SERIES J CONVERTIBLE PREFERRED STOCK PURCHASE
AGREEMENT
Dated as of July 22, 1999
among
ESYNCH CORPORATION
and
THE PURCHASERS LISTED ON EXHIBIT A
TABLE OF CONTENTS
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 Warrants 2
ARTICLE II Representations and Warranties 3
Section 2.1 Representation and Warranties of the Company 3
(a) Organization, Good Standing and Power 3
(b) Authorization; Enforcement 3
(c) Capitalization 4
(d) Issuance of Shares 4
(e) No Conflicts 4
(f) Commission Documents, Financial Statements 5
(g) Subsidiaries 6
(h) No Material Adverse Change 6
(i) No Undisclosed Liabilities 6
(j) No Undisclosed Events or Circumstances 7
(k) Indebtedness 7
(1) Title to Assets 7
(m) Actions Pending 7
(n) Compliance with Law 7
(o) Taxes 8
(p) Certain Fees 8
(q) Disclosure 8
(r) Operation of Business 8
(s) Environmental Compliance 8
(t) Books and Record Internal Accounting Controls 9
(u) Material Agreements 9
(v) Transactions with Affiliates 10
(w) Securities Act of 1933 10
(x) Governmental Approvals 10
(y) Employees 10
(z) Absence of Certain Developments 11
(aa) Use of Proceeds 12
(ab) Public Utility Holding Company Act and Investment
Company Act Status 00
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(xx) XXXXX 00
(xx) Dilutive Effect 13
Section 2.2 Representations and Warranties of the Purchasers 13
(a) Organization and Standing of the Purchasers 13
(b) Authorization and Power 13
(c) No Conflicts 13
(d) Acquisition for Investment 14
(e) Accredited Purchasers 14
(f) Rule 144 14
(g) Conversion Restrictions 14
(h) General 15
(i) Residence 15
ARTICLE III Covenants 15
Section 3.1 Securities Compliance 15
Section 3.2 Registration and Listing 15
Section 3.3 Inspection Rights 16
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 Amendments 17
Section 3.8 Other Agreements 17
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 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
(a) Accuracy of Each Purchaser's Representations
and Warranties 20
(b) Performance by the Purchasers 20
(c) No Injunction 20
Section 4.2 Conditions Precedent to the Obligation of the
Purchasers to Purchase the Shares 20
(a) Accuracy of the Company's Representations and
Warranties 20
(b) Performance by the Company 21
(c) Minimum Purchase 21
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(d) No Suspension, Etc 21
(e) No Injunction 21
(f) No Proceedings or Litigation 21
(g) Certificate of Designations of Rights and Preferences 21
(h) Opinion of Counsel, Etc. 21
(i) Registration Rights Agreement 21
(j) Preferred Stock Certificates 22
(k) Resolutions 22
(l) Reservation of Shares 22
(m) Transfer Agent Instructions 22
(n) Secretary's Certificate 22
ARTICLE V Registration Rights 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
Miscellaneous 25
Section 9.1 Fees and Expenses 25
Section 9.2 Specific Enforcement, Consent to Jurisdiction 26
Section 9.3 Entire Agreement; Amendment 26
Section 9.4 Notices 27
Section 9.5 Waivers 28
Section 9.6 Headings 28
Section 9.7 Successors and Assigns 28
Section 9.8 No Third Party Beneficiaries 28
Section 9.9 Governing Law 28
Section 9.10 Survival 28
Section 9.11 Counterparts 29
Section 9.12. Publicity 29
Section 9.13 Severability 29
Section 9.14 Further Assurances 29
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SERIES J CONVERTIBLE PREFERRED STOCK PURCHASE
AGREEMENT
This SERIES J CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (the
"Agreement") is dated as of July 22, 1999 by and among eSynch Corporation, a
Delaware corporation (the "Company"), and each of the Purchasers of shares of
Series J 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 J Convertible Preferred Stock, par value $001 per share (the
"Preferred Shares"), at a purchase price of $10,000 per share, set forth with
respect to such Purchaser on Exhibit A hereto. Upon the following terms and
conditions, the Purchasers shall be issued Warrants, in substantially the
form attached hereto as Exhibit B (the "Warrants"), to purchase the Company's
Common Stock, par value $.001 per share (the "Common Stock") The aggregate
purchase price for the Preferred Shares and the Warrants shall be $2,500,000
which may be funded in two or more tranches as agreed upon by the Company and
the Purchasers. The designation, rights, preferences and other terms and
provisions of the Series J Convertible Preferred Stock are set forth in the
Certificate of Designation of the Relative Rights and Preferences of the
Series J Convertible Preferred Stock attached hereto as Exhibit C (the
"Certificate of Designations"). The Company and the Purchasers are executing
and delivering this Agreement in accordance with and in reliance upon the
exemption from securities registration afforded by Rule 506 of Regulation D
("Regulation D") as promulgated by the United States Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended
(the "Securities Act") or Section 4(2) of the Securities Act.
Section 1.2 THE CONVERSION SHARES. The Company has authorized and has
reserved and covenants to continue to reserve, free of preemptive rights and
other similar contractual rights of stockholders, a sufficient number of its
authorized but unissued shares of its Common Stock, to effect the conversion
of the Preferred Shares and exercise of the Warrants. Any shares of Common
Stock issuable upon conversion of the Preferred Shares and exercise of the
Warrants (and such shares when issued) are herein referred to as the
"Conversion Shares" and the "Warrant Shares", respectively. The Preferred
Shares, the Conversion Shares and the Warrant Shares are sometimes
collectively referred to as the "Shares".
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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 set forth opposite their respective names on
Exhibit A.
The aggregate purchase price of the Preferred Shares being acquired by
each Purchaser is set forth opposite such Purchaser's name on Exhibit A. The
closing of the purchase and sale of each tranche of Preferred Shares (each, a
"Closing") to be acquired by the Purchasers from the Company under this
Agreement shall take place at the offices of Xxxxxx Xxxxxx Flattau & Klimpl,
LLP at 10:00 a.m. Pacific Time (i) on the date on which the last to be
fulfilled or waived of the conditions set forth in Article IV hereof and
applicable to such Closing shall be fulfilled or waived in accordance
herewith or (ii) such other time and place or on such date as the Purchasers
and the Company may agree upon (each, a "Closing Date"). This Agreement shall
be effective as of the Closing Date of the first tranche of Preferred Shares.
On or before each Closing Date, the Company shall deliver to the escrow agent
(the "Escrow Agent") identified in the Escrow Agreement attached hereto as
Exhibit D (the "Escrow Agreement") the certificates for the number and series
of Preferred Shares set forth opposite each Purchaser's name under the
heading "Number of Preferred Shares to be Purchased" on Exhibit A hereto,
registered in such Purchaser's name (or its nominee) and prior to each
Closing Date each Purchaser shall pay by wire transfer of funds into escrow
the purchase price set forth opposite each such Purchaser's name on Exhibit
A. In addition, each party shall deliver all documents, instruments and
writings required to be delivered by such party pursuant to this Agreement at
or prior to each Closing. This Agreement shall terminate if the Closing of
the first tranche of Preferred Shares (the "Tranche I Closing") has not
occurred by August 31, 1999. The Company's sole obligation upon termination
of this Agreement shall be to pay the Purchasers' attorneys' fees and escrow
fees. The Company acknowledges that (i) the purchase price of Gilston
Corporation, Ltd.'s ("Gilston") pro rata portion of the Preferred Shares and
Warrants was advanced and evidnced by a promissory note issued by the Company
in favor of Gilston for the principal amount of $300,000 and (ii) the
purchase price of Manchester Asset Management, Ltd.'s ("Manchester") pro rata
portion of the Preferred Shares and Warrants was advanced and evidenced by a
promissory note issued by the Company in favor of Manchester for the
principal amount of $250,000 (collectively, the "Promissory Notes"). At the
Tranche I Closing, the Company shall deliver to the Escrow Agent stock
certificates (in such denominations as Gilston and Manchester shall request)
representing the shares of Preferred Stock equal to the total amount of
principal and interest accrued and outstanding under the Promissory Notes on
the date of the Tranche I Closing. Notwithstanding anything to the contrary
set forth in this Agreement, the aggregate number of Preferred Stock to be
sold hereunder shall not exceed two hundred and seventy-fifty (275).
Section 1.4 WARRANTS. The Company agrees to issue to the Purchasers the
Warrants to purchase 75,000 shares of Common Stock per $1,000,000 invested
(or such pro rata amount if more or less than $1,000,000 is purchased). The
Warrants shall have an exercise price equal to the Warrant Price (as defined
in the Warrant) and shall expire on the third anniversary of the issuance
date of such Warrant.
