SCHEDULE 14C
(Rule 14c-101)
INFORMATION REQUIRED IN INFORMATION STATEMENT
SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c) of
the Securities Exchange Act of 1934
Check the appropriate box:
Check the appropriate box:
|_| Preliminary Information Statement
|_| Confidential, for Use of the Commission Only (as permitted by Rule
14c-5(d)(2))
|X| Definitive Information Statement (Amended)
INSYNQ, INC.
(Name of Registrant as Specified in its Charter)
Payment of Filing Fee (check the appropriate box):
|X| None required
|_| Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth amount
on which filing fee is calculated and state how it was
determined):
4) Proposed maximum aggregate value of transaction: 5) Total fee paid:
|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offering fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of the filing.
1) Amount previously paid:
2) Form, Schedule or Registration Statement No.: 3) Filing Party: 4)
Date Filed:
INSYNQ, INC.
1127 Broadway Plaza, Suite 10
Tacoma, Washington 98402
WRITTEN CONSENTS RELATING TO
REINCORPORATION IN NEVADA
BY MERGER OF
INSYNQ, INC.
(a Delaware corporation)
into
INSYNQ, INC.
(a Nevada corporation)
NOTICE IS HEREBY GIVEN that we have received written consents in lieu
of a meeting from stockholders representing a majority of our outstanding shares
of voting stock approving the reincorporation of INSYNQ, INC., a Delaware
corporation (the "Company") in Nevada by merger with and into our wholly-owned
Nevada subsidiary, INSYNQ, INC. ("Insynq Nevada").
- -------------------------------------------------------------------------------
We are not asking you for a Proxy
and you are requested not to send us a Proxy.
- -------------------------------------------------------------------------------
As of the close of business on November 26, 2002, the record date for
shares entitled to notice of and to sign written consents in connection with the
reincorporation, there were 72,090,567 shares of our common stock outstanding.
Each share of our common stock is entitled to one vote and each share of our
preferred stock is entitled to 500 votes in connection with the reincorporation.
Prior to the mailing of this Information Statement, certain of our officers,
directors and affiliates, who represent a majority of our outstanding voting
shares, signed written consents approving the reincorporation. As a result, the
Plan and Agreement of Merger has been approved and neither a meeting of our
stockholders nor additional written consents are necessary. The reincorporation
is intended to be effected on December 23, 2002 and will result in:
(i) the Company being governed by the laws of the State
of Nevada;
(ii) your right to receive one share of common stock of
Insynq Nevada for each one hundred shares of common
stock of the Company owned by you as of the record
date of the reincorporation;
(iii) the persons serving presently as officers and
directors of the Company to serve in their respective
capacities after the reincorporation;
(iv) the outstanding shares of Series A Convertible
Preferred Stock of the Company being converted into
14,544,110 shares of Insynq Nevada common stock that
will represent approximately 96% of the total number
of outstanding shares of Insynq Nevada after the
reincorporation;
(v) the Company's Certificate of Incorporation
authorizing the issuance of 500,000,000 shares of
common stock and 10,000,000 shares of preferred
stock;
(vi) to authorize the adoption of the 2002 Directors,
Officers and Consultants Stock Option, Stock Warrant
and Stock Award Plan; and
(vii) the board of directors to be divided into three
classes which shall be as nearly equal in number as
possible. A classified board of directors could make
it more difficult for shareholders, including those
holding a majority of Insynq Nevada's outstanding
stock, to force an immediate change in the
composition of a majority of the board of directors.
See "Reincorporation in Nevada -Principal Features of the Reincorporation."
The Plan and Agreement of Merger provides for the mandatory exchange of
certificates representing shares of the Company for certificates representing
shares of Insynq Nevada. We urge you to follow the instructions set forth in the
attached Information Statement under "How to Exchange Company Certificates for
Insynq Nevada Certificates" to surrender certificates representing shares of the
Company for certificates representing Insynq Nevada.
By Order of the Board of Directors,
/s/M. Carroll Benton
- --------------------------------
M. Carroll Benton, Secretary
SUMMARY
Transaction: Reincorporation in Nevada.
Purpose: To provide greater flexibility and simplicity in
corporate transactions, reduce taxes and other costs of
doing business, and reduce the amount of short sales of
our common stock. See "Reincorporation in Nevada-
Principal Reasons for Reincorporation."
The purpose of this Information Statement is to inform
holders of Company Common Stock or Company Preferred Stock
who have not given the Company their written consent to
the foregoing corporate actions of such actions and their
effects. See "Rights of Dissenting Shareholders."
Record Date: November 26, 2002.
Method: Merger of the Company with and into our wholly owned
subsidiary, Insynq Nevada. See "Reincorporation in
Nevada-Principal Features of the Reincorporation."
Exchange Ratios: One share of Insynq Nevada common stock will be
issued for each one hundred shares of Company common stock
held as of the record date and one share of Insynq Nevada
common stock will be issued for each fractional share of
Company common stock that would otherwise be issued. See
"Reincorporation in Nevada-Principal Features of the
Reincorporation."
Ten shares of Insynq Nevada common stock will be issued
for each share of Company preferred stock held as of the
record date. See "Reincorporation in Nevada-Principal
Features of the Reincorporation."
Effective Date: 20 days after mailing of this Information Statement.
Right to Dissent Any Company stockholder is entitled to be paid the fair
value of his or her shares if To Reincorporation the
stockholder dissents to the reincorporation or any of the
actions resulting from or in connection with the
reincorporation, including the exchange ratio of the
Company common stock or preferred stock for Insynq Nevada
common stock. See "Rights of Dissenting Shareholders."
Anti-Takeover The anti-takeover provisions of the Insynq Nevada
Provisions Articles of Incorporation are designed to minimize the
possibility of a sudden acquisition of control of Insynq
Nevada which has not been negotiated with and approved by
the Insynq Nevada board of directors. These provisions may
tend to make it more difficult to remove the incumbent
members of the board of directors. Similar provisions are
not contained in the Company Certificate of Incorporation
and bylaws. Therefore, the reincorporation significantly
changes the nature of the anti-takeover provisions and
their effect. See "Defenses Against Hostile Takeovers."
Additional Mandatory exchange of outstanding certificates
Provisions representing shares of Company common stock for
certificates representing shares of Insynq Nevada common
stock. See "Reincorporation in Nevada-How to Exchange
Company Certificates for Insynq Nevada Certificates."
QUESTIONS AND ANSWERS
This Information Statement is first being sent to stockholders on or
about December 2, 2002. The following questions and answers are intended to
respond to frequently asked questions concerning the reincorporation of the
Company in Nevada. These questions do not, and are not intended to, address all
the questions that may be important to you. You should carefully read the entire
Information Statement, as well as its appendices and the documents incorporated
by reference in this Information Statement.
Q: Why is the Company reincorporating in Nevada?
A: We believe that the reincorporation in Nevada will give us more flexibility
and simplicity in various corporate transactions. Nevada has adopted a General
Corporation Law that includes by statute many concepts created by judicial
rulings in other jurisdictions and provides additional rights in connection with
the issuance and redemption of stock. In addition, we believe that there are a
substantial number of our shares that have been sold "short" without the
delivery of certificates representing the shares sold. This is known as a "naked
short" and, we believe, has resulted in significant downward pressure on the
value of our common stock. Nevada law permits us to require the delivery of
certificates representing our shares when there is a change in our capital
structure and, thereby, reduce the number of "naked short" positions affecting
the price of our common stock. In addition, Management believes that due to the
large amount of issued and outstanding shares of common stock and the small
percentage of management's ownership interest, does not allow for the direction
of the Company's affairs. The reincorporation and plan of merger will provide
management the necessary control to direct the Company's future business
operations.
Q: Why isn't the Company holding a meeting of stockholders to approve the
reincorporation?
A: The board of directors has already approved the reincorporation plan and has
received the written consent of officers, directors, and affiliates that
represent a majority of our outstanding shares of common stock and other voting
interests. Under the General Corporation Law of Delaware and our Certificate of
Incorporation this transaction may be approved by the written consent of a
majority of the shares entitled to vote on it. Since we have already received
written consents representing the necessary number of shares, a meeting is not
necessary and represents a substantial and avoidable expense.
Q: What are the principal features of the reincorporation?
A: The reincorporation will be accomplished by a merger of the Company with and
into our wholly owned subsidiary, Insynq Nevada. One new share of the Insynq
Nevada common stock will be issued for each 100 shares of our common stock and
10 new shares of Insynq Nevada common stock will be issued for each share of our
preferred stock that is held by our stockholders on the record date for the
reincorporation. In addition, one new share of Insynq Nevada will be issued for
any fractional share that would be issuable as a result of the reincorporation.
The shares of the Company will cease to trade on the over-the-counter bulletin
board market and the shares of Insynq Nevada will begin trading in their place
beginning on or about the Effective Date, under CUSIP number 45809X 10 5 and a
new trading symbol which has not yet been assigned. Options and warrants to
purchase common stock of the Company will also be exchanged for similar
securities issued by Insynq Nevada without adjustment as to the number of shares
issuable or the total exercise price.
Q: How will the reincorporation affect my ownership of the Company?
A: After the effective date of the reincorporation and the exchange of your
stock certificates, you will own the same class but a lesser percentage of the
Company because the conversion ratio of the Series A Convertible Preferred Stock
is not affected by the one for one hundred exchange ratio of the common stock of
the Company.
Q: How will the reincorporation affect the owners, officers, directors and
employees of the Company?
A: Our officers, directors and employees will become the officers, directors
and employees of Insynq Nevada after the effective date of the reincorporation.
Q: How will the reincorporation affect the business of the Company?
A: Insynq Nevada will continue our business at the same locations and with the
same assets. The Company will cease to exist on the effective date of the
reincorporation.
Q: How do I exchange certificates of the Company for certificates of Insynq
Nevada?
A: Enclosed with this Information Statement is a letter of transmittal and
instructions for surrendering certificates representing our shares. If you are a
record stockholder, you should complete the letter of transmittal and send it
with certificates representing your shares to the address set forth in the
letter. Upon surrender of a certificate for cancellation with a duly executed
letter of transmittal, the Company will issue a new certificate representing the
number of whole shares of Insynq Nevada as soon as practical after the effective
date of the reincorporation.
Q: What happens if I do not surrender my certificates of the Company?
A: YOU ARE REQUIRED TO SURRENDER CERTIFICATES REPRESENTING SHARES OF THE COMPANY
TO RECEIVE SHARES OF Insynq Nevada. The board of directors has determined that a
reasonable time for the exchange of certificates is 60 days after the effective
date of the merger. All shares of the Company outstanding after the effective
date of the reincorporation will be cancelled if not exchanged within the time
specified. Until you receive shares of Insynq Nevada you are not entitled to
receive notice of or vote at shareholder meetings or receive dividends or other
distributions on the shares of the Company. Under the Nevada Revised Statutes,
we may seek to enforce the delivery of certificates for exchange through
proceedings in court.
Q: What if I have lost my Company certificates?
A: If you have lost your Company certificates, you should contact our transfer
agent as soon as possible to have a new certificate issued. You may be required
to post a bond or other security to reimburse us for any damages or costs if the
certificate is later delivered for conversion. Our transfer agent may be reached
at:
Colonial Stock Transfer Co.
455 E. 400 South, Suite 100
Salt Lake City, Utah 84111
Telephone: (801) 355-5740
Fax: (801) 355-6505
Q: Can I require the Company to purchase my stock?
A: Yes. Under the General Corporation Law of the State of Delaware, you are
entitled to appraisal and purchase of your stock as a result of the
reincorporation.
Q: Who will pay the costs of reincorporation?
A: The Company will pay all of the costs of reincorporation in Nevada, including
distributing this Information Statement. We may also pay brokerage firms and
other custodians for their reasonable expenses for forwarding information
materials to the beneficial owners of our common stock. We do not anticipate
contracting for other services in connection with the reincorporation. Each
stockholder must pay the costs of exchanging their certificates for new
certificates.
Q: Will I have to pay taxes on the new certificates?
A: We believe that the reincorporation is not a taxable event and that you will
be entitled to the same basis in the shares of Insynq Nevada that you had in our
common stock. EVERYONE'S TAX SITUATION IS DIFFERENT AND YOU SHOULD CONSULT WITH
YOUR PERSONAL TAX ADVISOR REGARDING THE TAX EFFECT OF THE REINCORPORATION.
STOCK OWNERSHIP
The following table sets forth information as of November 26, 2002,
regarding the beneficial ownership of our common stock (i) by each person or
group known by our management to own more than 5% of the outstanding shares of
our common stock, (ii) by each director, the chief executive officer and each of
the other four executive officers that were paid more than $100,000 during the
last fiscal year, and (iii) by all directors and executive officers as a group.
Unless otherwise noted, each person has sole voting and investment power over
the shares indicated below, subject to applicable community property laws.
Unless indicated differently, the mailing address for each person
identified below is 1127 Broadway Plaza, Suite 10, Tacoma, Washington 98409.
- ---------------------------------------------------------------------------------------------------------
Name Shares Beneficially Owned Percentage of
Outstanding Shares
- ---------------------------------------------------------------------------------------------------------
Before(1) After(2) Before(1) After(2)
Reincorporation Reincorporation Reincorporation Reincorporation
=========================================================================================================
John P. Gorst 6,919,232 138,384,640 9.60% 45.25%
M. Carroll Benton 5,750,846 115,016,920 7.98% 37.61%
David Dewayne Selmon 1,327,114 26,542,280 1.84% 8.68%
- ---------------------------------------------------------------------------------------------------------
All Officers and Directors as 13,997,192 279,943,840 19.42% 91.54%
a group (3 Persons)
=========================================================================================================
(1) Percentage of beneficial ownership before reincorporation is based on
72,090,567 shares of common stock outstanding as of the record date. In
computing an individual's beneficial ownership, the number of common
shares exchanged for preferred stock within 60 days of the Record Date,
are deemed outstanding. Such shares, however, are not deemed
outstanding for the purpose of computing the beneficial ownership of
any other person.
(2) Percentage of beneficial ownership after reincorporation is based on
305,817,401 shares of common stock to be outstanding immediately
after the Effective Date, including shares of common stock
automatically issuable on conversion of preferred stock because of the
reincorporation, subject only to insignificant differences relating to
the elimination of fractional shares.
REINCORPORATION IN NEVADA
The following discussion summarizes certain aspects of our
reincorporation in Nevada. This summary does not include all of the provisions
of the Plan and Agreement of Merger between the Company and, a copy of which is
attached hereto as Exhibit "A," or the Articles of Incorporation of Insynq
Nevada, a copy of which is attached hereto as Exhibit "B." Copies of the
Certificate of Incorporation and the bylaws of the Company and the bylaws of
Insynq Nevada are available for inspection at our principal office and we will
send copies to stockholders upon request.
Principal Reasons for Reincorporation
We believe that the reincorporation will provide a greater measure of
flexibility and simplicity in corporate governance than is available under
Delaware law and will increase the marketability of our securities. Nevada has
adopted a modern code governing the formation and operation of corporations. It
includes by statute many of the concepts developed judicially in Delaware. In
addition, the Nevada law provides for greater flexibility in raising capital and
other corporate transactions. Nevada imposes no franchise taxes or corporate
income taxes on corporations that are incorporated in Nevada.
We believe that the price of our common stock may be artificially
depressed due to abnormally high short selling by speculators who are not
shareholders. We believe that these sales are conducted through a practice
commonly known as a "naked short" sale. Certain brokers may have permitted their
customers to sell shares that are neither owned by such customers nor borrowed
from another shareholder. As a result, the broker has not delivered the shares
sold to the purchasers. If this practice is widespread, it creates severe
pressure on the price of our stock since there is no limit on the number of
shares that are traded. The reincorporation in Nevada will permit us to require
the delivery of certificates representing our shares for exchange in connection
with the reincorporation or subsequent changes in our capital structure.
Moreover, a provision in the Articles of Incorporation of the Company permits
the board of directors to require brokers and nominees to disclose the names of
beneficial owners of shares held in street name. We believe that the practice of
naked short sales, and the depression of our stock price which it has caused,
will be discouraged.
Principal Features of the Reincorporation
The reincorporation will be effected by the merger of the Company with
and into Insynq Nevada. Insynq Nevada is the surviving entity. The
reincorporation will become effective on December 23, 2002 the Effective Date.
On the Effective Date, (i) each of our stockholders as of the record
date, November 26, 2002, will be entitled to receive one share of Company common
stock for each 100 shares of our common stock they owned on the record date and
one share of Insynq Nevada common stock for any fractional interest that they
would be entitled to receive, (ii) each of the owners of our Series A
Convertible Preferred Stock will became entitled to receive 10 shares of the
Insynq Nevada common stock, (iii) each share of Insynq Nevada common stock owned
by the Company will be canceled and resume the status of authorized and unissued
Insynq Nevada common stock, and (iv) the Company will cease its corporate
existence in the State of Delaware.
The Articles of Incorporation and bylaws of Insynq Nevada are
significantly different from the Certificate of Incorporation and bylaws of the
Company. Your rights as shareholders will be substantially affected by the
reincorporation by, among other things, the exchange ration and the differences
between the laws of the State of Delaware, which govern the Company, and the
laws of the State of Nevada, which govern Insynq Nevada. See the information
under "Significant Differences between the Company and Insynq Nevada" for a
summary of the differences between the laws of the State of Delaware and the
laws of the State of Nevada.
The board of directors and officers of the Insynq Nevada will consist
of the persons who are our directors and officers prior to the reincorporation.
Our daily business operations will continue at the principal executive offices
at 1127 Broadway Plaza, Suite 10, Tacoma, Washington 98402.
How to Exchange Company Certificates for Insynq Nevada Certificates
Enclosed are (i) a form letter of transmittal and (ii) instructions for
surrender of your certificates representing our common stock in exchange for
certificates representing shares of Insynq Nevada common stock. Upon surrender
of a certificate representing our common stock to Insynq Nevada, together with a
duly executed letter of transmittal and the necessary issuance fees, Insynq
Nevada will issue, as soon as practicable, a certificate representing that
number of shares of Insynq Nevada you are entitled to receive.
If you own our shares through a nominee or in a brokerage account, you
do not have a certificate to submit for exchange. Usually, your nominee or
broker will submit certificates representing our shares for exchange on your
behalf. Since we believe there have been widespread sales of our stock without
actual delivery of certificates, it is possible that your nominee or broker may
not have certificates representing all of the shares owned by its customers. We
recommend that you contact your nominee or broker and request that a certificate
be issued to you so that you may submit it for exchange with the enclosed letter
of transmittal. This will ensure that there are actually shares of Insynq Nevada
in your name on the books and records of Insynq Nevada. After the exchange, you
may transfer the shares of Insynq Nevada back into the name of your broker or
nominee.
You are required to surrender your certificates representing our common
stock for certificates representing shares of Insynq Nevada The board of
directors of both the Company and Insynq Nevada determined that a reasonable
period for you to submit certificates for exchange is 60 days from the Effective
Date of the reincorporation. Dividends and other distributions declared by
Insynq Nevada after the Effective Date with respect to common stock and payable
to holders of record thereof after the Effective Date will be paid ONLY to the
holders of certificates representing Insynq Nevada common stock and not to the
holders of unsurrendered certificates representing shares of the Company. In
addition, holders of unsurrendered certificates representing shares of our
common stock will not be entitled to notice of or to vote at any meetings of the
shareholders of Insynq Nevada until they surrender the certificate representing
Company common stock. Insynq Nevada may enforce the mandatory delivery of the
certificates by action in the Nevada courts if you fail to deliver such
certificates for exchange.
Capitalization
Our authorized capital on the date of this Information Statement
consisted of 250,000,000 shares of common stock, $0.001 par value, 10,000,000
shares of common class A, $0.001 par value, and 10,000,000 shares of preferred
stock, $0.001 par value. On the date of this Information Statement there were
72,090,567 shares of our common stock, 1,454,411 shares of our preferred stock
outstanding. The authorized capital of Insynq Nevada consists of 510,000,000
shares of capital stock divided into 500,000,000 shares of common stock, $0.001
par value per share, and 10,000,000 shares of preferred stock, $0.001 par value
per share. The board of directors of Insynq Nevada has not adopted any
designations, rights or preferences for preferred stock. As a result of the
reincorporation and mandatory exchange of the common stock and automatic
conversion of the Company Series A Convertible Stock, Insynq Nevada will have
outstanding approximately 15,134,244 shares of common stock, subject only to
insignificant differences relating to the elimination of fractional shares, and
no shares of preferred stock. In addition, Insynq Nevada will reserve
approximately 4,489,093 shares of common stock for issuance under outstanding
warrants, options and securities exercisable for common stock and 16,000,000
shares of common stock for issuance under the 2002 Directors, Officers and
Consultants Stock Option, Stock Warrant and Stock Award Plan. Accordingly, the
board of directors of Insynq Nevada will have available approximately
214,376,663 shares of common stock and 10,000,000 shares of preferred stock
which are authorized but presently unissued and unreserved. The reincorporation
will not affect our total stockholder equity or total capitalization.
The board of directors of Insynq Nevada may authorize, without further
shareholder approval, the issuance of such shares of preferred stock to such
persons, for such consideration, and upon such terms as the board of directors
determines. Such issuance could result in a significant dilution of the voting
rights and the stockholders' equity, of then existing shareholders.
There are no present plans, understandings or agreements, and we are
not engaged in any negotiations that will involve the issuance of preferred
stock. However, the board of directors believes it prudent to have shares of
preferred stock available for such corporate purposes as the board of directors
may from time to time deem necessary and advisable including, without
limitation, acquisitions, the raising of additional capital and assurance of
flexibility of action in the future.
Issuance of additional authorized common stock or preferred stock may
have the effect of deterring or thwarting persons seeking to take control of
Insynq Nevada through a tender offer, proxy fight or otherwise or to bring about
removal of incumbent management or a corporate transaction such as merger. For
example, the issuance of common stock or preferred stock could be used to deter
or prevent such a change of control through dilution of stock ownership of
persons seeking to take control or by rendering a transaction proposed by such
persons more difficult. See "Defenses Against Hostile Takeovers."
Significant Differences Between the Company and Insynq Nevada
The Company was incorporated under the laws of the State of Delaware
and Insynq Nevada is incorporated under the laws of the State of Nevada. Those
stockholders that tender their certificates representing the shares of our
common stock for exchange will become shareholders of Insynq Nevada. Their
rights as shareholders will be governed by the Nevada Business Corporation Act
("Nevada law") and the Articles of Incorporation and bylaws of Insynq Nevada
rather than the General Corporation Law of Delaware ("Delaware law") and the
Company Certificate of Incorporation and bylaws. The Articles of Incorporation
and bylaws of Insynq Nevada are significantly different from the Certificate of
Incorporation and bylaws of the Company
The corporate statutes of Nevada and Delaware have certain differences,
summarized below. This summary is not intended to be complete, and is qualified
by reference to the full text of, and decisions interpreting, Delaware law and
Nevada law.
Classified Board of Directors. Both Delaware and Nevada law permit
corporations to classify their board of directors so that less than all of the
directors are elected each year to overlapping terms. Unlike the Company, Insynq
Nevada has classified boards consisting of three classes, elected to three-year
terms. As a result of the reincorporation, our directors will become directors
of Insynq Nevada and assigned to classes to make the number of directors in each
class as nearly equal as possible.
Removal of Directors. Under Delaware law, members of a classified board
of directors may only be removed for cause. Removal requires the vote of a
majority of the outstanding shares entitled to vote for the election of
directors. Nevada law provides that any or all directors may be removed by the
vote of two-thirds of the voting interests entitled to vote for the election of
directors. Nevada does not distinguish between removal of directors with and
without cause. The reincorporation may make it more difficult for the
shareholders of Insynq Nevada to remove a member of the board of directors.
Special Meetings of Stockholders. Delaware law permits special meetings
of stockholders to be called by the board of directors or by any other person
authorized in the certificate of incorporation or bylaws to call a special
stockholder meeting. Nevada law does not address the manner in which special
meetings of stockholders may be called but permits corporations to determine the
manner in which meetings are called in their bylaws. The Articles of
Incorporation and bylaws of Insynq Nevada provide that special meetings of the
stockholders may be called only by the board of directors or a committee of the
board of directors that is delegated the power to call special meetings by the
board of directors. The reincorporation will make it more difficult for the
shareholders of Insynq Nevada to call a special meeting of the stockholders.
Special Meetings Pursuant to Petition of Stockholders. Delaware law
provides that a director or a stockholder of a corporation may apply to the
Court of Chancery of the State of Delaware if the corporation fails to hold an
annual meeting for the election of directors or there is no written consent to
elect directors in lieu of an annual meeting taken, in both cases for a period
of thirty (30) days after the date designated for the annual meeting or if there
is no such date designated, within 13 months after the last annual meeting.
Nevada law is more restrictive. Under Nevada law shareholders having not less
than 15% of the voting interest may petition the district court to order a
meeting for the election of directors if a corporation fails to call a meeting
for that purpose within 18 months after the last meeting at which directors were
elected. The reincorporation may make it more difficult for the shareholders of
Insynq Nevada to require that an annual meeting be held without the consent of
the board of directors.
Cumulative Voting. Cumulative voting for directors entitles
stockholders to cast a number of votes that is equal to the number of voting
shares held multiplied by the number of directors to be elected. Stockholders
may cast all such votes either for one nominee or distribute such votes among up
to as many candidates as there are positions to be filled. Cumulative voting may
enable a minority stockholder or group of stockholders to elect at least one
representative to the board of directors where such stockholders would not
otherwise be able to elect any directors. Both Delaware and Nevada law permit
cumulative voting if provided for in the certificate or articles of
incorporation and pursuant to specified procedures. Neither the Certificate of
Incorporation of the Company nor the Articles of Incorporation of Insynq Nevada
provide for cumulative voting. The reincorporation does not change the rights of
the shareholders to cumulate their votes.
Vacancies. Under Delaware law, vacancies on the board of directors may
be filled by the affirmative vote of a majority of the remaining directors then
in office, even if less than a quorum. Any director so appointed will hold
office for the remainder of the full term of the class of directors in which the
vacancy occurred. Similarly, Nevada law provides that vacancies may be filled by
a majority of the remaining directors, though less than a quorum, unless the
articles of incorporation provide otherwise. The bylaws of both the Company and
Insynq Nevada address the election of persons to fill vacancies on the board of
directors in the same manner.
Indemnification of Officers and Directors and Advancement of Expenses.
Delaware and Nevada have substantially similar provisions regarding
indemnification by a corporation of its officers, directors, employees and
agents. Delaware and Nevada law differ in their provisions for advancement of
expenses incurred by an officer or director in defending a civil or criminal
action, suit or proceeding. Delaware law provides that expenses incurred by an
officer or director in defending any civil, criminal, administrative or
investigative action, suit or proceeding may be paid by the corporation in
advance of the final disposition of the action, suit or proceeding upon receipt
of an undertaking by or on behalf of the director or officer to repay the amount
if it is ultimately determined that he or she is not entitled to be indemnified
by the corporation. A Delaware corporation has the discretion to decide whether
or not to advance expenses, unless its certificate of incorporation or bylaws
provides for mandatory advancement. Nevada law differs in two respects: first,
Nevada law applies to advance of expenses incurred by both officers and
directors, and second, under Nevada law, the articles of incorporation, bylaws
or an agreement made by the corporation may provide that the corporation must
pay advancements of expenses in advance of the final disposition of the action,
suit or proceedings upon receipt of an undertaking by or on behalf of the
director or officer to repay the amount if it is ultimately determined that he
or she is not entitled to be indemnified by the corporation. There will be a
difference in stockholders' rights with respect to this issue because the bylaws
of the Insynq Nevada provide for the mandatory advancement of expenses of
directors and officers.
