SERIES M CONVERTIBLE PREFERRED STOCK PURCHASE
AGREEMENT
DATED AS OF JANUARY 18, 2001
AMONG
ESYNCH CORPORATION
AND
THE PURCHASERS LISTED ON EXHIBIT A
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TABLE OF CONTENTS
PAGE
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ARTICLE I Purchase and Sale of Preferred Stock....................................................................1
Section 1.1 Purchase and Sale of Stock.............................................................1
Section 1.2 The Conversion Shares..................................................................1
Section 1.3 Purchase Price and Closing.............................................................2
Section 1.4 Escrow.................................................................................2
Section 1.5 Exchange of Series L Preferred Stock...................................................2
Section 1.6 Warrants...............................................................................2
ARTICLE II Representations and Warranties.........................................................................3
Section 2.1 Representations and Warranties of the Company..........................................3
Section 2.2 Representations and Warranties of the Purchasers......................................13
ARTICLE III Covenants............................................................................................15
Section 3.1 Securities Compliance.................................................................15
Section 3.2 Registration and Listing..............................................................15
Section 3.3 Inspection Rights.....................................................................15
Section 3.4 Compliance with Laws..................................................................16
Section 3.5 Keeping of Records and Books of Account...............................................16
Section 3.6 Reporting Requirements................................................................16
Section 3.7 Section 3.7 Amendments...............................................................16
Section 3.8 Other Agreements......................................................................16
Section 3.9 Distributions.........................................................................17
Section 3.10 Status of Dividends...................................................................17
Section 3.11 Regulation S..........................................................................18
Section 3.12 Right of First Refusal; Future Financings.............................................18
Section 3.13 Reservation of Shares.................................................................19
Section 3.14 Transfer Agent Instructions...........................................................19
ARTICLE IV Conditions............................................................................................20
Section 4.1 Conditions Precedent to the Obligation of the Company to Sell the
Shares................................................................................20
Section 4.2 Conditions Precedent to the Obligation of the Purchasers to Purchase
the Shares............................................................................20
ARTICLE V Intentionally Omitted..................................................................................23
ARTICLE VI Stock Certificate Legend..............................................................................23
Section 6.1 Legend................................................................................23
ARTICLE VII Intentionally Omitted................................................................................24
ARTICLE VIII Indemnification.....................................................................................24
Section 8.1 General Indemnity.....................................................................24
Section 8.2 Indemnification Procedure.............................................................24
ARTICLE IX Miscellaneous.........................................................................................25
Section 9.1 Fees and Expenses.....................................................................25
Section 9.2 Specific Enforcement, Consent to Jurisdiction.........................................25
Section 9.3 Entire Agreement; Amendment...........................................................26
Section 9.4 Notices...............................................................................26
Section 9.5 Waivers...............................................................................27
Section 9.6 Headings..............................................................................27
Section 9.7 Successors and Assigns................................................................27
Section 9.8 No Third Party Beneficiaries..........................................................28
Section 9.9 Governing Law.........................................................................28
Section 9.10 Survival..............................................................................28
Section 9.11 Counterparts..........................................................................28
Section 9.12 Publicity.............................................................................28
Section 9.13 Severability..........................................................................28
Section 9.14 Further Assurances....................................................................29
SERIES M CONVERTIBLE PREFERRED STOCK PURCHASE
AGREEMENT
This SERIES M CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (the
"Agreement") is dated as of January 18, 2001 by and among eSynch Corporation, a
Delaware corporation (the "Company"), and each of the Purchasers of shares of
Series M 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 M 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 $1,800,000, with
$1,600,000 to be paid with shares of Series L Convertible Preferred Stock, par
value $.001 per share (the "Series L Preferred Shares") and $200,000 to be paid
in cash. The designation, rights, preferences and other terms and provisions of
the Series M Convertible Preferred Stock are set forth in the Certificate of
Designation of the Relative Rights and Preferences of the Series M Convertible
Preferred Stock attached hereto as Exhibit C (the "Certificate of Designation").