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ARTICLE II
Representations and Warranties
Section 2.1 REPRESENTATION AND WARRANTIES OF THE COMPANY. The Company
hereby makes the following representations and warranties to the Purchasers,
except as set forth in the Company's disclosure schedule delivered with this
Agreement as follows:
(a) ORGANIZATION GOOD STANDING AND POWER. The Company is a
corporation duly incorporated, validly existing and in good standing under
the laws of the State of Delaware and has the requisite corporate power to
own, lease and operate its properties and assets and to conduct its business
as it is now being conducted. The Company does not have any subsidiaries
except as set forth in the Company's Form 10-KSB for the year ended December
31, 1998, including the accompanying financial statements (the "Form
10-KSB"), or in the Company's Form 10-QSB for the fiscal quarters ended March
31, 1999, September 30, 1998 or June 30, 1998 (collectively, the "Form
10-QSB"), or on SCHEDULE 2. 1(g) hereto. The Company and each such subsidiary
is duly qualified as a foreign corporation to do business and is in good
standing in every jurisdiction in which the nature of the business conducted
or property owned by it makes such qualification necessary except for any
jurisdiction(s) (alone or in the aggregate) in which the failure to be so
qualified will not have a material adverse effect on the Company's financial
condition.
(b) AUTHORIZATION; ENFORCEMENT. The Company has the requisite
corporate power and authority to enter into and perform this Agreement, the
Escrow Agreement, the Transfer Agent Instructions (as defined in Section
3.14), Registration Rights Agreement attached hereto as Exhibit E (the
"Registration Rights Agreement") and the Warrants (collectively, the
"Transaction Documents") and to issue and sell the Shares in accordance with
the terms hereof, the Certificate of Designations and the Warrants. The
execution, delivery and performance of the Transaction Documents and the
Certificate of Designations by the Company and the consummation by it of the
transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action, and no further consent or
authorization of the Company or its Board of Directors or stockholders is
required. This Agreement has been duly executed and delivered by the Company.
The Registration Rights Agreement will have been duly executed and delivered
by the Company at the Tranche I Closing. Each of the Transaction Documents
constitutes, or shall constitute when executed and delivered, a valid and
binding obligation of the Company enforceable against the Company in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation,
conservatorship, receivership or similar laws relating to, or affecting
generally the enforcement of, creditor's rights and remedies or by other
equitable principles of general application.
(c) CAPITALIZATION. The authorized capital stock of the Company
and the shares thereof currently issued and outstanding as of July 22, 1999
are set forth on SCHEDULE 2. 1(c) hereto. All of the outstanding shares of
the Company's Common Stock and Series I Convertible Preferred
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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
l0-KSB, Form 10-QSB, Form 8-K for the period ending April 1, 1999 (the "Form
8-K") or on SCHEDULE 2. 1(c) hereto, no shares of Common Stock or Series I
Convertible Preferred Stock are entitled to preemptive rights or registration
rights and there are no outstanding options, warrants, scrip, rights to
subscribe to, call or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company. Furthermore, except as set forth in this Agreement and the
Registration Rights Agreement and as set forth in the Form 10-KSB, Form
10-QSB, Form 8-K or on SCHEDULE 2.1 (c), there are no contracts, commitments,
understandings, or arrangements by which the Company is or may become bound
to issue additional shares of the capital stock of the Company or options,
securities or rights convertible into shares of capital stock of the Company.
Except for customary transfer restrictions contained in agreements entered
into by the Company in order to sell restricted securities or as provided in
the Form 10-KSB, Form 10-QSB or on SCHEDULE 2.1 (c) hereto, the Company is
not a party to any agreement granting registration or anti-dilution rights to
any person with respect to any of its equity or debt securities. The Company
is not a party to, and it has no knowledge of, any agreement restricting the
voting or transfer of any shares of the capital stock of the Company. Except
as set forth in the Form 10-KSB, Form 10-QSB or on SCHEDULE 2. 1(c) hereto,
the offer and sale of all capital stock, convertible securities, rights,
warrants, or options of the Company issued prior to each Closing complied
with all applicable Federal and state securities laws, and no stockholder has
a right of rescission or damages with respect thereto which would have a
Material Adverse Effect (as defined in Section 2.1(e) herein) on the
Company's financial condition or operating results. The Company has furnished
or made available to the Purchasers true and correct copies of the Company's
Certificate of Incorporation as in effect on the date hereof (the
"Articles"), and the Company's Bylaws as in effect on the date hereof (the
"Bylaws").
(d) ISSUANCE OF SHARES. The Preferred Shares to be issued at
each Closing have been duly authorized by all necessary corporate action and,
when paid for or issued in accordance with the terms hereof, the Preferred
Shares shall be validly issued and outstanding, fully paid and nonassessable
and entitled to the rights and preferences set forth in the Certificate of
Designations. When the Conversion Shares and the Warrant Shares are issued in
accordance with the terms of the Preferred Shares as set forth in the
Certificate of Designations and the Warrants, respectively, such shares will
be duly authorized by all necessary corporate action and validly issued and
outstanding, fully paid and nonassessable, and the holders shall be entitled
to all rights accorded to a holder of Common Stock.
(e) NO CONFLICTS. Except as disclosed in Schedule 2.1(e), the
execution, delivery and performance of the Transaction Documents by the
Company, the performance by the Company of its obligations under the
Certificate of Designations and the consummation by the Company of the
transactions contemplated herein and therein do not (i) violate any provision
of the Company's Articles or Bylaws, (ii) conflict with, or constitute a
default (or an event which with notice or lapse of time or both would become
a default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, mortgage, deed of trust,
indenture, note, bond, license, lease agreement, instrument or obligation to
which the Company is a party, (iii) create
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or impose a lien, charge or encumbrance on any property of the Company under
any agreement or any commitment to which the Company is a party or by which
the Company is bound or by which any of its respective properties or assets
are bound, or (iv) result in a violation of any federal, state, local or
foreign statute, rule, regulation, order, judgment or decree (including
Federal and state securities laws and regulations) applicable to the Company
or any of its subsidiaries or by which any property or asset of the Company
or any of its subsidiaries are bound or affected, except, in all cases other
than violations pursuant to clause (i) above, for such conflicts, defaults,
terminations, amendments, acceleration, cancellations and violations as would
not, individually or in the aggregate, have a Material Adverse Effect. For
the purposes of this Agreement, "Material Adverse Effect" means any adverse
effect on the business, operations, properties, prospects, or financial
condition of the Company or its subsidiaries and which is material to such
entity or other entities controlling or controlled by such entity. The
business of the Company and its subsidiaries is not being conducted in
violation of any laws, ordinances or regulations of any governmental entity,
except for possible violations which singularly or in the aggregate do not
and will not have a Material Adverse Effect. The Company is not required
under Federal, state or local law, rule or regulation to obtain any consent,
authorization or order of, or make any filing or registration with, any court
or governmental agency in order for it to execute, deliver or perform any of
its obligations under the Transaction Documents or the Certificate of
Designations, or issue and sell the Preferred Shares, the Conversion Shares
and the Warrant Shares in accordance with the terms hereof or thereof (other
than any filings which may be required to be made by the Company with the
Commission or state securities administrators subsequent to each Closing, any
registration stateent which may be filed pursuant hereto, and the Certificate
of Designations); provided that, for purposes of the representation made in
this sentence, the Company is assuming and relying upon the accuracy of the
relevant representations and agreements of the Purchasers herein.
(f) COMMISSION DOCUMENTS. FINANCIAL STATEMENTS. The Common Stock of
the Company is registered pursuant to Section 12(b) or 12(g) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, except
as disclosed in the Form 10-KSB, Form 10-QSB, Form 8-K or on Schedule 2.1(f),
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, 1998. The Company has
not provided to the Purchasers any material non-public information or other
information which, according to applicable law, rule or regulation, was
required to have been disclosed publicly by the Company but which has not
been so disclosed, other than with respect to the transactions contemplated
by this Agreement. As of their respective dates, the Form l0-KSB for the year
ended December 31, 1998 and the Form 10-QSB for the fiscal quarter ended
March 31, 1999 complied in all material respects with the requirements of the
Exchange Act and the rules and regulations of the Commission promulgated
thereunder and other federal, state and local laws, rules and regulations
applicable to such documents, and, as of their respective dates, none of the
Form 10-KSB and the Form 10-QSB referred to above contained any
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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 March 31, 1999, the date
through which the most recent quarterly report of the Company on Form 10-QSB
has been prepared and filed with the Commission, a copy of which is included
in the Commission Documents, the Company has not experienced or suffered any
Material Adverse Effect, except as disclosed on SCHEDULE 2.1(h) hereto.
(i) NO UNDISCLOSED LIABILITIES. Except as disclosed in the Form
10-KSB, Form 10-QSB or on SCHEDULE 2.1(i) hereto, neither the Company nor any
of its subsidiaries has any liabilities, obligations, claims or losses
(whether liquidated or unliquidated, secured or unsecured, absolute, accrued,
contingent or otherwise) other than those incurred in the ordinary course of
the Company's or its subsidiaries respective businesses since December 31,
1998 and which, individually
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or in the aggregate, do not or would not have a Material Adverse Effect on
the Company or its subsidiaries.