Limitation on Personal Liability of Directors. Delaware law permits a
corporation to adopt provisions limiting or eliminating the liability of a
director to a company and its stockholders for monetary damages for breach of
fiduciary duty as a director, provided that such liability does not arise from
certain proscribed conduct, including breach of the duty of loyalty, acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law or liability to the corporation based on unlawful dividends or
distributions or improper personal benefit. The Certificate of Incorporation of
the Company excluded director liability to the maximum extent allowed by
Delaware law. Nevada law permits, and Insynq Nevada has adopted, a broader
exclusion of liability of directors to the corporation and its shareholders,
providing for an exclusion of all monetary damages for breach of fiduciary duty
unless they arise from act or omissions which involve intentional misconduct,
fraud or a knowing violation of law or payments of dividends or distributions in
excess of the amount allowed. The reincorporation will result in the elimination
of any liability of a director for a breach of the duty of loyalty unless
arising from intentional misconduct, fraud, or a knowing violation of law.
Dividends. Delaware law is more restrictive than Nevada law with
respect to when dividends may be paid. Under the Delaware law, unless further
restricted in the certificate of incorporation, a corporation may declare and
pay dividends, out of surplus, or if no surplus exists, out of net profits for
the fiscal year in which the dividend is declared and/or the preceding fiscal
year (provided that the amount of capital of the corporation is not less than
the aggregate amount of the capital represented by the issued and outstanding
stock of all classes having a preference upon the distribution of assets). In
addition, the Delaware Law provides that a corporation may redeem or repurchase
its shares only if the capital of the corporation is not impaired and such
redemption or repurchase would not impair the capital of the corporation. Nevada
law provides that no distribution (including dividends on, or redemption or
repurchases of, shares of capital stock) may be made if, after giving effect to
such distribution, the corporation would not be able to pay its debts as they
become due in the usual course of business, or, except as specifically permitted
by the articles of incorporation, the corporation's total assets would be less
than the sum of its total liabilities plus the amount that would be needed at
the time of a dissolution to satisfy the preferential rights of preferred
stockholders. The reincorporation makes it possible for Insynq Nevada to pay
dividends or other distributions that would not be payable under Delaware law.
Restrictions on Business Combinations. Both Delaware and Nevada law
contain provisions restricting the ability of a corporation to engage in
business combinations with an interested stockholder. Under Delaware law, a
corporation which is listed on a national securities exchange, included for
quotation on the Nasdaq Stock Market or held of record by more than 2,000
stockholders, is not permitted to engage in a business combination with any
interested stockholder for a three-year period following the time such
stockholder became an interested stockholder, unless (i) the transaction
resulting in a person becoming an interested stockholder, or the business
combination, is approved by the board of directors of the corporation before the
person becomes an interested stockholder; (ii) the interested stockholder
acquires 85% or more of the outstanding voting stock of the corporation in the
same transaction that makes it an interested stockholder (excluding shares owned
by persons who are both officers and directors of the corporation, and shares
held by certain employee stock ownership plans); or (iii) on or after the date
the person becomes an interested stockholder, the business combination is
approved by the corporation's board of directors and by the holders of at least
662/3% of the corporation's outstanding voting stock at an annual or special
meeting (and not by written consent), excluding shares owned by the interested
stockholder. Delaware law defines "interested stockholder" generally as a person
who owns 15% or more of the outstanding shares of a corporation's voting stock.
Nevada law regulates business combinations more stringently. First, an
"interested stockholder" is defined as a beneficial owner (directly or
indirectly) of ten percent (10%) or more of the voting power of the outstanding
shares of the corporation. Second, the three-year moratorium can be lifted only
by advance approval by a corporation's board of directors. Finally, after the
three-year period, combinations with "interested stockholders" remain prohibited
unless (i) they are approved by the board of directors, the disinterested
stockholders or a majority of the outstanding voting power not beneficially
owned by the interested party, or (ii) the interested stockholders satisfy
certain fair value requirements. As in Delaware, a Nevada corporation may
opt-out of the statute with appropriate provisions in its articles of
incorporation.
Neither the Company, nor Insynq Nevada have opted out of the applicable
statutes and the more stringent requirements of Nevada law apply to mergers and
combinations after the Effective Date of the reincorporation.
Limitations on Controlling Shareholders. Nevada law contains a
provision that limits the voting rights of a person that acquires or makes an
offer to acquire a controlling interest in a Nevada corporation. Under the
provisions of Nevada law, a person acquiring or making an offer to acquire more
than 20% of the voting power in a corporation will have only such voting rights
as are granted by a resolution of the shareholders adopted at a special or
annual meeting. The controlling person is not entitled to vote on the resolution
granting voting rights to the controlling interest. The person acquiring a
controlling interest may request a meeting of the shareholders be called for
this purpose and, if the board of directors fails to call the meeting or the
controlling person is not accorded full voting rights, the corporation must
redeem the controlling shares at the average price paid for them. Delaware does
not have a similar provision and the reincorporation may make it more difficult
for a person to acquire control of Insynq Nevada through acquisition of a
majority of the shares issued.
Amendment to Articles of Incorporation/Certificate of Incorporation or
Bylaws. Both Delaware and Nevada law require the approval of the holders of a
majority of all outstanding shares entitled to vote to approve proposed
amendments to a corporation's certificate or articles of incorporation. Both
Delaware and Nevada law also provide that in addition to the vote of the
shareholders, the vote of a majority of the outstanding shares of a class may be
required to amend the certificate of incorporation or articles of incorporation.
Neither state requires shareholder approval for the board of directors of a
corporation to fix the voting powers, designation, preferences, limitations,
restrictions and rights of a class of stock provided that the corporation's
organizational documents grant such power to its board of directors. Both
Delaware and Nevada law permit the number of authorized shares of any such class
of stock to be increased or decreased (but not below the number of shares then
outstanding) by the board of directors unless otherwise provided in the articles
or certificate of incorporation or resolution adopted pursuant to the articles
or certificate of incorporation, respectively.
Actions by Written Consent of Stockholders. Both Delaware and Nevada
law provide that, unless the articles or certificate of incorporation provides
otherwise, any action required or permitted to be taken at a meeting of the
shareholders may be taken without a meeting if the holders of outstanding stock
having at least the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote consents
to the action in writing. Delaware law requires the corporation to give prompt
notice of the taking of corporate action without a meeting by less than
unanimous written consent to those stockholders who did not consent in writing.
Although not required by Nevada law, Insynq Nevada's bylaws require prompt
notice to all shareholders of any action taken by less than unanimous written
consent.
Stockholder Vote for Mergers and Other Corporation Reorganizations.
Both jurisdictions require authorization by an absolute majority of the
outstanding voting rights, as well as approval by the board of directors, of the
terms of a merger or a sale of substantially all of the assets of the
corporation. Neither Delaware nor Nevada law require a shareholder vote of the
surviving corporation in a merger (unless the corporation provides otherwise in
its certificate of incorporation) if: (a) the merger agreement does not amend
the existing certificate of incorporation of the surviving corporation; (b) each
share of stock of the surviving corporation outstanding immediately before the
effective date of the merger is an identical outstanding share after the merger;
and (c) either no shares of common stock of the surviving corporation and no
shares, securities or obligations convertible into such stock are to be issued
or delivered under the plan of merger, or the authorized unissued shares or
shares of common stock of the surviving corporation to be issued or delivered
under the plan of merger plus those initially issuable upon conversion of any
other shares, securities or obligations to be issued or delivered under such
plan do not exceed twenty percent (20%) of the shares of common stock of such
constituent corporation outstanding immediately prior to the effective date of
the merger.
DEFENSES AGAINST HOSTILE TAKEOVERS
The following discussion summarizes the reasons for, and the operation
and effects of, certain provisions in the Insynq Nevada Articles of
Incorporation which management has identified as potentially having an
anti-takeover effect it is not intended to be a complete description of all
potential anti-takeover effects, and it is qualified in its entirety by
reference to the Insynq Nevada Articles of Incorporation and bylaws. Similar
provisions are not contained in the Company Certificate of Incorporation and
bylaws. Therefore, the reincorporation significantly changes the nature of the
anti-takeover provisions and their effect.
The anti-takeover provisions of the Insynq Nevada Articles of
Incorporation are designed to minimize the possibility of a sudden acquisition
of control of Insynq Nevada which has not been negotiated with and approved by
the Insynq Nevada board of directors. These provisions may tend to make it more
difficult to remove the incumbent members of the board of directors. The
provisions would not prohibit an acquisition of control of Insynq Nevada or a
tender offer for all of its capital stock. The provisions are designed to
discourage any tender offer or other attempt to gain control of Insynq Nevada in
a transaction that is not approved by the board of directors, by making it more
difficult for a person or group to obtain control of Insynq Nevada in a short
time. However, to the extent these provisions successfully discourage the
acquisition of control of Insynq Nevada or tender offers for all or part of its
capital stock without approval of the board of directors, they may have the
effect of preventing an acquisition or tender offer which might be viewed by
stockholders to be in their best interests.
Tender offers or other non-open market acquisitions of stock are
usually made at prices above the prevailing market price. In addition,
acquisitions of stock by persons attempting to acquire control through market
purchases may cause the market price of the stock to reach levels which are
higher than would otherwise be the case. Anti-takeover provisions may discourage
such purchases, particularly those of less than all of the outstanding capital
stock, and may thereby deprive shareholders of an opportunity to sell their
stock at a temporarily higher price. These provisions may therefore decrease the
likelihood that a tender offer will be made, and, if made, will be successful.
As a result, the provisions may adversely affect those shareholders who would
desire to participate in a tender offer. These provisions may also serve to
insulate incumbent management from change and to discourage not only sudden or
hostile takeover attempts, but any attempts to acquire control which are not
approved by the board of directors, whether or not shareholders deem such
transactions to be in their best interests.
Authorized Shares of Capital Stock. The Insynq Nevada Articles of
Incorporation authorizes the issuance of up to 10,000,000 shares of serial
preferred stock, without any action on the part of the shareholders. Shares of
Insynq Nevada's serial preferred stock with voting rights could be issued and
would then represent an additional class of stock required to approve any
proposed acquisition. This preferred stock, together with authorized but
unissued shares of common stock (the Articles of Incorporation authorizes the
issuance of up to 500,000,000 shares of common stock), could represent
additional capital stock required to be purchased by an acquiror. Issuance of
such additional shares may dilute the voting interest of the Insynq Nevada
shareholders. If the board of directors of Insynq Nevada determined to issue an
additional class of voting preferred stock to a person opposed to a proposed
acquisition, such person might be able to prevent the acquisition
single-handedly.
Stockholder Meetings. Nevada law provides that the annual shareholder
meeting may be called by a corporation's board of directors or by such person or
persons as may be authorized by a corporation's articles of incorporation or
bylaws. The Insynq Nevada Articles of Incorporation provides that annual
shareholder meetings may be called only by the Insynq Nevada board of directors
or a duly designated committee of the board. Although Insynq Nevada believes
that this provision will discourage shareholder attempts to disrupt the business
of Insynq Nevada between annual meetings, its effect may be to deter hostile
takeovers by making it more difficult for a person or entity to obtain immediate
control of Insynq Nevada between annual meetings as a forum to address certain
other matters. Insynq Nevada's Articles of Incorporation also provides that
shareholder proposals at any meeting must be provided to Insynq Nevada at least
30 days prior to such meeting.
Classified Board of Directors and Removal of Directors. Insynq Nevada's
Articles of Incorporation provides that the board of directors is to be divided
into three classes which shall be as nearly equal in number as possible. The
directors in each class serve for terms of three years, with the terms of one
class expiring each year. Each class currently consists of approximately
one-third of the number of directors. Each director will serve until his
successor is elected and qualified.
A classified board of directors could make it more difficult for
shareholders, including those holding a majority of Insynq Nevada's outstanding
stock, to force an immediate change in the composition of a majority of the
board of directors. Since the terms of only one-third of the incumbent directors
expire each year, it requires at least two annual elections for the shareholders
to change a majority, whereas a majority of a non-classified board may be
changed in one year. The provision for a staggered board of directors affects
every election of directors and is not triggered by the occurrence of a
particular event such as a hostile takeover. Thus a staggered board of directors
makes it more difficult for shareholders to change the majority of directors
even when the reason for the change would be unrelated to a takeover.
Restriction of Maximum Number of Directors and Filling Vacancies on the
Board of Directors. Nevada law requires that the board of directors of a
corporation consist of one or more members and that the number of directors
shall be set by or in the manner described in the corporation's articles of
incorporation or bylaws. Insynq Nevada's Articles of Incorporation provides that
the number of directors (exclusive of directors, if any, to be elected by the
holders of preferred stock) shall not be less than one or more than 15, as shall
be provided from time to time in accordance with the bylaws. The power to
determine the number of directors within these numerical limitations is vested
in the board of directors and requires the concurrence of at least two-thirds of
the entire board of directors. The effect of such provisions may be to prevent a
person or entity from quickly acquiring control of Insynq Nevada through an
increase in the number of the directors and election of nominees to fill the
newly created vacancies.
Advance Notice Requirements for Nomination of Directors and Proposal of
New Business at Annual Stockholder Meetings. Insynq Nevada's Articles of
Incorporation provide that any shareholder desiring to make a nomination for the
election of directors or a proposal for new business at a shareholder meeting
must submit written notice not less than 30 or more than 60 days in advance of
the meeting. This advance notice requirement may give management time to solicit
its own proxies in an attempt to defeat any dissident slate of nominations.
Similarly, adequate advance notice of shareholder proposals will give management
time to study such proposals and to determine whether to recommend to the
shareholders that such proposals be adopted. In certain instances, such
provisions could make it more difficult to oppose management's nominees or
proposals, even if the shareholders believe such nominees or proposals are in
their interests. These provisions may tend to discourage persons from bringing
up matters disclosed in the proxy materials furnished to the shareholders and
could inhibit the ability of shareholders to bring up new business in response
to recent developments.
2002 Directors, Officers and Consultants Stock
Option, Stock Warrant and Stock Award Plan
The Board of Directors of the Company and the owners of a majority of
the outstanding voting stock have approved the 2002 Directors, Officers and
Consultants Stock Option, Stock Warrant and Stock Award Plan. The purpose of the
Plan is to maintain the ability of the Company and its subsidiaries to attract
and retain highly qualified and experienced directors, officers and consultants
and to give such directors, officers and consultants a continued proprietary
interest in the success of the Company and its subsidiaries. The Plan itself is
available to any stockholder by request to the Company.
General Provisions of the Plan
The purpose of the 2002 Directors, Officers and Consultants Stock
Option, Stock Warrant and Stock Award Plan ("Plan") is to maintain the ability
of Insynq, Inc., a Nevada corporation (the "Company") and its subsidiaries to
attract and retain highly qualified and experienced directors, employees and
consultants and to give such directors, employees and consultants a continued
proprietary interest in the success of the Company and its subsidiaries. In
addition the Plan is intended to encourage ownership of common stock, $.001 par
value ("Common Stock"), of the Company by the directors, employees and
consultants of the Company and its Affiliates (as defined below) and to provide
increased incentive for such persons to render services and to exert maximum
effort for the success of the Company's business. The Plan provides eligible
employees and consultants the opportunity to participate in the enhancement of
shareholder value by the grants of warrants, options, restricted common or
convertible preferred stock, unrestricted common or convertible preferred stock
and other awards under the Plan and to have their bonuses and/or consulting fees
payable in warrants, restricted common or convertible preferred stock,
unrestricted common or convertible preferred stock and other awards, or any
combination thereof. In addition, the Company expects that the Plan will further
strengthen the identification of the directors, employees and consultants with
the stockholders. Certain options and warrants to be granted under the Plan are
intended to qualify as Incentive Stock Options ("ISOs") pursuant to Section 422
of the Internal Revenue Code of 1986, as amended ("Code"), while other options
and warrants and preferred stock granted under the Plan will be nonqualified
options or warrants which are not intended to qualify as ISOs ("Nonqualified
Options"), either or both as provided in the agreements evidencing the options
or warrants described and shares of preferred stock. Employees, consultants and
directors who participate or become eligible to participate in the Plan from
time to time are referred to collectively herein as "Participants". As used in
the Plan, the term "Affiliates" means any "parent corporation" of the Company
and any "subsidiary corporation" of the Company within the meaning of Code
Sections 424(e) and (f), respectively.
The Plan shall be administered by the Board of Directors of the Company
(the "Board"). When acting in such capacity the Board is herein referred to as
the "Committee," which shall also designate the Chairman of the Committee. If
the Company is governed by Rule 16b-3 promulgated by the Securities and Exchange
Commission ("Commission") pursuant to the Securities Exchange Act of 1934, as
amended ("Exchange Act"), no director shall serve as a member of the Committee
unless he or she is a "disinterested person" within the meaning of such Rule
16b-3.
Stock Options
The Committee shall have sole and absolute discretionary authority (i)
to determine, authorize, and designate those persons pursuant to the Plan who
are to receive warrants, options, restricted common or convertible preferred
stock, or unrestricted common or convertible preferred stock under the Plan,
(ii) to determine the number of shares of Common Stock to be covered by such
grant or such options or warrants and the terms thereof, (iii) to determine the
type of Common Stock granted: restricted common or convertible preferred stock,
unrestricted common or convertible preferred stock or a combination of
restricted and unrestricted common or convertible preferred stock, and (iv) to
determine the type of option or warrant granted: ISO, Nonqualified Option or a
combination of ISO and Nonqualified Options. The Committee shall thereupon grant
options or warrants in accordance with such determinations as evidenced by a
written option or warrant agreement. Subject to the express provisions of the
Plan, the Committee shall have discretionary authority to prescribe, amend and
rescind rules and regulations relating to the Plan, to interpret the Plan, to
prescribe and amend the terms of the option or warrant agreements (which need
not be identical) and to make all other determinations deemed necessary or
advisable for the administration of the Plan.
The aggregate fair market value (determined in accordance with the Plan
at the time the option or warrant is granted) of the Common Stock with respect
to which ISOs may be exercisable for the first time by any Participant during
any calendar year under all such plans of the Company and its Affiliates shall
not exceed $1,000,000.
The Committee shall promptly notify the Participant of the option or
warrant grant and a written agreement shall promptly be executed and delivered
by and on behalf of the Company and the Participant, provided that the option or
warrant grant shall expire if a written agreement is not signed by said
Participant (or his agent or attorney) and returned to the Company within 60
days from date of receipt by the Participant of such agreement. The date of
grant shall be the date the option or warrant is actually granted by the
Committee, even though the written agreement may be executed and delivered by
the Company and the Participant after that date. Each option or warrant
agreement shall specify the period for which the option or warrant thereunder is
granted (which in no event shall exceed ten years from the date of grant) and
shall provide that the option or warrant shall expire at the end of such period.
If the original term of an option or warrant is less than ten years from the
date of grant, the option or warrant may be amended prior to its expiration,
with the approval of the Committee and the Participant, to extend the term so
that the term as amended is not more than ten years from the date of grant.
However, in the case of an ISO granted to an individual who, at the time of
grant, owns stock possessing more than 10 percent of the total combined voting
power of all classes of stock of the Company or its Affiliate ("Ten Percent
Stockholder"), such period shall not exceed five years from the date of grant.
The purchase price of each share of Common Stock subject to each option
or warrant granted pursuant to the Plan shall be determined by the Committee at
the time the option or warrant is granted and, in the case of ISOs, shall not be
less than 100% of the fair market value of a share of Common Stock on the date
the option or warrant is granted, as determined by the Committee. In the case of
an ISO granted to a Ten Percent Stockholder, the option or warrant price shall
not be less than 110% of the fair market value of a share of Common Stock on the
date the option or warrant is granted. The purchase price of each share of
Common Stock subject to a Nonqualified Option or Warrant under the Plan shall be
determined by the Committee prior to granting the option or warrant. The
Committee shall set the purchase price for each share subject to a Nonqualified
Option or Warrant at either the fair market value of each share on the date the
option or warrant is granted, or at such other price as the Committee in its
sole discretion shall determine.
At the time a determination of the fair market value of a share of
Common Stock is required to be made hereunder, the determination of its fair
market value shall be made by the Committee in such manner as it deems
appropriate.
Restricted Stock
Awards of restricted stock under the Plan shall be subject to all the
applicable provisions of the Plan, including the following terms and conditions,
and to such other terms and conditions not inconsistent therewith, as the
Committee shall determine:
(a) Awards of restricted stock may be in addition to or in
lieu of option or warrant grants. Awards may be conditioned on the
attainment of particular performance goals based on criteria
established by the Committee at the time of each award of restricted
stock. During a period set forth in the agreement (the "Restriction
Period"), the recipient shall not be permitted to sell, transfer,
pledge, or otherwise encumber the shares of restricted stock; except
that such shares may be used, if the agreement permits, to pay the
option or warrant price pursuant to any option or warrant granted under
the Plan, provided an equal number of shares delivered to the
Participant shall carry the same restrictions as the shares so used.
Shares of restricted stock shall become free of all restrictions if
during the Restriction Period, (i) the recipient dies, (ii) the
recipient's directorship, employment, or consultancy terminates by
reason of permanent disability, as determined by the Committee, (iii)
the recipient retires after attaining both 59 1/2 years of age and five
years of continuous service with the Company and/or a division or
subsidiary, or (iv) if provided in the agreement, there is a "change in
control" of the Company (as defined in such agreement). The Committee
may require medical evidence of permanent disability, including medical
examinations by physicians selected by it. Unless and to the extent
otherwise provided in the agreement, shares of restricted stock shall
be forfeited and revert to the Company upon the recipient's termination
of directorship, employment or consultancy during the Restriction
Period for any reason other than death, permanent disability, as
determined by the Committee, retirement after attaining both 59 1/2
years of age and five years of continuous service with the Company
and/or a subsidiary or division, or, to the extent provided in the
agreement, a "change in control" of the Company (as defined in such
agreement), except to the extent the Committee, in its sole discretion,
finds that such forfeiture might not be in the best interests of the
Company and, therefore, waives all or part of the application of this
provision to the restricted stock held by such recipient. Certificates
for restricted stock shall be registered in the name of the recipient
but shall be imprinted with the appropriate legend and returned to the
Company by the recipient, together with a stock power endorsed in blank
by the recipient. The recipient shall be entitled to vote shares of
restricted stock and shall be entitled to all dividends paid thereon,
except that dividends paid in Common Stock or other property shall also
be subject to the same restrictions.
(b) Restricted Stock shall become free of the foregoing
restrictions upon expiration of the applicable Restriction Period and
the Company shall then deliver to the recipient Common Stock
certificates evidencing such stock. Restricted stock and any Common
Stock received upon the expiration of the restriction period shall be
subject to such other transfer restrictions and/or legend requirements
as are specified in the applicable agreement.
Bonuses and Past Salaries and Fees Payable in Unrestricted Stock
(a) In lieu of cash bonuses otherwise payable under the
Company's or applicable division's or subsidiary's compensation
practices to employees and consultants eligible to participate in the
Plan, the Committee, in its sole discretion, may determine that such
bonuses shall be payable in unrestricted Common Stock or partly in
unrestricted Common Stock and partly in cash. Such bonuses shall be in
consideration of services previously performed and as an incentive
toward future services and shall consist of shares of unrestricted
Common Stock subject to such terms as the Committee may determine in
its sole discretion. The number of shares of unrestricted Common Stock
payable in lieu of a bonus otherwise payable shall be determined by
dividing such bonus amount by the fair market value of one share of
Common Stock on the date the bonus is payable, with fair market value
determined as of such date.
(b) In lieu of salaries and fees otherwise payable by the
Company to employees, attorneys and consultants eligible to participate
in the Plan that were incurred for services rendered during, prior or
after the year of 2002, the Committee, in its sole discretion, may
determine that such unpaid salaries and fees shall be payable in
unrestricted Common Stock or partly in unrestricted Common Stock and
partly in cash. Such awards shall be in consideration of services
previously performed and as an incentive toward future services and
shall consist of shares of unrestricted Common Stock subject to such
terms as the Committee may determine in its sole discretion. The number
of shares of unrestricted Common Stock payable in lieu of a salaries
and fees otherwise payable shall be determined by dividing each
calendar month's of unpaid salary or fee amount by the average trading
value of the Common Stock for the calendar month during which the
subject services were provided.
Relinquishment of Options
The Committee, in granting options or warrants hereunder, shall have
discretion to determine whether or not options or warrants shall include a right
of relinquishment as hereinafter provided. The Committee shall also have
discretion to determine whether an option or warrant agreement evidencing an
option or warrant initially granted by the Committee without a right of
relinquishment shall be amended or supplemented to include such a right of
relinquishment. Neither the Committee nor the Company shall be under any
obligation or incur any liability to any person by reason of the Committee's
refusal to grant or include a right of relinquishment in any option or warrant
granted hereunder or in any option or warrant agreement evidencing the same.
Subject to the Committee's determination in any case that the grant by it of a
right of relinquishment is consistent, any option or warrant granted under the
Plan, and the option or warrant agreement evidencing such option or warrant, may
provide.
The Committee shall have sole discretion to consent to or disapprove,
and neither the Committee nor the Company shall be under any liability by reason
of the Committee's disapproval of, any election by a holder of preferred stock
to relinquish such preferred stock in whole or in part as provided in Paragraph
7(a), except that no such consent to or approval of a relinquishment shall be
required under the following circumstances. Each Participant who is subject to
the short-swing profits recapture provisions of Section 16(b) of the Exchange
Act ("Covered Participant") shall not be entitled to receive shares of Common
Stock when options or warrants are relinquished during any window period
commencing on the third business day following the Company's release of a
quarterly or annual summary statement of sales and earnings and ending on the
twelfth business day following such release ("Window Period"). A Covered
Participant shall be entitled to receive shares of Common Stock upon the
relinquishment of options or warrants outside a Window Period.
No right of relinquishment may be exercised after the initial award of
any option or warrant containing, or the amendment or supplementation of any
existing option or warrant agreement adding the right of relinquishment, unless
such right of relinquishment is effective upon the Participant's death,
disability or termination of his relationship with the Company for a reason
other than "for cause."
Grant of Convertible Preferred Stock
The Committee shall have sole and absolute discretionary authority (i)
to determine, authorize, and designate those persons pursuant to the Plan who
are to receive restricted preferred stock, or unrestricted preferred stock under
the Plan, and (ii) to determine the number of shares of Common Stock to be
issued upon conversion of such shares of preferred stock and the terms thereof.
The Committee shall thereupon grant shares of preferred stock in accordance with
such determinations as evidenced by a written preferred stock designation.
Subject to the express provisions of the Plan, the Committee shall have
discretionary authority to prescribe, amend and rescind rules and regulations
relating to the Plan, to interpret the Plan, to prescribe and amend the terms of
the preferred stock designation (which need not be identical) and to make all
other determinations deemed necessary or advisable for the administration of the
Plan.
Each series of preferred stock granted under the Plan shall be
evidenced by a designation in the form for filing with the Secretary of State of
the state of incorporation of the Company, containing such terms as approved by
the Committee, which shall be subject to the following express terms and
conditions and to such other terms and conditions as the Committee may deem
appropriate:
(i) The number of shares of Common Stock issuable upon
conversion of each share of preferred stock granted pursuant to the
Plan shall be determined by the Committee at the time the preferred
stock is granted. The conversion ration may be determined by reference
to the fair market value of each share of Common Stock on the date the
preferred stock is granted, or at such other price as the Committee in
its sole discretion shall determine.
(ii) The Committee may provide in the preferred stock
agreement that an preferred stock may be converted in whole,
immediately, or is to be convertible in increments. In addition, the
Committee may provide that the conversion of all or part of an
preferred stock is subject to specified performance by the Participant.
(iii) Shares of preferred stock shall be converted in the
manner specified in the preferred stock designation. The notice of
conversion shall specify the address to which the certificates for such
shares are to be mailed. A Participant shall be deemed to be a
stockholder with respect to shares covered by preferred stock on the
date specified in the preferred stock agreement. As promptly as
practicable, the Company shall deliver to the Participant or other
holder of the warrant, certificates for the number of shares with
respect to which such preferred stock has been so converted, issued in
the holder's name or such other name as holder directs; provided,
however, that such delivery shall be deemed effected for all purposes
when a stock transfer agent of the Company shall have deposited such
certificates with a carrier for overnight delivery, addressed to the
holder at the address specified pursuant to this Section 6(d).
