<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
December 31, 1999
-------------------
Date of Report (Date of earliest event reported)
ESYNCH CORPORATION
------------------
(Exact name of Registrant as specified in its charter)
Delaware 0-26790 87-0461856
-------- ------- ----------
(State or other (Commission File Number) (IRS Employer
jurisdiction of Identification
Incorporation) No.)
15502 Mosher Avenue
Tustin, CA 92710
------------------------
(Address of principal executive offices)
(Zip Code)
(714) 258-1900
--------------
(Registrant's telephone number, including area code)
Not applicable
----------------
(Former name or address, if changed since last report.)
<PAGE>
Item 5. Other Events
On December 30, 1999, the Registrant agreed to sell 200 shares of Series
K Convertible Preferred Stock and Warrants to purchase 150,000 shares of
Common Stock in exchange for cash in the amount of $2,000,000. Pursuant to
that agreement, the Registrant sold 200 shares of Series K Preferred Stock
and Warrants to purchase 150,000 shares of Common Stock for cash in the
amount of $2,000,000.
In addition to a cash payment of $75,000 and reimbursement of expenses,
the Registrant issued twelve and one-half (12.5) shares of Series K Preferred
Stock and Warrants to Purchase 9,375 shares of Common Stock for private
placement fees.
All of the shares and warrants contemplated in that agreement have been
sold and issued prior to the date hereof.
The terms and provisions of the sale of the Series K Preferred Stock and
the Warrants are as set forth in the Exhibits filed herewith, including the
Certificate of Designation of Series K Preferred Stock (exhibit 4.2), the
Series K Convertible Preferred Stock Purchase Agreement (Exhibit 10.14), the
Registration Rights Agreement (Exhibit 10.15), and the Form of Warrant
(Exhibit 10.16), all of which are incorporated herein by this reference.
Initially, the outstanding shares of Series K Preferred Stock are
convertible into an aggregate of 607,143 shares of the Registrant's Common
Stock and the Warrants are initially exercisable for an additional 159,375
shares of Common Stock. Holders have registration rights with respect to the
Common Stock issuable thereunder.
<PAGE>
Item 7. Financial Statements and Exhibits
(b) Exhibits. The following exhibits are incorporated herein by this
reference:
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
----------- ----------------------
<S> <C>
4.20* Certificate of Designation of Relative Rights
and Preferences of Series K Preferred Stock
10.14* Series K Convertible Preferred Stock
Purchase Agreement dated as of December 30, 1999
among the Registrant and the Purchasers named
therein
10.15* Registration Rights Agreement
dated as of December 30, 1999
among the Registrant and the Purchasers named
therein
10.16* Form of Warrant to Purchase Shares of
Common Stock of the Registrant dated as of
December 30, 1999 issued by the Registrant
in the following respective amounts:
</TABLE>
<TABLE>
<CAPTION>
Approximate
Exp. Exercise
Date Amount Holder Price
-------- -------- ---------------------------- ---------
<S> <C> <C> <C>
01/31/03 37,500 Aqua Wellington Small Cap
Value Fund Limited $12.36
12/31/02 45,000 Dandee, Ltd. $ 6.47
12/31/02 22,500 Lightline Limited $ 6.47
12/31/02 22,500 Roseworth Group Limited $ 6.47
12/31/02 22,500 Tonga Partners, L.P. $ 6.47
12/31/02 5,625 Intercoastal Financial
Services Corp. $ 6.47
01/31/03 3,750 Intercoastal Financial
Services Corp. $12.36
</TABLE>
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* Filed herewith.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ESYNCH CORPORATION
Date: February 10, 2000 By: /s/ Thomas C. Hemingway
----------------------------
Thomas C. Hemingway,
Chief Executive Officer
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
----------- ----------------------
<S> <C>
4.20* Certificate of Designation of Relative Rights
and Preferences of Series K Preferred Stock
10.14* Series K Convertible Preferred Stock
Purchase Agreement dated as of December 30, 1999
among the Registrant and the Purchasers named
therein
10.15* Registration Rights Agreement
dated as of December 30, 1999
among the Registrant and the Purchasers named
therein
10.16* Form of Warrant to Purchase Shares of
Common Stock of the Registrant dated as of
December 30, 1999 issued by the Registrant
in the following respective amounts:
</TABLE>
<TABLE>
<CAPTION>
Approximate
Exp. Exercise
Date Amount Holder Price
-------- -------- ---------------------------- ---------
<S> <C> <C> <C>
01/31/03 37,500 Aqua Wellington Small Cap
Value Fund Limited $12.36
12/31/02 45,000 Dandee, Ltd. $ 6.47
12/31/02 22,500 Lightline Limited $ 6.47
12/31/02 22,500 Roseworth Group Limited $ 6.47
12/31/02 22,500 Tonga Partners, L.P. $ 6.47
12/31/02 5,625 Intercoastal Financial
Services Corp. $ 6.47
01/31/03 3,750 Intercoastal Financial
Services Corp. $12.36
</TABLE>
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* Filed herewith.
<PAGE>
CERTIFICATE OF DESIGNATION OF THE RELATIVE RIGHTS AND
PREFERENCES
OF THE
SERIES K CONVERTIBLE PREFERRED STOCK
OF
ESYNCH CORPORATION
The undersigned, the Chief Executive Officer of eSynch Corporation,
a Delaware corporation (the "Company"), in accordance with the provisions of
the Delaware General Corporation Law, does hereby certify that, pursuant to
the authority conferred upon the Board of Directors by the Certificate of
Incorporation of the Company, the following resolution creating a series of
Series K Convertible Preferred Stock, was duly adopted on December 27, 1999:
RESOLVED, that pursuant to the authority expressly granted to and
vested in the Board of Directors of the Company by provisions of the Restated
Certificate of Incorporation of the Company (the "Certificate of
Incorporation"), there hereby is created out of the shares of Preferred
Stock, par value $.001 per share, of the Company authorized in Article IV of
the Certificate of Incorporation (the "Preferred Stock,"), a series of
Preferred Stock of the Company, to be named "Series K Convertible Preferred
Stock," consisting of Two Hundred Fifty (250) shares, which series shall have
the following designations, powers, preferences and relative and other
special rights and the following qualifications, limitations and restrictions:
1. DESIGNATION AND RANK. The designation of such series of the
Preferred Stock shall be the Series K Convertible Preferred Stock, par value
$.001 per share (the "Series K Preferred Stock"). The maximum number of
shares of Series K Preferred Stock shall be Two Hundred Fifty (250) Shares.
The Series K Preferred Stock shall have a liquidation preference of $10,000
per share. The Series K Preferred Stock shall rank (i) prior to the common
stock, par value $.001 per share (the "Common Stock"), and to all other
classes and series of equity securities of the Company which by its terms
does not rank senior to the Series K Preferred Stock ("Junior Stock"), (ii)
on parity with the Series J Preferred Stock and with any class and series of
equity securities which by its terms shall rank on parity with the Series K
Preferred Stock, and (iii) junior to any class or series of equity securities
which by its terms shall rank senior to the Series K Preferred Stock. The
Series K Preferred Stock shall be subordinate to and rank junior to all
indebtedness of the Company now or hereafter outstanding.
2. DIVIDENDS.
(a) PAYMENT OF DIVIDENDS. The holders of record of shares
of Series K Preferred Stock shall be entitled to receive, out of any assets
at the time legally available therefor and when and as declared by the Board
of Directors, dividends at the rate of seven percent (7%) of the stated
Liquidation Preference Amount (as defined below) per share per annum (the
"Dividend Payment"), and no more, payable at the option of the Company in
cash or in shares of
<PAGE>
Common Stock in an amount equal to the quotient of (i) the Dividend Payment
divided by (ii) the Conversion Price (as defined in Section 5(d) below). In
the case of shares of Series K Preferred Stock outstanding for less than a
full year, dividends shall be pro rated based on the portion of each year
during which such shares are outstanding. Such dividends on the Series K
Preferred Stock shall be cumulative, shall accrue and be payable only at
conversion of the Series K Preferred Stock into shares of Common Stock and
shall accrue until the Mandatory Conversion Date (as defined in Section
5(c)(ii) without regard to Section 5(c)(ii)(x)(A)). Such dividends on the
Series K Preferred Stock are prior and in preference to any declaration or
payment of any distribution (as defined below) on any outstanding shares of
Common Stock or any other equity securities of the Company ranking junior to
the Series K Preferred Stock as to the payment of dividends. Such dividends
shall accrue on each share of Series K Preferred Stock from day to day from
the date of initial issuance thereof whether or not earned or declared so
that if such dividends with respect to any previous dividend period at the
rate provided for herein have not been paid on, or declared and set apart
for, all shares of Series K Preferred Stock at the time outstanding, the
deficiency shall be fully paid on, or declared and set apart for, such shares
on a pro rata basis with all other equity securities of the Company ranking
on a parity with the Series K Preferred Stock as to the payment of dividends
before any distribution shall be paid on, or declared and set apart for
Common Stock or any other equity securities of the Company ranking junior to
the Series K Preferred Stock as to the payment of dividends.
(b) So long as any shares of Series K Preferred Stock are
outstanding, the Company shall not declare, pay or set apart for payment any
dividend or make any distribution on any Junior Stock (other than dividends
or distributions payable in additional shares of Junior Stock), unless at the
time of such dividend or distribution the Company shall have paid all accrued
and unpaid dividends on the outstanding shares of Series K Preferred Stock.
(c) In the event of a dissolution, liquidation or winding
up of the Company pursuant to Section 4, all accrued and unpaid dividends on
the Series K Preferred Stock shall be payable on the day immediately
preceding the date of payment of the preferential amount to the holders of
Series K Preferred Stock. In the event of (i) a mandatory redemption pursuant
to Section 9 or (ii) a redemption upon the occurrence of a Major Transaction
(as defined in Section 8(c)) or a Triggering Event (as defined in Section
8(d)) or at the election of the Company pursuant to Section 8, all accrued
and unpaid dividends on the Series K Preferred Stock shall be payable on the
day immediately preceding the date of such redemption. In the event of a
voluntary conversion pursuant to Section 5(a), all accrued and unpaid
dividends on the Series K Preferred Stock being converted shall be payable on
the day immediately preceding the Voluntary Conversion Date (as defined in
Section 5(b)(i)) and in the event of a mandatory conversion pursuant to
Section 5(c), all accrued and unpaid dividends on the Series K Preferred
Stock being converted shall be payable on the day immediately preceding the
Mandatory Conversion Date.
(d) For purposes hereof, unless the context otherwise
requires, "distribution" shall mean the transfer of cash or property without
consideration, whether by way of dividend or
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<PAGE>
otherwise, payable other than in shares of Common Stock or other equity
securities of the Company, or the purchase or redemption of shares of the
Company (other than redemptions set forth in Paragraph 8 below or repurchases
of Common Stock held by employees or consultants of the Corporation upon
termination of their employment or services pursuant to agreements providing
for such repurchase or upon the cashless exercise of options held by
employees or consultants) for cash or property.
3. VOTING RIGHTS.
(a) CLASS VOTING RIGHTS. The Series K Preferred Stock shall
have the following class voting rights (in addition to the voting rights set
forth in Section 3(b) hereof). So long as any shares of the Series K
Preferred Stock remain outstanding, the Company shall not, without the
affirmative vote or consent of the holders of at least three-quarters (3/4)
of the shares of the Series K Preferred Stock outstanding at the time, given
in person or by proxy, either in writing or at a meeting, in which the
holders of the Series K Preferred Stock vote separately as class: (i)
authorize, create, issue or increase the authorized or issued amount of any
class or series of stock, including but not limited to the issuance of any
more shares of previously authorized Common Stock or Preferred Stock, ranking
prior to the Series K Preferred Stock, with respect to the distribution of
assets on liquidation, dissolution or winding up; (ii) amend, alter or repeal
the provisions of the Series K Preferred Stock, whether by merger,
consolidation or otherwise, so as to adversely affect any right, preference,
privilege or voting power of the Series K Preferred Stock; PROVIDED, HOWEVER,
that any creation and issuance of another series of Junior Stock shall not be
deemed to adversely affect such rights, preferences, privileges or voting
powers; (iii) repurchase, redeem or pay dividends on, shares of the Company's
Junior Stock; (iv) amend the Certificate of Incorporation or By-Laws of the
Company so as to affect materially and adversely any right, preference,
privilege or voting power of the Series K Preferred Stock; PROVIDED, HOWEVER,
that any creation and issuance of another series of Junior Stock or any other
class or series of equity securities which by its terms shall rank on parity
with the Series K Preferred Stock shall not be deemed to materially and
adversely affect such rights, preferences privileges or voting powers; (v)
effect any distribution with respect to Junior Stock; or (vi) reclassify the
Company's outstanding securities.
(b) GENERAL VOTING RIGHTS. Except with respect to
transactions upon which the Series K Preferred Stock shall be entitled to
vote separately as a class pursuant to Section 3(a) above and except as
otherwise required by Delaware law, the Series K Preferred Stock shall have
no voting rights. The Common Stock into which the Series K Preferred Stock is
convertible shall, upon issuance, have all of the same voting rights as other
issued and outstanding Common Stock of the Company.
-3-
<PAGE>
4. LIQUIDATION PREFERENCE.
(a) In the event of the liquidation, dissolution or winding
up of the affairs of the Company, whether voluntary or involuntary, after
payment or provision for payment of the debts and other liabilities of the
Company, the holders of shares of the Series K Preferred Stock then
outstanding shall be entitled to receive, out of the assets of the Company
whether such assets are capital or surplus of any nature, an amount equal to
$10,000 per share (the "Liquidation Preference Amount") of the Series K
Preferred Stock plus any accrued and unpaid dividends before any payment
shall be made or any assets distributed to the holders of the Common Stock or
any other Junior Stock. If the assets of the Company are not sufficient to
pay in full the Liquidation Preference Amount plus any accrued and unpaid
dividends payable to the holders of outstanding shares of the Series K
Preferred Stock and any series of preferred stock or any other class of stock
on a parity, as to rights on liquidation, dissolution or winding up, with the
Series K Preferred Stock, then all of said assets will be distributed among
the holders of the Series K Preferred Stock and the other classes of stock on
a parity with the Series K Preferred Stock, if any, ratably in accordance
with the respective amounts that would be payable on such shares if all
amounts payable thereon were paid in full. The liquidation payment with
respect to each outstanding fractional share of Series K Preferred Stock
shall be equal to a ratably proportionate amount of the liquidation payment
with respect to each outstanding share of Series K Preferred Stock. All
payments for which this Section 4(a) provides shall be in cash, property
(valued at its fair market value as determined by the Company's independent,
outside accountant) or a combination thereof; PROVIDED, HOWEVER, that no cash
shall be paid to holders of Junior Stock unless each holder of the
outstanding shares of Series K Preferred Stock has been paid in cash the full
Liquidation Preference Amount plus any accrued and unpaid dividends to which
such holder is entitled as provided herein. After payment of the full
Liquidation Preference Amount plus any accrued and unpaid dividends to which
each holder is entitled, such holders of shares of Series K Preferred Stock
will not be entitled to any further participation as such in any distribution
of the assets of the Company.
(b) A consolidation or merger of the Company with or into
any other corporation or corporations, or a sale of all or substantially all
of the assets of the Company, or the effectuation by the Company of a
transaction or series of transactions in which more than 50% of the voting
shares of the Company is disposed of or conveyed, shall not be deemed to be a
liquidation, dissolution, or winding up within the meaning of this Section 4.
In the event of the merger or consolidation of the Company with or into
another corporation, the Series K Preferred Stock shall maintain its relative
powers, designations and preferences provided for herein and no merger shall
result inconsistent therewith.
(c) Written notice of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Company, stating
a payment date and the place where the distributable amounts shall be
payable, shall be given by mail, postage prepaid, no less than 45
-4-
<PAGE>
days prior to the payment date stated therein, to the holders of record of
the Series K Preferred Stock at their respective addresses as the same shall
appear on the books of the Company.
5. CONVERSION. The holder of Series K Preferred Stock shall have the
following conversion rights (the "Conversion Rights"):
(a) RIGHT TO CONVERT. At any time on or after the earlier
of (i) ninety (90) days from the Closing Date (as such term is defined in the
Securities Purchase Agreement dated as of December 30, 1999 between the
Company and the initial holders of the Series K Preferred Stock (the
"Securities Purchase Agreement")) or (ii) the effective date of the
Registration Statement (as such term is defined in the Registration Rights
Agreement dated as of December 30, 1999 by and among the Company and the
initial holders of the Series K Preferred Stock (the "Registration Rights
Agreement"), the holder of any such shares of Series K Preferred Stock may,
at such holder's option, subject to the limitations set forth in Section 7
herein, elect to convert (a "Voluntary Conversion") all or any portion of the
shares of Series K Preferred Stock held by such person into a number of fully
paid and nonassessable shares of Common Stock (the "Conversion Rate") equal
to the quotient of (i) the Liquidation Preference Amount of the shares of
Series K Preferred Stock being converted divided by (ii) the Conversion Price
(as defined in Section 5(d)(iii) below) then in effect as of the date of the
delivery by such holder of its notice of election to convert, PROVIDED, that
if during the period of 120 consecutive days immediately following the I
Tranche I Closing Date the Conversion Price is less than the Fixed Conversion
Price (as defined in Section 5(d)(ii))(the "Floor Price"), then, and only
during such 120 day period, the Conversion Rate shall be equal to the
quotient of (A) the Liquidation Preference Amount of the shares of Series K
Preferred Stock being converted divided by (B) the Floor Price.
(b) MECHANICS OF VOLUNTARY CONVERSION. The Voluntary
Conversion of Series K Preferred Stock shall be conducted in the following
manner:
(i) HOLDER'S DELIVERY REQUIREMENTS. To convert
Series K Preferred Stock into full shares of Common Stock on any date (the
"Voluntary Conversion Date"), the holder thereof shall (A) transmit by
facsimile (or otherwise deliver), for receipt on or prior to 5:00 p.m.,
Pacific Time on such date, a copy of a fully executed notice of conversion in
the form attached hereto as EXHIBIT I (the "Conversion Notice"), to the
Company, and (B) surrender to a common carrier for delivery to the Company as
soon as practicable following such date, the original certificates
representing the shares of Series K Preferred Stock being converted (or an
indemnification undertaking with respect to such shares in the case of their
loss, theft or destruction) (the "Preferred Stock Certificates") and the
originally executed Conversion Notice.
(ii) COMPANY'S RESPONSE. Upon receipt by the
Company of a facsimile copy of a Conversion Notice, the Company shall
immediately send, via facsimile, a confirmation of receipt of such Conversion
Notice to such holder. Upon receipt by the Company of the Preferred Stock
Certificates to be converted pursuant to a Conversion Notice, together
-5-
<PAGE>
with the originally executed Conversion Notice, the Company or its designated
transfer agent (the "Transfer Agent")(as applicable) shall, on the next
business day following the date of receipt by the Company of both (or the
second business day following the date of receipt by the Company of both if
received after 11:00 a.m. Pacific Time), issue and surrender to a common
carrier for overnight delivery to the address as specified in the Conversion
Notice, a certificate, registered in the name of the holder or its designee,
for the number of shares of Common Stock to which the holder shall be
entitled. If the number of Preferred Shares represented by the Preferred
Stock Certificate(s) submitted for conversion is greater than the number of
shares of Series K Preferred Stock being converted, then the Company shall,
as soon as practicable and in no event later than three (3) business days
after receipt of the Preferred Stock Certificate(s) and at the Company's
expense, issue and deliver to the holder a new Preferred Stock Certificate
representing the number of shares of Series K Preferred Stock not converted.
(iii) DISPUTE RESOLUTION. In the case of a dispute
as to the determination of the Average Share Price (as defined in Section
5(d) below) or the Conversion Price or the arithmetic calculation of the
number of shares of Common Stock to be issued upon conversion, the Company
shall promptly issue to the holder the number of shares of Common Stock that
is not disputed and shall submit the disputed determinations or arithmetic
calculations to the holder via facsimile as soon as possible, but in no event
later than two (2) business days after receipt of such holder's Conversion
Notice. If such holder and the Company are unable to agree upon the
determination of the Average Share Price or the Conversion Price or the
arithmetic calculation of the number of shares of Common Stock to be issued
upon such conversion within one (1) business day of such disputed
determination or arithmetic calculation being submitted to the holder, then
the Company shall within one (1) business day submit via facsimile (A) the
disputed determination of the Average Share Price or the Conversion Price to
an independent, reputable investment bank or (B) the disputed arithmetic
calculation of the number of shares of Common Stock to be issued upon such
conversion to its independent, outside accountant. The Company shall cause
the investment bank or the accountant, as the case may be, to perform the
determinations or calculations and notify the Company and the holder of the
results no later than seventy-two (72) hours from the time it receives the
disputed determinations or calculations. Such investment bank's or
accountant's determination or calculation, as the case may be, shall be
binding upon all parties absent manifest error. The reasonable expenses of
such investment bank or accountant in making such determination shall be paid
by the Company, in the event the holder's calculation or determination was
correct, or by the holder, in the event the Company's calculation or
determination was correct, or equally by the Company and the holder in the
event that neither the Company's or the holder's calculation or determination
was correct. The period of time in which the Company is required to effect
conversions or redemptions under this Certificate of Designations shall be
tolled with respect to the subject conversion or redemption pending
resolution of any dispute by the Company made in good faith and in accordance
with this Section 5(b)(iii).
(iv) RECORD HOLDER. The person or persons entitled
to receive the shares of Common Stock issuable upon a conversion of the
Series K Preferred Stock shall be
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<PAGE>
treated for all purposes as the record holder or holders of such shares of
Common Stock on the Conversion Date.
(v) COMPANY'S FAILURE TO TIMELY CONVERT. If within
five (5) business days of the Company's receipt of the Conversion Notice and
the Preferred Stock Certificates to be converted and the Conversion Notice
(the "Share Delivery Period") the Company shall fail to issue a certificate
to a holder for the number of shares of Common Stock to which such holder is
entitled upon such holder's conversion of the Series K Preferred Stock or to
issue a new Preferred Stock Certificate representing the number of shares of
Series K Preferred Stock to which such holder is entitled pursuant to Section
5(b)(ii) (a "Conversion Failure"), in addition to all other available
remedies which such holder may pursue hereunder and under the Securities
Purchase Agreement (including indemnification pursuant to Article thereof),
the Company shall pay additional damages to such holder on each business day
after such fifth (5th) business day that such conversion is not timely
effected in an amount equal 0.5% of the product of (A) the sum of the number
of shares of Common Stock not issued to the holder on a timely basis pursuant
to Section 5(b)(ii) and to which such holder is entitled and, in the event
the Company has failed to deliver a Preferred Stock Certificate to the holder
on a timely basis pursuant to Section 5(b)(ii), the number of shares of
Common Stock issuable upon conversion of the shares of Series K Preferred
Stock represented by such Preferred Stock Certificate, as of the last
possible date which the Company could have issued such Preferred Stock
Certificate to such holder without violating Section 5(b)(ii) and (B) the
Closing Bid Price (as defined in Section 5(d) below) of the Common Stock on
the last possible date which the Company could have issued such Common Stock
and such Preferred Stock Certificate, as the case may be, to such holder
without violating Section 5(b)(ii). If the Company fails to pay the
additional damages set forth in this Section 5(b)(v) within five business
days of the date incurred, then such payment shall bear interest at the rate
of 2% per month (pro rated for partial months) until such payments are made.
(c) MANDATORY CONVERSION.