(j) NO UNDISCLOSED EVENTS OR CIRCUMSTANCES. No event or
circumstance has occurred or exists with respect to the Company or its
subsidiaries or their respective businesses, properties, prospects,
operations or financial condition, which, under applicable law, rule or
regulation, requires public disclosure or announcement by the Company but
which has not been so publicly announced or disclosed.
(k) INDEBTEDNESS. The Form 10-KSB, Form 10-QSB, Form 8-K or
SCHEDULE 2.1(k) hereto sets forth as of the date hereof all outstanding
secured and unsecured Indebtedness of the Company or any subsidiary, or for
which the Company or any subsidiary has commitments. For the purposes of this
Agreement, "Indebtedness" shall mean (a) any liabilities for borrowed money
or amounts owed in excess of $25,000 (other than trade accounts payable
incurred in the ordinary course of business), (b) all guaranties,
endorsements and other contingent obligations in respect of Indebtedness of
others, whether or not the same are or should be reflected in the Company's
balance sheet (or the notes thereto), except guaranties by endorsement of
negotiable instruments for deposit or collection or similar transactions in
the ordinary course of business; and (c) the present value of any lease
payments in excess of $25,000 due under leases required to be capitalized in
accordance with GAAP. Neither the Company nor any subsidiary is in default
with respect to any Indebtedness.
(1) TITLE TO ASSETS. Each of the Company and the subsidiaries has
good and marketable title to all of its real and personal property reflected
in the Commission Documents, free of any mortgages, pledges, charges, liens,
security interests or other encumbrances, except for those indicated in the
Form l0-KSB, Form 10-QSB, Form 8-K or on SCHEDULE 2.1(1) HERETO or such that,
individually or in the aggregate, do not cause a Material Adverse Effect on
the Company's financial condition or operating results. All said leases of
the Company and each of its subsidiaries are valid and subsisting and in full
force and effect.
(m) ACTIONS PENDING. There is no action, suit, claim, investigation
or proceeding pending or, to the knowledge of the Company, threatened against
the Company or any subsidiary which questions the validity of this Agreement
or the transactions contemplated hereby or any action taken or to be taken
pursuant hereto or thereto. Except as set forth in the Form 10-KSB, Form
10-QSB, Form 8-K or on SCHEDULE 2.1(m) hereto, there is no action, suit,
claim, investigation or proceeding pending or, to the knowledge of the
Company, threatened, against or involving the Company, any subsidiary or any
of their respective properties or assets. There are no outstanding orders,
judgments, injunctions, awards or decrees of any court, arbitrator or
governmental or regulatory body against the Company or any subsidiary or any
officers or directors of the Company or subsidiary in their capacities as
such.
(n) COMPLIANCE WITH LAW. The business of the Company and the
subsidiaries has been and is presently being conducted in accordance with all
applicable federal, state and local governmental laws, rules, regulations and
ordinances, except as set forth in the Form 10-KSB, Form
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10-QSB or on SCHEDULE 2.1(n) 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), the Company and each of the subsidiaries has accurately
prepared and filed all federal, state and other tax returns required by law
to be filed by it, has paid or made provisions for the payment of all taxes
shown to be due and all additional assessments, and adequate provisions have
been and are reflected in the financial statements of the Company and the
subsidiaries for all current taxes and other charges to which the Company or
any subsidiary is subject and which are not currently due and payable. None
of the federal income tax returns of the Company or any subsidiary for the
years subsequent to December 31, 1998 have been audited by the Internal
Revenue Service. The Company has no knowledge of any additional assessments,
adjustments or contingent tax liability (whether federal or state) pending or
threatened against the Company or any subsidiary for any period, nor of any
basis for any such assessment, adjustment or contingency.
(p) CERTAIN FEES. Except as set forth on SCHEDULE 2.1(p) hereto,
no brokers, finders or financial advisory fees or commissions will be payable
by the Company or any subsidiary or any Purchaser with respect to the
transactions contemplated by this Agreement.
(q) DISCLOSURE. To the best of the Company's knowledge, neither
this Agreement or the Schedules hereto nor any other documents, certificates
or instruments furnished to the Purchasers by or on behalf of the Company or
any subsidiary in connection with the transactions contemplated by this
Agreement contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements made herein or
therein, in the light of the circumstances under which they were made herein
or therein, not misleading.
(r) OPERATION OF BUSINESS. The Company and each of the
subsidiaries owns or possesses all patents, trademarks, service marks, trade
names, copyrights, licenses and authorizations as set forth in the Form
l0-KSB, Form 10-QSB, Form 8-K and on SCHEDULE 2.1(r) hereto, and all rights
with respect to the foregoing, which are necessary for the conduct of its
business as now conducted without any conflict with the rights of others.
(s) ENVIRONMENTAL COMPLIANCE. The Company and each of its
subsidiaries have obtained all material approvals, authorization,
certificates, consents, licenses, orders and permits or other similar
authorizations of all governmental authorities, or from any other person,
that are required under any Environmental Laws. The Form 10-KSB or Form
10-QSB hereto sets forth all material permits, licenses and other
authorizations issued under any Environmental Laws to the Company or its
subsidiaries. "Environmental Laws" shall mean all applicable laws relating to
the protection of the environment including, without limitation, all
requirements pertaining to reporting,
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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 each Closing or that may
give rise to any environmental liability, or otherwise form the basis of any
claim, action, demand, suit, proceeding, hearing, study or investigation (i)
under any Environmental Law, or (ii) based on or related to the manufacture,
processing, distribution, use, treatment, storage (including without limitation
underground storage tanks), disposal, transport or handling, or the emission,
discharge, release or threatened release of any hazardous substance.
"Environmental Liabilities" means all liabilities of a person (whether such
liabilities are owed by such person to governmental authorities, third parties
or otherwise) whether currently in existence or arising hereafter which arise
under or relate to any Enviromental Law.
(t) BOOKS AND RECORD INTERNAL ACCOUNTING CONTROLS. The records and
documents of the Company and its subsidiaries accurately reflect in all material
respects the information relating to the business of the Company and the
subsidiaries, the location and collection of their assets, and the nature of all
transactions giving rise to the obligations or accounts receivable of the
Company or any subsidiary. The Company and each of its subsidiaries maintain a
system of internal accounting controls sufficient, in the judgment of the
Company's board of directors, to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate actions is taken
with respect to any differences.
(u) MATERIAL AGREEMENTS. Except as set forth in the Form 10-KSB, Form
10-QSB, Form 8-K, or on SCHEDULE 2.1(u) hereto, neither the Company nor any
subsidiary is a party to any written or oral contract, instrument, agreement,
commitment, obligation, plan or arrangement, a copy of which would be
required to be filed with the Commission as an exhibit to a registration
statement on Form S-3 or applicable form (collectively, "Material
Agreements") if the Company or any subsidiary were registering securities
under the Securities Act. The Company and each of its subsidiaries has in all
material respects performed all the obligations required to be performed by
them to date under the foregoing agreements, have received no notice of
default and, to the best of the
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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 Preferred Shares and the Warrants hereunder.
Neither the Company nor anyone acting on its behalf, directly or indirectly, has
or will sell, offer to sell or solicit offers to buy the Preferred Shares, the
Warrants or similar securities to, or solicit offers with respect thereto from,
or enter into any preliminary conversations or negotiations relating thereto
with, any person, or has taken or will take any action so as to bring the
issuance and sale of the Preferred 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 the Preferred Shares and the
Warrants.
(x) GOVERNMENTAL APPROVALS. Except as set forth in the Form 10-KSB or Form
10-QSB, and except for the filing of any notice prior or subsequent to each
Closing that may be required under applicable state and/or Federal securities
laws (which if required, shall be filed on a timely basis), including the filing
of a registration statement or statements pursuant to the Registration Rights
Agreement, and the filing of the Certificate of Designations with the Secretary
of State for the State of Delaware, no authorization, consent, approval,
license, exemption of, filing or registration with any court or governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, is or will be necessary for, or in connection with, the execution or
delivery of the Preferred Shares, or for the performance by the Company of its
obligations under the Transaction Documents or the Certificate of Designations.
(y) EMPLOYEES. Neither the Company nor any subsidiary has any collective
bargaining arrangements or agreements covering any of its employees, except as
set forth in the Form
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10-KSB, Form 1O-QSB or on SCHEDULE 2.1(y) hereto. Except as set forth in the
Form 10-KSB, Form 10-QSB or on SCHEDULE 2.1(y) hereto, neither the Company nor
any subsidiary has any employment contract, agreement regarding proprietary
information, non-competition agreement, non-solicitation agreement,
confidentiality agreement, or any other similar contract or restrictive
covenant, relating to the right of any officer, employee or consultant to be
employed or engaged by the Company or such subsidiary. Since December 31, 1998,
no officer, consultant or key employee of the Company or any subsidiary whose
termination, either individually or in the aggregate, could have a Material
Adverse Effect, has terminated or, to the knowledge of the Company, has any
present intention of terminating his or her employment or engagement with the
Company or any subsidiary.