(iv) Awards of restricted preferred stock under the Plan shall
be subject to all the applicable provisions of the Plan, including the
following terms and conditions, and to such other terms and conditions
not inconsistent therewith, as the Committee shall determine:
(A) Awards of restricted preferred stock may be in
addition to or in lieu of preferred stock grants. Awards may
be conditioned on the attainment of particular performance
goals based on criteria established by the Committee at the
time of each award of restricted preferred stock. During a
period set forth in the agreement (the "Restriction Period"),
the recipient shall not be permitted to sell, transfer,
pledge, or otherwise encumber the shares of restricted
preferred stock. Shares of restricted preferred stock shall
become free of all restrictions if during the Restriction
Period, (i) the recipient dies, (ii) the recipient's
directorship, employment, or consultancy terminates by reason
of permanent disability, as determined by the Committee, (iii)
the recipient retires after attaining both 59 1/2 years of age
and five years of continuous service with the Company and/or a
division or subsidiary, or (iv) if provided in the agreement,
there is a "change in control" of the Company (as defined in
such agreement). The Committee may require medical evidence of
permanent disability, including medical examinations by
physicians selected by it. Unless and to the extent otherwise
provided in the agreement, shares of restricted preferred
stock shall be forfeited and revert to the Company upon the
recipient's termination of directorship, employment or
consultancy during the Restriction Period for any reason other
than death, permanent disability, as determined by the
Committee, retirement after attaining both 59 1/2 years of age
and five years of continuous service with the Company and/or a
subsidiary or division, or, to the extent provided in the
agreement, a "change in control" of the Company (as defined in
such agreement), except to the extent the Committee, in its
sole discretion, finds that such forfeiture might not be in
the best interests of the Company and, therefore, waives all
or part of the application of this provision to the restricted
preferred stock held by such recipient. Certificates for
restricted preferred stock shall be registered in the name of
the recipient but shall be imprinted with the appropriate
legend and returned to the Company by the recipient, together
with a preferred stock power endorsed in blank by the
recipient. The recipient shall be entitled to vote shares of
restricted preferred stock and shall be entitled to all
dividends paid thereon, except that dividends paid in Common
Stock or other property shall also be subject to the same
restrictions.
(B) Restricted preferred stock shall become free of
the foregoing restrictions upon expiration of the applicable
Restriction Period and the Company shall then deliver to the
recipient Common Stock certificates evidencing such stock.
Restricted preferred stock and any Common Stock received upon
the expiration of the restriction period shall be subject to
such other transfer restrictions and/or legend requirements as
are specified in the applicable agreement.
(v) No Participant shall have any rights as a stockholder with
respect to shares covered by an preferred stock until the preferred
stock is converted as provided in clause (b)(iii) above.
(vi) Except as hereinbefore expressly provided, (i) the
issuance by the Company of shares of stock or any class of securities
convertible into shares of stock of any class, for cash, property,
labor or services, upon direct sale, upon the conversion of rights or
warrants to subscribe therefor, or upon conversion of shares or
obligations of the Company convertible into such shares or other
securities, (ii) the payment of a dividend in property other than
Common Stock or (iii) the occurrence of any similar transaction, and in
any case whether or not for fair value, shall not affect, and no
adjustment by reason thereof shall be made with respect to, the number
of shares of Common Stock subject to preferred stock theretofore
granted, unless the Committee shall determine, in its sole discretion,
that an adjustment is necessary to provide equitable treatment to
Participant. Notwithstanding anything to the contrary contained in the
Plan, the Committee may, in its sole discretion, accelerate the time at
which any preferred stock may be converted, including, but not limited
to, upon the occurrence of the events specified in this Section 7(xiv).
Amendments or Termination
The Board may amend, alter or discontinue the Plan, but no amendment or
alteration shall be made which would impair the rights of any Participant,
without his consent, under any option, warrant or preferred stock theretofore
granted.
Compliance with other Laws and Regulations
The Plan, the grant and exercise of options or warrants and grant and
conversion of preferred stock thereunder, and the obligation of the Company to
sell and deliver shares under such options, warrants or preferred stock, shall
be subject to all applicable federal and state laws, rules and regulations and
to such approvals by any governmental or regulatory agency as may be required.
The Company shall not be required to issue or deliver any certificates for
shares of Common Stock prior to the completion of any registration or
qualification of such shares under any federal or state law or issuance of any
ruling or regulation of any government body which the Company shall, in its sole
discretion, determine to be necessary or advisable. Any adjustments provided for
in subparagraphs 5(d)(xii), (xiii) and (xiv) shall be subject to any shareholder
action required by the corporate law of the state of incorporation of the
Company.
Purchase for Investment
Unless the options, warrants, shares of convertible preferred stock and
shares of Common Stock covered by the Plan have been registered under the
Securities Act of 1933, as amended, or the Company has determined that such
registration is unnecessary, each person acquiring or exercising an option or
warrant under the Plan or converting shares of preferred stock may be required
by the Company to give a representation in writing that he or she is acquiring
such option or warrant or such shares for his own account for investment and not
with a view to, or for sale in connection with, the distribution of any part
thereof.
Tax Information
(a) The Company may make such provisions as it may deem
appropriate for the withholding of any taxes which it determines is
required in connection with any options, warrants or preferred stock
granted under the Plan.
(b) Notwithstanding the terms of Paragraph 11(a), any
Participant may pay all or any portion of the taxes required to be
withheld by the Company or paid by him or her in connection with the
exercise of a nonqualified option or warrant or conversion of preferred
stock by electing to have the Company withhold shares of Common Stock,
or by delivering previously owned shares of Common Stock, having a fair
market value, determined in accordance with Paragraph 5(d)(ii), equal
to the amount required to be withheld or paid. A Participant must make
the foregoing election on or before the date that the amount of tax to
be withheld is determined ("Tax Date"). All such elections are
irrevocable and subject to disapproval by the Committee. Elections by
Covered Participants are subject to the following additional
restrictions: (i) such election may not be made within six months of
the grant of an option or warrant, provided that this limitation shall
not apply in the event of death or disability, and (ii) such election
must be made either six months or more prior to the Tax Date or in a
Window Period. Where the Tax Date in respect of an option or warrant is
deferred until six months after exercise and the Covered Participant
elects share withholding, the full amount of shares of Common Stock
will be issued or transferred to him upon exercise of the option or
warrant, but he or she shall be unconditionally obligated to tender
back to the Company the number of shares necessary to discharge the
Company's withholding obligation or his estimated tax obligation on the
Tax Date.
Replacement of Options, Warrants and Preferred Stock
The Committee from time to time may permit a Participant under the Plan
to surrender for cancellation any unexercised outstanding option or warrant or
unconverted Preferred stock and receive from the Company in exchange an option,
warrant or preferred stock for such number of shares of Common Stock as may be
designated by the Committee. The Committee may, with the consent of the holder
of any outstanding option, warrant or preferred stock, amend such option,
warrant or preferred stock, including reducing the exercise price of any option
or warrant to not less than the fair market value of the Common Stock at the
time of the amendment, increasing the conversion ratio of any preferred stock
and extending the exercise or conversion term of and warrant, option or
preferred stock.
Effectiveness and Expiration of Plan
The Plan shall be effective on the date the Board adopts the Plan. The
Plan shall expire ten years after the date the Board approves the Plan and
thereafter no option, warrant or preferred stock shall be granted pursuant to
the Plan.
Non-Exclusivity of the Plan
Neither the adoption by the Board nor the submission of the Plan to the
stockholders of the Company for approval shall be construed as creating any
limitations on the power of the Board to adopt such other incentive arrangements
as it may deem desirable, including without limitation, the granting of
restricted stock or stock options, warrants or preferred stock otherwise than
under the Plan, and such arrangements may be either generally applicable or
applicable only in specific cases.
Governing Law
The Plan and any agreements hereunder shall be interpreted and
construed in accordance with the laws of the state of incorporation of the
Company and applicable federal law.
Cashless Exercise
The Committee also may allow cashless exercises as permitted under
Federal Reserve Board's Regulation T, subject to applicable securities law
restrictions or by any other means which the Committee determines to be
consistent with the Plan's purpose and applicable law. The proceeds from such a
payment shall be added to the general funds of the Company and shall be used for
general corporate purposes.
Equity Compensation Plan
---------------------------- -------------------------- -------------------------- --------------------------
Number of securities
remaining available for
future issuance under
Number of securities to Weighted-average of equity compensation
be issued upon exercise exercise price of plans (excluding
of outstanding options, outstanding options, securities reflected in
Plan Category warrants and rights warrants and rights column (a))
---------------------------- -------------------------- -------------------------- --------------------------
(a) (b) (c)
---------------------------- -------------------------- -------------------------- --------------------------
Insynq, Inc. 2000 Long
Term Incentive Plan 13,713,677 0.246 11,069,748
---------------------------- -------------------------- -------------------------- --------------------------
Insynq, Inc 2000 Executive
Long Term Incentive Plan
- - 400,000
---------------------------- -------------------------- -------------------------- --------------------------
2000 Long Term Incentive Plan
The 2000 Long Term Incentive Plan (the "LTIP") provides for the
issuance of incentive and non-qualified stock options, stock appreciation rights
and restricted stock to directors, officers, employees and consultants. At the
adoption of this plan, the Company set aside 16,675,300 shares of common stock,
which may be issued upon the exercise of options granted. On November 19, 2001
the stockholders approved an amendment to the LTIP, which would set aside an
additional 15,000,000 shares of common stock for a total of 31,675,300 shares of
common stock, which may be issued upon the exercise of options granted. As of
May 31, 2002, options available for issuance are 11,069,748. A copy of the LTIP
is attached hereto as Exhibit "F."
2000 Executive Long Term Incentive Plan
The 2000 Executive Long Term Incentive Plan (the "Executive LTIP")
provides for the issuance of incentive and non-qualified stock options, stock
appreciation rights and restricted stock to executive officers of the Company.
The Company set aside 5,400,000 shares of Class A common stock under this plan
at its adoption. As of May 31, 2002, options available for issuance are 400,000.
A copy of the Executive LTIP is attached hereto as Exhibit "E."
The Company's Board of Directors administers the Plans and the Board
may amend or terminate the Plans if it does not cause any adverse effect on any
then outstanding options or unexercised portion thereof. All options generally
have an exercise price equal the fair value of the underlying common stock on
the date of grant, vest immediately and expire in ten years.
Rights of Dissenting Shareholders
Any Company stockholder is entitled to be paid the fair value of its
shares in accordance with Section 262 of the General Corporation Law of the
State of Delaware ("Delaware Law") if the stockholder dissents to the
reincorporation or any of the actions resulting from or in connection with the
reincorporation, including the exchange ratio of the Company common stock or
preferred stock for Insynq Nevada common stock. A brief summary of the
provisions of Delaware Law Sections 262 is set forth below and the complete text
of said Section is attached as Exhibit "C".
Because the reincorporation has been approved by the required vote of
the Company's stockholders effective twenty days from the mailing of this
Information Statement, each holder of shares of the Company Common Stock who
asserts dissenters' rights and who follows the procedures set forth in Section
262 of Delaware Law, will be entitled to have his or her shares of the Company
Common Stock purchased by the Company for cash at their fair market value. The
fair market value of shares of the Company Common Stock will be determined as of
the day before the first announcement of the terms of the reincorporation,
excluding any appreciation or depreciation in consequence of the
reincorporation.
A holder who wishes to exercise dissenters' rights should deliver his
or her written demand to the Company's transfer agent, Colonial Stock Transfer
Co., 455 E. 400 South, Suite 100, Salt Lake City, Utah 84111 with a copy (which
shall not constitute notice) to Robert L. Sonfield, Jr., Esq., Sonfield and
Sonfield, 770 South Post Oak Lane, Houston, Texas 77056, on or before 20 days
after the date of mailing of this Information Statement. The demand will be
sufficient if it reasonably informs the Company of the identity of the
stockholder and that the stockholder intends thereby to demand the appraisal of
such holder's shares. Any stockholder who does not follow the foregoing is not
entitled to payment for his shares under Delaware Law.
In accordance with the regulations promulgated under the Exchange Act,
the authorization of the reincorporation will not become effective until twenty
days after the Company has mailed this Information Statement to the stockholders
of the Company.
Within 120 days after the effective date of the reincorporation, Insynq
Nevada or any stockholder who has complied with Section 262 and who is otherwise
entitled to appraisal rights, may file a petition in the Delaware Court of
Chancery demanding a determination of the value of the stock of all such
stockholders. At any time within 60 days after the effective date of the
reincorporation, any stockholder shall have the right to withdraw such
stockholder's demand for appraisal and to accept the terms offered upon the
reincorporation. After determining the stockholders entitled to an appraisal,
the Court shall appraise the shares, determining their fair value exclusive of
any element of value arising from the accomplishment or expectation of the
reincorporation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. The Court shall direct the payment
of the fair value of the shares, together with interest, if any, by the
surviving or resulting corporation to the stockholders entitled thereto.
Interest may be simple or compound, as the Court may direct. The costs of the
proceeding may be determined by the Court and taxed upon the parties as the
Court deems equitable in the circumstances.
The foregoing summary does not purport to provide comprehensive
statements of the procedures to be followed by a dissenting stockholder who
seeks payment of the fair value of his shares of the Company Common Stock.
Delaware Law establishes the procedures to be followed and failure to do so may
result in the loss of all dissenters' rights. Accordingly, each stockholder who
might desire to exercise dissenters' rights should carefully consider and comply
with the provisions of these sections and consult his legal advisor.
THE COMPANY HAS RESERVED THE RIGHT TO ABANDON THE REINCORPORATION IF IT
DECIDES THAT THE NUMBER OF STOCKHOLDERS EXERCISING DISSENTERS' RIGHTS EXCEEDS AN
AMOUNT IT DEEMS ACCEPTABLE IN ITS SOLE AND ABSOLUTE DISCRETION.
The discussion contained herein is qualified in its entirety by and
should be read in conjunction with the form of the Agreement and Plan of Merger
and the Articles of Incorporation.
COMMUNICATIONS WITH RESPECT TO DISSENTERS' RIGHTS SHOULD BE ADDRESSED
TO THE COMPANY's Transfer Agent, Colonial Stock Transfer Co., 455 E. 400 South,
Suite 100, Salt Lake City, Utah 84111.
Upon filing a notice of election to dissent a dissenting shareholder
will cease to have any of the rights of a shareholder except the right to be
paid the fair value of his Company Stock pursuant to the Delaware Law. If a
shareholder loses his dissenters' rights, either by withdrawal of his demand,
abandonment of the reincorporation by the Company or otherwise, he will not have
the right to receive a cash payment for his Company Stock and will be reinstated
to all of his rights as a shareholder as they existed at the time of the filing
of his demand.
THE PROVISIONS OF DELAWARE LAW SECTION 262 ARE TECHNICAL AND COMPLEX.
IT IS SUGGESTED THAT ANY SHAREHOLDER WHO DESIRES TO EXERCISE RIGHTS TO DISSENT
CONSULT LEGAL COUNSEL, AS FAILURE TO COMPLY STRICTLY WITH SUCH PROVISIONS MAY
LEAD TO A LOSS OF DISSENTERS' RIGHTS.
MARKET FOR THE COMPANY COMMON STOCK
The Company Common Stock has been thinly traded on a limited and
sporadic basis in the over-the-counter market since 2001. The last known bid
price was $0.001 and the last known ask price was $0.001 as of October 14, 2002.
The following table sets forth the high and low bid price of the Company Common
Stock for the period indicated.
FISCAL 2001 FISCAL 2002 to date
----------- -------------------
Bid AsKed Bid Asked
Low High Low High Low High Low High
First quarter 1.75 6.25 0.06 6.38 0.045 0.09 0.05 0.05
Second quarter 0.69 2.50 0.72 2.75 0.013 0.05 0.014 0.058
Third quarter 0.31 0.94 0.31 1.00 0.010 0.013 0.012 0.03
Fourth quarter 0.05 0.75 0.08 0.81 0.0055 0.012 0.003 0.017
MISCELLANEOUS
The Company requests brokers, custodians, nominees and fiduciaries to
forward this Information Statement to the beneficial owners of Company Common
Stock and the Company will reimburse such holders for their reasonable expenses
in connection therewith. Additional copies of this Information Statement may be
obtained at no charge from the Company's transfer agent, Colonial Stock Transfer
Co., 455 E. 400 South, Suite 100, Salt Lake City, Utah 84111.
EXHIBIT A
PLAN AND AGREEMENT OF MERGER
OF
Insynq, Inc.
(a Delaware corporation)
AND
Insynq, Inc.
(a Nevada corporation)
THIS PLAN AND AGREEMENT OF MERGER entered into on November 18, 2002 by
Insynq, Inc., a Delaware corporation ("Insynq Delaware"), and approved by
resolution adopted by its Board of Directors on said date, and entered into on
July 25, 2002 by Insynq, Inc., a Nevada corporation ("Insynq Nevada"), and
approved by resolution adopted by its Board of Directors on said date.
WHEREAS, Insynq Delaware is a business corporation of the State of
Delaware with its registered office therein located at The Corporation Trust
Company, 1209 Orange Street, City of Wilmington, County of New Castle, 19801.and
WHEREAS, the total number of shares of stock which Insynq Delaware has
authority to issue is 270,000,00, of which 250,000,000 are common stock, $0.001
par value per share, and 10,000,000 are preferred stock, $.001 par value per
share; and 10,000,000 are common stock Class A, $0.001 par value per share; and
WHEREAS, Insynq Nevada is a business corporation of the State of Nevada
with its registered office therein located at One East First Street, Reno,
Washoe County, Nevada 89501; and
WHEREAS, the total number of shares of stock which Insynq Nevada has
authority to issue is 510,000,000, of which 500,000,000 are common stock, $.001
par value per share, and 10,000,000 are preferred stock, $.001 par value per
share; and
WHEREAS, the General Corporation Law of the State of Delaware permits a
merger of a business corporation of the State of Delaware with and into a
business corporation of another jurisdiction; and
WHEREAS, the Nevada Revised Statutes permits the merger of a business
corporation of another jurisdiction with and into a business corporation of the
State of Nevada; and
WHEREAS, Insynq Delaware and Insynq Nevada and the respective Boards of
Directors thereof declare it advisable and to the advantage, welfare, and best
interests of said corporations and their respective stockholders to merge Insynq
Delaware with and into Insynq Nevada pursuant to the provisions of the General
Corporation Law of the State of Delaware and pursuant to the provisions of the
Nevada Revised Statutes upon the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreement of the parties hereto, being thereunto duly entered into by Insynq
Delaware and approved by a resolution adopted by its Board of Directors and
being thereunto duly entered into by Insynq Nevada and approved by a resolution
adopted by its Board of Directors, the Merger and the terms and conditions
thereof and the mode of carrying the same into effect, are hereby determined and
agreed upon as hereinafter in this Plan and Agreement of Merger set forth.
1. Insynq Delaware shall, pursuant to the provisions of the
General Corporation Law of the State of Delaware and to the provisions
of the Nevada Revised Statutes, be merged with and into Insynq Nevada,
which shall be the surviving corporation from and after the effective
time of the merger and which is sometimes hereinafter referred to as
the "surviving corporation," and which shall continue to exist as said
surviving corporation under its present name pursuant to the provisions
of the Nevada Revised Statutes. The separate existence of Insynq
Delaware, which is sometimes hereinafter referred to as the
"terminating corporation", shall cease at said effective time in
accordance with the provisions of the General Corporation Law of the
State of Delaware.
2. The present Articles of Incorporation of the surviving
corporation will be the Articles of Incorporation of the surviving
corporation and will continue in full force and effect until changed,
altered, or amended as therein provided and in the manner prescribed by
the provisions of the Nevada Revised Statutes.
3. The present by-laws of the surviving corporation will be
the by-laws of said surviving corporation and will continue in full
force and effect until changed, altered, or amended as therein provided
and in the manner prescribed by the provisions of the Nevada Revised
Statutes.
4. The directors and officers in office of the surviving
corporation at the effective time of the merger shall be the members of
the Board of Directors and the officers of the surviving corporation,
all of whom shall hold their directorships and offices until the
election and qualification of their respective successors or until
their tenure is otherwise terminated in accordance with the by-laws of
the surviving corporation.
5. Each issued share of the common stock, $.001 par value per
share, of the terminating corporation shall, from and after the
effective time of the merger, be converted into one hundredth (0.01)
share of the surviving corporation. The surviving corporation shall not
issue any certificate or script representing a fractional share but
shall instead issue one full share of the surviving corporation for any
fractional interest arising from the merger. Pursuant to the laws of
the State of Nevada, each share of the terminating corporation shall be
tendered to the surviving corporation for exchange into shares of the
surviving corporation within 30 days after the effective time of the
merger. Upon receipt of such shares of the terminating corporation, the
surviving corporation shall issue a certificate for the whole shares of
the surviving corporation that are issuable in exchange for the shares
of the terminating corporation. The shares of the surviving corporation
that are outstanding immediately prior to the effect time of the merger
shall be cancelled and deemed not outstanding as of the effective time
of the merger.
6. Each issued share of the preferred stock, $.001 par value
per share (except the Series A Convertible Preferred Stock that
converts automatically to common stock of the surviving corporation),
of the terminating corporation shall, from and after the effective time
of the merger, be converted into one share of the preferred stock of
the surviving corporation, having substantially similar powers,
designations, preferences and relative, participating, optional and
other rights as the preferred shares of the terminating corporation.
Pursuant to the laws of the State of Nevada, each share of the
preferred stock of the terminating corporation shall be tendered to the
surviving corporation for exchange into shares of the preferred stock
of the surviving corporation within 30 days after the effective time of
the merger.
7. The surviving corporation may sue in any court with
jurisdiction to cause any stockholder of the terminating corporation to
tender certificates representing shares owned by such stockholder to be
tendered to the surviving corporation for exchange. Stockholders of the
terminating corporation shall have no rights to notices, distributions
or voting with respect to the surviving corporation unless the
certificates representing shares of the terminating corporation are
tendered to the surviving corporation for exchange.
8. Except to the extent otherwise provided in the terms of
outstanding options, warrants or other rights to purchase, or
securities convertible into or exchangeable for common stock of the
terminating corporation (other than shares of the preferred stock of
the terminating corporation), each outstanding option, warrant or other
right to purchase, and each outstanding security convertible into or
exchangeable for common stock shall be converted into an option,
warrant or other right to purchase, or security convertible into or
exchangeable for common stock of the surviving corporation on the basis
of one hundredth (.01) share of the surviving corporation for each
share of the terminating corporation and the per share exercise or
conversion prices under those securities, will be adjusted
appropriately, so that the aggregate number of shares of common stock
that me be issued on exercise or conversion will be one-hundredth of
the number issuable before the reverse split, and the aggregate
exercise or conversion prices will remain unchanged.
9. The surviving corporation does hereby agree that it may be
served with process in the State of Delaware in any proceeding for
enforcement of any obligation of the terminating corporation, as well
as for enforcement of any obligation of the surviving corporation
arising from the merger herein provided for, including any suit or
other proceeding to enforce the right of any stockholder of the
terminating corporation as and when determined in appraisal proceedings
pursuant to the provisions of Section 262 of the General Corporation
Law of the State of Delaware; does hereby irrevocably appoint the
Secretary of State of the State of Delaware as its agent to accept
service of process in any such suit or other proceedings; and does
hereby specify the following address without the State of Delaware to
which a copy of such process shall be mailed by the Secretary of State
of the State of Delaware:
1127 Broadway Plaza, Suite 10
Tacoma, Washington 98402
10. In the event that this Plan and Agreement of Merger shall
have been fully approved and adopted upon behalf of the terminating
corporation in accordance with the provisions of the General
Corporation Law of the State of Delaware and upon behalf of the
surviving corporation in accordance with the provisions of the Nevada
Revised Statutes, the said corporations agree that they will cause to
be executed and filed and recorded any document or documents prescribed
by the laws of the State of Delaware and by the laws of the State of
Nevada, and that they will cause to be performed all necessary acts
within the State of Delaware and the State of Nevada and elsewhere to
effectuate the merger herein provided for.
11. The Board of Directors and the proper officers of the
terminating corporation and of the surviving corporation are hereby
authorized, empowered, and directed to do any and all acts and things,
and to make, execute, deliver, file, and record any and all
instruments, papers, and documents which shall be or become necessary,
proper, or convenient to carry out or put into effect any of the
provisions of this Plan and Agreement of Merger or of the merger herein
provided for.
12. The effective time of this Plan and Agreement of Merger,
and the time at which the merger herein agreed shall become effective
in the State of Delaware and the State of Nevada, shall be on the last
to occur of:
(a) the date specified in a certificate of merger
meeting the requirements of the General Corporation Law of the
State of Delaware is filed with the Secretary of State of the
State of Delaware ; or
(b) the date specified in a certificate of merger
meeting the requirements of the Nevada Revised Statutes, is
filed with the Secretary of State of the State of Nevada.
13. Notwithstanding the full approval and adoption of this
Plan and Agreement of Merger, the said Plan and Agreement of Merger may
be terminated at any time prior to the effective time specified in the
certificate of merger filed with the Secretary of State of the State of
Nevada.
14. Notwithstanding the full approval and adoption of this
Plan and Agreement of Merger, the said Plan and Agreement of Merger may
be amended at any time and from time to time prior to the filing
thereof with the Secretary of State of the State of Delaware and at any
time and from time to time prior to the filing of any requisite merger
documents with the Secretary of State of the State of Nevada except
that, without the approval of the stockholders of Insynq Delaware and
the stockholders of Insynq Nevada, no such amendment may (a) change the
rate of exchange for any shares of Insynq Delaware or the types or
amounts of consideration that will be distributed to the holders of the
shares of stock of Insynq Delaware; (b) change any term of the Articles
of Incorporation of the surviving corporation; or (c) adversely affect
any of the rights of the stockholders of Insynq Delaware or Insynq
Nevada.
IN WITNESS WHEREOF, this Plan and Agreement of Merger is hereby
executed upon behalf of each of the constituent corporations parties thereto.
Dated: ___________________ Insynq Delaware
By:___________________________
John P. Gorst, President
Insynq Nevada
By:___________________________
John P. Gorst, President
EXHIBIT B
ARTICLES OF INCORPORATION
OF
Insynq, Inc.
For the purpose of associating to establish a corporation under the
provisions and subject to the requirements of Title 7, Chapter 78 of Nevada
Revised Statutes, and the acts amendatory thereof, and hereinafter sometimes
referred to as the Nevada Revised Statutes, the undersigned incorporator does
hereby adopt and make the following Articles of Incorporation:
FIRST: The name of the corporation (hereinafter called the corporation)
is Insynq, Inc.
SECOND: The name of the corporation's resident agent in the State of
Nevada is The Corporation Trust Company of Nevada and the street address of the
said resident agent where process may be served on the corporation is 6100 Neil
Rd, Reno, Washoe County, Nevada 89505. The mailing address and the street
address of the said resident agent are identical.
THIRD: The aggregate number of shares of all classes of capital stock
which the corporation has authority to issue is 510,000,000 of which 500,000,000
are to be shares of common stock, $.001 par value, and 10,000,000 are to be
preferred stock, $.001 par value. The shares may be issued by the corporation
from time to time as approved by the board of directors of the corporation
without the approval of the stockholders except as otherwise provided by the
Nevada Revised Statutes, these Articles of Incorporation, or the rules of a
national securities exchange if applicable. The consideration for the issuance
of the shares shall be paid to or received by the corporation in full before
their issuance and shall not be less than the par value per share. The
consideration for the issuance of shares shall be cash, services rendered,
personal property (tangible or intangible), real property, leases of real
property or any combination of the foregoing. In the absence of actual fraud in
the transaction, the judgment of the board of directors as to the value of such
consideration shall be conclusive. Upon payment of such consideration such
shares shall be deemed to be fully paid and nonassessable. In the case of a
stock dividend, the part of the surplus of the corporation which is transferred
to stated capital upon the issuance of shares as a stock dividend shall be
deemed to be the consideration for their issuance.
