SERIES K CONVERTIBLE PREFERRED STOCK PURCHASE
AGREEMENT
DATED AS OF DECEMBER 30, 1999
AMONG
ESYNCH CORPORATION
AND
THE PURCHASERS LISTED ON EXHIBIT A
TABLE OF CONTENTS
PAGE
----
ARTICLE I Purchase and Sale of Preferred Stock. . . . . . . . . . . . . . . . . 4
Section 1.1 Purchase and Sale of Stock . . . . . . . . . . . . . . . . . . 4
Section 1.2 The Conversion Shares. . . . . . . . . . . . . . . . . . . . . 4
Section 1.3 Purchase Price and Closing . . . . . . . . . . . . . . . . . . 5
Section 1.4 Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE II Representations and Warranties. . . . . . . . . . . . . . . . . . . . 6
Section 2.1 Representation and Warranties of the Company . . . . . . . . . 6
Section 2.2 Representations and Warranties of the Purchasers . . . . . . . 17
ARTICLE III Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 3.1 Securities Compliance. . . . . . . . . . . . . . . . . . . . . 19
Section 3.2 Registration and Listing . . . . . . . . . . . . . . . . . . . 20
Section 3.3 Inspection Rights. . . . . . . . . . . . . . . . . . . . . . . 20
Section 3.4 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . 20
Section 3.5 Keeping of Records and Books of Account. . . . . . . . . . . . 20
Section 3.6 Reporting Requirements . . . . . . . . . . . . . . . . . . . . 21
Section 3.7 Section 3.7 Amendments. . . . . . . . . . . . . . . . . . . . 21
Section 3.8 Other Agreements . . . . . . . . . . . . . . . . . . . . . . . 21
Section 3.9 Distributions. . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 3.10 Status of Dividends. . . . . . . . . . . . . . . . . . . . . . 21
Section 3.11 Regulation S . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 3.12 Right of First Refusal . . . . . . . . . . . . . . . . . . . . 23
Section 3.13 Reservation of Shares. . . . . . . . . . . . . . . . . . . . . 23
Section 3.14 Transfer Agent Instructions. . . . . . . . . . . . . . . . . . 23
ARTICLE IV Conditions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 4.1 Conditions Precedent to the Obligation of the
Company to Sell the Shares . . . . . . . . . . . . . . . . . . 24
Section 4.2 Conditions Precedent to the Obligation of the
Purchasers to Purchase the Shares. . . . . . . . . . . . . . . 25
ARTICLE V Intentionally Omitted . . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE VI Stock Certificate Legend. . . . . . . . . . . . . . . . . . . . . . . 28
Section 6.1 Legend . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE VII Intentionally Omitted.. . . . . . . . . . . . . . . . . . . . . . . . 29
ii
PAGE
----
ARTICLE VIII Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 8.1 General Indemnity. . . . . . . . . . . . . . . . . . . . . . . 29
Section 8.2 Indemnification Procedure. . . . . . . . . . . . . . . . . . . 29
ARTICLE IX Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 9.1 Fees and Expenses. . . . . . . . . . . . . . . . . . . . . . . 30
Section 9.2 Specific Enforcement, Consent to Jurisdiction. . . . . . . . . 31
Section 9.3 Entire Agreement; Amendment. . . . . . . . . . . . . . . . . . 31
Section 9.4 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 9.5 Waivers. . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 9.6 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 9.7 Successors and Assigns . . . . . . . . . . . . . . . . . . . . 33
Section 9.8 No Third Party Beneficiaries . . . . . . . . . . . . . . . . . 33
Section 9.9 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 9.10 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 9.11 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 9.12 Publicity. . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 9.13 Severability . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 9.14 Further Assurances . . . . . . . . . . . . . . . . . . . . . . 34
iii
SERIES K CONVERTIBLE PREFERRED STOCK PURCHASE
AGREEMENT
This SERIES K CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (the
"Agreement") is dated as of December 30, 1999 by and among eSynch
Corporation, a Delaware corporation (the "Company"), and each of the
Purchasers of shares of Series K Convertible Preferred Stock of the Company
whose names are set forth on Exhibit A hereto (individually, a "Purchaser"
and collectively, the "Purchasers").
The parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF PREFERRED STOCK
Section 1.1 PURCHASE AND SALE OF STOCK. Upon the following terms
and conditions, the Company shall issue and sell to the Purchasers and each
of the Purchasers shall purchase from the Company, the number of shares of
the Company's Series K Convertible Preferred Stock, par value $.001 per share
(the "Preferred Shares"), at a purchase price of $10,000 per share, set forth
with respect to such Purchaser on Exhibit A hereto. Upon the following terms
and conditions, the Purchasers shall be issued Warrants, in substantially the
form attached hereto as Exhibit B (the "Warrants"), to purchase the Company's
Common Stock, par value $.001 per share (the "Common Stock") The aggregate
purchase price for the Preferred Shares and the Warrants shall be $2,000,000
which may be funded in two or more tranches as agreed upon by the Company and
the Purchasers. The designation, rights, preferences and other terms and
provisions of the Series K Convertible Preferred Stock are set forth in the
Certificate of Designation of the Relative Rights and Preferences of the
Series K Convertible Preferred Stock attached hereto as Exhibit C (the
"Certificate of Designations"). The Company and the Purchasers are executing
and delivering this Agreement in accordance with and in reliance upon the
exemption from securities registration afforded by Rule 506 of Regulation D
("Regulation D") as promulgated by the United States Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended
(the "Securities Act") or Section 4(2) of the Securities Act.
Section 1.2 THE CONVERSION SHARES. The Company has authorized
and has reserved and covenants to continue to reserve, free of preemptive
rights and other similar contractual rights of stockholders, a sufficient
number of its authorized but unissued shares of its Common Stock, to effect
the conversion of the Preferred Shares and exercise of the Warrants. Any
shares of Common Stock issuable upon conversion of the Preferred Shares and
exercise of the Warrants (and such shares when issued) are herein referred
to as the "Conversion Shares"
4
and the "Warrant Shares", respectively. The Preferred Shares, the Conversion
Shares and the Warrant Shares are sometimes collectively referred to as the
"Shares".
Section 1.3 PURCHASE PRICE AND CLOSING. The Company agrees to
issue and sell to the Purchasers and, in consideration of and in express
reliance upon the representations, warranties, covenants, terms and
conditions of this Agreement, the Purchasers, severally but not jointly,
agree to purchase that number of the Preferred Shares and Warrants set forth
opposite their respective names on Exhibit A. The aggregate purchase price
of the Preferred Shares and Warrants being acquired by each Purchaser is set
forth opposite such Purchaser's name on Exhibit A. The closing of the
purchase and sale of the Preferred Shares and Warrants (each, a "Closing") to
be acquired by the Purchasers from the Company under this Agreement shall
take place at the offices of Xxxxxx Xxxxxx Flattau & Klimpl, LLP 0000 Xxxxxx
xx xxx Xxxxxxxx, Xxx Xxxx, Xxx Xxxx 00000 (the "Closing") at 10:00 a.m.
Pacific Time (i) on the date on which the last to be fulfilled or waived of
the conditions set forth in Article IV hereof and applicable to such Closing
shall be fulfilled or waived in accordance herewith or (ii) such other time
and place or on such date as the Purchasers and the Company may agree upon
(each, a "Closing Date"). On or before each Closing Date, the Company shall
deliver to the escrow agent (the "Escrow Agent") identified in the Escrow
Agreement attached hereto as Exhibit D (the "Escrow Agreement") the
certificates for the number and series of Preferred Shares set forth opposite
each Purchaser's name under the heading "Number of Preferred Shares to be
Purchased" on Exhibit A hereto, registered in such Purchaser's name (or its
nominee) and prior to each Closing Date each Purchaser shall pay by wire
transfer of funds into escrow the purchase price set forth opposite each such
Purchaser's name on Exhibit A. In addition, each party shall deliver all
documents, instruments and writings required to be delivered by such party
pursuant to this Agreement at or prior to each Closing. This Agreement shall
terminate if the Closing of the first tranche of Preferred Shares (the
"Tranche I Closing") has not occurred by January 30, 2000. The Company
acknowledges that the purchase price of Lightline Limited ("Lightline") pro
rata portion of the Preferred Shares and Warrants was advanced and evidenced
by a promissory note issued by the Company in favor of Lightline for the
principal amount of $300,000 (the "Promissory Note"). At the Closing, the
Company shall deliver to the Escrow Agent stock certificates (in such
denominations as Lightline shall request) representing the shares of
Preferred Stock equal to the total amount of principal and interest accrued
and outstanding under the Promissory Note on the date of the Tranche I
Closing. Notwithstanding anything to the contrary set forth in this
Agreement, the aggregate number of Preferred Stock to be sold hereunder shall
not exceed two hundred (200).
Section 1.4 WARRANTS. The Company agrees to issue to the
Purchasers the Warrants to purchase 75,000 shares of Common Stock per
$1,000,000 invested (or such pro rata amount if more or less than $1,000,000
is purchased). The Warrants shall have an exercise price equal to the
Warrant Price (as defined in the Warrant) and shall expire on the third
anniversary of the issuance date of such Warrant.
5
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1 REPRESENTATION AND WARRANTIES OF THE COMPANY. The
Company hereby makes the following representations and warranties to the
Purchasers, except as set forth in the Company's disclosure schedule
delivered with this Agreement as follows:
(a) ORGANIZATION, GOOD STANDING AND POWER. The Company is a
corporation duly incorporated, validly existing and in good standing under
the laws of the State of Delaware and has the requisite corporate power to
own, lease and operate its properties and assets and to conduct its business
as it is now being conducted. The Company does not have any subsidiaries
except as set forth in the Company's Form 10-KSB for the year ended December
31, 1998, including the accompanying financial statements (the "Form
10-KSB"), or in the Company's Form 10-QSB for the fiscal quarters ended March
31, 1999, September 30, 1999 or June 30, 1999 (collectively, the "Form
10-QSB"), or on SCHEDULE 2.1(a) hereto. The Company and each such subsidiary
is duly qualified as a foreign corporation to do business and is in good
standing in every jurisdiction in which the nature of the business conducted
or property owned by it makes such qualification necessary except for any
jurisdiction(s) (alone or in the aggregate) in which the failure to be so
qualified will not have a material adverse effect on the Company's financial
condition.