(z) ABSENCE OF CERTAIN DEVELOPMENTS. Except as provided in Form 10-KSB,
10-QSB, Form 8-K or in SCHEDULE 2.1(z) hereto, since December 31, 1998, neither
the Company nor any subsidiary has:
(i) issued any stock, bonds or other corporate securities or any
rights, options or warrants with respect thereto;
(ii) borrowed any amount or incurred or become subject to any
liabilities (absolute or contingent) except current liabilities incurred in
the ordinary course of business which are comparable in nature and amount to
the current liabilities incurred in the ordinary course of business during
the comparable portion of its prior fiscal year, as adjusted to reflect the
current nature and volume of the Company's or such subsidiary's business;
(iii) discharged or satisfied any lien or encumbrance or paid any
obligation or liability (absolute or contingent), other than current
liabilities paid in the ordinary course of business;
(iv) declared or made any payment or distribution of cash or other
property to stockholders with respect to its stock, or purchased or redeemed,
or made any agreements so to purchase or redeem, any shares of its capital
stock;
(v) sold, assigned or transferred any other tangible assets, or
canceled any debts or claims, except in the ordinary course of business;
(vi) sold, assigned or transferred any patent rights, trademarks, trade
names, copyrights, trade secrets or other intangible assets or intellectual
property rights, or disclosed any proprietary confidential information to any
person except to customers in the ordinary course of business or to the
Purchasers or their representatives;
(vii) suffered any substantial losses or waived any rights of material
value, whether or not in the ordinary course of business, or suffered the
loss of any material amount of prospective business;
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(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.
(ab) PUBLIC UTILITY HOLDING COMPANY ACT AND INVESTMENT COMPANY ACT
STATUS. The Company is not a "holding company" or a "public utility company"
as such terms are defined in the Public Utility Holding Company Act of 1935,
as amended. The Company is not, and as a result of and immediately upon each
Closing will not be, an "investment company" or a company controlled" by an
"investment company," within the meaning of the Investment Company Act of
1940, as amended.
(ac) ERISA. No liability to the Pension Benefit Guaranty Corporation has
been incurred with respect to any Plan by the Company or any of its
subsidiaries which is or would be materially adverse to the Company and its
subsidiaries. The execution and delivery of this Agreement and the issue and
sale of the Preferred Shares will not involve any transaction which is
subject to the prohibitions of Section 406 of ERISA or in connection with
which a tax could be imposed pursuant to Section 4975 of the Internal Revenue
Code of 1986, as amended, provided that, if any of the Purchasers, or any
person or entity that owns a beneficial interest in any of the Purchasers, is
an "employee pension benefit plan" (within the meaning of Section 3(2) of
ERISA) with respect to which the Company is a "party in interest" (within the
meaning of Section 3(14) of ERISA), the requirements of Sections 407(d)(5)
and 408(e) of ERISA, if applicable, are met. As used in this
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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 4 14(b) or (c) of the Code.
(ad) DILUTIVE EFFECT. The Company understands and acknowledges that the
number of Conversion Shares issuable upon conversion of the Preferred Shares
and the Warrant Shares issuable upon exercise of the Warrants will increase
in certain circumstances. The Company further acknowledges that its
obligation to issue Conversion Shares upon conversion of the Preferred Shares
in accordance with this Agreement and the Certificate of Designations and its
obligations to issue the Warrant Shares upon the exercise of the Warrants in
accordance with this Agreement and the Warrants, is, in each case, absolute
and unconditional regardless of the dilutive effect that such issuance may
have on the ownership interest of other stockholders of the Company.
Section 2.2 REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. Each of
the Purchasers hereby makes the following representations and warranties to
the Company with respect solely to itself and not with respect to any other
Purchaser:
(a) ORGANIZATION AND STANDING OF THE PURCHASERS. If the Purchaser is an
entity, such Purchaser is a corporation or partnership duly incorporated or
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization.
(b) AUTHORIZATION AND POWER. The Purchaser has the requisite power and
authority to enter into and perform this Agreement and to purchase the
Preferred Shares being sold to it hereunder. The execution, delivery and
performance of this Agreement and the Registration Rights Agreement by such
Purchaser and the consummation by it of the transactions contemplated hereby
and thereby have been duly authorized by all necessary corporate or
partnership action (if the Purchaser is an entity), and no further consent or
authorization of such Purchaser or its Board of Directors, stockholders, or
partners, as the case may be, is required. Each of this Agreement and the
Registration Rights Agreement has been duly authorized, executed and
delivered by such Purchaser.
(c) NO CONFLICTS. The execution, delivery and performance of this
Agreement and the Registration Rights Agreement and the consummation by such
Purchaser of the transactions contemplated hereby and thereby or relating
hereto do not and will not, assuming consent of the holders of the Company's
Series I Preferred Stock, (i) result in a violation of such Purchaser's
charter documents or bylaws or (ii) conflict with, or constitute a default
(or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of any agreement, indenture or instrument to
which such Purchaser is a party, or result in a violation of any law, rule,
or regulation, or any order, judgment or decree of any court or governmental
agency applicable to such Purchaser or its properties (except for such
conflicts, defaults and violations as would not, individually or in the
aggregate, have a Material Adverse Effect on such Purchaser). Such Purchaser
is not required to obtain any consent,
-13-
authorization or order of, or make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or perform any of its
obligations under this Agreement or the Registration Rights Agreement or to
purchase the Preferred Shares in accordance with the terms hereof, provided that
for purposes of the representation made in this sentence, such Purchaser is
assuming and relying upon the accuracy of the relevant representations and
agreements of the Company herein.
(d) ACQUISITION FOR INVESTMENT. Such Purchaser is purchasing the
Preferred Shares solely for its own account for the purpose of investment and
not with a view to or for sale in connection with distribution. Such
Purchaser does not have a present intention to sell the Preferred Shares, nor
a present arrangement (whether or not legally binding) or intention to effect
any distribution of the Preferred Shares to or through any person or entity;
PROVIDED, HOWEVER, that by making the representations herein and subject to
Section 2.2(f) below, such Purchaser does not agree to hold the Preferred
Shares for any minimum or other specific term and reserves the right to
dispose of the Preferred Shares at any time in accordance with Federal and
state securities laws applicable to such disposition. Such Purchaser
acknowledges that it is able to bear the financial risks associated with an
investment in the Preferred Shares and that it has been given full access to
such records of the Company and the subsidiaries and to the officers of the
Company and the subsidiaries and received such information as it has deemed
necessary or appropriate to conduct its due diligence investigation.
(e) ACCREDITED PURCHASERS. Such Purchaser is an "accredited investor" as
defined in Regulation D promulgated under the Securities Act.
(f) RULE 144. Such Purchaser understands that the Shares must be held
indefinitely unless such Shares are registered under the Securities Act or an
exemption from registration is available. Such Purchaser acknowledges that
such person is familiar with Rule 144 of the rules and regulations of the
Commission, as amended, promulgated pursuant to the Securities Act ("Rule
144"), and that such person has been advised that Rule 144 permits resales
only under certain circumstances. Such Purchaser understands that to the
extent that Rule 144 is not available, such person will be unable to sell any
Preferred Shares without either registration under the Securities Act or the
existence of another exemption from such registration requirement.
(g) CONVERSION RESTRICTIONS. Notwithstanding anything to the contrary
set forth herein or in the Certificate of Designations, in no event shall any
holder be entitled to convert Series J Preferred Stock in excess of that
number of shares of Series J Convertible Preferred Stock which, upon giving
effect to such conversion, would cause the aggregate number of shares of
Common Stock beneficially owned by the holder and its affiliates to exceed
4.99% of the outstanding shares of the Common Stock following such
conversion. For purposes of the foregoing proviso, the aggregate number of
shares of Common Stock beneficially owned by the holder and its affiliates
shall include the number of shares of Common Stock issuable upon conversion
of the shares of Series J Convertible Preferred Stock with respect to which
the determination of such proviso is being made, but shall exclude the number
of shares of Common Stock which would be issuable upon (i)
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conversion of the remaining, nonconverted shares of Series J Convertible
Preferred Stock beneficially owned by the holder and its affiliates, and (ii)
exercise or conversion of the unexercised or unconverted portion of any other
securities of the Company (including, without limitation, any warrants)
subject to a limitation on conversion or exercise analogous to the limitation
contained herein beneficially owned by the holder and its affiliates. Except
as set forth in the preceding sentence, for purposes of this Section 2(a),
beneficial ownership shall be calculated in accordance with Section 13(d) of
the Securities Exchange Act of 1934, as amended.
(h) GENERAL. Such Purchaser understands that the Shares are being
offered and sold in reliance on a transactional exemption from the
registration requirement of Federal and state securities laws and the Company
is relying upon the truth and accuracy of the representations, warranties,
agreements, acknowledgments and understandings of such Purchaser set forth
herein in order to determine the applicability of such exemptions and the
suitability of such Purchaser to acquire the Shares.
