is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
w. FOREIGN CORRUPT PRACTICES. Neither the Company, nor any of its
Subsidiaries, nor any director, officer, agent, employee or other person acting
on behalf of the Company or any Subsidiary has, in the course of his actions
for, or on behalf of, the Company, used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; made any direct or indirect unlawful payment to any foreign
or domestic government official or employee from corporate funds; violated or
is in violation of any provision of the U.S. Foreign Corrupt Practices Act
of 1977, as amended, or made any bribe, rebate, payoff, influence payment,
kickback or other unlawful payment to any foreign or domestic government
official or employee.
x. SOLVENCY. The Company, after giving effect to the transactions
contemplated by this Agreement, will be solvent (i.e., the Company will be able
to pay its debts as they become due and payable) and currently the Company has
no information that would lead it to reasonably conclude that the Company would
not have the ability to, nor does it intend to take any action that would
impair its ability to, pay its debts from time to time incurred in connection
therewith as such debts become due and payable. The Company did not receive a
qualified opinion from its auditors with respect to its most recent fiscal year
end.
y. NO INVESTMENT COMPANY. The Company is not, and upon the
issuance and sale of the Securities as contemplated by this Agreement will not
be an "investment company" required to be registered under the Investment
Company Act of 1940 (an "Investment Company"). The Company is not controlled
by an Investment Company.
4. COVENANTS.
a. BEST EFFORTS. The parties shall use their best efforts to
satisfy timely each of the conditions described in Section 6 and 7 of this
Agreement.
b. BLUE SKY LAWS. The Company is currently covered under Blue Sky
Laws in a majority of states which can be found at the website of Blue Sky Data
Corp., a service to which we subscribe and agree to register in each state as,
and when, necessary and shall provide a copy thereof to each Buyer promptly
after such filing.
c. REPORTING STATUS; Eligibility to Use Form SB-2 or Form S-1. The
Company's Common Stock is registered under Section 12(g) of the 1934 Act. The
Company represents and warrants that it meets the requirements for the use of
Form SB-2 or Form S-1 for registration of the sale by the Buyer of the
Registrable Securities (as defined in the Registration Rights Agreement). So
long as the Buyer beneficially owns any of the Securities, the Company shall
timely file all reports required to be filed with the SEC pursuant to the 1934
Act, and the Company shall not terminate its status as an issuer required to
file reports under the 1934 Act even if the 1934 Act or the rules and
regulations thereunder would permit such termination. The Company further
agrees to file all reports required to be filed by the Company with the SEC in
a timely manner so as to become eligible, and thereafter to maintain its
eligibility, for the use of Form S-3. The Company shall issue a press release
describing the materials terms of the transaction contemplated hereby as soon
as practicable following the Closing Date but in no event more than two (2)
business days of the Closing Date, and shall file with the SEC a Current Report
on Form 8-K describing the material terms of the transaction contemplated
hereby within five (5) business days of the Closing Date, which press release
and Form 8-K shall be subject to prior review by the Buyers.
d. USE OF PROCEEDS. The Company shall use the proceeds from the
sale of the Debentures and the Warrants in the manner set forth in
Schedule 4(d) attached hereto and made a part hereof and shall not, directly
or indirectly, use such proceeds for any loan to or investment in any other
corporation, partnership, enterprise or other person (except in connection with
its currently existing direct or indirect Subsidiaries).
