SERIES L CONVERTIBLE PREFERRED STOCK PURCHASE
AGREEMENT
DATED AS OF SEPTEMBER 26, 2000
AMONG
ESYNCH CORPORATION
AND
THE PURCHASERS LISTED ON EXHIBIT A
TABLE OF CONTENTS
PAGE
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ARTICLE I Purchase and Sale of Preferred Stock....................................................................1
Section 1.1 Purchase and Sale of Stock.............................................................1
Section 1.2 The Conversion Shares..................................................................1
Section 1.3 Purchase Price and Closing.............................................................2
Section 1.4 Escrow.................................................................................2
Section 1.5 Warrants...............................................................................2
ARTICLE II Representations and Warranties.........................................................................3
Section 2.1 Representations and Warranties of the Company..........................................3
Section 2.2 Representations and Warranties of the Purchasers......................................13
ARTICLE III Covenants............................................................................................15
Section 3.1 Securities Compliance.................................................................15
Section 3.2 Registration and Listing..............................................................15
Section 3.3 Inspection Rights.....................................................................15
Section 3.4 Compliance with Laws..................................................................16
Section 3.5 Keeping of Records and Books of Account...............................................16
Section 3.6 Reporting Requirements................................................................16
Section 3.7 Section 3.7 Amendments...............................................................16
Section 3.8 Other Agreements......................................................................16
Section 3.9 Distributions.........................................................................16
Section 3.10 Status of Dividends...................................................................17
Section 3.11 Regulation S..........................................................................18
Section 3.12 Right of First Refusal; Future Financings.............................................18
Section 3.13 Reservation of Shares.................................................................19
Section 3.14 Transfer Agent Instructions...........................................................19
ARTICLE IV Conditions............................................................................................20
Section 4.1 Conditions Precedent to the Obligation of the Company to Sell the
Shares................................................................................20
Section 4.2 Conditions Precedent to the Obligation of the Purchasers to Purchase
the Shares............................................................................21
ARTICLE V Intentionally Omitted..................................................................................23
ARTICLE VI Stock Certificate Legend..............................................................................23
Section 6.1 Legend................................................................................23
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TABLE OF CONTENTS
(continued)
PAGE
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ARTICLE VII Intentionally Omitted................................................................................24
ARTICLE VIII Indemnification.....................................................................................24
Section 8.1 General Indemnity.....................................................................24
Section 8.2 Indemnification Procedure.............................................................24
ARTICLE IX Miscellaneous.........................................................................................25
Section 9.1 Fees and Expenses.....................................................................25
Section 9.2 Specific Enforcement, Consent to Jurisdiction.........................................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..........................................................................28
Section 9.12 Publicity.............................................................................29
Section 9.13 Severability..........................................................................29
Section 9.14 Further Assurances....................................................................29
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SERIES L CONVERTIBLE PREFERRED STOCK PURCHASE
AGREEMENT
This SERIES L CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (the
"Agreement") is dated as of September 26, 2000 by and among eSynch Corporation,
a Delaware corporation (the "Company"), and each of the Purchasers of shares of
Series L 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 L Convertible Preferred Stock, par value $.001 per share (the
"Preferred Shares"), at a purchase price of $10,000 per share, set forth with
respect to such Purchaser on Exhibit A hereto. Upon the following terms and
conditions, the Purchasers shall be issued Warrants, in substantially the form
attached hereto as Exhibit B (the "Warrants"), to purchase the Company's Common
Stock, par value $.001 per share (the "Common Stock") The aggregate purchase
price for the Preferred Shares and the Warrants shall be $2,000,000 which may be
funded in one or more tranches as agreed upon by the Company and the Purchasers.
The designation, rights, preferences and other terms and provisions of the
Series L Convertible Preferred Stock are set forth in the Certificate of
Designation of the Relative Rights and Preferences of the Series L Convertible
Preferred Stock attached hereto as Exhibit C (the "Certificate of Designation").
The Company and the Purchasers are executing and delivering this Agreement in
accordance with and in reliance upon the exemption from securities registration
afforded by Rule 506 of Regulation D ("Regulation D") as promulgated by the
United States Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "Securities Act") or Section 4(2) of the
Securities Act.
Section 1.2 THE CONVERSION SHARES. The Company has authorized and has
reserved and covenants to continue to reserve, free of preemptive rights and
other similar contractual rights of stockholders, a sufficient number of its
authorized but unissued shares of its Common Stock, to effect the conversion of
the Preferred Shares and exercise of the Warrants. Any shares of Common Stock
issuable upon conversion of the Preferred Shares and exercise of the Warrants
(and such shares when issued) are herein referred to as the "Conversion Shares"
and the "Warrant Shares", respectively. The Preferred Shares, the Conversion
Shares and the Warrant Shares are sometimes collectively referred to as the
"Shares".
Section 1.3 PURCHASE PRICE AND CLOSING. The Company agrees to issue and
sell to the Purchasers and, in consideration of and in express reliance upon the
representations, warranties, covenants, terms and conditions of this Agreement,
the Purchasers, severally but not jointly, agree to purchase that number of the
Preferred Shares and Warrants set forth opposite their respective names on
Exhibit A. The aggregate purchase price of the Preferred Shares and Warrants
being acquired by each Purchaser is set forth opposite such Purchaser's name on
Exhibit A (for each such purchaser, the "Purchaser Price" and collectively
referred to as the "Purchase Prices"). The closing of the purchase and sale of
the Preferred Shares and Warrants (each, a "Closing") to be acquired by the
Purchasers from the Company under this Agreement shall take place at the offices
of Xxxxxx Xxxxxx LLP, The Chrysler Building, 000 Xxxxxxxxx Xxxxxx, Xxx Xxxx, Xxx
Xxxx 00000 (the "Closing") at 10:00 a.m. Pacific Time (i) on the date on which
the last to be fulfilled or waived of the conditions set forth in Article IV
hereof and applicable to such Closing shall be fulfilled or waived in accordance
herewith or (ii) at such other time and place or on such date as the Purchasers
and the Company may agree upon (each, a "Closing Date"). The closing date of the
final tranche of Preferred Shares and Warrants to be purchased hereunder shall
occur on or before October 15, 2000 (the "Final Closing Date").
Section 1.4 ESCROW. 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 and Warrants 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. The Company acknowledges
that the purchase price of Aspen International, Ltd. ("Aspen") for its pro rata
portion of the Preferred Shares and Warrants was advanced and evidenced by three
(3) promissory notes issued by the Company in favor of Aspen for the principal
amounts of $600,000, $160,000 and $240,000, respectively (the "Bridge Notes").
Notwithstanding anything to the contrary set forth in this Agreement, the
aggregate number of Preferred Stock to be sold hereunder shall not exceed two
hundred (200).
Section 1.5 WARRANTS. The Warrants shall be divided into separate
Warrants and shall be designated "A" Warrant and "B" Warrant. The Company agrees
to issue to each of the Purchasers A Warrants and B Warrants to purchase the
number of shares of Common Stock set forth opposite such Purchaser's name on
Exhibit A hereto, such number determined as follows: 25% of such Purchaser's
Purchase Price divided by $3.75. The Warrants shall have an exercise price equal
to the Warrant Price (as defined in the Warrants) and shall expire on the fifth
(5th) anniversary of date of issuance.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby makes the following representations and warranties to the Purchasers,
except as set forth in the Company's disclosure schedule delivered with this
Agreement as follows:
(a) ORGANIZATION, GOOD STANDING AND POWER. The Company is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of Delaware and has the requisite corporate power to own, lease and
operate its properties and assets and to conduct its business as it is now being
conducted. The Company does not have any subsidiaries except as set forth in the
Company's Form 10-KSB for the year ended December 31, 1999, including the
accompanying financial statements (the "Form 10-KSB"), or in the Company's Form
10-QSB for the fiscal quarters ended March 31, 2000 or June 30, 2000
(collectively, the "Form 10-QSB"), or on SCHEDULE 2.1(a) hereto. The Company and
each such subsidiary is duly qualified as a foreign corporation to do business
and is in good standing in every jurisdiction in which the nature of the
business conducted or property owned by it makes such qualification necessary
except for any jurisdiction(s) (alone or in the aggregate) in which the failure
to be so qualified will not have a Material Adverse Effect (as defined in
Section 2.1(e) hereof) on the Company's financial condition.