(i) Each share of Series K Preferred Stock
outstanding on the Mandatory Conversion Date shall, automatically and without
any action on the part of the holder thereof, convert into a number of fully
paid and nonassessable shares of Common Stock equal to the quotient of (i)
the Liquidation Preference Amount of the shares of Series K Preferred Stock
outstanding on the Mandatory Conversion Date divided by (ii) the Conversion
Price in effect on the Mandatory Conversion Date.
(ii) As used herein, a "Mandatory Conversion Date"
shall be the date which is three (3) years after the date of issuance of the
applicable Preferred Shares (the "Issuance Date"), provided that the
Mandatory Conversion Date shall be extended for a period of up to two (2)
years for any shares of Series K Preferred Stock (x) for as long as (A) the
conversion of such share of Preferred Stock would violate Section 7, (B) a
Triggering Event (as defined in Section 8(d)) shall have occurred and be
continuing or (C) any event shall have
-7-
<PAGE>
occurred and be continuing which with the passage of time and the failure to
cure would result in a Triggering Event and (y) pursuant to Section 7(e) of
the Registration Rights Agreement, which extension shall be one day for each
days in any Blackout Period (as defined in Section 3(n) of the Registration
Rights Agreement). The Mandatory Conversion Date and the Voluntary Conversion
Date collectively are referred to in this Certificate of Designations as the
"Conversion Date."
(iii) On the Mandatory Conversion Date, the
outstanding shares of Series K Preferred Stock shall be converted
automatically without any further action by the holders of such shares and
whether or not the certificates representing such shares are surrendered to
the Company or its transfer agent; PROVIDED, HOWEVER, that the Company shall
not be obligated to issue certificates evidencing the shares of Common Stock
issuable upon conversion of any shares of Series K Preferred Stock unless
certificates evidencing such shares of Series K Preferred Stock are either
delivered to the Company or the holder notifies the Company that such
certificates have been lost, stolen, or destroyed, and executes an agreement
satisfactory to the Company to indemnify the Company from any loss incurred
by it in connection therewith. Upon the occurrence of the automatic
conversion of the Series K Preferred Stock pursuant to this Section 5, the
holders of the Series K Preferred Stock shall surrender the Preferred Stock
Certificates representing the Series K Preferred Stock for which the
Mandatory Conversion Date has occurred to the Company and the Company shall
deliver the shares of Common Stock issuable upon such conversion (in the same
manner set forth in Section 5(b)(ii)) to the holder within three (3) business
days of the holder's delivery of the applicable Preferred Stock Certificates.
(d) CONVERSION PRICE.
(i) The term "Six Day Average Share Price" shall
mean the average of the six (6) lowest Closing Bid Prices of the Company's
shares of Common Stock (as reported by Bloomberg Financial Markets
("Bloomberg")) in the over-the-counter market on the electronic bulletin
board for such security (the "OTC Bulletin Board") (or on such other United
States stock exchange or public trading market ("Alternative Exchange") on
which the shares of the Company trade if, at the time of the conversion, they
are not trading in the OTC Bulletin Board), during the twenty (20)
consecutive trading days ending on the trading day immediately preceding the
Conversion Date. The Six Day Average Share Price is referred to herein as the
"Average Share Price".
(ii) The term "Fixed Conversion Price" shall mean
$3.50.
(iii) The term "Conversion Price" shall mean, with
respect to any conversion of Series K Preferred Stock, the lesser of (A) the
Fixed Conversion Price, or (B) 100% of the "Floating Conversion Price" where
"Floating Conversion Price" shall mean 80% of the Six Day Average Share Price
on the Voluntary Conversion Date or Mandatory Conversion Date for such
conversion, as applicable.
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<PAGE>
(iv) The term "Closing Bid Price" shall mean, for
any security as of any date, the last closing bid price of such security in
the OTC Bulletin Board for such security as reported by Bloomberg, or, if no
closing bid price is reported for such security by Bloomberg, the last
closing trade price of such security as reported by Bloomberg, or, if no last
closing trade price is reported for such security by Bloomberg, the average
of the bid prices of any market makers for such security as reported in the
"pink sheets" by the National Quotation Bureau, Inc. If the Closing Bid Price
cannot be calculated for such security on such date on any of the foregoing
bases, the Closing Bid Price of such security on such date shall be the fair
market value as mutually determined by the Company and the holders of a
majority of the outstanding shares of Series K Preferred Stock. If the
Company and the holders of Series K Preferred Stock are unable to agree upon
the fair market value of the Common Stock, then such dispute shall be
resolved pursuant to Section 5(b)(iii) above with the term "Closing Bid
Price" being substituted for the term "Average Share Price." (All such
determinations to be appropriately adjusted for any stock dividend, stock
split or other similar transaction during such period).
(e) ADJUSTMENTS OF CONVERSION PRICE.
(i) ADJUSTMENTS FOR STOCK SPLITS AND COMBINATIONS.
If the Company shall at any time or from time to time after the Issuance
Date, effect a stock split of the outstanding Common Stock, the applicable
Fixed Conversion Price in effect immediately prior to the stock split shall
be proportionately decreased. If the Company shall at any time or from time
to time after the Issuance Date, combine the outstanding shares of Common
Stock, the applicable Fixed Conversion Price in effect immediately prior to
the combination shall be proportionately increased. Any adjustments under
this Section 5(e)(i) shall be effective at the close of business on the date
the stock split or combination occurs.
(ii) ADJUSTMENTS FOR CERTAIN DIVIDENDS AND
DISTRIBUTIONS. If the Company shall at any time or from time to time after
the Issuance Date, make or issue or set a record date for the determination
of holders of Common Stock entitled to receive a dividend or other
distribution payable in shares of Common Stock, then, and in each event, the
applicable Fixed Conversion Price in effect immediately prior to such event
shall be decreased as of the time of such issuance or, in the event such
record date shall have been fixed, as of the close of business on such record
date, by multiplying, as applicable, the applicable Fixed Conversion Price
then in effect by a fraction:
(1) the numerator of which shall be the
total number of shares of Common Stock issued and outstanding immediately
prior to the time of such issuance or the close of business on such record
date; and
(2) the denominator of which shall be the
total number of shares of Common Stock issued and outstanding immediately
prior to the time of such issuance
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or the close of business on such record date plus the number of shares of
Common Stock issuable in payment of such dividend or distribution.
(iii) ADJUSTMENT FOR OTHER DIVIDENDS AND
DISTRIBUTIONS. If the Company shall at any time or from time to time after
the Issuance Date, make or issue or set a record date for the determination
of holders of Common Stock entitled to receive a dividend or other
distribution payable in other than shares of Common Stock, then, and in each
event, an appropriate revision to the applicable Fixed Conversion Price shall
be made and provision shall be made (by adjustments of the Conversion Price
or otherwise) so that the holders of Series K Preferred Stock shall receive
upon conversions thereof, in addition to the number of shares of Common Stock
receivable thereon, the number of securities of the Company which they would
have received had their Series K Preferred Stock been converted into Common
Stock on the date of such event and had thereafter, during the period from
the date of such event to and including the Conversion Date, retained such
securities (together with any distributions payable thereon during such
period), giving application to all adjustments called for during such period
under this Section 5(e)(iii) with respect to the rights of the holders of the
Series K Preferred Stock.
(iv) ADJUSTMENTS FOR RECLASSIFICATION, EXCHANGE OR
SUBSTITUTION. If the Common Stock issuable upon conversion of the Series K
Preferred Stock at any time or from time to time after the Issuance Date
shall be changed to the same or different number of shares of any class or
classes of stock, whether by reclassification, exchange, substitution or
otherwise (other than by way of a stock split or combination of shares or
stock dividends provided for in Sections 5(e)(i), (ii) and (iii), or a
reorganization, merger, consolidation, or sale of assets provided for in
Section 5(e)(v)), then, and in each event, an appropriate revision to the
Fixed Conversion Price shall be made and provisions shall be made (by
adjustments of the Conversion Price or otherwise) so that the holder of each
share of Series K Preferred Stock shall have the right thereafter to convert
such share of Series K Preferred Stock into the kind and amount of shares of
stock and other securities receivable upon reclassification, exchange,
substitution or other change, by holders of the number of shares of Common
Stock into which such share of Series K Preferred Stock might have been
converted immediately prior to such reclassification, exchange, substitution
or other change, all subject to further adjustment as provided herein.
(v) ADJUSTMENTS FOR REORGANIZATION, MERGER,
CONSOLIDATION OR SALES OF ASSETS. If at any time or from time to time after
the Issuance Date there shall be a capital reorganization of the Company
(other than by way of a stock split or combination of shares or stock
dividends or distributions provided for in Section 5(e)(i), (ii) and (iii),
or a reclassification, exchange or substitution of shares provided for in
Section 5(e)(iv)), or a merger or consolidation of the Company with or into
another corporation, or the sale of all or substantially all of the Company's
properties or assets to any other person (an "Organic Change"), then as a
part of such Organic Change an appropriate revision to the Conversion Price
shall be made and provision shall be made (by adjustments of the Conversion
Price or otherwise) so that the holder of each share of Series K Preferred
Stock shall have the right thereafter to convert such share of Series K
Preferred Stock into the kind and amount of shares of stock and other
securities or property of
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the Company or any successor corporation resulting from Organic Change. In
any such case, appropriate adjustment shall be made in the application of the
provisions of this Section 5(e)(v) with respect to the rights of the holders
of the Series K Preferred Stock after the Organic Change to the end that the
provisions of this Section 5(e)(v) (including any adjustment in the
applicable Conversion Price then in effect and the number of shares of stock
or other securities deliverable upon conversion of the Series K Preferred
Stock) shall be applied after that event in as nearly an equivalent manner as
may be practicable.
(vi) CONSIDERATION FOR STOCK. In case any shares
of Common Stock or any securities convertible into or exchangeable for,
directly or indirectly, Common Stock ("Convertible Securities"), other than
the Series K Preferred Stock, or any rights or warrants or options to
purchase any such Common Stock or Convertible Securities, shall be issued or
sold:
(1) in connection with any merger or
consolidation in which the Company is the surviving corporation (other than
any consolidation or merger in which the previously outstanding shares of
Common Stock of the Company shall be changed to or exchanged for the stock or
other securities of another corporation), the amount of consideration
therefore shall be, deemed to be the fair value, as determined reasonably and
in good faith by the Board of Directors of the Company, of such portion of
the assets and business of the nonsurviving corporation as such Board may
determine to be attributable to such shares of Common Stock, Convertible
Securities, rights or warrants or options, as the case may be; or
(2) in the event of any consolidation or
merger of the Company in which the Company is not the surviving corporation
or in which the previously outstanding shares of Common Stock of the Company
shall be changed into or exchanged for the stock or other securities of
another corporation, or in the event of any sale of all or substantially all
of the assets of the Company for stock or other securities of any
corporation, the Company shall be deemed to have issued a number of shares of
its Common Stock for stock or securities or other property of the other
corporation computed on the basis of the actual exchange ratio on which the
transaction was predicated, and for a consideration equal to the fair market
value on the date of such transaction of all such stock or securities or
other property of the other corporation. If any such calculation results in
adjustment of the applicable Fixed Conversion Price, or the number of shares
of Common Stock issuable upon conversion of the Series K Preferred Stock, the
determination of the applicable Fixed Conversion Price or the number of
shares of Common Stock issuable upon conversion of the Series K Preferred
Stock immediately prior to such merger, consolidation or sale, shall be made
after giving effect to such adjustment of the number of shares of Common
Stock issuable upon conversion of the Series K Preferred Stock.
(vii) RECORD DATE. In case the Company shall take
record of the holders of its Common Stock or any other Preferred Stock for
the purpose of entitling them to subscribe for or purchase Common Stock or
Convertible Securities, then the date of the issue or sale of the shares of
Common Stock shall be deemed to be such record date.
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(viii) CERTAIN ISSUES EXCEPTED. Anything herein to
the contrary notwithstanding, the Company shall not be required to make any
adjustment of the number of shares of Common Stock issuable upon conversion
of the Series K Preferred Stock upon the grant after the Issuance Date of, or
the exercise after the Issuance Date of, options or warrants or rights to
purchase stock under the Company's stock option plan.
(f) NO IMPAIRMENT. The Company shall not, by amendment of
its Certificate of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed hereunder by the
Company, but will at all times in good faith, assist in the carrying out of
all the provisions of this Section 5 and in the taking of all such action as
may be necessary or appropriate in order to protect the Conversion Rights of
the holders of the Series K Preferred Stock against impairment. In the event
a holder shall elect to convert any shares of Series K Preferred Stock as
provided herein, the Company cannot refuse conversion based on any claim that
such holder or any one associated or affiliated with such holder has been
engaged in any violation of law, unless, an injunction from a court, on
notice, restraining and/or adjoining conversion of all or of said shares of
Series K Preferred Stock shall have been issued and the Company posts a
surety bond for the benefit of such holder in the amount of the difference
between the Conversion Price and the Closing Bid Price on the trading day
preceding the date of the attempted conversion multiplied by the number of
shares of Series K Preferred Stock sought to be converted, which bond shall
remain in effect until the completion of arbitration/litigation of the
dispute and the proceeds of which shall be payable to such holder in the
event it obtains judgment.
(g) CERTIFICATES AS TO ADJUSTMENTS. Upon occurrence of each
adjustment or readjustment of the Fixed Conversion Price or number of shares
of Common Stock issuable upon conversion of the Series K Preferred Stock
pursuant to this Section 5, the Company at its expense shall promptly compute
such adjustment or readjustment in accordance with the terms hereof and
furnish to each holder of such Series K Preferred Stock a certificate setting
forth such adjustment and readjustment, showing in detail the facts upon
which such adjustment or readjustment is based. The Company shall, upon
written request of the holder of such affected Series K Preferred Stock, at
any time, furnish or cause to be furnished to such holder a like certificate
setting forth such adjustments and readjustments, the applicable Fixed
Conversion Price in effect at the time, and the number of shares of Common
Stock and the amount, if any, of other securities or property which at the
time would be received upon the conversion of a share of such Series K
Preferred Stock. Notwithstanding the foregoing, the Company shall not be
obligated to deliver a certificate unless such certificate would reflect an
increase or decrease of at least one percent of such adjusted amount.
(h) ISSUE TAXES. The Company shall pay any and all issue
and other taxes, excluding federal, state or local income taxes, that may be
payable in respect of any issue or delivery of shares of Common Stock on
conversion of shares of Series K Preferred Stock pursuant thereto; PROVIDED,
HOWEVER, that the Company shall not be obligated to pay any transfer
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taxes resulting from any transfer requested by any holder in connection with
any such conversion.
(i) NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally or by
facsimile or three (3) business days following being mailed by certified or
registered mail, postage prepaid, return-receipt requested, addressed to the
holder of record at its address appearing on the books of the Company. The
Company will give written notice to each holder of Series K Preferred Stock
at least twenty (20) days prior to the date on which the Company closes its
books or takes a record (I) with respect to any dividend or distribution upon
the Common Stock, (II) with respect to any pro rata subscription offer to
holders of Common Stock or (III) for determining rights to vote with respect
to any Organic Change, dissolution, liquidation or winding-up and in no event
shall such notice be provided to such holder prior to such information being
made known to the public. The Company will also give written notice to each
holder of Series K Preferred Stock at least twenty (20) days prior to the
date on which any Organic Change, dissolution, liquidation or winding-up will
take place and in no event shall such notice be provided to such holder prior
to such information being made known to the public.
(j) FRACTIONAL SHARES. No fractional shares of Common Stock
shall be issued upon conversion of the Series K Preferred Stock. In lieu of
any fractional shares to which the holder would otherwise be entitled, the
Company shall pay cash equal to the product of such fraction multiplied by
the average of the Closing Bid Prices of the Common Stock for the five
consecutive trading days immediately preceding on the Voluntary Conversion
Date or Mandatory Conversion Date, as applicable.
(k) RESERVATION OF COMMON STOCK. The Company shall, so long
as any shares of Series K Preferred Stock are outstanding, reserve and keep
available out of its authorized and unissued Common Stock, solely for the
purpose of effecting the conversion of the Series K Preferred Stock, such
number of shares of Common Stock as shall from time to time be sufficient to
effect the conversion of all of the Series K Preferred Stock then
outstanding; PROVIDED that the number of shares of Common Stock so reserved
shall at no time be less than 200% of the number of shares of Common Stock
for which the shares of Series K Preferred Stock are at any time convertible.
The initial number of shares of Common Stock reserved for conversions of the
Series K Preferred Stock and each increase in the number of shares so
reserved shall be allocated pro rata among the holders of the Series K
Preferred Stock based on the number of shares of Series K Preferred Stock
held by each holder at the time of issuance of the Series K Preferred Stock
or increase in the number of reserved shares, as the case may be. In the
event a holder shall sell or otherwise transfer any of such holder's shares
of Series K Preferred Stock, each transferee shall be allocated a pro rata
portion of the number of reserved shares of Common Stock reserved for such
transferor. Any shares of Common Stock reserved and which remain allocated to
any person or entity which does not hold any shares of Series K Preferred
Stock shall be allocated to the remaining holders of Series K Preferred
Stock, pro rata based on the number of shares of Series K Preferred Stock
then held by such holder. The
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Company shall, from time to time in accordance with the Delaware General
Corporation Law, as amended, increase the authorized number of shares of
Common Stock if at any time the unissued number of authorized shares shall
not be sufficient to satisfy the Company's obligations under this Section
5(k).
(l) RETIREMENT OF SERIES K PREFERRED STOCK. Conversion of
Series K Preferred Stock shall be deemed to have been effected on the
applicable Voluntary Conversion Date or Mandatory Conversion Date, and such
date is referred to herein as the "Conversion Date". Upon conversion of only
a portion of the number of shares of Series K Preferred Stock represented by
a certificate surrendered for conversion, the Company shall issue and deliver
to such holder at the expense of the Company, a new certificate covering the
number of shares of Series K Preferred Stock representing the unconverted
portion of the certificate so surrendered as required by Section 5(b)(ii).
(m) REGULATORY COMPLIANCE. If any shares of Common Stock to
be reserved for the purpose of conversion of Series K Preferred Stock require
registration or listing with or approval of any governmental authority, stock
exchange or other regulatory body under any federal or state law or
regulation or otherwise before such shares may be validly issued or delivered
upon conversion, the Company shall, at its sole cost and expense, in good
faith and as expeditiously as possible, endeavor to secure such registration,
listing or approval, as the case may be.
6. NO PREEMPTIVE RIGHTS. Except as provided in Section 5 hereof and
in the Securities Purchase Agreement, no holder of the Series K Preferred
Stock shall be entitled to rights to subscribe for, purchase or receive any
part of any new or additional shares of any class, whether now or hereinafter
authorized, or of bonds or debentures, or other evidences of indebtedness
convertible into or exchangeable for shares of any class, but all such new or
additional shares of any class, or any bond, debentures or other evidences of
indebtedness convertible into or exchangeable for shares, may be issued and
disposed of by the Board of Directors on such terms and for such
consideration (to the extent permitted by law), and to such person or persons
as the Board of Directors in their absolute discretion may deem advisable.
7. CONVERSION RESTRICTIONS. Notwithstanding anything to the contrary
set forth in Section 5 of this Certificate of Designations, in no event shall
any holder be entitled to convert Series K Preferred Stock in excess of that
number of shares of Series K Preferred Stock which, upon giving effect to
such conversion, would cause the aggregate number of shares of Common Stock
beneficially owned by the holder and its affiliates to exceed 4.99% of the
outstanding shares of the Common Stock following such conversion. For
purposes of the foregoing proviso, the aggregate number of shares of Common
Stock beneficially owned by the holder and its affiliates shall include the
number of shares of Common Stock issuable upon conversion of the shares of
Series K Preferred Stock with respect to which the determination of such
proviso is being made, but shall exclude the number of shares of Common Stock
which would be issuable upon (i) conversion of the remaining, nonconverted
shares of Series K Preferred Stock
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beneficially owned by the holder and its affiliates, and (ii) exercise or
conversion of the unexercised or unconverted portion of any other securities
of the Company (including, without limitation, any warrants) subject to a
limitation on conversion or exercise analogous to the limitation contained
herein beneficially owned by the holder and its affiliates. Except as set
forth in the preceding sentence, for purposes of this Section 7, beneficial
ownership shall be calculated in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended.
8. REDEMPTION.
(a) REDEMPTION OPTION UPON MAJOR TRANSACTION. In addition
to all other rights of the holders of Series K Preferred Stock contained
herein, simultaneous with the occurrence of a Major Transaction (as defined
below), each holder of Series K Preferred Stock shall have the right, at such
holder's option, to require the Company to redeem all or a portion of such
holder's shares of Series K Preferred Stock at a price per share of Series K
Preferred Stock equal to the greater of (i) 125% of the Liquidation
Preference Amount and (ii) the product of (A) the Conversion Rate and (B) the
Closing Bid Price of the Common Stock on the trading date immediately
preceding such Major Transaction ("Major Transaction Redemption Price"),
PROVIDED, that the Major Transaction Redemption Price shall be paid by the
Company as follows: (x) an amount equal to 125% of the Liquidation Preference
Amount shall be paid in cash and (y) the balance, if any, shall be paid in
shares of Common Stock or cash, at the Company's election.
(b) REDEMPTION OPTION UPON TRIGGERING EVENT. In addition to
all other rights of the holders of Series K Preferred Stock contained herein,
after a Triggering Event (as defined below), each holder of Series K
Preferred Stock shall have the right, at such holder's option, to require the
Company to redeem all or a portion of such holder's shares of Series K
Preferred Stock at a price per share of Series K Preferred Stock equal to the
greater of (i) 125% of the Liquidation Preference Amount and (ii) the product
of (A) the Conversion Rate (as defined in Section 5(a)) at such time and (B)
the Closing Bid Price of the Common Stock calculated as of the date
immediately preceding such Triggering Event on which the exchange or market
on which the Common Stock is traded is open ("Triggering Event Redemption
Price" and, collectively with "Major Transaction Redemption Price," the
"Redemption Price"), PROVIDED, that the Triggering Event Redemption Price
shall be paid by the Company as follows: (x) an amount equal to 125% of the
Liquidation Preference Amount shall be paid in cash and (y) the balance, if
any, shall be paid in shares of Common Stock or cash, at the Company's
election.
(c) "MAJOR TRANSACTION". A "Major Transaction" shall be
deemed to have occurred at such time as any of the following events:
(i) the consolidation, merger or other business
combination of the Company with or into another Person (other than (A)
pursuant to a migratory merger effected solely for the purpose of changing
the jurisdiction of incorporation of the Company or (B) a consolidation,
merger or other business combination in which holders of the Company's voting
power immediately prior to the transaction continue after the transaction to
hold, directly or
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indirectly, the voting power of the surviving entity or entities necessary to
elect a majority of the members of the board of directors (or their
equivalent if other than a corporation) of such entity or entities).
(ii) the sale or transfer of all or substantially
all of the Company's assets; or
(iii) consummation of a purchase, tender or
exchange offer made to the holders of more than 30% of the outstanding shares
of Common Stock.