e. FUTURE OFFERINGS. Subject to the exceptions described below,
the Company will not, without the prior written consent of a
majority-in-interest of the Buyers, negotiate or contract with any party to
obtain additional equity financing (including debt financing with an equity
component) that involves (A) the issuance of Common Stock or (B) the issuance
of convertible securities that are convertible into an indeterminate number of
shares of Common Stock or (C) the issuance of warrants during the period
(the "Lock-up Period") beginning on the Closing Date and ending one hundred
eighty (180) days from the date the Registration Statement (as defined in the
Registration Rights Agreement) is declared effective (plus any days in which
sales cannot be made thereunder). In addition, subject to the exceptions
described below, the Company will not conduct any equity financing (including
debt with an equity component) ("Future Offerings") during the period beginning
on the Closing Date and ending two (2) years after the end of the Lock-up
Period unless it shall have first delivered to each Buyer, at least
fifteen (15) business days prior to the closing of such Future Offering,
written notice describing the proposed Future Offering, including the terms and
conditions thereof and proposed definitive documentation to be entered into in
connection therewith, and providing each Buyer an option during the ten (10)
day period following delivery of such notice to purchase its pro rata share
(based on the ratio that the aggregate principal amount of Debentures purchased
by it hereunder bears to the aggregate principal amount of Debentures purchased
hereunder) of the securities being offered in the Future Offering on the same
terms as contemplated by such Future Offering (the limitations referred to in
this sentence and the preceding sentence are collectively referred to as the
"Capital Raising Limitations"). In the event the terms and conditions of a
proposed Future Offering are amended in any respect after delivery of the
notice to the Buyers concerning the proposed Future Offering, the Company shall
deliver a new notice to each Buyer describing the amended terms and conditions
of the proposed Future Offering and each Buyer thereafter shall have an option
during the ten (10) day period following delivery of such new notice to
purchase its pro rata share of the securities being offered on the same terms
as contemplated by such proposed Future Offering, as amended. The foregoing
sentence shall apply to successive amendments to the terms and conditions of
any proposed Future Offering. The Capital Raising Limitations shall not apply
to the issuance of securities upon exercise or conversion of the Company's
options, warrants or other convertible securities outstanding as of the date
hereof or to the grant of additional options or warrants, or the issuance of
additional securities, under any Company stock option or restricted stock plan
approved by the Stockholders of the Company. In the event that the Company
completes a Future Offering on terms more favorable than the transaction
contemplated hereby, the terms of the Debentures, the Additional Debentures,
the Warrants and the Additional Warrants will be amended to reflect such more
favorable terms.
f. EXPENSES. At the Closing, the Company shall reimburse Buyers
for expenses incurred by it in connection with the negotiation, preparation,
execution, delivery and performance of this Agreement and the other agreements
to be executed in connection herewith, including, without limitation,
attorneys' and consultants' fees and expenses.
g. FINANCIAL INFORMATION. The Company agrees to send the following
reports to each Buyer until such Buyer transfers, assigns, or sells all of the
Securities: (i) within ten (10) days after the filing with the SEC, a copy of
its Annual Report on Form 10-KSB, its Quarterly Reports on Form 10-QSB and any
Current Reports on Form 8-K; (ii) within one (1) day after release, copies of
all press releases issued by the Company or any of its Subsidiaries; and
(iii) contemporaneously with the making available or giving to the stockholders
of the Company, copies of any notices or other information the Company makes
available or gives to such stockholders.
h. RESERVATION OF SHARES. The Company shall at all times have
authorized, and reserved for the purpose of issuance, a sufficient number of
shares of Common Stock to provide for the full conversion or exercise of the
outstanding Debentures and Additional Debentures (including all accrued unpaid
interest thereon) and the Warrants and Additional Warrants and issuance of the
Conversion Shares and Warrant Shares in connection therewith (based on the
Conversion Price or Exercise Price in effect from time to time) and as
otherwise required by the Debentures. The Company shall not reduce the number
of shares of Common Stock reserved for issuance upon conversion of Debentures
and Additional Debentures and exercise of the Warrants and Additional Warrants
without the consent of each Buyer. The Company shall use its best efforts at
all times to maintain the number of shares of Common Stock so reserved for
issuance at no less than two (2) times the number that is then actually
issuable upon full conversion of the Debentures and Additional Debentures and
upon exercise of the Warrants and Additional Warrants (based on the Conversion
Price or the Exercise Price in effect from time to time and including all
accrued and unpaid interest on the Debentures). If at any time the number of
shares of Common Stock authorized and reserved for issuance is below the number
of Conversion Shares and Warrant Shares issued and issuable upon conversion of
the Debentures and Additional Debentures and exercise of the Warrants and
Additional Warrants (based on the Conversion Price or the Exercise Price then
in effect and including all accrued and unpaid interest on the Debentures), the
Company will promptly take all corporate action necessary to authorize and
reserve a sufficient number of shares, including, without limitation, calling a
special meeting of stockholders to authorize additional shares to meet the
Company's obligations under this Section 4(h), in the case of an insufficient
number of authorized shares, and using its best efforts to obtain stockholder
approval of an increase in such authorized number of shares.