(i) RESIDENCE. Such Purchaser's permanent domicile is as set forth in
Exhibit A.
ARTICLE III
Covenants
The Company covenants with each of the Purchasers as follows, which
covenants are for the benefit of the Purchasers and their permitted assignees
(as defined herein).
Section 3.1 SECURITIES COMPLIANCE.
(a) The Company shall notify the Commission in accordance with
their rules and regulations, of the transactions contemplated by any of the
Transaction Documents, including filing a Form D with respect to the
Preferred Shares, Warrants, Conversion Shares and Warrants Shares as required
under Regulation D, and shall take all other necessary action and proceedings
as may be required and permitted by applicable law, rule and regulation, for
the legal and valid issuance of the Preferred Shares and the Warrant Shares
to the Purchasers or subsequent holders.
(b) The Company is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments and understandings
of such 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
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the Securities Act or the rules promulgated thereunder) to terminate or
suspend such registration or to terminate or suspend its reporting and filing
obligations under the Exchange Act or Securities Act, except as permitted
herein. The Company will take all action necessary to continue the listing or
trading of its Common Stock on the over-the-counter electronic bulletin board.
Section 3.3 Inspection Rights. The Company shall permit, during normal
business hours and upon reasonable request and reasonable notice, each
Purchaser or any employees, agents or representatives thereof, so long as
such Purchaser shall be obligated hereunder to purchase the Preferred Shares
or shall beneficially own any Preferred Shares, or shall own Conversion
Shares which, in the aggregate, represent more than 2% of the total combined
voting power of all voting securities then outstanding, for purposes
reasonably related to such Purchaser's interests as a stockholder to examine
and make reasonable copies of and extracts from the records and books of
account of, and visit and inspect the properties, assets, operations and
business of the Company and any subsidiary, and to discuss the affairs,
finances and accounts of the Company and any subsidiary with any of its
officers, consultants, directors, and key employees.
Section 3.4 COMPLIANCE WITH LAWS. The Company shall comply, and cause
each subsidiary to comply, with all applicable laws, rules, regulations and
orders, noncompliance with which could have a Material Adverse Effect.
Section 3.5 KEEPING OF RECORDS AND BOOKS OF ACCOUNT. The Company shall
keep and cause each subsidiary to keep adequate records and books of account,
in which complete entries will be made in accordance with GAAP consistently
applied, reflecting all financial transactions of the Company and its
subsidiaries, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and
other purposes in connection with its business shall be made.
Section 3.6 REPORTING REQUIREMENTS. If the Company ceases to file its
periodic reports with the Commission, or if the Commission ceases making
these periodic reports available via the Internet without charge, then the
Company shall furnish the following to each Purchaser so long as such
Purchaser shall be obligated hereunder to purchase the Preferred Shares or
shall beneficially own any Preferred Shares, or shall own Conversion Shares
which, in 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 1O-QSB as
soon as available, and in any event within 45 days after the end of each of
the first three fiscal quarters of the Company;
(b) Annual Reports filed with the Commission on Form 10-KSB as soon
as available, and in any event within 90 days after the end of each fiscal
year of the Company; and
(c) Copies of all notices and information, including without
limitation notices and proxy statements in connection with any meetings, that
are provided to holders of shares of Common
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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 Articles or Bylaws of the Company, or Registration Rights
Agreement in any way that would adversely affect the liquidation preferences,
dividends rights, conversion rights, voting rights or redemption rights of
the holders of the Preferred Shares.
Section 3.8 Other Agreements. The Company shall not enter into any
agreement in which the terms of such agreement would restrict or impair the
right or ability to perform of the Company or any subsidiary under any
Transaction Document or the Certificate of Designations.
Section 3.9 DISTRIBUTIONS. So long as any Preferred Shares or Warrants
remain outstanding, the Company agrees that it shall not (i) declare or pay
any dividends or make any distributions to any holder(s) of Common Stock or
(ii) purchase or otherwise acquire for value, directly or indirectly, any
Common Stock or other equity security of the Company.
Section 3.10 STATUS OF DIVIDENDS. The Company covenants and agrees that
(i) no Federal income tax return or claim for refund of Federal income tax or
other submission to the Internal Revenue Service will adversely affect the
Preferred Shares, any other series of its Preferred Stock, or the Common
Stock, and any deduction shall not operate to jeopardize the availability to
Purchasers of the dividends received deduction provided by Section 243 (a)
(1) of the Code or any successor provision, (ii) in no report to shareholders
or to any governmental body having jurisdiction over the Company or otherwise
will it treat the Preferred Shares other than as equity capital or the
dividends paid thereon other than as dividends paid on equity capital unless
required to do so by a governmental body having jurisdiction over the
accounts of the Company or by a change in generally accepted accounting
principles required as a result of action by an authoritative accounting
standards setting body, and (iii) other than pursuant to this Agreement or
the Certificate of Designations, it will take no action which would result in
the dividends paid by the Company on the Preferred Shares out of the
Company's current or accumulated earnings and profits being ineligible for
the dividends received deduction provided by Section 243(a)(1) of the Code.
The preceding sentence shall not be deemed to prevent the Company from
designating the Preferred Stock as "Convertible Preferred Stock" in its
annual and quarterly financial statements in accordance with its prior
practice concerning other series of preferred stock of the Company.
Notwithstanding the foregoing, the Company shall not be required to restate
or modify its tax returns for periods prior to each Closing Date. In the
event that the Purchasers have reasonable cause to believe that dividends
paid by the Company on the Preferred Shares out of the Company's current or
accumulated earnings and profits will not be treated as eligible for the
dividends received deduction provided by Section 243(a)(1) of the Code, or
any succesor 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
-17-
ruling, technical advice, finding or determination that earnings and profits
are not eligible for the dividends received deduction provided by Section
243(a)(1) of the Code, or any successor provision to the extent that the
position to be taken in any such litigation, appeal, or other proceeding is
not contrary to any provision of the Code or incurred in connection with any
such submission, litigation, appeal or other proceeding. Notwithstanding the
foregoing, nothing herein contained shall be deemed to preclude the Company
from claiming a deduction with respect to such dividends if (i) the Code
shall hereafter be amended, or final Treasury regulations thereunder are
issued or modified, to provide that dividends on the Preferred Shares or
Conversion Shares should not be treated as dividends for Federal income tax
purposes or that a deduction with respect to all or a portion of the
dividends on the Shares is allowable for Federal income tax purposes, or (ii)
in the absence of such an amendment, issuance or modification and after a
submission of a request for ruling or technical advice, the service shall
rule or advise that dividends on the shares should not be treated as
dividends for Federal income tax purposes. If the Service determines that the
Preferred Shares or Conversion Shares constitute debt, the Company may file
protective claims for refund.
Section 3.11 REGULATION S. The Company covenants and agrees that if the
Company fails to register the Conversion Shares within 150 days from the
Closing Date of the final tranche of Preferred Shares (the "Final 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 Preferred Shares or Conversion 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 the Preferred Shares or Conversion 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. The Company covenants and agrees
that during the nine (9) month period after the Final Closing Date the
Purchasers shall have a right of first refusal with respect to any subsequent
offer or sale of Common Stock or any securities convertible or exchangeable
into Common Stock based on variable rates of conversion (meaning based on a
market price of the Common Stock as of the date of conversion or exchange)
which the Company proposes or intends to consummate with any third parties
(the "Subsequent Financing"). The Company will promptly notify the Purchasers
in writing of the terms and conditions of the proposed Subsequent Financing.
The Purchasers shall have the right for ten (10) trading days to consummate
the Subsequent Financing, in whole but not in part, with the Company on the
same terms and conditions as the proposed Subsequent Financing. If the
Purchasers do not consummate the Subsequent Financing, the Company shall have
45 days thereafter to consummate the Subsequent Financing with such third
parties, on the same or substantially the same terms, or on terms more
favorable to the Company. The rights of the Purchaser herein specifically
exclude any Subsequent Financing with the parties set forth in Schedule 3.12.
PROVIDED, that (i) if the Subsequent Financing with such parties is an offer
or sale of Common Stock at a price equal to less than 50% of the market price
of Common Stock, the proceeds from such sale shall be used first to redeem
the outstanding Preferred Shares of
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the Purchasers upon consummation of the Subsequent Financing at a redemption
price equal to 125% of the Liquidation Preference (as defined in the
Certificate of Designation) plus accrued and unpaid dividends and (ii) if the
Subsequent Financing is an offer or sale of securities convertible or
exchangeable into Common Stock, such conversion or exchange shall be based on
a fixed rate.
Section 3.13 RESERVATION OF SHARES. So long as any of the Preferred
Shares or Warrants remain outstanding, the Company shall take all action
necessary to at all times have authorized, and reserved for the purpose of
issuance, no less than 200% of the aggregate number of shares of Common Stock
needed to provide for the issuance of the Conversion Shares and the Warrant
Shares.