(b) AUTHORIZATION; ENFORCEMENT. The Company has the requisite
corporate power and authority to enter into and perform this Agreement, the
Escrow Agreement, the Transfer Agent Instructions (as defined in Section
3.14), the Registration Rights Agreement attached hereto as Exhibit E (the
"Registration Rights Agreement") and the Warrants (collectively, the
"Transaction Documents") and to issue and sell the Shares in accordance with
the terms hereof, the Certificate of Designations and the Warrants. The
execution, delivery and performance of the Transaction Documents and the
Certificate of Designations by the Company and the consummation by it of the
transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action, and no further consent or
authorization of the Company or its Board of Directors or stockholders is
required. This Agreement has been duly executed and delivered by the
Company. The Registration Rights Agreement will have been duly executed and
delivered by the Company at the Tranche I Closing. Each of the Transaction
Documents constitutes, or shall constitute when executed and delivered, a
valid and binding obligation of the Company enforceable against the Company
in accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation,
conservatorship, receivership or similar laws relating to, or affecting
generally the enforcement of, creditor's rights and remedies or by other
equitable principles of general application.
6
(c) CAPITALIZATION. The authorized capital stock of the Company
and the shares thereof currently issued and outstanding as of December 30,
1999 are set forth on SCHEDULE 2.1(c) hereto. All of the outstanding shares
of the Company's Common Stock and Series J Convertible Preferred Stock have
been duly and validly authorized. Except as set forth in this Agreement and
the Registration Rights Agreement and as set forth in the Form 10-KSB, Form
10-QSB, Form 8-K for the periods ending April 1, 1999 and September 30, 1999
(the "Form 8-K") or on SCHEDULE 2.1(c) hereto, no shares of Common Stock are
entitled to preemptive rights or registration rights and there are no
outstanding options, warrants, scrip, rights to subscribe to, call or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company. Furthermore,
except as set forth in this Agreement and the Registration Rights Agreement
and as set forth in the Form 10-KSB, Form 10-QSB, Form 8-K or on SCHEDULE
2.1(c), there are no contracts, commitments, understandings, or arrangements
by which the Company is or may become bound to issue additional shares of the
capital stock of the Company or options, securities or rights convertible
into shares of capital stock of the Company. Except for customary transfer
restrictions contained in agreements entered into by the Company in order to
sell restricted securities or as provided in the Form 10-KSB, Form 10-QSB or
on SCHEDULE 2.1 (c) hereto, the Company is not a party to any agreement
granting registration or anti-dilution rights to any person with respect to
any of its equity or debt securities. The Company is not a party to, and it
has no knowledge of, any agreement restricting the voting or transfer of any
shares of the capital stock of the Company. Except as set forth in the Form
10-KSB, Form 10-QSB or on SCHEDULE 2.1(c) hereto, the offer and sale of all
capital stock, convertible securities, rights, warrants, or options of the
Company issued prior to each Closing complied with all applicable Federal and
state securities laws, and no stockholder has a right of rescission or
damages with respect thereto which would have a Material Adverse Effect (as
defined in Section 2.1(e) herein) on the Company's financial condition or
operating results. The Company has furnished or made available to the
Purchasers true and correct copies of the Company's Certificate of
Incorporation as in effect on the date hereof (the "Articles"), and the
Company's Bylaws as in effect on the date hereof (the "Bylaws").
(d) ISSUANCE OF SHARES. The Preferred Shares to be issued at
each Closing have been duly authorized by all necessary corporate action and,
when paid for or issued in accordance with the terms hereof, the Preferred
Shares shall be validly issued and outstanding, fully paid and nonassessable
and entitled to the rights and preferences set forth in the Certificate of
Designations. When the Conversion Shares and the Warrant Shares are issued
in accordance with the terms of the Preferred Shares as set forth in the
Certificate of Designations and the Warrants, respectively, such shares will
be duly authorized by all necessary corporate action and validly issued and
outstanding, fully paid and nonassessable, and the holders shall be entitled
to all rights accorded to a holder of Common Stock.
7
(e) NO CONFLICTS. Except as disclosed in SCHEDULE 2.1(e)
hereto, the execution, delivery and performance of the Transaction Documents
by the Company, the performance by the Company of its obligations under the
Certificate of Designations and the consummation by the Company of the
transactions contemplated herein and therein do not (i) violate any provision
of the Company's Articles or Bylaws, (ii) conflict with, or constitute a
default (or an event which with notice or lapse of time or both would become
a default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, mortgage, deed of trust,
indenture, note, bond, license, lease agreement, instrument or obligation to
which the Company is a party, (iii) create or impose a lien, charge or
encumbrance on any property of the Company under any agreement or any
commitment to which the Company is a party or by which the Company is bound
or by which any of its respective properties or assets are bound, or (iv)
result in a violation of any federal, state, local or foreign statute, rule,
regulation, order, judgment or decree (including Federal and state securities
laws and regulations) applicable to the Company or any of its subsidiaries or
by which any property or asset of the Company or any of its subsidiaries are
bound or affected, except, in all cases other than violations pursuant to
clause (i) above, for such conflicts, defaults, terminations, amendments,
acceleration, cancellations and violations as would not, individually or in
the aggregate, have a Material Adverse Effect. For the purposes of this
Agreement, "Material Adverse Effect" means any adverse effect on the
business, operations, properties, prospects, or financial condition of the
Company or its subsidiaries and which is material to such entity or other
entities controlling or controlled by such entity. The business of the
Company and its subsidiaries is not being conducted in violation of any laws,
ordinances or regulations of any governmental entity, except for possible
violations which singularly or in the aggregate do not and will not have a
Material Adverse Effect. The Company is not required under Federal, state or
local law, rule or regulation to obtain any consent, authorization or order
of, or make any filing or registration with, any court or governmental agency
in order for it to execute, deliver or perform any of its obligations under
the Transaction Documents or the Certificate of Designations, or issue and
sell the Preferred Shares, the Conversion Shares and the Warrant Shares in
accordance with the terms hereof or thereof (other than any filings which may
be required to be made by the Company with the Commission or state securities
administrators subsequent to each Closing, any registration statement which
may be filed pursuant hereto, and the Certificate of Designations); provided
that, for purposes of the representation made in this sentence, the Company
is assuming and relying upon the accuracy of the relevant representations and
agreements of the Purchasers herein.
(f) COMMISSION DOCUMENTS, FINANCIAL STATEMENTS. The Common
Stock of the Company is registered pursuant to Section 12(b) or 12(g) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, except
as disclosed in the Form 10-KSB, Form 10-QSB, Form 8-K or on SCHEDULE 2.1(f)
hereto, the Company has timely filed all reports, schedules, forms,
statements and other documents required to be filed by it with the Commission
pursuant to the reporting requirements of the Exchange Act, including
material filed pursuant to
8
Section 13(a) or 15(d) of the Exchange Act (all of the foregoing including
filings incorporated by reference therein being referred to herein as the
"Commission Documents"). The Company has delivered or made available to each
of the Purchasers true and complete copies of the Commission Documents filed
with the Commission since December 31, 1998. The Company has not provided to
the Purchasers any material non-public information or other information
which, according to applicable law, rule or regulation, was required to have
been disclosed publicly by the Company but which has not been so disclosed,
other than with respect to the transactions contemplated by this Agreement.
As of their respective dates, the Form 10-KSB for the year ended December 31,
1998 and the Form 10-QSB for the fiscal quarters ended March 31, 1999, June
30, 1999 and September 30, 1999 complied in all material respects with the
requirements of the Exchange Act and the rules and regulations of the
Commission promulgated thereunder and other federal, state and local laws,
rules and regulations applicable to such documents, and, as of their
respective dates, none of the Form 10-KSB and the Form 10-QSB referred to
above contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial statements of the Company included in the
Commission Documents comply as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the Commission or other applicable rules and regulations with respect
thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") applied on a consistent
basis during the periods involved (except (i) as may be otherwise indicated
in such financial statements or the notes thereto or (ii) in the case of
unaudited interim statements, to the extent they may not include footnotes or
may be condensed or summary statements), and fairly present in all material
respects the financial position of the Company and its subsidiaries as of the
dates thereof and the results of operations and cash flows for the periods
then ended (subject, in the case of unaudited statements, to normal year-end
audit adjustments).
(g) SUBSIDIARIES. The Form 10-KSB, Form 10-QSB, Form 8-K or
SCHEDULE 2.1(g) hereto sets forth each subsidiary of the Company, showing the
jurisdiction of its incorporation or organization and showing the percentage
of each person's ownership of the outstanding stock or other interests of
such subsidiary. For the purposes of this Agreement, "subsidiary" shall mean
any corporation or other entity of which at least a majority of the
securities or other ownership interest having ordinary voting power
(absolutely or contingently) for the election of directors or other persons
performing similar functions are at the time owned directly or indirectly by
the Company and/or any of its other subsidiaries. All of the outstanding
shares of capital stock of each subsidiary have been duly authorized and
validly issued, and are fully paid and nonassessable. There are no
outstanding preemptive, conversion or other rights, options, warrants or
agreements granted or issued by or binding upon any subsidiary for the
purchase or acquisition of any shares of capital stock of any subsidiary or
any other securities convertible into, exchangeable for or evidencing the
rights to subscribe for any shares of such
9
capital stock. Neither the Company nor any subsidiary is subject to any
obligation (contingent or otherwise) to repurchase or otherwise acquire or
retire any shares of the capital stock of any subsidiary or any convertible
securities, rights, warrants or options of the type described in the
preceding sentence. Neither the Company nor any subsidiary is party to, nor
has any knowledge of, any agreement restricting the voting or transfer of any
shares of the capital stock of any subsidiary.