(b) AUTHORIZATION; ENFORCEMENT. The Company has the requisite corporate
power and authority to enter into and perform this Agreement, the Registration
Rights Agreement attached hereto as Exhibit E (the "Registration Rights
Agreement"), the Escrow Agreement, the Transfer Agent Instructions (as defined
in Section 3.14), and the Warrants (collectively, the "Transaction Documents")
and to issue and sell the Shares and the Warrants in accordance with the terms
hereof, the Certificate of Designation and the Warrants. The execution, delivery
and performance of the Transaction Documents and the Certificate of Designation
by the Company and the consummation by it of the transactions contemplated
hereby and thereby have been duly and validly authorized by all necessary
corporate action, and no further consent or authorization of the Company or its
Board of Directors or stockholders is required. This Agreement has been duly
executed and delivered by the Company. The other Transaction Documents will have
been duly executed and delivered by the Company at each 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 September 15, 2000 are set
forth on SCHEDULE 2.1(c) hereto. All of the outstanding shares of the Company's
Common Stock and Series L Convertible Preferred Stock have been duly and validly
authorized. Except as set forth
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in this Agreement and the Registration Rights Agreement and as set forth in
the Form 10-KSB, Form 10-QSB for the periods ending March 31 and June 30,
2000, Form 8-K dated February 15, 2000 (the "Form 8-K") or on SCHEDULE 2.1(c)
hereto, no shares of Common Stock are entitled to preemptive rights or
registration rights and there are no outstanding options, warrants, scrip,
rights to subscribe to, call or commitments of any character whatsoever
relating to, or securities or rights convertible into, any shares of capital
stock of the Company. Furthermore, except as set forth in this Agreement and
the Registration Rights Agreement and as set forth in the Form 10-KSB, Form
10-QSB, Form 8-K or on SCHEDULE 2.1(c), there are no contracts, commitments,
understandings, or arrangements by which the Company is or may become bound
to issue additional shares of the capital stock of the Company or options,
securities or rights convertible into shares of capital stock of the Company.
Except for customary transfer restrictions contained in agreements entered
into by the Company in order to sell restricted securities or as provided in
the Form 10-KSB, Form 10-QSB or on SCHEDULE 2.1 (c) hereto, the Company is
not a party to any agreement granting registration or anti-dilution rights to
any person with respect to any of its equity or debt securities. The Company
is not a party to, and it has no knowledge of, any agreement restricting the
voting or transfer of any shares of the capital stock of the Company. Except
as set forth in the Form 10-KSB, Form 10-QSB or on SCHEDULE 2.1(c) hereto,
the offer and sale of all capital stock, convertible securities, rights,
warrants, or options of the Company issued prior to each Closing complied
with all applicable Federal and state securities laws, and no stockholder has
a right of rescission or claim for damages with respect thereto which would
have a Material Adverse Effect (as defined in Section 2.1(e) herein) on the
Company's financial condition or operating results. The Company has furnished
or made available to the Purchasers true and correct copies of the Company's
Restated Certificate of Incorporation as in effect on the date hereof (the
"Articles"), and the Company's Bylaws as in effect on the date hereof (the
"Bylaws").
(d) ISSUANCE OF SHARES. The Preferred Shares and the Warrants to be
issued at each Closing have been duly authorized by all necessary corporate
action and the Preferred Shares, when paid for or issued in accordance with the
terms hereof, shall be validly issued and outstanding, fully paid and
nonassessable and entitled to the rights and preferences set forth in the
Certificate of Designation. When the Conversion Shares and the Warrant Shares
are issued in accordance with the terms of the Preferred Shares as set forth in
the Certificate of Designation and the Warrants, respectively, such shares will
be duly authorized by all necessary corporate action and validly issued and
outstanding, fully paid and nonassessable, and the holders shall be entitled to
all rights accorded to a holder of Common Stock.
(e) NO CONFLICTS. Except as disclosed in SCHEDULE 2.1(e) hereto, the
execution, delivery and performance of the Transaction Documents by the Company,
the performance by the Company of its obligations under the Certificate of
Designation and the consummation by the Company of the transactions contemplated
herein and therein do not and will 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 or by which it or its
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properties or assets are bound, (iii) create or impose a lien, mortgage,
security interest, charge or encumbrance of any nature on any property of the
Company under any agreement or any commitment to which the Company is a party
or by which the Company is bound or by which any of its respective properties
or assets are bound, or (iv) result in a violation of any federal, state,
local or foreign statute, rule, regulation, order, judgment or decree
(including Federal and state securities laws and regulations) applicable to
the Company or any of its subsidiaries or by which any property or asset of
the Company or any of its subsidiaries are bound or affected, except, in all
cases other than violations pursuant to clauses (i) and (iv) above, for such
conflicts, defaults, terminations, amendments, 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 Designation, or issue and sell the Preferred
Shares, the Warrants, the Conversion Shares and the Warrant Shares in
accordance with the terms hereof or thereof (other than any filings which may
be required to be made by the Company with the Commission or state securities
administrators subsequent to each Closing, any registration statement which
may be filed pursuant hereto, and the Certificate of Designation); PROVIDED
that, for purposes of the representation made in this sentence, the Company
is assuming and relying upon the accuracy of the relevant representations and
agreements of the Purchasers herein.
(f) COMMISSION DOCUMENTS, FINANCIAL STATEMENTS. The Common Stock of the
Company is registered pursuant to Section 12(b) or 12(g) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, except as disclosed
in the Form 10-KSB, Form 10-QSB, Form 8-K or on SCHEDULE 2.1(f) hereto, the
Company has timely filed all reports, schedules, forms, statements and other
documents required to be filed by it with the Commission pursuant to the
reporting requirements of the Exchange Act, including material filed pursuant to
Section 13(a) or 15(d) of the Exchange Act (all of the foregoing including
filings incorporated by reference therein being referred to herein as the
"Commission Documents"). The Company has delivered or made available to each of
the Purchasers true and complete copies of the Commission Documents filed with
the Commission since December 31, 1999. The Company has not provided to the
Purchasers any material non-public information or other information which,
according to applicable law, rule or regulation, was required to have been
disclosed publicly by the Company but which has not been so disclosed, other
than with respect to the transactions contemplated by this Agreement. As of
their respective dates, the Form 10-KSB and the Form 10-QSB for the fiscal
quarters ended March 31, 2000 and June 30, 2000 complied in all material
respects with the requirements of the Exchange Act and the rules and regulations
of the Commission promulgated thereunder and other federal, state and local
laws, rules and regulations applicable to such documents, and, as of their
respective dates, none of the Form 10-
-5-
KSB and the Form 10-QSB referred to above contained any untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The financial
statements of the Company included in the Commission Documents comply as to
form in all material respects with applicable accounting requirements and the
published rules and regulations of the Commission or other applicable rules
and regulations with respect thereto. Such financial statements have been
prepared in accordance with generally accepted accounting principles ("GAAP")
applied on a consistent basis during the periods involved (except (i) as may
be otherwise indicated in such financial statements or the notes thereto or
(ii) in the case of unaudited interim statements, to the extent they may not
include footnotes or may be condensed or summary statements), and fairly
present in all material respects the financial position of the Company and
its subsidiaries as of the dates thereof and the results of operations and
cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments).
(g) SUBSIDIARIES. The Form 10-KSB, Form 10-QSB, Form 8-K or SCHEDULE
2.1(g) hereto sets forth each subsidiary of the Company, showing the
jurisdiction of its incorporation or organization and showing the percentage of
each person's ownership of the outstanding stock or other interests of such
subsidiary. For the purposes of this Agreement, "subsidiary" shall mean any
corporation or other entity of which at least a majority of the securities or
other ownership interest having ordinary voting power (absolutely or
contingently) for the election of directors or other persons performing similar
functions are at the time owned directly or indirectly by the Company and/or any
of its other subsidiaries. All of the outstanding shares of capital stock of
each subsidiary have been duly authorized and validly issued, and are fully paid
and nonassessable. There are no outstanding preemptive, conversion or other
rights, options, warrants or agreements granted or issued by or binding upon any
subsidiary for the purchase or acquisition of any shares of capital stock of any
subsidiary or any other securities convertible into, exchangeable for or
evidencing the rights to subscribe for any shares of such capital stock. Neither
the Company nor any subsidiary is subject to any obligation (contingent or
otherwise) to repurchase or otherwise acquire or retire any shares of the
capital stock of any subsidiary or any convertible securities, rights, warrants
or options of the type described in the preceding sentence. Neither the Company
nor any subsidiary is party to, nor has any knowledge of, any agreement
restricting the voting or transfer of any shares of the capital stock of any
subsidiary.
(h) NO MATERIAL ADVERSE CHANGE. Since June 30, 2000, the date through
which the most recent quarterly report of the Company on Form 10-QSB has been
prepared and filed with the Commission, a copy of which is included in the
Commission Documents, the Company has not experienced or suffered any Material
Adverse Effect, except as disclosed on SCHEDULE 2.1(h) hereto.
(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
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course of the Company's or its subsidiaries respective businesses since
December 31, 1999 and which, individually or in the aggregate, do not or
would not have a Material Adverse Effect on the Company or its subsidiaries.
(j) NO UNDISCLOSED EVENTS OR CIRCUMSTANCES. No event or circumstance
has occurred or exists with respect to the Company or its subsidiaries or their
respective businesses, properties, prospects, operations or financial condition,
which, under applicable law, rule or regulation, requires public disclosure or
announcement by the Company but which has not been so publicly announced or
disclosed.