(a) Except as provided in Articles of Incorporation, or in the
powers, designations preferences and relative rights of any preferred
stock, the holders of the common stock shall exclusively possess all
voting power. Subject to the provisions of each holder of shares of
common stock shall be entitled to one vote for each share held by such
holders.
Whenever there shall have been paid, or declared and set aside
for payment, to the holders of the outstanding shares of any class or
series of stock having preference over the common stock as to the
payment of dividends, the full amount of dividends and sinking fund or
retirement fund or other retirement payments, if any, to which such
holders are respectively entitle in preference to the common stock,
then dividends may be paid on the common stock, and on any class or
series of stock entitled to participate therewith as to dividends, out
of any assets legally available for the payment of dividends, but only
when and as declared by the board of directors of the corporation.
In the event of any liquidation, dissolution or winding up of
the corporation, after there shall have been paid, or declared and set
aside for payment, to the holders of the outstanding shares of any
class having preference over the common stock in any such event, the
full preferential amounts to which they are respectively entitled, the
holders of the common stock and any class or series of stock entitled
to participate therewith, in whole or in part, as to distribution of
assets shall be entitled, after payment or provision for payment of all
debts and liabilities of the corporation, to receive the remaining
assets of the corporation available for distribution, in cash or in
kind.
Each share of common stock shall have the same relative
powers, preferences and rights as, and shall be identical in all
respects with, all the other shares of common stock of the corporation.
(b) Except as provided in these Articles of Incorporation, the
board of directors of the corporation is authorized, by resolution or
resolutions from time to time adopted, to provide for the issuance of
preferred stock in series and to fix and state the powers,
designations, preferences and relative, participating, optional or
other special rights of the shares of each such series, and the
qualifications, limitation or restrictions thereof, including, but not
limited to determination of any of the following:
(1) the distinctive serial designation and the number
of shares constituting such series;
(2) the rights in respect of dividends, if any, to be
paid on the shares of such series, whether dividends shall be
cumulative and, if so, from which date or dates, the payment
or date or dates for dividends, and the participating or other
special rights, if any, with respect to dividends;
(3) the voting powers, full or limited, if any, of
the shares of such series;
(4) whether the shares of such series shall be
redeemable and, if so, the price or prices at which, and the
terms and conditions upon which such shares may be redeemed:
(5) the amount or amounts payable upon the shares of
such series in the event of voluntary or involuntary
liquidation, dissolution or winding up of the corporation;
(6) whether the shares of such series shall be
entitled to the benefits of a sinking or retirement fund to be
applied to the purchase or redemption of such shares, and, if
so entitled, the amount of such fund and the manner of its
application, including the price or prices at which such
shares may be redeemed or purchased through the application of
such funds;
(7) whether the shares of such series shall be
convertible into, or exchangeable for, shares of any other
class or classes or any other series of the same or any other
class or classes of stock of the corporation and, if so
convertible or exchangeable, the conversion price or prices,
or the rate or rates of exchange, and the adjustments thereof,
if any, at which such conversion or exchange may be made, and
any other terms and conditions of such conversion or exchange;
(8) the subscription or purchase price and form of
consideration for which the shares of such series shall be
issued; and
(9) whether the shares of such series which are
redeemed or converted shall have the status of authorized but
unissued shares of preferred stock and whether such shares may
be reissued as shares of the same or any other series of
preferred stock.
Each share of each series of preferred stock shall
have the same relative powers, preferences and rights as, and
shall be identical in all respects with, all the other shares
of the corporation of the same series, except the times from
which dividends on shares which may be issued from time to
time of any such series may begin to accrue.
(c) No holder of any of the shares of any class of the
corporation shall be entitled as of right to subscribe for, purchase,
or otherwise acquire any shares of any class of the corporation which
the corporation proposes to issue or any rights or options which the
corporation proposes to grant for the purchase of shares of any class
of the corporation or for the purchase of any shares, bonds,
securities, or obligations of the corporation which are convertible
into or exchangeable for, or which carry any rights, to subscribe for,
purchase, or otherwise acquire shares of any class of the corporation;
and any and all of such shares, bonds, securities, or obligations of
the corporation, whether now or hereafter authorized or created, may be
issued, or may be reissued or transferred if the same have been
reacquired and have treasury status, and any and all of such rights and
options may be granted by the Board of Directors to such persons,
firms, corporations, and associations, and for such lawful
consideration, and on such terms, as the board of directors in its
discretion may determine, without first offering the same, or any
thereof, to any said holder.
(d) No shares of any class or series shall have cumulative
voting rights in the election of directors.
FOURTH: The following provisions shall govern the conduct of meetings
of the stockholders of the corporation:
(a) Meetings of the stockholders may be held at such place as
the bylaws may provide.
(b) Any action required or permitted to be taken at any annual
or special meeting of stockholders may be effected by written consent
of stockholders constituting a majority of the voting power entitled to
vote on such matter at a meeting.
(c) Special meetings of the stockholders of the corporation
for any purpose or purposes may be called at any time by the board of
directors of the corporation, or by a committee of the board of
directors which has been duly designated by the board of directors and
whose power and authority include the power and authority to call such
meetings but special meetings may not be called by another person or
persons.
(d) Nominations for the election of directors and proposals
for any new business to be taken up at any annual or special meeting of
stockholders may be made by the board of directors of the corporation
or by any stockholder of the corporation entitled to vote generally in
the election of directors. In order for a stockholder of the
corporation to make any such nominations and/or proposals at an annual
meeting or such proposals at a special meeting, he or she shall give
notice thereof in writing, delivered or mailed by first class United
States mail, postage prepaid, to the Secretary of the corporation not
less than thirty days nor more than sixty days prior to any such
meeting; provided, however, that if less than forty days' notice of the
meeting is given to stockholders, such written notice shall be
delivered or mailed, as prescribed, to the Secretary of the corporation
not later than the close of the tenth day following the day on which
notice of the meeting was mailed to stockholders. Each such notice
given by a stockholder with respect to nominations for the election of
directors shall set forth (1) the name, age, business address and, if
known, residence address of each nominee proposed in such notice, (2)
the principal occupation or employment of each such nominee, and (3)
the number of shares of stock of the corporation which are beneficially
owned by each such nominee. In addition, the stockholder making such
nomination shall promptly provide any other information reasonably
requested by the corporation.
(e) Each such notice given by a stockholder to the Secretary
with respect to business proposals to bring before a meeting shall set
forth in writing as to each matter: (1) a brief description of the
business desired to be brought before the meeting and the reasons for
conducting such business at the meeting; (2) the name and address, as
the appear on the corporation's books, of the stockholder proposing
such business; (3) the class and number of shares of the corporation
which are beneficially owned by the stockholder; and (4) any material
interest of the stockholder in such business. Notwithstanding anything
in these Articles of Incorporation to the contrary, no business shall
be conducted at the meeting except in accordance with the procedures
set forth in this Article.
(f) The Chairman of the annual or special meeting of
stockholders may, if the facts warrant, determine and declare to such
meeting that a nomination or proposal was not made in accordance with
the foregoing procedure, and, if he should so determine, he shall so
declare to the meeting and the defective nomination or proposal shall
be disregarded and laid over for action at the next succeeding
adjourned, special or annual meeting of the stockholders taking place
thirty days or more thereafter. This provision shall not require the
holding of any adjourned or special meeting of stockholders for the
purpose of considering such defective nomination or proposal.
FIFTH: The governing board of the corporation shall be styled as a
"Board of Directors", and any member of said board shall be styled as a
"Director." The number of members constituting the first board of directors of
the corporation is three; and the name and the post office box or street
address, either residence or business, of each of said members are as follows:
CLASS NAME ADDRESS
Class III John P. Gorst 1127 Broadway Plaza, Suite 10
Tacoma, WA 98402
Class II M. Carroll Benton 1127 Broadway Plaza, Suite 10
Tacoma, WA 98402
Class I David D. Selmon 1127 Broadway Plaza, Suite 10
Tacoma, WA 98402
The number of directors of the corporation may be increased or
decreased in the manner provided in the bylaws of the corporation; provided,
that the number of directors shall never be greater than 15 nor less than one
(exclusive of directors, if any, to be elected by holders of preferred stock of
the corporation). Exclusive of directors, if any, elected by the holders of
preferred stock, all vacancies, including vacancies caused by an increase in the
number of directors and including vacancies resulting from the removal of
directors by the stockholders entitled to vote which are not filled by said
stockholders, may be filled by the vote of a majority of the remaining
directors, though less than a quorum.
The board of directors of the corporation (other than directors which
may be elected by the holders of preferred stock), shall be divided into three
classes of directors which shall be designated Class I, Class II and Class III.
The members of each class shall be elected for a term of three years and until
their successors are elected and qualified. Such classes shall be as nearly
equal in number as then total number of directors constituting the entire board
of directors shall permit, exclusive of directors, if any, elected by holders of
preferred stock, with the terms of office of all members of one class expiring
each year. Should the number of directors not be equally divisible by three, the
excess director or directors shall be assigned to Classes I or II as follows:
(1) if there shall be an excess of one directorship over the number equally
divisible by three, such extra directorship shall be classified in Class I; and
(2) if there be an excess of two directorships over a number equally divisible
by three, one shall be classified in Class I and the other in Class II.
Directors of Class I shall hold office for a term expiring at the first annual
meeting of stockholders, directors of Class II shall hold office for a term
expiring at the second succeeding annual meeting of stockholders and directors
of Class III shall hold office for a term expiring at the third succeeding
annual meeting after the formation of the corporation. Thereafter, at each
succeeding annual meeting, directors of each class shall be elected for
three-year terms. Notwithstanding the foregoing, the director whose term shall
expire at any annual meeting shall continue to serve until such time as his
successor shall have been duly elected and shall have qualified unless his
position on the board of directors shall have been abolished by action taken to
reduce the size of the board of directors prior to said meeting.
Should the number of directors of the corporation be reduced, the
directorship(s) eliminated shall be allocated among classes as appropriate so
that the number of directors in each class is as specified in the position(s) to
be abolished. Notwithstanding the foregoing, no decrease in the number of
directors shall have the effect of shortening the term of any incumbent
director. Should the number of directors of the corporation be increased, other
than directors which may be elected by the holders of preferred stock, the
additional directorships shall be allocated among classes as appropriate so that
the number of directors in each class is as specified in the immediately
preceding paragraph.
Whenever the holders of any one or more series of preferred stock of
the corporation shall have the right voting separately as a class, to elect one
or more directors of the corporation, the board of directors shall include said
directors so elected in addition to the number of directors fixed as provided in
this Section. Notwithstanding the foregoing, and except as otherwise may be
required by law, whenever the holders of any one or more series of preferred
stock of the corporation elect one or more directors of the corporation, the
terms of the director or directors elected by such holders shall expire at the
next succeeding annual meeting of stockholders.
SIXTH : The name and the post office box or street address, either
residence or business, of the incorporator signing these Articles of
Incorporation are as follows:
NAME ADDRESS
John P. Gorst 1127 Broadway Plaza, Suite 10
Tacoma, WA 98402
M. Carroll Benton 1127 Broadway Plaza,
Suite 10 Tacoma, WA 98402
SEVENTH: The corporation shall have perpetual existence.
---------
EIGHTH: The personal liability of the directors of the corporation is
hereby eliminated to the fullest extent permitted by the Nevada Revised
Statutes, as the same may be amended and supplemented.
NINTH: The corporation shall, to the fullest extent permitted by the
Nevada Revised Statutes, as the same may be amended and supplemented, indemnify
any and all persons whom it shall have power to indemnify under said Law from
and against any and all of the expenses, liabilities, or other matters referred
to in or covered by said Law, and the indemnification provided for herein shall
not be deemed exclusive of any other rights to which those indemnified may be
entitled under any bylaw, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, and shall continue as to a
person who has ceased to be a director, officer, employee, or agent and shall
inure to the benefit of the heirs, executors, and administrators of such a
person.
TENTH: The nature of the business of the corporation and the objects or
the purposes to be transacted, promoted, or carried on by it are to engage in
any lawful activity. The corporation shall have all the powers of a corporation
organized under the Nevada Revised Statutes.
ELEVENTH: These Articles of Incorporation and the bylaws of the
corporation may be repealed, altered, amended or rescinded only by a vote of a
majority of the entire board of directors or a majority of the outstanding
shares of capital stock, voting as classes.
TWELFTH: Upon written demand of the Corporation, each record holder of
any shares of the capital stock of any class or series of the Corporation shall
provide the Corporation with the name and address of each person for whom such
person holds such shares as the beneficial owner, the number, class and series
of the shares so held, and manner of holding such shares. Likewise, upon written
demand of the Corporation, each beneficial holder of any shares of the capital
stock of any class or series of the Corporation shall provide the Corporation
with the name and address of any person who has an interest in such shares,
directly or indirectly, and the nature of such interest. As used herein, the
terms "beneficial owner" shall mean and include any person who has the sole or
joint right to dispose of the shares or direct the disposal of shares, the sole
or joint economic interest in the shares, or the sole or joint right to receive
or direct the receipt of dividends or other distributions relating to the
shares.
I, the undersigned, being the sole incorporator hereinbefore named, for
the purpose of forming a corporation pursuant to the General Corporation Law of
the State of Nevada, do make and file these articles of in corporation, hereby
declaring and certifying that the facts herein stated are true, and accordingly
have hereunto set my hand this 17th day of October, 2002.
- ------------------------------------- ------------------------------------
John P. Gorst M. Carroll Benton
STATE OF WASHINGTON
COUNTY OF _________
On this ____ day of October 2002, before me, a Notary Public personally
appeared John P. Gorst, who acknowledged that she executed the above instrument.
_____________________________ Notary Public
CERTIFICATE OF ACCEPTANCE OF APPOINTMENT BY RESIDENT AGENT
The Corporation Trust Company of Nevada hereby accepts the appointment
as Resident Agent of the above named corporation.
The Corporation Trust Company of Nevada
Resident Agent
By: ______________________________________ Date: __________________
Assistant Secretary
EXHIBIT C
SECTION 262 GENERAL CORPORATION LAW OF DELAWARE
APPRASIAL RIGHTS
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of
this section with respect to such shares, who continuously holds such
shares through the effective date of the merger or consolidation, who has
otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in
writing pursuant to ss.228 of this title shall be entitled to an appraisal
by the Court of Chancery of the fair value of the stockholder's shares of
stock under the circumstances described in subsections (b) and (c) of this
section. As used in this section, the word "stockholder" means a holder of
record of stock in a stock corporation and also a member of record of a
nonstock corporation; the words "stock" and "share" mean and include what
is ordinarily meant by those words and also membership or membership
interest of a member of a nonstock corporation; and the words "depository
receipt" mean a receipt or other instrument issued by a depository
representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the
depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation
to be effected pursuant to ss.251 (other than a merger effected pursuant to
ss.251(g) of this title), ss.252, ss.254, ss.257, ss.258, ss.263 or ss.264
of this title:
(1) Provided, however, that no appraisal rights under this
section shall be available for the shares of any class or series of stock,
which stock, or depository receipts in respect thereof, at the record date
fixed to determine the stockholders entitled to receive notice of and to
vote at the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of ss.251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal
rights under this section shall be available for the shares of any class or
series of stock of a constituent corporation if the holders thereof are
required by the terms of an agreement of merger or consolidation pursuant
to ss.ss.251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or
resulting from such merger or consolidation, or depository receipts in
respect thereof;
b. Shares of stock of any other corporation, or
depository receipts in respect thereof, which shares of stock (or
depository receipts in respect thereof) or depository receipts at the
effective date of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market system
security on an interdealer quotation system by the National Association of
Securities Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional
depository receipts described in the foregoing subparagraphs a. and b. of
this paragraph; or
d. Any combination of the shares of stock, depository
receipts and cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under ss.253 of this title is not
owned by the parent corporation immediately prior to the merger, appraisal
rights shall be available for the shares of the subsidiary Delaware
corporation.
(c) Any corporation may provide in its certificate of incorporation
that appraisal rights under this section shall be available for the shares
of any class or series of its stock as a result of an amendment to its
certificate of incorporation, any merger or consolidation in which the
corporation is a constituent corporation or the sale of all or
substantially all of the assets of the corporation. If the certificate of
incorporation contains such a provision, the procedures of this section,
including those set forth in subsections (d) and (e) of this section, shall
apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal
rights are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsection (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of such
stockholder's shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of
such stockholder's shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such stockholder's
shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must
do so by a separate written demand as herein provided. Within 10 days after
the effective date of such merger or consolidation, the surviving or
resulting corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not voted in
favor of or consented to the merger or consolidation of the date that the
merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to
ss.228 or ss.253 of this title, then either a constituent corporation
before the effective date of the merger or consolidation or the surviving
or resulting corporation within 10 days thereafter shall notify each of the
holders of any class or series of stock of such constituent corporation who
are entitled to appraisal rights of the approval of the merger or
consolidation and that appraisal rights are available for any or all shares
of such class or series of stock of such constituent corporation, and shall
include in such notice a copy of this section. Such notice may, and, if
given on or after the effective date of the merger or consolidation, shall,
also notify such stockholders of the effective date of the merger or
consolidation. Any stockholder entitled to appraisal rights may, within 20
days after the date of mailing of such notice, demand in writing from the
surviving or resulting corporation the appraisal of such holder's shares.
Such demand will be sufficient if it reasonably informs the corporation of
the identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constitutent corporation shall send a second notice before
the effective date of the merger or consolidation notifying each of the
holders of any class or series of stock of such constitutent corporation
that are entitled to appraisal rights of the effective date of the merger
or consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constitutent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided, that
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the
day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder
who has complied with subsections (a) and (d) hereof and who is otherwise
entitled to appraisal rights, may file a petition in the Court of Chancery
demanding a determination of the value of the stock of all such
stockholders. Notwithstanding the foregoing, at any time within 60 days
after the effective date of the merger or consolidation, any stockholder
shall have the right to withdraw such stockholder's demand for appraisal
and to accept the terms offered upon the merger or consolidation. Within
120 days after the effective date of the merger or consolidation, any
stockholder who has complied with the requirements of subsections (a) and
(d) hereof, upon written request, shall be entitled to receive from the
corporation surviving the merger or resulting from the consolidation a
statement setting forth the aggregate number of shares not voted in favor
of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10
days after such stockholder's written request for such a statement is
received by the surviving or resulting corporation or within 10 days after
expiration of the period for delivery of demands for appraisal under
subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation,
which shall within 20 days after such service file in the office of the
Register in Chancery in which the petition was filed a duly verified list
containing the names and addresses of all stockholders who have demanded
payment for their shares and with whom agreements as to the value of their
shares have not been reached by the surviving or resulting corporation. If
the petition shall be filed by the surviving or resulting corporation, the
petition shall be accompanied by such a duly verified list. The Register in
Chancery, if so ordered by the Court, shall give notice of the time and
place fixed for the hearing of such petition by registered or certified
mail to the surviving or resulting corporation and to the stockholders
shown on the list at the addresses therein stated. Such notice shall also
be given by 1 or more publications at least 1 week before the day of the
hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The
forms of the notices by mail and by publication shall be approved by the
Court, and the costs thereof shall be borne by the surviving or resulting
corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become
entitled to appraisal rights. The Court may require the stockholders who
have demanded an appraisal for their shares and who hold stock represented
by certificates to submit their certificates of stock to the Register in
Chancery for notation thereon of the pendency of the appraisal proceedings;
and if any stockholder fails to comply with such direction, the Court may
dismiss the proceedings as to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the
Court shall appraise the shares, determining their fair value exclusive of
any element of value arising from the accomplishment or expectation of the
merger or consolidation, together with a fair rate of interest, if any, to
be paid upon the amount determined to be the fair value. In determining
such fair value, the Court shall take into account all relevant factors. In
determining the fair rate of interest, the Court may consider all relevant
factors, including the rate of interest which the surviving or resulting
corporation would have had to pay to borrow money during the pendency of
the proceeding. Upon application by the surviving or resulting corporation
or by any stockholder entitled to participate in the appraisal proceeding,
the Court may, in its discretion, permit discovery or other pretrial
proceedings and may proceed to trial upon the appraisal prior to the final
determination of the stockholder entitled to an appraisal. Any stockholder
whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has
submitted such stockholder's certificates of stock to the Register in
Chancery, if such is required, may participate fully in all proceedings
until it is finally determined that such stockholder is not entitled to
appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation
to the stockholders entitled thereto. Interest may be simple or compound,
as the Court may direct. Payment shall be so made to each such stockholder,
in the case of holders of uncertificated stock forthwith, and the case of
holders of shares represented by certificates upon the surrender to the
corporation of the certificates representing such stock. The Court's decree
may be enforced as other decrees in the Court of Chancery may be enforced,
whether such surviving or resulting corporation be a corporation of this
State or of any state.
(j) The costs of the proceeding may be determined by the Court and
taxed upon the parties as the Court deems equitable in the circumstances.
Upon application of a stockholder, the Court may order all or a portion of
the expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and
the fees and expenses of experts, to be charged pro rata against the value
of all the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation,
no stockholder who has demanded appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any purpose or
to receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a
date which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed
within the time provided in subsection (e) of this section, or if such
stockholder shall deliver to the surviving or resulting corporation a
written withdrawal of such stockholder's demand for an appraisal and an
acceptance of the merger or consolidation, either within 60 days after the
effective date of the merger or consolidation as provided in subsection (e)
of this section or thereafter with the written approval of the corporation,
then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of
Chancery shall be dismissed as to any stockholder without the approval of
the Court, and such approval may be conditioned upon such terms as the
Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized
and unissued shares of the surviving or resulting corporation. (8 Del. C.
1953, ss.262; 56 Del. Laws, c. 50; 56 Del. Laws, c. 186, ss.24; 57 Del.
Laws, c. 148, ss.ss.27-29; 59 Del. Laws, c. 106, ss.12; 60 Del. Laws, c.
371, ss.ss.3-12; 63 Del. Laws, c. 25, ss.14; 63 Del. Laws, c. 152, ss.ss.1,
2; 64 Del. Laws, c. 112, ss.ss.46-54; 66 Del. Laws, c. 136, ss.ss.30-32; 66
Del. Laws, c. 352, ss.9; 67 Del. Laws, c. 376, ss.ss.19, 20; 68 Del. Laws,
c. 337, ss.ss.3, 4; 69 Del. Laws, c. 61, ss.10; 69 Del. Laws, c. 262,
ss.ss.1-9; 70 Del. Laws, c. 79, ss.16; 70 Del. Laws, c. 186, ss.1; 70 Del.
Laws, c. 299, ss.ss.2, 3; 70 Del. Laws, c. 349, ss.22; 71 Del. Laws, c.
120, ss.15; 71 Del. Laws, c.
339,ss.ss.49-52; 73 Del. Laws, c. 82,ss.21.)
Exhibit D
United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the Period Ended August 31, 2002.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the Transition Period from ______________________ to
_________________________.
Commission file number 0-22814
---------------
INSYNQ, INC.
---------------
(Exact name of registrant as specified in its charter)
Delaware 74-2964608
(State or Other Jurisdiction of
Incorporation or Organization) (IRS Employer Identification No.)
1127 Broadway Plaza, Suite 10
Tacoma, Washington 98402
(Address of Principal Executive Office)(Zip Code)
Telephone Number (253) 284-2000
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $0.001 Par Value ---59,013,393 as of October 17, 2002
INSYNQ, INC.
INDEX
PAGE
PART I FINANCIAL INFORMATION 3
Item 1. Condensed Financial Statements of Insynq, Inc. 3
Condensed Balance Sheets - August 31, 2002 (unaudited) and
May 31, 2002 3
Condensed Statements of Operations -Three months 4
ended August 31, 2002 and 2001 (unaudited)
Condensed Statement of Stockholders' Deficit - Three months 5
ended August 31, 2002 (unaudited)
Condensed Statements of Cash Flows - Three months 6
ended August 31, 2002 and 2001 (unaudited)
Notes to the Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition of Results and Operations 15
PART II OTHER INFORMATION 22
Item 1. Legal Proceedings 22
Item 2. Changes in Securities 22
Item 3. Defaults upon Senior Securities 22
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 5. Other Information 22
Item 6. Exhibits and Reports on Form 8-K 22
Signatures 24
PART I - FINANCIAL INFORMATION
- -------------------------------------------------------------------------------
ITEM I CONDENSED FINANCIAL STATEMENTS
Insynq, Inc.
Condensed Balance Sheets
August 31, 2002 May 31, 2002
--------------------- ---------------------
ASSETS (unaudited)
Current assets
Cash $ 6,107 $ 9,760
Restricted cash - 10,355
Accounts receivable, net of allowance for doubtful
accounts
of $25,000 60,568 21,964
Related party receivables 83,041 68,601
Prepaid expenses 233,782 238,715
--------------------- ---------------------
Total current assets 383,498 349,395
--------------------- ---------------------
Equipment, net 429,091 485,617
--------------------- ---------------------
Other assets
Interest receivable - related party 6,463 3,604
Intangible assets, net 20,085 26,585
Deposits 6,345 6,345
--------------------- ---------------------
Total other assets 32,893 36,534
--------------------- ---------------------
Total assets $ 845,482 $ 871,546
===================== =====================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Notes payable $ 21,320 $ 9,833
Related party notes payable 1,309,528 1,315,429
Accounts payable 1,073,233 983,516
Accrued liabilities 1,927,891 1,845,099
Convertible debentures, net of discount of $416,779
and $458,971, respectively 1,257,171 969,479
Customer deposits 39,746 33,070
Deferred compensation 66,792 61,043
Capital lease obligations 843,776 818,840
-------------------- -------------------
Total current liabilities 6,539,457 6,046,309
-------------------- -------------------
Commitments and contingencies - -
Stockholders' deficit
Preferred stock, $0.001 par value, 10,000,000 shares
authorized, no shares issued and outstanding - -
Class A common stock, $0.001 par value, 10,000,000 shares
authorized, 5,000,000 shares issued and outstanding 5,000 5,000
Common stock, $0.001 par value, 250,000,000 shares
authorized, 66,520,503 and 59,457,003 shares issued and
outstanding as of August 31, 2002 and May 31, 2002,
respectively 66,521 59,457
Additional paid-in capital 17,878,853 17,590,919
Notes receivable from officers (90,000) (90,000)
Unearned compensation and services (92,987) (143,149)
Accumulated deficit (23,461,362) (22,596,990)
-------------------- -------------------
Total stockholders' deficit (5,693,975) (5,174,763)
-------------------- -------------------
Total liabilities and stockholders' deficit $ 845,482 $ 871,546
==================== ===================
The accompanying notes are an integral part of these condensed financial
statements.
Insynq, Inc.
Condensed Statements of Operations
(unaudited)
Three months ended
August 31,
------------------------------
2002 2001
----------- --------------
Revenues $ 234,163 $ 194,565
----------- --------------
Costs and expenses
Direct cost of services 191,657 319,867
Network and infrastructure costs 1,802 29,327
Selling, general and administrative
Non-cash compensation 131,361 516,668
Other 325,733 725,998
Research and development - 58,981
----------- --------------
650,553 1,650,841
----------- --------------
Loss from operations (416,390) (1,456,276)
----------- --------------
Other income (expense)
Other income 3,372 36,777
Loss from disposal of assets (6,472) (46,897)
Interest expense
Non-cash (417,997) (103,978)
Other (26,885) (86,464)
----------- --------------
Other expense, net (447,982) (200,562)
----------- --------------
Net loss $ (864,372) $ (1,656,838)
=========== ==============
Net loss per common share - basic and
diluted $ (0.01) $ (0.05)
=========== ==============
The accompanying notes are an integral part of these condensed financial
statements.
Insynq, Inc.