i. LISTING. The Company shall promptly secure the listing, as
allowed, of the Conversion Shares and Warrant Shares upon each national
securities exchange or automated quotation system, if any, upon which shares of
Common Stock are then listed (subject to official notice of issuance) and, so
long as any Buyer owns any of the Securities, shall maintain, so long as any
other shares of Common Stock shall be so listed, such listing of all Conversion
Shares and Warrant Shares from time to time issuable upon conversion of the
Debentures or exercise of the Warrants. The Company will obtain and, so long
as any Buyer owns any of the Securities, maintain the listing and trading of
its Common Stock on the OTCBB, the Nasdaq National Market ("Nasdaq"), the
Nasdaq SmallCap Market ("Nasdaq SmallCap"), the New York Stock Exchange
("NYSE"), or the American Stock Exchange ("AMEX") and will comply in all
respects with the Company's reporting, filing and other obligations under the
bylaws or rules of the National Association of Securities Dealers ("NASD") and
such exchanges, as applicable. The Company shall promptly provide to each
Buyer copies of any notices it receives from the OTCBB and any other exchanges
or quotation systems on which the Common Stock is then listed regarding the
continued eligibility of the Common Stock for listing on such exchanges and
quotation systems.
j. CORPORATE EXISTENCE. So long as a Buyer beneficially owns any
Debentures or Warrants, the Company shall maintain its corporate existence and
shall not sell all or substantially all of the Company's assets, except in the
event of a merger or consolidation or sale of all or substantially all of the
Company's assets, where the surviving or successor entity in such transaction
(i) assumes the Company's obligations hereunder and under the agreements and
instruments entered into in connection herewith and (ii) is a publicly traded
corporation whose Common Stock is listed for trading on the OTCBB, Nasdaq,
Nasdaq SmallCap, NYSE or AMEX.
k. NO INTEGRATION. The Company shall not make any offers or sales
of any security (other than the Securities) under circumstances that would
require registration of the Securities being offered or sold hereunder under
the 1933 Act or cause the offering of the Securities to be integrated with any
other offering of securities by the Company for the purpose of any stockholder
approval provision applicable to the Company or its securities.