(k) INDEBTEDNESS. The Form 10-KSB, Form 10-QSB, Form 8-K or SCHEDULE
2.1(k) hereto sets forth as of the date hereof all outstanding secured and
unsecured Indebtedness of the Company or any subsidiary, or for which the
Company or any subsidiary has commitments. For the purposes of this Agreement,
"Indebtedness" shall mean (a) any liabilities for borrowed money or amounts owed
in excess of $25,000 (other than trade accounts payable incurred in the ordinary
course of business), (b) all guaranties, endorsements and other contingent
obligations in respect of Indebtedness of others, whether or not the same are or
should be reflected in the Company's balance sheet (or the notes thereto),
except guaranties by endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of business; and (c)
the present value of any lease payments in excess of $25,000 due under leases
required to be capitalized in accordance with GAAP. Neither the Company nor any
subsidiary is in default with respect to any Indebtedness.
(l) TITLE TO ASSETS. Each of the Company and the subsidiaries has good
and marketable title to all of its real and personal property reflected in the
Commission Documents, free and clear of any mortgages, pledges, charges, liens,
security interests or other encumbrances, except for those indicated in the Form
10-KSB, Form 10-QSB, Form 8-K or on SCHEDULE 2.1(l) hereto or such that,
individually or in the aggregate, do not cause a Material Adverse Effect on the
Company's financial condition or operating results. All said leases of the
Company and each of its subsidiaries are valid and subsisting and in full force
and effect.
(m) ACTIONS PENDING. There is no action, suit, claim, investigation,
arbitration, alternate dispute resolution proceeding or any other proceeding
pending or, to the knowledge of the Company, threatened against the Company or
any subsidiary which questions the validity of this Agreement or any of the
other Transaction Documents or the transactions contemplated hereby or thereby
or any action taken or to be taken pursuant hereto or thereto. Except as set
forth in the Form 10-KSB, Form 10-QSB, Form 8-K or on SCHEDULE 2.1(m) hereto,
there is no action, suit, claim, investigation, arbitration, alternate dispute
resolution proceeding or any other proceeding pending or, to the knowledge of
the Company, threatened, against or involving the Company, any subsidiary or any
of their respective properties or assets. Except as set forth in the Form
10-KSB, Form 10-QSB, Form 8-K or SCHEDULE 2.1(m) hereto, there are no
outstanding 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.
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(n) COMPLIANCE WITH LAW. The business of the Company and the
subsidiaries has been and is presently being conducted in accordance with all
applicable federal, state and local governmental laws, rules, regulations and
ordinances, except as set forth in the Form 10-KSB, Form 10-QSB, on SCHEDULE
2.1(n) hereto or such that, individually or in the aggregate, do not cause a
Material Adverse Effect. The Company and each of its subsidiaries have all
franchises, permits, licenses, consents and other governmental or regulatory
authorizations and approvals necessary for the conduct of its business as now
being conducted by it unless the failure to possess such franchises, permits,
licenses, consents and other governmental or regulatory authorizations and
approvals, individually or in the aggregate, could not reasonably be expected
to have a Material Adverse Effect.
(o) TAXES. Except as set forth in the Form 10-KSB, Form 10-QSB or on
SCHEDULE 2.1(o) hereto, the Company and each of the subsidiaries has accurately
prepared and filed all federal, state and other tax returns required by law to
be filed by it, has paid or made provisions for the payment of all taxes shown
to be due and all additional assessments, and adequate provisions have been and
are reflected in the financial statements of the Company and the subsidiaries
for all current taxes and other charges to which the Company or any subsidiary
is subject and which are not currently due and payable. None of the federal
income tax returns of the Company or any subsidiary for the years subsequent to
December 31, 1999 have been audited by the Internal Revenue Service. The Company
has no knowledge of any additional assessments, adjustments or contingent tax
liability (whether federal or state) of any nature whatsoever, whether pending
or threatened against the Company or any subsidiary for any period, nor of any
basis for any such assessment, adjustment or contingency.
(p) CERTAIN FEES. Except as set forth on SCHEDULE 2.1(p) hereto, no
brokers, finders or financial advisory fees or commissions will be payable by
the Company or any subsidiary or any Purchaser with respect to the transactions
contemplated by this Agreement.
(q) DISCLOSURE. To the best of the Company's knowledge, neither this
Agreement or the Schedules hereto nor any other documents, certificates or
instruments furnished to the Purchasers by or on behalf of the Company or any
subsidiary in connection with the transactions contemplated by this Agreement
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made herein or therein, in the light
of the circumstances under which they were made herein or therein, not
misleading.
(r) OPERATION OF BUSINESS. The Company and each of the subsidiaries
owns or possesses all patents, trademarks, domain names (whether or not
registered) and any patentable improvements or copyrightable derivative works
thereof, websites and intellectual property rights relating thereto, service
marks, trade names, copyrights, licenses and authorizations as set forth in the
Form 10-KSB, Form 10-QSB, Form 8-K and on SCHEDULE 2.1(r) 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
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permits or other similar authorizations of all governmental authorities, or
from any other person, that are required under any Environmental Laws. The
Form 10-KSB or Form 10-QSB hereto sets forth all material permits, licenses
and other authorizations issued under any Environmental Laws to the Company
or its subsidiaries. "Environmental Laws" shall mean all applicable laws
relating to the protection of the environment including, without limitation,
all requirements pertaining to reporting, licensing, permitting, controlling,
investigating or remediating emissions, discharges, releases or threatened
releases of hazardous substances, chemical substances, pollutants,
contaminants or toxic substances, materials or wastes, whether solid, liquid
or gaseous in nature, into the air, surface water, groundwater or land, or
relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of hazardous substances, chemical
substances, pollutants, contaminants or toxic substances, material or wastes,
whether solid, liquid or gaseous in nature. The Company has all necessary
governmental approvals required under all Environmental Laws and used in its
business or in the business of any of its subsidiaries. The Company and each
of its subsidiaries are also in compliance with all other limitations,
restrictions, conditions, standards, requirements, schedules and timetables
required or imposed under all Environmental Laws. Except for such instances
as would not individually or in the aggregate have a Material Adverse Effect,
there are no past or present events, conditions, circumstances, incidents,
actions or omissions relating to or in any way affecting the Company or its
subsidiaries that violate or may violate any Environmental Law after the
Final Closing Date or that may give rise to any environmental liability, or
otherwise form the basis of any claim, action, demand, suit, proceeding,
hearing, study or investigation (i) under any Environmental Law, or (ii)
based on or related to the manufacture, processing, distribution, use,
treatment, storage (including without limitation underground storage tanks),
disposal, transport or handling, or the emission, discharge, release or
threatened release of any hazardous substance. "Environmental Liabilities"
means all liabilities of a person (whether such liabilities are owed by such
person to governmental authorities, third parties or otherwise) whether
currently in existence or arising hereafter which arise under or relate to
any Environmental Law.
(t) BOOKS AND RECORD INTERNAL ACCOUNTING CONTROLS. The records and
documents of the Company and its subsidiaries accurately reflect in all material
respects the information relating to the business of the Company and the
subsidiaries, the location and collection of their assets, and the nature of all
transactions giving rise to the obligations or accounts receivable of the
Company or any subsidiary. The Company and each of its subsidiaries maintain a
system of internal accounting controls sufficient, in the judgment of the
Company's board of directors, to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization and (iv) the recorded 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
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to any written or oral contract, instrument, agreement, commitment,
obligation, plan or arrangement, a copy of which would be required to be
filed with the Commission as an exhibit to a registration statement on Form
S-3 or applicable form (collectively, "Material Agreements") if the Company
or any subsidiary were registering securities under the Securities Act. The
Company and each of its subsidiaries has in all material respects performed
all the obligations required to be performed by them to date under the
foregoing agreements, have received no notice of default and, to the best of
the Company's knowledge are not in default under any Material Agreement now
in effect, the result of which could cause a Material Adverse Effect. No
written or oral contract, instrument, agreement, commitment, obligation, plan
or arrangement of the Company or of any subsidiary limits or shall limit the
payment of dividends on the Company's Preferred Shares, other Preferred
Stock, if any, or its Common Stock.
(v) TRANSACTIONS WITH AFFILIATES. Except as set forth in the Form
10-KSB, Form 10-QSB or on SCHEDULE 2.1(v) hereto, there are no loans, leases,
agreements, contracts, royalty agreements, management contracts or arrangements
or other continuing transactions exceeding $100,000 between (a) the Company, any
subsidiary or any of their respective customers or suppliers on the one hand,
and (b) on the other hand, any officer, employee, consultant or director of the
Company, or any of its subsidiaries, or any person owning any capital stock of
the Company or any subsidiary or any member of the immediate family of such
officer, employee, consultant, director or stockholder or any corporation or
other entity controlled by such officer, employee, consultant, director or
stockholder, or a member of the immediate family of such officer, employee,
consultant, director or stockholder.