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"
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 (for each such purchaser, the "Purchaser Price"
and collectively referred to as the "Purchase Prices"). The Company acknowledges
and agrees that the Purchase Price for the pro rata portion of the Preferred
Shares and Warrants of Aspen International, Ltd. ("Aspen") and Angos Property
LTD. ("Angos") will be paid to the Company with the Series L Preferred Shares.
The closing of the purchase and sale of the Preferred Shares and Warrants to be
acquired by the Purchasers from the Company under this Agreement shall take
place at the offices of Jenkens & Xxxxxxxxx Xxxxxx Xxxxxx LLP, The Chrysler
Building, 000 Xxxxxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000 (the "Closing") at
10:00 a.m. Pacific Time on (i) January 23, 2001, the date on which the last to
be fulfilled or waived of the conditions set forth in Article IV hereof and
applicable to the Closing shall be fulfilled or waived in accordance herewith or
(ii) at such other time and place or on such date as the Purchasers and the
Company may agree upon (the "Closing Date").
Section 1.4 ESCROW. On or before the 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 and Warrants set forth opposite
each Purchaser's name under the heading "Number of Preferred Shares and Warrants
to be Purchased" on Exhibit A hereto, registered in such Purchaser's name (or
its nominee) and prior to the 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 or surrender to the Escrow Agent such securities
as defined in Section 1.5. 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 the Closing.
Section 1.5 EXCHANGE OF SERIES L PREFERRED STOCK. Prior to or
at the Closing, Aspen and Angos shall surrender to the Escrow Agent stock
certificates representing shares of the Series L Preferred Stock and the
Warrants issued therewith. Upon the Closing, Aspen and Angos shall receive in
exchange for the surrender of the Series L Preferred Shares and the Warrants
issued in connection therewith, stock certificates representing their pro rata
portion of the Preferred Shares and the Warrants. The accrued dividends to date
on the Series L Preferred Shares shall be converted into Preferred Shares to be
issued to Aspen, Angos and Intercoastal Financial Services Corp. Any portion of
the dividends not converted shall continue to accrue interest at a rate of 8%
from the Closing Date until such time as the dividends are paid. SCHEDULE 1.5
sets forth the amount of accrued dividends to date, the number of Preferred
Shares to be issued upon conversion and the portion of the dividends that shall
continue to accrue.
Section 1.6 WARRANTS. The Company agrees to issue to each of
the Purchasers Warrants to purchase the number of shares of Common Stock set
forth opposite such Purchaser's name on Exhibit A hereto, such number determined
as follows: one (1) share of Common Stock per two dollars ($2.00) of such
Purchaser's Purchase Price. The Warrants shall have an exercise
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price equal to the Warrant Price (as defined in the Warrants) and shall
expire on the fifth (5th) anniversary of the date of issuance. The Warrants
shall provide for a cashless exercise until the Effectiveness Date of the
Registration Statement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1 REPRESENTATIONS 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, 1999,
including the accompanying financial statements (the "Form 10-KSB"), or in the
Company's Form 10-QSB for the fiscal quarters ended June 30, 2000 or September
30, 2000 (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 (as
defined in Section 2.1(e) hereof) 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
Registration Rights Agreement attached hereto as Exhibit E (the "Registration
Rights Agreement"), the Escrow Agreement, the Transfer Agent Instructions (as
defined in Section 3.14), the Certificate of Designation, and the Warrants
(collectively, the "Transaction Documents") and to issue and sell the Shares and
the Warrants in accordance with the terms hereof. The execution, delivery and
performance of the Transaction Documents and the Certificate of Designation 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 other Transaction Documents will have been duly
executed and delivered by the Company at the 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.