l. SUBSEQUENT INVESTMENTS. The Company and the Buyers agree that,
upon the filing by the Company of the Registration Statement to be filed
pursuant to the Registration Rights Agreement (the "Filing Date"), the Buyers
shall purchase additional debentures (the "Filing Debentures") in the aggregate
principal amount of One Hundred Thousand Dollars ($100,000) and additional
warrants (the "Filing Warrants") to purchase an aggregate of 200,000 shares of
Common Stock, for an aggregate purchase price of One Hundred Thousand Dollars
($100,000), with the closing of such purchase to occur within ten (10) days of
the Filing Date; provided, however, that the obligation of each Buyer to
purchase the Filing Debentures and the Filing Warrants is subject to the
satisfaction, at or before the closing of such purchase and sale, of the
conditions set forth in Section 7. The Company and the Buyers further agree
that, upon the declaration of effectiveness of the Registration Statement to be
filed pursuant to the Registration Rights Agreement (the "Effective Date"), the
Buyers shall purchase additional debentures (the "Effectiveness Debentures"
and, collectively with the Filing Debentures, the "Additional Debentures") in
the aggregate principal amount of Five Hundred Fifty Thousand Dollars
($550,000) and additional warrants (the "Effectiveness Warrants" and,
collectively with the Filing Warrants, the "Additional Warrants") to purchase
an aggregate of 1,100,000 shares of Common Stock, for an aggregate purchase
price of Five Hundred Fifty Thousand Dollars ($550,000), with the closing of
such purchase to occur within ten (10) days of the Effective Date; provided,
however, that the obligation of each Buyer to purchase the Effectiveness
Debentures and the Effectiveness Warrants is subject to the satisfaction, at or
before the closing of such purchase and sale, of the conditions set forth in
Section 7; and, provided, further, that there shall not have been a Material
Adverse Effect as of such effective date. The terms of the Additional
Debentures and the Additional Warrants shall be identical to the terms of the
Debentures and Warrants to be issued on the Closing Date. The Common Stock
underlying the Additional Debentures and the Additional Warrants shall be
Registrable Securities (as defined in the Registration Rights Agreement) and
shall be included in the Registration Statement to be filed pursuant to the
Registration Rights Agreement.
5. TRANSFER AGENT INSTRUCTIONS. The Company shall issue irrevocable
instructions to its transfer agent to issue certificates, registered in the
name of each Buyer or its nominee, for the Conversion Shares and Warrant Shares
in such amounts as specified from time to time by each Buyer to the Company
upon conversion of the Debentures or exercise of the Warrants in accordance
with the terms thereof (the "Irrevocable Transfer Agent Instructions"). Prior
to registration of the Conversion Shares and Warrant Shares under the 1933 Act
or the date on which the Conversion Shares and Warrant Shares may be sold
pursuant to Rule 144 without any restriction as to the number of Securities as
of a particular date that can then be immediately sold, all such certificates
shall bear the restrictive legend specified in Section 2(g) of this Agreement.
The Company warrants that no instruction other than the Irrevocable Transfer
Agent Instructions referred to in this Section 5, and stop transfer
instructions to give effect to Section 2(f) hereof (in the case of the
Conversion Shares and Warrant Shares, prior to registration of the Conversion
Shares and Warrant Shares under the 1933 Act or the date on which the
Conversion Shares and Warrant Shares may be sold pursuant to Rule 144 without
any restriction as to the number of Securities as of a particular date that can
then be immediately sold), will be given by the Company to its transfer agent
and that the Securities shall otherwise be freely transferable on the books and
records of the Company as and to the extent provided in this Agreement and the
Registration Rights Agreement. Nothing in this Section shall affect in any way
the Buyer's obligations and agreement set forth in Section 2(g) hereof to
comply with all applicable prospectus delivery requirements, if any, upon
re-sale of the Securities. If a Buyer provides the Company with (i) an opinion
of counsel in form, substance and scope customary for opinions in comparable
transactions, to the effect that a public sale or transfer of such Securities
may be made without registration under the 1933 Act and such sale or transfer
is effected or (ii) the Buyer provides reasonable assurances that the
Securities can be sold pursuant to Rule 144, the Company shall permit the
transfer, and, in the case of the Conversion Shares and Warrant Shares,
promptly instruct its transfer agent to issue one or more certificates, free
from restrictive legend, in such name and in such denominations as specified by
such Buyer. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the Buyers, by vitiating the intent
and purpose of the transactions contemplated hereby. Accordingly, the Company
acknowledges that the remedy at law for a breach of its obligations under this
Section 5 will be inadequate and agrees, in the event of a breach or threatened
breach by the Company of the provisions of this Section, that the Buyers shall
be entitled, in addition to all other available remedies, to an injunction
restraining any breach and requiring immediate transfer, without the necessity
of showing economic loss and without any bond or other security being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The obligation of
the Company hereunder to issue and sell the Debentures and Warrants to a Buyer
at the Closing is subject to the satisfaction, at or before the Closing Date of
each of the following conditions thereto, provided that these conditions are
for the Company's sole benefit and may be waived by the Company at any time in
its sole discretion:
a. The applicable Buyer shall have executed this Agreement and the
Registration Rights Agreement, and delivered the same to the Company.