(w) SECURITIES ACT OF 1933. Based in material part upon the
representations herein of the Purchasers, the Company has complied and will
comply with all applicable federal and state securities laws in connection with
the offer, issuance and sale of the Shares and the Warrants hereunder. Neither
the Company nor anyone acting on its behalf, directly or indirectly, has or will
sell, offer to sell or solicit offers to buy any of the Shares, the Warrants or
similar securities to, or solicit offers with respect thereto from, or enter
into any preliminary conversations or negotiations relating thereto with, any
person, or has taken or will take any action so as to bring the issuance and
sale of any of the Shares and the Warrants under the registration provisions of
the Securities Act and applicable state securities laws, and neither the Company
nor any of its affiliates, nor any person acting on its or their behalf, has
engaged in any form of general solicitation or general advertising (within the
meaning of Regulation D under the Securities Act) in connection with the offer
or sale of any of the Shares and the Warrants.
(x) GOVERNMENTAL APPROVALS. Except as set forth in the Form 10-KSB
or Form 10-QSB, and except for the filing of any notice prior or subsequent
to the Final Closing Date 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 Designation with the Secretary of State for the State of
Delaware, no authorization, consent, approval, license, exemption of, filing
or registration with any court or governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, is or will be
necessary for, or in connection with, the execution or delivery of the
Preferred Shares and the
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Warrants, or for the performance by the Company of its obligations under the
Transaction Documents or the Certificate of Designation.
(y) EMPLOYEES. Neither the Company nor any subsidiary has any
collective bargaining arrangements or agreements covering any of its employees,
except as set forth in the Form 10-KSB, Form 10-QSB or on SCHEDULE 2.1(y)
hereto. Except as set forth in the Form 10-KSB, Form 10-QSB or on SCHEDULE
2.1(y) hereto, neither the Company nor any subsidiary has any employment
contract, agreement regarding proprietary information, non-competition
agreement, non-solicitation agreement, confidentiality agreement, or any other
similar contract or restrictive covenant, relating to the right of any officer,
employee or consultant to be employed or engaged by the Company or such
subsidiary. Since December 31, 1999, no officer, consultant or key employee of
the Company or any subsidiary whose termination, either individually or in the
aggregate, could have a Material Adverse Effect, has terminated or, to the
knowledge of the Company, has any present intention of terminating his or her
employment or engagement with the Company or any subsidiary.
(z) ABSENCE OF CERTAIN DEVELOPMENTS. Except as provided in Form 10-KSB,
10-QSB, Form 8-K or in SCHEDULE 2.1(z) hereto, since December 31, 1999, neither
the Company nor any subsidiary has:
(i) issued any stock, bonds or other corporate securities or
any rights, options or warrants with respect thereto;
(ii) borrowed any amount or incurred or become subject to any
liabilities (absolute or contingent) except current liabilities incurred in the
ordinary course of business which are comparable in nature and amount to the
current liabilities incurred in the ordinary course of business during the
comparable portion of its prior fiscal year, as adjusted to reflect the current
nature and volume of the Company's or such subsidiary's business;
(iii) discharged or satisfied any lien or encumbrance or paid
any obligation or liability (absolute or contingent), other than current
liabilities paid in the ordinary course of business;
(iv) declared or made any payment or distribution of cash or
other property to stockholders with respect to its stock, or purchased or
redeemed, or made any agreements so to purchase or redeem, any shares of its
capital stock;
(v) sold, assigned or transferred any other tangible assets,
or canceled any debts or claims, except in the ordinary course of business;
(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;
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(vii) suffered any substantial losses or waived any rights of
material value, whether or not in the ordinary course of business, or suffered
the loss of any material amount of prospective business;
(viii) made any changes in employee compensation except in the
ordinary course of business and consistent with past practices;
(ix) made capital expenditures or commitments therefor that
aggregate in excess of $100,000;
(x) entered into any other transaction other than in the
ordinary course of business, or entered into any other material transaction,
whether or not in the ordinary course of business;
(xi) made charitable contributions or pledges in excess of
$25,000;
(xii) suffered any material damage, destruction or casualty
loss, whether or not covered by insurance;
(xiii) experienced any material problems with labor or
management in connection with the terms and conditions of their employment;
(xiv) effected any two or more events of the foregoing kind
which in the aggregate would be material to the Company or its subsidiaries; or
(xv) entered into an agreement, written or otherwise, to take
any of the foregoing actions.
(aa) USE OF PROCEEDS. The proceeds from the sale of the Preferred
Shares will be used by the Company for working capital and general corporate
purposes.
(bb) PUBLIC UTILITY HOLDING COMPANY ACT AND INVESTMENT COMPANY ACT
STATUS. The Company is not a "holding company" or a "public utility company" as
such terms are defined in the Public Utility Holding Company Act of 1935, as
amended. The Company is not, and as a result of and immediately upon any Closing
will not be, an "investment company" or a company "controlled" by an "investment
company," within the meaning of the Investment Company Act of 1940, as amended.
(cc) ERISA. No liability to the Pension Benefit Guaranty Corporation
has been incurred with respect to any Plan by the Company or any of its
subsidiaries which is or would be materially adverse to the Company and its
subsidiaries. The execution and delivery of this Agreement and the issue and
sale of the Preferred Shares will not involve any transaction which is subject
to the prohibitions of Section 406 of ERISA or in connection with which a tax
could be imposed pursuant to Section 4975 of the Internal Revenue Code of 1986,
as amended, provided that, if any of the Purchasers, or any person or entity
that owns a beneficial interest in any of the Purchasers, is an "employee
pension benefit plan" (within the meaning of Section 3(2)
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of ERISA) with respect to which the Company is a "party in interest" (within
the meaning of Section 3(14) of ERISA), the requirements of Sections
407(d)(5) and 408(e) of ERISA, if applicable, are met. As used in this
Section 2.1(ac), the term "Plan" shall mean an "employee pension benefit
plan" (as defined in Section 3 of ERISA) which is or has been established or
maintained, or to which contributions are or have been made, by the Company
or any subsidiary or by any trade or business, whether or not incorporated,
which, together with the Company or any subsidiary, is under common control,
as described in Section 414(b) or (c) of the Code.
(dd) DILUTIVE EFFECT. The Company understands and acknowledges that the
number of Conversion Shares issuable upon conversion of the Preferred Shares and
the Warrant Shares issuable upon exercise of the Warrants will increase in
certain circumstances. The Company further acknowledges that its obligation to
issue Conversion Shares upon conversion of the Preferred Shares in accordance
with this Agreement and the Certificate of Designation and its obligations to
issue the Warrant Shares upon the exercise of the Warrants in accordance with
this Agreement and the Warrants, is, in each case, absolute and unconditional
regardless of the dilutive effect that such issuance may have on the ownership
interest of other stockholders of the Company.
Section 2.2 REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. Each of
the Purchasers hereby makes the following representations and warranties to the
Company with respect solely to itself and not with respect to any other
Purchaser:
(a) ORGANIZATION AND STANDING OF THE PURCHASERS. If the Purchaser is an
entity, such Purchaser is a corporation or partnership duly incorporated or
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization.
(b) AUTHORIZATION AND POWER. The Purchaser has the requisite power and
authority to enter into and perform this Agreement and to purchase the Preferred
Shares being sold to it hereunder. The execution, delivery and performance of
this Agreement and the Registration Rights Agreement by such Purchaser and the
consummation by it of the transactions contemplated hereby and thereby have been
duly authorized by all necessary corporate or partnership action (if the
Purchaser is an entity), and no further consent or authorization of such
Purchaser or its Board of Directors, stockholders, or partners, as the case may
be, is required. Each of this Agreement and the Registration Rights Agreement
has been duly authorized, executed and delivered by such Purchaser.
(c) NO CONFLICTS. The execution, delivery and performance of this
Agreement and the Registration Rights Agreement and the consummation by such
Purchaser of the transactions contemplated hereby and thereby or relating hereto
do not and will not (i) result in a violation of such Purchaser's charter
documents or bylaws or (ii) conflict with, or constitute a 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
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violations as would not, individually or in the aggregate, have a material
adverse effect on such Purchaser). Such Purchaser is not required to obtain
any consent, authorization or order of, or make any filing or registration
with, any court or governmental agency in order for it to execute, deliver or
perform any of its obligations under this Agreement or the Registration
Rights Agreement or to purchase the Preferred Shares or acquire the Warrants
in accordance with the terms hereof, provided that for purposes of the
representation made in this sentence, such Purchaser is assuming and relying
upon the accuracy of the relevant representations and agreements of the
Company herein.
(d) ACQUISITION FOR INVESTMENT. Such Purchaser is acquiring the
Preferred Shares and the Warrants solely for its own account for the purpose of
investment and not with a view to or for sale in connection with distribution.
Such Purchaser does not have a present intention to sell the Preferred Shares or
the Warrants, nor a present arrangement (whether or not legally binding) or
intention to effect any distribution of the Preferred Shares or the Warrants to
or through any person or entity; PROVIDED, HOWEVER, that by making the
representations herein and subject to Section 2.2(f) below, such Purchaser does
not agree to hold the Shares or the Warrants for any minimum or other specific
term and reserves the right to dispose of the Shares or the Warrants at any time
in accordance with Federal and state securities laws applicable to such
disposition. Such Purchaser acknowledges that it is able to bear the financial
risks associated with an investment in the Preferred Shares and the Warrants and
that it has been given full access to such records of the Company and the
subsidiaries and to the officers of the Company and the subsidiaries and
received such information as it has deemed necessary or appropriate to conduct
its due diligence investigation.