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(c) CAPITALIZATION. The authorized capital stock of the
Company and the shares thereof currently issued and outstanding as of December
29, 2000 are set forth on SCHEDULE 2.1(c) hereto. All of the outstanding shares
of the Company's Common Stock and Series M 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
for the periods ending June 30, 2000 and September 30, 2000, Form 8-K dated
February 15, 2000 and December 18, 2000 (the "Form 8-K"), Form S-3 dated
December 15, 2000 (the "Form S-3") 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, Form S-3 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, Form
8-K, Form S-3 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 the Closing complied with all applicable Federal and
state securities laws, and no stockholder has a right of rescission or claim for
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 Restated Certificate of Incorporation
as in effect on the date hereof (the "Certificate"), and the Company's Bylaws as
in effect on the date hereof (the "Bylaws").
(d) ISSUANCE OF SHARES. The Preferred Shares and the Warrants
to be issued at the Closing have been duly authorized by all necessary corporate
action and the Preferred Shares, when paid for or issued in accordance with the
terms hereof, shall be validly issued and outstanding, fully paid and
nonassessable and entitled to the rights and preferences set forth in the
Certificate of Designation. 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 Designation 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.
(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 Designation and the consummation by the Company of the
transactions contemplated herein and therein do not and
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will not (i) violate any provision of the Company's Certificate 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 or by
which it or its properties or assets are bound, (iii) create or impose a
lien, mortgage, security interest, charge or encumbrance of any nature 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 clauses (i)
and (iv) above, for such conflicts, defaults, terminations, amendments,
accelerations, 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 Designation, or issue and
sell the Preferred Shares, the Warrants, 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 the Closing, any
registration statement which may be filed pursuant hereto, and the
Certificate of Designation); 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, Form S-3 or on SCHEDULE
2.1(f) hereto, since July 1, 1999, 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 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, 1999. 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
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respect to the transactions contemplated by this Agreement. As of their
respective dates, the Form 10-KSB and the Form 10-QSB for the fiscal quarters
ended June 30, 2000 and September 30, 2000 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 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, 2000, 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.
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(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, 1999 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, Form
S-3 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.
(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 and clear 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, arbitration, alternate dispute resolution proceeding or any other
proceeding pending or, to the knowledge of the Company, threatened against the
Company or any subsidiary which questions the validity of this Agreement or any
of the other Transaction Documents or the transactions contemplated hereby or
thereby 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, arbitration, alternate
dispute resolution proceeding or any other 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. Except as set forth
in the Form 10-KSB, Form 10-QSB, Form 8-K or SCHEDULE 2.1(m) hereto, there are
no outstanding
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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, 1999 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) of any nature whatsoever,
whether pending or 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 in this Agreement or 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, domain names (whether or
not registered) and any patentable improvements or copyrightable derivative
works thereof, websites and intellectual property rights relating thereto,
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)
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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 after the Closing Date 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
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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, Form S-3, 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-B2 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 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 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 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 the Closing Date that may be required under applicable state
and/or Federal securities laws (which if required, shall be
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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 Designation 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 and the Warrants, or for the performance by the Company of
its obligations under the Transaction Documents or the Certificate of
Designation.
(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, 1999, 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
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, Form S-3 or in SCHEDULE 2.1(z) hereto, since
December 31, 1999, 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;
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(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;
(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 the 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
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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 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 Designation 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
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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 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 or
acquire the Warrants 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 acquiring
the Preferred Shares and the Warrants 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 or the Warrants, nor a present arrangement (whether or not
legally binding) or intention to effect any distribution of the Preferred Shares
or the Warrants 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 Shares or the Warrants for any minimum or
other specific term and reserves the right to dispose of the Shares or the
Warrants 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 the Warrants 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 Purchaser 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 Purchaser will be unable to sell any Shares without
either registration under the Securities Act or the existence of another
exemption from such registration requirement.
(g) 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
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set forth herein in order to determine the applicability of such exemptions
and the suitability of such Purchaser to acquire the Shares.
(h) 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 Warrant 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, the Warrants, the Conversion 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 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
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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
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 forty-five (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 ninety (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 AMENDMENTS. The Company shall not amend or waive
any provision of the Certificate 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
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perform of the Company or any subsidiary under any Transaction Document or
the Certificate of Designation.