Section 3.14 TRANSFER AGENT INSTRUCTIONS. The Company shall issue
irrevocable instructions to its transfer agent, and any subsequent transfer
agent, to issue certificates, registered in the name of each Purchaser or its
respective nominee(s), for the Conversion Shares and the Warrant Shares in
such amounts as specified from time to time by each Purchaser to the Company
upon conversion of the Preferred Shares or exercise of the Warrants in the
form of Exhibit F attached hereto (the "Irrevocable Transfer Agent
Instructions"). Prior to registration of the Conversion Shares and the
Warrant Shares under the Securities Act, all such certificates shall bear the
restrictive legend specified in Section 6.1 of this Agreement. The Company
warrants that no instruction other than the Irrevocable Transfer Agent
Instructions referred to in this Section 3.14 will be given by the Company to
its transfer agent and that the Shares shall otherwise be freely transferable
on the books and records of the Company as and to the extent provided in this
Agreement and the Registration Rights Agreement. Nothing in this Section 3.14
shall affect in any way each Purchaser's obligations and agreements set forth
in Section 6.1 to 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
abreach by it of its obligations under this Section 3.14 will cause
irreparable harm to the Purchasers by vitiating the intent and purpose of the
transaction contemplated hereby. Accordingly, the Company acknowledges that
the remedy at law for a breach of its obligations under this Section 3.14
will be inadequate and agrees, in the event of a breach or threatened breach
by the Company of the provisions of this Section 3.14, that the Purchasers
shall be entitled, in addition to all other available remedies, to an order
and/or injunction restraining any breach and requiring immediate issuance and
transfer, without the necessity of showing economic loss and without any bond
or other security being required.
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ARTICLE IV
Conditions
Section 4.1 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE COMPANY TO
SELL THE SHARES. The obligation hereunder of the Company to issue and sell
the Preferred Shares and the Warrants to the Purchasers is subject to the
satisfaction or waiver, at or before each Closing, of each of the conditions
set forth below. These conditions are for the Company's sole benefit and may
be waived by the Company at any time in its sole discretion.
(a) ACCURACY OF EACH PURCHASER'S REPRESENTATIONS AND WARRANTIES.
The representations and warranties of each Purchaser shall be true and
correct in all material respects as of the date when made and as of each
Closing Date as though made at that time, except for representations and
warranties that are expressly made as of a particular date, which shall be
true and correct in all material respects as of such date.
(b) PERFORMANCE BY THE PURCHASERS. Each Purchaser shall have
performed, satisfied and complied in all material respects with all
covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by such Purchaser at or prior to such
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.
(d) MINIMUM PURCHASE. The Escrow Agent shall hold $2.5 million or
more of immediately available funds pursuant to the Escrow Agreement received
from the Purchasers, and the Purchasers shall make the minimum purchase
described in Section 4.2(c).
Section 4.2 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE PURCHASERS TO
PURCHASE THE SHARES. The obligation hereunder of each Purchaser to acquire
and pay for the Preferred Shares and the Warrants is subject to the
satisfaction or waiver, at or before each Closing, of each of the conditions
set forth below. These conditions are for each Purchaser's sole benefit and
may be waived by such Purchaser at any time in its sole discretion.
(a) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND WARRANTIES. Each
of the representations and warranties of the Company shall be true and
correct in all material respects as of the date when made and as of each
Closing Date as though made at that time (except for representations and
warranties that speak as of a particular date), which shall be true and
correct in all material respects as of such date.
-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 such Closing.
(c) MINIMUM PURCHASE. Under the terms and conditions of this
Agreement, the Company shall make sales of the Preferred Shares to the
Purchasers resulting in gross proceeds of a minimum of $2,500,000 to the
Company, less fees and legal expenses payable to the Purchasers pursuant to a
written agreement describing said fees.
(d) NO SUSPENSION. ETC. From the date hereof to each Closing Date,
trading in the Company's Common Stock shall not have been suspended by the
Commission (except for any suspension of trading of limited duration agreed
to by the Company, which suspension shall be terminated prior to each
Closing), and, at any time prior to each Closing, trading in securities
generally as reported by Bloomberg Financial Markets ("Bloomberg") shall not
have been suspended or limited, or minimum prices shall not have been
established on securities whose trades are reported by Bloomberg, or on the
New York Stock Exchange, nor shall a banking moratorium have been declared
either by the United States or New York State authorities, nor shall there
have occurred any material outbreak or escalation of hostilities or other
national or international calamity or crisis of such magnitude in its effect
on, or any material adverse change in any financial market which, in each
case, in the judgment of such Purchaser, makes it impracticable or
inadvisable to purchase the Preferred Shares.
(e) NO INJUNCTION. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction
which prohibits the consummation of any of the transactions contemplated by
this Agreement.
(f) NO PROCEEDINGS OR LITIGATION. No action, suit or proceeding
before any arbitrator or any governmental authority shall have been
commenced, and no investigation by any governmental authority shall have been
threatened, against the Company or any subsidiary, or any of the officers,
directors or affiliates of the Company or any subsidiary seeking to restrain,
prevent or change the transactions contemplated by this Agreement, or seeking
damages in connection with such transactions.
(g) CERTIFICATE OF DESIGNATIONS OF RIGHTS AND PREFERENCES. Prior
to each Closing, the Certificate of Designations of the Rights and
Preferences for the Preferred Shares in the form of Exhibit C attached hereto
shall have been filed with the Secretary of State of Delaware.
(h) OPINION OF COUNSEL. ETC. At each Closing, the Purchasers shall
have received an opinion of counsel to the Company, dated the date of such
Closing, in the form of Exhibit G hereto, and such other certificates and
documents as the Purchasers or its counsel shall reasonably require incident
to such Closing.
-21-
(i) REGISTRATION RIGHTS AGREEMENT. At the Tranche I Closing, the
Company shall have executed and delivered the Registration Rights Agreement
to each Purchaser.
(j) PREFERRED STOCK CERTIFICATES. The Company shall have executed
and delivered to the Escrow Agent the stock certificates (in such
denominations as such Purchaser shall request) for the Preferred Shares being
purchased by such Purchaser at such Closing.
(k) RESOLUTIONS. The Board of Directors of the Company shall have
adopted resolutions consistent with Section 2.1(b) above in a form reasonably
acceptable to such Purchaser (the "Resolutions").
(l) RESERVATION OF SHARES. As of each Closing Date, the Company
shall have reserved out of its authorized and unissued Common Stock, solely
for the purpose of effecting the conversion of the Preferred Shares and the
exercise of the Warrants, a number of shares of Common Stock equal to at
least 200% of the aggregate number of Conversion Shares issuable upon
conversion of the Preferred Shares outstanding on such Closing Date and the
number of Warrant Shares issuable upon exercise of the number of Warrants
assuming such Warrants were granted on such Closing Date (after giving effect
to the Preferred Shares and the Warrants to be issued on such Closing Date
and assuming all such Preferred Shares and Warrants were fully convertible or
exercisable on such date regardless of any limitation on the timing or amount
of such conversions or exercises).
(m) TRANSFER AGENT INSTRUCTIONS. The Irrevocable Transfer Agent
Instructions, in the form of Exhibit F attached hereto, shall have been
delivered to and acknowledged in writing by the Company's transfer agent.
(n) SECRETARY'S CERTIFICATE. The Company shall have delivered to
such Purchaser a secretary's certificate, dated as of each Closing Date, as
to (i) the Resolutions, (ii) the Articles, (iii) the Bylaws, (iv) the
Certificate of Designations, each as in effect at such Closing, and (iv) the
authority and incumbency of the officers of the Company executing the
Transaction Documents and any other documents required to be executed or
delivered in connection therewith.
(o) ESCROW AGREEMENT. At the Tranche I Closing, the Company shall
have executed and delivered the Escrow Agreement to each Purchaser.
(p) CANCELLATION OF PROMISSORY NOTES. At the Tranche I Closing the
Purchasers shall deliver or cause the delivery to the Company of the original
Promissory Notes marked "Canceled" and "Paid-In-Full".
(q) OFFICER'S CERTIFICATE. The Company shall have delivered to
such Purchaser a certificate of an executive officer of the Company, dated as
of each Closing Date, confirming the accuracy of the Company's
representations, warranties and covenants as of such Closing Date and
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confirming the compliance by the Company with the conditions precedent set
forth in this Section 4.2 as of such Closing Date.
ARTICLE V
Registration Rights
At the Tranche I Closing, the Company and Purchasers shall enter into a
Registration Rights Agreement in the form attached hereto as Exhibit E (the
"Registration Rights Agreement").
ARTICLE VI
Stock Certificate Legend
Section 6.1 LEGEND. Each certificate representing the Preferred Shares,
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 THAT ACT AND
UNDER APPLICABLE STATE SECURITIES LAWS OR ESYNCH CORP.