(h) NO MATERIAL ADVERSE CHANGE. Since September 30, 1999, the
date through which the most recent quarterly report of the Company on Form
10-QSB has been prepared and filed with the Commission, a copy of which is
included in the Commission Documents, the Company has not experienced or
suffered any Material Adverse Effect, except as disclosed on SCHEDULE 2.1(h)
hereto.
(i) NO UNDISCLOSED LIABILITIES. Except as disclosed in the Form
10-KSB, Form 10-QSB or on SCHEDULE 2.1(i) hereto, neither the Company nor
any of its subsidiaries has any liabilities, obligations, claims or losses
(whether liquidated or unliquidated, secured or unsecured, absolute, accrued,
contingent or otherwise) other than those incurred in the ordinary course of
the Company's or its subsidiaries respective businesses since December 31,
1998 and which, individually or in the aggregate, do not or would not have a
Material Adverse Effect on the Company or its subsidiaries.
(j) NO UNDISCLOSED EVENTS OR CIRCUMSTANCES. No event or
circumstance has occurred or exists with respect to the Company or its
subsidiaries or their respective businesses, properties, prospects,
operations or financial condition, which, under applicable law, rule or
regulation, requires public disclosure or announcement by the Company but
which has not been so publicly announced or disclosed.
(k) INDEBTEDNESS. The Form 10-KSB, Form 10-QSB, Form 8-K or
SCHEDULE 2.1(k) hereto sets forth as of the date hereof all outstanding
secured and unsecured Indebtedness of the Company or any subsidiary, or for
which the Company or any subsidiary has commitments. For the purposes of
this Agreement, "Indebtedness" shall mean (a) any liabilities for borrowed
money or amounts owed in excess of $25,000 (other than trade accounts payable
incurred in the ordinary course of business), (b) all guaranties,
endorsements and other contingent obligations in respect of Indebtedness of
others, whether or not the same are or should be reflected in the Company's
balance sheet (or the notes thereto), except guaranties by endorsement of
negotiable instruments for deposit or collection or similar transactions in
the ordinary course of business; and (c) the present value of any lease
payments in excess of $25,000 due under leases required to be capitalized in
accordance with GAAP. Neither the Company nor any subsidiary is in default
with respect to any Indebtedness.
10
(l) TITLE TO ASSETS. Each of the Company and the subsidiaries
has good and marketable title to all of its real and personal property
reflected in the Commission Documents, free of any mortgages, pledges,
charges, liens, security interests or other encumbrances, except for those
indicated in the Form 10-KSB, Form 10-QSB, Form 8-K or on SCHEDULE 2.1(l)
hereto or such that, individually or in the aggregate, do not cause a
Material Adverse Effect on the Company's financial condition or operating
results. All said leases of the Company and each of its subsidiaries are
valid and subsisting and in full force and effect.
(m) ACTIONS PENDING. There is no action, suit, claim,
investigation or proceeding pending or, to the knowledge of the Company,
threatened against the Company or any subsidiary which questions the validity
of this Agreement or the transactions contemplated hereby or any action taken
or to be taken pursuant hereto or thereto. Except as set forth in the Form
10-KSB, Form 10-QSB, Form 8-K or on SCHEDULE 2.1(m) hereto, there is no
action, suit, claim, investigation or proceeding pending or, to the knowledge
of the Company, threatened, against or involving the Company, any subsidiary
or any of their respective properties or assets. There are no outstanding
orders, judgments, injunctions, awards or decrees of any court, arbitrator or
governmental or regulatory body against the Company or any subsidiary or any
officers or directors of the Company or subsidiary in their capacities as
such.
(n) COMPLIANCE WITH LAW. The business of the Company and the
subsidiaries has been and is presently being conducted in accordance with all
applicable federal, state and local governmental laws, rules, regulations and
ordinances, except as set forth in the Form 10-KSB, Form 10-QSB, on SCHEDULE
2.1(n) hereto or such that, individually or in the aggregate, do not cause a
Material Adverse Effect. The Company and each of its subsidiaries have all
franchises, permits, licenses, consents and other governmental or regulatory
authorizations and approvals necessary for the conduct of its business as now
being conducted by it unless the failure to possess such franchises, permits,
licenses, consents and other governmental or regulatory authorizations and
approvals, individually or in the aggregate, could not reasonably be expected
to have a Material Adverse Effect.
(o) TAXES. Except as set forth in the Form 10-KSB, Form 10-QSB
or on SCHEDULE 2.1(o) hereto, the Company and each of the subsidiaries has
accurately prepared and filed all federal, state and other tax returns
required by law to be filed by it, has paid or made provisions for the
payment of all taxes shown to be due and all additional assessments, and
adequate provisions have been and are reflected in the financial statements
of the Company and the subsidiaries for all current taxes and other charges
to which the Company or any subsidiary is subject and which are not currently
due and payable. None of the federal income tax returns of the Company or
any subsidiary for the years subsequent to December 31, 1998 have been
audited by the Internal Revenue Service. The Company has no knowledge of any
additional assessments, adjustments or contingent tax liability (whether
federal or state) pending or
11
threatened against the Company or any subsidiary for any period, nor of any
basis for any such assessment, adjustment or contingency.
(p) CERTAIN FEES. Except as set forth on SCHEDULE 2.1(p)
hereto, no brokers, finders or financial advisory fees or commissions will be
payable by the Company or any subsidiary or any Purchaser with respect to the
transactions contemplated by this Agreement.
(q) DISCLOSURE. To the best of the Company's knowledge, neither
this Agreement or the Schedules hereto nor any other documents, certificates
or instruments furnished to the Purchasers by or on behalf of the Company or
any subsidiary in connection with the transactions contemplated by this
Agreement contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements made herein or
therein, in the light of the circumstances under which they were made herein
or therein, not misleading.
(r) OPERATION OF BUSINESS. The Company and each of the
subsidiaries owns or possesses all patents, trademarks, service marks, trade
names, copyrights, licenses and authorizations as set forth in the Form
10-KSB, Form 10-QSB, Form 8-K and on SCHEDULE 2.1(r) hereto, and all rights
with respect to the foregoing, which are necessary for the conduct of its
business as now conducted without any conflict with the rights of others.
(s) ENVIRONMENTAL COMPLIANCE. The Company and each of its
subsidiaries have obtained all material approvals, authorization,
certificates, consents, licenses, orders and permits or other similar
authorizations of all governmental authorities, or from any other person,
that are required under any Environmental Laws. The Form 10-KSB or Form
10-QSB hereto sets forth all material permits, licenses and other
authorizations issued under any Environmental Laws to the Company or its
subsidiaries. "Environmental Laws" shall mean all applicable laws relating
to the protection of the environment including, without limitation, all
requirements pertaining to reporting, licensing, permitting, controlling,
investigating or remediating emissions, discharges, releases or threatened
releases of hazardous substances, chemical substances, pollutants,
contaminants or toxic substances, materials or wastes, whether solid, liquid
or gaseous in nature, into the air, surface water, groundwater or land, or
relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of hazardous substances, chemical
substances, pollutants, contaminants or toxic substances, material or wastes,
whether solid, liquid or gaseous in nature. The Company has all necessary
governmental approvals required under all Environmental Laws and used in its
business or in the business of any of its subsidiaries. The Company and each
of its subsidiaries are also in compliance with all other limitations,
restrictions, conditions, standards, requirements, schedules and timetables
required or imposed under all Environmental Laws. Except for such instances
as would not individually or in the aggregate have a Material Adverse Effect,
there are no past or present events, conditions, circumstances, incidents,
actions or omissions relating to or in any way affecting the Company or its
subsidiaries that violate or may violate any Environmental Law
12
after each Closing or that may give rise to any environmental liability, or
otherwise form the basis of any claim, action, demand, suit, proceeding,
hearing, study or investigation (i) under any Environmental Law, or (ii)
based on or related to the manufacture, processing, distribution, use,
treatment, storage (including without limitation underground storage tanks),
disposal, transport or handling, or the emission, discharge, release or
threatened release of any hazardous substance. "Environmental Liabilities"
means all liabilities of a person (whether such liabilities are owed by such
person to governmental authorities, third parties or otherwise) whether
currently in existence or arising hereafter which arise under or relate to
any Environmental Law.
(t) BOOKS AND RECORD INTERNAL ACCOUNTING CONTROLS. The records
and documents of the Company and its subsidiaries accurately reflect in all
material respects the information relating to the business of the Company and
the subsidiaries, the location and collection of their assets, and the nature
of all transactions giving rise to the obligations or accounts receivable of
the Company or any subsidiary. The Company and each of its subsidiaries
maintain a system of internal accounting controls sufficient, in the judgment
of the Company's board of directors, to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization and (iv) the recorded accountability for assets is compared
with the existing assets at reasonable intervals and appropriate actions is
taken with respect to any differences.
(u) MATERIAL AGREEMENTS. Except as set forth in the Form
10-KSB, Form 10-QSB, Form 8-K, or on SCHEDULE 2.1(u) hereto, neither the
Company nor any subsidiary is a party to any written or oral contract,
instrument, agreement, commitment, obligation, plan or arrangement, a copy of
which would be required to be filed with the Commission as an exhibit to a
registration statement on Form S-3 or applicable form (collectively,
"Material Agreements") if the Company or any subsidiary were registering
securities under the Securities Act. The Company and each of its
subsidiaries has in all material respects performed all the obligations
required to be performed by them to date under the foregoing agreements, have
received no notice of default and, to the best of the Company's knowledge are
not in default under any Material Agreement now in effect, the result of
which could cause a Material Adverse Effect. No written or oral contract,
instrument, agreement, commitment, obligation, plan or arrangement of the
Company or of any subsidiary limits or shall limit the payment of dividends
on the Company's Preferred Shares, other Preferred Stock, if any, or its
Common Stock.
(v) TRANSACTIONS WITH AFFILIATES. Except as set forth in the
Form 10-KSB, Form 10-QSB or on SCHEDULE 2.1(v) hereto, there are no loans,
leases, agreements, contracts, royalty agreements, management contracts or
arrangements or other continuing transactions exceeding $100,000 between (a)
the Company, any subsidiary or any of their respective
13
customers or suppliers on the one hand, and (b) on the other hand, any
officer, employee, consultant or director of the Company, or any of its
subsidiaries, or any person owning any capital stock of the Company or any
subsidiary or any member of the immediate family of such officer, employee,
consultant, director or stockholder or any corporation or other entity
controlled by such officer, employee, consultant, director or stockholder, or
a member of the immediate family of such officer, employee, consultant,
director or stockholder.