(d) "TRIGGERING EVENT". A "Triggering Event" shall be
deemed to have occurred at such time as any of the following events:
(i) the failure of the Registration Statement to
be declared effective by the SEC on or prior to the date which is 150 days
after the Closing Date;
(ii) while the Registration Statement is required
to be maintained effective pursuant to the terms of the Registration Rights
Agreement, the effectiveness of the Registration Statement lapses for any
reason (including, without limitation, the issuance of a stop order) or is
unavailable to the holder of the Series K Preferred Stock for sale of the
Registrable Securities (as defined in the Registration Rights Agreement) in
accordance with the terms of the Registration Rights Agreement, and such
lapse or unavailability continues for a period of ten consecutive trading
days, PROVIDED that the cause of such lapse or unavailability is not due to
factors solely within the control of such holder of Series K Preferred Stock;
(iii) the suspension from listing or the failure
of the Common Stock to be listed on the OTC Bulletin Board, the Nasdaq
SmallCap Market, the Nasdaq National Market, The New York Stock Exchange,
Inc. or The American Stock Exchange, Inc., as applicable, for a period of
five consecutive days;
(iv) the Company's notice to any holder of Series
K Preferred Stock, including by way of public announcement, at any time, of
its inability to comply (including for any of the reasons described in
Section 9) or its intention not to comply with proper requests for conversion
of any Series K Preferred Stock into shares of Common Stock;
(v) the Company's failure to comply with a
Conversion Notice tendered in accordance with the provisions of this
Certificate of Designations within 10 business days after the receipt by the
Company of the Conversion Notice and the Preferred Stock Certificates; or
(vi) the Company breaches any representation,
warranty, covenant or other term or condition of the Securities Purchase
Agreement, the Registration Rights Agreement, this Certificate of
Designations or any other agreement, document, certificate or
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other instrument delivered in connection with the transactions contemplated
thereby or hereby, except to the extent that such breach would not have a
Material Adverse Effect (as defined in Section 2.1(e) of the Securities
Purchase Agreement) and except, in the case of a breach of a covenant which
is curable, only if such breach continues for a period of a least ten days.
(e) MECHANICS OF REDEMPTION AT OPTION OF BUYER UPON MAJOR
TRANSACTION. No sooner than 15 days nor later than 10 days prior to the
consummation of a Major Transaction, but not prior to the public announcement
of such Major Transaction, the Company shall deliver written notice thereof
via facsimile and overnight courier ("Notice of Major Transaction") to each
holder of Series K Preferred Stock. At any time after receipt of a Notice of
Major Transaction (or, in the event a Notice of Major Transaction is not
delivered at least 10 days prior to a Major Transaction, at any time within
10 days prior to a Major Transaction), any holder of Series K Preferred Stock
then outstanding may require the Company to redeem, effective immediately
prior to the consummation of such Major Transaction, all of the holder's
Series K Preferred Stock then outstanding by delivering written notice
thereof via facsimile and overnight courier ("Notice of Redemption at Option
of Buyer Upon Major Transaction") to the Company, which Notice of Redemption
at Option of Buyer Upon Major Transaction shall indicate (i) the number of
shares of Series K Preferred Stock that such holder is electing to redeem and
(ii) the applicable Major Transaction Redemption Price, as calculated
pursuant to Section 8(a) above.
(f) MECHANICS OF REDEMPTION AT OPTION OF BUYER UPON
TRIGGERING EVENT. Within one (1) day after the occurrence of a Triggering
Event, the Company shall deliver written notice thereof via facsimile and
overnight courier ("Notice of Triggering Event") to each holder of Series K
Preferred Stock. At any time after the earlier of a holder's receipt of a
Notice of Triggering Event and such holder becoming aware of a Triggering
Event, any holder of Series K Preferred Stock then outstanding may require
the Company to redeem all of the Series K Preferred Stock by delivering
written notice thereof via facsimile and overnight courier ("Notice of
Redemption at Option of Buyer Upon Triggering Event") to the Company, which
Notice of Redemption at Option of Buyer Upon Triggering Event shall indicate
(i) the number of shares of Series K Preferred Stock that such holder is
electing to redeem and (ii) the applicable Triggering Event Redemption Price,
as calculated pursuant to Section 8(b) above.
(g) PAYMENT OF REDEMPTION PRICE. Upon the Company's receipt
of a Notice(s) of Redemption at Option of Buyer Upon Triggering Event or a
Notice(s) of Redemption at Option of Buyer Upon Major Transaction from any
holder of Series K Preferred Stock, the Company shall immediately notify each
holder of Series K Preferred Stock by facsimile of the Company's receipt of
such Notice(s) of Redemption at Option of Buyer Upon Triggering Event or
Notice(s) of Redemption at Option of Buyer Upon Major Transaction and each
holder which has sent such a notice shall promptly submit to the Company such
holder's Preferred Stock Certificates which such holder has elected to have
redeemed. The Company shall deliver the applicable Triggering Event
Redemption Price, in the case of a redemption pursuant to Section 8(f), to
such holder within five (5) business days after the Company's receipt of a
Notice of Redemption at Option of Buyer Upon Triggering Event and, in the
case of a redemption pursuant
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to Section 8(e), the Company shall deliver the applicable Major Transaction
Redemption Price immediately prior to the consummation of the Major
Transaction; PROVIDED that a holder's Preferred Stock Certificates shall have
been so delivered to the Company; PROVIDED FURTHER that if the Company is
unable to redeem all of the Series K Preferred Stock to be redeemed, the
Company shall redeem an amount from each holder of Series K Preferred Stock
being redeemed equal to such holder's pro-rata amount (based on the number of
shares of Series K Preferred Stock held by such holder relative to the number
of shares of Series K Preferred Stock outstanding) of all Series K Preferred
Stock being redeemed. If the Company shall fail to redeem all of the Series K
Preferred Stock submitted for redemption (other than pursuant to a dispute as
to the arithmetic calculation of the Redemption Price), in addition to any
remedy such holder of Series K Preferred Stock may have under this
Certificate of Designations and the Securities Purchase Agreement, the
applicable Redemption Price payable in respect of such unredeemed Series K
Preferred Stock shall bear interest at the rate of 2.0% per month (prorated
for partial months) until paid in full. Until the Company pays such unpaid
applicable Redemption Price in full to a holder of shares of Series K
Preferred Stock submitted for redemption, such holder shall have the option
(the "Void Optional Redemption Option") to, in lieu of redemption, require
the Company to promptly return to such holder(s) all of the shares of Series
K Preferred Stock that were submitted for redemption by such holder(s) under
this Section 8 and for which the applicable Redemption Price has not been
paid, by sending written notice thereof to the Company via facsimile (the
"Void Optional Redemption Notice"). Upon the Company's receipt of such Void
Optional Redemption Notice(s) and prior to payment of the full applicable
Redemption Price to such holder, (i) the Notice(s) of Redemption at Option of
Buyer Upon Triggering Event or the Notice(s) of Redemption at Option of Buyer
Upon Major Transaction, as the case may be, shall be null and void with
respect to those shares of Series K Preferred Stock submitted for redemption
and for which the applicable Redemption Price has not been paid, (ii) the
Company shall immediately return any Series K Preferred Stock submitted to
the Company by each holder for redemption under this Section 8(g) and for
which the applicable Redemption Price has not been paid and (iii) the Fixed
Conversion Price of such returned shares of Series K Preferred Stock shall be
adjusted to the lesser of (A) the Fixed Conversion Price as in effect on the
date on which the Void Optional Redemption Notice(s) is delivered to the
Company and (B) the lowest Closing Bid Price during the period beginning on
the date on which the Notice(s) of Redemption of Option of Buyer Upon Major
Transaction or the Notice(s) of Redemption at Option of Buyer Upon Triggering
event, as the case may be, is delivered to the Company and ending on the date
on which the Void Optional Redemption Notice(s) is delivered to the Company;
PROVIDED that no adjustment shall be made if such adjustment would result in
an increase of the Fixed Conversion Price then in effect. Notwithstanding the
foregoing, in the event of a dispute as to the determination of the Closing
Bid Price or the arithmetic calculation of the Redemption Price, such dispute
shall be resolved pursuant to Section 5(b)(iii) above with the term "Closing
Bid Price" being substituted for the term "Average Share Price" and the term
"Redemption Price" being substituted for the term "Conversion Price". A
holder's delivery of a Void Optional Redemption Notice and exercise of its
rights following such notice shall not effect the Company's obligations to
make any payments which have accrued prior to the date of such
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notice. Payments provided for in this Section 8 shall have priority to
payments to other stockholders in connection with a Major Transaction.
(h) COMPANY'S REDEMPTION OPTION. The Company may redeem all
or a portion of the Series K Preferred Stock outstanding upon thirty (30)
days prior written notice (the "Company's Redemption Notice") at a price per
share of Series K Preferred Stock equal to 120% of the Liquidation Preference
Amount, plus any accrued but unpaid dividends (the "Company's Redemption
Price"); PROVIDED, that if a holder has delivered a Conversion Notice to the
Company or delivers a Conversion Notice within thirty (30) days of receipt of
the Company's Redemption Notice, the shares of Series K Preferred Stock
designated to be converted may not be redeemed by the Company; PROVIDED
FURTHER that if during the period between delivery of the Company's
Redemption Notice and the Redemption Date a holder shall become entitled to
deliver a Notice of Redemption at Option of Buyer Upon Major Transaction or
Notice of Redemption at Option of Buyer upon Triggering Event, then the right
of such holder shall take precedence over the previously delivered Company
Redemption Notice. The Company's Redemption Notice shall state the date of
redemption which date shall be the thirty-first (31st) day after the Company
has delivered the Company's Redemption Notice (the "Redemption Date"), the
Company's Redemption Price and the number of shares to be redeemed by the
Company. The Company shall deliver the Company's Redemption Price to the
Escrow Agent (as defined in the Purchase Agreement) within five (5) business
days after the Company has delivered the Company's Redemption Notice,
PROVIDED, that if the holder(s) delivers a Conversion Notice before the
Redemption Date, then the portion of the Redemption Price which would be paid
to redeem the shares of Series K Preferred Stock covered by such Conversion
Notice shall be returned to the Company upon delivery of the Common Stock
issuable in connection with such Conversion Notice to the holder(s). On the
Redemption Date, the Escrow Agent shall pay the Company's Redemption Price,
subject to any adjustment pursuant to the immediately preceding sentence, to
the holder(s) on a pro rata basis, PROVIDED, however, that upon receipt by
the Escrow Agent of the Preferred Stock Certificates to be redeemed pursuant
to this Section 8(h), the Escrow Agent shall, on the next business day
following the date of receipt by the Escrow Agent of such Preferred Stock
Certificates, pay the Company's Redemption Price to the holder(s) on a pro
rata basis. If the Company fails to pay the Redemption Price by the fifth
(5th) business day after the Company has delivered the Company's Redemption
Notice, the redemption will be declared null and void and the Company shall
lose its right to serve a Company's Redemption Notice in the future.
9. INABILITY TO FULLY CONVERT.
(a) HOLDER'S OPTION IF COMPANY CANNOT FULLY CONVERT. If,
upon the Company's receipt of a Conversion Notice or on the Mandatory
Conversion Date, the Company cannot issue shares of Common Stock registered
for resale under the Registration Statement for any reason, including,
without limitation, because the Company (x) does not have a sufficient number
of shares of Common Stock authorized and available, (y) is otherwise
prohibited by applicable law or by the rules or regulations of any stock
exchange, interdealer quotation system
-19-
<PAGE>
or other self-regulatory organization with jurisdiction over the Company or
its Securities from issuing all of the Common Stock which is to be issued to
a holder of Series K Preferred Stock pursuant to a Conversion Notice or (z)
fails to have a sufficient number of shares of Common Stock registered for
resale under the Registration Statement, then the Company shall issue as many
shares of Common Stock as it is able to issue in accordance with such
holder's Conversion Notice and pursuant to Section 5(b)(ii) above and, with
respect to the unconverted Series K Preferred Stock, the holder, solely at
such holder's option, can elect, within five (5) business days after receipt
of notice from the Company thereof to:
(i) require the Company to redeem from such holder
those Series K Preferred Stock for which the Company is unable to issue
Common Stock in accordance with such holder's Conversion Notice ("Mandatory
Redemption") at a price per share equal to the Triggering Event Redemption
Price as of such Conversion Date (the "Mandatory Redemption Price");
(ii) if the Company's inability to fully convert
Series K Preferred Stock is pursuant to Section 9(a)(z) above, require the
Company to issue restricted shares of Common Stock in accordance with such
holder's Conversion Notice and pursuant to Section 5(b)(ii) above;
(iii) void its Conversion Notice and retain or
have returned, as the case may be, the shares of Series K Preferred Stock
that were to be converted pursuant to such holder's Conversion Notice
(provided that a holder's voiding its Conversion Notice shall not effect the
Company's obligations to make any payments which have accrued prior to the
date of such notice).
(b) MECHANICS OF FULFILLING HOLDER'S ELECTION. The Company
shall immediately send via facsimile to a holder of Series K Preferred Stock,
upon receipt of a facsimile copy of a Conversion Notice from such holder
which cannot be fully satisfied as described in Section 9(a) above, a notice
of the Company's inability to fully satisfy such holder's Conversion Notice
(the "Inability to Fully Convert Notice"). Such Inability to Fully Convert
Notice shall indicate (i) the reason why the Company is unable to fully
satisfy such holder's Conversion Notice, (ii) the number of Series K
Preferred Stock which cannot be converted and (iii) the applicable Mandatory
Redemption Price. Such holder shall notify the Company of its election
pursuant to Section 9(a) above by delivering written notice via facsimile to
the Company ("Notice in Response to Inability to Convert").
(c) PAYMENT OF REDEMPTION PRICE. If such holder shall elect
to have its shares redeemed pursuant to Section 9(a)(i) above, the Company
shall pay the Mandatory Redemption Price in cash to such holder within thirty
(30) days of the Company's receipt of the holder's Notice in Response to
Inability to Convert, PROVIDED that prior to the Company's receipt of the
holder's Notice in Response to Inability to Convert the Company has not
delivered a notice to such holder stating, to the satisfaction of the holder,
that the event or condition resulting in the Mandatory Redemption has been
cured and all Conversion Shares issuable to such holder can
-20-
<PAGE>
and will be delivered to the holder in accordance with the terms of Section
2(g). If the Company shall fail to pay the applicable Mandatory Redemption
Price to such holder on a timely basis as described in this Section 9(c)
(other than pursuant to a dispute as to the determination of the arithmetic
calculation of the Redemption Price), in addition to any remedy such holder
of Series K Preferred Stock may have under this Certificate of Designation
and the Securities Purchase Agreement, such unpaid amount shall bear interest
at the rate of 2.0% per month (prorated for partial months) until paid in
full. Until the full Mandatory Redemption Price is paid in full to such
holder, such holder may (i) void the Mandatory Redemption with respect to
those Series K Preferred Stock for which the full Mandatory Redemption Price
has not been paid, (ii) receive back such Series K Preferred Stock, and (iii)
require that the Fixed Conversion Price of such returned Series K Preferred
Stock be adjusted to the lesser of (A) the Fixed Conversion Price as in
effect on the date on which the holder voided the Mandatory Redemption and
(B) the lowest Closing Bid Price during the period beginning on the
Conversion Date and ending on the date the holder voided the Mandatory
Redemption. Notwithstanding the foregoing, if the Company fails to pay the
applicable Mandatory Redemption Price within such thirty (30) days time
period due to a dispute as to the determination of the arithmetic calculation
of the Redemption Rate, such dispute shall be resolved pursuant to Section
5(b)(iii) above with the term "Redemption Price" being substituted for the
term "Conversion Price".
(d) PRO-RATA CONVERSION AND REDEMPTION. In the event the
Company receives a Conversion Notice from more than one holder of Series K
Preferred Stock on the same day and the Company can convert and redeem some,
but not all, of the Series K Preferred Stock pursuant to this Section 9, the
Company shall convert and redeem from each holder of Series J Convertible
Preferred Stock electing to have Series K Preferred Stock converted and
redeemed at such time an amount equal to such holder's pro-rata amount (based
on the number shares of Series K Preferred Stock held by such holder relative
to the number shares of Series K Preferred Stock outstanding) of all shares
of Series K Preferred Stock being converted and redeemed at such time.
10. VOTE TO CHANGE THE TERMS OF OR ISSUE PREFERRED STOCK. The
affirmative vote at a meeting duly called for such purpose or the written
consent without a meeting, of the holders of not less than three-fourths
(3/4) of the then outstanding shares of Series K Preferred Stock, shall be
required (a) for any change to this Certificate of Designations or the
Company's Certificate of Incorporation which would amend, alter, change or
repeal any of the powers, designations, preferences and rights of the Series
K Preferred Stock or (b) for the issuance of shares of Series K Preferred
Stock other than pursuant to the Securities Purchase Agreement.
11. LOST OR STOLEN CERTIFICATES. Upon receipt by the Company of
evidence satisfactory to the Company of the loss, theft, destruction or
mutilation of any Preferred Stock Certificates representing the shares of
Series K Preferred Stock, and, in the case of loss, theft or destruction, of
any indemnification undertaking by the holder to the Company and, in the case
of mutilation, upon surrender and cancellation of the Preferred Stock
Certificate(s), the Company shall execute and deliver new preferred stock
certificate(s) of like tenor and date; PROVIDED,
-21-
<PAGE>
HOWEVER, the Company shall not be obligated to re-issue Preferred Stock
Certificates if the holder contemporaneously requests the Company to convert
such shares of Series K Preferred Stock into Common Stock.
12. REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND
INJUNCTIVE RELIEF. The remedies provided in this Certificate of Designations
shall be cumulative and in addition to all other remedies available under
this Certificate of Designations, at law or in equity (including a decree of
specific performance and/or other injunctive relief), no remedy contained
herein shall be deemed a waiver of compliance with the provisions giving rise
to such remedy and nothing herein shall limit a holder's right to pursue
actual damages for any failure by the Company to comply with the terms of
this Certificate of Designations. Amounts set forth or provided for herein
with respect to payments, conversion and the like (and the computation
thereof) shall be the amounts to be received by the holder thereof and shall
not, except as expressly provided herein, be subject to any other obligation
of the Company (or the performance thereof). The Company acknowledges that a
breach by it of its obligations hereunder will cause irreparable harm to the
holders of the Series K Preferred Stock and that the remedy at law for any
such breach may be inadequate. The Company therefore agrees that, in the
event of any such breach or threatened breach, the holders of the Series K
Preferred Stock shall be entitled, in addition to all other available
remedies, to an injunction restraining any breach, without the necessity of
showing economic loss and without any bond or other security being required.
13. SPECIFIC SHALL NOT LIMIT GENERAL; CONSTRUCTION. No specific
provision contained in this Certificate of Designations shall limit or modify
any more general provision contained herein. This Certificate of Designations
shall be deemed to be jointly drafted by the Company and all initial
purchasers of the Series K Preferred Stock and shall not be construed against
any person as the drafter hereof.
14. FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the
part of a holder of Series K Preferred Stock in the exercise of any power,
right or privilege hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any such power, right or privilege preclude
other or further exercise thereof or of any other right, power or privilege.
-22-
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed and subscribed this
Certificate and does affirm the foregoing as true this 30 day of December,
1999.
ESYNCH CORPORATION
By: /s/ Thomas Hemingway
--------------------------------------
Name: Thomas Hemingway
Title: Chief Executive Officer
-23-
<PAGE>
EXHIBIT I
ESYNCH CORPORATION
CONVERSION NOTICE
Reference is made to the Certificate of Designation of the Relative Rights
and Preferences of the Series K Preferred Stock of eSynch Corporation (the
"Certificate of Designations"). In accordance with and pursuant to the
Certificate of Designation, the undersigned hereby elects to convert the
number of shares of Series K Preferred Stock, par value $.001 per share (the
"Preferred Shares"), of eSynch Corporation, a Delaware corporation (the
"Company"), indicated below into shares of Common Stock, par value $.001 per
share (the "Common Stock"), of the Company, by tendering the stock
certificate(s) representing the share(s) of Preferred Shares specified below
as of the date specified below.
Date of Conversion: ___________________________
Number of Preferred Shares to be converted:_____
Stock certificate no(s). of Preferred Shares to be converted:_____
The Common Stock have been sold pursuant to the Registration Statement
(as defined in the Registration Rights Agreement): YES ____ NO____
Please confirm the following information:
Conversion Price: ___________________________
Number of shares of Common Stock
to be issued: ___________________________
Please issue the Common Stock into which the Preferred Shares are being
converted and, if applicable, any check drawn on an account of the Company in
the following name and to the following address:
Issue to: ___________________________
___________________________
Facsimile Number: ___________________________
Authorization: ___________________________
By:________________________
Title:_____________________
Dated:
PRICES ATTACHED
-24-
<PAGE>
SERIES K CONVERTIBLE PREFERRED STOCK PURCHASE
AGREEMENT
DATED AS OF DECEMBER 30, 1999
AMONG
ESYNCH CORPORATION
AND
THE PURCHASERS LISTED ON EXHIBIT A
<PAGE>
TABLE OF CONTENTS
<TABLE>
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<S> <C>
ARTICLE I Purchase and Sale of Preferred Stock. . . . . . . . . . . . . . . . . 4
Section 1.1 Purchase and Sale of Stock . . . . . . . . . . . . . . . . . . 4
Section 1.2 The Conversion Shares. . . . . . . . . . . . . . . . . . . . . 4
Section 1.3 Purchase Price and Closing . . . . . . . . . . . . . . . . . . 5
Section 1.4 Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE II Representations and Warranties. . . . . . . . . . . . . . . . . . . . 6
Section 2.1 Representation and Warranties of the Company . . . . . . . . . 6
Section 2.2 Representations and Warranties of the Purchasers . . . . . . . 17
ARTICLE III Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 3.1 Securities Compliance. . . . . . . . . . . . . . . . . . . . . 19
Section 3.2 Registration and Listing . . . . . . . . . . . . . . . . . . . 20
Section 3.3 Inspection Rights. . . . . . . . . . . . . . . . . . . . . . . 20
Section 3.4 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . 20
Section 3.5 Keeping of Records and Books of Account. . . . . . . . . . . . 20
Section 3.6 Reporting Requirements . . . . . . . . . . . . . . . . . . . . 21
Section 3.7 Section 3.7 Amendments. . . . . . . . . . . . . . . . . . . . 21
Section 3.8 Other Agreements . . . . . . . . . . . . . . . . . . . . . . . 21
Section 3.9 Distributions. . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 3.10 Status of Dividends. . . . . . . . . . . . . . . . . . . . . . 21
Section 3.11 Regulation S . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 3.12 Right of First Refusal . . . . . . . . . . . . . . . . . . . . 23
Section 3.13 Reservation of Shares. . . . . . . . . . . . . . . . . . . . . 23
Section 3.14 Transfer Agent Instructions. . . . . . . . . . . . . . . . . . 23
ARTICLE IV Conditions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 4.1 Conditions Precedent to the Obligation of the
Company to Sell the Shares . . . . . . . . . . . . . . . . . . 24
Section 4.2 Conditions Precedent to the Obligation of the
Purchasers to Purchase the Shares. . . . . . . . . . . . . . . 25
ARTICLE V Intentionally Omitted . . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE VI Stock Certificate Legend. . . . . . . . . . . . . . . . . . . . . . . 28
Section 6.1 Legend . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE VII Intentionally Omitted.. . . . . . . . . . . . . . . . . . . . . . . . 29
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
ARTICLE VIII Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 8.1 General Indemnity. . . . . . . . . . . . . . . . . . . . . . . 29
Section 8.2 Indemnification Procedure. . . . . . . . . . . . . . . . . . . 29
ARTICLE IX Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 9.1 Fees and Expenses. . . . . . . . . . . . . . . . . . . . . . . 30
Section 9.2 Specific Enforcement, Consent to Jurisdiction. . . . . . . . . 31
Section 9.3 Entire Agreement; Amendment. . . . . . . . . . . . . . . . . . 31
Section 9.4 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 9.5 Waivers. . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 9.6 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 9.7 Successors and Assigns . . . . . . . . . . . . . . . . . . . . 33
Section 9.8 No Third Party Beneficiaries . . . . . . . . . . . . . . . . . 33
Section 9.9 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 9.10 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 9.11 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 9.12 Publicity. . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 9.13 Severability . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 9.14 Further Assurances . . . . . . . . . . . . . . . . . . . . . . 34
</TABLE>
iii
<PAGE>
SERIES K CONVERTIBLE PREFERRED STOCK PURCHASE
AGREEMENT
This SERIES K CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (the
"Agreement") is dated as of December 30, 1999 by and among eSynch
Corporation, a Delaware corporation (the "Company"), and each of the
Purchasers of shares of Series K Convertible Preferred Stock of the Company
whose names are set forth on Exhibit A hereto (individually, a "Purchaser"
and collectively, the "Purchasers").
The parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF PREFERRED STOCK
Section 1.1 PURCHASE AND SALE OF STOCK. Upon the following terms
and conditions, the Company shall issue and sell to the Purchasers and each
of the Purchasers shall purchase from the Company, the number of shares of
the Company's Series K Convertible Preferred Stock, par value $.001 per share
(the "Preferred Shares"), at a purchase price of $10,000 per share, set forth
with respect to such Purchaser on Exhibit A hereto. Upon the following terms
and conditions, the Purchasers shall be issued Warrants, in substantially the
form attached hereto as Exhibit B (the "Warrants"), to purchase the Company's
Common Stock, par value $.001 per share (the "Common Stock") The aggregate
purchase price for the Preferred Shares and the Warrants shall be $2,000,000
which may be funded in two or more tranches as agreed upon by the Company and
the Purchasers. The designation, rights, preferences and other terms and
provisions of the Series K Convertible Preferred Stock are set forth in the
Certificate of Designation of the Relative Rights and Preferences of the
Series K Convertible Preferred Stock attached hereto as Exhibit C (the
"Certificate of Designations"). The Company and the Purchasers are executing
and delivering this Agreement in accordance with and in reliance upon the
exemption from securities registration afforded by Rule 506 of Regulation D
("Regulation D") as promulgated by the United States Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended
(the "Securities Act") or Section 4(2) of the Securities Act.
Section 1.2 THE CONVERSION SHARES. The Company has authorized
and has reserved and covenants to continue to reserve, free of preemptive
rights and other similar contractual rights of stockholders, a sufficient
number of its authorized but unissued shares of its Common Stock, to effect
the conversion of the Preferred Shares and exercise of the Warrants. Any
shares of Common Stock issuable upon conversion of the Preferred Shares and
exercise of the Warrants (and such shares when issued) are herein referred
to as the "Conversion Shares"
4
<PAGE>
and the "Warrant Shares", respectively. The Preferred Shares, the Conversion
Shares and the Warrant Shares are sometimes collectively referred to as the
"Shares".
Section 1.3 PURCHASE PRICE AND CLOSING. The Company agrees to
issue and sell to the Purchasers and, in consideration of and in express
reliance upon the representations, warranties, covenants, terms and
conditions of this Agreement, the Purchasers, severally but not jointly,
agree to purchase that number of the Preferred Shares and Warrants set forth
opposite their respective names on Exhibit A. The aggregate purchase price
of the Preferred Shares and Warrants being acquired by each Purchaser is set
forth opposite such Purchaser's name on Exhibit A. The closing of the
purchase and sale of the Preferred Shares and Warrants (each, a "Closing") to
be acquired by the Purchasers from the Company under this Agreement shall
take place at the offices of Parker Chapin Flattau & Klimpl, LLP 1211 Avenue
of the Americas, New York, New York 10036 (the "Closing") at 10:00 a.m.
Pacific Time (i) on the date on which the last to be fulfilled or waived of
the conditions set forth in Article IV hereof and applicable to such Closing
shall be fulfilled or waived in accordance herewith or (ii) such other time
and place or on such date as the Purchasers and the Company may agree upon
(each, a "Closing Date"). On or before each Closing Date, the Company shall
deliver to the escrow agent (the "Escrow Agent") identified in the Escrow
Agreement attached hereto as Exhibit D (the "Escrow Agreement") the
certificates for the number and series of Preferred Shares set forth opposite
each Purchaser's name under the heading "Number of Preferred Shares to be
Purchased" on Exhibit A hereto, registered in such Purchaser's name (or its
nominee) and prior to each Closing Date each Purchaser shall pay by wire
transfer of funds into escrow the purchase price set forth opposite each such
Purchaser's name on Exhibit A. In addition, each party shall deliver all
documents, instruments and writings required to be delivered by such party
pursuant to this Agreement at or prior to each Closing. This Agreement shall
terminate if the Closing of the first tranche of Preferred Shares (the
"Tranche I Closing") has not occurred by January 30, 2000. The Company
acknowledges that the purchase price of Lightline Limited ("Lightline") pro
rata portion of the Preferred Shares and Warrants was advanced and evidenced
by a promissory note issued by the Company in favor of Lightline for the
principal amount of $300,000 (the "Promissory Note"). At the Closing, the
Company shall deliver to the Escrow Agent stock certificates (in such
denominations as Lightline shall request) representing the shares of
Preferred Stock equal to the total amount of principal and interest accrued
and outstanding under the Promissory Note on the date of the Tranche I
Closing. Notwithstanding anything to the contrary set forth in this
Agreement, the aggregate number of Preferred Stock to be sold hereunder shall
not exceed two hundred (200).
Section 1.4 WARRANTS. The Company agrees to issue to the
Purchasers the Warrants to purchase 75,000 shares of Common Stock per
$1,000,000 invested (or such pro rata amount if more or less than $1,000,000
is purchased). The Warrants shall have an exercise price equal to the
Warrant Price (as defined in the Warrant) and shall expire on the third
anniversary of the issuance date of such Warrant.
5
<PAGE>
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1 REPRESENTATION AND WARRANTIES OF THE COMPANY. The
Company hereby makes the following representations and warranties to the
Purchasers, except as set forth in the Company's disclosure schedule
delivered with this Agreement as follows:
(a) ORGANIZATION, GOOD STANDING AND POWER. The Company is a
corporation duly incorporated, validly existing and in good standing under
the laws of the State of Delaware and has the requisite corporate power to
own, lease and operate its properties and assets and to conduct its business
as it is now being conducted. The Company does not have any subsidiaries
except as set forth in the Company's Form 10-KSB for the year ended December
31, 1998, including the accompanying financial statements (the "Form
10-KSB"), or in the Company's Form 10-QSB for the fiscal quarters ended March
31, 1999, September 30, 1999 or June 30, 1999 (collectively, the "Form
10-QSB"), or on SCHEDULE 2.1(a) hereto. The Company and each such subsidiary
is duly qualified as a foreign corporation to do business and is in good
standing in every jurisdiction in which the nature of the business conducted
or property owned by it makes such qualification necessary except for any
jurisdiction(s) (alone or in the aggregate) in which the failure to be so
qualified will not have a material adverse effect on the Company's financial
condition.
(b) AUTHORIZATION; ENFORCEMENT. The Company has the requisite
corporate power and authority to enter into and perform this Agreement, the
Escrow Agreement, the Transfer Agent Instructions (as defined in Section
3.14), the Registration Rights Agreement attached hereto as Exhibit E (the
"Registration Rights Agreement") and the Warrants (collectively, the
"Transaction Documents") and to issue and sell the Shares in accordance with
the terms hereof, the Certificate of Designations and the Warrants. The
execution, delivery and performance of the Transaction Documents and the
Certificate of Designations by the Company and the consummation by it of the
transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action, and no further consent or
authorization of the Company or its Board of Directors or stockholders is
required. This Agreement has been duly executed and delivered by the
Company. The Registration Rights Agreement will have been duly executed and
delivered by the Company at the Tranche I Closing. Each of the Transaction
Documents constitutes, or shall constitute when executed and delivered, a
valid and binding obligation of the Company enforceable against the Company
in accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation,
conservatorship, receivership or similar laws relating to, or affecting
generally the enforcement of, creditor's rights and remedies or by other
equitable principles of general application.
6
<PAGE>
(c) CAPITALIZATION. The authorized capital stock of the Company
and the shares thereof currently issued and outstanding as of December 30,
1999 are set forth on SCHEDULE 2.1(c) hereto. All of the outstanding shares
of the Company's Common Stock and Series J Convertible Preferred Stock have
been duly and validly authorized. Except as set forth in this Agreement and
the Registration Rights Agreement and as set forth in the Form 10-KSB, Form
10-QSB, Form 8-K for the periods ending April 1, 1999 and September 30, 1999
(the "Form 8-K") or on SCHEDULE 2.1(c) hereto, no shares of Common Stock are
entitled to preemptive rights or registration rights and there are no
outstanding options, warrants, scrip, rights to subscribe to, call or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company. Furthermore,
except as set forth in this Agreement and the Registration Rights Agreement
and as set forth in the Form 10-KSB, Form 10-QSB, Form 8-K or on SCHEDULE
2.1(c), there are no contracts, commitments, understandings, or arrangements
by which the Company is or may become bound to issue additional shares of the
capital stock of the Company or options, securities or rights convertible
into shares of capital stock of the Company. Except for customary transfer
restrictions contained in agreements entered into by the Company in order to
sell restricted securities or as provided in the Form 10-KSB, Form 10-QSB or
on SCHEDULE 2.1 (c) hereto, the Company is not a party to any agreement
granting registration or anti-dilution rights to any person with respect to
any of its equity or debt securities. The Company is not a party to, and it
has no knowledge of, any agreement restricting the voting or transfer of any
shares of the capital stock of the Company. Except as set forth in the Form
10-KSB, Form 10-QSB or on SCHEDULE 2.1(c) hereto, the offer and sale of all
capital stock, convertible securities, rights, warrants, or options of the
Company issued prior to each Closing complied with all applicable Federal and
state securities laws, and no stockholder has a right of rescission or
damages with respect thereto which would have a Material Adverse Effect (as
defined in Section 2.1(e) herein) on the Company's financial condition or
operating results. The Company has furnished or made available to the
Purchasers true and correct copies of the Company's Certificate of
Incorporation as in effect on the date hereof (the "Articles"), and the
Company's Bylaws as in effect on the date hereof (the "Bylaws").
(d) ISSUANCE OF SHARES. The Preferred Shares to be issued at
each Closing have been duly authorized by all necessary corporate action and,
when paid for or issued in accordance with the terms hereof, the Preferred
Shares shall be validly issued and outstanding, fully paid and nonassessable
and entitled to the rights and preferences set forth in the Certificate of
Designations. When the Conversion Shares and the Warrant Shares are issued
in accordance with the terms of the Preferred Shares as set forth in the
Certificate of Designations and the Warrants, respectively, such shares will
be duly authorized by all necessary corporate action and validly issued and
outstanding, fully paid and nonassessable, and the holders shall be entitled
to all rights accorded to a holder of Common Stock.
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(e) NO CONFLICTS. Except as disclosed in SCHEDULE 2.1(e)
hereto, the execution, delivery and performance of the Transaction Documents
by the Company, the performance by the Company of its obligations under the
Certificate of Designations and the consummation by the Company of the
transactions contemplated herein and therein do not (i) violate any provision
of the Company's Articles or Bylaws, (ii) conflict with, or constitute a
default (or an event which with notice or lapse of time or both would become
a default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, mortgage, deed of trust,
indenture, note, bond, license, lease agreement, instrument or obligation to
which the Company is a party, (iii) create or impose a lien, charge or
encumbrance on any property of the Company under any agreement or any
commitment to which the Company is a party or by which the Company is bound
or by which any of its respective properties or assets are bound, or (iv)
result in a violation of any federal, state, local or foreign statute, rule,
regulation, order, judgment or decree (including Federal and state securities
laws and regulations) applicable to the Company or any of its subsidiaries or
by which any property or asset of the Company or any of its subsidiaries are
bound or affected, except, in all cases other than violations pursuant to
clause (i) above, for such conflicts, defaults, terminations, amendments,
acceleration, cancellations and violations as would not, individually or in
the aggregate, have a Material Adverse Effect. For the purposes of this
Agreement, "Material Adverse Effect" means any adverse effect on the
business, operations, properties, prospects, or financial condition of the
Company or its subsidiaries and which is material to such entity or other
entities controlling or controlled by such entity. The business of the
Company and its subsidiaries is not being conducted in violation of any laws,
ordinances or regulations of any governmental entity, except for possible
violations which singularly or in the aggregate do not and will not have a
Material Adverse Effect. The Company is not required under Federal, state or
local law, rule or regulation to obtain any consent, authorization or order
of, or make any filing or registration with, any court or governmental agency
in order for it to execute, deliver or perform any of its obligations under
the Transaction Documents or the Certificate of Designations, or issue and
sell the Preferred Shares, the Conversion Shares and the Warrant Shares in
accordance with the terms hereof or thereof (other than any filings which may
be required to be made by the Company with the Commission or state securities
administrators subsequent to each Closing, any registration statement which
may be filed pursuant hereto, and the Certificate of Designations); provided
that, for purposes of the representation made in this sentence, the Company
is assuming and relying upon the accuracy of the relevant representations and
agreements of the Purchasers herein.
(f) COMMISSION DOCUMENTS, FINANCIAL STATEMENTS. The Common
Stock of the Company is registered pursuant to Section 12(b) or 12(g) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, except
as disclosed in the Form 10-KSB, Form 10-QSB, Form 8-K or on SCHEDULE 2.1(f)
hereto, the Company has timely filed all reports, schedules, forms,
statements and other documents required to be filed by it with the Commission
pursuant to the reporting requirements of the Exchange Act, including
material filed pursuant to
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Section 13(a) or 15(d) of the Exchange Act (all of the foregoing including
filings incorporated by reference therein being referred to herein as the
"Commission Documents"). The Company has delivered or made available to each
of the Purchasers true and complete copies of the Commission Documents filed
with the Commission since December 31, 1998. The Company has not provided to
the Purchasers any material non-public information or other information
which, according to applicable law, rule or regulation, was required to have
been disclosed publicly by the Company but which has not been so disclosed,
other than with respect to the transactions contemplated by this Agreement.
As of their respective dates, the Form 10-KSB for the year ended December 31,
1998 and the Form 10-QSB for the fiscal quarters ended March 31, 1999, June
30, 1999 and September 30, 1999 complied in all material respects with the
requirements of the Exchange Act and the rules and regulations of the
Commission promulgated thereunder and other federal, state and local laws,
rules and regulations applicable to such documents, and, as of their
respective dates, none of the Form 10-KSB and the Form 10-QSB referred to
above contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial statements of the Company included in the
Commission Documents comply as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the Commission or other applicable rules and regulations with respect
thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") applied on a consistent
basis during the periods involved (except (i) as may be otherwise indicated
in such financial statements or the notes thereto or (ii) in the case of
unaudited interim statements, to the extent they may not include footnotes or
may be condensed or summary statements), and fairly present in all material
respects the financial position of the Company and its subsidiaries as of the
dates thereof and the results of operations and cash flows for the periods
then ended (subject, in the case of unaudited statements, to normal year-end
audit adjustments).
(g) SUBSIDIARIES. The Form 10-KSB, Form 10-QSB, Form 8-K or
SCHEDULE 2.1(g) hereto sets forth each subsidiary of the Company, showing the
jurisdiction of its incorporation or organization and showing the percentage
of each person's ownership of the outstanding stock or other interests of
such subsidiary. For the purposes of this Agreement, "subsidiary" shall mean
any corporation or other entity of which at least a majority of the
securities or other ownership interest having ordinary voting power
(absolutely or contingently) for the election of directors or other persons
performing similar functions are at the time owned directly or indirectly by
the Company and/or any of its other subsidiaries. All of the outstanding
shares of capital stock of each subsidiary have been duly authorized and
validly issued, and are fully paid and nonassessable. There are no
outstanding preemptive, conversion or other rights, options, warrants or
agreements granted or issued by or binding upon any subsidiary for the
purchase or acquisition of any shares of capital stock of any subsidiary or
any other securities convertible into, exchangeable for or evidencing the
rights to subscribe for any shares of such
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capital stock. Neither the Company nor any subsidiary is subject to any
obligation (contingent or otherwise) to repurchase or otherwise acquire or
retire any shares of the capital stock of any subsidiary or any convertible
securities, rights, warrants or options of the type described in the
preceding sentence. Neither the Company nor any subsidiary is party to, nor
has any knowledge of, any agreement restricting the voting or transfer of any
shares of the capital stock of any subsidiary.
(h) NO MATERIAL ADVERSE CHANGE. Since September 30, 1999, the
date through which the most recent quarterly report of the Company on Form
10-QSB has been prepared and filed with the Commission, a copy of which is
included in the Commission Documents, the Company has not experienced or
suffered any Material Adverse Effect, except as disclosed on SCHEDULE 2.1(h)
hereto.
(i) NO UNDISCLOSED LIABILITIES. Except as disclosed in the Form
10-KSB, Form 10-QSB or on SCHEDULE 2.1(i) hereto, neither the Company nor
any of its subsidiaries has any liabilities, obligations, claims or losses
(whether liquidated or unliquidated, secured or unsecured, absolute, accrued,
contingent or otherwise) other than those incurred in the ordinary course of
the Company's or its subsidiaries respective businesses since December 31,
1998 and which, individually or in the aggregate, do not or would not have a
Material Adverse Effect on the Company or its subsidiaries.
(j) NO UNDISCLOSED EVENTS OR CIRCUMSTANCES. No event or
circumstance has occurred or exists with respect to the Company or its
subsidiaries or their respective businesses, properties, prospects,
operations or financial condition, which, under applicable law, rule or
regulation, requires public disclosure or announcement by the Company but
which has not been so publicly announced or disclosed.
(k) INDEBTEDNESS. The Form 10-KSB, Form 10-QSB, Form 8-K or
SCHEDULE 2.1(k) hereto sets forth as of the date hereof all outstanding
secured and unsecured Indebtedness of the Company or any subsidiary, or for
which the Company or any subsidiary has commitments. For the purposes of
this Agreement, "Indebtedness" shall mean (a) any liabilities for borrowed
money or amounts owed in excess of $25,000 (other than trade accounts payable
incurred in the ordinary course of business), (b) all guaranties,
endorsements and other contingent obligations in respect of Indebtedness of
others, whether or not the same are or should be reflected in the Company's
balance sheet (or the notes thereto), except guaranties by endorsement of
negotiable instruments for deposit or collection or similar transactions in
the ordinary course of business; and (c) the present value of any lease
payments in excess of $25,000 due under leases required to be capitalized in
accordance with GAAP. Neither the Company nor any subsidiary is in default
with respect to any Indebtedness.
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(l) TITLE TO ASSETS. Each of the Company and the subsidiaries
has good and marketable title to all of its real and personal property
reflected in the Commission Documents, free of any mortgages, pledges,
charges, liens, security interests or other encumbrances, except for those
indicated in the Form 10-KSB, Form 10-QSB, Form 8-K or on SCHEDULE 2.1(l)
hereto or such that, individually or in the aggregate, do not cause a
Material Adverse Effect on the Company's financial condition or operating
results. All said leases of the Company and each of its subsidiaries are
valid and subsisting and in full force and effect.
(m) ACTIONS PENDING. There is no action, suit, claim,
investigation or proceeding pending or, to the knowledge of the Company,
threatened against the Company or any subsidiary which questions the validity
of this Agreement or the transactions contemplated hereby or any action taken
or to be taken pursuant hereto or thereto. Except as set forth in the Form
10-KSB, Form 10-QSB, Form 8-K or on SCHEDULE 2.1(m) hereto, there is no
action, suit, claim, investigation or proceeding pending or, to the knowledge
of the Company, threatened, against or involving the Company, any subsidiary
or any of their respective properties or assets. There are no outstanding
orders, judgments, injunctions, awards or decrees of any court, arbitrator or
governmental or regulatory body against the Company or any subsidiary or any
officers or directors of the Company or subsidiary in their capacities as
such.
(n) COMPLIANCE WITH LAW. The business of the Company and the
subsidiaries has been and is presently being conducted in accordance with all
applicable federal, state and local governmental laws, rules, regulations and
ordinances, except as set forth in the Form 10-KSB, Form 10-QSB, on SCHEDULE
2.1(n) hereto or such that, individually or in the aggregate, do not cause a
Material Adverse Effect. The Company and each of its subsidiaries have all
franchises, permits, licenses, consents and other governmental or regulatory
authorizations and approvals necessary for the conduct of its business as now
being conducted by it unless the failure to possess such franchises, permits,
licenses, consents and other governmental or regulatory authorizations and
approvals, individually or in the aggregate, could not reasonably be expected
to have a Material Adverse Effect.
(o) TAXES. Except as set forth in the Form 10-KSB, Form 10-QSB
or on SCHEDULE 2.1(o) hereto, the Company and each of the subsidiaries has
accurately prepared and filed all federal, state and other tax returns
required by law to be filed by it, has paid or made provisions for the
payment of all taxes shown to be due and all additional assessments, and
adequate provisions have been and are reflected in the financial statements
of the Company and the subsidiaries for all current taxes and other charges
to which the Company or any subsidiary is subject and which are not currently
due and payable. None of the federal income tax returns of the Company or
any subsidiary for the years subsequent to December 31, 1998 have been
audited by the Internal Revenue Service. The Company has no knowledge of any
additional assessments, adjustments or contingent tax liability (whether
federal or state) pending or
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threatened against the Company or any subsidiary for any period, nor of any
basis for any such assessment, adjustment or contingency.
(p) CERTAIN FEES. Except as set forth on SCHEDULE 2.1(p)
hereto, no brokers, finders or financial advisory fees or commissions will be
payable by the Company or any subsidiary or any Purchaser with respect to the
transactions contemplated by this Agreement.
(q) DISCLOSURE. To the best of the Company's knowledge, neither
this Agreement or the Schedules hereto nor any other documents, certificates
or instruments furnished to the Purchasers by or on behalf of the Company or
any subsidiary in connection with the transactions contemplated by this
Agreement contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements made herein or
therein, in the light of the circumstances under which they were made herein
or therein, not misleading.
(r) OPERATION OF BUSINESS. The Company and each of the
subsidiaries owns or possesses all patents, trademarks, service marks, trade
names, copyrights, licenses and authorizations as set forth in the Form
10-KSB, Form 10-QSB, Form 8-K and on SCHEDULE 2.1(r) hereto, and all rights
with respect to the foregoing, which are necessary for the conduct of its
business as now conducted without any conflict with the rights of others.