(THE "COMPANY") SHALL HAVE RECEIVED AN OPINION OF ITS
COUNSEL THAT REGISTRATION OF SUCH SECURITIES UNDER THAT
ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES
LAWS IS NOT REQUIRED.
The Company agrees to reissue certificates representing the Preferred
Shares without the legend set forth above if at such time, prior to making
any transfer of any Preferred Shares or Conversion 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 Preferred Shares or Conversion 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
-23-
or qualification under the securities or "blue sky" laws of any state is not
required in connection with such proposed disposition, or (ii) compliance
with applicable state securities or "blue sky" laws has been effected. The
Company will use its best efforts to respond to any such notice from a holder
within ten (10) days. In the case of any proposed transfer under this Section
6, the Company will use reasonable efforts to comply with any such applicable
state securities or "blue sky" laws, but shall in no event be required, in
connection therewith, to qualify to do business in any state where it is not
then qualified or to take any action that would subject it to tax or to the
general service of process in any state where it is not then subject. The
restrictions on transfer contained in Section 6.1 shall be in addition to,
and not by way of limitation of, any other restrictions on transfer contained
in any other section of this Agreement.
ARTICLE VII
Intentionally Omitted.
ARTICLE VIII
Indemnification
Section 8.1 GENERAL INDEMNITY. The Company agrees to indemnify and hold
harmless the Purchasers and any finder (and their respective directors,
officers, affiliates, agents, successors and assigns) from and against any
and all losses, liabilities, deficiencies, costs, damages and expenses
(including, without limitation, reasonable attorney's fees, charges and
disbursements) incurred by the Purchasers as a result of any inaccuracy in or
breach of the representations, warranties or covenants made by the Company
herein. Each Purchaser severally but not jointly agrees to indemnify and hold
harmless the Company and its directors, officers, affiliates, agents,
successors and assigns from and against any and all losses, liabilities,
deficiencies, costs, damages and expenses (including, without limitation,
reasonable attorneys fees, charges and disbursements) incurred by the Company
as result of any inaccuracy in or breach of the representations, warranties
or covenants made by such Purchaser herein.
Section 8.2 INDEMNIFICATION PROCEDURE. Any party entitled to
indemnification under this Article VIII (an "indemnified party") will give
written notice to the indemnifying party of any matters giving rise to a
claim for indemnification; provided, that the failure of any party entitled
to indemnification hereunder to give notice as provided herein shall not
relieve the indemnifying party of its obligations under this Article VIII
except to the extent that the indemnifying party is actually prejudiced by
such failure to give notice. In case any action, proceeding or claim is
brought against an indemnified party in respect of which indemnification is
sought hereunder, the indemnifying party
-24-
shall be entitled to participate in and, unless in the reasonable judgment of
the indemnified party a conflict of interest between it and the indemnifying
party may exist with respect of such action, proceeding or claim, to assume
the defense thereof with counsel reasonably satisfactory to the indemnified
party. In the event that the indemnifying party advises an indemnified party
that it will contest such a claim for indemnification hereunder, or fails,
within thirty (30) days of receipt of any indemnification notice to notify,
in writing, such person of its election to defend, settle or compromise, at
its sole cost and expense, any action, proceeding or claim (or discontinues
its defense at any time after it commences such defense), then the
indemnified party may, at its option, defend, settle or otherwise compromise
or pay such action or claim. In any event, unless and until the indemnifying
party elects in writing to assume and does so assume the defense of any such
claim, proceeding or action, the indemnified party's costs and expenses
arising out of the defense, settlement or compromise of any such action,
claim or proceeding shall be losses subject to indemnification hereunder. The
indemnified party shall cooperate fully with the indemnifying party in
connection with any negotiation or defense of any such action or claim by the
indemnifying party and shall furnish to the indemnifying party all
information reasonably available to the indemnified party which relates to
such action or claim. The indemnifying party shall keep the indemnified party
fully apprised at all times as to the status of the defense or any settlement
negotiations with respect thereto. If the indemnifying party elects to defend
any such action or claim, then the indemnified party shall be entitled to
participate in such defense with counsel of its choice at its sole cost and
expense. The indemnifying party shall not be liable for any settlement of any
action, claim or proceeding effected without its prior written consent.
Notwithstandinganything in this Article VIII to the contrary, the
indemnifying party shall not, without the indemnified party's prior written
consent, settle or compromise any claim or consent to entry of any judgment
in respect thereof which imposes any future obligation on the indemnified
party or which does not include, as an unconditional term thereof, the giving
by the claimant or the plaintiff to the indemnified party of a release from
all liability in respect of such claim. The indemnification required by this
Article VIII shall be made by periodic payments of the amount thereof during
the course of investigation or defense, as and when bills are received or
expense, loss, damage or liability is incurred, so long as the indemnified
party irrevocably agrees to refund such moneys if it is ultimately determined
by a court of competent jurisdiction that such party was not entitled to
indemnification. The indemnity agreements contained herein shall be in
addition to (a) any cause of action or similar rights of the indemnified
party against the indemnifying party or others, and (b) any liabilities the
indemnifying party may be subject to pursuant to the law.
ARTICLE IX
Miscellaneous
Section 9.1 FEES AND EXPENSES. Except as otherwise set forth in this
Agreement, the Registration Rights Agreement or the Certificate of
Designations, each party shall pay the fees and
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expenses of its advisors, counsel, accountants and other experts, if any, and
all other expenses, incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement, provided
that the Company shall pay, at the Closing, all attorneys fees and expenses
(exclusive of disbursements and out-of-pocket expenses) incurred by the
Purchasers up to $25,000 in connection with the preparation, negotiation,
execution and delivery of this Agreement, the Registration Rights Agreement
and the transaction contemplated hereunder. In addition, the Company shall
pay all reasonable fees and expenses incurred by the Purchasers in connection
with any amendments, modifications or waivers of this Agreement or any of the
other Transaction Documents, or incurred in connection with the enforcement
of this Agreement or any of the other Transaction Documents, including,
without limitation, all reasonable attorneys fees and expenses. The Company
shall pay all stamp or other similar taxes and duties levied in connection
with issuance of the Preferred Shares pursuant hereto.
Section 9.2 SPECIFIC ENFORCEMENT CONSENT TO JURISDICTION.
(a) The Company and the Purchasers acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of
this Agreement or the Registration Rights Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent or cure breaches of the provisions of this Agreement
or the Registration Rights Agreement and to enforce specifically the terms
and provisions hereof or thereof, this being in addition to any other remedy
to which any of them may be entitled by law or equity.
(b) Each of the Company and the Purchasers (i) hereby irrevocably
submits to the jurisdiction of the United States District Court sitting in
the Southern District of New York for the purposes of any suit, action or
proceeding arising out of or relating to this Agreement or the Registration
Rights Agreement and (ii) hereby waives, and agrees not to assert in any such
suit, action or proceeding, any claim that it is not personally subject to
the jurisdiction of such court, that the suit, action or proceeding is
brought in an inconvenient forum or that the venue of the suit, action or
proceeding is improper. Each of the Company and the Purchasers consents to
process being served in any such suit, action or proceeding by mailing a copy
thereof to such party at the address in effect for notices to it under this
Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof Nothing in this Section 9.2 shall
affect or limit any right to serve process in any other manner permitted by
law.
Section 9.3 ENTIRE AGREEMENT; AMENDMENT. This Agreement contains the
entire understanding of the parties with respect to the matters covered
hereby and, except as specifically set forth herein or in the Transaction
Documents or the Certificate of Designations, neither the Company nor any of
the Purchasers makes any representations, warranty, covenant or undertaking
with respect to such matters. No provision of this Agreement may be waived or
amended other than by a written instrument signed by the Company and the
holders of at least two-thirds (2/3) of the Preferred Shares then
outstanding, and no provision hereof may be waived other than by an a written
instrument signed
-26-
by the party against whom enforcement of any such amendment or waiver is
sought. No such amendment shall be effective to the extent that it applies to
less than all of the holders of the Preferred Shares then outstanding. No
consideration shall be offered or paid to any person to amend or consent to a
waiver or modification of any provision of any of the Transaction Documents
or the Certificate of Designations unless the same consideration is also
offered to all of the parties to the Transaction Documents or holders of
Preferred Shares, as the case may be.
Section 9.4 NOTICES. Any notice, demand, request, waiver or other
communication required or permitted to be given hereunder shall be in writing
and shall be effective (a) upon hand delivery by telex (with correct answer
back received), telecopy or facsimile at the address or number designated
below (if delivered on a business day during normal business hours where such
notice is to be received), or the first business day following such delivery
(if delivered other than on a business day during normal business hours where
such notice is to be received) or (b) on the second business day following
the date of mailing by express courier service, fully prepaid, addressed to
such address, or upon actual receipt of such mailing, whichever shall first
occur. The addresses for such communications shall be:
If to the Company: Xxxxxx Xxxxxxxxx, CEO
eSynch Corporation
00000 Xxxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxx 00000
Telephone Number: (000) 000-0000
Facsimile Number: (000) 000-0000
with copies to: Xxxxxxxx X. Xxxxx, Esq.