(e) ACCREDITED PURCHASERS. Such Purchaser is an "accredited investor"
as defined in Regulation D promulgated under the Securities Act.
(f) RULE 144. Such Purchaser understands that the Shares must be held
indefinitely unless such Shares are registered under the Securities Act or an
exemption from registration is available. Such Purchaser acknowledges that such
Purchaser is familiar with Rule 144 of the rules and regulations of the
Commission, as amended, promulgated pursuant to the Securities Act ("Rule 144"),
and that such person has been advised that Rule 144 permits resales only under
certain circumstances. Such Purchaser understands that to the extent that Rule
144 is not available, such Purchaser will be unable to sell any Shares without
either registration under the Securities Act or the existence of another
exemption from such registration requirement.
(g) GENERAL. Such Purchaser understands that the Shares are being
offered and sold in reliance on a transactional exemption from the registration
requirement of Federal and state securities laws and the Company is relying upon
the truth and accuracy of the representations, warranties, agreements,
acknowledgments and understandings of such Purchaser set forth herein in order
to determine the applicability of such exemptions and the suitability of such
Purchaser to acquire the Shares.
(h) RESIDENCE. Such Purchaser's permanent domicile is as set forth in
Exhibit A.
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ARTICLE III
COVENANTS
The Company covenants with each of the Purchasers as follows, which
covenants are for the benefit of the Purchasers and their permitted assignees
(as defined herein).
Section 3.1 SECURITIES COMPLIANCE.
(a) The Company shall notify the Commission in accordance with their
rules and regulations, of the transactions contemplated by any of the
Transaction Documents, including filing a Form D with respect to the Preferred
Shares, Warrants, Conversion Shares and Warrant Shares as required under
Regulation D, and shall take all other necessary action and proceedings as may
be required and permitted by applicable law, rule and regulation, for the legal
and valid issuance of the Preferred Shares, the Warrants, the Conversion Shares
and the Warrant Shares to the Purchasers or subsequent holders.
(b) The Company is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments and understandings of
such Purchasers set forth herein in order to determine the applicability of
Federal and state securities laws exemptions and the suitability of such
Purchasers to acquire the Preferred Shares.
Section 3.2 REGISTRATION AND LISTING. The Company will cause its Common
Stock to continue to be registered under Sections 12(b) or 12(g) of the Exchange
Act, will comply in all respects with its reporting and filing obligations under
the Exchange Act, will comply with all requirements related to any registration
statement filed pursuant to this Agreement or the Registration Rights Agreement,
and will not take any action or file any document (whether or not permitted by
the Securities Act or the rules promulgated thereunder) to terminate or suspend
such registration or to terminate or suspend its reporting and filing
obligations under the Exchange Act or Securities Act, except as permitted
herein. The Company will take all action necessary to continue the listing or
trading of its Common Stock on the over-the-counter electronic bulletin board.
Section 3.3 INSPECTION RIGHTS. The Company shall permit, during normal
business hours and upon reasonable request and reasonable notice, each Purchaser
or any employees, agents or representatives thereof, so long as such Purchaser
shall be obligated hereunder to purchase the Preferred Shares or shall
beneficially own any Preferred Shares, or shall own Conversion Shares which, in
the aggregate, represent more than 2% of the total combined voting power of all
voting securities then outstanding, for purposes reasonably related 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.
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Section 3.4 COMPLIANCE WITH LAWS. The Company shall comply, and cause
each subsidiary to comply, with all applicable laws, rules, regulations and
orders, noncompliance with which could have a Material Adverse Effect.
Section 3.5 KEEPING OF RECORDS AND BOOKS OF ACCOUNT. The Company shall
keep and cause each subsidiary to keep adequate records and books of account, in
which complete entries will be made in accordance with GAAP consistently
applied, reflecting all financial transactions of the Company and its
subsidiaries, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other
purposes in connection with its business shall be made.
Section 3.6 REPORTING REQUIREMENTS. If the Company ceases to file its
periodic reports with the Commission, or if the Commission ceases making these
periodic reports available via the Internet without charge, then the Company
shall furnish the following to each Purchaser so long as such Purchaser shall be
obligated hereunder to purchase the Preferred Shares or shall beneficially own
any Preferred Shares, or shall own Conversion Shares which, in the aggregate,
represent more than 2% of the total combined voting power of all voting
securities then outstanding:
(a) Quarterly Reports filed with the Commission on Form 10-QSB as soon
as available, and in any event within forty-five (45) days after the end of each
of the first three fiscal quarters of the Company;
(b) Annual Reports filed with the Commission on Form 10-KSB as soon as
available, and in any event within ninety (90) days after the end of each fiscal
year of the Company; and
(c) Copies of all notices and information, including without limitation
notices and proxy statements in connection with any meetings, that are provided
to holders of shares of Common Stock, contemporaneously with the delivery of
such notices or information to such holders of Common Stock.
Section 3.7 AMENDMENTS. The Company shall not amend or waive any
provision of the 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 Designation.
Section 3.9 DISTRIBUTIONS. So long as any Preferred Shares or Warrants
remain outstanding, the Company agrees that it shall not (i) declare or pay any
dividends or make any distributions to any holder(s) of Common Stock or (ii)
purchase or otherwise acquire for value, directly or indirectly, any Common
Stock or other equity security of the Company.
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Section 3.10 STATUS OF DIVIDENDS. The Company covenants and agrees that
(i) no Federal income tax return or claim for refund of Federal income tax or
other submission to the Internal Revenue Service will adversely affect the
Preferred Shares, any other series of its Preferred Stock, or the Common Stock,
and any deduction shall not operate to jeopardize the availability to Purchasers
of the dividends received deduction provided by Section 243(a)(1) of the Code or
any successor provision, (ii) in no report to shareholders or to any
governmental body having jurisdiction over the Company or otherwise will it
treat the Preferred Shares other than as equity capital or the dividends paid
thereon other than as dividends paid on equity capital unless required to do so
by a governmental body having jurisdiction over the accounts of the Company or
by a change in generally accepted accounting principles required as a result of
action by an authoritative accounting standards setting body, and (iii) other
than pursuant to this Agreement or the Certificate of Designation, it will take
no action which would result in the dividends paid by the Company on the
Preferred Shares out of the Company's current or accumulated earnings and
profits being ineligible for the dividends received deduction provided by
Section 243(a)(1) of the Code. The preceding sentence shall not be deemed to
prevent the Company from designating the Preferred Stock as "Convertible
Preferred Stock" in its annual and quarterly financial statements in accordance
with its prior practice concerning other series of preferred stock of the
Company. Notwithstanding the foregoing, the Company shall not be required to
restate or modify its tax returns for periods prior to the Final Closing Date.
In the event that the Purchasers have reasonable cause to believe that dividends
paid by the Company on the Preferred Shares out of the Company's current or
accumulated earnings and profits will not be treated as eligible for the
dividends received deduction provided by Section 243(a)(1) of the Code, or any
successor provision, the Company will, at the reasonable request of the
Purchasers of 51% of the outstanding Preferred Shares, join with the Purchasers
in the submission to the Service of a request for a ruling that dividends paid
on the Shares will be so eligible for Federal income tax purposes, at the
Purchasers expense. In addition, the Company will reasonably cooperate with the
Purchasers (at Purchasers' expense) in any litigation, appeal or other
proceeding challenging or contesting any ruling, technical advice, finding or
determination that earnings and profits are not eligible for the dividends
received deduction provided by Section 243(a)(1) of the Code, or any successor
provision to the extent that the position to be taken in any such litigation,
appeal, or other proceeding is not contrary to any provision of the Code or
incurred in connection with any such submission, litigation, appeal or other
proceeding. Notwithstanding the foregoing, nothing herein contained shall be
deemed to preclude the Company from claiming a deduction with respect to such
dividends if (i) the Code shall hereafter be amended, or final Treasury
regulations thereunder are issued or modified, to provide that dividends on the
Preferred Shares or Conversion Shares should not be treated as dividends for
Federal income tax purposes or that a deduction with respect to all or a portion
of the dividends on the Shares is allowable for Federal income tax purposes, or
(ii) in the absence of such an amendment, issuance or modification and after a
submission of a request for ruling or technical advice, the service shall rule
or advise that dividends on the shares should not be treated as dividends for
Federal income tax purposes. If the Service determines that the Preferred Shares
or Conversion Shares constitute debt, the Company may file protective claims for
refund.
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Section 3.11 REGULATION S. The Company covenants and agrees that if the
Company fails to register the Conversion Shares and the Warrant Shares within
120 days from 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 Shares remain
outstanding and continue to be "restricted securities" within the meaning of
Rule 144 under the Securities Act, the Company shall, in order to permit resales
of any of the Shares pursuant to Regulation S under the Securities Act, (a)
continue to file all material required to be filed pursuant to Section 13(a) or
15(d) of the Exchange Act, and (b) not knowingly engage in directed selling
efforts in connection with the resale of securities by any Purchaser under
Regulation S.