(s) ENVIRONMENTAL COMPLIANCE. The Company and each of its
subsidiaries have obtained all material approvals, authorization,
certificates, consents, licenses, orders and permits or other similar
authorizations of all governmental authorities, or from any other person,
that are required under any Environmental Laws. The Form 10-KSB or Form
10-QSB hereto sets forth all material permits, licenses and other
authorizations issued under any Environmental Laws to the Company or its
subsidiaries. "Environmental Laws" shall mean all applicable laws relating
to the protection of the environment including, without limitation, all
requirements pertaining to reporting, licensing, permitting, controlling,
investigating or remediating emissions, discharges, releases or threatened
releases of hazardous substances, chemical substances, pollutants,
contaminants or toxic substances, materials or wastes, whether solid, liquid
or gaseous in nature, into the air, surface water, groundwater or land, or
relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of hazardous substances, chemical
substances, pollutants, contaminants or toxic substances, material or wastes,
whether solid, liquid or gaseous in nature. The Company has all necessary
governmental approvals required under all Environmental Laws and used in its
business or in the business of any of its subsidiaries. The Company and each
of its subsidiaries are also in compliance with all other limitations,
restrictions, conditions, standards, requirements, schedules and timetables
required or imposed under all Environmental Laws. Except for such instances
as would not individually or in the aggregate have a Material Adverse Effect,
there are no past or present events, conditions, circumstances, incidents,
actions or omissions relating to or in any way affecting the Company or its
subsidiaries that violate or may violate any Environmental Law
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after each Closing or that may give rise to any environmental liability, or
otherwise form the basis of any claim, action, demand, suit, proceeding,
hearing, study or investigation (i) under any Environmental Law, or (ii)
based on or related to the manufacture, processing, distribution, use,
treatment, storage (including without limitation underground storage tanks),
disposal, transport or handling, or the emission, discharge, release or
threatened release of any hazardous substance. "Environmental Liabilities"
means all liabilities of a person (whether such liabilities are owed by such
person to governmental authorities, third parties or otherwise) whether
currently in existence or arising hereafter which arise under or relate to
any Environmental Law.
(t) BOOKS AND RECORD INTERNAL ACCOUNTING CONTROLS. The records
and documents of the Company and its subsidiaries accurately reflect in all
material respects the information relating to the business of the Company and
the subsidiaries, the location and collection of their assets, and the nature
of all transactions giving rise to the obligations or accounts receivable of
the Company or any subsidiary. The Company and each of its subsidiaries
maintain a system of internal accounting controls sufficient, in the judgment
of the Company's board of directors, to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization and (iv) the recorded accountability for assets is compared
with the existing assets at reasonable intervals and appropriate actions is
taken with respect to any differences.
(u) MATERIAL AGREEMENTS. Except as set forth in the Form
10-KSB, Form 10-QSB, Form 8-K, or on SCHEDULE 2.1(u) hereto, neither the
Company nor any subsidiary is a party to any written or oral contract,
instrument, agreement, commitment, obligation, plan or arrangement, a copy of
which would be required to be filed with the Commission as an exhibit to a
registration statement on Form S-3 or applicable form (collectively,
"Material Agreements") if the Company or any subsidiary were registering
securities under the Securities Act. The Company and each of its
subsidiaries has in all material respects performed all the obligations
required to be performed by them to date under the foregoing agreements, have
received no notice of default and, to the best of the Company's knowledge are
not in default under any Material Agreement now in effect, the result of
which could cause a Material Adverse Effect. No written or oral contract,
instrument, agreement, commitment, obligation, plan or arrangement of the
Company or of any subsidiary limits or shall limit the payment of dividends
on the Company's Preferred Shares, other Preferred Stock, if any, or its
Common Stock.
(v) TRANSACTIONS WITH AFFILIATES. Except as set forth in the
Form 10-KSB, Form 10-QSB or on SCHEDULE 2.1(v) hereto, there are no loans,
leases, agreements, contracts, royalty agreements, management contracts or
arrangements or other continuing transactions exceeding $100,000 between (a)
the Company, any subsidiary or any of their respective
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customers or suppliers on the one hand, and (b) on the other hand, any
officer, employee, consultant or director of the Company, or any of its
subsidiaries, or any person owning any capital stock of the Company or any
subsidiary or any member of the immediate family of such officer, employee,
consultant, director or stockholder or any corporation or other entity
controlled by such officer, employee, consultant, director or stockholder, or
a member of the immediate family of such officer, employee, consultant,
director or stockholder.
(w) SECURITIES ACT OF 1933. Based in material part upon the
representations herein of the Purchasers, the Company has complied and will
comply with all applicable federal and state securities laws in connection
with the offer, issuance and sale of the Shares and the Warrants hereunder.
Neither the Company nor anyone acting on its behalf, directly or indirectly,
has or will sell, offer to sell or solicit offers to buy the any of the
Shares, the Warrants or similar securities to, or solicit offers with respect
thereto from, or enter into any preliminary conversations or negotiations
relating thereto with, any person, or has taken or will take any action so as
to bring the issuance and sale of the any of the Shares and the Warrants
under the registration provisions of the Securities Act and applicable state
securities laws, and neither the Company nor any of its affiliates, nor any
person acting on its or their behalf, has engaged in any form of general
solicitation or general advertising (within the meaning of Regulation D under
the Securities Act) in connection with the offer or sale of any of the Shares
and the Warrants.
(x) GOVERNMENTAL APPROVALS. Except as set forth in the Form
10-KSB or Form 10-QSB, and except for the filing of any notice prior or
subsequent to each Closing that may be required under applicable state and/or
Federal securities laws (which if required, shall be filed on a timely
basis), including the filing of a registration statement or statements
pursuant to the Registration Rights Agreement, and the filing of the
Certificate of Designations with the Secretary of State for the State of
Delaware, no authorization, consent, approval, license, exemption of, filing
or registration with any court or governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, is or will be
necessary for, or in connection with, the execution or delivery of the
Preferred Shares, or for the performance by the Company of its obligations
under the Transaction Documents or the Certificate of Designations.
(y) EMPLOYEES. Neither the Company nor any subsidiary has any
collective bargaining arrangements or agreements covering any of its employees,
except as set forth in the Form 10-KSB, Form 10-QSB or on SCHEDULE 2.1(y)
hereto. Except as set forth in the Form 10-KSB, Form 10-QSB or on SCHEDULE
2.1(y) hereto, neither the Company nor any subsidiary has any employment
contract, agreement regarding proprietary information, non-competition
agreement, non-solicitation agreement, confidentiality agreement, or any other
similar contract or restrictive covenant, relating to the right of any officer,
employee or consultant to be employed or engaged by the Company or such
subsidiary. Since December 31, 1998, no officer, consultant or key employee of
the Company or any subsidiary whose termination, either individually or in the
aggregate, could have a Material Adverse Effect, has terminated or, to the
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knowledge of the Company, has any present intention of terminating his or her
employment or engagement with the Company or any subsidiary.
(z) ABSENCE OF CERTAIN DEVELOPMENTS. Except as provided in Form
10-KSB, 10-QSB, Form 8-K or in SCHEDULE 2.1(z) hereto, since December 31,
1998, neither the Company nor any subsidiary has:
(i) issued any stock, bonds or other corporate securities
or any rights, options or warrants with respect thereto;
(ii) borrowed any amount or incurred or become subject to
any liabilities (absolute or contingent) except current liabilities incurred
in the ordinary course of business which are comparable in nature and amount
to the current liabilities incurred in the ordinary course of business during
the comparable portion of its prior fiscal year, as adjusted to reflect the
current nature and volume of the Company's or such subsidiary's business;
(iii) discharged or satisfied any lien or encumbrance or
paid any obligation or liability (absolute or contingent), other than current
liabilities paid in the ordinary course of business;
(iv) declared or made any payment or distribution of cash
or other property to stockholders with respect to its stock, or purchased or
redeemed, or made any agreements so to purchase or redeem, any shares of its
capital stock;
(v) sold, assigned or transferred any other tangible
assets, or canceled any debts or claims, except in the ordinary course of
business;
(vi) sold, assigned or transferred any patent rights,
trademarks, trade names, copyrights, trade secrets or other intangible assets
or intellectual property rights, or disclosed any proprietary confidential
information to any person except to customers in the ordinary course of
business or to the Purchasers or their representatives;
(vii) suffered any substantial losses or waived any rights
of material value, whether or not in the ordinary course of business, or
suffered the loss of any material amount of prospective business;
(viii) made any changes in employee compensation except in
the ordinary course of business and consistent with past practices;
(ix) made capital expenditures or commitments therefor
that aggregate in excess of $100,000;
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(x) entered into any other transaction other than in the
ordinary course of business, or entered into any other material transaction,
whether or not in the ordinary course of business;
(xi) made charitable contributions or pledges in excess of
$25,000;
(xii) suffered any material damage, destruction or casualty
loss, whether or not covered by insurance;
(xiii) experienced any material problems with labor or
management in connection with the terms and conditions of their employment;
(xiv) effected any two or more events of the foregoing kind
which in the aggregate would be material to the Company or its subsidiaries;
or
(xv) entered into an agreement, written or otherwise, to
take any of the foregoing actions.
(aa) USE OF PROCEEDS. The proceeds from the sale of the
Preferred Shares will be used by the Company for working capital and general
corporate purposes.
(bb) PUBLIC UTILITY HOLDING COMPANY ACT AND INVESTMENT COMPANY
ACT STATUS. The Company is not a "holding company" or a "public utility
company" as such terms are defined in the Public Utility Holding Company Act
of 1935, as amended. The Company is not, and as a result of and immediately
upon each Closing will not be, an "investment company" or a company
"controlled" by an "investment company," within the meaning of the Investment
Company Act of 1940, as amended.
(cc) ERISA. No liability to the Pension Benefit Guaranty
Corporation has been incurred with respect to any Plan by the Company or any
of its subsidiaries which is or would be materially adverse to the Company
and its subsidiaries. The execution and delivery of this Agreement and the
issue and sale of the Preferred Shares will not involve any transaction which
is subject to the prohibitions of Section 406 of ERISA or in connection with
which a tax could be imposed pursuant to Section 4975 of the Internal Revenue
Code of 1986, as amended, provided that, if any of the Purchasers, or any
person or entity that owns a beneficial interest in any of the Purchasers, is
an "employee pension benefit plan" (within the meaning of Section 3(2) of
ERISA) with respect to which the Company is a "party in interest" (within the
meaning of Section 3(14) of ERISA), the requirements of Sections 407(d)(5)
and 408(e) of ERISA, if applicable, are met. As used in this Section
2.1(ac), the term "Plan" shall mean an "employee pension benefit plan" (as
defined in Section 3 of ERISA) which is or has been established or
maintained, or to which contributions are or have been made, by the Company
or any subsidiary
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or by any trade or business, whether or not incorporated, which, together
with the Company or any subsidiary, is under common control, as described in
Section 414(b) or (c) of the Code.
(dd) DILUTIVE EFFECT. The Company understands and acknowledges
that the number of Conversion Shares issuable upon conversion of the
Preferred Shares and the Warrant Shares issuable upon exercise of the
Warrants will increase in certain circumstances. The Company further
acknowledges that its obligation to issue Conversion Shares upon conversion
of the Preferred Shares in accordance with this Agreement and the Certificate
of Designations and its obligations to issue the Warrant Shares upon the
exercise of the Warrants in accordance with this Agreement and the Warrants,
is, in each case, absolute and unconditional regardless of the dilutive
effect that such issuance may have on the ownership interest of other
stockholders of the Company.
Section 2.2 REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.
Each of the Purchasers hereby makes the following representations and
warranties to the Company with respect solely to itself and not with respect
to any other Purchaser:
(a) ORGANIZATION AND STANDING OF THE PURCHASERS. If the
Purchaser is an entity, such Purchaser is a corporation or partnership duly
incorporated or organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation or organization.
(b) AUTHORIZATION AND POWER. The Purchaser has the requisite
power and authority to enter into and perform this Agreement and to purchase
the Preferred Shares being sold to it hereunder. The execution, delivery and
performance of this Agreement and the Registration Rights Agreement by such
Purchaser and the consummation by it of the transactions contemplated hereby
and thereby have been duly authorized by all necessary corporate or
partnership action (if the Purchaser is an entity), and no further consent or
authorization of such Purchaser or its Board of Directors, stockholders, or
partners, as the case may be, is required. Each of this Agreement and the
Registration Rights Agreement has been duly authorized, executed and
delivered by such Purchaser.
(c) NO CONFLICTS. The execution, delivery and performance of
this Agreement and the Registration Rights Agreement and the consummation by
such Purchaser of the transactions contemplated hereby and thereby or
relating hereto do not and will not (i) result in a violation of such
Purchaser's charter documents or bylaws or (ii) conflict with, or constitute
a default (or an event which with notice or lapse of time or both would
become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of any agreement, indenture or
instrument to which such Purchaser is a party, or result in a violation of
any law, rule, or regulation, or any order, judgment or decree of any court
or governmental agency applicable to such Purchaser or its properties (except
for such conflicts, defaults and violations as would not, individually or in
the aggregate, have a Material Adverse Effect on such
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Purchaser). Such Purchaser is not required to obtain any consent,
authorization or order of, or make any filing or registration with, any court
or governmental agency in order for it to execute, deliver or perform any of
its obligations under this Agreement or the Registration Rights Agreement or
to purchase the Preferred Shares in accordance with the terms hereof,
provided that for purposes of the representation made in this sentence, such
Purchaser is assuming and relying upon the accuracy of the relevant
representations and agreements of the Company herein.
(d) ACQUISITION FOR INVESTMENT. Such Purchaser is purchasing
the Preferred Shares solely for its own account for the purpose of investment
and not with a view to or for sale in connection with distribution. Such
Purchaser does not have a present intention to sell the Preferred Shares, nor
a present arrangement (whether or not legally binding) or intention to effect
any distribution of the Preferred Shares to or through any person or entity;
PROVIDED, HOWEVER, that by making the representations herein and subject to
Section 2.2(f) below, such Purchaser does not agree to hold the Preferred
Shares for any minimum or other specific term and reserves the right to
dispose of the Preferred Shares at any time in accordance with Federal and
state securities laws applicable to such disposition. Such Purchaser
acknowledges that it is able to bear the financial risks associated with an
investment in the Preferred Shares and that it has been given full access to
such records of the Company and the subsidiaries and to the officers of the
Company and the subsidiaries and received such information as it has deemed
necessary or appropriate to conduct its due diligence investigation.
(e) ACCREDITED PURCHASERS. Such Purchaser is an "accredited
investor" as defined in Regulation D promulgated under the Securities Act.
(f) RULE 144. Such Purchaser understands that the Shares must
be held indefinitely unless such Shares are registered under the Securities
Act or an exemption from registration is available. Such Purchaser
acknowledges that such person is familiar with Rule 144 of the rules and
regulations of the Commission, as amended, promulgated pursuant to the
Securities Act ("Rule 144"), and that such person has been advised that Rule
144 permits resales only under certain circumstances. Such Purchaser
understands that to the extent that Rule 144 is not available, such person
will be unable to sell any Preferred Shares without either registration under
the Securities Act or the existence of another exemption from such
registration requirement.
(g) CONVERSION RESTRICTIONS. Notwithstanding anything to the
contrary set forth herein or in the Certificate of Designations, in no event
shall any holder be entitled to convert the Preferred Shares in excess of
that number of the Preferred Shares which, upon giving effect to such
conversion, would cause the aggregate number of shares of Common Stock
beneficially owned by the holder and its affiliates to exceed 4.99% of the
outstanding shares of the Common Stock following such conversion. For
purposes of the foregoing proviso, the aggregate number of shares of Common
Stock beneficially owned by the holder and its affiliates
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shall include the number of shares of Common Stock issuable upon conversion
of the Preferred Shares with respect to which the determination of such
proviso is being made, but shall exclude the number of shares of Common Stock
which would be issuable upon (i) conversion of the remaining, nonconverted
shares of Series K Convertible Preferred Stock beneficially owned by the
holder and its affiliates, and (ii) exercise or conversion of the unexercised
or unconverted portion of any other securities of the Company (including,
without limitation, any warrants) subject to a limitation on conversion or
exercise analogous to the limitation contained herein beneficially owned by
the holder and its affiliates. Except as set forth in the preceding
sentence, for purposes of this Section 2(a), beneficial ownership shall be
calculated in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended.
(h) GENERAL. Such Purchaser understands that the Shares are
being offered and sold in reliance on a transactional exemption from the
registration requirement of Federal and state securities laws and the Company
is relying upon the truth and accuracy of the representations, warranties,
agreements, acknowledgments and understandings of such Purchaser set forth
herein in order to determine the applicability of such exemptions and the
suitability of such Purchaser to acquire the Shares.
(i) RESIDENCE. Such Purchaser's permanent domicile is as set
forth in Exhibit A.
ARTICLE III
COVENANTS
The Company covenants with each of the Purchasers as follows, which
covenants are for the benefit of the Purchasers and their permitted assignees
(as defined herein).
Section 3.1 Securities Compliance.
(a) The Company shall notify the Commission in accordance with
their rules and regulations, of the transactions contemplated by any of the
Transaction Documents, including filing a Form D with respect to the
Preferred Shares, Warrants, Conversion Shares and Warrants Shares as required
under Regulation D, and shall take all other necessary action and proceedings
as may be required and permitted by applicable law, rule and regulation, for
the legal and valid issuance of the Preferred Shares and the Warrant Shares
to the Purchasers or subsequent holders.
(b) The Company is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments and understandings
of such
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Purchasers set forth herein in order to determine the applicability of
Federal and state securities laws exemptions and the suitability of such
Purchasers to acquire the Preferred Shares.
Section 3.2 REGISTRATION AND LISTING. The Company will cause its
Common Stock to continue to be registered under Sections 12(b) or 12(g) of
the Exchange Act, will comply in all respects with its reporting and filing
obligations under the Exchange Act, will comply with all requirements related
to any registration statement filed pursuant to this Agreement or the
Registration Rights Agreement, and will not take any action or file any
document (whether or not permitted by the Securities Act or the rules
promulgated thereunder) to terminate or suspend such registration or to
terminate or suspend its reporting and filing obligations under the Exchange
Act or Securities Act, except as permitted herein. The Company will take all
action necessary to continue the listing or trading of its Common Stock on
the over-the-counter electronic bulletin board.
Section 3.3 INSPECTION RIGHTS. The Company shall permit, during
normal business hours and upon reasonable request and reasonable notice, each
Purchaser or any employees, agents or representatives thereof, so long as
such Purchaser shall be obligated hereunder to purchase the Preferred Shares
or shall beneficially own any Preferred Shares, or shall own Conversion
Shares which, in the aggregate, represent more than 2% of the total combined
voting power of all voting securities then outstanding, for purposes
reasonably related to such Purchaser's interests as a stockholder to examine
and make reasonable copies of and extracts from the records and books of
account of, and visit and inspect the properties, assets, operations and
business of the Company and any subsidiary, and to discuss the affairs,
finances and accounts of the Company and any subsidiary with any of its
officers, consultants, directors, and key employees.
Section 3.4 COMPLIANCE WITH LAWS. The Company shall comply, and
cause each subsidiary to comply, with all applicable laws, rules, regulations
and orders, noncompliance with which could have a Material Adverse Effect.
Section 3.5 KEEPING OF RECORDS AND BOOKS OF ACCOUNT. The Company
shall keep and cause each subsidiary to keep adequate records and books of
account, in which complete entries will be made in accordance with GAAP
consistently applied, reflecting all financial transactions of the Company
and its subsidiaries, and in which, for each fiscal year, all proper reserves
for depreciation, depletion, obsolescence, amortization, taxes, bad debts and
other purposes in connection with its business shall be made.
Section 3.6 REPORTING REQUIREMENTS. If the Company ceases to
file its periodic reports with the Commission, or if the Commission ceases
making these periodic reports available via the Internet without charge, then
the Company shall furnish the following to each Purchaser so long as such
Purchaser shall be obligated hereunder to purchase the Preferred Shares or
shall beneficially own any Preferred Shares, or shall own Conversion Shares
which, in
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the aggregate, represent more than 2% of the total combined voting power of
all voting securities then outstanding:
(a) Quarterly Reports filed with the Commission on Form 10-QSB
as soon as available, and in any event within 45 days after the end of each
of the first three fiscal quarters of the Company;
(b) Annual Reports filed with the Commission on Form 10-KSB as
soon as available, and in any event within 90 days after the end of each
fiscal year of the Company; and
(c) Copies of all notices and information, including without
limitation notices and proxy statements in connection with any meetings, that
are provided to holders of shares of Common Stock, contemporaneously with the
delivery of such notices or information to such holders of Common Stock.
Section 3.7 Section 3.7 AMENDMENTS. The Company shall not
amend or waive any provision of the Articles or Bylaws of the Company, or
Registration Rights Agreement in any way that would adversely affect the
liquidation preferences, dividends rights, conversion rights, voting rights
or redemption rights of the holders of the Preferred Shares.
Section 3.8 OTHER AGREEMENTS. The Company shall not enter into
any agreement in which the terms of such agreement would restrict or impair
the right or ability to perform of the Company or any subsidiary under any
Transaction Document or the Certificate of Designations.
Section 3.9 DISTRIBUTIONS. So long as any Preferred Shares or
Warrants remain outstanding, the Company agrees that it shall not (i) declare
or pay any dividends or make any distributions to any holder(s) of Common
Stock or (ii) purchase or otherwise acquire for value, directly or
indirectly, any Common Stock or other equity security of the Company.
Section 3.10 STATUS OF DIVIDENDS. The Company covenants and
agrees that (i) no Federal income tax return or claim for refund of Federal
income tax or other submission to the Internal Revenue Service will adversely
affect the Preferred Shares, any other series of its Preferred Stock, or the
Common Stock, and any deduction shall not operate to jeopardize the
availability to Purchasers of the dividends received deduction provided by
Section 243(a)(1) of the Code or any successor provision, (ii) in no report
to shareholders or to any governmental body having jurisdiction over the
Company or otherwise will it treat the Preferred Shares other than as equity
capital or the dividends paid thereon other than as dividends paid on equity
capital unless required to do so by a governmental body having jurisdiction
over the accounts of the Company or by a change in generally accepted
accounting principles required as a result of action by an authoritative
accounting standards setting body, and (iii) other than pursuant to this
Agreement or the Certificate of Designations, it will take no action which
would result in the
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dividends paid by the Company on the Preferred Shares out of the Company's
current or accumulated earnings and profits being ineligible for the
dividends received deduction provided by Section 243(a)(1) of the Code. The
preceding sentence shall not be deemed to prevent the Company from
designating the Preferred Stock as "Convertible Preferred Stock" in its
annual and quarterly financial statements in accordance with its prior
practice concerning other series of preferred stock of the Company.
Notwithstanding the foregoing, the Company shall not be required to restate
or modify its tax returns for periods prior to each Closing Date. In the
event that the Purchasers have reasonable cause to believe that dividends
paid by the Company on the Preferred Shares out of the Company's current or
accumulated earnings and profits will not be treated as eligible for the
dividends received deduction provided by Section 243(a)(1) of the Code, or
any successor provision, the Company will, at the reasonable request of the
Purchasers of 51% of the outstanding Preferred Shares, join with the
Purchasers in the submission to the Service of a request for a ruling that
dividends paid on the Shares will be so eligible for Federal income tax
purposes, at the Purchasers expense. In addition, the Company will
reasonably cooperate with the Purchasers (at Purchasers' expense) in any
litigation, appeal or other proceeding challenging or contesting any ruling,
technical advice, finding or determination that earnings and profits are not
eligible for the dividends received deduction provided by Section 243(a)(1)
of the Code, or any successor provision to the extent that the position to be
taken in any such litigation, appeal, or other proceeding is not contrary to
any provision of the Code or incurred in connection with any such submission,
litigation, appeal or other proceeding. Notwithstanding the foregoing,
nothing herein contained shall be deemed to preclude the Company from
claiming a deduction with respect to such dividends if (i) the Code shall
hereafter be amended, or final Treasury regulations thereunder are issued or
modified, to provide that dividends on the Preferred Shares or Conversion
Shares should not be treated as dividends for Federal income tax purposes or
that a deduction with respect to all or a portion of the dividends on the
Shares is allowable for Federal income tax purposes, or (ii) in the absence
of such an amendment, issuance or modification and after a submission of a
request for ruling or technical advice, the service shall rule or advise that
dividends on the shares should not be treated as dividends for Federal income
tax purposes. If the Service determines that the Preferred Shares or
Conversion Shares constitute debt, the Company may file protective claims for
refund.