b. The applicable Buyer shall have delivered the Purchase Price in
accordance with Section 1(b) above.
c. The representations and warranties of the applicable Buyer shall
be true and correct in all material respects as of the date when made and as of
the Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date), and the applicable Buyer shall
have performed, satisfied and complied in all material respects with the
covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the applicable Buyer at or prior to
the Closing Date.
d. No litigation, statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by or in any court or governmental authority of competent jurisdiction
or any self-regulatory organization having authority over the matters
contemplated hereby which prohibits the consummation of any of the transactions
contemplated by this Agreement.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE. The obligation of
each Buyer hereunder to purchase the Debentures and Warrants at the Closing is
subject to the satisfaction, at or before the Closing Date of each of the
following conditions, provided that these conditions are for such Buyer's sole
benefit and may be waived by such Buyer at any time in its sole discretion:
a. The Company shall have executed this Agreement and the
Registration Rights Agreement, and delivered the same to the Buyer.
b. The Company shall have delivered to such Buyer duly executed
Debentures (in such denominations as the Buyer shall request) and Warrants
in accordance with Section 1(a) above or duly executed Additional Debentures
(in such denominations as the Buyer shall request) and Additional Warrants, as
the case may be.
c. The Irrevocable Transfer Agent Instructions, in form and
substance satisfactory to a majority-in-interest of the Buyers, shall have been
delivered to and acknowledged in writing by the Company's Transfer Agent.
d. The representations and warranties of the Company shall be true
and correct in all material respects as of the date when made and as of the
Closing Date as though made at such time (except for representations and
warranties that speak as of a specific date) and the Company shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the Closing Date. The Buyer
shall have received a certificate or certificates, executed by the chief
executive officer of the Company, dated as of the Closing Date, to the
foregoing effect and as to such other matters as may be reasonably requested by
such Buyer including, but not limited to certificates with respect to the
Company's Certificate of Incorporation, By-laws and Board of Directors'
resolutions relating to the transactions contemplated hereby.
e. No litigation, statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by or in any court or governmental authority of competent jurisdiction
or any self-regulatory organization having authority over the matters
contemplated hereby which prohibits the consummation of any of the transactions
contemplated by this Agreement.
f. The Conversion Shares and Warrant Shares shall have been
authorized for quotation on the OTCBB and trading in the Common Stock on the
OTCBB shall not have been suspended by the SEC or the OTCBB.
g. The Buyer shall have received an opinion of the Company's
counsel, dated as of the Closing Date, in form, scope and substance reasonably
satisfactory to the Buyer and in substantially the same form as Exhibit "D"
attached hereto.
h. The Buyer shall have received an officer's certificate described
in Section 3(c) above, dated as of the Closing Date.