Condensed Statement of Stockholders' Deficit
(unaudited)
Three Months Ended August 31, 2002
Class A Common Stock Common Stock Notes
Additional Receivable Total
Paid-In From Unearned Accumulated Stockholders'
Capital Officers Compensation Deficit Deficit
Shares Amount Shares Amount
--------------- ------------ ---------- ------------ ------------ -------------- --------------- -------
Balance, May 31, 2002 5,000,000 $5,000 59,457,003 $59,457$17,590,919 $ (90,000) $(143,149) $(22,596,990) $(5,174,763)
---------- ---------- ------------ ---------- ------------ ------------ -------------- ---------------
Issuance of common stock
in conjunction with
exercise of options 1,063,500 1,064 2,264 3,328
Issuance of common stock
in conjunction with
exercise of warrants 250,000 250 (250) -
Issuance of common stock
for consulting and
marketing services
received 900,000 900 2,070 2,970
Issuance of common stock
for employee
compensation 1,250,000 1,250 2,500 3,750
Issuance of common stock
in conjunction with
conversion of debentures 3,600,000 3,600 900 4,500
Amortization of unearned
compensation 50,162 50,162
Allocation of discount
on convertible debentures 250,000 250,000
Issuance of stock
options to non employees 30,450 30,450
Net loss, three months
ended August 31, 2002 (864,372) (864,372)
---------- ---------- ------------ ---------- ------------ ------------ -------------- ------------------
Balance, August 31, 2002 5,000,000 $5,000 66,520,503 $66,521 $17,878,853 $(90,000) $(92,987) $(23,461,362 $(5,693,975)
---------- ---------- ------------ ---------- ------------ ------------ -------------- --------------
The accompanying notes are an integral part of this condensed financial
statement.
Insynq, Inc.
Condensed Statements of Cash Flows
(unaudited)
Three Months Ended August 31,
-------------------------------------------
2002 2001
------------------- --------------------
Cash flows from operating activities
Net loss $(864,372) $(1,656,838)
Adjustments to reconcile net loss to cash used in
operating activities:
Depreciation and amortization 56,554 62,179
Loss on disposal of assets 6,472 46,898
Loss on forfeited deposit - 71,000
Gain on forgiveness of debts - (36,000)
Issuance of common stock for services and exercise of 10,048 47,191
options
Issuance of options and warrants for services, and
amortization 50,162 356,493
of unearned compensation
Issuance of options to non employees 30,450 -
Discount on capital lease 7,867 7,867
Warrants and beneficial conversion features of debentures 292,192 203,914
Capitalized interest on leased assets and notes receivable 21,049 21,310
Changes in assets and liabilities:
Accounts receivable and related party receivables (53,044) 14,579
Prepaid expenses 4,933 6,691
Deposits - (4,791)
Accounts payable 89,717 (37,033)
Accrued liabilities 82,792 100,349
Customer deposits 6,676 (6,604)
Deferred compensation 5,749 17,188
------------------- --------------------
Net cash used in operating activities (252,755) (785,607)
------------------- --------------------
Cash flows from financing activities
Bank overdraft - 47,736
Proceeds from notes payable and related party notes payable 2,175 78,176
Proceeds from issuance of common stock and exercise of options
and warrants - 32,000
Proceeds from convertible debentures 250,000 650,000
Payments on short term notes payable (6,589) (12,950)
Payments on capital lease obligations (6,839) (6,125)
Proceeds from restricted cash released from escrow 10,355 -
------------------- --------------------
Net cash provided by financing activities 249,102 788,837
------------------- --------------------
Net (decrease) increase in cash (3,653) 3,230
Cash at beginning of period 9,760 26,900
------------------- --------------------
Cash at end of period $ 6,107 $ 30,130
=================== ====================
The accompanying notes are an integral part of these condensed financial
statements.
Insynq, Inc.
Notes to Condensed Financial Statements
August 31, 2002
(unaudited)
Note 1 - Condensed Financial Statements
Insynq, Inc. (the Company) is a Delaware corporation headquartered in Tacoma,
Washington USA. The Company is an application hosting and managed software
service provider that provides server-based computing access and services to
customers who decide to augment all or part of their information technology
requirements. Customers pay a monthly fee for their services and connect to
Company's server farm primarily through either the Internet, wireless or DSL
connection.
On February 18, 2000, the Company closed an asset purchase transaction
(Acquisition) in which Xcel Management, Inc. (Xcel), a non-operating public
shell company, acquired substantially all of the assets of Company. Under
accounting principles generally accepted in the United States of America, the
Acquisition was considered to be a capital transaction in substance, rather than
a business combination. That is, the Acquisition was equivalent to the issuance
of stock by the Company for the net monetary assets of Xcel accompanied by a
recapitalization, and was accounted for as a change in capital structure.
Accordingly, the accounting for the Acquisition was identical to that resulting
from a reverse acquisition, except that no goodwill was recorded. Under reverse
takeover accounting, the post-reverse-acquisition financial statements of the
"legal acquirer" Xcel, are those of the "legal acquiree" Insynq (the accounting
acquirer).
On August 3, 2000, Xcel completed a re-incorporation as a Delaware corporation
and changed its' name to Insynq, Inc. In connection with the re-incorporation,
the stockholders unanimously voted for the adoption of a plan of
re-capitalization pursuant to which the issued and outstanding shares of the
Company's common stock, would forward split, two-for-one, so that holders of
common stock would receive two shares of the Company's $0.001 par value common
stock for each share held. The 9,915,424 shares of common stock outstanding
immediately prior to the reorganization were converted to 19,830,848 shares of
common stock, and outstanding options and warrants to purchase shares were
converted into options and warrants entitling the holders to purchase twice as
many shares upon exercise of such options and warrants. Loss per share
calculations includes the Company's change in capital structure for all periods
presented.
The condensed financial statements as of August 31, 2002 and for the three
months ended August 31, 2002 and 2001 are unaudited. In the opinion of
management, such condensed financial statements include all adjustments
(consisting only of normal recurring accruals) necessary for the fair
presentation of the financial position and the results of operations. The
results of operations for the three months ended August 31, 2002 and 2001 are
not necessarily indicative of the results to be expected for the full year. The
condensed balance sheet information as of May 31, 2002 was derived from the
audited financial statements included in the Company's annual report Form
10-KSB. The interim condensed financial statements should be read in conjunction
with that report.
Note 2 - Going Concern and Management Plans
The Company's financial statements for the three months ended August 31, 2002
have been prepared on a going concern basis, which contemplates the realization
of assets and the settlement of liabilities and commitments in the normal course
of business. For the three months ended August 31, 2002, the Company has a net
loss of $864,372 and a negative cash flow from operations of $252,755. The
Company had a working capital deficit of $6,155,959 and a stockholders' deficit
of $5,693,975 at August 31, 2002. The Company's working capital deficit as of
August 31, 2002 may not enable it to meet certain financial objectives as
presently structured.
As of August 31, 2002, the Company is in default on a capitalized lease
obligation, six related party notes payable and two convertible debentures. The
assets of the underlying lease are critical to the Company's operations. The
Company has initiated contact to restructure the lease obligation, and, due to
the current economic climate and current market for the equipment, the Company
anticipates that it can successfully restructure this obligation. As a
contingency plan for the backup of this equipment, the Company entered into
another equipment lease agreement in August 2001 for similar equipment to
support its customer base. The Company is past due on six related party notes
payable with principal totaling approximately $1,307,400, and two convertible
debentures with a face value of $573,950. Total accrued interest related to
these obligations is approximately $291,100. In addition, the Company has a
letter of intent from one related party to convert approximately $1,300,000 of
principle and accrued interest into preferred stock.
The development and marketing of the Company's technology and products will
continue to require a commitment of substantial funds. Currently, pursuant to
Item 303(b)(1) and (3) of Regulation SB, the Company has no material capital
commitments. However, should the Company be forced to seek other equipment in
the open market, based on its inability to restructure its capital lease
obligation, the Company would attempt to raise the necessary finances. These
amounts, however, are currently not quantifiable.
The Company has retained legal counsel for representation in current
negotiations with the Internal Revenue Service (IRS) regarding an Offer In
Compromise and eventually structuring a payment plan for past due taxes. The IRS
has required the Company to meet certain conditions in order to proceed with the
offer and negotiations, one of which is to be current on all payroll tax
deposits and reporting. If the Company is unsuccessful in its offer, the IRS
could seize and sell some, if not all, the assets of the Company or the Company
will be forced to file for bankruptcy.
The condensed financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
The Company is devoting its efforts into establishing a business in the new
emerging Managed Services Provider industry. The Company is establishing
alliances with Independent Software Vendors and Internet Service Providers to
provide access to their applications for their customers and building new
channels for marketing products to potential customers. As a result of these new
alliances and products, the Company will be able to provide additional and
enhanced services to customers. The Company is continuing to develop new
products to enable the deployment of and on going management of the Company
services. In addition, on December 21, 2001, the Company completed negotiations
with a national communication corporation. After another year of market testing
and product development, the telecommunication firm has agreed to go to market
with these services. These bundled services or products will be delivered on a
subscription basis.
The Company successfully implemented cost containment strategies and continues
to devote significant efforts in the development of new products and opening new
markets. Also, the Company continues to contact vendors with past due account
balances with the intention of settling the balance due for cash at either less
than face or structure a long-term payment plan. To date, Company negotiations
to settle creditors' debts have been very favorable and well received.
However, the rate at which the Company expends its resources is variable, may be
accelerated, and will depend on many factors. The Company will need to raise
substantial additional capital to fund its operations and may seek such
additional funding through public or private equity or debt financing. There can
be no assurance that such additional funding, if any, will be available on
acceptable terms. The Company's continued existence as a going concern is
ultimately dependent upon its ability to secure additional funding for
completing and marketing its technology and products, and, therefore, the
success of its future operations.
Note 3 - Loss Per Common Share
Basic loss per share is computed by dividing the net loss by the weighted
average number of common shares outstanding available to common stockholders
during the period. The weighted average number of common shares outstanding was
63,679,099 and 35,663,143 for the three months ended August 31, 2002 and 2001.
The computation for loss per common share, assuming dilution, for the three
months ended August 31, 2002 and 2001, was anti-dilutive, and therefore, is not
included.
Note 4 - Accrued Liabilities
Accrued liabilities consist of the following at as of August 31, 2002:
Salaries and benefits $ 297,106
Taxes
Payroll 471,830
Business 112,420
Penalties and interest 246,030
Interest 366,462
Licenses, consulting and other 434,043
---------------
$ 1,927,891
===============
As of August 31, 2002, the Company was delinquent on approximately $816,000 of
its payroll and business taxes and related penalties and interest. The majority
of the past due amount, or approximately $670, 000, is for payroll taxes,
penalties and interest due to the Internal Revenue Service (IRS). In April 2002,
the IRS filed a Federal Tax Lien on the assets of the Company for all past due
employment taxes, penalties and accrued interest. The Company has submitted an
Offer In Compromise (OIC) to the Internal Revenue Service seeking relief on a
portion of its overall obligation and structure a payment plan on the settled
amount of taxes due. The OIC is subject to the Company remaining current on all
current and future payroll tax deposits and reporting. Unless the Company and
the IRS agree to a mutually agreeable workout, the IRS could take possession of
the Company's assets or the Company will be forced to file for bankruptcy.
The Company has consummated workout arrangements with four state taxing agencies
for past due taxes. As of August 31, 2002, the Company owes approximately
$58,000 pursuant to these workout agreements. Terms of these workouts require
monthly payments ranging from $290 to $1,000, to include varying rates of
interest, over periods ranging from ten to twenty-four months. Three of the
above state taxing agencies filed either a warrant or a lien with local county
authorities to protect its position during their respective workout periods.
Additionally, two liens have been filed by two other states for past due taxes,
plus accrued penalties and interest. One lien, for approximately $28,000, is to
a state for prior year's income taxes assessed to the predecessor company of
Insynq, Inc. This amount has been disputed and amended returns to correct this
deficiency have been filed, but not yet approved. The second lien is to another
state for payroll taxes, penalties and interest totaling approximately $30,000.
The Company has submitted a proposal for a workout settlement on this state's
payroll taxes but has not yet received either acceptance or rejection of its
offer.
Note 5 - Notes Receivables - Officers
In January 2002, the Company entered into two promissory notes totaling $90,000
with two of its officers in conjunction with the exercising of non qualified
class A common stock options. Each note bears interest at 12% per annum, payable
on or before June 2003 and is secured with 5,000,000 shares of class A common
stock As of August 31, 2002 total accrued interest is approximately $6,500.
Note 6 - Related Party Notes Payable
The Company has short-term promissory notes with stockholders, a corporate
officer, and a prior employee. All related party notes, plus accrued interest,
were due within one year or on demand and consist of the following at August 31,
2002:
Note payable to stockholder, past due, originally due November 2, 2001,
plus accrued interest; bearing interest at 10% and is unsecured. The
Company has received a letter of intent to convert the principle and
accrued interest, totaling approximately $1,300,000, into preferred stock $ 1,162,000
Various notes payable to related parties, past due, with various due dates
ranging through April 20, 2002; bearing default interest ranging
from 18% to 21%, and are unsecured 147,528
---------------
$ 1,309,528
===============
Note 7 - Notes Payable
The Company has a $15,000 revolving line of credit with a bank. As of August 31,
2002, the balance was $14,764. This note is unsecured and bears interest at
prime plus 6%. Prime at August 31, 2002 was 4.75%. The outstanding amount is
included in notes payable in the accompanying balance sheet.
The Company has two notes payable to two vendors. Both notes are past due.
Monthly installment payments were $1,692, including default interest at 18%, and
are unsecured. At August 31, 2002, the outstanding balance of the notes amounted
to $6,556, and is included in notes payable in the accompanying balance sheet.
Note 8 - Convertible Debentures
On June 29, 2001, the Company entered into a private financing transaction with
three investors for a total of $1,200,000, 12% convertible debentures. The
debentures are convertible into shares of common stock at the lesser of (i)
$0.18 or (ii) the average of the lowest three trading prices in the twenty-day
trading period immediately preceding the notice to convert, discounted by fifty
percent (50%). The convertible debentures carry attached warrants that allow the
investor, under the terms of the warrants, to purchase up to 2,400,000 shares of
common stock at $0.04 per share. The terms of the debentures provide for full
payment on or before one year from the date of issuance, plus accrued interest
at 12% per annum. Pursuant to the agreement, the Company may not, without
consent, (i) engage in any future equity financing involving the issuance of
common stock for a period of six months from the date of closing, and (ii) may
not engage in such transactions for a period of two years without first giving
the investors the opportunity to purchase shares on a pro-rata basis. As of
August 31, 2002 two issuances of convertible debentures totaling $573,950 plus
accrued interest of approximately $57,200 matured on June 29, 2002 and August
14, 2002. These obligations were to be converted into cash and/or common stock
on or before the conversion (maturity) date. These two financial instruments are
in default and are subject to default interest at fifteen percent (15%) per
annum.
On January 24, 2002, the Company entered into a second agreement to issue
$550,000, 12% convertible debentures, and 2,200,000 warrants. The debentures are
convertible into shares of common stock at the lesser of (i) $0.008 or (ii) the
average of the lowest three trading prices in the twenty-day trading period
immediately preceding the notice to convert, discounted by 50%. The convertible
debentures carry attached warrants that allow the investor, under the terms of
the warrants, to purchase up to 2,200,000 shares of common stock at the lesser
of $0.007 per share or the average of the lowest three trading prices during the
twenty trading days immediately prior to exercise. Terms of the debentures
provide for full payment on or before one year from the date of issuance, plus
accrued interest at 12% per annum. Pursuant to the agreement, the Company may
not, without consent, (i) engage in any future equity financing involving the
issuance of common stock for a period of six months from the date of closing,
and (ii) may not engage in such transactions for a period of two years without
first giving the investors the opportunity to purchase shares on a pro-rata
basis. In July 2002 the Company received $250,000 of debentures from this
agreement and issued 1,000,000 warrants. The Company also recorded discounts of
$250,000, equal to the fair value of the convertible debentures and warrants as
determined using the Black Scholes pricing model and the intrinsic value of the
beneficial conversion features. As of August 31, 2002, the Company has received
$550,000 from the issuance of these secured convertible debentures.
As of August 31, 2002, investors have purchased a total of $1,750,000 of
convertible debentures, and have converted $76,050 of debentures and $27,993 of
accrued interest into 19,323,243 shares of common stock.
For the three months ended August 31, 2002, the Company recognized $292,192 of
interest expense on the discounts of the convertible debentures. The unamortized
discount at August 31, 2002 is $416,779.
See also Note 15 - Subsequent Events, for additional disclosures on secured
convertible debentures issued September 27, 2002 and the maturity of $150,000 of
convertible debentures on October 17, 2002.
Note 9 - Capital Lease Obligation
The Company is in default on a capital lease obligation. Accordingly, the lease
has been classified as a current obligation.
Note 10 - Common Stock
On November 19, 2001, by a majority vote of the stockholders, The Company
authorized an additional 150,000,000 shares of common stock, increasing the
total to 250,000,000. Outstanding shares of common stock at August 31, 2002
totaled 66,520,503.
Outstanding warrants and options to purchase shares of common stock as of August
31, 2002 totaled 30,865,603.
Note 11 - Stock Options
On March 31, 2000, the Company's Board of Directors adopted two long-term
incentive plans (Plans), described as follows:
2000 Long Term Incentive Plan (LTIP)
The LTIP provides for the issuance of incentive and non-qualified stock options,
stock appreciation rights and restricted stock to directors, officers, employees
and consultants. At the adoption of this plan, the Company set aside 16,675,300
shares of common stock, which may be issued upon the exercise of options
granted. On November 19, 2001 the shareholders approved an amendment to the
LTIP, which would set aside an additional 15,000,000 shares of common stock for
a total of 31,675,300 shares of common stock, which may be issued upon the
exercise of options granted. As of August 31, 2002, options available for
issuance are 10,069,587 and outstanding options granted totaled 13,660,343.
2000 Executive Long Term Incentive Plan (Executive LTIP)
The Executive LTIP provides for the issuance of incentive and non-qualified
stock options, stock appreciation rights and restricted stock to executive
officers of the Company. The Company set aside 5,400,000 shares of class A
common stock under this plan at its adoption. On December 10, 2001, the Company
was authorized by the Board of Directors to re-price all of the Executive LITP
stock options from an exercise price of $0.50 per share to an exercise price of
$0.018 per share, which was the fair market value on December 10, 2001. On
January 31, 2002, all outstanding non-qualified stock options totaling 5,000,000
shares were exercised into class A common stock in exchange for promissory notes
totaling $90,000. In accordance with GAAP, because of the reduction of the
exercise price and the consideration received by the Company, two non-recourse
promissory notes collateralized by the shares to be issued, these transactions
are accounted for as modifications of the original option agreements requiring
variable accounting and the promissory notes are classified as a reduction of
stockholders' equity.
Note 12 - Warrants
Warrants outstanding to purchase common stock as of August 31, 2002 totaled
17,205,260.
Note 13 - Contingencies and Commitments
On September 6, 2001, the Company was served with a summons and complaint by its
former landlords, asserting: (a.) a breach of a settlement agreement entered
into in May 2001 to register 500,000 shares of common stock, valued at $80,000,
in partial settlement of its then existing lease, and, (b.) a default by the
Company on two new long-term lease obligations. Terms of the first lease call
for base monthly payments of $12,046 for the period of August 1, 2001 to July
31, 2006, plus triple net charges estimated at approximately $3,038 per month
and beginning in year two, an increase equal to the change in the annual
consumer price index but not less than annual increase of 3%. Minimum aggregate
lease payments and triple net charges approximate $954,500 over the term of the
lease. Terms of the second lease call for monthly payments, beginning in June
2001 of approximately $4,000 per month, or a total of $80,000 for the remaining
term of the lease from August 1, 2001 to May 31, 2003. On October 4, 2001, the
Company's former landlords filed a summons and complaint with local
jurisdictional court for a summary judgment motion on all claims. All claims
under this motion were initially denied. However, on May 10, 2002, the Court
awarded a partial summary judgment in favor of the former landlords for
approximately $170,000. The Company has previously recorded approximately
$170,000 of expense related to this award. The Company anticipates filing a
motion to request the Court to vacate the partial summary judgment in light of
new evidence and/or appeal the Court's decision.
It is the opinion of management and its legal counsel that the settlement
agreement signed in May 2001 requiring the signing of the two new leases was
entered into under economic duress, based on misrepresentation, and, was signed
in bad faith on the part of the former landlords. As such, it is management's
opinion that the settlement agreement and the two lease agreements are void.
Management believes that the ultimate outcome of this litigation will be that
the former landlords will not be successful in their assertions under their
claim(s). Any additional claim under this dispute is not recognized in the
accompanying financial statements. The Company denies the allegations under this
claim and believes this claim is without merit and intends to continuously and
vigorously defend against this lawsuit.
On October 9, 2002, the Company settled an alleged grievance filed by a former
employee for $30,000.
Note 14 - Other Disclosures
Non-cash investing and financing activities included the following for the three
months ended:
August 31,
2002 2001
---- ----
Discount on convertible debentures $ 250,000 $ 650,000
Convertible debentures converted into common stock 4,500 -
Accrued liabilities converted into common stock - 64,536
Accounts payable converted into common stock - 2,000
Cash paid for interest $ 6,903 $ 15,026
Selling, general and administrative expenses for the three months ended are:
August 31,
2002 2001
---- ----
Salaries $ 159,762 $ 238,060
Benefits 6,815 14,904
Rent 5,046 138,149
Consulting 133,231 593,096
Legal, accounting and professional 60,461 177,983
Telephone and utilities 4,213 15,146
Taxes 16,708 41,086
Administration, supplies and repairs 5,087 5,776
Travel and entertainment 6,901 7,396
Insurance 502 (1,319)
Other and settlements 58,368 12,389
------------------- ---------------
Total $ 457,094 $
1,242,666
=================== ===============
Non-cash compensation $ 131,361 $ 516,668
Other 325,733 725,998
------------------- ---------------
Total $ 457,094 $
1,242,666
=================== ===============
Note 15 - Subsequent Events
On September 27, 2002 the Company entered into an agreement to sell $450,000 of
12% secured convertible debentures and for each one dollar ($1.00) invested, two
warrants will be issued to purchase two shares of common stock. The convertible
debentures will mature and become due one year from the date of issuance. As of
October 17, 2002 the Company issued $120,000 convertible debentures and 240,000
warrants.
On October 17, 2002, a convertible debenture with a face value of $150,000
matured. Terms of the agreement call for conversion of this debenture into cash
and / or common stock on or before the conversion (maturity) date. As of the
date of this report the Company is in default in payment on the principal and
the related accrued interest of approximately $15,535. Since this financial
instrument is in default, it is subject to default interest at fifteen percent
(15%) per annum.
Re-capitalization and Reorganization. By unanimous vote of the Board of
Directors on July 25, 2002, the Company was authorized to re-incorporate in the
state of Nevada on/or about November 18, 2002 for the purpose of providing
greater flexibility and simplicity to corporate transactions, reduce taxes and
other costs of doing business, reduce the amount of short sales of the common
stock, reduce the amount of issued and outstanding common stock, and to provide
management a controlling security interest. In order to accomplish the
re-incorporation, in accordance with the laws of the states of Delaware and
Nevada, the Company will merge into, and with, its wholly owned subsidiary,
Insynq, Inc. (Nevada), formed under the laws of the state of Nevada pursuant to
a formal Plan of Merger. Under terms of the Plan of Merger, Insynq, Inc.
(Nevada) will be the surviving corporation and Insynq, Inc. (Delaware) will be
the terminated corporation.
On July 25, 2002, the Board of Directors authorized the issuance of a series of
preferred stock designated Series A Convertible Preferred in the amount
2,100,000 shares with a par value of $0.001. which designation was filed and
became effective in October, 2002. Each share is entitled to vote 50 times the
number of common stock, and, is convertible upon the merger, initially, at the
rate of 10 shares of common stock for each full share of Convertible Preferred
Stock.
Under the terms of the Plan of Merger, each issued share of common stock of
Insynq, Inc. (Delaware) will be converted into one-hundredth (.01) share of the
surviving company, Insynq, Inc. (Nevada). Options, warrants and convertible
securities to purchase common stock of the Company will also be exchanged for
similar securities issued by Insynq, Inc. (Nevada) without adjustment as to the
number of shares issuable or the total exercise price.
The following table summarizes the transactions of the issued and outstanding
securities since August 31, 2002, to include the effects of the reverse merger:
Series A
Convertible Class A
Preferred Stock Common Stock Common Stock
----------------- ---------------------- ---------------------
Balance, August 31, 2002 - 0 - 5,000,000 66,520,503
----------------- ---------------------- ---------------------
Issuance of common stock for
services 7,000
Issuance of common stock in
conjunction with the acquisition
of customer base 1,950,000
Effects of conversion from
common stock to preferred 946,411 (9,464,110)
Effects of 10 shares of Class A
into 1 share of preferred 500,000 (5,000,000)
Issuance of preferred for
services rendered 8,000
----------------- ---------------------- ---------------------
Balance, October 17, 2002 1,454,411 - 0 - 59,013,393
================= ====================== =====================
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
- -------------------------------------------------------------------------------
The following discussion and analysis should be read in conjunction
with the condensed financial statements and including notes thereto, appearing
in this Form 10-QSB and in our May 31, 2002 annual report on Form 10-KSB.
Except for the historical information contained herein, this Quarterly
Report contains forward-looking statements within the meaning of Section 27A of
the Securities Act and Section 21E of the Securities Exchange Act.
The statements contained in this report that are not historical facts,
including, without limitation, statements containing the words "believes,"
"anticipates," "estimates," "expects," and words of similar import, constitute
"forward-looking statements." Forward-looking statements are made based upon our
management's current expectations and beliefs concerning future developments and
their potential effects upon us. Our actual results could differ materially from
those anticipated for many reasons. Factors that could cause or contribute to
the differences include, but are not limited to, availability of financial
resources adequate for short-, medium- and long-term needs, demand for our
products and services and market acceptance, as well as those factors discussed
in the "Item 2, Management's Discussion and Analysis of Financial Condition and
Results of Operations" and elsewhere in this report.
Our management disclaims any obligation to update any forward-looking
statements whether as a result of new information, future events or otherwise.
A more detailed discussion of these factors is presented in our May 31,
2002 annual report on Form 10-KSB.
Overview
We were originally incorporated as Xcel Management, Inc. in the state
of Utah on May 22, 1980, under the name Ward's Gas and Oil, to engage in the oil
and gas business, which business was terminated a few years after operations
commenced. Xcel then changed its name to Palace Casinos, Inc. and from November
1992 until approximately 1995, it was engaged, through its wholly owned
subsidiary, in the development of a dockside gaming facility in Biloxi,
Mississippi. On December 1, 1994, Xcel and its wholly owned subsidiary each
filed voluntary petitions for bankruptcy under Chapter 11 of the federal
bankruptcy laws. On June 16, 1999, the bankruptcy court confirmed a plan of
reorganization whereby the obligations of Xcel's creditors were satisfied. On
February 18, 2000, Xcel and Insynq, Inc. a Washington company formed on August
31, 1998, closed an asset purchase transaction in which Xcel acquired
substantially all of the assets of Insynq. Subsequent to the asset purchase
transaction, Xcel continued to develop the business of Insynq.On August 3, 2000,
at a special meeting of Xcel's stockholders, Xcel completed a re-incorporation
merger with its wholly owned subsidiary, Insynq, Inc., a Delaware corporation.
Today, as the combined and surviving entity, Insynq, Inc. continues to develop
the IQ Utility Service while incorporating the customer premise equipment
developed as part of the IQ Delivery System.
We provide Internet appliances, known as customer premise equipment,
managed and hosted software services, Web hosting services, Web-based local and
wide area networks, and access to Internet marketing assistance and related
equipment and services. These products and services are offered as components or
as an integrated whole, either sold directly or on a fee or subscription basis.