Section 3.11 REGULATION S. The Company covenants and agrees that
if the Company fails to register the Conversion Shares and the Warrant Shares
within 150 days from the Tranche I Closing Date under the terms and
conditions of the Registration Rights Agreement attached hereto as Exhibit E,
then for so long as such Registration Statement is not effective and as any
of the Shares remain outstanding and continue to be "restricted securities"
within the meaning of Rule 144 under the Securities Act, the Company shall,
in order to permit resales any of the Shares pursuant to Regulation S under
the Securities Act, (a) continue to file all material required to be filed
pursuant to Section 13(a) or 15(d) of the Exchange Act, and (b) not knowingly
engage in directed selling efforts in connection with the resale of
securities by any Purchaser under Regulation S.
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Section 3.12 RIGHT OF FIRST REFUSAL. The Company covenants and
agrees that during the nine (9) month period after Final Closing Date the
Purchasers shall have a right of first refusal with respect to any subsequent
offer or sale of Common Stock or any securities convertible or exchangeable
into Common Stock based on variable rates of conversion (meaning based on a
market price of the Common Stock as of the date of conversion or exchange)
which the Company proposes or intends to consummate with any third parties
(the "Subsequent Financing"). The Company will promptly notify the
Purchasers in writing of the terms and conditions of the proposed Subsequent
Financing. The Purchasers shall have the right for ten (10) trading days to
consummate the Subsequent Financing, in whole but not in part, with the
Company on the same terms and conditions as the proposed Subsequent
Financing. If the Purchasers do not consummate the Subsequent Financing, the
Company shall have 45 days thereafter to consummate the Subsequent Financing
with such third parties, on the same or substantially the same terms, or on
terms more favorable to the Company. The rights of the Purchaser herein
specifically exclude any Subsequent Financing with the parties set forth on
SCHEDULE 3.12 hereto; provided, that (i) if the Subsequent Financing with
such parties is an offer or sale of Common Stock at a price equal to less
than 50% of the market price of Common Stock, the proceeds from such sale
shall be used first to redeem the outstanding Preferred Shares of the
Purchasers upon consummation of the Subsequent Financing at a redemption
price equal to 125% of the Liquidation Preference (as defined in the
Certificate of Designations) plus accrued and unpaid dividends and (ii) if
the Subsequent Financing is an offer or sale of securities convertible or
exchangeable into Common Stock, such conversion or exchange shall be based on
a fixed rate.
Section 3.13 RESERVATION OF SHARES. So long as any of the
Preferred Shares or Warrants remain outstanding, the Company shall take all
action necessary to at all times have authorized, and reserved for the
purpose of issuance, no less than 200% of the aggregate number of shares of
Common Stock needed to provide for the issuance of the Conversion Shares and
the Warrant Shares.
Section 3.14 TRANSFER AGENT INSTRUCTIONS. The Company shall issue
irrevocable instructions to its transfer agent, and any subsequent transfer
agent, to issue certificates, registered in the name of each Purchaser or its
respective nominee(s), for the Conversion Shares and the Warrant Shares in
such amounts as specified from time to time by each Purchaser to the Company
upon conversion of the Preferred Shares or exercise of the Warrants in the
form of Exhibit F attached hereto (the "Irrevocable Transfer Agent
Instructions"). Prior to registration of the Conversion Shares and the
Warrant Shares under the Securities Act, all such certificates shall bear the
restrictive legend specified in Section 6.1 of this Agreement. The Company
warrants that no instruction other than the Irrevocable Transfer Agent
Instructions referred to in this Section 3.14 will be given by the Company to
its transfer agent and that the Shares shall otherwise be freely transferable
on the books and records of the Company as and to the extent provided in this
Agreement and the Registration Rights Agreement. Nothing in this Section
3.14 shall affect in any way each Purchaser's obligations and agreements set
forth in Section 6.1 to
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comply with all applicable prospectus delivery requirements, if any, upon
resale of the Shares. If a Purchaser provides the Company with an opinion of
counsel, in a generally acceptable form, to the effect that a public sale,
assignment or transfer of the Shares may be made without registration under
the Securities Act or the Purchaser provides the Company with reasonable
assurances that the Shares can be sold pursuant to Rule 144 without any
restriction as to the number of securities acquired as of a particular date
that can then be immediately sold, the Company shall permit the transfer,
and, in the case of the Conversion Shares and the Warrant Shares, promptly
instruct its transfer agent to issue one or more certificates in such name
and in such denominations as specified by such Purchaser and without any
restrictive legend. The Company acknowledges hat a breach by it of its
obligations under this Section 3.14 will cause irreparable harm to the
Purchasers by vitiating the intent and purpose of the transaction
contemplated hereby. Accordingly, the Company acknowledges that the remedy
at law for a breach of its obligations under this Section 3.14 will be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section 3.14, that the Purchasers shall be
entitled, in addition to all other available remedies, to an order and/or
injunction restraining any breach and requiring immediate issuance and
transfer, without the necessity of showing economic loss and without any bond
or other security being required.
ARTICLE IV
CONDITIONS
Section 4.1 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE COMPANY
TO SELL THE SHARES. The obligation hereunder of the Company to issue and
sell the Preferred Shares and the Warrants to the Purchasers is subject to
the satisfaction or waiver, at or before each Closing, each of the conditions
set forth below. These conditions are for the Company's sole benefit and may
be waived by the Company at any time in its sole discretion.
(a) ACCURACY OF EACH PURCHASER'S REPRESENTATIONS AND WARRANTIES.
The representations and warranties of each Purchaser shall be true and
correct in all material respects as of the date when made and as of each
Closing Date as though made at that time, except for representations and
warranties that are expressly made as of a particular date, which shall be
true and correct in all material respects as of such date.
(b) PERFORMANCE BY THE PURCHASERS. Each Purchaser shall have
performed, satisfied and complied in all material respects with all
covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by such Purchaser at or prior to each
Closing.
(c) NO INJUNCTION. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or
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governmental authority of competent jurisdiction which prohibits the
consummation of any of the transactions contemplated by this Agreement.
(d) MINIMUM PURCHASE. The Escrow Agent shall hold $2,000,000 or
more of immediately available funds pursuant to the Escrow Agreement received
from the Purchasers, and the Purchasers shall make the minimum purchase
described in Section 4.2(c).
Section 4.2 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE
PURCHASERS TO PURCHASE THE SHARES. The obligation hereunder of each
Purchaser to acquire and pay for the Preferred Shares and the Warrants is
subject to the satisfaction or waiver, at or before each Closing, of each of
the conditions set forth below. These conditions are for each Purchaser's
sole benefit and may be waived by such Purchaser at any time in its sole
discretion.
(a) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND WARRANTIES.
Each of the representations and warranties of the Company shall be true and
correct in all material respects as of the date when made and as of each
Closing Date as though made at that time (except for representations and
warranties that speak as of a particular date), which shall be true and
correct in all material respects as of such date.
(b) PERFORMANCE BY THE COMPANY. The Company shall have
performed, satisfied and complied in all respects with all covenants,
agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the Company at or prior to such Closing.
(c) MINIMUM PURCHASE. Under the terms and conditions of this
Agreement, the Company shall make sales of the Preferred Shares and Warrants
to the Purchasers resulting in gross proceeds of a minimum of $2,000,000 to
the Company, less fees and legal expenses payable to the Purchasers pursuant
to a written agreement describing said fees.
(d) NO SUSPENSION, ETC. From the date hereof to each Closing
Date, trading in the Company's Common Stock shall not have been suspended by
the Commission (except for any suspension of trading of limited duration
agreed to by the Company, which suspension shall be terminated prior to each
Closing), and, at any time prior to each Closing, trading in securities
generally as reported by Bloomberg Financial Markets ("Bloomberg") shall not
have been suspended or limited, or minimum prices shall not have been
established on securities whose trades are reported by Bloomberg, or on the
New York Stock Exchange, nor shall a banking moratorium have been declared
either by the United States or New York State authorities, nor shall there
have occurred any material outbreak or escalation of hostilities or other
national or international calamity or crisis of such magnitude in its effect
on, or any material adverse change in any financial market which, in each
case, in the judgment of such Purchaser, makes it impracticable or
inadvisable to purchase the Preferred Shares.
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(e) NO INJUNCTION. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement.
(f) NO PROCEEDINGS OR LITIGATION. No action, suit or proceeding
before any arbitrator or any governmental authority shall have been
commenced, and no investigation by any governmental authority shall have been
threatened, against the Company or any subsidiary, or any of the officers,
directors or affiliates of the Company or any subsidiary seeking to restrain,
prevent or change the transactions contemplated by this Agreement, or seeking
damages in connection with such transactions.
(g) CERTIFICATE OF DESIGNATIONS OF RIGHTS AND PREFERENCES.
Prior to each Closing, the Certificate of Designations of the Rights and
Preferences for the Preferred Shares in the form of Exhibit C attached hereto
shall have been filed with the Secretary of State of Delaware.
(h) OPINION OF COUNSEL, ETC. At each Closing, the Purchasers
shall have received an opinion of counsel to the Company, dated the date of
such Closing, in the form of Exhibit G hereto, and such other certificates
and documents as the Purchasers or its counsel shall reasonably require
incident to such Closing.
(i) REGISTRATION RIGHTS AGREEMENT. At the Tranche I Closing,
the Company shall have executed and delivered the Registration Rights
Agreement to each Purchaser.
(j) CERTIFICATES. The Company shall have executed and delivered
to the Escrow Agent the certificates (in such denominations as such Purchaser
shall request) for the Preferred Shares and Warrants being acquired by such
Purchaser at such Closing.
(k) RESOLUTIONS. The Board of Directors of the Company shall
have adopted resolutions consistent with Section 2.1(b) above in a form
reasonably acceptable to such Purchaser (the "Resolutions").
(l) RESERVATION OF SHARES. As of each Closing Date, the Company
shall have reserved out of its authorized and unissued Common Stock, solely
for the purpose of effecting the conversion of the Preferred Shares and the
exercise of the Warrants, a number of shares of Common Stock equal to at
least 200% of the aggregate number of Conversion Shares issuable upon
conversion of the Preferred Shares outstanding on such Closing Date and the
number of Warrant Shares issuable upon exercise of the number of Warrants
assuming such Warrants were granted on such Closing Date (after giving effect
to the Preferred Shares and the Warrants to be issued on such Closing Date
and assuming all such Preferred Shares and Warrants were fully
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convertible or exercisable on such date regardless of any limitation on the
timing or amount of such conversions or exercises).
(m) TRANSFER AGENT INSTRUCTIONS. The Irrevocable Transfer Agent
Instructions, in the form of Exhibit F attached hereto, shall have been
delivered to and acknowledged in writing by the Company's transfer agent.
(n) SECRETARY'S CERTIFICATE. The Company shall have delivered
to such Purchaser a secretary's certificate, dated as of each Closing Date,
as to (i) the Resolutions, (ii) the Articles, (iii) the Bylaws, (iv) the
Certificate of Designations, each as in effect at such Closing, and (iv) the
authority and incumbency of the officers of the Company executing the
Transaction Documents and any other documents required to be executed or
delivered in connection therewith.
(o) ESCROW AGREEMENT. At the Tranche I Closing, the Company
shall have executed and delivered the Escrow Agreement to each Purchaser.
(p) CANCELLATION OF PROMISSORY NOTE. At the Tranche I Closing,
Lightline shall deliver or cause the delivery to the Company the original
Promissory Note marked "Canceled" and "Paid- In-Full".
(q) OFFICER'S CERTIFICATE. The Company shall have delivered to
such Purchaser a certificate of an executive officer of the Company, dated as
of each Closing Date, confirming the accuracy of the Company's
representations, warranties and covenants as of such Closing Date and
confirming the compliance by the Company with the conditions precedent set
forth in this Section 4.2 as of such Closing Date.
ARTICLE V
INTENTIONALLY OMITTED
ARTICLE VI
STOCK CERTIFICATE LEGEND
Section 6.1 LEGEND. Each certificate representing the Preferred
Shares and the Warrants, and, if appropriate, securities issued upon
conversion thereof, shall be stamped or otherwise imprinted with a legend
substantially in the following form (in addition to any legend required by
applicable state securities or "blue sky" laws):
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THESE SECURITIES REPRESENTED BY THIS CERTIFICATE (THE
"SECURITIES") HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS
AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS
REGISTERED UNDER THAT ACT AND UNDER APPLICABLE STATE SECURITIES LAWS
OR ESYNCH CORP. (THE "COMPANY") SHALL HAVE RECEIVED AN OPINION OF ITS
COUNSEL THAT REGISTRATION OF SUCH SECURITIES UNDER THAT ACT AND UNDER
THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.
The Company agrees to reissue certificates representing the Shares
without the legend set forth above if at such time, prior to making any
transfer of any Shares or Shares, such holder thereof shall give written
notice to the Company describing the manner and terms of such transfer and
removal as the Company may reasonably request. Such proposed transfer will
not be effected until: (a) the Company has notified such holder that either
(i) in the opinion of Company counsel, the registration of such Shares under
the Securities Act is not required in connection with such proposed transfer;
or (ii) a registration statement under the Securities Act covering such
proposed disposition has been filed by the Company with the Commission and
has become effective under the Securities Act; and (b) the Company has
notified such holder that either: (i) in the opinion of Company counsel, the
registration or qualification under the securities or "blue sky" laws of any
state is not required in connection with such proposed disposition, or (ii)
compliance with applicable state securities or "blue sky" laws has been
effected. The Company will use its best efforts to respond to any such
notice from a holder within ten (10) days. In the case of any proposed
transfer under this Section 6, the Company will use reasonable efforts to
comply with any such applicable state securities or "blue sky" laws, but
shall in no event be required, in connection therewith, to qualify to do
business in any state where it is not then qualified or to take any action
that would subject it to tax or to the general service of process in any
state where it is not then subject. The restrictions on transfer contained
in Section 6.1 shall be in addition to, and not by way of limitation of, any
other restrictions on transfer contained in any other section of this
Agreement.
ARTICLE VII
INTENTIONALLY OMITTED.
ARTICLE VIII
INDEMNIFICATION
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Section 8.1 GENERAL INDEMNITY. The Company agrees to indemnify
and hold harmless the Purchasers and any finder (and their respective
directors, officers, affiliates, agents, successors and assigns) from and
against any and all losses, liabilities, deficiencies, costs, damages and
expenses (including, without limitation, reasonable attorney's fees, charges
and disbursements) incurred by the Purchasers as a result of any inaccuracy
in or breach of the representations, warranties or covenants made by the
Company herein. Each Purchaser severally but not jointly agrees to indemnify
and hold harmless the Company and its directors, officers, affiliates,
agents, successors and assigns from and against any and all losses,
liabilities, deficiencies, costs, damages and expenses (including, without
limitation, reasonable attorneys fees, charges and disbursements) incurred by
the Company as result of any inaccuracy in or breach of the representations,
warranties or covenants made by such Purchaser herein.
Section 8.2 INDEMNIFICATION PROCEDURE. Any party entitled to
indemnification under this Article VIII (an "indemnified party") will give
written notice to the indemnifying party of any matters giving rise to a
claim for indemnification; provided, that the failure of any party entitled
to indemnification hereunder to give notice as provided herein shall not
relieve the indemnifying party of its obligations under this Article VIII
except to the extent that the indemnifying party is actually prejudiced by
such failure to give notice. In case any action, proceeding or claim is
brought against an indemnified party in respect of which indemnification is
sought hereunder, the indemnifying party shall be entitled to participate in
and, unless in the reasonable judgment of the indemnified party a conflict of
interest between it and the indemnifying party may exist with respect of such
action, proceeding or claim, to assume the defense thereof with counsel
reasonably satisfactory to the indemnified party. In the event that the
indemnifying party advises an indemnified party that it will contest such a
claim for indemnification hereunder, or fails, within thirty (30) days of
receipt of any indemnification notice to notify, in writing, such person of
its election to defend, settle or compromise, at its sole cost and expense,
any action, proceeding or claim (or discontinues its defense at any time
after it commences such defense), then the indemnified party may, at its
option, defend, settle or otherwise compromise or pay such action or claim.
In any event, unless and until the indemnifying party elects in writing to
assume and does so assume the defense of any such claim, proceeding or
action, the indemnified party's costs and expenses arising out of the
defense, settlement or compromise of any such action, claim or proceeding
shall be losses subject to indemnification hereunder. The indemnified party
shall cooperate fully with the indemnifying party in connection with any
negotiation or defense of any such action or claim by the indemnifying party
and shall furnish to the indemnifying party all information reasonably
available to the indemnified party which relates to such action or claim.
The indemnifying party shall keep the indemnified party fully apprised at all
times as to the status of the defense or any settlement negotiations with
respect thereto. If the indemnifying party elects to defend any such action
or claim, then the indemnified party shall be entitled to participate in such
defense with counsel of its choice at its sole cost and expense. The
indemnifying party shall not be liable for any settlement of any action,
claim or proceeding effected without its prior written consent.
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<PAGE>
Notwithstanding anything in this Article VIII to the contrary, the
indemnifying party shall not, without the indemnified party's prior written
consent, settle or compromise any claim or consent to entry of any judgment
in respect thereof which imposes any future obligation on the indemnified
party or which does not include, as an unconditional term thereof, the giving
by the claimant or the plaintiff to the indemnified party of a release from
all liability in respect of such claim. The indemnification required by this
Article VIII shall be made by periodic payments of the amount thereof during
the course of investigation or defense, as and when bills are received or
expense, loss, damage or liability is incurred, so long as the indemnified
party irrevocably agrees to refund such moneys if it is ultimately determined
by a court of competent jurisdiction that such party was not entitled to
indemnification. The indemnity agreements contained herein shall be in
addition to (a) any cause of action or similar rights of the indemnified
party against the indemnifying party or others, and (b) any liabilities the
indemnifying party may be subject to pursuant to the law.
ARTICLE IX
MISCELLANEOUS
Section 9.1 FEES AND EXPENSES. Except as otherwise set forth in
this Agreement, the Registration Rights Agreement or the Certificate of
Designations, each party shall pay the fees and expenses of its advisors,
counsel, accountants and other experts, if any, and all other expenses,
incurred by such party incident to the negotiation, preparation, execution,
delivery and performance of this Agreement, PROVIDED that the Company shall
pay, at the Closing, all attorneys fees and expenses (exclusive of
disbursements and out-of-pocket expenses) incurred by the Purchasers up to
$25,000 in connection with the preparation, negotiation, execution and
delivery of this Agreement, the Registration Rights Agreement and the
transaction contemplated hereunder. In addition, the Company shall pay all
reasonable fees and expenses incurred by the Purchasers in connection with
any amendments, modifications or waivers of this Agreement or any of the
other Transaction Documents, or incurred in connection with the enforcement
of this Agreement or any of the other Transaction Documents, including,
without limitation, all reasonable attorneys fees and expenses. The Company
shall pay all stamp or other similar taxes and duties levied in connection
with issuance of the Preferred Shares pursuant hereto.
Section 9.2 SPECIFIC ENFORCEMENT, CONSENT TO JURISDICTION.
(a) The Company and the Purchasers acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of
this Agreement or the Registration Rights Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent or cure breaches of the provisions of this Agreement
or the Registration Rights Agreement and to enforce specifically the terms
and provisions hereof or thereof, this being in
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addition to any other remedy to which any of them may be entitled by law or
equity.
(b) Each of the Company and the Purchasers (i) hereby
irrevocably submits to the jurisdiction of the United States District Court
sitting in the Southern District of New York for the purposes of any suit,
action or proceeding arising out of or relating to this Agreement or the
Registration Rights Agreement and (ii) hereby waives, and agrees not to
assert in any such suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of such court, that the suit, action
or proceeding is brought in an inconvenient forum or that the venue of the
suit, action or proceeding is improper. Each of the Company and the
Purchasers consents to process being served in any such suit, action or
proceeding by mailing a copy thereof to such party at the address in effect
for notices to it under this Agreement and agrees that such service shall
constitute good and sufficient service of process and notice thereof.
Nothing in this Section 9.2 shall affect or limit any right to serve process
in any other manner permitted by law.
Section 9.3 ENTIRE AGREEMENT; AMENDMENT. This Agreement contains
the entire understanding of the parties with respect to the matters covered
hereby and, except as specifically set forth herein or in the Transaction
Documents or the Certificate of Designations, neither the Company nor any of
the Purchasers makes any representations, warranty, covenant or undertaking
with respect to such matters. No provision of this Agreement may be waived
or amended other than by a written instrument signed by the Company and the
holders of at least two-thirds (2/3) of the Preferred Shares then
outstanding, and no provision hereof may be waived other than by an a written
instrument signed by the party against whom enforcement of any such amendment
or waiver is sought. No such amendment shall be effective to the extent that
it applies to less than all of the holders of the Preferred Shares then
outstanding. No consideration shall be offered or paid to any person to
amend or consent to a waiver or modification of any provision of any of the
Transaction Documents or the Certificate of Designations unless the same
consideration is also offered to all of the parties to the Transaction
Documents or holders of Preferred Shares, as the case may be.
Section 9.4 NOTICES. Any notice, demand, request, waiver or
other communication required or permitted to be given hereunder shall be in
writing and shall be effective (a) upon hand delivery by telex (with correct
answer back received), telecopy or facsimile at the address or number
designated below (if delivered on a business day during normal business hours
where such notice is to be received), or the first business day following
such delivery (if delivered other than on a business day during normal
business hours where such notice is to be received) or (b) on the second
business day following the date of mailing by express courier service, fully
prepaid, addressed to such address, or upon actual receipt of such mailing,
whichever shall first occur. The addresses for such communications shall be:
If to the Company: Thomas Hemingway, CEO
eSynch Corporation
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<PAGE>
15502 Mosher Avenue
Tustin, California 92780
Telephone Number: (714) 258-1900
Facsimile Number: (714) 258-7177
with copies to: Nicholas J. Yocca, Esq.
Stradling Yocca Carlson & Rauth
660 Newport Beach, California 92660
Telephone Number: (949)725-4120
Facsimile Number: (949) 823-5120
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:
Christopher S. Auguste, Esq.
Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the Americas
New York, New York 10036
Telephone Number: (212) 704-6000
Fax: (212) 704-6288
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.
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<PAGE>
Section 9.8 NO THIRD PARTY BENEFICIARIES. This Agreement is
intended for the benefit of the parties hereto and their respective permitted
successors and assigns and is not for the benefit of, nor may any provision
hereof be enforced by, any other person.
Section 9.9 GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the internal laws of the State of New York,
without giving effect to the choice of law provisions.
Section 9.10 SURVIVAL. The representations and warranties of the
Company and the Purchasers contained in Sections 2.1(o) and (s) should
survive indefinitely and those contained in Article II, with the exception of
Sections 2.1(o) and (s), shall survive the execution and delivery hereof and
the Closings until the date two years from the Final Closing Date, and the
agreements and covenants set forth in Articles I, III, V, VII, VIII and IX of
this Agreement shall survive the execution and delivery hereof and the
Closings hereunder until the Purchasers in the aggregate beneficially own
(determined in accordance with Rule 13d-3 under the Exchange Act) less than
2% of the total combined voting power of all voting securities then
outstanding, provided, that Sections 3.1, 3.2, 3.4, 3.5, 3.7, 3.8, 3.9, 3.10,
3.11 and 3.12 shall not expire until the Registration Statement required by
Section 2 of the Registration Rights Agreement is no longer required to be
effective under the terms and conditions of Registration Rights Agreement.