(w) SECURITIES ACT OF 1933. Based in material part upon the
representations herein of the Purchasers, the Company has complied and will
comply with all applicable federal and state securities laws in connection
with the offer, issuance and sale of the Shares and the Warrants hereunder.
Neither the Company nor anyone acting on its behalf, directly or indirectly,
has or will sell, offer to sell or solicit offers to buy the any of the
Shares, the Warrants or similar securities to, or solicit offers with respect
thereto from, or enter into any preliminary conversations or negotiations
relating thereto with, any person, or has taken or will take any action so as
to bring the issuance and sale of the any of the Shares and the Warrants
under the registration provisions of the Securities Act and applicable state
securities laws, and neither the Company nor any of its affiliates, nor any
person acting on its or their behalf, has engaged in any form of general
solicitation or general advertising (within the meaning of Regulation D under
the Securities Act) in connection with the offer or sale of any of the Shares
and the Warrants.
(x) GOVERNMENTAL APPROVALS. Except as set forth in the Form
10-KSB or Form 10-QSB, and except for the filing of any notice prior or
subsequent to each Closing that may be required under applicable state and/or
Federal securities laws (which if required, shall be filed on a timely
basis), including the filing of a registration statement or statements
pursuant to the Registration Rights Agreement, and the filing of the
Certificate of Designations with the Secretary of State for the State of
Delaware, no authorization, consent, approval, license, exemption of, filing
or registration with any court or governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, is or will be
necessary for, or in connection with, the execution or delivery of the
Preferred Shares, or for the performance by the Company of its obligations
under the Transaction Documents or the Certificate of Designations.
(y) EMPLOYEES. Neither the Company nor any subsidiary has any
collective bargaining arrangements or agreements covering any of its employees,
except as set forth in the Form 10-KSB, Form 10-QSB or on SCHEDULE 2.1(y)
hereto. Except as set forth in the Form 10-KSB, Form 10-QSB or on SCHEDULE
2.1(y) hereto, neither the Company nor any subsidiary has any employment
contract, agreement regarding proprietary information, non-competition
agreement, non-solicitation agreement, confidentiality agreement, or any other
similar contract or restrictive covenant, relating to the right of any officer,
employee or consultant to be employed or engaged by the Company or such
subsidiary. Since December 31, 1998, no officer, consultant or key employee of
the Company or any subsidiary whose termination, either individually or in the
aggregate, could have a Material Adverse Effect, has terminated or, to the
14
knowledge of the Company, has any present intention of terminating his or her
employment or engagement with the Company or any subsidiary.
(z) ABSENCE OF CERTAIN DEVELOPMENTS. Except as provided in Form
10-KSB, 10-QSB, Form 8-K or in SCHEDULE 2.1(z) hereto, since December 31,
1998, neither the Company nor any subsidiary has:
(i) issued any stock, bonds or other corporate securities
or any rights, options or warrants with respect thereto;
(ii) borrowed any amount or incurred or become subject to
any liabilities (absolute or contingent) except current liabilities incurred
in the ordinary course of business which are comparable in nature and amount
to the current liabilities incurred in the ordinary course of business during
the comparable portion of its prior fiscal year, as adjusted to reflect the
current nature and volume of the Company's or such subsidiary's business;
(iii) discharged or satisfied any lien or encumbrance or
paid any obligation or liability (absolute or contingent), other than current
liabilities paid in the ordinary course of business;
(iv) declared or made any payment or distribution of cash
or other property to stockholders with respect to its stock, or purchased or
redeemed, or made any agreements so to purchase or redeem, any shares of its
capital stock;
(v) sold, assigned or transferred any other tangible
assets, or canceled any debts or claims, except in the ordinary course of
business;
(vi) sold, assigned or transferred any patent rights,
trademarks, trade names, copyrights, trade secrets or other intangible assets
or intellectual property rights, or disclosed any proprietary confidential
information to any person except to customers in the ordinary course of
business or to the Purchasers or their representatives;
(vii) suffered any substantial losses or waived any rights
of material value, whether or not in the ordinary course of business, or
suffered the loss of any material amount of prospective business;
(viii) made any changes in employee compensation except in
the ordinary course of business and consistent with past practices;
(ix) made capital expenditures or commitments therefor
that aggregate in excess of $100,000;
15
(x) entered into any other transaction other than in the
ordinary course of business, or entered into any other material transaction,
whether or not in the ordinary course of business;
(xi) made charitable contributions or pledges in excess of
$25,000;
(xii) suffered any material damage, destruction or casualty
loss, whether or not covered by insurance;
(xiii) experienced any material problems with labor or
management in connection with the terms and conditions of their employment;
(xiv) effected any two or more events of the foregoing kind
which in the aggregate would be material to the Company or its subsidiaries;
or
(xv) entered into an agreement, written or otherwise, to
take any of the foregoing actions.
(aa) USE OF PROCEEDS. The proceeds from the sale of the
Preferred Shares will be used by the Company for working capital and general
corporate purposes.
(bb) PUBLIC UTILITY HOLDING COMPANY ACT AND INVESTMENT COMPANY
ACT STATUS. The Company is not a "holding company" or a "public utility
company" as such terms are defined in the Public Utility Holding Company Act
of 1935, as amended. The Company is not, and as a result of and immediately
upon each Closing will not be, an "investment company" or a company
"controlled" by an "investment company," within the meaning of the Investment
Company Act of 1940, as amended.
(cc) ERISA. No liability to the Pension Benefit Guaranty
Corporation has been incurred with respect to any Plan by the Company or any
of its subsidiaries which is or would be materially adverse to the Company
and its subsidiaries. The execution and delivery of this Agreement and the
issue and sale of the Preferred Shares will not involve any transaction which
is subject to the prohibitions of Section 406 of ERISA or in connection with
which a tax could be imposed pursuant to Section 4975 of the Internal Revenue
Code of 1986, as amended, provided that, if any of the Purchasers, or any
person or entity that owns a beneficial interest in any of the Purchasers, is
an "employee pension benefit plan" (within the meaning of Section 3(2) of
ERISA) with respect to which the Company is a "party in interest" (within the
meaning of Section 3(14) of ERISA), the requirements of Sections 407(d)(5)
and 408(e) of ERISA, if applicable, are met. As used in this Section
2.1(ac), the term "Plan" shall mean an "employee pension benefit plan" (as
defined in Section 3 of ERISA) which is or has been established or
maintained, or to which contributions are or have been made, by the Company
or any subsidiary
16
or by any trade or business, whether or not incorporated, which, together
with the Company or any subsidiary, is under common control, as described in
Section 414(b) or (c) of the Code.
(dd) DILUTIVE EFFECT. The Company understands and acknowledges
that the number of Conversion Shares issuable upon conversion of the
Preferred Shares and the Warrant Shares issuable upon exercise of the
Warrants will increase in certain circumstances. The Company further
acknowledges that its obligation to issue Conversion Shares upon conversion
of the Preferred Shares in accordance with this Agreement and the Certificate
of Designations and its obligations to issue the Warrant Shares upon the
exercise of the Warrants in accordance with this Agreement and the Warrants,
is, in each case, absolute and unconditional regardless of the dilutive
effect that such issuance may have on the ownership interest of other
stockholders of the Company.
Section 2.2 REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.
Each of the Purchasers hereby makes the following representations and
warranties to the Company with respect solely to itself and not with respect
to any other Purchaser:
(a) ORGANIZATION AND STANDING OF THE PURCHASERS. If the
Purchaser is an entity, such Purchaser is a corporation or partnership duly
incorporated or organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation or organization.
(b) AUTHORIZATION AND POWER. The Purchaser has the requisite
power and authority to enter into and perform this Agreement and to purchase
the Preferred Shares being sold to it hereunder. The execution, delivery and
performance of this Agreement and the Registration Rights Agreement by such
Purchaser and the consummation by it of the transactions contemplated hereby
and thereby have been duly authorized by all necessary corporate or
partnership action (if the Purchaser is an entity), and no further consent or
authorization of such Purchaser or its Board of Directors, stockholders, or
partners, as the case may be, is required. Each of this Agreement and the
Registration Rights Agreement has been duly authorized, executed and
delivered by such Purchaser.
(c) NO CONFLICTS. The execution, delivery and performance of
this Agreement and the Registration Rights Agreement and the consummation by
such Purchaser of the transactions contemplated hereby and thereby or
relating hereto do not and will not (i) result in a violation of such
Purchaser's charter documents or bylaws or (ii) conflict with, or constitute
a default (or an event which with notice or lapse of time or both would
become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of any agreement, indenture or
instrument to which such Purchaser is a party, or result in a violation of
any law, rule, or regulation, or any order, judgment or decree of any court
or governmental agency applicable to such Purchaser or its properties (except
for such conflicts, defaults and violations as would not, individually or in
the aggregate, have a Material Adverse Effect on such
17
Purchaser). Such Purchaser is not required to obtain any consent,
authorization or order of, or make any filing or registration with, any court
or governmental agency in order for it to execute, deliver or perform any of
its obligations under this Agreement or the Registration Rights Agreement or
to purchase the Preferred Shares in accordance with the terms hereof,
provided that for purposes of the representation made in this sentence, such
Purchaser is assuming and relying upon the accuracy of the relevant
representations and agreements of the Company herein.
(d) ACQUISITION FOR INVESTMENT. Such Purchaser is purchasing
the Preferred Shares solely for its own account for the purpose of investment
and not with a view to or for sale in connection with distribution. Such
Purchaser does not have a present intention to sell the Preferred Shares, nor
a present arrangement (whether or not legally binding) or intention to effect
any distribution of the Preferred Shares to or through any person or entity;
PROVIDED, HOWEVER, that by making the representations herein and subject to
Section 2.2(f) below, such Purchaser does not agree to hold the Preferred
Shares for any minimum or other specific term and reserves the right to
dispose of the Preferred Shares at any time in accordance with Federal and
state securities laws applicable to such disposition. Such Purchaser
acknowledges that it is able to bear the financial risks associated with an
investment in the Preferred Shares and that it has been given full access to
such records of the Company and the subsidiaries and to the officers of the
Company and the subsidiaries and received such information as it has deemed
necessary or appropriate to conduct its due diligence investigation.