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 Designation, it will take
no action which would result in the 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 the 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
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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 90 days from the 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
of 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.
Section 3.12 RIGHT OF FIRST REFUSAL; FUTURE FINANCINGS. (a)
During the period commencing on the Closing Date and ending on the one hundred
twentieth (120th) day after the Effectiveness Date (as defined in the
Registration Rights Agreement), the Company covenants and agrees that it will
not, without the prior written consent of the Purchasers, enter into any
subsequent offer or sale to, or exchange with (or other type of distribution
to), any third party (a "Subsequent Financing"), of Common Stock or any
securities convertible, exercisable or exchangeable into Common Stock, including
debt securities (collectively, the "Financing Securities") other than a
Permitted Financing (as defined hereinafter). For purposes of this Agreement,
"Permitted Financing" shall mean any transaction involving the Company's (i)
issuance of any Financing Securities (other than for cash) in connection with a
merger and/or acquisition, consolidation, sale or disposition of all or
substantially all of the Company's assets, (ii) exchange of capital stock for
assets, (iii) public underwritten offering at market of at least $10,000,000,
(iv) issuance of Common Stock or the issuance of options to purchase Common
Stock as such is related to any employee stock ownership plan, or (vi) any
transaction where the first use of proceeds from such transaction would be used
to redeem all of the Preferred Shares in accordance with Section 8(h) of the
Certificate of Designation.
(b) During the period commencing on the Closing Date and
ending on the second (2nd) anniversary of the Effectiveness Date, the Company
covenants and agrees to promptly notify (in no event later than five (5) days
after making or receiving an applicable offer) in writing (a "Rights Notice")
the Purchasers of the terms and conditions of any proposed Subsequent Financing.
The Rights Notice shall describe, in reasonable detail, the proposed Subsequent
Financing, the proposed closing date of the Subsequent Financing, which shall be
within thirty (30) calendar days from the date of the Rights Notice, including,
without limitation, all of the terms and conditions thereof. The Rights Notice
shall provide the Purchasers an option (the "Rights Option") during the thirty
(30) calendar day period following delivery of the Rights Notice (the "Option
Period") to purchase such amount as the Company and the Purchasers may agree to
up to such Purchaser's pro rata portion of the Purchase Price, of the securities
being offered in such Subsequent Financing on the same, absolute terms and
conditions as
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contemplated by such Subsequent Financing (the "First Refusal Rights").
Delivery of any Rights Notice constitutes a representation and warranty by
the Company that there are no other material terms and conditions,
arrangements, agreements or otherwise except for those disclosed in the
Rights Notice, to provide additional compensation to any party participating
in any proposed Subsequent Financing, including, but not limited to,
additional compensation based on changes in the Purchase Price or any type of
reset or adjustment of a purchase or conversion price or to issue additional
securities at any time after the closing date of a Subsequent Financing. If
the Company does not receive notice of exercise of the Rights Option from the
Purchasers within the Option Period, the Company shall have the right to
close the Subsequent Financing on the scheduled closing date with a third
party; PROVIDED that all of the terms and conditions of the closing are the
same as those provided to the Purchasers in the Rights Notice. If the closing
of the proposed Subsequent Financing does not occur on that date, any closing
of the contemplated Subsequent Financing or any other Subsequent Financing
shall be subject to all of the provisions of this Section 3.12, including,
without limitation, the delivery of a new Rights Notice.
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 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 that 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
-19-
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 the 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 the
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 the 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 governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement.
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 the 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 the 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.
-20-
(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 the Closing.
(c) NO SUSPENSION, ETC. From the date hereof to the 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 the Closing), and,
at any time prior to the 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.
(d) 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.
(e) 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.
(f) CERTIFICATE OF DESIGNATION OF RIGHTS AND PREFERENCES.
Prior to the Closing, the Certificate of Designation in the form of Exhibit C
attached hereto shall have been filed with the Secretary of State of Delaware.