Section 9.11 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and
the same instrument and shall become effective when counterparts have been
signed by each party and delivered to the other parties hereto, it being
understood that all parties need not sign the same counterpart. In the event
any signature is delivered by facsimile transmission, the party using such
means of delivery shall cause four additional executed signature pages to be
physically delivered to the other parties within five days of the execution
and delivery hereof.
Section 9.12 PUBLICITY. The Company agrees that it will not
disclose, and will not include in any public announcement, the name of the
Purchasers, unless and until such disclosure is required by law or applicable
regulation, and then only to the extent of such requirement.
Section 9.13 SEVERABILITY. The provisions of this Agreement, the
Certificate of Designations and the Registration Rights Agreement are
severable and, in the event that any court of competent jurisdiction shall
determine that any one or more of the provisions or part of the provisions
contained in this Agreement, the Certificate of Designations or the
Registration Rights Agreement shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision or part of a provision
of this Agreement, the Certificate of Designations or the Registration Rights
Agreement shall be reformed and construed as if such invalid or illegal or
unenforceable
33
<PAGE>
provision, or part of such provision, had never been contained herein, so
that such provisions would be valid, legal and enforceable to the maximum
extent possible.
Section 9.14 FURTHER ASSURANCES. From and after the date of this
Agreement, upon the request of any Purchaser or the Company, each of the
Company and the Purchasers shall execute and deliver such instrument,
documents and other writings as may be reasonably necessary or desirable to
confirm and carry out and to effectuate fully the intent and purposes of this
Agreement, the Preferred Shares, the Conversion Shares, the Warrants, the
Warrant Shares, the Certificate Designations, and the Registration Rights
Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officer as of the date first
above written.
ESYNCH CORPORATION
By: /s/ THOMAS HEMINGWAY
------------------------------
Name: Thomas Hemingway
Title: Chief Executive Officer
LIGHTLINE LIMITED
By: /s/ GIORA LAVIE
------------------------------
Name: Giora Lavie
Title: Attorney-in-Fact
ROSEWORTH GROUP LIMITED
By: /s/ HANS GASSNER
------------------------------
Name: Hans Gassner
Title Director
TONGA PARTNERS, L.P.
By: /s/ J. CARLO CONNELL
------------------------------
Name: J. Carlo Connell
Title: General Partner
35
<PAGE>
DANDEE LTD.
By: /s/ C.B. WILLIAMS
------------------------------
Name: C.B. Williams
Title: Secretary
ACQUA WELLINGTON SMALL CAP
VALUE FUND, LTD.
By: /s/ ANTHONY L.M. INDER RIEDEN
-------------------------------
Name: Anthony L.M. Inder Rieden
Title: Director
36
<PAGE>
EXHIBIT A TO THE
SERIES K CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
FOR ESYNCH CORP.
<TABLE>
<CAPTION>
NAMES AND ADDRESS NUMBER OF PREFERRED SHARES DOLLAR AMOUNT
OF PURCHASERS & WARRANTS PURCHASED OF INVESTMENT
- ----------------------------- -------------------------- -------------
<S> <C> <C>
Lightline Limited Preferred Shares 30 $300,000
P.O. Box 146 Warrants: 22,500
Road Town, Tortola
British Virgin Islands
Tel. No.:
Fax No.: 011-9723-544-1870
Attn: Giora Lavie
Roseworth Group Limited Preferred Shares: 30 $300,000
Curzon Capital Corp. Warrants: 22,500
c/o Wertminster Securities
100 Park Avenue, 28th Floor
New York, New York 10017
Tel. No.: 212-376-8753
Fax No. 212-214-0440
Attn: Thomas Badian
Tonga Partners, L.P. Preferred Shares: 30 $300,000
600 California Street, 14th Floor Warrants: 22,500
San Francisco, CA. 94108
Tel. No.: 415-835-8300
Fax No.: 415-835-8312
Attn: J. Carlo Cannell
Dandee Ltd. Preferred Shares: 60 $600,000
Gretton Secretarial Warrants: 45,000
Services Ltd.
Attn: Director
Acqua Wellington Small Cap Preferred Shares: 50 $500,000
Value Fund, Ltd. Warrants: 37,500
c/o MeesPierson Fund Services
(Bahamas) Ltd.
Montague Sterling Centre
East Bay Street, P.O. Box SS-6238
</TABLE>
37
<PAGE>
Nassau, Bahamas
Tel. No.:
Fax No.:
Attn: Anthony L.M. Inder Rieden
38
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "AGREEMENT") is made and
entered into as of December 30, 1999, among eSynch Corporation, a Delaware
corporation (the "COMPANY"), and each of the Purchasers listed on Schedule 1
attached hereto. Each of the Purchasers listed on Schedule 1 attached hereto
is referred to herein as a "PURCHASER" and are collectively referred to
herein as the "PURCHASERS."
This Agreement is being entered into pursuant to the Series K
Convertible Preferred Stock Purchase Agreement, dated as of the date hereof,
by and among the Company and the Purchasers (the "PURCHASE AGREEMENT").
The Company and the Purchasers hereby agree as follows:
1. DEFINITIONS.
Capitalized terms used and not otherwise defined herein shall have
the meanings given such terms in the Purchase Agreement. As used in this
Agreement, the following terms shall have the following meanings:
"ADVICE" shall have the meaning set forth in Section 3(m).
"AFFILIATE" means, with respect to any Person, any other Person
that directly or indirectly controls or is controlled by or under common
control with such Person. For the purposes of this definition, "CONTROL,"
when used with respect to any Person, means the possession, direct or
indirect, of the power to direct or cause the direction of the management and
policies of such Person, whether through the ownership of voting securities,
by contract or otherwise; and the terms of "AFFILIATED," "CONTROLLING" and
"CONTROLLED" have meanings correlative to the foregoing.
"BLACKOUT PERIOD" shall have the meaning set forth in Section 3(n).
"BOARD" shall have the meaning set forth in Section 3(n).
"BUSINESS DAY" means any day except Saturday, Sunday and any day
which shall be a legal holiday or a day on which banking institutions in the
state of California generally are authorized or required by law or other
government actions to close.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means the Company's Common Stock, par value $.001
per share.
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<PAGE>
"EFFECTIVENESS DATE" means with respect to the Registration
Statement the 150th day following the Tranche I Closing Date.
"EFFECTIVENESS PERIOD" shall have the meaning set forth in Section
2(a).
"EVENT" shall have the meaning set forth in Section 7(e)(i).
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"FILING DATE" means the 60th day following the Tranche I Closing
Date.
"HOLDER" or "HOLDERS" means the holder or holders, as the case may
be, from time to time of Registrable Securities.
"INDEMNIFIED PARTY" shall have the meaning set forth in Section
5(c).
"INDEMNIFYING PARTY" shall have the meaning set forth in Section
5(c).
"LOSSES" shall have the meaning set forth in Section 5(a).
"OTC BULLETIN BOARD" shall mean the over-the-counter electronic
bulletin board.
"PERSON" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political
subdivision thereof) or other entity of any kind.
"PREFERRED STOCK" means the Series K Convertible Preferred Stock,
par value $.001 per share and stated value $10,000 per share, of the Company
issued to the Purchasers pursuant to the Purchase Agreement.
"PROCEEDING" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"PROSPECTUS" means the prospectus included in the Registration
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an
effective registration statement in reliance upon Rule 430A promulgated under
the Securities Act), as amended or supplemented by any prospectus supplement,
with respect to the terms of the offering of any portion of the Registrable
Securities covered by the Registration Statement, and all other amendments
and supplements to the Prospectus, including post-effective amendments, and
all material incorporated by reference in such Prospectus.
"REGISTRABLE SECURITIES" means (i) the shares of Common Stock
issuable upon conversion of the Preferred Stock (the "Conversion Shares") and
exercise of the Warrants (the "Warrant Shares"), and upon any stock split,
stock dividend, recapitalization or similar event with respect to such
Conversion Shares, Warrant Shares or any Preferred Stock, (ii) the shares of
2
<PAGE>
Common Stock issuable upon exercise of warrants issued to the placement
advisor in connection with the sale of the Preferred Stock and the Warrants,
(iii) the shares of Common Stock issued upon any redemption of Preferred
Stock pursuant to Section 8 of the Certificate of Designation and (iv) any
other dividend or other distribution with respect to, conversion or exchange
of, or in replacement of, Registrable Securities; PROVIDED, HOWEVER, that
Registrable Securities shall include (but not be limited to) a number of
shares of Common Stock equal to no less than 200% of the maximum number of
shares of Common Stock which would be issuable upon conversion of the
Preferred Stock and upon exercise of the Warrants, assuming such conversion
and exercise occurred on the Final Closing Date or the Filing Date, whichever
date would result in the greater number of Registrable Securities.
Notwithstanding anything herein contained to the contrary, such registered
shares of Common Stock shall be allocated among the Holders pro rata based on
the total number of Registrable Securities issued or issuable as of each date
that a Registration Statement, as amended, relating to the resale of the
Registrable Securities is declared effective by the Commission.
Notwithstanding anything contained herein to the contrary, if the actual
number of shares of Common Stock issuable upon conversion of the Preferred
Stock and upon exercise of the Warrants exceeds 200% of the number of shares
of Common Stock issuable upon conversion of the Preferred Stock and upon
exercise of the Warrants based upon a computation as at the applicable
Closing Date or the Filing Date, the term "Registrable Securities" shall be
deemed to include such additional shares of Common Stock.
"REGISTRATION STATEMENT" means the registration statements and any
additional registration statements contemplated by Section 2(a), including
(in each case) the Prospectus, amendments and supplements to such
registration statement or Prospectus, including pre- and post-effective
amendments, all exhibits thereto, and all material incorporated by reference
in such registration statement.
"RULE 144" means Rule 144 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"RULE 158" means Rule 158 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"RULE 415" means Rule 415 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SPECIAL COUNSEL" means any special counsel to the Holders, for
which the Holders will be reimbursed by the Company pursuant to Section 4.
2. REGISTRATION.
(a) REQUIRED REGISTRATION. On or prior to the Filing Date the
Company shall prepare and file with the Commission a Registration Statement
covering all Registrable
3
<PAGE>
Securities for an offering to be made on a continuous basis pursuant to Rule
415. The Registration Statement shall be on Form SB-2 (except if the Company
is not then eligible to register for resale the Registrable Securities on
Form SB-2, in which case such registration shall be on another appropriate
form in accordance herewith). The Company shall (i) not permit any securities
other than the Registrable Securities to be included in the Registration
Statement and (ii) use its best efforts to cause the Registration Statement
to be declared effective under the Securities Act as promptly as possible
after the filing thereof, but in any event prior to the Effectiveness Date,
and to keep such Registration Statement continuously effective under the
Securities Act until such date as is the earlier of (x) the date when all
Registrable Securities covered by such Registration Statement have been sold
or (y) the date on which the Registrable Securities may be sold without any
restriction pursuant to Rule 144(k) as determined by the counsel to the
Company pursuant to a written opinion letter, addressed to the Company's
transfer agent to such effect (the "EFFECTIVENESS PERIOD"). If an additional
Registration Statement is required to be filed because the actual number of
shares of Common Stock into which the Preferred Stock is convertible and the
Warrants are exercisable exceeds the number of shares of Common Stock
initially registered in respect of the Conversion Shares and the Warrant
Shares based upon the computation on the applicable Closing Date, the Company
shall have twenty (20) Business Days to file such additional Registration
Statement, and the Company shall use its best efforts to cause such
additional Registration Statement to be declared effective by the Commission
as soon as possible, but in no event later than thirty (30) days after filing.
(b) SHELF REGISTRATION. As soon as possible but no later than
thirty (30) days after becoming eligible to file a registration statement for
a secondary or resale offering of the Registrable Securities on Form S-3, the
Company shall prepare and file with the Commission a post-effective amendment
to Form SB-2 (or such other applicable form filed in accordance with Section
2(a) above) on Form S-3 to continue the registration of all Registrable
Securities pursuant to a "shelf" Registration Statement on Form S-3 covering
all Registrable Securities for an offering to be made on a continuous basis
pursuant to Rule 415. Notwithstanding anything to the contrary contained
herein, at no time during the Effectiveness Period shall any of the
Registrable Securities cease being registered.
3. REGISTRATION PROCEDURES.
In connection with the Company's registration obligations
hereunder, the Company shall:
(a) Prepare and file with the Commission on or prior to the
Filing Date, a Registration Statement on Form SB-2 (or if the Company is not
then eligible to register for resale the Registrable Securities on Form SB-2
such registration shall be on another appropriate form in accordance
herewith) in accordance with the method or methods of distribution thereof as
specified by the Holders (except if otherwise directed by the Holders), and
cause the Registration Statement to become effective and remain effective as
provided herein; PROVIDED, HOWEVER, that not less than five (5) Business Days
prior to the filing of the Registration Statement or any related Prospectus
or any amendment or supplement thereto (including any document that would be
incorporated therein by reference), the Company shall (i) furnish to the
Holders and any Special Counsel, copies of all such documents proposed to be
filed, which documents (other than those incorporated by reference) will be
subject to the review of such Holders and such Special
4
<PAGE>
Counsel, and (ii) at the request of any Holder cause its officers and
directors, counsel and independent certified public accountants to respond to
such inquiries as shall be necessary, in the reasonable opinion of counsel to
such Holders, to conduct a reasonable investigation within the meaning of the
Securities Act. The Company shall not file the Registration Statement or any
such Prospectus or any amendments or supplements thereto to which the Holders
of a majority of the Registrable Securities or any Special Counsel shall
reasonably object in writing within three (3) Business Days of their receipt
thereof.
(b) (i) Prepare and file with the Commission such amendments,
including post-effective amendments, to the Registration Statement as may be
necessary to keep the Registration Statement continuously effective as to the
applicable Registrable Securities for the Effectiveness Period and prepare
and file with the Commission such additional Registration Statements in order
to register for resale under the Securities Act all of the Registrable
Securities; (ii) cause the related Prospectus to be amended or supplemented
by any required Prospectus supplement, and as so supplemented or amended to
be filed pursuant to Rule 424 (or any similar provisions then in force)
promulgated under the Securities Act; (iii) respond as promptly as possible
to any comments received from the Commission with respect to the Registration
Statement or any amendment thereto and as promptly as possible provide the
Holders true and complete copies of all correspondence from and to the
Commission relating to the Registration Statement; and (iv) comply in all
material respects with the provisions of the Securities Act and the Exchange
Act with respect to the disposition of all Registrable Securities covered by
the Registration Statement during the applicable period in accordance with
the intended methods of disposition by the Holders thereof set forth in the
Registration Statement as so amended or in such Prospectus as so supplemented.
(c) Notify the Holders of Registrable Securities to be sold and
any Special Counsel as promptly as possible (and, in the case of (i)(A)
below, not less than five (5) Business Days prior to such filing) and (if
requested by any such Person) confirm such notice in writing no later than
one (1) Business Day following the day (i)(A) when a Prospectus or any
Prospectus supplement or post-effective amendment to the Registration
Statement is proposed to be filed; (B) when the Commission notifies the
Company whether there will be a "review" of such Registration Statement and
whenever the Commission comments in writing on such Registration Statement
and (C) with respect to the Registration Statement or any post-effective
amendment, when the same has become effective; (ii) of any request by the
Commission or any other Federal or state governmental authority for
amendments or supplements to the Registration Statement or Prospectus or for
additional information; (iii) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement covering any
or all of the Registrable Securities or the initiation of any Proceedings for
that purpose; (iv) if at any time any of the representations and warranties
of the Company contained in any agreement contemplated hereby ceases to be
true and correct in all material respects; (v) of the receipt by the Company
of any notification with respect to the suspension of the qualification or
exemption from qualification of any of the Registrable Securities for sale in
any jurisdiction, or the initiation or threatening of any Proceeding for such
purpose; and (vi) of the occurrence of any event that makes any statement
made in the Registration Statement or Prospectus or any document incorporated
or deemed to be incorporated therein by reference untrue in any material
respect or that requires any revisions to the Registration Statement,
Prospectus or other documents so that, in the case of the Registration
Statement or the Prospectus, as the case may be, it will not contain
5
<PAGE>
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
The Company shall promptly furnish to Special Counsel, without
charge, (i) any correspondence from the Commission or the Commission's staff
to the Company or its representatives relating to any Registration Statement
and (ii) promptly after the same is prepared and filed with the Commission, a
copy of any written response to the correspondence received from the
Commission.
(d) Use its best efforts to avoid the issuance of, or, if
issued, obtain the withdrawal of, (i) any order suspending the effectiveness
of the Registration Statement or (ii) any suspension of the qualification (or
exemption from qualification) of any of the Registrable Securities for sale
in any jurisdiction, at the earliest practicable moment.
(e) If requested by the Holders of a majority in interest of the
Registrable Securities, (i) promptly incorporate in a Prospectus supplement
or post-effective amendment to the Registration Statement such information as
the Company reasonably agrees should be included therein and (ii) make all
required filings of such Prospectus supplement or such post-effective
amendment as soon as practicable after the Company has received notification
of the matters to be incorporated in such Prospectus supplement or
post-effective amendment.
(f) Furnish to each Holder and any Special Counsel, without
charge, at least one conformed copy of each Registration Statement and each
amendment thereto, including financial statements and schedules, all
documents incorporated or deemed to be incorporated therein by reference, and
all exhibits to the extent requested by such Person (including those
previously furnished or incorporated by reference) promptly after the filing
of such documents with the Commission.
(g) Promptly deliver to each Holder and any Special Counsel,
without charge, as many copies of the Prospectus or Prospectuses (including
each form of prospectus) and each amendment or supplement thereto as such
Persons may reasonably request; and the Company hereby consents to the use of
such Prospectus and each amendment or supplement thereto by each of the
selling Holders in connection with the offering and sale of the Registrable
Securities covered by such Prospectus and any amendment or supplement thereto.
(h) Prior to any public offering of Registrable Securities, use
its best efforts to register or qualify or cooperate with the selling Holders
and any Special Counsel in connection with the registration or qualification
(or exemption from such registration or qualification) of such Registrable
Securities for offer and sale under the securities or Blue Sky laws of such
jurisdictions within the United States as any Holder requests in writing, to
keep each such registration or qualification (or exemption therefrom)
effective during the Effectiveness Period and to do any and all other acts or
things necessary or advisable to enable the disposition in such jurisdictions
of the Registrable Securities covered by a Registration Statement; PROVIDED,
HOWEVER, that the Company shall not be required to qualify generally to do
business in any jurisdiction where it is not then so qualified or to take any
action that would subject it to general
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service of process in any such jurisdiction where it is not then so subject
or subject the Company to any material tax in any such jurisdiction where it
is not then so subject.
(i) Cooperate with the Holders to facilitate the timely
preparation and delivery of certificates representing Registrable Securities
to be sold pursuant to a Registration Statement, which certificates shall be
free of all restrictive legends, and to enable such Registrable Securities to
be in such denominations and registered in such names as any Holder may
request at least two (2) Business Days prior to any sale of Registrable
Securities.
(j) Upon the occurrence of any event contemplated by Section
3(c)(vi), as promptly as possible, prepare a supplement or amendment,
including a post-effective amendment, to the Registration Statement or a
supplement to the related Prospectus or any document incorporated or deemed
to be incorporated therein by reference, and file any other required document
so that, as thereafter delivered, neither the Registration Statement nor such
Prospectus will contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
(k) Use its best efforts to cause all Registrable Securities
relating to such Registration Statement to be listed on the OTC Bulletin
Board and any other securities exchange, quotation system, market or
over-the-counter bulletin board, if any, on which similar securities issued
by the Company are then listed as and when required pursuant to the Purchase
Agreement.
(l) Comply in all material respects with all applicable rules
and regulations of the Commission and make generally available to its
security holders earning statements satisfying the provisions of Section
11(a) of the Securities Act and Rule 158 not later than 45 days after the end
of any 12-month period (or 90 days after the end of any 12-month period if
such period is a fiscal year) commencing on the first day of the first fiscal
quarter of the Company after the effective date of the Registration
Statement, which statement shall conform to the requirements of Rule 158.
(m) Require each selling Holder to furnish to the Company
information regarding such Holder and the distribution of such Registrable
Securities as is required by law to be disclosed in the Registration
Statement, and the Company may exclude from such registration the Registrable
Securities of any such Holder who fails to furnish such information within a
reasonable time prior to the filing of each Registration Statement,
supplemented Prospectus and/or amended Registration Statement.
If the Registration Statement refers to any Holder by name or
otherwise as the holder of any securities of the Company, then such Holder
shall have the right to require (if such reference to such Holder by name or
otherwise is not required by the Securities Act or any similar federal
statute then in force) the deletion of the reference to such Holder in any
amendment or supplement to the Registration Statement filed or prepared
subsequent to the time that such reference ceases to be required.
Each Holder covenants and agrees that (i) it will not sell any
Registrable Securities under the Registration Statement until it has received
copies of the Prospectus as then
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amended or supplemented as contemplated in Section 3(g) and notice from the
Company that such Registration Statement and any post-effective amendments
thereto have become effective as contemplated by Section 3(c) and (ii) it and
its officers, directors or Affiliates, if any, will comply with the
prospectus delivery requirements of the Securities Act as applicable to them
in connection with sales of Registrable Securities pursuant to the
Registration Statement.
Each Holder agrees by its acquisition of such Registrable
Securities that, upon receipt of a notice from the Company of the occurrence
of any event of the kind described in Section 3(c)(ii), 3(c)(iii), 3(c)(iv),
3(c)(v) or 3(c)(vi), such Holder will forthwith discontinue disposition of
such Registrable Securities under the Registration Statement until such
Holder's receipt of the copies of the supplemented Prospectus and/or amended
Registration Statement contemplated by Section 3(j), or until it is advised
in writing (the "ADVICE") by the Company that the use of the applicable
Prospectus may be resumed, and, in either case, has received copies of any
additional or supplemental filings that are incorporated or deemed to be
incorporated by reference in such Prospectus or Registration Statement.
(n) If (i) there is material non-public information regarding
the Company which the Company's Board of Directors (the "BOARD") reasonably
determines not to be in the Company's best interest to disclose and which the
Company is not otherwise required to disclose, or (ii) there is a significant
business opportunity (including, but not limited to, the acquisition or
disposition of assets (other than in the ordinary course of business) or any
merger, consolidation, tender offer or other similar transaction) available
to the Company which the Board reasonably determines not to be in the
Company's best interest to disclose and which the Company would be required
to disclose under the Registration Statement, then the Company may postpone
or suspend filing or effectiveness of a registration statement for a period
not to exceed 20 consecutive days, provided that the Company may not postpone
or suspend its obligation under this Section 3(n) for more than 45 days in
the aggregate during any 12 month period (each, a "BLACKOUT PERIOD");
PROVIDED, HOWEVER, that no such postponement or suspension shall be permitted
for consecutive 20 day periods, arising out of the same set of facts,
circumstances or transactions.