(e) ACCREDITED PURCHASERS. Such Purchaser is an "accredited
investor" as defined in Regulation D promulgated under the Securities Act.
(f) RULE 144. Such Purchaser understands that the Shares must
be held indefinitely unless such Shares are registered under the Securities
Act or an exemption from registration is available. Such Purchaser
acknowledges that such person is familiar with Rule 144 of the rules and
regulations of the Commission, as amended, promulgated pursuant to the
Securities Act ("Rule 144"), and that such person has been advised that Rule
144 permits resales only under certain circumstances. Such Purchaser
understands that to the extent that Rule 144 is not available, such person
will be unable to sell any Preferred Shares without either registration under
the Securities Act or the existence of another exemption from such
registration requirement.
(g) CONVERSION RESTRICTIONS. Notwithstanding anything to the
contrary set forth herein or in the Certificate of Designations, in no event
shall any holder be entitled to convert the Preferred Shares in excess of
that number of the Preferred Shares which, upon giving effect to such
conversion, would cause the aggregate number of shares of Common Stock
beneficially owned by the holder and its affiliates to exceed 4.99% of the
outstanding shares of the Common Stock following such conversion. For
purposes of the foregoing proviso, the aggregate number of shares of Common
Stock beneficially owned by the holder and its affiliates
18
shall include the number of shares of Common Stock issuable upon conversion
of the Preferred Shares with respect to which the determination of such
proviso is being made, but shall exclude the number of shares of Common Stock
which would be issuable upon (i) conversion of the remaining, nonconverted
shares of Series K Convertible Preferred Stock beneficially owned by the
holder and its affiliates, and (ii) exercise or conversion of the unexercised
or unconverted portion of any other securities of the Company (including,
without limitation, any warrants) subject to a limitation on conversion or
exercise analogous to the limitation contained herein beneficially owned by
the holder and its affiliates. Except as set forth in the preceding
sentence, for purposes of this Section 2(a), beneficial ownership shall be
calculated in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended.
(h) GENERAL. Such Purchaser understands that the Shares are
being offered and sold in reliance on a transactional exemption from the
registration requirement of Federal and state securities laws and the Company
is relying upon the truth and accuracy of the representations, warranties,
agreements, acknowledgments and understandings of such Purchaser set forth
herein in order to determine the applicability of such exemptions and the
suitability of such Purchaser to acquire the Shares.
(i) RESIDENCE. Such Purchaser's permanent domicile is as set
forth in Exhibit A.
ARTICLE III
COVENANTS
The Company covenants with each of the Purchasers as follows, which
covenants are for the benefit of the Purchasers and their permitted assignees
(as defined herein).
Section 3.1 Securities Compliance.
(a) The Company shall notify the Commission in accordance with
their rules and regulations, of the transactions contemplated by any of the
Transaction Documents, including filing a Form D with respect to the
Preferred Shares, Warrants, Conversion Shares and Warrants Shares as required
under Regulation D, and shall take all other necessary action and proceedings
as may be required and permitted by applicable law, rule and regulation, for
the legal and valid issuance of the Preferred Shares and the Warrant Shares
to the Purchasers or subsequent holders.
(b) The Company is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments and understandings
of such
19
Purchasers set forth herein in order to determine the applicability of
Federal and state securities laws exemptions and the suitability of such
Purchasers to acquire the Preferred Shares.
Section 3.2 REGISTRATION AND LISTING. The Company will cause its
Common Stock to continue to be registered under Sections 12(b) or 12(g) of
the Exchange Act, will comply in all respects with its reporting and filing
obligations under the Exchange Act, will comply with all requirements related
to any registration statement filed pursuant to this Agreement or the
Registration Rights Agreement, and will not take any action or file any
document (whether or not permitted by the Securities Act or the rules
promulgated thereunder) to terminate or suspend such registration or to
terminate or suspend its reporting and filing obligations under the Exchange
Act or Securities Act, except as permitted herein. The Company will take all
action necessary to continue the listing or trading of its Common Stock on
the over-the-counter electronic bulletin board.
Section 3.3 INSPECTION RIGHTS. The Company shall permit, during
normal business hours and upon reasonable request and reasonable notice, each
Purchaser or any employees, agents or representatives thereof, so long as
such Purchaser shall be obligated hereunder to purchase the Preferred Shares
or shall beneficially own any Preferred Shares, or shall own Conversion
Shares which, in the aggregate, represent more than 2% of the total combined
voting power of all voting securities then outstanding, for purposes
reasonably related to such Purchaser's interests as a stockholder to examine
and make reasonable copies of and extracts from the records and books of
account of, and visit and inspect the properties, assets, operations and
business of the Company and any subsidiary, and to discuss the affairs,
finances and accounts of the Company and any subsidiary with any of its
officers, consultants, directors, and key employees.
Section 3.4 COMPLIANCE WITH LAWS. The Company shall comply, and
cause each subsidiary to comply, with all applicable laws, rules, regulations
and orders, noncompliance with which could have a Material Adverse Effect.
Section 3.5 KEEPING OF RECORDS AND BOOKS OF ACCOUNT. The Company
shall keep and cause each subsidiary to keep adequate records and books of
account, in which complete entries will be made in accordance with GAAP
consistently applied, reflecting all financial transactions of the Company
and its subsidiaries, and in which, for each fiscal year, all proper reserves
for depreciation, depletion, obsolescence, amortization, taxes, bad debts and
other purposes in connection with its business shall be made.
Section 3.6 REPORTING REQUIREMENTS. If the Company ceases to
file its periodic reports with the Commission, or if the Commission ceases
making these periodic reports available via the Internet without charge, then
the Company shall furnish the following to each Purchaser so long as such
Purchaser shall be obligated hereunder to purchase the Preferred Shares or
shall beneficially own any Preferred Shares, or shall own Conversion Shares
which, in
20
the aggregate, represent more than 2% of the total combined voting power of
all voting securities then outstanding:
(a) Quarterly Reports filed with the Commission on Form 10-QSB
as soon as available, and in any event within 45 days after the end of each
of the first three fiscal quarters of the Company;
(b) Annual Reports filed with the Commission on Form 10-KSB as
soon as available, and in any event within 90 days after the end of each
fiscal year of the Company; and
(c) Copies of all notices and information, including without
limitation notices and proxy statements in connection with any meetings, that
are provided to holders of shares of Common Stock, contemporaneously with the
delivery of such notices or information to such holders of Common Stock.
Section 3.7 Section 3.7 AMENDMENTS. The Company shall not
amend or waive any provision of the Articles or Bylaws of the Company, or
Registration Rights Agreement in any way that would adversely affect the
liquidation preferences, dividends rights, conversion rights, voting rights
or redemption rights of the holders of the Preferred Shares.
Section 3.8 OTHER AGREEMENTS. The Company shall not enter into
any agreement in which the terms of such agreement would restrict or impair
the right or ability to perform of the Company or any subsidiary under any
Transaction Document or the Certificate of Designations.
Section 3.9 DISTRIBUTIONS. So long as any Preferred Shares or
Warrants remain outstanding, the Company agrees that it shall not (i) declare
or pay any dividends or make any distributions to any holder(s) of Common
Stock or (ii) purchase or otherwise acquire for value, directly or
indirectly, any Common Stock or other equity security of the Company.
Section 3.10 STATUS OF DIVIDENDS. The Company covenants and
agrees that (i) no Federal income tax return or claim for refund of Federal
income tax or other submission to the Internal Revenue Service will adversely
affect the Preferred Shares, any other series of its Preferred Stock, or the
Common Stock, and any deduction shall not operate to jeopardize the
availability to Purchasers of the dividends received deduction provided by
Section 243(a)(1) of the Code or any successor provision, (ii) in no report
to shareholders or to any governmental body having jurisdiction over the
Company or otherwise will it treat the Preferred Shares other than as equity
capital or the dividends paid thereon other than as dividends paid on equity
capital unless required to do so by a governmental body having jurisdiction
over the accounts of the Company or by a change in generally accepted
accounting principles required as a result of action by an authoritative
accounting standards setting body, and (iii) other than pursuant to this
Agreement or the Certificate of Designations, it will take no action which
would result in the
21
dividends paid by the Company on the Preferred Shares out of the Company's
current or accumulated earnings and profits being ineligible for the
dividends received deduction provided by Section 243(a)(1) of the Code. The
preceding sentence shall not be deemed to prevent the Company from
designating the Preferred Stock as "Convertible Preferred Stock" in its
annual and quarterly financial statements in accordance with its prior
practice concerning other series of preferred stock of the Company.
Notwithstanding the foregoing, the Company shall not be required to restate
or modify its tax returns for periods prior to each Closing Date. In the
event that the Purchasers have reasonable cause to believe that dividends
paid by the Company on the Preferred Shares out of the Company's current or
accumulated earnings and profits will not be treated as eligible for the
dividends received deduction provided by Section 243(a)(1) of the Code, or
any successor provision, the Company will, at the reasonable request of the
Purchasers of 51% of the outstanding Preferred Shares, join with the
Purchasers in the submission to the Service of a request for a ruling that
dividends paid on the Shares will be so eligible for Federal income tax
purposes, at the Purchasers expense. In addition, the Company will
reasonably cooperate with the Purchasers (at Purchasers' expense) in any
litigation, appeal or other proceeding challenging or contesting any ruling,
technical advice, finding or determination that earnings and profits are not
eligible for the dividends received deduction provided by Section 243(a)(1)
of the Code, or any successor provision to the extent that the position to be
taken in any such litigation, appeal, or other proceeding is not contrary to
any provision of the Code or incurred in connection with any such submission,
litigation, appeal or other proceeding. Notwithstanding the foregoing,
nothing herein contained shall be deemed to preclude the Company from
claiming a deduction with respect to such dividends if (i) the Code shall
hereafter be amended, or final Treasury regulations thereunder are issued or
modified, to provide that dividends on the Preferred Shares or Conversion
Shares should not be treated as dividends for Federal income tax purposes or
that a deduction with respect to all or a portion of the dividends on the
Shares is allowable for Federal income tax purposes, or (ii) in the absence
of such an amendment, issuance or modification and after a submission of a
request for ruling or technical advice, the service shall rule or advise that
dividends on the shares should not be treated as dividends for Federal income
tax purposes. If the Service determines that the Preferred Shares or
Conversion Shares constitute debt, the Company may file protective claims for
refund.