(g) OPINION OF COUNSEL, ETC. At the Closing, the Purchasers
shall have received an opinion of counsel to the Company, dated the date of the
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
the Closing.
(h) REGISTRATION RIGHTS AGREEMENT. At the Closing, the Company
shall have executed and delivered the Registration Rights Agreement to each
Purchaser.
(i) 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 the Closing.
-21-
(j) 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").
(k) RESERVATION OF SHARES. As of the 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 the Closing Date and the number of Warrant
Shares issuable upon exercise of the number of Warrants assuming such Warrants
were granted on the Closing Date (after giving effect to the Preferred Shares
and the Warrants to be issued on the Closing Date and assuming all such
Preferred Shares and Warrants were fully convertible or exercisable on such date
regardless of any limitation on the timing or amount of such conversions or
exercises).
(l) 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.
(m) SECRETARY'S CERTIFICATE. The Company shall have delivered
to such Purchaser a secretary's certificate, dated as of the Closing Date, as to
(i) the Resolutions, (ii) the Certificate, (iii) the Bylaws, (iv) the
Certificate of Designation, each as in effect at the 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.
(n) ESCROW AGREEMENT. At the Closing, the Company shall have
executed and delivered the Escrow Agreement to each Purchaser.
(o) OFFICER'S CERTIFICATE. The Company shall have delivered to
the Purchasers a certificate of an executive officer of the Company, dated as of
the Closing Date, confirming the accuracy of the Company's representations,
warranties and covenants as of the Closing Date and confirming the compliance by
the Company with the conditions precedent set forth in this Section 4.2 as of
the Closing Date.
(p) SURRENDER OF SERIES L PREFERRED STOCK. Prior to or at the
Closing, all of the certificates representing the Series L Preferred Shares and
the warrants issued in connection therewith shall have been delivered to the
Escrow Agent.
(q) RELEASE. At or prior to the Closing, the Company shall
have executed and delivered the Release Agreement in the form of Exhibit F
attached hereto.
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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):
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 THE SECURITIES ACT AND
UNDER APPLICABLE STATE SECURITIES LAWS OR ESYNCH CORP. SHALL
HAVE RECEIVED AN OPINION OF ITS COUNSEL THAT REGISTRATION OF
SUCH SECURITIES UNDER THE SECURITIES 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
-23-
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
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 attorneys' 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
-24-
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.
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
Designation, 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 actual attorneys' fees and expenses (exclusive of disbursements and
out-of-pocket expenses) incurred by the Purchasers up to $20,000 in connection
with the preparation, negotiation, execution and delivery of this Agreement, the
Registration Rights Agreement and the transactions contemplated thereunder. In
addition, the Company shall pay all reasonable fees and expenses incurred by the
Purchasers in connection with the filing and declaration of effectiveness by the
Commission of the Registration Statement (as defined in the Registration Rights
Agreement) 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, the Certificate of Designation or the Registration Rights Agreement
were not performed in accordance with their
-25-
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 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 and the courts of the State of New
York located in New York county for the purposes of any suit, action or
proceeding arising out of or relating to this Agreement or any of the other
Transaction Documents or the transactions contemplated hereby or thereby 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 Designation, neither the Company nor
any of the Purchasers makes any representations, warranty, covenant or
undertaking with respect to such matters and they supersede all prior
understandings and agreements with respect to said subject matter, all of which
are merged herein. 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
Designation 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:
-26-
If to the Company: Xxxxxx Xxxxxxxxx, CEO
eSynch Corporation
00000 Xxxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxx 00000
Telephone Number: (000) 000-0000
Facsimile Number: (000) 000-0000
with copies to: Xxxxxxxx X. Xxxxx, Esq.
Yocca Patch & Yocca LLP
00000 XxxXxxxxx Xxxx., Xxxxx 000
Xxxxxx, 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.
Jenkens & Xxxxxxxxx Xxxxxx Xxxxxx LLP
The Chrysler Building
000 Xxxxxxxxx Xxxxxx
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 the Closing, the assignment by a party to this Agreement of any
rights hereunder shall not affect the obligations of such party under this
Agreement.