We target small and medium enterprises and the high-end segment of the
small office and home office market for the sale of hardware and hosted software
and access to Internet-related services. We provide products and services to our
customer subscriber base, which allows our customers to adopt "Web-based"
computing that serves as an alternative to both traditional local wide area
networks and traditional client-server implementations. Generally, we market our
self as an Internet utility company that can provide all of the computer
software, hardware, connectivity and Internet-access needs for its customers on
a cost effective basis.
We currently have several independent software vendors' products on
line using the IQ Data Utility Service computing services and anticipate signing
various agreements with additional organizations in the next few months. We
expect to increase the subscriber base through these respective sales channels.
Software vendor relationships currently in place include Microsoft Corporation,
Network Associates, Inc./McAfee, and Macola Software.
The complete IQ Delivery System and Internet Utility Service include
managed network and application services, which can span from a customer's
keyboard to the data center. We provide certain equipment, which is kept on our
customer's premises, including a simplified, diskless workstation or thin
client, and a multi-function router, our IQ Delivery System, which is entirely
managed and maintained by us. The system can also include Internet-access
services provided by us or by a user selected telecommunications
partner/provider. The final piece of the system is the data center, which is
located in Bellingham, Washington. This facility, with redundant power,
bandwidth, and cooling, house the servers and routers and equipment. While this
is the recommended configuration for customer use to take advantage of the full
services offered, customers are free to choose which components they would like
to use.
In fiscal 2003 (fiscal year ending May 31, 2003), we plan to focus on
sales growth, controlling expenses and restructure the debt. We will strive to
build on our core value of customer service and delivery of our hosted services
at a competitive price.
Results of Operations
We incurred a net loss of $864,372 for the three months ended August 31, 2002 as
compared to a net loss of $1,656,838 for the three months ended August 31, 2001.
The net loss for the three months ended August 31, 2002 resulted primarily from:
o discounted or free services as we marketed our products and services, o
professional and consulting fees, o issuance and amortization of common stock,
warrants and options for services, o contract settlements, and o interest
expense.
The decrease in the net loss for the three months ended August 31, 2002
of $792,466 as compared to the three months ended August 31, 2001 resulted
primarily from:
o increase in net revenue,
o decrease in legal and consulting fees,
o decrease in wages and related taxes and benefits,
o decrease in rent, and
o decrease in abandoned leasehold improvements
Total revenue for the three months ended August 31, 2002 and 2001 was
$234,163 and $194,565, respectively, This current quarter's performance
represents an increase of $39,598 over the prior comparable period, or
approximately an increase of 20%. The primary sources of revenue are as follows:
Three months ended August Three months ended August 2002 increase over 2001
-------------------------- -------------------------- -----------------------
31, 2002 31, 2001
-------- --------
Revenue Amount Percent of Amount Percent of Amount Percent
Source Total Total
- --------------------------------- ---------------- ------------ ---------------- ------------- --------------- -----------
1. Seat subscriptions, net of $ 189,535 80.9% $ 156,787 80.6% $ 20.9%
discounts 32,748
2. Managed software and 5,558 2.4 21,686 11.1 (16,128) (74.4)%
support
3. License rentals, hardware 39,070 16.7 16,092 8.3 22,978 142.8%
and software sales, and other
---------------- ------------ ---------------- ------------- --------------- -----------
Total $ 100.0% $ 194,565 100.0% $ 20.4%
234,163 39,598
---------------- ------------ ---------------- ------------- --------------- -----------
The increase in revenue can be directly attributed to an acquisition of
126 seats from another application service provider company in September of 2001
and the result of increased marketing over the Internet. While we have
experienced growth in revenue in each quarter of our existence, prior growth
rates should not be considered as necessarily indicative of future growth rates
or operating results for the fiscal ending 2003. We expect future revenue from
all sources to trend away from our practice of providing discounts and free
offerings as experienced in the first quarter, Fiscal 2003, because we are
continuing to develop our sales programs, implement our sales and marketing
strategies, increase consumer understanding and awareness of our technology, and
prove our business model.
Our continued growth is significantly dependent upon our ability to
generate sales relating to our subscription and managed software services. Our
main priorities relating to revenue are:
o increase market awareness of our products and services through our strategic
marketing plan, o growth in the number of customers and seats per customer, o
continue to accomplish technological economies of scale, and o continue to
streamline and maximize efficiencies in our system implementation model.
Costs and Expenses
During the three months ended August 31, 2002, we incurred direct costs
of services provided of $191,657. This represents a decrease of $128,210 as
compared to the three months ended August 31, 2001. Network and infrastructure
costs were $1,802 and $29,327, for the three months ended August 31, 2002 and
2001, respectively.
Selling and general and administrative costs were $457,094 and
$1,242,666 for the three months ended August 31, 2002 and 2001, respectively.
The current decrease in expenses for the three months ended August 31, 2002 can
be directly attributed to our managements' committed efforts, beginning in the
fall of 2000, to restructure our operations and reduce our expenses. Of
significance for the three months ended August 31, 2002, is a $385,307 decrease
of comparable period expenses requiring non-cash compensation. Non-cash
compensation is generally representative of the fair value of common stock,
options and warrants issued for services, and the amortization of unearned
compensation. Cash expenses for the three months ended August 31, 2002 and 2001
were $325,733 and $725,998, respectively. The decrease of $400,265, is the
result of managements' plans and continual efforts to cut costs in all
departments.
Overall, we reduced operating expenses for the three months ended
August 31, 2002, as compared to the three months ended August 31, 2001, by over
$1,000,000, but maintained a growth in revenue of 20% for the three months ended
August 31, 2002 as compared to August 31, 2001.
Interest expense was $444,882 for the three months ended August 31,
2002 compared to $190,442 for the same period ended August 31, 2001. The
increase of $254,440 was due primarily to the recognition in the current period:
(a) accruing interest on the related party promissory notes, and, (b) accounting
for non-cash interest recognized on the fair value of convertible debentures and
warrants issued.
Accounting for non-cash interest resulted in an increase of $314,019
between the two comparable three month periods ended August 31, 2002 and 2001.
For the three months ended August 31, 2002, non-cash interest expense included
$292,192 related to discount amortization of the 12% convertible debentures.
Cash interest decreased $59,579 for the three months ended August 31, 2002 as
compared to August 31, 2001.
Liquidity and Capital Resources
We had cash and cash equivalents of $6,107 as of August 31, 2002, and a
deficit in working capital of $6,155,959 at the same date. For the three months
ended August 31, 2002, we used cash in our operating activities totaling
$252,755 as compared to the same period one year ago of $785,607. The decrease
in our usage of cash of over $532,000 was the result of managements' expense
reduction plan, while increasing sales and maintaining customer service.
We finance our operations and capital requirements primarily through
private debt and equity offerings. For the three months ended August 31, 2002,
we received cash totaling $262,530 from:
o borrowing on our credit line - $2,175, o release of restricted cash held in
escrow $10,355 and, o issuance of convertible debentures $250,000.
As of August 31, 2002, we had approximately $6,539,457 in current
liabilities and past due debt. Of the total current debt, approximately $311,000
is deemed as a current trade payable, accrual or taxes due.
We are late in payment of certain creditor trade payables of
approximately $912,000.
Recently, management has initiated re-negotiations with many of its
creditors, by offering them cash payments for substantially less than the
amounts due, or request a total forgiveness of the debt. We believe by
continuing this important effort with a high degree of intensity, we will be
able to reduce a significant part our past due creditor trade obligations.
However, if we are not able to negotiate and execute payment plans or complete
cash settlements with these creditors/vendors, we could experience a severe
negative impact on our business resources and we may be forced to cease
operations.
We lease equipment under four capital leases, each expiring in 2003. As
of August 31, 2002, our principal capital lease obligation for computer
hardware, printers and related infrastructure is in default in the amount of
approximately $820,500. We have initiated discussions to restructure this
obligation, and, given the current market conditions, believe we will be
successful in such attempt. If we are unable to successfully restructure this
obligation, options remain open to us including, for example, returning the
equipment and purchasing new equipment on the open market. As a precautionary
measure, in fiscal 2002, we signed an additional operating lease agreement for
similar equipment to support our current customer base. If negotiations do not
go as planned, there still is no assurance that we would be able to locate other
similar and necessary equipment or raise the funds necessary to make such
further purchases or execute new leases. If all other methods fail, we might be
able to outsource our data center function; however, there is no assurance that
such methods will be available to us on favorable terms, or at all. If this were
to occur then we may be unable to deliver to our customers their contracted
services.
As of October 17, 2002, we are delinquent in the payment of
approximately $570,000 of business and payroll taxes, plus an estimated $246,000
of related assessed penalties and interest. The majority of the past due amount
is for payroll taxes, penalties and interest due to the Internal Revenue
Service. In April 2002, the Internal Revenue Service filed a federal tax lien
for the past due employment related taxes, penalties and interest. We have
retained legal counsel to represent us in our current negotiations with the
Internal Revenue Service and we have submitted an offer in compromise, seeking
relief on a portion of our overall obligation and structure a payment plan on
the settled amount of taxes due. The Internal Revenue Service has imposed
certain conditions on us in order to proceed with negotiations, one of which
requires us to remain current on all future payroll tax deposits and reporting.
We have executed workout agreements for past due taxes with four other
respective taxing authorities. As of October 17, 2002 total principal balance
due for these workouts is approximately $56,000. Terms of these four workouts
require us to pay between $290 and $1,000 per month until the respective tax
obligation is fulfilled. Three of the taxing agencies have either filed a lien
or a warrant with the local county authorities to protect its position during
the respective workout periods.
Additionally, two liens have been filed by two other states for past
due taxes, plus accrued interest and penalties. One lien was filed by the State
of Utah for approximately $28,000 for prior year's income taxes assessed to our
predecessor company. This amount is in dispute and amended returns to correct
this deficiency have been filed, but not yet approved or denied. The second lien
was filed by the State of California for past due payroll taxes, assessed
penalties and accrued interest. Recently, the Company submitted a proposal for a
long-term workout of the tax debt. We believe the proposal is currently in
review and under consideration with the state authorities.
There can be no assurances, however, that we will be able to agree or
commit to any proposed terms set forth by the Internal Revenue Service or
favorably negotiate terms with any of the other taxing authorities. If we are
unsuccessful in our negotiations or fail to make our workout payments timely,
the taxing authorities could take possession of some or all of our assets.
Should this occur, we likely would be forced to cease our operations.
As of August 31, 2002, we have approximately $364,000 of employee
agreement related obligations in the form of accrued and deferred salaries.
These obligations are primarily a result of applying the terms of existing
employment agreements against that which we actually paid. Currently, management
is negotiating with employees with employment agreements in order to reduce all
deferred and accrued salaries. In July 2002, an officer forgave $24,501 of
deferred compensation in consideration for 350,000 shares of common stock with a
market value of $1,050.
As of August 31, 2002, we have approximately $1,545,100 in short-term
related party promissory notes, loans and accrued interest. All these
obligations are past due. In settlement of these debts, our board of directors
may authorize the issuance of a class of preferred stock. To-date, we have
received a letter of intent to convert approximately $1,300,000 of this debt
into preferred stock.
As of August 31, 2002, we have also recorded outstanding convertible
debentures of $1,673,950, plus related accrued interest of approximately
$131,100 and unamortized discounts of $416,779.
On June 29, 2001, we entered into a private financing transaction with
three investors under which the investors initially purchased $550,000 from a
total of $1,200,000 of our 12% convertible debentures. Investors purchased an
additional $100,000 on August 15, 2001, $150,000 on October 17, 2001, and,
$400,000 on November 2, 2001 under this financing agreement. The debentures are
convertible into shares of our common stock at the lesser of (i) $0.18 or (ii)
the average of the lowest three trading prices on the twenty trading days prior
to the notice of such conversion, discounted by 50%. The convertible debentures
carry attached warrants that allow the investor, under the terms of the
warrants, to purchase up to 2,400,000 shares of common stock at an exercise
price per share equal to the lesser of (i) $.04 and (ii) the average of lowest
three (3) trading prices during the twenty (20) trading days immediately prior
to exercise of the warrants. If the 2,400,000 warrants were exercised on October
17, 2002, the warrant conversion price would be $0.001. Terms of the debentures
provide for full payment on or before one year from the date of issuance, plus
accrued interest of 12% per annum. On June 24, 2002, August 14, 2002 and October
17, 2002, the anniversary and maturity dates for certain convertible debentures
and the related accrued interest were due and payable. Total combined principal
due is $723,950 and total combined accrued interest is approximately $88,000.
Currently, these financial instruments are in default and are subject to certain
default provisions under the respective agreements.
On July 8, 2002 investors holding certain convertible debentures
exercised their position to convert $4,500 of debentures into 3,600,000 shares
of common stock at an exercise price of $0.00125 per share.
On January 24, 2002, we entered into a second private financing
transaction to sell our 12% convertible debentures, to four investors, under
which, the investors initially purchased $300,000. Proceeds from this initial
transaction, net of fees and expenses, were $221,000, of which $77,000 was
specifically escrowed and reserved for selected vendor settlements. The
conversion price of the debentures is the lesser of $0.008, the fixed conversion
price, or, the average of the lowest three intra-day trading prices during the
twenty days immediately prior to the conversion date, discounted by 50%. For
each one-dollar ($1.00) of debenture investment, we issued warrants to purchase
four (4) shares of common stock. The warrant is exercisable from time to time up
to two (2) years from date of issuance, at an exercise price equal to the lesser
of $0.007 or the average of the three lowest inter-day trading prices during the
twenty days immediately prior to the exercise. On July 10, 2002 we received the
remaining $250,000 from issuance of convertible debentures related to this
private financing, and issued an additional 1,000,000 warrants. If the 2,200,000
warrants were exercised on October 17, 2002, the warrant conversion price would
be $0.001
On September 27, 2002, we entered into a third private financing
transaction to sell $450,000 of 12% convertible debentures, to two investors,
under which, the investors initially purchased $120,000. Proceeds from this
initial transaction, net of fees and professional expenses, were $50,481.
Maturity date of this issuance is the one year anniversary date. The conversion
price of the debentures is the lesser of $0.03, the fixed conversion price, or,
the average of the lowest three intra-day trading prices during the twenty days
immediately prior to the conversion date, discounted by 50%. For each one-dollar
($1.00) of debenture investment, we issue warrants to purchase two (2) shares of
common stock. The warrant is exercisable from time to time up to five (5) years
from date of issuance, at an exercise price of $0.01. Pursuant to terms of the
agreement, additional investments in $30,000 increments will be made every
thirty-days until a total of $450,000 has been invested.
On June 29, 2002, August 14, 2002 and October 17, 2002 we were
obligated to repay any unconverted funds plus accrued interest pursuant to our
June 29, 2001 financing transaction, and through September 27, 2003, we will be
obligated to repay all unconverted remaining funds pursuant to our June 29,
2001, January 24, 2002 and September 27, 2002 debenture agreements. We do not
currently have the funds to repay the amounts that are due and we may not have
the funds available to meet those requirements when they come due. Pursuant to
the June 2001, the January 2002 and the September 2002 debenture agreements, any
amount of principal and / or interest which is not paid when due is in default,
and shall bear interest at the rate of fifteen percent (15%) per annum from the
due date thereof until the same is paid. Management anticipates negotiations
with the investors about amending the terms of the agreements.
Our continuation as a going concern is dependent on our ability to
obtain additional financing, and, generate sufficient cash flow from operations
to meet our obligations on a timely basis. Our ability to raise capital in the
future will be difficult because our securities purchase agreements with our
debenture investors prohibit us from entering into any financial arrangement,
which would involve the issuance of common stock for a period of two years
without offering a right of first refusal to the debenture investors. Moreover,
our ability to raise capital would also be difficult because our debentures
issued in connection with the June 29, 2001, January 24, 2002 and September 27,
2002 private placements have floating conversion features which, when converted,
would cause purchasers of our common stock to experience a substantial dilution
of their investment.
On September 6, 2001, we were served with a summons and complaint by
our former landlords, asserting: (a.) a breach of a settlement agreement entered
into in May 2001 to register 500,000 shares of common stock, valued at $80,000,
in partial settlement of the then existing lease, and, (b.) a default by us on
two new long-term lease obligations. Terms of the first lease call for base
monthly payments of $12,046 for the period of August 1, 2001 to July 31, 2006,
plus estimated triple net charges currently at $3,038 per month and beginning in
year two, annual consumer price index with a minimum annual increase of 3%.
Minimum aggregate lease payments and triple net charges approximate $954,500
over the term of the lease, excluding late fees, interest, legal fees and other
charges. Terms of the second lease called for monthly payments, beginning in
June 2001 of approximately $4,000 per month, or a total of $80,000 for the
remaining term of the lease from August 1, 2001 to May 31, 2003. On October 4,
2001, our former landlords filed a summons and complaint with the Superior Court
of Washington for Pierce County for a summary judgment motion on all claims. All
claims under this motion were denied. On May 10, 2002, the Court awarded a
partial summary judgment in favor of the former landlords for approximately
$170,000. We anticipate filing a motion requesting the court to vacate the
summary judgment in light of new evidence and/or appeal the court's decision.
We deny the allegations under this claim and believe it is without
merit. It is the opinion of our management and our legal counsel that the
settlement agreement signed in May 2001 that required the signing of the new
leases were entered into under economic duress, based on misrepresentation and
fraud and were signed in bad faith on the part of the former landlords. As such,
it is our managements' opinion that the settlement agreement and the lease
agreement are void. We intend to continue to vigorously defend against this
lawsuit.
We currently have no material commitments for capital requirements. If
we were forced to purchase new equipment to replace the equipment we currently
lease, any new leases would constitute a material capital commitment; however,
we are currently unable to quantify such amounts. If this occurs, we will
attempt to raise the necessary finances to make such purchases, but there is no
assurance that we will be able to do so. Without the ability to quantify these
amounts, we nonetheless believe that it would have a material impact on our
business and our ability to maintain our operations.
Since September 2000, we began implementation of an internal cost
restructuring of our operations, both in sales and marketing, as well in our
executive management team, and other critical cost cutting measures. In June
2001, we negotiated with many of our vendors to materially reduce amounts owed
or attain more favorable long-term payment terms. In October 2001 we further
reduced our staffing requirements and as a result of these measures, we have
tightened the controls over our use of cash and, additionally, have taken steps
to improve the billing and collection process. Our management forecasts the
continuing effects of these changes will result in a substantial improvement of
monthly cash flows. In addition to these changes, we have implemented a
marketing program through our recently developed accounting vertical, which has
dramatically reduced customer acquisition costs. The combination of the internal
restructuring efforts and increased operational efficiencies will allow us to
move toward profitability and to achieve our business plan and goals. We are
also pursuing opportunities to merge and/or acquire compatible companies with
which to leverage management, financial and operational resources. We believe
these changes and strategies will position us well for future opportunities.
We have recently signed several sales and marketing agreements. In
particular, we have completed negotiations with a large U.S. telecommunication
firm who will re-market, via private label, various services. We began this
relationship by test marketing hosted software applications and managed services
such as Microsoft Windows, MS Office, MS Exchange, virus protection, data
storage and many other products and services to be bundled with broadband
solutions. After a year of market test and product development, the
telecommunication firm has agreed to go to market with these services. These
bundled services or products will be delivered on a subscription basis.
We have recently launched our e-Accounting Center portal located at
WWW.CPA-ASP.COM, which has been designed to help the accounting professional
manage and expand their business. It includes resources for marketing,
promotion, professional education, and web design, as well as, step-by-step tips
for transforming a traditional accounting business into an e-Accounting
practice. In addition, we host the Intuit QuickBooks software application in our
secure Data Center for CPA firms throughout the country. By centrally hosting
the application and data in our Data Center, we give the CPA secure central
access to all his remote customers' data. This gives the CPA the ability to
manage more customers with fewer staff and, thereby, generating greater
profitability for the CPA firm.
This, in addition to an agreement with an accounting affiliation of
approximately 60,000 subscribers, and the adoption of the IQ Data Utility
Service solution by these and other accountants is providing access to
professional accounting organizations and their client bases. Other services
include business functions such as e-commerce, sales force automation, customer
support, human resource and financial management, messaging and collaboration,
and professional services automation. We believe that technology outsourcing,
focused on these business fundamentals, will be the primary adopters of
application service providers and managed service solutions in the next year. We
are focusing all possible resources in developing our domain expertise in these
areas to gain additional leverage and build broader service offerings that
compliment our current services already being delivered to those markets. There
can be no assurances, however, that we will substantially increase our monthly
recurring revenues.
We currently have no arrangements or commitments for accounts
receivable financing. We believe our need for additional capital going forward
will be met from private debt and equity offerings, and, increasingly, from
revenues from operations as we continue to implement our strategic plan;
however, future operations will be dependent upon our ability to secure
sufficient sources of financing and adequate vendor credit. However, there can
be no assurance that we will achieve any or all of these requirements.
We are currently developing and refining our acquisition and expansion
strategy. If we expand more rapidly than currently anticipated, if our working
capital needs exceed our current expectations, or if we consummate acquisitions,
we will need to raise additional capital from equity or debt sources. We cannot
be sure that we will be able to obtain the additional financings to satisfy our
cash requirements or to implement our growth strategy on acceptable terms or at
all. Our ability to raise capital in the future will be difficult because our
securities purchase agreements with our debenture investors prohibit us from
entering into any financial arrangement which would involve the issuance of
common stock for a period of two years from the date this registration statement
becomes effective without offering a right of first refusal to the debenture
investors. If we cannot obtain such financings on terms acceptable to us, our
ability to fund our planned business expansion and to fund our on-going
operations will be materially adversely affected. If we incur debt, the risks
associated with our business and with owning our common stock could increase. If
we raise capital through the sale of equity securities, the percentage ownership
of our stockholders will be diluted. In addition, any new equity securities may
have rights, preferences, or privileges senior to those of our common stock.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
- ---------------- ------------------------------------------------------------------------------------------------
EXHIBIT
NUMBER DESCRIPTION
- ---------------- ------------------------------------------------------------------------------------------------
4.1* Form of Stock Purchase Warrant dated September 27, 2002 between AJW Partners, LLC, New
- ---------------- ------------------------------------------------------------------------------------------------
4.2* Form of Secured Convertible Debenture dated September 27, 2002 between AJW Partners, LLC, New
Millennium Capital Partners II, LLC and Insynq, Inc.
- ---------------- ------------------------------------------------------------------------------------------------
4.3* Form of Securities Purchase Agreement dated September 27, 2002 between AJW Partners, LLC, New
Millennium Capital Partners II, LLC and Insynq, Inc.
- ---------------- ------------------------------------------------------------------------------------------------
4.4* Form of Registration Rights Agreement dated September 27, 2002 between AJW Partners, LLC, New
Millennium Capital Partners II, LLC and Insynq, Inc.
- ---------------- ------------------------------------------------------------------------------------------------
99.1* Certification of the Chief Executive Officer of Insynq, Inc. Pursuant to 18 U.S.C. Section
1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
- ---------------- ------------------------------------------------------------------------------------------------
99.2* Certification of the Treasurer of Insynq, Inc. Pursuant to 18 U.S.C. Section 1350, As Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
- ---------------- ------------------------------------------------------------------------------------------------
* filed herewith
(b) Reports on Form 8-K
The following reports on Form 8-K were filed during the three months
ended August 31, 2002:
(1) On June 16, 2002, we filed a Current Report on Form 8-K
reporting the resignation of Don Kaplan as our board of
director.
(2) On July 17, 2002, we filed a Current Report on Form 8-K
reporting the resignation of Steve Smith as our interim
chief financial officer.
(3) On July 25, 2002, we filed a Current Report on Form 8-K
reporting the removal of Grant Thornton LLP and the approval
of Weinberg and Co., PA as our new accountants.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
the requirements for filing on Form 10-QSB and has duly caused this Quarterly
Report to be signed on its behalf by the undersigned, thereunto duly authorized,
in the City of Tacoma, State of Washington, on October 18, 2002.
INSYNQ, INC.
By: /s/ John P. Gorst
------------------
John P. Gorst
Chief Executive Officer
By:/s/ M. Carroll Benton
----------------------
M. Carroll Benton
Secretary and Treasurer
EXHIBIT E
INSYNQ MANAGEMENT, INC.
2000 Executive Officer
Long Term Incentive Plan
I. GENERAL
1. Purpose. The Insynq, Inc. 2000 Executive Officer Long Term Incentive
Plan (the "Plan") has been established by Insynq, Inc. (the "Company")
to:
(a) attract and retain executive employees of the Company (the
"Participants");
(b) motivate the Participants by means of appropriate incentives to achieve
long-range goals;
(c) provide incentive compensation opportunities that are competitive with
those of comparable corporations; and
(d) further identify Participants' interests with those of the Company's
other shareholders through compensation alternatives based on the
Company's common stock;
and thereby promote the long-term financial interest of the Company and its
Subsidiaries (if any), including the growth in value of the Company's equity and
enhancement of long-term shareholder return.
2. Effective Date. Subject to the approval of the holders of a majority of
the voting Stock of the Company, the Plan shall be effective as of
February 20, 2000, provided, however, that awards made under the Plan
prior to such approval of the Plan by stockholders of the Company are
contingent on such approval of the Plan by the stockholders of the
Company and shall be null and void if such approval of the stockholders
of the Company is withheld. The Plan shall terminate on February 20,
2010, the tenth anniversary of the Plan's effective date.
3. Definitions. The following definitions are applicable to the Plan.
(a) "Award Agreement" means a written agreement between the Company and a
Participant documenting an award under this Plan.
(b) "Board" means the Board of Directors of the Company.
(c) "Change of Control" has the meaning ascribed to it in Section 1.11.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Committee" means the Compensation Committee of the Board.
(f) "Disabled" means the inability of a Participant, by reason of a
physical or mental impairment, to engage in any substantial gainful
activity, of which the Board shall be the sole judge.
(g) "Fair Market Value" of any share of Stock means (i) if the Stock is
listed on a national securities exchange, the closing price on the
Stock on a given date; (ii) if the Stock is traded on an exchange or
market in which prices are reported on a bid and asked price, the
average of the mean between the bid and asked price for the Stock on a
given date; and (iii) if the Stock is not listed on a national
securities exchange nor traded on the over-the-counter market, such
value as the Committee, in good faith, shall determine.
(h) "1934 Act" means the Securities Exchange Act of 1934, as amended, or
any successor statute.
(i) "Option Date" means, with respect to any Stock Option, the date on
which the Stock Option is awarded under the Plan.
(j) "Participant" means (i) any regular full-time employee of the Company
or any Subsidiary (meaning an employee who works twenty (20) hours or
more per week) who is selected by the Committee to participate in the
Plan, or (ii) any consultant, independent contractor or director of the
Company or any Subsidiary.
(k) "Performance Award" has the meaning ascribed to it in Article VI.
(l) "Performance Period" has the meaning ascribed to it in Article VI.
(m) "Related Company" means any corporation during any period in which it
is a Subsidiary, or during any period in which it directly or
indirectly owns fifty percent (50%) or more of the total combined
voting power of all classes of securities that are entitled to vote.
(n) "Restricted Period" has the meaning ascribed to it in Article V.
(o) "Restricted Stock" has the meaning ascribed to it in Article V.
(p) "Retirement" means (i) termination of employment in accordance with the
retirement procedures set by the Company from time to time; (ii)
termination of employment because a participant becomes Disabled; or
(iii) termination of employment voluntarily with the consent of the
Company (of which the Board shall be the sole judge).
(q) "Stock" means the Class A Common Stock, $0.001 par value per share, of
Insynq, Inc.
(r) "Stock Appreciation Right" means the right of a holder of a Stock
Option to receive Stock or cash as described in Article IV.
(s) "Stock Option" means the right of a Participant to purchase Stock
pursuant to an Incentive Stock Option, a Non-Qualified Option or a
Reload Option awarded pursuant to the provisions of the Plan.
(t) "Subsidiary" means any corporation during any period of which fifty
percent (50%) or more of the total combined voting power of all classes
of securities entitled to vote is owned, directly or indirectly, by the
Company.