Section 3.11 REGULATION S. The Company covenants and agrees that
if the Company fails to register the Conversion Shares and the Warrant Shares
within 150 days from the Tranche I Closing Date under the terms and
conditions of the Registration Rights Agreement attached hereto as Exhibit E,
then for so long as such Registration Statement is not effective and as any
of the Shares remain outstanding and continue to be "restricted securities"
within the meaning of Rule 144 under the Securities Act, the Company shall,
in order to permit resales any of the Shares pursuant to Regulation S under
the Securities Act, (a) continue to file all material required to be filed
pursuant to Section 13(a) or 15(d) of the Exchange Act, and (b) not knowingly
engage in directed selling efforts in connection with the resale of
securities by any Purchaser under Regulation S.
22
Section 3.12 RIGHT OF FIRST REFUSAL. The Company covenants and
agrees that during the nine (9) month period after Final Closing Date the
Purchasers shall have a right of first refusal with respect to any subsequent
offer or sale of Common Stock or any securities convertible or exchangeable
into Common Stock based on variable rates of conversion (meaning based on a
market price of the Common Stock as of the date of conversion or exchange)
which the Company proposes or intends to consummate with any third parties
(the "Subsequent Financing"). The Company will promptly notify the
Purchasers in writing of the terms and conditions of the proposed Subsequent
Financing. The Purchasers shall have the right for ten (10) trading days to
consummate the Subsequent Financing, in whole but not in part, with the
Company on the same terms and conditions as the proposed Subsequent
Financing. If the Purchasers do not consummate the Subsequent Financing, the
Company shall have 45 days thereafter to consummate the Subsequent Financing
with such third parties, on the same or substantially the same terms, or on
terms more favorable to the Company. The rights of the Purchaser herein
specifically exclude any Subsequent Financing with the parties set forth on
SCHEDULE 3.12 hereto; provided, that (i) if the Subsequent Financing with
such parties is an offer or sale of Common Stock at a price equal to less
than 50% of the market price of Common Stock, the proceeds from such sale
shall be used first to redeem the outstanding Preferred Shares of the
Purchasers upon consummation of the Subsequent Financing at a redemption
price equal to 125% of the Liquidation Preference (as defined in the
Certificate of Designations) plus accrued and unpaid dividends and (ii) if
the Subsequent Financing is an offer or sale of securities convertible or
exchangeable into Common Stock, such conversion or exchange shall be based on
a fixed rate.
Section 3.13 RESERVATION OF SHARES. So long as any of the
Preferred Shares or Warrants remain outstanding, the Company shall take all
action necessary to at all times have authorized, and reserved for the
purpose of issuance, no less than 200% of the aggregate number of shares of
Common Stock needed to provide for the issuance of the Conversion Shares and
the Warrant Shares.
Section 3.14 TRANSFER AGENT INSTRUCTIONS. The Company shall issue
irrevocable instructions to its transfer agent, and any subsequent transfer
agent, to issue certificates, registered in the name of each Purchaser or its
respective nominee(s), for the Conversion Shares and the Warrant Shares in
such amounts as specified from time to time by each Purchaser to the Company
upon conversion of the Preferred Shares or exercise of the Warrants in the
form of Exhibit F attached hereto (the "Irrevocable Transfer Agent
Instructions"). Prior to registration of the Conversion Shares and the
Warrant Shares under the Securities Act, all such certificates shall bear the
restrictive legend specified in Section 6.1 of this Agreement. The Company
warrants that no instruction other than the Irrevocable Transfer Agent
Instructions referred to in this Section 3.14 will be given by the Company to
its transfer agent and that the Shares shall otherwise be freely transferable
on the books and records of the Company as and to the extent provided in this
Agreement and the Registration Rights Agreement. Nothing in this Section
3.14 shall affect in any way each Purchaser's obligations and agreements set
forth in Section 6.1 to
23
comply with all applicable prospectus delivery requirements, if any, upon
resale of the Shares. If a Purchaser provides the Company with an opinion of
counsel, in a generally acceptable form, to the effect that a public sale,
assignment or transfer of the Shares may be made without registration under
the Securities Act or the Purchaser provides the Company with reasonable
assurances that the Shares can be sold pursuant to Rule 144 without any
restriction as to the number of securities acquired as of a particular date
that can then be immediately sold, the Company shall permit the transfer,
and, in the case of the Conversion Shares and the Warrant Shares, promptly
instruct its transfer agent to issue one or more certificates in such name
and in such denominations as specified by such Purchaser and without any
restrictive legend. The Company acknowledges hat a breach by it of its
obligations under this Section 3.14 will cause irreparable harm to the
Purchasers by vitiating the intent and purpose of the transaction
contemplated hereby. Accordingly, the Company acknowledges that the remedy
at law for a breach of its obligations under this Section 3.14 will be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section 3.14, that the Purchasers shall be
entitled, in addition to all other available remedies, to an order and/or
injunction restraining any breach and requiring immediate issuance and
transfer, without the necessity of showing economic loss and without any bond
or other security being required.
ARTICLE IV
CONDITIONS
Section 4.1 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE COMPANY
TO SELL THE SHARES. The obligation hereunder of the Company to issue and
sell the Preferred Shares and the Warrants to the Purchasers is subject to
the satisfaction or waiver, at or before each Closing, each of the conditions
set forth below. These conditions are for the Company's sole benefit and may
be waived by the Company at any time in its sole discretion.
(a) ACCURACY OF EACH PURCHASER'S REPRESENTATIONS AND WARRANTIES.
The representations and warranties of each Purchaser shall be true and
correct in all material respects as of the date when made and as of each
Closing Date as though made at that time, except for representations and
warranties that are expressly made as of a particular date, which shall be
true and correct in all material respects as of such date.
(b) PERFORMANCE BY THE PURCHASERS. Each Purchaser shall have
performed, satisfied and complied in all material respects with all
covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by such Purchaser at or prior to each
Closing.
(c) NO INJUNCTION. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or
24
governmental authority of competent jurisdiction which prohibits the
consummation of any of the transactions contemplated by this Agreement.
(d) MINIMUM PURCHASE. The Escrow Agent shall hold $2,000,000 or
more of immediately available funds pursuant to the Escrow Agreement received
from the Purchasers, and the Purchasers shall make the minimum purchase
described in Section 4.2(c).
Section 4.2 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE
PURCHASERS TO PURCHASE THE SHARES. The obligation hereunder of each
Purchaser to acquire and pay for the Preferred Shares and the Warrants is
subject to the satisfaction or waiver, at or before each Closing, of each of
the conditions set forth below. These conditions are for each Purchaser's
sole benefit and may be waived by such Purchaser at any time in its sole
discretion.
(a) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND WARRANTIES.
Each of the representations and warranties of the Company shall be true and
correct in all material respects as of the date when made and as of each
Closing Date as though made at that time (except for representations and
warranties that speak as of a particular date), which shall be true and
correct in all material respects as of such date.
(b) PERFORMANCE BY THE COMPANY. The Company shall have
performed, satisfied and complied in all respects with all covenants,
agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the Company at or prior to such Closing.
(c) MINIMUM PURCHASE. Under the terms and conditions of this
Agreement, the Company shall make sales of the Preferred Shares and Warrants
to the Purchasers resulting in gross proceeds of a minimum of $2,000,000 to
the Company, less fees and legal expenses payable to the Purchasers pursuant
to a written agreement describing said fees.
(d) NO SUSPENSION, ETC. From the date hereof to each Closing
Date, trading in the Company's Common Stock shall not have been suspended by
the Commission (except for any suspension of trading of limited duration
agreed to by the Company, which suspension shall be terminated prior to each
Closing), and, at any time prior to each Closing, trading in securities
generally as reported by Bloomberg Financial Markets ("Bloomberg") shall not
have been suspended or limited, or minimum prices shall not have been
established on securities whose trades are reported by Bloomberg, or on the
New York Stock Exchange, nor shall a banking moratorium have been declared
either by the United States or New York State authorities, nor shall there
have occurred any material outbreak or escalation of hostilities or other
national or international calamity or crisis of such magnitude in its effect
on, or any material adverse change in any financial market which, in each
case, in the judgment of such Purchaser, makes it impracticable or
inadvisable to purchase the Preferred Shares.
25
(e) NO INJUNCTION. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement.
(f) NO PROCEEDINGS OR LITIGATION. No action, suit or proceeding
before any arbitrator or any governmental authority shall have been
commenced, and no investigation by any governmental authority shall have been
threatened, against the Company or any subsidiary, or any of the officers,
directors or affiliates of the Company or any subsidiary seeking to restrain,
prevent or change the transactions contemplated by this Agreement, or seeking
damages in connection with such transactions.
(g) CERTIFICATE OF DESIGNATIONS OF RIGHTS AND PREFERENCES.
Prior to each Closing, the Certificate of Designations of the Rights and
Preferences for the Preferred Shares in the form of Exhibit C attached hereto
shall have been filed with the Secretary of State of Delaware.
(h) OPINION OF COUNSEL, ETC. At each Closing, the Purchasers
shall have received an opinion of counsel to the Company, dated the date of
such Closing, in the form of Exhibit G hereto, and such other certificates
and documents as the Purchasers or its counsel shall reasonably require
incident to such Closing.
(i) REGISTRATION RIGHTS AGREEMENT. At the Tranche I Closing,
the Company shall have executed and delivered the Registration Rights
Agreement to each Purchaser.