8. GOVERNING LAW; MISCELLANEOUS.
a. GOVERNING LAW. THIS AGREEMENT SHALL BE ENFORCED, GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITH SUCH STATE, WITHOUT REGARD TO
THE PRINCIPLES OF CONFLICT OF LAWS. THE PARTIES HERETO HEREBY SUBMIT TO THE
EXCLUSIVE JURISDICTION OF THE UNITED STATES FEDERAL COURTS LOCATED IN NEW YORK,
NEW YORK WITH RESPECT TO ANY DISPUTE ARISING UNDER THIS AGREEMENT, THE
AGREEMENTS ENTERED INTO IN CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY. BOTH PARTIES IRREVOCABLY WAIVE THE DEFENSE OF AN
INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH SUIT OR PROCEEDING. BOTH PARTIES
FURTHER AGREE THAT SERVICE OF PROCESS UPON A PARTY MAILED BY FIRST CLASS MAIL
SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON THE PARTY IN
ANY SUCH SUIT OR PROCEEDING. NOTHING HEREIN SHALL AFFECT EITHER PARTY'S RIGHT
TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. BOTH PARTIES AGREE THAT
A FINAL NON-APPEALABLE JUDGMENT IN ANY SUCH SUIT OR PROCEEDING SHALL BE
CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON SUCH JUDGMENT
OR IN ANY OTHER LAWFUL MANNER. THE PARTY WHICH DOES NOT PREVAIL IN ANY DISPUTE
ARISING UNDER THIS AGREEMENT SHALL BE RESPONSIBLE FOR ALL FEES AND EXPENSES,
INCLUDING ATTORNEYS' FEES, INCURRED BY THE PREVAILING PARTY IN CONNECTION WITH
SUCH DISPUTE.
b. COUNTERPARTS; SIGNATURES BY FACSIMILE. This Agreement may be
executed in one or more counterparts, each of which shall be deemed an original
but all of which shall constitute one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered to the
other party. This Agreement, once executed by a party, may be delivered to the
other party hereto by facsimile transmission of a copy of this Agreement
bearing the signature of the party so delivering this Agreement.
c. HEADINGS. The headings of this Agreement are for convenience of
reference only and shall not form part of, or affect the interpretation of,
this Agreement.
d. SEVERABILITY. In the event that any provision of this Agreement
is invalid or enforceable under any applicable statute or rule of law, then
such provision shall be deemed inoperative to the extent that it may conflict
therewith and shall be deemed modified to conform with such statute or rule of
law. Any provision hereof which may prove invalid or unenforceable under any
law shall not affect the validity or enforceability of any other provision
hereof.
e. ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the
instruments referenced herein contain the entire understanding of the parties
with respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither the Company nor the Buyer
makes any representation, warranty, covenant or undertaking with respect to
such matters. No provision of this Agreement may be waived or amended other
than by an instrument in writing signed by the party to be charged with
enforcement.
f. NOTICES. Any notices required or permitted to be given under
the terms of this Agreement shall be sent by certified or registered mail
(return receipt requested) or delivered personally or by courier (including a
recognized overnight delivery service) or by facsimile and shall be effective
five days after being placed in the mail, if mailed by regular United States
mail, or upon receipt, if delivered personally or by courier (including a
recognized overnight delivery service) or by facsimile, in each case addressed
to a party. The addresses for such communications shall be:
If to the Company:
Insynq, Inc.
0000 Xxxxxxxx Xxxxx
Xxxxxx, Xxxxxxxxxx 00000
Attention: Chief Executive Officer
Facsimile No.: (000) 000-0000
With copy to:
Xxxxx Xxxxxxx & Xxxx LLP
000 Xxxx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000
Attention: Xxxxxx Xxxx, Esq.
Facsimile No.: (000) 000-0000
If to a Buyer: To the address set forth immediately below such Buyer's
name on the signature pages hereto.
With copy to:
The N.I.R. Group, LLC
000 Xxxxx Xxxxxx, Xxxxx X
Xxxxxxx, Xxx Xxxx 00000
Attention: Xxxxx Xxxxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Each party shall provide notice to the other party of any change in
address.
g. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of the parties and their successors and assigns.
Neither the Company nor any Buyer shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other.