Section 3.12 RIGHT OF FIRST REFUSAL; FUTURE FINANCINGS. (a) During the
one hundred twenty (120) day period immediately following the Effectiveness Date
(as defined in the Registration Rights Agreement), the Company covenants and
agrees that it will not, without the prior written consent of the Purchasers,
enter into any subsequent offer or sale to, or exchange with (or other type of
distribution to), any third party (a "Subsequent Financing"), of Common Stock or
any securities convertible or exchangeable into Common Stock, including debt
securities (collectively, the "Financing Securities") other than a Permitted
Financing (as defined hereinafter). For purposes of this Agreement, "Permitted
Financing" shall mean any transaction involving the Company's (i) issuance of
any Financing Securities (other than for cash) in connection with a merger
and/or acquisition, consolidation, sale or disposition of all or substantially
all of the Company's assets, (ii) exchange of capital stock for assets, (iii)
public underwritten offering at market of at least $10,000,000, (iv) issuance of
Common Stock or the issuance of options to purchase Common Stock as such is
related to any employee stock ownership plan, (v) issuance of Common Stock or
securities convertible, exercisable or exchangeable into Common Stock with gross
proceeds of at least $4,000,000 to a maximum of up to $20,000,000, PROVIDED,
that such issuance (A) is not at a discount greater than twenty percent (20%) of
the then current market price of the Common Stock, which market price shall be
determined based on the VWAP of the Common Stock for the five (5) trading days
immediately preceding the date of issuance (the "Current Market Price"), (B)
does not provide for or contain a mechanism for the reset of the purchase price
of the Common Stock to below the then Current Market Price of the Common Stock,
and (C) is not an issuance with warrants, which have an exercise price such that
together with the price of the Common Stock would result in the issuance of
shares of Common Stock at a per share price below the then Current Market Price
of the Common Stock, (vi) any transaction where the first use of proceeds from
such transaction would be used to redeem all of the Preferred Shares in
accordance with Section 8(h) of the Certificate of Designation or (vii) entering
into a Subsequent Financing with an entity which enters into a strategic
alliance, joint venture, partnership or similar arrangement with the Company,
the primary purpose of which is not to raise equity capital.
(b) During the period commencing on the Final Closing Date and ending
on the second (2nd) anniversary of the Effectiveness Date, the Company covenants
and agrees to promptly notify (in no event later than five (5) days after making
or receiving an applicable offer) in writing (a "Rights Notice") the Purchasers
of the terms and conditions of any proposed Subsequent Financing. The Rights
Notice shall describe, in reasonable detail, the proposed
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Subsequent Financing, the proposed closing date of the Subsequent Financing,
which shall be within thirty (30) calendar days from the date of the Rights
Notice, including, without limitation, all of the terms and conditions
thereof. The Rights Notice shall provide the Purchasers an option (the
"Rights Option") during the thirty (30) calendar day period following
delivery of the Rights Notice (the "Option Period") to purchase such amount
as the Company and the Purchasers may agree to, of the securities being
offered in such Subsequent Financing on the same, absolute terms and
conditions as contemplated by such Subsequent Financing (the "First Refusal
Rights"). Delivery of any Rights Notice constitutes a representation and
warranty by the Company that there are no other material terms and
conditions, arrangements, agreements or otherwise except for those disclosed
in the Rights Notice, to provide additional compensation to any party
participating in any proposed Subsequent Financing, including, but not
limited to, additional compensation based on changes in the Purchase Price or
any type of reset or adjustment of a purchase or conversion price or to issue
additional securities at any time after the closing date of a Subsequent
Financing. If the Company does not receive notice of exercise of the Rights
Option from the Purchasers within the Option Period, the Company shall have
the right to close the Subsequent Financing on the scheduled closing date
with a third party; PROVIDED that all of the terms and conditions of such
closing are the same as those provided to the Purchasers in the Rights
Notice. If the closing of the proposed Subsequent Financing does not occur on
that date, any closing of the contemplated Subsequent Financing or any other
Subsequent Financing shall be subject to all of the provisions of this
Section 3.12, including, without limitation, the delivery of a new Rights
Notice.
Section 3.13 RESERVATION OF SHARES. So long as any of the Preferred
Shares or Warrants remain outstanding, the Company shall take all action
necessary to at all times have authorized, and reserved for the purpose of
issuance, no less than 200% of the aggregate number of shares of Common Stock
needed to provide for the issuance of the Conversion Shares and the Warrant
Shares.
Section 3.14 TRANSFER AGENT INSTRUCTIONS. The Company shall issue
irrevocable instructions to its transfer agent, and any subsequent transfer
agent, to issue certificates, registered in the name of each Purchaser or its
respective nominee(s), for the Conversion Shares and the Warrant Shares in such
amounts as specified from time to time by each Purchaser to the Company upon
conversion of the Preferred Shares or exercise of the Warrants in the form of
Exhibit F attached hereto (the "Irrevocable Transfer Agent Instructions"). Prior
to registration of the Conversion Shares and the Warrant Shares under the
Securities Act, all such certificates shall bear the restrictive legend
specified in Section 6.1 of this Agreement. The Company warrants that no
instruction other than the Irrevocable Transfer Agent Instructions referred to
in this Section 3.14 will be given by the Company to its transfer agent and that
the Shares shall otherwise be freely transferable on the books and records of
the Company as and to the extent provided in this Agreement and the Registration
Rights Agreement. Nothing in this Section 3.14 shall affect in any way each
Purchaser's obligations and agreements set forth in Section 6.1 to comply with
all applicable prospectus delivery requirements, if any, upon resale of the
Shares. If a Purchaser provides the Company with an opinion of counsel, in a
generally acceptable form, to the effect that a public sale, assignment or
transfer of the Shares may be made without registration under the Securities Act
or the Purchaser provides the Company with reasonable
-19-
assurances that the Shares can be sold pursuant to Rule 144 without any
restriction as to the number of securities acquired as of a particular date
that can then be immediately sold, the Company shall permit the transfer,
and, in the case of the Conversion Shares and the Warrant Shares, promptly
instruct its transfer agent to issue one or more certificates in such name
and in such denominations as specified by such Purchaser and without any
restrictive legend. The Company acknowledges that a breach by it of its
obligations under this Section 3.14 will cause irreparable harm to the
Purchasers by vitiating the intent and purpose of the transaction
contemplated hereby. Accordingly, the Company acknowledges that the remedy at
law for a breach of its obligations under this Section 3.14 will be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section 3.14, that the Purchasers shall be
entitled, in addition to all other available remedies, to an order and/or
injunction restraining any breach and requiring immediate issuance and
transfer, without the necessity of showing economic loss and without any bond
or other security being required.
ARTICLE IV
CONDITIONS
Section 4.1 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE COMPANY TO
SELL THE SHARES. The obligation hereunder of the Company to issue and sell the
Preferred Shares and the Warrants to the Purchasers is subject to the
satisfaction or waiver, at or before each Closing, each of the conditions set
forth below. These conditions are for the Company's sole benefit and may be
waived by the Company at any time in its sole discretion.
(a) ACCURACY OF EACH PURCHASER'S REPRESENTATIONS AND WARRANTIES. The
representations and warranties of each Purchaser shall be true and correct in
all material respects as of the date when made and as of each Closing Date as
though made at that time, except for representations and warranties that are
expressly made as of a particular date, which shall be true and correct in all
material respects as of such date.
(b) PERFORMANCE BY THE PURCHASERS. Each Purchaser shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by such Purchaser at or prior to 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.
-20-
(d) MINIMUM PURCHASE. The Escrow Agent shall hold $1,000,000 or more of
immediately available funds pursuant to the Escrow Agreement received from the
Purchasers, and the Purchasers shall make the minimum purchase described in
Section 4.2(c).
Section 4.2 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE PURCHASERS TO
PURCHASE THE SHARES. The obligation hereunder of each Purchaser to acquire and
pay for the Preferred Shares and the Warrants is subject to the satisfaction or
waiver, at or before each Closing, of each of the conditions set forth below.
These conditions are for each Purchaser's sole benefit and may be waived by such
Purchaser at any time in its sole discretion.
(a) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND WARRANTIES. Each of
the representations and warranties of the Company shall be true and correct in
all material respects as of the date when made and as of such Closing Date as
though made at that time (except for representations and warranties that speak
as of a particular date), which shall be true and correct in all material
respects as of such date.
(b) PERFORMANCE BY THE COMPANY. The Company shall have performed,
satisfied and complied in all respects with all covenants, agreements and
conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to such Closing.
(c) MINIMUM PURCHASE. Under the terms and conditions of this Agreement,
the Company shall make sales of the Preferred Shares and Warrants to the
Purchasers resulting in gross proceeds of a minimum of $1,000,000 to the
Company, less fees and legal expenses payable to the Purchasers pursuant to a
written agreement describing said fees.