(j) CERTIFICATES. The Company shall have executed and delivered
to the Escrow Agent the certificates (in such denominations as such Purchaser
shall request) for the Preferred Shares and Warrants being acquired by such
Purchaser at such Closing.
(k) RESOLUTIONS. The Board of Directors of the Company shall
have adopted resolutions consistent with Section 2.1(b) above in a form
reasonably acceptable to such Purchaser (the "Resolutions").
(l) RESERVATION OF SHARES. As of each Closing Date, the Company
shall have reserved out of its authorized and unissued Common Stock, solely
for the purpose of effecting the conversion of the Preferred Shares and the
exercise of the Warrants, a number of shares of Common Stock equal to at
least 200% of the aggregate number of Conversion Shares issuable upon
conversion of the Preferred Shares outstanding on such Closing Date and the
number of Warrant Shares issuable upon exercise of the number of Warrants
assuming such Warrants were granted on such Closing Date (after giving effect
to the Preferred Shares and the Warrants to be issued on such Closing Date
and assuming all such Preferred Shares and Warrants were fully
26
convertible or exercisable on such date regardless of any limitation on the
timing or amount of such conversions or exercises).
(m) TRANSFER AGENT INSTRUCTIONS. The Irrevocable Transfer Agent
Instructions, in the form of Exhibit F attached hereto, shall have been
delivered to and acknowledged in writing by the Company's transfer agent.
(n) SECRETARY'S CERTIFICATE. The Company shall have delivered
to such Purchaser a secretary's certificate, dated as of each Closing Date,
as to (i) the Resolutions, (ii) the Articles, (iii) the Bylaws, (iv) the
Certificate of Designations, each as in effect at such Closing, and (iv) the
authority and incumbency of the officers of the Company executing the
Transaction Documents and any other documents required to be executed or
delivered in connection therewith.
(o) ESCROW AGREEMENT. At the Tranche I Closing, the Company
shall have executed and delivered the Escrow Agreement to each Purchaser.
(p) CANCELLATION OF PROMISSORY NOTE. At the Tranche I Closing,
Lightline shall deliver or cause the delivery to the Company the original
Promissory Note marked "Canceled" and "Paid- In-Full".
(q) OFFICER'S CERTIFICATE. The Company shall have delivered to
such Purchaser a certificate of an executive officer of the Company, dated as
of each Closing Date, confirming the accuracy of the Company's
representations, warranties and covenants as of such Closing Date and
confirming the compliance by the Company with the conditions precedent set
forth in this Section 4.2 as of such Closing Date.
ARTICLE V
INTENTIONALLY OMITTED
ARTICLE VI
STOCK CERTIFICATE LEGEND
Section 6.1 LEGEND. Each certificate representing the Preferred
Shares and the Warrants, and, if appropriate, securities issued upon
conversion thereof, shall be stamped or otherwise imprinted with a legend
substantially in the following form (in addition to any legend required by
applicable state securities or "blue sky" laws):
27
THESE SECURITIES REPRESENTED BY THIS CERTIFICATE (THE
"SECURITIES") HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS
AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS
REGISTERED UNDER THAT ACT AND UNDER APPLICABLE STATE SECURITIES LAWS
OR ESYNCH CORP. (THE "COMPANY") SHALL HAVE RECEIVED AN OPINION OF ITS
COUNSEL THAT REGISTRATION OF SUCH SECURITIES UNDER THAT ACT AND UNDER
THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.
The Company agrees to reissue certificates representing the Shares
without the legend set forth above if at such time, prior to making any
transfer of any Shares or Shares, such holder thereof shall give written
notice to the Company describing the manner and terms of such transfer and
removal as the Company may reasonably request. Such proposed transfer will
not be effected until: (a) the Company has notified such holder that either
(i) in the opinion of Company counsel, the registration of such Shares under
the Securities Act is not required in connection with such proposed transfer;
or (ii) a registration statement under the Securities Act covering such
proposed disposition has been filed by the Company with the Commission and
has become effective under the Securities Act; and (b) the Company has
notified such holder that either: (i) in the opinion of Company counsel, the
registration or qualification under the securities or "blue sky" laws of any
state is not required in connection with such proposed disposition, or (ii)
compliance with applicable state securities or "blue sky" laws has been
effected. The Company will use its best efforts to respond to any such
notice from a holder within ten (10) days. In the case of any proposed
transfer under this Section 6, the Company will use reasonable efforts to
comply with any such applicable state securities or "blue sky" laws, but
shall in no event be required, in connection therewith, to qualify to do
business in any state where it is not then qualified or to take any action
that would subject it to tax or to the general service of process in any
state where it is not then subject. The restrictions on transfer contained
in Section 6.1 shall be in addition to, and not by way of limitation of, any
other restrictions on transfer contained in any other section of this
Agreement.
ARTICLE VII
INTENTIONALLY OMITTED.
ARTICLE VIII
INDEMNIFICATION
28
Section 8.1 GENERAL INDEMNITY. The Company agrees to indemnify
and hold harmless the Purchasers and any finder (and their respective
directors, officers, affiliates, agents, successors and assigns) from and
against any and all losses, liabilities, deficiencies, costs, damages and
expenses (including, without limitation, reasonable attorney's fees, charges
and disbursements) incurred by the Purchasers as a result of any inaccuracy
in or breach of the representations, warranties or covenants made by the
Company herein. Each Purchaser severally but not jointly agrees to indemnify
and hold harmless the Company and its directors, officers, affiliates,
agents, successors and assigns from and against any and all losses,
liabilities, deficiencies, costs, damages and expenses (including, without
limitation, reasonable attorneys fees, charges and disbursements) incurred by
the Company as result of any inaccuracy in or breach of the representations,
warranties or covenants made by such Purchaser herein.
Section 8.2 INDEMNIFICATION PROCEDURE. Any party entitled to
indemnification under this Article VIII (an "indemnified party") will give
written notice to the indemnifying party of any matters giving rise to a
claim for indemnification; provided, that the failure of any party entitled
to indemnification hereunder to give notice as provided herein shall not
relieve the indemnifying party of its obligations under this Article VIII
except to the extent that the indemnifying party is actually prejudiced by
such failure to give notice. In case any action, proceeding or claim is
brought against an indemnified party in respect of which indemnification is
sought hereunder, the indemnifying party shall be entitled to participate in
and, unless in the reasonable judgment of the indemnified party a conflict of
interest between it and the indemnifying party may exist with respect of such
action, proceeding or claim, to assume the defense thereof with counsel
reasonably satisfactory to the indemnified party. In the event that the
indemnifying party advises an indemnified party that it will contest such a
claim for indemnification hereunder, or fails, within thirty (30) days of
receipt of any indemnification notice to notify, in writing, such person of
its election to defend, settle or compromise, at its sole cost and expense,
any action, proceeding or claim (or discontinues its defense at any time
after it commences such defense), then the indemnified party may, at its
option, defend, settle or otherwise compromise or pay such action or claim.
In any event, unless and until the indemnifying party elects in writing to
assume and does so assume the defense of any such claim, proceeding or
action, the indemnified party's costs and expenses arising out of the
defense, settlement or compromise of any such action, claim or proceeding
shall be losses subject to indemnification hereunder. The indemnified party
shall cooperate fully with the indemnifying party in connection with any
negotiation or defense of any such action or claim by the indemnifying party
and shall furnish to the indemnifying party all information reasonably
available to the indemnified party which relates to such action or claim.
The indemnifying party shall keep the indemnified party fully apprised at all
times as to the status of the defense or any settlement negotiations with
respect thereto. If the indemnifying party elects to defend any such action
or claim, then the indemnified party shall be entitled to participate in such
defense with counsel of its choice at its sole cost and expense. The
indemnifying party shall not be liable for any settlement of any action,
claim or proceeding effected without its prior written consent.
29
Notwithstanding anything in this Article VIII to the contrary, the
indemnifying party shall not, without the indemnified party's prior written
consent, settle or compromise any claim or consent to entry of any judgment
in respect thereof which imposes any future obligation on the indemnified
party or which does not include, as an unconditional term thereof, the giving
by the claimant or the plaintiff to the indemnified party of a release from
all liability in respect of such claim. The indemnification required by this
Article VIII shall be made by periodic payments of the amount thereof during
the course of investigation or defense, as and when bills are received or
expense, loss, damage or liability is incurred, so long as the indemnified
party irrevocably agrees to refund such moneys if it is ultimately determined
by a court of competent jurisdiction that such party was not entitled to
indemnification. The indemnity agreements contained herein shall be in
addition to (a) any cause of action or similar rights of the indemnified
party against the indemnifying party or others, and (b) any liabilities the
indemnifying party may be subject to pursuant to the law.
ARTICLE IX
MISCELLANEOUS
Section 9.1 FEES AND EXPENSES. Except as otherwise set forth in
this Agreement, the Registration Rights Agreement or the Certificate of
Designations, each party shall pay the fees and expenses of its advisors,
counsel, accountants and other experts, if any, and all other expenses,
incurred by such party incident to the negotiation, preparation, execution,
delivery and performance of this Agreement, PROVIDED that the Company shall
pay, at the Closing, all attorneys fees and expenses (exclusive of
disbursements and out-of-pocket expenses) incurred by the Purchasers up to
$25,000 in connection with the preparation, negotiation, execution and
delivery of this Agreement, the Registration Rights Agreement and the
transaction contemplated hereunder. In addition, the Company shall pay all
reasonable fees and expenses incurred by the Purchasers in connection with
any amendments, modifications or waivers of this Agreement or any of the
other Transaction Documents, or incurred in connection with the enforcement
of this Agreement or any of the other Transaction Documents, including,
without limitation, all reasonable attorneys fees and expenses. The Company
shall pay all stamp or other similar taxes and duties levied in connection
with issuance of the Preferred Shares pursuant hereto.
Section 9.2 SPECIFIC ENFORCEMENT, CONSENT TO JURISDICTION.
(a) The Company and the Purchasers acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of
this Agreement or the Registration Rights Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent or cure breaches of the provisions of this Agreement
or the Registration Rights Agreement and to enforce specifically the terms
and provisions hereof or thereof, this being in
30
addition to any other remedy to which any of them may be entitled by law or
equity.