Notwithstanding the foregoing, subject to Section 2(f), any Buyer may assign
its rights hereunder to any person that purchases Securities in a private
transaction from a Buyer or to any of its "affiliates," as that term is defined
under the 1934 Act, without the consent of the Company.
h. THIRD PARTY BENEFICIARIES. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.
i. SURVIVAL. The representations and warranties of the Company and
the agreements and covenants set forth in Sections 3, 4, 5 and 8 shall survive
the closing hereunder notwithstanding any due diligence investigation conducted
by or on behalf of the Buyers. The Company agrees to indemnify and hold
harmless each of the Buyers and all their officers, directors, employees and
agents for loss or damage arising as a result of or related to any breach or
alleged breach by the Company of any of its representations, warranties and
covenants set forth in Sections 3 and 4 hereof or any of its covenants and
obligations under this Agreement or the Registration Rights Agreement,
including advancement of expenses as they are incurred.
j. PUBLICITY. The Company and each of the Buyers shall have the
right to review a reasonable period of time before issuance of any press
releases, SEC, OTCBB or NASD filings, or any other public statements with
respect to the transactions contemplated hereby; provided, however, that
(i) the Company shall be entitled, without the prior approval of each of the
Buyers, to make any press release or SEC, OTCBB (or other applicable trading
market) or NASD filings with respect to such transactions as is required by
applicable law and regulations (although each of the Buyers shall be consulted
by the Company in connection with any such press release prior to its release
and shall be provided with a copy thereof and be given an opportunity to
comment thereon) and (ii) the Company will not disclose any material nonpublic
information to any of Buyers unless such information is disclosed to the public
prior to or promptly following such disclosure to any of the Buyers.
k. FURTHER ASSURANCES. Each party shall do and perform, or cause
to be done and performed, all such further acts and things, and shall execute
and deliver all such other agreements, certificates, instruments and documents,
as the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
l. NO STRICT CONSTRUCTION. The language used in this Agreement
will be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.
m. REMEDIES. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the Buyers by vitiating
the intent and purpose of the transaction contemplated hereby. Accordingly,
the Company acknowledges that the remedy at law for a breach of its obligations
under this Agreement will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Agreement, that the
Buyers shall be entitled, in addition to all other available remedies at law or
in equity, and in addition to the penalties assessable herein, to an injunction
or injunctions restraining, preventing or curing any breach of this Agreement
and to enforce specifically the terms and provisions hereof, without the
necessity of showing economic loss and without any bond or other security being
required.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
===============================================================================
IN WITNESS WHEREOF, the undersigned Buyers and the Company have caused
this Agreement to be duly executed as of the date first above written.
INSYNQ, INC.
/s/ Xxxx X. Xxxxx
Xxxx X. Xxxxx
Chief Executive Officer
AJW PARTNERS, LLC
By: SMS Group, LLC
/s/ Xxxxx X. Xxxxxxxx
Xxxxx X. Xxxxxxxx
Manager
RESIDENCE: Delaware
ADDRESS:
The N.I.R. Group, LLC
000 Xxxxx Xxxxxx, Xxxxx X
Xxxxxxx, Xxx Xxxx 00000
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Principal Amount of Debentures: $183,334
Number of Warrants: 366,668
Aggregate Purchase Price: $183,334
NEW MILLENNIUM CAPITAL PARTNERS II, LLC
By: First Street Manager II, LLC
/s/ Xxxxx X. Xxxxxxxxx
Xxxxx X. Xxxxxxxxx
Manager
RESIDENCE: New York
ADDRESS:
The N.I.R. Group, LLC
000 Xxxxx Xxxxxx, Xxxxx X
Xxxxxxx, Xxx Xxxx 00000
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Principal Amount of Debentures: $183,333
Number of Warrants: 366,666
Aggregate Purchase Price: $183,333
AJW/NEW MILLENNIUM OFFSHORE, LTD.
By: First Street Manager II, LLC
______________________________________
Xxxxx X. Xxxxxxxxx
Manager
RESIDENCE: Cayman Islands
ADDRESS:
AJW/New Millennium Offshore, Ltd.
P.O. Box 32021 SMB
Grand Cayman, Cayman Island, B.W.I.
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Principal Amount of Debentures: $183,333
Number of Warrants: 366,666
Aggregate Purchase Price: $183,333