4. Administration. The authority to manage and control the operation and
administration of the Plan shall be vested in the Board. Subject to the
provisions of the Plan, the Board will have authority to select
employees to receive awards of Stock Options, with or without tandem
Stock Appreciation Rights, Performance Awards and/or Restricted Stock,
to determine the time or times of receipt, to determine the types of
awards and the number of shares covered by the awards, to establish the
terms, conditions, performance criteria, restrictions, and other
provisions of such awards, and to amend, modify or suspend awards. In
making such award determinations, the Board may take into account the
nature of services rendered by the respective employee, his or her
present and potential contribution to the Company's success and such
other factors as the Board deems relevant.
The Board is authorized to interpret the Plan, to establish, amend, and
rescind any rules and regulations relating to the Plan, to determine the terms
and provisions of any agreements made pursuant to the Plan, to modify such
agreements, and to make all other determinations that may be necessary or
advisable for the administration of the Plan. With respect to persons subject to
Section 16 of the 1934 Act, transactions under the Plan are intended to comply
with all applicable conditions of Rule 16b-3 or its successor rule or statute
under the 1934 Act. To the extent any provision of the Plan or action by the
Board of Directors or the Committee fails to so comply, it shall be deemed null
and void, to the extent permitted by law.
The Board, in its discretion, may delegate any or all of its authority,
powers and discretion under this Plan to the Committee, and the Board in its
discretion may revest any or all such authority, powers and discretion in itself
at any time. If any or all of the authority, powers and discretion under this
Plan are delegated to the Committee and the Company has registered any of its
equity securities under Section 12 of the 1934 Act, the Committee shall consist
solely of two or more non-employee directors (as defined in Rule 16b-3 under the
1934 Act) until such time as such other requirements are imposed by applicable
law. If appointed, the Committee shall function as follows: A majority of the
Committee shall constitute a quorum, and the acts of a majority of the members
present at any meeting at which a quorum is present, or acts approved in writing
by all members of the Committee, shall be the acts of the Committee, unless
provisions to the contrary are embodied in the Company's Bylaws or resolutions
duly adopted by the Board. All actions taken and decisions and determinations
made by the Board or the Committee pursuant to the Plan shall be binding and
conclusive on all persons interested in the Plan. No member of the Board or the
Committee shall be liable for any action or determination taken or made in good
faith with respect to the Plan.
5. Participation. Subject to the terms and conditions of the Plan, the
Board shall determine and designate, from time to time, (i) the
full-time employees of the Company and/or its Subsidiaries who will
participate in the Plan, and (ii) any consultants, independent
contractors or directors of the Company and/or its Subsidiaries who
will participate in the Plan. In the discretion of the Board, a
Participant may be awarded Stock Options with or without tandem Stock
Appreciation Rights, Performance Units or Restricted Stock or any
combination thereof, and more than one award may be granted to a
Participant; provided, however, that Incentive Stock Options shall not
be awarded to Participants who are not employees of the Company. Except
as otherwise agreed to by the Company and the Participant, any award
under the Plan shall not affect any previous award to the Participant
under the Plan or any other plan maintained by the Company or its
Subsidiaries.
6. Shares Subject to the Plan. The shares of Stock with respect to which
awards may be made under the Plan shall be either authorized and
unissued shares or issued and outstanding shares (including, in the
discretion of the Board, shares purchased in the market). Subject to
the provisions of Section 1.10, the number of shares of Stock available
under the Plan for the grant of Stock Options with or without tandem
Stock Appreciation Rights, Performance Units and Restricted Stock shall
not exceed 3,000,000 shares of Common Stock in the aggregate. If, for
any reason, any award under the Plan or any portion of the award, shall
expire, terminate or be forfeited or cancelled, or be settled in cash
pursuant to the terms of the Plan and, therefore, any such shares are
no longer distributable under the award, such shares of Stock shall
again be available for award under the Plan.
7. Compliance With Applicable Laws and Withholding of Taxes.
(a) Notwithstanding any other provision of the Plan, the Company shall have
no liability to issue any shares of Stock under the Plan unless such
issuance would comply with all applicable laws and the applicable
requirements of any securities exchange or similar entity. Prior to the
issuance of any shares of Stock under the Plan, the Company may require
a written statement that the recipient is acquiring the shares for
investment and not for the purpose or with the intention of
distributing the shares.
(b) All awards and payments under the Plan are subject to withholding of
all applicable taxes, which withholding obligations may
be satisfied, with the consent of the Board, through the surrender
of shares of Stock that the Participant already owns, or
to which a Participant is otherwise entitled under the Plan. The
Company shall have the right to deduct from all amounts
paid in cash in consequence of the exercise of a Stock Option,
Performance Unit or Stock Appreciation Right or in connection
with an award of Restricted Stock under the Plan any taxes
required by law to be withheld with respect to such cash
payments. Where an employee or other person is entitled to
receive shares of Stock pursuant to the exercise of a Stock
Option, a Performance Unit or a Stock Appreciation Right pursuant
to the Plan, the Company shall have the right to require
the employee or such other person to pay to the Company the
amount of any taxes that the Company is required to withhold
with respect to such shares, or, in lieu thereof, to retain, or
sell without notice, a sufficient number of such shares to
cover the amount required to be withheld.
(c) Upon the disposition (within the meaning of Code Section 424(c)) of
shares of Stock acquired pursuant to the exercise of an Incentive Stock
Option prior to the expiration of the holding period requirements of
Code Section 422(a)(1), the employee shall be required to give notice
to the Company of such disposition and the Company shall have the right
to require the employee to pay to the Company the amount of any taxes
that are required by law to be withheld with respect to such
disposition.
(d) Upon termination of the Restricted Period with respect to an award
of Restricted Stock (or such earlier time, if any, as an
election is made by the employee under Code Section 83(b), or any
successor provisions thereto, to include the value of such
shares in taxable income), the Company shall have the right to
require the employee or other person receiving shares of
Stock in respect of such Restricted Stock award to pay to the
Company the amount of taxes that the Company is required to
withhold with respect to such shares of Stock or, in lieu thereof,
to retain or sell without notice a sufficient number of
shares of Stock held by it to cover the amount required to be
withheld. The Company shall have the right to deduct from all
dividends paid with respect to Restricted Stock the amount of taxes
that the Company is required to withhold with respect to
such dividend payments.
8. Transferability. Performance Awards, Incentive Stock Options with or
without tandem Stock Appreciation Rights, and, during the period of
restriction, Restricted Stock awarded under the Plan are not assignable
or transferable except as designated by the Participant by will or by
the laws of descent and distribution. Incentive Stock Options may be
exercised during the lifetime of the Participant only by the
Participant or his guardian or legal representative.
9. Employee and Stockholder Status. The Plan does not constitute a
contract of employment, and selection as a Participant will not give
any employee the right to be retained in the employ of the Company or
any Subsidiary or any director or consultant the right to continue to
provide services to the Company or any Subsidiary. No award under the
Plan shall confer upon the holder thereof any right as a stockholder of
the Company prior to the date on which he fulfills all service
requirements and other conditions for receipt of shares of Stock. If
the redistribution of shares is restricted pursuant to Section 1.7,
certificates representing such shares may bear a legend referring to
such restrictions.
10. Adjustments to Number of Shares Subject to the Plan. In the event of
any change in the outstanding shares of Stock of the Company by reason
of any stock dividend, split, spinoff, recapitalization, merger,
consolidation, combination, extraordinary dividend, exchange of shares
or other similar change, the aggregate number of shares of Stock with
respect to which awards may be made under the Plan, the terms and the
number of shares of any outstanding Stock Options, Stock Appreciation
Rights, Performance Units and Restricted Stock, and the purchase price
of a share of Stock under Stock Options, may be equitably adjusted by
the Board in its sole discretion.
11. Business Combinations. In addition to the rights and obligations of the
Committee to modify, adjust or accelerate exercisability of outstanding
options, in the event that, while any Stock Options, Stock Appreciation
Rights, Performance Units or Restricted Shares are outstanding under
the Plan, there shall occur (i) a merger or consolidation of the
Company with or into another corporation in which the Company shall not
be the surviving corporation (for purposes of this Section 1.11, the
Company shall not be deemed the surviving corporation in any such
transaction if, as the result thereof, the existing shareholders of the
Company hold less than 51% of the outstanding stock of the Company),
(ii) a dissolution of the Company, or (iii) a transfer of all or
substantially all of the assets or shares of stock of the Company in
one transaction or a series of related transactions to one or more
other persons or entities (any of the foregoing events as described in
(i)-(iii) above, a "Change of Control"), then, with respect to each
Stock Option, Stock Appreciation Right, Performance Unit and share of
Restricted Stock outstanding immediately prior to the consummation of
such transaction and without the necessity of any action by the
Committee:
(a) If provision is made in writing in connection with such transaction
for the continuance and/or assumption of the Stock
Options, Stock Appreciation Rights, Performance Units and
Restricted Shares granted under the Plan, or the substitution for
such Stock Options, Stock Appreciation Rights, Performance
Units and Restricted Shares of new Stock Options, Stock
Appreciation Rights, Performance Units and Restricted Shares,
with appropriate adjustment as to the number and kind of
shares or other securities deliverable with respect thereto, the Stock
Options, Stock Appreciation Rights, Performance Units
and Restricted Shares granted under the Plan, or the new Stock
Options, Stock Appreciation Rights, Performance Units and
Restricted Shares substituted therefor, shall continue, subject
to such adjustment, in the manner and under the terms
provided in the respective agreements.
(b) In the event provision is not made in connection with such
transaction for the continuance and/or assumption of the Stock
Options, Stock Appreciation Rights, Performance Units and
Restricted Shares granted under the Plan, or for the substitution
of equivalent options, rights, units and awards, then (i) each
holder of an outstanding option shall be entitled,
immediately prior to the effective date of such transaction, to
purchase the full number of shares that he or she would
otherwise have been entitled to purchase during the entire
remaining term of the option; (ii) the holder of any right or
unit shall be entitled, immediately prior to the effective date of
such transaction, to exercise such right to the extent
the related option is or becomes exercisable at such time in
accordance with its terms; (iii) all restrictions on any award
of Restricted Shares shall lapse, and (iv) any restriction or
risk of forfeiture imposed under the Plan shall lapse
immediately prior to the effective date of such transaction. The
unexercised portion of any option or right shall be deemed
cancelled and terminated as of the effective date of such transaction.
12. Agreement With Company. At the time of any awards under the Plan, the
Board will require a Participant to enter into an agreement with the
Company in a form specified by the Board (the "Award Agreement"),
agreeing to the terms and conditions of the Plan and to such additional
terms and conditions, not inconsistent with the Plan, as the Board may,
in its sole discretion, prescribe.
13. Amendment and Termination of Plan. Subject to the following provisions
of this Section 13, the Board may at any time and in any way amend,
suspend or terminate the Plan. No amendment of the Plan and, except as
provided in Section 1.10, no action by the Board shall, without further
approval of the stockholders of the Company, increase the total number
of shares of Stock with respect to which awards may be made under the
Plan, materially increase the benefits accruing to Participants under
the Plan or materially modify the requirements as to eligibility for
participation in the Plan, if stockholder approval of such amendment is
a condition of Securities and Exchange Commission Rule 16b-3 or its
successor rule or statute, the Code or any exchange or market system on
which the Stock is listed at the time such amendment is adopted. No
amendment, suspension or termination of the Plan shall alter or impair
any Stock Option with or without tandem Stock Appreciation Right,
Performance Award or share of Restricted Stock previously awarded under
the Plan without the consent of the holder thereof.
II. INCENTIVE STOCK OPTIONS
1. Definition. The award of an Incentive Stock Option under the Plan
entitles the Participant to purchase shares of Stock at a price fixed
at the time the option is awarded, subject to the following terms of
this Article II.
2. Eligibility. The Board shall designate the Participants to whom
Incentive Stock Options, as described in Code Section 422(b) or any
successor section thereto, are to be awarded under the Plan and shall
determine the number of option shares to be offered to each of them.
Incentive Stock Options may be awarded only to employees. In no event
shall the aggregate Fair Market Value (determined at the time the
option is awarded) of Stock with respect to which Incentive Stock
Options are exercisable for the first time by an individual during any
calendar year (under all plans of the Company and all Related
Companies) exceed $100,000.
3. Price. The purchase price of a share of Stock under each Incentive
Stock Option shall be determined by the Board, provided, however, that
in no event shall such price be less than the greater of (i) 100% of
the Fair Market Value of a share of Stock as of the Option Date (or
110% of such Fair Market Value if the holder of the option owns stock
possessing more than 10% of the combined voting power of all classes of
stock of the Company or any Subsidiary) or (ii) the par value of a
share of Stock on such date. To the extent provided by the Board, the
full purchase price of each share of Stock purchased upon the exercise
of any Incentive Stock Option shall be paid in cash or in shares of
Stock (valued at Fair Market Value as of the day of exercise), or in
any combination thereof, at the time of such exercise and, as soon as
practicable thereafter, a certificate representing the shares so
purchased shall be delivered to the person entitled thereto.
4. Exercise. Each Option shall become and be exercisable at such time or
times and during such period or periods, in full or in such
installments as may be determined by the Board at the Option Date. In
addition, if permitted by the Board or the terms of the Award Agreement
evidencing such Stock Option, Participants may elect to pay the
purchase price of shares of Stock purchased upon the exercise of
Incentive Stock Options in cash or through delivery at the time of such
exercise of shares of Stock (valued at Fair Market Value as of the date
of exercise) already owned by the Participant, or any combination
thereof, equivalent to the purchase price of such Incentive Stock
Options. A Participant's payment of the purchase price in connection
with the exercise of an Incentive Stock Option through delivery of
share of Stock ("ISO Stock") that were acquired through the exercise of
an Incentive Stock Option and that have not been held for more than one
year will be considered a disposition (within the meaning of Code
Section 422(c)) of ISO Stock, resulting in the disqualification of the
ISO Stock from treatment as an Incentive Stock Option under Code
Section 422, and the Participant's recognition of ordinary income.
Participants should consult with their tax advisors prior to electing
to exercise an Incentive Stock Option by this method.
5. Option Expiration Date. Unless otherwise provided by the Award
Agreement, the "Expiration Date" with respect to an Incentive Stock
Option or any portion thereof awarded to a Participant under the Plan
means the earliest of:
(a) the date that is ten (10) years after the date on which the Incentive
Stock Option is awarded (or, if the Participant owns stock possessing
more than ten percent (10%) of the combined voting power of all classes
of stock of the Company or any Subsidiary, the date that is five (5)
years after the date on which the Incentive Stock Option is awarded);
(b) the date that is one year after the Participant's employment with the
Company and all Related Companies is terminated by reason of the
Participant becoming Disabled or by reason of the Participant's death;
or
(c) thirty (30) days following the date that the Participant's
employment with the Company and all Related Companies is terminated by
reasons other than death or becoming Disabled. All rights to purchase
shares of Stock pursuant to an Incentive Stock Option shall cease as of
such option's Expiration Date.
All rights to purchase shares of Stock pursuant to an Incentive Stock Option
shall cease as of such option's Expiration Date.
6. Reload Options. The Committee may, in its discretion, provide in the terms of
any Award Agreement that if the Participant delivers shares of Stock already
owned or to be received upon exercise of the Option in full or partial payment
of the option price, or in full or partial payment of the tax withholding
obligations incurred on account of the exercise of the Option, the Optionee
shall automatically and immediately upon such exercise be granted an additional
option (a "Reload Option") to purchase the number of shares of Stock delivered
by the Optionee to the Company, on such terms and conditions as the Committee
may determine under the terms of the Plan. Notwithstanding the preceding, the
purchase price of shares of Stock acquired under a Reload Option shall be not
less than the Fair Market Value of a share of Stock on the date the Reload
Option is issued.
III. NON-QUALIFIED STOCK OPTIONS
1. Definition. The award of a Non-Qualified Stock Option under the Plan entitles
the Participant to purchase shares of Stock at a price fixed at the time the
option is awarded, subject to the following terms of this Article III.
2. Eligibility. The Board shall designate the Participants to whom Non-Qualified
Stock Options are to be awarded under the Plan and shall determine the number of
option shares to be offered to each of them.
3. Price. The purchase price of a share of Stock under each Non-Qualified Stock
Option shall be determined by the Board; provided, however, that in no event
shall such price be less than the Fair Market Value of a share of Stock as of
the Option Date.
4. Exercise. Each Option shall become and be exercisable at such time or times
and during such period or periods, in full or in such installments as may be
determined by the Board at the Option Date. To the extent provided by the Board,
the full purchase price of each share of Stock purchased upon the exercise of
any Non-Qualified Stock Option shall be paid in cash or in shares of Stock
(valued at Fair Market Value as of the day of exercise), or in any combination
thereof, at the time of such exercise and, as soon as practicable thereafter, a
certificate representing the shares so purchased shall be delivered to the
person entitled thereto. In addition, unless restricted by the Board,
Participants may elect to pay the purchase price of shares of Stock purchased
upon the exercise of Non-Qualified Stock Options in cash or through the
constructive delivery at the time of such exercise of shares of Stock (valued at
Fair Market Value as of the day of exercise) already owned by the Participant,
or any combination thereof, equivalent to the purchase price of such
Non-Qualified Stock Options, and, as soon as practicable thereafter, a
certificate representing the net number of shares so purchased shall be
delivered to the person entitled thereto. Participants also may elect to pay,
unless restricted by the Board, the purchase price, in whole or in part, of
shares of Stock purchased upon the exercise of Non-Qualified Options through the
Company's withholding of shares of Stock (valued at Fair Market Value as of the
day of exercise) that would otherwise by issuable upon exercise of such options
equivalent to the purchase price of such Non-Qualified Stock Options and, as
soon as practicable thereafter, a certificate representing the net number of
shares so purchased shall be delivered to the person entitled thereto.
5. Option Expiration Date. Unless otherwise provided in a Participant's Award
Agreement, the "Expiration Date" with respect to a Non-Qualified Stock Option or
any portion thereof awarded to a Participant under the Plan means the earliest
of:
(a) the date that is one (1) year after the Participant's
employment with the Company and all Related Companies is terminated by
reason of the Participant becoming Disabled or by reason of the
Participant's death; or
(b) thirty (30) days following the date that the Participant's
employment with the Company and all Related Companies is terminated by
reasons other than death or becoming Disabled.
All rights to purchase shares of Stock pursuant to a Non-Qualified Stock Option
shall cease as of such option's Expiration Date.
6. Reload Options. The Committee may, in its discretion, provide in the terms of
any Award Agreement that if the Participant delivers shares of Stock already
owned or to be received upon exercise of the Option in full or partial payment
of the option price, or in full or partial payment of the tax withholding
obligations incurred on account of the exercise of the Option, the Optionee
shall automatically and immediately upon such exercise be granted a Reload
Option to purchase the number of shares of Stock delivered by the Optionee to
the Company, on such terms and conditions as the Committee may determine under
the terms of the Plan. Notwithstanding the preceding, the purchase price of
shares of Stock acquired under a Reload Option shall be not less than the Fair
Market Value of a share of Stock on the date the Reload Option is issued.
IV. STOCK APPRECIATION RIGHTS
1. Definition. A Stock Appreciation Right is an award that may or may not be
granted in tandem with a Non-Qualified Stock Option or Incentive Stock Option,
and entitles the holder to receive an amount equal to the difference between the
Fair Market Value of the shares of option Stock at the time of exercise of the
Stock Appreciation Right and the option price, subject to the applicable terms
and conditions of the tandem options and the following provisions of this
Article IV.
2. Eligibility. The Board may, in its discretion, award Stock Appreciation Right
under this Article IV concurrent with, or subsequent to, the award of the
option.
3. Exercise. A Stock Appreciation Right shall entitle the holder of a Stock
Option to receive, upon the exercise of the Stock Appreciation Right, shares of
Stock (valued at their Fair Market Value at the time of exercise), cash or a
combination thereof, in the discretion of the Board, in an amount equal in value
to the excess of the Fair Market Value of the shares of Stock subject to the
Stock Appreciation Right as of the date of such exercise over the purchase price
of the Stock Appreciation Right, as shall be prescribed by the Board in its sole
discretion and as shall be contained in the Participant's Award Agreement. If
granted in tandem with an option, the exercise of a Stock Appreciation Right
will result in the surrender of the related Incentive Stock Option or
Non-Qualified Stock Option and, unless otherwise provided by the Board in its
sole discretion, the exercise of a Stock Option will result in the surrender of
a related Stock Appreciation Right, if any.
4. Expiration Date. The "Expiration Date" with respect to a Stock Appreciation
Right shall be determined by the Board and documented in the Participant's Award
Agreement, and if granted in tandem with an option, shall be not later than the
Expiration Date for the related Stock Option. If neither the right nor the
related Stock Option is exercised before the end of the day on which the right
ceases to be exercisable, such right shall be deemed exercised as of such date
and payment shall be made to the holder in cash.
V. RESTRICTED STOCK
1. Definition. Restricted Stock awards are grants of Stock to Participants, the
vesting of which is subject to a required period of employment and any other
conditions established by the Board.
2. Eligibility. The Board shall designate the Participants to whom Restricted
Stock is to be awarded and the number of shares of Stock that are subject to the
award.
3. Terms and Conditions of Awards. All shares of Restricted Stock
awarded to Participants under the Plan shall be subject to the following terms
and conditions and to such other terms and conditions, not inconsistent with the
Plan, as shall be prescribed by the Board in its sole discretion and as shall be
contained in the Participant's Award Agreement.
(a) Restricted Stock awarded to Participants may not be sold,
assigned, transferred, pledged or otherwise encumbered, except as
hereinafter provided, for a period of ten (10) years or such shorter
period as the Board may determine, but not less than one (1) year,
after the time of the award of such stock (the "Restricted Period").
Except for such restrictions, the Participant as owner of such shares
shall have all the rights of a shareholder, including but not limited
to the right to vote such shares and, except as otherwise provided by
the Board, the right to receive all dividends paid on such shares.
(b) The Board may in its discretion, at any time after the
date of the award of Restricted Stock, adjust the length of the
Restricted Period to account for individual circumstances of a
Participant or group of Participants, but in no case shall the length
of the Restricted Period be less than one (1) year.
(c) Except as otherwise determined by the Board in its sole
discretion, a Participant whose employment with the Company and all
Related Companies terminates prior to the end of the Restricted Period
for any reason shall forfeit all shares of Restricted Stock remaining
subject to any outstanding Restricted Stock Award.
(d) Each certificate issued in respect of shares of Restricted
Stock awarded under the Plan shall be registered in the name of the
Participant and, at the discretion of the Board, each such certificate
may be deposited in a bank designated by the Board. Each such
certificate shall bear the following (or a similar) legend:
"The transferability of this certificate and the shares of
stock represented hereby are subject to the terms and
conditions (including forfeiture) contained in the Insynq,
Inc. 2000 Stock Incentive Plan and an agreement entered into
between the registered owner and Insynq, Inc. A copy of such
plan and agreement is on file in the office of the Secretary
of Insynq, Inc. in Tacoma, Washington.
(e) At the end of the Restricted Period for Restricted Stock,
such Restricted Stock will be transferred free of all restrictions to a
Participant (or his or her legal representative, beneficiary or heir).
VI. PERFORMANCE UNITS
1. Definition. Performance Units are awards to Participants who may receive
value for the units at the end of a Performance Period. The number of units
earned, and value received for them, will be contingent on the degree to which
the performance measures established at the time of the initial award are met.
2. Eligibility. The Board shall designate the Participants to whom Performance
Units are to be awarded, and the number of units to be the subject of such
awards.
3. Terms and Conditions of Awards. For each Participant, the Board will
determine the timing of awards; the number of units awarded; the value of units,
which may be stated either in cash or in shares of Stock; the performance
measures used for determining whether the Performance Units are earned; the
performance period during which the performance measures will apply; the
relationship between the level of achievement of the performance measures and
the degree to which Performance Units are earned; whether, during or after the
performance period, any revision to the performance measures or performance
period should be made to reflect significant events or changes that occur during
the performance period; and the number of earned Performance Units that will be
paid in cash and/or shares of Stock, as shall be prescribed by the Board in its
sole discretion and as shall be contained in the Participant's Award Agreement.
4. Payment. The Board will compare the actual performance to the performance
measures established for the performance period and determine the number of
units to be paid and their value. Payment for units earned shall be wholly in
cash, wholly in Stock or in a combination of the two, in a lump sum or
installments, and subject to vesting requirements and such other conditions as
the Board shall provide. The Board will determine the number of earned units to
be paid in cash and the number to be paid in Stock. For Performance Units valued
when awarded in shares of Stock, one share of Stock will be paid for each unit
earned, or cash will be paid for each unit earned equal to either (i) the Fair
Market Value of a share of Stock at the end of the Performance Period or (ii)
the Fair Market Value of the Stock averaged for a number of days determined by
the Board. For Performance Units valued when awarded in cash, the value of each
unit earned will be paid in its initial cash value, or shares of Stock will be
distributed based on the cash value of the units earned divided by (i) the Fair
Market Value of a share of Stock at the end of the Performance Period or (ii)
the Fair Market Value of a share of Stock averaged for a number of days
determined by the Board.
5. Retirement, Death or Termination. A Participant whose employment with the
Company and Related Companies terminates during a performance period because of
Retirement or death shall be entitled to the prorated value of earned
Performance Units, issued with respect to that performance period, at the
conclusion of the performance period based on the ratio of the months employed
during the period to the total months of the performance period. If the
Participant's employment with the Company and Related Companies terminates
during a performance period for any reason other than Retirement or death, the
Performance Units issued with respect to that performance period will be
forfeited on the date his employment with the Company and Related Companies
terminates. Notwithstanding the foregoing provisions of this Part VI, if a
Participant's employment with the Company and Related Companies terminates
before the end of the Performance Period with respect to any Performance Units
awarded to him, the Board may determine that the Participant will be entitled to
receive all or any portion of the units that he or she would otherwise receive,
and may accelerate the determination and payment of the value of such units or
make such other adjustments as the Board, in its sole discretion, deems
desirable.
EXHIBIT F
INSYNQ, INC.
2000 Long Term Incentive Plan
VII. GENERAL
1. Purpose. The Insynq, Inc. 2000 Long Term Incentive Plan (the "Plan")
has been established by Insynq, Inc. (the "Company") to:
(a) attract and retain key executive and managerial employees of the
Company;
(b) attract and retain directors, independent contractors and consultants;
(c) motivate Participants by means of appropriate incentives to achieve
long-range goals;
(d) provide incentive compensation opportunities that are competitive with
those of comparable corporations; and
(e) further identify Participants' interests with those of the Company's
other shareholders through compensation alternatives based on the
Company's common stock;
and thereby promote the long-term financial interest of the Company and its
Subsidiaries (if any), including the growth in value of the Company's equity and
enhancement of long-term shareholder return.
2. Effective Date. Subject to the approval of the holders of a majority of
the voting Stock of the Company, the Plan shall be effective as of
February 20, 2000, provided, however, that awards made under the Plan
prior to such approval of the Plan by stockholders of the Company are
contingent on such approval of the Plan by the stockholders of the
Company and shall be null and void if such approval of the stockholders
of the Company is withheld. The Plan shall terminate on February 20,
2010, the tenth anniversary of the Plan's effective date.
3. Definitions. The following definitions are applicable to the Plan.
(a) "Award Agreement" means a written agreement between the Company and a
Participant documenting an award under this Plan.
(b) "Board" means the Board of Directors of the Company.
(c) "Change of Control" has the meaning ascribed to it in Section 1.11.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Committee" means the Compensation Committee of the Board.
(f) "Disabled" means the inability of a Participant, by reason of a
physical or mental impairment, to engage in any substantial gainful
activity, of which the Board shall be the sole judge.
(g) "Fair Market Value" of any share of Stock means (i) if the Stock is
listed on a national securities exchange, the closing price on the
Stock on a given date; (ii) if the Stock is traded on an exchange or
market in which prices are reported on a bid and asked price, the
average of the mean between the bid and asked price for the Stock on a
given date; and (iii) if the Stock is not listed on a national
securities exchange nor traded on the over-the-counter market, such
value as the Committee, in good faith, shall determine.