(b) Each of the Company and the Purchasers (i) hereby
irrevocably submits to the jurisdiction of the United States District Court
sitting in the Southern District of New York for the purposes of any suit,
action or proceeding arising out of or relating to this Agreement or the
Registration Rights Agreement and (ii) hereby waives, and agrees not to
assert in any such suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of such court, that the suit, action
or proceeding is brought in an inconvenient forum or that the venue of the
suit, action or proceeding is improper. Each of the Company and the
Purchasers consents to process being served in any such suit, action or
proceeding by mailing a copy thereof to such party at the address in effect
for notices to it under this Agreement and agrees that such service shall
constitute good and sufficient service of process and notice thereof.
Nothing in this Section 9.2 shall affect or limit any right to serve process
in any other manner permitted by law.
Section 9.3 ENTIRE AGREEMENT; AMENDMENT. This Agreement contains
the entire understanding of the parties with respect to the matters covered
hereby and, except as specifically set forth herein or in the Transaction
Documents or the Certificate of Designations, neither the Company nor any of
the Purchasers makes any representations, warranty, covenant or undertaking
with respect to such matters. No provision of this Agreement may be waived
or amended other than by a written instrument signed by the Company and the
holders of at least two-thirds (2/3) of the Preferred Shares then
outstanding, and no provision hereof may be waived other than by an a written
instrument signed by the party against whom enforcement of any such amendment
or waiver is sought. No such amendment shall be effective to the extent that
it applies to less than all of the holders of the Preferred Shares then
outstanding. No consideration shall be offered or paid to any person to
amend or consent to a waiver or modification of any provision of any of the
Transaction Documents or the Certificate of Designations unless the same
consideration is also offered to all of the parties to the Transaction
Documents or holders of Preferred Shares, as the case may be.
Section 9.4 NOTICES. Any notice, demand, request, waiver or
other communication required or permitted to be given hereunder shall be in
writing and shall be effective (a) upon hand delivery by telex (with correct
answer back received), telecopy or facsimile at the address or number
designated below (if delivered on a business day during normal business hours
where such notice is to be received), or the first business day following
such delivery (if delivered other than on a business day during normal
business hours where such notice is to be received) or (b) on the second
business day following the date of mailing by express courier service, fully
prepaid, addressed to such address, or upon actual receipt of such mailing,
whichever shall first occur. The addresses for such communications shall be:
If to the Company: Xxxxxx Xxxxxxxxx, CEO
eSynch Corporation
31
00000 Xxxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxx 00000
Telephone Number: (000) 000-0000
Facsimile Number: (000) 000-0000
with copies to: Xxxxxxxx X. Xxxxx, Esq.
Xxxxxxxxx Xxxxx Xxxxxxx & Xxxxx
660 Xxxxxxx Xxxxx, Xxxxxxxxxx 00000
Telephone Number: (000)000-0000
Facsimile Number: (000) 000-0000
If to any Purchaser: At the address of such Purchaser set
forth on Exhibit A to this
Agreement, with copies to
Purchaser's counsel as set forth on
Exhibit A or as specified in writing
by such Purchaser with copies to:
Xxxxxxxxxxx X. Xxxxxxx, Esq.
Xxxxxx Xxxxxx Flattau & Klimpl, LLP
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telephone Number: (000) 000-0000
Fax: (000) 000-0000
Any party hereto may from time to time change its address for notices by
giving at least ten (10) days written notice of such changed address to the
other party hereto.
Section 9.5 WAIVERS. No waiver by either party of any default
with respect to any provision, condition or requirement of this Agreement
shall be deemed to be a continuing waiver in the future or a waiver of any
other provisions, condition or requirement hereof, nor shall any delay or
omission of any party to exercise any right hereunder in any manner impair
the exercise of any such right accruing to it thereafter.
Section 9.6 HEADINGS. The article, section and subsection
headings in this Agreement are for convenience only and shall not constitute
a part of this Agreement for any other purpose and shall not be deemed to
limit or affect any of the provisions hereof.
Section 9.7 SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon and inure to the benefit of the parties and their successors and
assigns. After any Closing, the assignment by a party to this Agreement of
any rights hereunder shall not affect the obligations of such party under
this Agreement.
32
Section 9.8 NO THIRD PARTY BENEFICIARIES. This Agreement is
intended for the benefit of the parties hereto and their respective permitted
successors and assigns and is not for the benefit of, nor may any provision
hereof be enforced by, any other person.
Section 9.9 GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the internal laws of the State of New York,
without giving effect to the choice of law provisions.
Section 9.10 SURVIVAL. The representations and warranties of the
Company and the Purchasers contained in Sections 2.1(o) and (s) should
survive indefinitely and those contained in Article II, with the exception of
Sections 2.1(o) and (s), shall survive the execution and delivery hereof and
the Closings until the date two years from the Final Closing Date, and the
agreements and covenants set forth in Articles I, III, V, VII, VIII and IX of
this Agreement shall survive the execution and delivery hereof and the
Closings hereunder until the Purchasers in the aggregate beneficially own
(determined in accordance with Rule 13d-3 under the Exchange Act) less than
2% of the total combined voting power of all voting securities then
outstanding, provided, that Sections 3.1, 3.2, 3.4, 3.5, 3.7, 3.8, 3.9, 3.10,
3.11 and 3.12 shall not expire until the Registration Statement required by
Section 2 of the Registration Rights Agreement is no longer required to be
effective under the terms and conditions of Registration Rights Agreement.
Section 9.11 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and
the same instrument and shall become effective when counterparts have been
signed by each party and delivered to the other parties hereto, it being
understood that all parties need not sign the same counterpart. In the event
any signature is delivered by facsimile transmission, the party using such
means of delivery shall cause four additional executed signature pages to be
physically delivered to the other parties within five days of the execution
and delivery hereof.
Section 9.12 PUBLICITY. The Company agrees that it will not
disclose, and will not include in any public announcement, the name of the
Purchasers, unless and until such disclosure is required by law or applicable
regulation, and then only to the extent of such requirement.
Section 9.13 SEVERABILITY. The provisions of this Agreement, the
Certificate of Designations and the Registration Rights Agreement are
severable and, in the event that any court of competent jurisdiction shall
determine that any one or more of the provisions or part of the provisions
contained in this Agreement, the Certificate of Designations or the
Registration Rights Agreement shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision or part of a provision
of this Agreement, the Certificate of Designations or the Registration Rights
Agreement shall be reformed and construed as if such invalid or illegal or
unenforceable
33
provision, or part of such provision, had never been contained herein, so
that such provisions would be valid, legal and enforceable to the maximum
extent possible.
Section 9.14 FURTHER ASSURANCES. From and after the date of this
Agreement, upon the request of any Purchaser or the Company, each of the
Company and the Purchasers shall execute and deliver such instrument,
documents and other writings as may be reasonably necessary or desirable to
confirm and carry out and to effectuate fully the intent and purposes of this
Agreement, the Preferred Shares, the Conversion Shares, the Warrants, the
Warrant Shares, the Certificate Designations, and the Registration Rights
Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
34
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officer as of the date first
above written.
ESYNCH CORPORATION
By: /s/ XXXXXX XXXXXXXXX
------------------------------
Name: Xxxxxx Xxxxxxxxx
Title: Chief Executive Officer
LIGHTLINE LIMITED
By: /s/ XXXXX XXXXX
------------------------------
Name: Xxxxx Xxxxx
Title: Attorney-in-Fact
ROSEWORTH GROUP LIMITED
By: /s/ XXXX XXXXXXX
------------------------------
Name: Xxxx Xxxxxxx
Title Director
TONGA PARTNERS, L.P.
By: /s/ J. XXXXX XXXXXXX
------------------------------
Name: J. Xxxxx Xxxxxxx
Title: General Partner
35
DANDEE LTD.
By: /s/ X.X. XXXXXXXX
------------------------------
Name: X.X. Xxxxxxxx
Title: Secretary
ACQUA WELLINGTON SMALL CAP
VALUE FUND, LTD.
By: /s/ XXXXXXX X.X. XXXXX XXXXXX
-------------------------------
Name: Xxxxxxx X.X. Xxxxx Xxxxxx
Title: Director
36
EXHIBIT A TO THE
SERIES K CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
FOR ESYNCH CORP.
NAMES AND ADDRESS NUMBER OF PREFERRED SHARES DOLLAR AMOUNT
OF PURCHASERS & WARRANTS PURCHASED OF INVESTMENT
----------------------------- -------------------------- -------------
Lightline Limited Preferred Shares 30 $300,000
X.X. Xxx 000 Warrants: 22,500
Road Town, Tortola
British Virgin Islands
Tel. No.:
Fax No.: 000-0000-000-0000
Attn: Xxxxx Xxxxx
Roseworth Group Limited Preferred Shares: 30 $300,000
Curzon Capital Corp. Warrants: 22,500
c/o Wertminster Securities
000 Xxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Tel. No.: 000-000-0000
Fax No. 000-000-0000
Attn: Xxxxxx Xxxxxx
Tonga Partners, L.P. Preferred Shares: 30 $300,000
000 Xxxxxxxxxx Xxxxxx, 14th Floor Warrants: 22,500
Xxx Xxxxxxxxx, XX. 00000
Tel. No.: 000-000-0000
Fax No.: 000-000-0000
Attn: J. Xxxxx Xxxxxxx
Dandee Ltd. Preferred Shares: 60 $600,000
Gretton Secretarial Warrants: 45,000
Services Ltd.
Attn: Director
Acqua Wellington Small Cap Preferred Shares: 50 $500,000
Value Fund, Ltd. Warrants: 37,500
c/o MeesPierson Fund Services
(Bahamas) Ltd.
Xxxxxxxx Xxxxxxxx Centre
Xxxx Xxx Xxxxxx, X.X. Xxx XX-0000
37
Nassau, Bahamas
Tel. No.:
Fax No.:
Attn: Xxxxxxx X.X. Xxxxx Xxxxxx
38