(d) NO SUSPENSION, ETC. From the date hereof to such 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 such Closing),
and, at any time prior to such 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.
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(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 DESIGNATION OF RIGHTS AND PREFERENCES. Prior to the
initial Closing, the Certificate of Designation in the form of Exhibit C
attached hereto shall have been filed with the Secretary of State of Delaware.
(h) OPINION OF COUNSEL, ETC. At each Closing, the Purchasers shall have
received an opinion of counsel to the Company, dated the date of such Closing,
in the form of Exhibit G hereto, and such other certificates and documents as
the Purchasers or its counsel shall reasonably require incident to such Closing.
(i) REGISTRATION RIGHTS AGREEMENT. At such Closing, the Company shall
have executed and delivered the Registration Rights Agreement to each Purchaser.
(j) CERTIFICATES. The Company shall have executed and delivered to the
Escrow Agent the certificates (in such denominations as such Purchaser shall
request) for the Preferred Shares and Warrants being acquired by such Purchaser
at such Closing.
(k) RESOLUTIONS. The Board of Directors of the Company shall have
adopted resolutions consistent with Section 2.1(b) above in a form reasonably
acceptable to such Purchaser (the "Resolutions").
(l) RESERVATION OF SHARES. As of each Closing Date, the Company shall
have reserved out of its authorized and unissued Common Stock, solely for the
purpose of effecting the conversion of the Preferred Shares and the exercise of
the Warrants, a number of shares of Common Stock equal to at least 200% of the
aggregate number of Conversion Shares issuable upon conversion of the Preferred
Shares outstanding on each 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 such Closing Date, as to (i)
the Resolutions, (ii) the
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Articles, (iii) the Bylaws, (iv) the Certificate of Designation, 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 such Closing, the Company shall have executed
and delivered the Escrow Agreement to each Purchaser.
(p) OFFICER'S CERTIFICATE. The Company shall have delivered to the
Purchasers a certificate of an executive officer of the Company, dated as of
such Closing Date, confirming the accuracy of the Company's representations,
warranties and covenants as of such Closing Date and confirming the compliance
by the Company with the conditions precedent set forth in this Section 4.2 as of
such Closing Date.
(q) CANCELLATION OF BRIDGE NOTES. At the Closing, Aspen shall deliver
or cause the delivery to the Company the original Bridge Notes marked "Canceled"
or "Paid-In-Full".
ARTICLE V
INTENTIONALLY OMITTED
ARTICLE VI
STOCK CERTIFICATE LEGEND
Section 6.1 LEGEND. Each certificate representing the Preferred Shares
and the Warrants, and, if appropriate, securities issued upon conversion
thereof, shall be stamped or otherwise imprinted with a legend substantially in
the following form (in addition to any legend required by applicable state
securities or "blue sky" laws):
THESE SECURITIES REPRESENTED BY THIS CERTIFICATE (THE "SECURITIES")
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE
SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE
SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR ESYNCH
CORP. SHALL HAVE RECEIVED AN OPINION OF ITS COUNSEL THAT REGISTRATION
OF SUCH SECURITIES UNDER THE SECURITIES AND UNDER THE PROVISIONS OF
APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.
-23-
The Company agrees to reissue certificates representing the Shares
without the legend set forth above if at such time, prior to making any
transfer of any Shares or Shares, such holder thereof shall give written
notice to the Company describing the manner and terms of such transfer and
removal as the Company may reasonably request. Such proposed transfer will
not be effected until: (a) the Company has notified such holder that either
(i) in the opinion of Company counsel, the registration of such Shares under
the Securities Act is not required in connection with such proposed transfer;
or (ii) a registration statement under the Securities Act covering such
proposed disposition has been filed by the Company with the Commission and
has become effective under the Securities Act; and (b) the Company has
notified such holder that either: (i) in the opinion of Company counsel, the
registration or qualification under the securities or "blue sky" laws of any
state is not required in connection with such proposed disposition, or (ii)
compliance with applicable state securities or "blue sky" laws has been
effected. The Company will use its best efforts to respond to any such notice
from a holder within ten (10) days. In the case of any proposed transfer
under this Section 6, the Company will use reasonable efforts to comply with
any such applicable state securities or "blue sky" laws, but shall in no
event be required, in connection therewith, to qualify to do business in any
state where it is not then qualified or to take any action that would subject
it to tax or to the general service of process in any state where it is not
then subject. The restrictions on transfer contained in Section 6.1 shall be
in addition to, and not by way of limitation of, any other restrictions on
transfer contained in any other section of this Agreement.
ARTICLE VII
INTENTIONALLY OMITTED.
ARTICLE VIII
INDEMNIFICATION
Section 8.1 GENERAL INDEMNITY. The Company agrees to indemnify and hold
harmless the Purchasers and any finder (and their respective directors,
officers, affiliates, agents, successors and assigns) from and against any and
all losses, liabilities, deficiencies, costs, damages and expenses (including,
without limitation, reasonable attorneys' fees, charges and disbursements)
incurred by the Purchasers as a result of any inaccuracy in or breach of the
representations, warranties or covenants made by the Company herein. Each
Purchaser severally but not jointly agrees to indemnify and hold harmless the
Company and its directors, officers, affiliates, agents, successors and assigns
from and against any and all losses, liabilities, deficiencies, costs, damages
and expenses (including, without limitation, reasonable attorneys' fees, charges
and disbursements) incurred by the Company as result of any inaccuracy in or
breach of the representations, warranties or covenants made by such Purchaser
herein.
Section 8.2 INDEMNIFICATION PROCEDURE. Any party entitled to
indemnification under this Article VIII (an "indemnified party") will give
written notice to the indemnifying party of any matters giving rise to a claim
for indemnification; provided, that the failure of any party entitled to
indemnification hereunder to give notice as provided herein shall not relieve
the indemnifying party of its obligations under this Article VIII except to the
extent that the
-24-
indemnifying party is actually prejudiced by such failure to give notice. In
case any action, proceeding or claim is brought against an indemnified party
in respect of which indemnification is sought hereunder, the indemnifying
party shall be entitled to participate in and, unless in the reasonable
judgment of the indemnified party a conflict of interest between it and the
indemnifying party may exist with respect of such action, proceeding or
claim, to assume the defense thereof with counsel reasonably satisfactory to
the indemnified party. In the event that the indemnifying party advises an
indemnified party that it will contest such a claim for indemnification
hereunder, or fails, within thirty (30) days of receipt of any
indemnification notice to notify, in writing, such person of its election to
defend, settle or compromise, at its sole cost and expense, any action,
proceeding or claim (or discontinues its defense at any time after it
commences such defense), then the indemnified party may, at its option,
defend, settle or otherwise compromise or pay such action or claim. In any
event, unless and until the indemnifying party elects in writing to assume
and does so assume the defense of any such claim, proceeding or action, the
indemnified party's costs and expenses arising out of the defense, settlement
or compromise of any such action, claim or proceeding shall be losses subject
to indemnification hereunder. The indemnified party shall cooperate fully
with the indemnifying party in connection with any negotiation or defense of
any such action or claim by the indemnifying party and shall furnish to the
indemnifying party all information reasonably available to the indemnified
party which relates to such action or claim. The indemnifying party shall
keep the indemnified party fully apprised at all times as to the status of
the defense or any settlement negotiations with respect thereto. If the
indemnifying party elects to defend any such action or claim, then the
indemnified party shall be entitled to participate in such defense with
counsel of its choice at its sole cost and expense. The indemnifying party
shall not be liable for any settlement of any action, claim or proceeding
effected without its prior written consent. Notwithstanding anything in this
Article VIII to the contrary, the indemnifying party shall not, without the
indemnified party's prior written consent, settle or compromise any claim or
consent to entry of any judgment in respect thereof which imposes any future
obligation on the indemnified party or which does not include, as an
unconditional term thereof, the giving by the claimant or the plaintiff to
the indemnified party of a release from all liability in respect of such
claim. The indemnification required by this Article VIII shall be made by
periodic payments of the amount thereof during the course of investigation or
defense, as and when bills are received or expense, loss, damage or liability
is incurred, so long as the indemnified party irrevocably agrees to refund
such moneys if it is ultimately determined by a court of competent
jurisdiction that such party was not entitled to indemnification. The
indemnity agreements contained herein shall be in addition to (a) any cause
of action or similar rights of the indemnified party against the indemnifying
party or others, and (b) any liabilities the indemnifying party may be
subject to pursuant to the law.