-27-
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. This Agreement shall not
interpreted or construed with any presumption against the party causing this
Agreement to be drafted.
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
Closing until the date three (3) years from the Closing Date, and the agreements
and covenants set forth in Articles I, III, V, VIII and IX of this Agreement
shall survive the execution and delivery hereof and the Closing 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, 3.12, 3.13 and 3.14 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 without the consent 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 Designation 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 Designation 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 Designation or the Registration Rights Agreement shall be
reformed and construed as if such invalid or illegal or unenforceable 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.
-28-
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 of Designation, and the Registration Rights Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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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:
----------------------------------
Name:
Title:
ANGOS PROPERTY LTD.
By:
----------------------------------
Name
Title:
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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:
----------------------------------
Name:
Title:
ASPEN INTERNATIONAL, LTD.
By:
----------------------------------
Name:
Title
-31-
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:
----------------------------------
Name:
Title:
XXXXXXXXXXX LIMITED PARTNERSHIP
By:
----------------------------------
Name:
Title
-32-
EXHIBIT A TO THE
SERIES M CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
FOR ESYNCH CORP.
NAMES AND ADDRESS NUMBER OF PREFERRED SHARES DOLLAR AMOUNT
OF PURCHASERS & WARRANTS PURCHASED OF INVESTMENT
------------- ----------------------- --------------
Angos Property LTD. Preferred Shares: 60 $600,000
00 Xxxx Xxxxxx Warrants: 300,000
X.X.Xxx 00
Xxxxx Xxxxx
Turks & Caicos, BWI
Facsimile no.:
Attention:
Aspen International, Ltd. Preferred Shares: 100 $1,000,000
Charlotte House Warrants: 500,000
Charlotte Street
Nassau, Bahamas
Tel. no.: 000-000-0000
Fax no.: 000-000-0000
Attn: Xxxxxxx X.X. Xxxxx Xxxxxx
Xxxxxxxxxxx Limited Partnership Preferred Shares: 20 $200,000
c/o Cannaccord Capital Warrants: 100,000
000 Xxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxx X0X 0X0
Xxxxxx
Attn:
-33-
EXHIBIT B TO THE
SERIES M CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
ESYNCH CORP.
FORM OF WARRANT
-34-
EXHIBIT C TO THE
SERIES M CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
ESYNCH CORP.
FORM OF CERTIFICATE OF DESIGNATION
-35-
EXHIBIT D TO THE
SERIES M CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
ESYNCH CORP.
FORM OF ESCROW AGREEMENT
-36-
EXHIBIT E TO THE
SERIES M CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
ESYNCH CORP.
FORM OF REGISTRATION RIGHTS AGREEMENT
-37-
EXHIBIT F TO THE
SERIES M CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
ESYNCH CORP.
FORM OF RELEASE AGREEMENT
-38-
SCHEDULE 1.5
NAMES AND ADDRESS OF DOLLAR AMOUNT OF PREFERRED SHARES TO BE DOLLAR AMOUNT OF
SERIES L SHAREHOLDERS DIVIDENDS PAYABLE ISSUED FOR DIVIDENDS PAYABLE DEFERRED DIVIDEND
--------------------------- ----------------- ---------------------------- -----------------
Angos Property Ltd. $9,205 0.9 $205
00 Xxxx Xxxxxx
P.O. Box 55
Grand Turks
Turks & Caicos, BWI
Facsimile no.:
Attention:
Aspen International, Ltd. $15,432 1.5 $342
Xxxxxxxxx Xxxxx
Xxxxxxxxx Xxxxxx
Nassau, Bahamas
Xxx.xx.: 000-000-0000
Fax no.: 000-000-0000
Attn: Xxxxxxx X.X.
Xxxxx Xxxxxx
Intercoastal Financial Services
Corp. $1,227 0.1 $227
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Tel. no.:
Fax no.:
Attn:
-39-
-40-