Xxxxxxxxx Xxxxx Xxxxxxx & Xxxxx
660 Xxxxxxx Xxxxx, Xxxxxxxxxx 00000
Telephone Number: (000)000-0000
Facsimile Number: (000) 000-0000
If to any Purchaser: At the address of such Purchaser set forth on
Exhibit A to this Agreement, with copies to
Purchaser's counsel as set forth on Exhibit A
or as specified in writing by such Purchaser
with copies to:
Xxxxxxxxxxx X. Xxxxxxx, Esq.
Xxxxxx Xxxxxx Flattau & Klimpl, LLP
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telephone Number: (000) 000-0000
Fax: (000) 000-0000
-00-
X. Xxxxx Xxxxxxx, Xx., Xxx.
0000 Xxxxxxxx Xxxxx, Xxxxx 000
Xxxxxxx, X.X. 00000
Telephone Number: (000) 000-0000
Fax: (000)000-0000
Any party hereto may from time to time change its address for notices by
giving at least ten (10) days written notice of such changed address to the
other party hereto.
Section 9.5 WAIVERS. No waiver by either party of any default with
respect to any provision, condition or requirement of this Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any other
provisions, condition or requirement hereof, nor shall any delay or omission
of any party to exercise any right hereunder in any manner impair the
exercise of any such right accruing to it thereafter.
Section 9.6 HEADINGS. The article, section and subsection headings in
this Agreement are for convenience only and shall not constitute a part of
this Agreement for any other purpose and shall not be deemed to limit or
affect any of the provisions hereof.
Section 9.7 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of the parties and their successors and assigns.
After any Closing, the assignment by a party to this Agreement of any rights
hereunder shall not affect the obligations of such party under this Agreement.
Section 9.8 NO THIRD PARTY BENEFICIARIES. This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors
and assigns and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.
Section 9.9 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York,
without giving effect to the choice of law provisions.
Section 9.10 SURVIVAL. The representations and warranties of the Company
and the Purchasers contained in Sections 2.1(o) and (s) should survive
indefinitely and those contained in Article II, with the exception of
Sections 2.1(o) and (s), shall survive the execution and delivery hereof and
the Closings until the date two years from the Final Closing Date, and the
agreements and covenants set forth in Articles I, III, V, VII, VIII and IX of
this Agreement shall survive the execution and delivery hereof and the
Closings hereunder until the Purchasers in the aggregate beneficially own
(determined in accordance with Rule 13d-3 under the Exchange Act) less than
2% of the total combined voting power of all voting securities then
outstanding, provided, that Sections 3.1, 3.2, 3.4, 3.5, 3.7, 3.8, 3.9, 3.10,
3.11 and 3.12 shall not expire until the Registration Statement
-28-
required by Section 2 of the Registration Rights Agreement is no longer
required to be effective under the terms and conditions of Registration
Rights Agreement.
Section 9.11 COUNTERPARTS. This Agreement may be executed in any number
of counterparts, all of which taken together shall constitute one and the
same instrument and shall become effective when counterparts have been signed
by each party and delivered to the other parties hereto, it being understood
that all parties need not sign the same counterpart. In the event any
signature is delivered by facsimile transmission, the party using such means
of delivery shall cause four additional executed signature pages to be
physically delivered to the other parties within five days of the execution
and delivery hereof
Section 9.12. PUBLICITY. The Company agrees that it will not disclose,
and will not include in any public announcement, the name of the Purchasers,
unless and until such disclosure is required by law or applicable regulation,
and then only to the extent of such requirement.
Section 9.13 SEVERABILITY. The provisions of this Agreement, the
Certificate of Designations and the Registration Rights Agreement are
severable and, in the event that any court of competent jurisdiction shall
determine that any one or more of the provisions or part of the provisions
contained in this Agreement, the Certificate of Designations or the
Registration Rights Agreement shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision or part of a provision
of this Agreement, the Certificate of Designations or the Registration Rights
Agreement shall be reformed and construed as if such invalid or illegal or
unenforceable provision, or part of such provision, had never been contained
herein, so that such provisions would be valid, legal and enforceable to the
maximum extent possible.
Section 9.14 FURTHER ASSURANCES. From and after the date of this
Agreement, upon the request of any Purchaser or the Company, each of the
Company and the Purchasers shall execute and deliver such instrument,
documents and other writings as may be reasonably necessary or desirable to
confirm and carry out and to effectuate fully the intent and purposes of this
Agreement, the Preferred Shares, the Conversion Shares, the Warrants, the
Warrant Shares, the Certificate Designations, and the Registration Rights
Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorize officer as of the date first above
written.
ESYNCH CORPORATION
By: Xxxxxx Xxxxxxxxx
Name: Xxxxxx Xxxxxxxxx
Title: CEO
GILSTON CORPORATION, LTD.
By: Xxxxxxx X.X. Xxxxx Xxxxxx
Name: Xxxxxxx X.X. Xxxxx Xxxxxx
Title: Director
MANCHESTER ASSET MANAGEMENT, LTD.
By: Xxxx X. Xxxxxx
Name: Xxxx X. Xxxxxx
Title: Director
TRITON PRIVATE EQUITY FUND L.P.
TRITON CAPITAL MANAGEMENT LLC (G.P.)
By: Xxxx X. Xxxxxxx
Name: Xxxx X. Xxxxxxx
Title: Managing Member of G.P.
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AMRO INTERNATIONAL, S.A.
By: X.X. Xxxxxxxx
Name: X.X. Xxxxxxxx
Title: Director
ESQUIRE TRADE & FINANCE INC.
By: Xxxxxx Xxxxxxx
Name: Xxxxxx Xxxxxxx
Title: Director
AUSTINVEST ANSTALT BALZERS
By: Xxxxxx Grill
Name: Xxxxxx Grill
Title: Director
TALBIYA INVESTMENTS LTD.
By: Xxxxx Grin
Name: Xxxxx Grin
Title: Director
-31-
EXHIBIT A to the
SERIES J CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
FOR ESYNCH CORP.
Names and Address Number of Preferred Shares Dollar Amount
of Purchasers & Warrants Purchased of Investment
------------- -------------------- -------------
Gilston Corporation, Ltd. Preferred Shares: 35 $350,000
Charlotte House Warrants: 26,250
Xxxxxxxxx Xxxxxx
X.X. Xxx X-0000
Xxxxxx, Bahamas
Tel. No.: (000)000-0000
Fax No: (000) 000-0000
Attn: Xxxxxxx X. X. Xxxxx Xxxxxx
Manchester Asset Management, Preferred Shares: 40 $400,000
Ltd. Warrants: 30,000
Xxxxxxxxx Xxxxx
Xxxxxxxxx Xxxxxx
P.O. Box N-9204
Nassau, Bahamas
Tel. No.: (000) 000-0000
Fax No: (000) 000-0000
Attn: Xxxxxxx X. X. Xxxxx Xxxxxx
Triton Private Equity Preferred Shares: 25 $250,000
c/o Triton Capital Management Warrants 18,750
L.L.C.
000 Xxxxx Xxxxxx Xxxxxx
Xxxxx 000
Xxxxxxx, Xxxxxx 00000
Attn: Xx. Xxxx X. Xxxxxxx
Tel. No.: (000) 000-0000
Fax No.: (000) 000-0000
Amro International, S.A. Preferred Shares: 50 $500,000
40 Ultra Finance Warrants: 37,500
Grossmuenster Platz #6
Zurich, Switzerland CH822
Attn: X.X. Xxxxxxxx
Fax No. 000-000-000-0000
EXHIBIT A to the
SERIES J CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
FOR ESYNCH CORP.
(continued)
Names and Address Number of Preferred Shares Dollar Amount
of Purchasers & Warrants Purchased of Investment
--------------- -------------------- -------------
Esquire Trade & Finance Inc. Preferred Shares: 50 $500,000
Trident Xxxxxxxx Warrants: 37,500
X.X. Xxx 000
Xxxx Xxxx, Xxxxxxx, BVI
Tel. No.: 000-000-000-0000
Fax No: 000-000-000-0000
Attn: Xxxxxx Xxxxxxx
Austinvest Anstalt Balzers Preferred Shares: 50 $500,000
Xxxxxxxxxxx 000 Xxxxxxxx: 37,500
0000 Xxxxxxxxxx
Xxxxx/Xxxxxxxxxxxxx
Xxxxxxx
Tel. No.: 000-000-000-000000
Fax No: 000-000-000-000000
Attn: Xxxxxx Grill
Talbiya Investments Ltd. Preferred Shares: 12.5 $125,000
Ragnall House Warrants: 9,375
00 Xxxx Xxxx
Xxxxxxx, Xxxx xx Xxx
0X00X0 Xxxxxx Xxxxxxx
Tel. No.: 000-000-000-00000
Fax No: 000-000-000-00000
Attn: Xxxxx Grin