ARTICLE IX
MISCELLANEOUS
Section 9.1 FEES AND EXPENSES. Except as otherwise set forth in this
Agreement, the Registration Rights Agreement or the Certificate of Designation,
each party shall pay the fees and expenses of its advisors, counsel, accountants
and other experts, if any, and all
-25-
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 such Closing, all attorneys' fees and expenses
(exclusive of disbursements and out-of-pocket expenses) incurred by the
Purchasers up to $20,000 in connection with the preparation, negotiation,
execution and delivery of this Agreement, the Registration Rights Agreement
and the transactions contemplated thereunder. In addition, the Company shall
pay all reasonable fees and expenses incurred by the Purchasers in connection
with the filing and declaration of effectiveness by the Commission of the
Registration Statement (as defined in the Registration Rights Agreement) any
amendments, modifications or waivers of this Agreement or any of the other
Transaction Documents, or incurred in connection with the enforcement of this
Agreement or any of the other Transaction Documents, including, without
limitation, all reasonable attorneys' fees and expenses. The Company shall
pay all stamp or other similar taxes and duties levied in connection with
issuance of the Preferred Shares pursuant hereto.
Section 9.2 SPECIFIC ENFORCEMENT, CONSENT TO JURISDICTION.
(a) The Company and the Purchasers acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement, the Certificate of Designation or the Registration Rights Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent or cure breaches of the provisions of this
Agreement or the Registration Rights Agreement and to enforce specifically the
terms and provisions hereof or thereof, this being in addition to any other
remedy to which any of them may be entitled by law or equity.
(b) Each of the Company and the Purchasers (i) hereby irrevocably
submits to the jurisdiction of the United States District Court sitting in the
Southern District of New York and the courts of the State of New York located in
New York county for the purposes of any suit, action or proceeding arising out
of or relating to this Agreement or any of the other Transaction Documents or
the transactions contemplated hereby or thereby and (ii) hereby waives, and
agrees not to assert in any such suit, action or proceeding, any claim that it
is not personally subject to the jurisdiction of such court, that the suit,
action or proceeding is brought in an inconvenient forum or that the venue of
the suit, action or proceeding is improper. Each of the Company and the
Purchasers consents to process being served in any such suit, action or
proceeding by mailing a copy thereof to such party at the address in effect for
notices to it under this Agreement and agrees that such service shall constitute
good and sufficient service of process and notice thereof. Nothing in this
Section 9.2 shall affect or limit any right to serve process in any other manner
permitted by law.
Section 9.3 ENTIRE AGREEMENT; AMENDMENT. This Agreement contains the
entire understanding of the parties with respect to the matters covered hereby
and, except as specifically set forth herein or in the Transaction Documents or
the Certificate of Designation, neither the Company nor any of the Purchasers
makes any representations, warranty, covenant or undertaking with respect to
such matters and they supersede all prior understandings and agreements with
respect to said subject matter, all of which are merged herein. No provision of
-26-
this Agreement may be waived or amended other than by a written instrument
signed by the Company and the holders of at least two-thirds (2/3) of the
Preferred Shares then outstanding, and no provision hereof may be waived
other than by an a written instrument signed by the party against whom
enforcement of any such amendment or waiver is sought. No such amendment
shall be effective to the extent that it applies to less than all of the
holders of the Preferred Shares then outstanding. No consideration shall be
offered or paid to any person to amend or consent to a waiver or modification
of any provision of any of the Transaction Documents or the Certificate of
Designation unless the same consideration is also offered to all of the
parties to the Transaction Documents or holders of Preferred Shares, as the
case may be.
Section 9.4 NOTICES. Any notice, demand, request, waiver or other
communication required or permitted to be given hereunder shall be in writing
and shall be effective (a) upon hand delivery by telex (with correct answer back
received), telecopy or facsimile at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be:
If to the Company: Xxxxxx Xxxxxxxxx, CEO
eSynch Corporation
00000 Xxxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxx 00000
Telephone Number: (000) 000-0000
Facsimile Number: (000) 000-0000
with copies to: Xxxxxxxx X. Xxxxx, Esq.
Yocca Patch & Yocca LLP
00000 XxxXxxxxx Xxxx., Xxxxx 000
Xxxxxx, Xxxxxxxxxx 00000
Telephone Number: (000) 000-0000
Facsimile Number: (000) 000-0000
If to any Purchaser: At the address of such Purchaser
set forth on Exhibit A to this
Agreement, with copies to
Purchaser's counsel as set forth
on Exhibit A or as specified in
writing by such Purchaser with
copies to:
Xxxxxxxxxxx X. Xxxxxxx, Esq.
Xxxxxx Xxxxxx LLP
The Chrysler Building
000 Xxxxxxxxx Xxxxxx
-00-
Xxx Xxxx, Xxx Xxxx 00000
Telephone Number: (000) 000-0000
Fax: (000) 000-0000
Any party hereto may from time to time change its address for notices
by giving at least ten (10) days written notice of such changed address to the
other party hereto.
Section 9.5 WAIVERS. No waiver by either party of any default with
respect to any provision, condition or requirement of this Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any other
provisions, condition or requirement hereof, nor shall any delay or omission of
any party to exercise any right hereunder in any manner impair the exercise of
any such right accruing to it thereafter.
Section 9.6 HEADINGS. The article, section and subsection headings in
this Agreement are for convenience only and shall not constitute a part of this
Agreement for any other purpose and shall not be deemed to limit or affect any
of the provisions hereof.
Section 9.7 SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the parties and their successors and assigns.
After any Closing, the assignment by a party to this Agreement of any rights
hereunder shall not affect the obligations of such party under this Agreement.
Section 9.8 NO THIRD PARTY BENEFICIARIES. This Agreement is intended
for the benefit of the parties hereto and their respective permitted successors
and assigns and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.
Section 9.9 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York, without
giving effect to the choice of law provisions. This Agreement shall not
interpreted or construed with any presumption against the party causing this
Agreement to be drafted.
Section 9.10 SURVIVAL. The representations and warranties of the
Company and the Purchasers contained in Sections 2.1(o) and (s) should survive
indefinitely and those contained in Article II, with the exception of Sections
2.1(o) and (s), shall survive the execution and delivery hereof and the Closings
until the date three (3) years from the Final Closing Date, and the agreements
and covenants set forth in Articles I, III, V, VIII and IX of this Agreement
shall survive the execution and delivery hereof and the 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, 3.12, 3.13 and 3.14 shall not expire
until the Registration Statement required by Section 2 of the Registration
Rights Agreement is no longer required to be effective under the terms and
conditions of Registration Rights Agreement.
Section 9.11 COUNTERPARTS. This Agreement may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
instrument and shall
-28-
become effective when counterparts have been signed by each party and
delivered to the other parties hereto, it being understood that all parties
need not sign the same counterpart. In the event any signature is delivered
by facsimile transmission, the party using such means of delivery shall cause
four additional executed signature pages to be physically delivered to the
other parties within five days of the execution and delivery hereof.
Section 9.12 PUBLICITY. The Company agrees that it will not disclose,
and will not include in any public announcement, the name of the Purchasers
without the consent of the Purchasers unless and until such disclosure is
required by law or applicable regulation, and then only to the extent of such
requirement.
Section 9.13 SEVERABILITY. The provisions of this Agreement, the
Certificate of Designation and the Registration Rights Agreement are severable
and, in the event that any court of competent jurisdiction shall determine that
any one or more of the provisions or part of the provisions contained in this
Agreement, the Certificate of Designation or the Registration Rights Agreement
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision or part of a provision of this Agreement, the Certificate of
Designation or the Registration Rights Agreement shall be reformed and construed
as if such invalid or illegal or unenforceable provision, or part of such
provision, had never been contained herein, so that such provisions would be
valid, legal and enforceable to the maximum extent possible.
Section 9.14 FURTHER ASSURANCES. From and after the date of this
Agreement, upon the request of any Purchaser or the Company, each of the Company
and the Purchasers shall execute and deliver such instrument, documents and
other writings as may be reasonably necessary or desirable to confirm and carry
out and to effectuate fully the intent and purposes of this Agreement, the
Preferred Shares, the Conversion Shares, the Warrants, the Warrant Shares, the
Certificate of Designation, and the Registration Rights Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officer as of the date first above
written.
ESYNCH CORPORATION
By:
----------------------------------
Name:
Title:
ANGOS PROPERTY LTD.
By:
----------------------------------
Name:
Title:
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officer as of the date first above
written.
ESYNCH CORPORATION
By:
----------------------------------
Name:
Title:
ASPEN INTERNATIONAL LTD.
By:
----------------------------------
Name:
Title:
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EXHIBIT A TO THE
SERIES L CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
FOR ESYNCH CORP.
NAMES AND ADDRESS NUMBER OF PREFERRED SHARES DOLLAR AMOUNT
OF PURCHASERS & WARRANTS PURCHASED OF INVESTMENT
----------------- -------------------------- -------------
Angos Property LTD. Preferred Shares: 60 $600,000
00 Xxxx Xxxxxx Xxxxxxxx:
X.X.Xxx 55 A: 40,000
Grand Turks B: 40,000
Turks & Caicos, BWI
Facsimile no.:
Attention:
Aspen International, Ltd. Preferred Shares: 100 $1,000,000
Charlotte House Warrants:
Charlotte Street A: 66,667
Nassau, Bahamas B: 66,667
Tel. no.: 000-000-0000
Fax no.: 000-000-0000
Attn: Xxxxxxx X.X. Xxxxx Xxxxxx
-32-