(h) "1934 Act" means the Securities Exchange Act of 1934, as amended, or
any successor statute.
(i) "Option Date" means, with respect to any Stock Option, the date on
which the Stock Option is awarded under the Plan.
(j) "Participant" means (i) any regular full-time employee of the Company
or any Subsidiary (meaning an employee who works twenty (20) hours or
more per week) who is selected by the Committee to participate in the
Plan, or (ii) any consultant, independent contractor or director of the
Company or any Subsidiary.
(k) "Performance Award" has the meaning ascribed to it in Article VI.
(l) "Performance Period" has the meaning ascribed to it in Article VI.
(m) "Related Company" means any corporation during any period in which it
is a Subsidiary, or during any period in which it directly or
indirectly owns fifty percent (50%) or more of the total combined
voting power of all classes of securities that are entitled to vote.
(n) "Restricted Period" has the meaning ascribed to it in Article V.
(o) "Restricted Stock" has the meaning ascribed to it in Article V.
(p) "Retirement" means (i) termination of employment in accordance with the
retirement procedures set by the Company from time to time; (ii)
termination of employment because a participant becomes Disabled; or
(iii) termination of employment voluntarily with the consent of the
Company (of which the Board shall be the sole judge).
(q) "Stock" means the common stock, $.001 par value per share, of Insynq,
Inc.
(r) "Stock Appreciation Right" means the right of a holder of a Stock
Option to receive Stock or cash as described in Article IV.
(s) "Stock Option" means the right of a Participant to purchase Stock
pursuant to an Incentive Stock Option, a Non-Qualified Option or a
Reload Option awarded pursuant to the provisions of the Plan.
(t) "Subsidiary" means any corporation during any period of which fifty
percent (50%) or more of the total combined voting power of all classes
of securities entitled to vote is owned, directly or indirectly, by the
Company.
4. Administration. The authority to manage and control the operation and
administration of the Plan shall be vested in the Board. Subject to the
provisions of the Plan, the Board will have authority to select
employees to receive awards of Stock Options, with or without tandem
Stock Appreciation Rights, Performance Awards and/or Restricted Stock,
to determine the time or times of receipt, to determine the types of
awards and the number of shares covered by the awards, to establish the
terms, conditions, performance criteria, restrictions, and other
provisions of such awards, and to amend, modify or suspend awards. In
making such award determinations, the Board may take into account the
nature of services rendered by the respective employee, his or her
present and potential contribution to the Company's success and such
other factors as the Board deems relevant.
The Board is authorized to interpret the Plan, to establish, amend, and
rescind any rules and regulations relating to the Plan, to determine the terms
and provisions of any agreements made pursuant to the Plan, to modify such
agreements, and to make all other determinations that may be necessary or
advisable for the administration of the Plan. With respect to persons subject to
Section 16 of the 1934 Act, transactions under the Plan are intended to comply
with all applicable conditions of Rule 16b-3 or its successor rule or statute
under the 1934 Act. To the extent any provision of the Plan or action by the
Board of Directors or the Committee fails to so comply, it shall be deemed null
and void, to the extent permitted by law.
The Board, in its discretion, may delegate any or all of its authority,
powers and discretion under this Plan to the Committee, and the Board in its
discretion may revest any or all such authority, powers and discretion in itself
at any time. If any or all of the authority, powers and discretion under this
Plan are delegated to the Committee and the Company has registered any of its
equity securities under Section 12 of the 1934 Act, the Committee shall consist
solely of two or more non-employee directors (as defined in Rule 16b-3 under the
1934 Act) until such time as such other requirements are imposed by applicable
law. If appointed, the Committee shall function as follows: A majority of the
Committee shall constitute a quorum, and the acts of a majority of the members
present at any meeting at which a quorum is present, or acts approved in writing
by all members of the Committee, shall be the acts of the Committee, unless
provisions to the contrary are embodied in the Company's Bylaws or resolutions
duly adopted by the Board. All actions taken and decisions and determinations
made by the Board or the Committee pursuant to the Plan shall be binding and
conclusive on all persons interested in the Plan. No member of the Board or the
Committee shall be liable for any action or determination taken or made in good
faith with respect to the Plan.
5. Participation. Subject to the terms and conditions of the Plan, the
Board shall determine and designate, from time to time, (i) the
full-time employees of the Company and/or its Subsidiaries who will
participate in the Plan, and (ii) any consultants, independent
contractors or directors of the Company and/or its Subsidiaries who
will participate in the Plan. In the discretion of the Board, a
Participant may be awarded Stock Options with or without tandem Stock
Appreciation Rights, Performance Units or Restricted Stock or any
combination thereof, and more than one award may be granted to a
Participant; provided, however, that Incentive Stock Options shall not
be awarded to Participants who are not employees of the Company. Except
as otherwise agreed to by the Company and the Participant, any award
under the Plan shall not affect any previous award to the Participant
under the Plan or any other plan maintained by the Company or its
Subsidiaries.
6. Shares Subject to the Plan. The shares of Stock with respect to which
awards may be made under the Plan shall be either authorized and
unissued shares or issued and outstanding shares (including, in the
discretion of the Board, shares purchased in the market). Subject to
the provisions of Section 1.10, the number of shares of Stock available
under the Plan for the grant of Stock Options with or without tandem
Stock Appreciation Rights, Performance Units and Restricted Stock shall
not exceed 2,000,000 shares in the aggregate. If, for any reason, any
award under the Plan or any portion of the award, shall expire,
terminate or be forfeited or cancelled, or be settled in cash pursuant
to the terms of the Plan and, therefore, any such shares are no longer
distributable under the award, such shares of Stock shall again be
available for award under the Plan.
7. Compliance With Applicable Laws and Withholding of Taxes.
(a) Notwithstanding any other provision of the Plan, the Company shall have
no liability to issue any shares of Stock under the Plan unless such
issuance would comply with all applicable laws and the applicable
requirements of any securities exchange or similar entity. Prior to the
issuance of any shares of Stock under the Plan, the Company may require
a written statement that the recipient is acquiring the shares for
investment and not for the purpose or with the intention of
distributing the shares.
(b) All awards and payments under the Plan are subject to withholding of
all applicable taxes, which withholding obligations may
be satisfied, with the consent of the Board, through the surrender
of shares of Stock that the Participant already owns, or
to which a Participant is otherwise entitled under the Plan. The
Company shall have the right to deduct from all amounts
paid in cash in consequence of the exercise of a Stock Option,
Performance Unit or Stock Appreciation Right or in connection
with an award of Restricted Stock under the Plan any taxes
required by law to be withheld with respect to such cash
payments. Where an employee or other person is entitled to
receive shares of Stock pursuant to the exercise of a Stock
Option, a Performance Unit or a Stock Appreciation Right pursuant
to the Plan, the Company shall have the right to require
the employee or such other person to pay to the Company the
amount of any taxes that the Company is required to withhold
with respect to such shares, or, in lieu thereof, to retain, or
sell without notice, a sufficient number of such shares to
cover the amount required to be withheld.
(c) Upon the disposition (within the meaning of Code Section 424(c)) of
shares of Stock acquired pursuant to the exercise of an Incentive Stock
Option prior to the expiration of the holding period requirements of
Code Section 422(a)(1), the employee shall be required to give notice
to the Company of such disposition and the Company shall have the right
to require the employee to pay to the Company the amount of any taxes
that are required by law to be withheld with respect to such
disposition.
(d) Upon termination of the Restricted Period with respect to an award
of Restricted Stock (or such earlier time, if any, as an
election is made by the employee under Code Section 83(b), or any
successor provisions thereto, to include the value of such
shares in taxable income), the Company shall have the right to
require the employee or other person receiving shares of
Stock in respect of such Restricted Stock award to pay to the
Company the amount of taxes that the Company is required to
withhold with respect to such shares of Stock or, in lieu thereof,
to retain or sell without notice a sufficient number of
shares of Stock held by it to cover the amount required to be
withheld. The Company shall have the right to deduct from all
dividends paid with respect to Restricted Stock the amount of taxes
that the Company is required to withhold with respect to
such dividend payments.
8. Transferability. Performance Awards, Incentive Stock Options with or
without tandem Stock Appreciation Rights, and, during the period of
restriction, Restricted Stock awarded under the Plan are not assignable
or transferable except as designated by the Participant by will or by
the laws of descent and distribution. Incentive Stock Options may be
exercised during the lifetime of the Participant only by the
Participant or his guardian or legal representative.
9. Employee and Stockholder Status. The Plan does not constitute a
contract of employment, and selection as a Participant will not give
any employee the right to be retained in the employ of the Company or
any Subsidiary or any director or consultant the right to continue to
provide services to the Company or any Subsidiary. No award under the
Plan shall confer upon the holder thereof any right as a stockholder of
the Company prior to the date on which he fulfills all service
requirements and other conditions for receipt of shares of Stock. If
the redistribution of shares is restricted pursuant to Section 1.7,
certificates representing such shares may bear a legend referring to
such restrictions.
10. Adjustments to Number of Shares Subject to the Plan. In the event of
any change in the outstanding shares of Stock of the Company by reason
of any stock dividend, split, spinoff, recapitalization, merger,
consolidation, combination, extraordinary dividend, exchange of shares
or other similar change, the aggregate number of shares of Stock with
respect to which awards may be made under the Plan, the terms and the
number of shares of any outstanding Stock Options, Stock Appreciation
Rights, Performance Units and Restricted Stock, and the purchase price
of a share of Stock under Stock Options, may be equitably adjusted by
the Board in its sole discretion.
11. Business Combinations. In addition to the rights and obligations of the
Committee to modify, adjust or accelerate exercisability of outstanding
options, in the event that, while any Stock Options, Stock Appreciation
Rights, Performance Units or Restricted Shares are outstanding under
the Plan, there shall occur (i) a merger or consolidation of the
Company with or into another corporation in which the Company shall not
be the surviving corporation (for purposes of this Section 1.11, the
Company shall not be deemed the surviving corporation in any such
transaction if, as the result thereof, the existing shareholders of the
Company hold less than 51% of the outstanding stock of the Company),
(ii) a dissolution of the Company, or (iii) a transfer of all or
substantially all of the assets or shares of stock of the Company in
one transaction or a series of related transactions to one or more
other persons or entities (any of the foregoing events as described in
(i)-(iii) above, a "Change of Control"), then, with respect to each
Stock Option, Stock Appreciation Right, Performance Unit and share of
Restricted Stock outstanding immediately prior to the consummation of
such transaction and without the necessity of any action by the
Committee:
(a) If provision is made in writing in connection with such transaction
for the continuance and/or assumption of the Stock
Options, Stock Appreciation Rights, Performance Units and
Restricted Shares granted under the Plan, or the substitution for
such Stock Options, Stock Appreciation Rights, Performance
Units and Restricted Shares of new Stock Options, Stock
Appreciation Rights, Performance Units and Restricted Shares,
with appropriate adjustment as to the number and kind of
shares or other securities deliverable with respect thereto, the Stock
Options, Stock Appreciation Rights, Performance Units
and Restricted Shares granted under the Plan, or the new Stock
Options, Stock Appreciation Rights, Performance Units and
Restricted Shares substituted therefor, shall continue, subject
to such adjustment, in the manner and under the terms
provided in the respective agreements.
(b) In the event provision is not made in connection with such
transaction for the continuance and/or assumption of the Stock
Options, Stock Appreciation Rights, Performance Units and
Restricted Shares granted under the Plan, or for the substitution
of equivalent options, rights, units and awards, then (i) each
holder of an outstanding option shall be entitled,
immediately prior to the effective date of such transaction, to
purchase the full number of shares that he or she would
otherwise have been entitled to purchase during the entire
remaining term of the option; (ii) the holder of any right or
unit shall be entitled, immediately prior to the effective date of
such transaction, to exercise such right to the extent
the related option is or becomes exercisable at such time in
accordance with its terms; (iii) all restrictions on any award
of Restricted Shares shall lapse, and (iv) any restriction or
risk of forfeiture imposed under the Plan shall lapse
immediately prior to the effective date of such transaction. The
unexercised portion of any option or right shall be deemed
cancelled and terminated as of the effective date of such transaction.
12. Agreement With Company. At the time of any awards under the Plan, the
Board will require a Participant to enter into an agreement with the
Company in a form specified by the Board (the "Award Agreement"),
agreeing to the terms and conditions of the Plan and to such additional
terms and conditions, not inconsistent with the Plan, as the Board may,
in its sole discretion, prescribe.
13. Amendment and Termination of Plan. Subject to the following provisions
of this Section 13, the Board may at any time and in any way amend,
suspend or terminate the Plan. No amendment of the Plan and, except as
provided in Section 1.10, no action by the Board shall, without further
approval of the stockholders of the Company, increase the total number
of shares of Stock with respect to which awards may be made under the
Plan, materially increase the benefits accruing to Participants under
the Plan or materially modify the requirements as to eligibility for
participation in the Plan, if stockholder approval of such amendment is
a condition of Securities and Exchange Commission Rule 16b-3 or its
successor rule or statute, the Code or any exchange or market system on
which the Stock is listed at the time such amendment is adopted. No
amendment, suspension or termination of the Plan shall alter or impair
any Stock Option with or without tandem Stock Appreciation Right,
Performance Award or share of Restricted Stock previously awarded under
the Plan without the consent of the holder thereof.
VIII. INCENTIVE STOCK OPTIONS
1. Definition. The award of an Incentive Stock Option under the Plan
entitles the Participant to purchase shares of Stock at a price fixed
at the time the option is awarded, subject to the following terms of
this Article II.
2. Eligibility. The Board shall designate the Participants to whom
Incentive Stock Options, as described in Code Section 422(b) or any
successor section thereto, are to be awarded under the Plan and shall
determine the number of option shares to be offered to each of them.
Incentive Stock Options may be awarded only to employees. In no event
shall the aggregate Fair Market Value (determined at the time the
option is awarded) of Stock with respect to which Incentive Stock
Options are exercisable for the first time by an individual during any
calendar year (under all plans of the Company and all Related
Companies) exceed $100,000.
3. Price. The purchase price of a share of Stock under each Incentive
Stock Option shall be determined by the Board, provided, however, that
in no event shall such price be less than the greater of (i) 100% of
the Fair Market Value of a share of Stock as of the Option Date (or
110% of such Fair Market Value if the holder of the option owns stock
possessing more than 10% of the combined voting power of all classes of
stock of the Company or any Subsidiary) or (ii) the par value of a
share of Stock on such date. To the extent provided by the Board, the
full purchase price of each share of Stock purchased upon the exercise
of any Incentive Stock Option shall be paid in cash or in shares of
Stock (valued at Fair Market Value as of the day of exercise), or in
any combination thereof, at the time of such exercise and, as soon as
practicable thereafter, a certificate representing the shares so
purchased shall be delivered to the person entitled thereto.
4. Exercise. Each Option shall become and be exercisable at such time or
times and during such period or periods, in full or in such
installments as may be determined by the Board at the Option Date. In
addition, if permitted by the Board or the terms of the Award Agreement
evidencing such Stock Option, Participants may elect to pay the
purchase price of shares of Stock purchased upon the exercise of
Incentive Stock Options in cash or through delivery at the time of such
exercise of shares of Stock (valued at Fair Market Value as of the date
of exercise) already owned by the Participant, or any combination
thereof, equivalent to the purchase price of such Incentive Stock
Options. A Participant's payment of the purchase price in connection
with the exercise of an Incentive Stock Option through delivery of
share of Stock ("ISO Stock") that were acquired through the exercise of
an Incentive Stock Option and that have not been held for more than one
year will be considered a disposition (within the meaning of Code
Section 422(c)) of ISO Stock, resulting in the disqualification of the
ISO Stock from treatment as an Incentive Stock Option under Code
Section 422, and the Participant's recognition of ordinary income.
Participants should consult with their tax advisors prior to electing
to exercise an Incentive Stock Option by this method.
5. Option Expiration Date. Unless otherwise provided by the Award
Agreement, the "Expiration Date" with respect to an Incentive Stock
Option or any portion thereof awarded to a Participant under the Plan
means the earliest of:
(a) the date that is ten (10) years after the date on which the Incentive
Stock Option is awarded (or, if the Participant owns stock possessing
more than ten percent (10%) of the combined voting power of all classes
of stock of the Company or any Subsidiary, the date that is five (5)
years after the date on which the Incentive Stock Option is awarded);
(b) the date that is one year after the Participant's employment with the
Company and all Related Companies is terminated by reason of the
Participant becoming Disabled or by reason of the Participant's death;
or
(c) thirty (30) days following the date that the Participant's
employment with the Company and all Related Companies is terminated by
reasons other than death or becoming Disabled. All rights to purchase
shares of Stock pursuant to an Incentive Stock Option shall cease as of
such option's Expiration Date.
All rights to purchase shares of Stock pursuant to an Incentive Stock Option
shall cease as of such option's Expiration Date.
6. Reload Options. The Committee may, in its discretion, provide in the terms of
any Award Agreement that if the Participant delivers shares of Stock already
owned or to be received upon exercise of the Option in full or partial payment
of the option price, or in full or partial payment of the tax withholding
obligations incurred on account of the exercise of the Option, the Optionee
shall automatically and immediately upon such exercise be granted an additional
option (a "Reload Option") to purchase the number of shares of Stock delivered
by the Optionee to the Company, on such terms and conditions as the Committee
may determine under the terms of the Plan. Notwithstanding the preceding, the
purchase price of shares of Stock acquired under a Reload Option shall be not
less than the Fair Market Value of a share of Stock on the date the Reload
Option is issued.
IX. NON-QUALIFIED STOCK OPTIONS
1. Definition. The award of a Non-Qualified Stock Option under the Plan entitles
the Participant to purchase shares of Stock at a price fixed at the time the
option is awarded, subject to the following terms of this Article III.
2. Eligibility. The Board shall designate the Participants to whom Non-Qualified
Stock Options are to be awarded under the Plan and shall determine the number of
option shares to be offered to each of them.
3. Price. The purchase price of a share of Stock under each
Non-Qualified Stock Option shall be determined by the Board; provided, however,
that in no event shall such price for Non-Qualified Stock Options issued to
Employees and Directors be less than the Fair Market Value of a share of Stock
as of the Option Date; the purchase price of a share of Stock issued to a
consultant may be less than Fair Market Value."
4. Exercise. Each Option shall become and be exercisable at such time
or times and during such period or periods, in full or in such installments as
may be determined by the Board at the Option Date. To the extent provided by the
Board, the full purchase price of each share of Stock purchased upon the
exercise of any Non-Qualified Stock Option shall be paid in cash or in shares of
Stock (valued at Fair Market Value as of the day of exercise), or in any
combination thereof, at the time of such exercise and, as soon as practicable
thereafter, a certificate representing the shares so purchased shall be
delivered to the person entitled thereto. In addition, unless restricted by the
Board, Participants may elect to pay the purchase price of shares of Stock
purchased upon the exercise of Non-Qualified Stock Options in cash or through
the constructive delivery at the time of such exercise of shares of Stock
(valued at Fair Market Value as of the day of exercise) already owned by the
Participant, or any combination thereof, equivalent to the purchase price of
such Non-Qualified Stock Options, and, as soon as practicable thereafter, a
certificate representing the net number of shares so purchased shall be
delivered to the person entitled thereto. Participants also may elect to pay,
unless restricted by the Board, the purchase price, in whole or in part, of
shares of Stock purchased upon the exercise of Non-Qualified Options through the
Company's withholding of shares of Stock (valued at Fair Market Value as of the
day of exercise) that would otherwise by issuable upon exercise of such options
equivalent to the purchase price of such Non-Qualified Stock Options and, as
soon as practicable thereafter, a certificate representing the net number of
shares so purchased shall be delivered to the person entitled thereto.
5. Option Expiration Date. Unless otherwise provided in a Participant's
Award Agreement, the "Expiration Date" with respect to a Non-Qualified Stock
Option or any portion thereof awarded to a Participant under the Plan means the
earliest of:
(a) the date that is one (1) year after the Participant's
employment with the Company and all Related Companies is terminated by
reason of the Participant becoming Disabled or by reason of the
Participant's death; or
(b) thirty (30) days following the date that the Participant's
employment with the Company and all Related Companies is terminated by
reasons other than death or becoming Disabled.
All rights to purchase shares of Stock pursuant to a Non-Qualified Stock Option
shall cease as of such option's Expiration Date.
6. Reload Options. The Committee may, in its discretion, provide in the
terms of any Award Agreement that if the Participant delivers shares of Stock
already owned or to be received upon exercise of the Option in full or partial
payment of the option price, or in full or partial payment of the tax
withholding obligations incurred on account of the exercise of the Option, the
Optionee shall automatically and immediately upon such exercise be granted a
Reload Option to purchase the number of shares of Stock delivered by the
Optionee to the Company, on such terms and conditions as the Committee may
determine under the terms of the Plan. Notwithstanding the preceding, the
purchase price of shares of Stock acquired under a Reload Option shall be not
less than the Fair Market Value of a share of Stock on the date the Reload
Option is issued.
X. STOCK APPRECIATION RIGHTS
1. Definition. A Stock Appreciation Right is an award that may or may not be
granted in tandem with a Non-Qualified Stock Option or Incentive Stock Option,
and entitles the holder to receive an amount equal to the difference between the
Fair Market Value of the shares of option Stock at the time of exercise of the
Stock Appreciation Right and the option price, subject to the applicable terms
and conditions of the tandem options and the following provisions of this
Article IV.
2. Eligibility. The Board may, in its discretion, award Stock Appreciation Right
under this Article IV concurrent with, or subsequent to, the award of the
option.
3. Exercise. A Stock Appreciation Right shall entitle the holder of a Stock
Option to receive, upon the exercise of the Stock Appreciation Right, shares of
Stock (valued at their Fair Market Value at the time of exercise), cash or a
combination thereof, in the discretion of the Board, in an amount equal in value
to the excess of the Fair Market Value of the shares of Stock subject to the
Stock Appreciation Right as of the date of such exercise over the purchase price
of the Stock Appreciation Right, as shall be prescribed by the Board in its sole
discretion and as shall be contained in the Participant's Award Agreement. If
granted in tandem with an option, the exercise of a Stock Appreciation Right
will result in the surrender of the related Incentive Stock Option or
Non-Qualified Stock Option and, unless otherwise provided by the Board in its
sole discretion, the exercise of a Stock Option will result in the surrender of
a related Stock Appreciation Right, if any.
4. Expiration Date. The "Expiration Date" with respect to a Stock Appreciation
Right shall be determined by the Board and documented in the Participant's Award
Agreement, and if granted in tandem with an option, shall be not later than the
Expiration Date for the related Stock Option. If neither the right nor the
related Stock Option is exercised before the end of the day on which the right
ceases to be exercisable, such right shall be deemed exercised as of such date
and payment shall be made to the holder in cash.
XI. RESTRICTED STOCK
1. Definition. Restricted Stock awards are grants of Stock to Participants, the
vesting of which is subject to a required period of employment and any other
conditions established by the Board.
2. Eligibility. The Board shall designate the Participants to whom Restricted
Stock is to be awarded and the number of shares of Stock that are subject to the
award.
3. Terms and Conditions of Awards. All shares of Restricted Stock
awarded to Participants under the Plan shall be subject to the following terms
and conditions and to such other terms and conditions, not inconsistent with the
Plan, as shall be prescribed by the Board in its sole discretion and as shall be
contained in the Participant's Award Agreement.
(a) Restricted Stock awarded to Participants may not be sold,
assigned, transferred, pledged or otherwise encumbered, except as
hereinafter provided, for a period of ten (10) years or such shorter
period as the Board may determine, but not less than one (1) year,
after the time of the award of such stock (the "Restricted Period").
Except for such restrictions, the Participant as owner of such shares
shall have all the rights of a shareholder, including but not limited
to the right to vote such shares and, except as otherwise provided by
the Board, the right to receive all dividends paid on such shares.
(b) The Board may in its discretion, at any time after the
date of the award of Restricted Stock, adjust the length of the
Restricted Period to account for individual circumstances of a
Participant or group of Participants, but in no case shall the length
of the Restricted Period be less than one (1) year.
(c) Except as otherwise determined by the Board in its sole
discretion, a Participant whose employment with the Company and all
Related Companies terminates prior to the end of the Restricted Period
for any reason shall forfeit all shares of Restricted Stock remaining
subject to any outstanding Restricted Stock Award.
(d) Each certificate issued in respect of shares of Restricted
Stock awarded under the Plan shall be registered in the name of the
Participant and, at the discretion of the Board, each such certificate
may be deposited in a bank designated by the Board. Each such
certificate shall bear the following (or a similar) legend:
"The transferability of this certificate and the shares of
stock represented hereby are subject to the terms and
conditions (including forfeiture) contained in the Insynq,
Inc. 2000 Stock Incentive Plan and an agreement entered into
between the registered owner and Insynq, Inc. A copy of such
plan and agreement is on file in the office of the Secretary
of Insynq, Inc. in Tacoma, Washington.
(e) At the end of the Restricted Period for Restricted Stock,
such Restricted Stock will be transferred free of all restrictions to a
Participant (or his or her legal representative, beneficiary or heir).
XII. PERFORMANCE UNITS
1. Definition. Performance Units are awards to Participants who may receive
value for the units at the end of a Performance Period. The number of units
earned, and value received for them, will be contingent on the degree to which
the performance measures established at the time of the initial award are met.
2. Eligibility. The Board shall designate the Participants to whom Performance
Units are to be awarded, and the number of units to be the subject of such
awards.
3. Terms and Conditions of Awards. For each Participant, the Board will
determine the timing of awards; the number of units awarded; the value of units,
which may be stated either in cash or in shares of Stock; the performance
measures used for determining whether the Performance Units are earned; the
performance period during which the performance measures will apply; the
relationship between the level of achievement of the performance measures and
the degree to which Performance Units are earned; whether, during or after the
performance period, any revision to the performance measures or performance
period should be made to reflect significant events or changes that occur during
the performance period; and the number of earned Performance Units that will be
paid in cash and/or shares of Stock, as shall be prescribed by the Board in its
sole discretion and as shall be contained in the Participant's Award Agreement.
4. Payment. The Board will compare the actual performance to the performance
measures established for the performance period and determine the number of
units to be paid and their value. Payment for units earned shall be wholly in
cash, wholly in Stock or in a combination of the two, in a lump sum or
installments, and subject to vesting requirements and such other conditions as
the Board shall provide. The Board will determine the number of earned units to
be paid in cash and the number to be paid in Stock. For Performance Units valued
when awarded in shares of Stock, one share of Stock will be paid for each unit
earned, or cash will be paid for each unit earned equal to either (i) the Fair
Market Value of a share of Stock at the end of the Performance Period or (ii)
the Fair Market Value of the Stock averaged for a number of days determined by
the Board. For Performance Units valued when awarded in cash, the value of each
unit earned will be paid in its initial cash value, or shares of Stock will be
distributed based on the cash value of the units earned divided by (i) the Fair
Market Value of a share of Stock at the end of the Performance Period or (ii)
the Fair Market Value of a share of Stock averaged for a number of days
determined by the Board.
5. Retirement, Death or Termination. A Participant whose employment with the
Company and Related Companies terminates during a performance period because of
Retirement or death shall be entitled to the prorated value of earned
Performance Units, issued with respect to that performance period, at the
conclusion of the performance period based on the ratio of the months employed
during the period to the total months of the performance period. If the
Participant's employment with the Company and Related Companies terminates
during a performance period for any reason other than Retirement or death, the
Performance Units issued with respect to that performance period will be
forfeited on the date his employment with the Company and Related Companies
terminates. Notwithstanding the foregoing provisions of this Part VI, if a
Participant's employment with the Company and Related Companies terminates
before the end of the Performance Period with respect to any Performance Units
awarded to him, the Board may determine that the Participant will be entitled to
receive all or any portion of the units that he or she would otherwise receive,
and may accelerate the determination and payment of the value of such units or
make such other adjustments as the Board, in its sole discretion, deems
desirable.