4. REGISTRATION EXPENSES
All fees and expenses incident to the performance of or compliance
with this Agreement by the Company shall be borne by the Company whether or
not the Registration Statement is filed or becomes effective and whether or
not any Registrable Securities are sold pursuant to the Registration
Statement. The fees and expenses referred to in the foregoing sentence shall
include, without limitation, (i) all registration and filing fees (including,
without limitation, fees and expenses (A) with respect to filings required to
be made with the OTC Bulletin Board and each other securities exchange or
market on which Registrable Securities are required hereunder to be listed,
(B) with respect to filings required to be made with the Commission, (C) with
respect to filings required to be made under the OTC Bulletin Board and (C)
in compliance with state securities or Blue Sky laws (including, without
limitation, fees and disbursements of counsel for the Holders in connection
with Blue Sky qualifications of the Registrable Securities and determination
of the eligibility of the Registrable Securities for investment under the
laws of such jurisdictions as the Holders of a majority of Registrable
Securities may designate)), (ii) printing expenses (including, without
limitation, expenses of
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printing certificates for Registrable Securities and of printing prospectuses
if the printing of prospectuses is requested by the holders of a majority of
the Registrable Securities included in the Registration Statement), (iii)
messenger, telephone and delivery expenses, (iv) fees and disbursements of
counsel for the Company and Special Counsel for the Holders, in the case of
the Special Counsel, to a maximum amount of $25,000, (v) Securities Act
liability insurance, if the Company so desires such insurance, and (vi) fees
and expenses of all other Persons retained by the Company in connection with
the consummation of the transactions contemplated by this Agreement,
including, without limitation, the Company's independent public accountants
(inclding the expenses of any comfort letters or costs associated with the
delivery by independent public accountants of a comfort letter or comfort
letters). In addition, the Company shall be responsible for all of its
internal expenses incurred in connection with the consummation of the
transactions contemplated by this Agreement (including, without limitation,
all salaries and expenses of its officers and employees performing legal or
accounting duties), the expense of any annual audit, the fees and expenses
incurred in connection with the listing of the Registrable Securities on any
securities exchange as required hereunder.
5. INDEMNIFICATION
(a) INDEMNIFICATION BY THE COMPANY. The Company shall,
notwithstanding any termination of this Agreement, indemnify and hold
harmless each Holder, the officers, directors, agents, brokers (including
brokers who offer and sell Registrable Securities as principal as a result of
a pledge or any failure to perform under a margin call of Common Stock),
investment advisors and employees of each of them, each Person who controls
any such Holder (within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act) and the officers, directors, agents and
employees of each such controlling Person, to the fullest extent permitted by
applicable law, from and against any and all losses, claims, damages,
liabilities, costs (including, without limitation, costs of preparation and
attorneys' fees) and expenses (collectively, "LOSSES"), as incurred, arising
out of or relating to any untrue or alleged untrue statement of a material
fact contained in the Registration Statement, any Prospectus or any form of
prospectus or in any amendment or supplement thereto or in any preliminary
prospectus, or arising out of or relating to any omission or alleged omission
of a material fact required to be stated therein or necessary to make the
statements therein (in the case of any Prospectus or form of prospectus or
supplement thereto, in the light of the circumstances under which they were
made) not misleading, except to the extent, but only to the extent, that such
untrue statements or omissions are based solely upon information regarding
such Holder furnished in writing to the Company by such Holder expressly for
use therein, which information was reasonably relied on by the Company for
use therein or to the extent that such information relates to such Holder or
such Holder's proposed method of distribution of Registrable Securities and
was reviewed and expressly approved in writing by such Holder expressly for
use in the Registration Statement, such Prospectus or such form of Prospectus
or in any amendment or supplement thereto. The Company shall notify the
Holders promptly of the institution, threat or assertion of any Proceeding of
which the Company is aware in connection with the transactions contemplated
by this Agreement. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of an Indemnified Party
and shall survive the transfer of the Registrable Securities by the Holders.
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(b) INDEMNIFICATION BY HOLDERS. Each Holder shall, severally
and not jointly, indemnify and hold harmless the Company, the directors,
officers, agents and employees, each Person who controls the Company (within
the meaning of Section 15 of the Securities Act and Section 20 of the
Exchange Act), and the directors, officers, agents or employees of such
controlling Persons, to the fullest extent permitted by applicable law, from
and against all Losses, as incurred, arising solely out of or based solely
upon any untrue statement of a material fact contained in the Registration
Statement, any Prospectus, or any form of prospectus, or arising solely out
of or based solely upon any omission of a material fact required to be stated
therein or necessary to make the statements therein (in the case of any
Prospectus or form of prospectus or supplement thereto, in the light of the
circumstances under which they were made) not misleading, to the extent, but
only to the extent, that such untrue statement or omission is contained in or
omitted from any information so furnished in writing by such Holder to the
Company specifically for inclusion in the Registration Statement or such
Prospectus and that such information was reasonably relied upon by the
Company for use in the Registration Statement, such Prospectus or such form
of prospectus or to the extent that such information relates to such Holder
or such Holder's proposed method of distribution of Registrable Securities
and was reviewed and expressly approved in writing by such Holder expressly
for use in the Registration Statement, such Prospectus or such form of
Prospectus Supplement. Notwithstanding anything to the contrary contained
herein, the Holder shall be liable under this Section 5(b) for only that
amount as does not exceed the net proceeds to such Holder as a result of the
sale of Registrable Securities pursuant to such Registration Statement.
(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. If any Proceeding
shall be brought or asserted against any Person entitled to indemnity
hereunder (an "INDEMNIFIED PARTY"), such Indemnified Party promptly shall
notify the Person from whom indemnity is sought (the "INDEMNIFYING PARTY) in
writing, and the Indemnifying Party shall assume the defense thereof,
including the employment of counsel reasonably satisfactory to the
Indemnified Party and the payment of all fees and expenses incurred in
connection with defense thereof; provided, that the failure of any
Indemnified Party to give such notice shall not relieve the Indemnifying
Party of its obligations or liabilities pursuant to this Agreement, except
(and only) to the extent that it shall be finally determined by a court of
competent jurisdiction (which determination is not subject to appeal or
further review) that such failure shall have proximately and materially
adversely prejudiced the Indemnifying Party.
An Indemnified Party shall have the right to employ separate
counsel in any such Proceeding and to participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of such
Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed in
writing to pay such fees and expenses; or (2) the Indemnifying Party shall
have failed promptly to assume the defense of such Proceeding and to employ
counsel reasonably satisfactory to such Indemnified Party in any such
Proceeding; or (3) the named parties to any such Proceeding (including any
impleaded parties) include both such Indemnified Party and the Indemnifying
Party, and such Indemnified Party shall have been advised by counsel that a
conflict of interest is likely to exist if the same counsel were to represent
such Indemnified Party and the Indemnifying Party (in which case, if such
Indemnified Party notifies the Indemnifying Party in writing that it elects
to employ separate counsel at the expense of the Indemnifying Party, the
Indemnifying Party shall not have the right to assume the defense thereof and
such
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counsel shall be at the expense of the Indemnifying Party). The Indemnifying
Party shall not be liable for any settlement of any such Proceeding effected
without its written consent, which consent shall not be unreasonably
withheld. No Indemnifying Party shall, without the prior written consent of
the Indemnified Party, effect any settlement of any pending Proceeding in
respect of which any Indemnified Party is a party, unless such settlement
includes an unconditional release of such Indemnified Party from all
liability on claims that are the subject matter of such Proceeding.
All fees and expenses of the Indemnified Party (including
reasonable fees and expenses to the extent incurred in connection with
investigating or preparing to defend such Proceeding in a manner not
inconsistent with this Section) shall be paid to the Indemnified Party, as
incurred, within ten (10) Business Days of written notice thereof to the
Indemnifying Party (regardless of whether it is ultimately determined that an
Indemnified Party is not entitled to indemnification hereunder; provided,
that the Indemnifying Party may require such Indemnified Party to undertake
to reimburse all such fees and expenses to the extent it is finally
judicially determined that such Indemnified Party is not entitled to
indemnification hereunder).
(d) CONTRIBUTION. If a claim for indemnification under Section
5(a) or 5(b) is unavailable to an Indemnified Party because of a failure or
refusal of a governmental authority to enforce such indemnification in
accordance with its terms (by reason of public policy or otherwise), then
each Indemnifying Party, in lieu of indemnifying such Indemnified Party,
shall contribute to the amount paid or payable by such Indemnified Party as a
result of such Losses, in such proportion as is appropriate to reflect the
relative fault of the Indemnifying Party and Indemnified Party in connection
with the actions, statements or omissions that resulted in such Losses as
well as any other relevant equitable considerations. The relative fault of
such Indemnifying Party and Indemnified Party shall be determined by
reference to, among other things, whether any action in question, including
any untrue or alleged untrue statement of a material fact or omission or
alleged omission of a material fact, has been taken or made by, or relates to
information supplied by, such Indemnifying, Party or Indemnified Party, and
the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such action, statement or omission. The
amount paid or payable by a party as a result of any Losses shall be deemed
to include, subject to the limitations set forth in Section 5(c), any
reasonable attorneys' or other reasonable fees or expenses incurred by such
party in connection with any Proceeding to the extent such party would have
been indemnified for such fees or expenses if the indemnification provided
for in this Section was available to such party in accordance with its terms.
Notwithstanding anything to the contrary contained herein, the Holder shall
be liable or required to contribute under this Section 5(c) for only that
amount as does not exceed the net proceeds to such Holder as a result of the
sale of Registrable Securities pursuant to such Registration Statement.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5(d) were determined by pro rata
allocation or by any other method of allocation that does not take into
account the equitable considerations referred to in the immediately preceding
paragraph. No Person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.
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The indemnity and contribution agreements contained in this Section
are in addition to any liability that the Indemnifying Parties may have to
the Indemnified Parties
6. RULE 144.
As long as any Holder owns Preferred Shares, Conversion Shares,
Warrants or Warrant Shares, the Company covenants to timely file (or obtain
extensions in respect thereof and file within the applicable grace period)
all reports required to be filed by the Company after the date hereof
pursuant to Section 13(a) or 15(d) of the Exchange Act and to promptly
furnish the Holders with true and complete copies of all such filings. As
long as any Holder owns Preferred Shares, Conversion Shares, Warrants or
Warrant Shares, if the Company is not required to file reports pursuant to
Section 13(a) or 15(d) of the Exchange Act, it will prepare and furnish to
the Holders and make publicly available in accordance with Rule 144(c)
promulgated under the Securities Act annual and quarterly financial
statements, together with a discussion and analysis of such financial
statements in form and substance substantially similar to those that would
otherwise be required to be included in reports required by Section 13(a) or
15(d) of the Exchange Act, as well as any other information required thereby,
in the time period that such filings would have been required to have been
made under the Exchange Act. The Company further covenants that it will take
such further action as any Holder may reasonably request, all to the extent
required from time to time to enable such Person to sell Conversion Shares
and Warrant Shares without registration under the Securities Act within the
limitation of the exemptions provided by Rule 144 promulgated under the
Securities Act, including providing any legal opinions of counsel to the
Company referred to in the Purchase Agreement. Upon the request of any
Holder, the Company shall deliver to such Holder a written certification of a
duly authorized officer as to whether it has complied with such requirements.
7. MISCELLANEOUS.
(a) REMEDIES. In the event of a breach by the Company or by a
Holder, of any of their obligations under this Agreement, each Holder or the
Company, as the case may be, in addition to being entitled to exercise all
rights granted by law and under this Agreement, including recovery of
damages, will be entitled to specific performance of its rights under this
Agreement. The Company and each Holder agree that monetary damages would not
provide adequate compensation for any losses incurred by reason of a breach
by it of any of the provisions of this Agreement and hereby further agrees
that, in the event of any action for specific performance in respect of such
breach, it shall waive the defense that a remedy at law would be adequate.
(b) NO INCONSISTENT AGREEMENTS. Neither the Company nor any of
its subsidiaries has, as of the date hereof entered into and currently in
effect, nor shall the Company or any of its subsidiaries, on or after the
date of this Agreement, enter into any agreement with respect to its
securities that is inconsistent with the rights granted to the Holders in
this Agreement or otherwise conflicts with the provisions hereof except for
registration rights provisions disclosed in the Company's Disclosure Schedule
to the Purchase Agreement. Except for registration rights provisions
disclosed in the Company's Disclosure Schedule to the Purchase Agreement,
neither the Company nor any of its subsidiaries has previously entered into
any agreement currently in effect granting any registration rights with
respect to any of its securities
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to any Person. Without limiting the generality of the foregoing, without the
written consent of the Holders of a majority of the then outstanding
Registrable Securities, the Company shall not grant to any Person the right
to request the Company to register any securities of the Company under the
Securities Act unless the rights so granted are subject in all respects to
the prior rights in full of the Holders set forth herein, and are not
otherwise in conflict with the provisions of this Agreement. This Section
7(b) shall not prohibit the Company from entering into any agreements
concerning the registration of securities on Form S-8 or Form S-4.
(c) NO PIGGYBACK ON REGISTRATIONS. Neither the Company nor any
of its security holders (other than the Holders in such capacity pursuant
hereto) may include securities of the Company in the Registration Statement,
and the Company shall not after the date hereof enter into any agreement
providing such right to any of its security holders, unless the right so
granted is subject in all respects to the prior rights in full of the Holders
set forth herein, and is not otherwise in conflict with the provisions of
this Agreement.
(d) PIGGY-BACK REGISTRATIONS. If at any time when there is not
an effective Registration Statement covering (i) Conversion Shares or (ii)
Warrant Shares, the Company shall determine to prepare and file with the
Commission a registration statement relating to an offering for its own
account or the account of others under the Securities Act of any of its
equity securities, other than on Form S-4 or Form S-8 (each as promulgated
under the Securities Act) or its then equivalents relating to equity
securities to be issued solely in connection with any acquisition of any
entity or business or equity securities issuable in connection with stock
option or other employee benefit plans, the Company shall send to each holder
of Registrable Securities written notice of such determination and, if within
thirty (30) days after receipt of such notice, any such holder shall so
request in writing (which request shall specify the Registrable Securities
intended to be disposed of by the Purchasers), the Company will cause the
registration under the Securities Act of all Registrable Securities which the
Company has been so requested to register by the holder, to the extent
requisite to permit the disposition of the Registrable Securities so to be
registered, provided that if at any time after giving written notice of its
intention to register any securities and prior to the effective date of the
registration statement filed in connection with such registration, the
Company shall determine for any reason not to register or to delay
registration of such securities, the Company may, at its election, give
written notice of such determination to such holder and, thereupon, (i) in
the case of a determination not to register, shall be relieved of its
obligation to register any Registrable Securities in connection with such
registration (but not from its obligation to pay expenses in accordance with
Section 4 hereof), and (ii) in the case of a determination to delay
registering, shall be permitted to delay registering any Registrable
Securities being registered pursuant to this Section 7(d) for the same period
as the delay in registering such other securities. The Company shall include
in such registration statement all or any part of such Registrable Securities
such holder requests to be registered; PROVIDED, HOWEVER, that the Company
shall not be required to register any Registrable Securities pursuant to this
Section 7(d) that are eligible for sale pursuant to Rule 144(k) of the
Securities Act. In the case of an underwritten public offering, if the
managing underwriter(s) or underwriter(s) should reasonably object to the
inclusion of the Registrable Securities in such registration statement, then
if the Company after consultation with the managing underwriter should
reasonably determine that the inclusion of such Registrable Securities, would
materially adversely affect the offering contemplated in such registration
statement, and based on such determination recommends inclusion in such
registration statement of fewer or none of the
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Registrable Securities of the Holders, then (x) the number of Registrable
Securities of the Holders included in such registration statement shall be
reduced pro-rata among such Holders (based upon the number of Registrable
Securities requested to be included in the registration), if the Company
after consultation with the underwriter(s) recommends the inclusion of fewer
Registrable Securities, or (y) none of the Registrable Securities of the
Holders shall be included in such registration statement, if the Company
after consultation with the underwriter(s) recommends the inclusion of none
of such Registrable Securities; PROVIDED, HOWEVER, that if securities are
being offered for the account of other persons or entities as well as the
Company, such reduction shall not represent a greater fraction of the number
of Registrable Securities intended to be offered by the Holders than the
fraction of similar reductions imposed on such other persons or entities
(other than the Company).
(e) FAILURE TO FILE REGISTRATION STATEMENT AND OTHER EVENTS.
The Company and the Purchasers agree that the Holders will suffer damages if
the Registration Statement is not filed on or prior to the Filing Date and
not declared effective by the Commission on or prior to the Effectiveness
Date and maintained in the manner contemplated herein during the
Effectiveness Period or if certain other events occur. The Company and the
Holders further agree that it would not be feasible to ascertain the extent
of such damages with precision. Accordingly, if (i) the Registration
Statement is not filed on or prior to the Filing Date, or is not declared
effective by the Commission on or prior to the Effectiveness Date (or in the
event an additional Registration Statement is filed because the actual number
of shares of Common Stock into which the Preferred Stock is convertible and
the Warrants are exercisable exceeds the number of shares of Common Stock
initially registered is not filed and declared effective within the time
periods set forth in Section 2(a)), or (ii) the Company fails to file with
the Commission a request for acceleration in accordance with Rule 12dl-2
promulgated under the Exchange Act within five (5) Business Days of the date
that the Company is notified (orally or in writing, whichever is earlier) by
the Commission that a Registration Statement will not be "reviewed," or not
subject to further review, or (iii) the Registration Statement is filed with
and declared effective by the Commission but thereafter ceases to be
effective as to all Registrable Securities at any time prior to the
expiration of the Effectiveness Period, without being succeeded immediately
by a subsequent Registration Statement filed with and declared effective by
the Commission, or (iv) trading in the Common Stock shall be suspended or if
the Common Stock is delisted from the OTC Bulletin Board for any reason for
more than three Business Days in the aggregate, or (v) the conversion rights
of the Holders are suspended for any reason, including by the Company, or
(vi) the Company breaches in a material respect any covenant or other
material term or condition to this Agreement, the Certificate of Designation,
the Purchase Agreement (other than a representation or warranty contained
therein) or any other agreement, document, certificate or other instrument
delivered in connection with the transactions contemplated hereby and
thereby, and such breach continues for a period of thirty days after written
notice thereof to the Company, or (vii) the Company has breached Section 3(n)
of this Agreement (any such failure or breach being referred to as an
"EVENT"), the Company shall pay in cash as liquidated damages for such
failure and not as a penalty to each Holder an amount equal to 2% of such
Holder's pro rata share of the purchase price paid by all Holders for all
shares of Series K Preferred Stock purchased and then
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<PAGE>
outstanding pursuant to the Purchase Agreement for the initial thirty (30)
day period until the applicable Event has been cured, which shall be pro
rated for such periods less than thirty (30) days and 3% of such Holder's pro
rata share of the purchase price paid by all Holders for all shares of Series
K Preferred Stock purchased and then outstanding pursuant to the Purchase
Agreement for each subsequent thirty (30) day period, until the applicable
Event has been cured, which shall be pro rated for such periods less than
thirty (30) days (the "PERIODIC AMOUNT"). Payments to be made pursuant to
this Section 7(e) shall be due and payable immediately upon demand in
immediately available funds. The parties agree that the Periodic Amount
represents a reasonable estimate on the part of the parties, as of the date
of this Agreement, of the amount of damages that may be incurred by the
Holders if the Registration Statement is not filed on or prior to the Filing
Date or has not been declared effective by the Commission on or prior to the
Effectiveness Date and maintained in the manner contemplated herein during
the Effectiveness Period or if any other Event as described herein has
occurred.
(f) SPECIFIC ENFORCEMENT, CONSENT TO JURISDICTION.
(i) The Company and the Purchasers acknowledge and agree
that irreparable damage would occur in the event that any of the provisions
of this Registration Rights Agreement or the Purchase 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
Registration Rights Agreement or the Purchase 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.
(ii) Each of the Company and the Purchasers (i) hereby
irrevocably submits to the jurisdiction of the United States District Court
sitting in the Southern District of New York for the purposes of any suit,
action or proceeding arising out of or relating to this Agreement or the
Purchase Agreement and (ii) hereby waives, and agrees not to assert in any
such suit, action or proceeding, any claim that it is not personally subject
to the jurisdiction of such court, that the suit, action or proceeding is
brought in an inconvenient forum or that the venue of the suit, action or
proceeding is improper. Each of the Company and the Purchasers consents to
process being served in any such suit, action or proceeding by mailing a copy
thereof to such party at the address in effect for notices to it under this
Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing in this Section 7(f) shall
affect or limit any right to serve process in any other manner permitted by
law.
(g) AMENDMENTS AND WAIVERS. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions
hereof may not be given, unless the same shall be in writing and signed by
the Company and each of the Holders. Notwithstanding the foregoing, a waiver
or consent to depart from the provisions hereof with respect to a matter that
relates exclusively to the rights of Holders and that does not directly or
indirectly affect the rights of other Holders may be given by Holders of at
least a majority of the Registrable Securities to which such waiver or
consent relates; PROVIDED, HOWEVER, that the provisions of this sentence may
not be amended, modified, or supplemented except in accordance with the
provisions of the immediately preceding sentence.
(h) NOTICES. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and
15
<PAGE>
effective on the earlier of (i) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified for notice prior to 5:00 p.m., pacific standard time, on a Business
Day, (ii) the Business Day after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified for notice later than 5:00 p.m., pacific standard time, on any date
and earlier than 11:59 p.m., pacific time, on such date, (iii) the Business
Day following the date of mailing, if sent by nationally recognized overnight
courier service or (iv) actual receipt by the party to whom such notice is
required to be given. The addresses for such communications shall be with
respect to each Holder at its address set forth under its name on SCHEDULE 1
attached hereto, or with respect to the Company, addressed to:
eSynch Corporation
15502 Mosher Avenue
Tustine, California 92780
Attention: Thomas Hemingway, CEO
Telephone No.: (714) 258-1900
Facsimile No.: (714) 258-7177
or to such other address or addresses or facsimile number or numbers as any
such party may most recently have designated in writing to the other parties
hereto by such notice. Copies of notices to any Holder shall be sent to the
addresses listed on Schedule 1 attached hereto, if applicable. Copies of
notices to the Company shall be sent to Stradling Yocca Carlson & Rauth, PC,
660 Newport Center Drive, Suite 1600, Newport Beach, California 92660,
Attention: Nicholas J. Yocca, Esq., Telephone No.: (949) 725-4120, Facsimile
No.: (949) 823-5120. Copies of notices to the Holders shall be sent to (i)
Parker Chapin Flattau & Klimpl, LLP, 1211 Avenue of the Americas, New York,
New York 10036, Attention: Christopher S. Auguste, Esq., Telephone No.: (212)
704-6000, Facsimile No.: (212) 704-6288.
(i) SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the parties and their successors and
permitted assigns and shall inure to the benefit of each Holder and its
successors and assigns. The Company may not assign this Agreement or any of
its rights or obligations hereunder without the prior written consent of each
Holder. Each Purchaser may assign its rights hereunder in the manner and to
the Persons as permitted under the Purchase Agreement.
(j) ASSIGNMENT OF REGISTRATION RIGHTS. The rights of each
Holder hereunder, including the right to have the Company register for resale
Registrable Securities in accordance with the terms of this Agreement, shall
be automatically assignable by each Holder to any transferee of such Holder
of all or a portion of the shares of Preferred Stock or the Registrable
Securities if: (i) the Holder agrees in writing with the transferee or
assignee to assign such rights, and a copy of such agreement is furnished to
the Company within a reasonable time after such assignment, (ii) the Company
is, within a reasonable time after such transfer or assignment, furnished
with written notice of (a) the name and address of such transferee or
assignee, and (b) the securities with respect to which such registration
rights are being transferred or assigned, (iii) following such transfer or
assignment the further disposition of such securities by the transferee or
assignees is restricted under the Securities Act and applicable state
securities laws, (iv) at or before the time the Company receives the written
notice contemplated by clause (ii) of this
16
<PAGE>
Section, the transferee or assignee agrees in writing with the Company to be
bound by all of the provisions of this Agreement, and (v) such transfer shall
have been made in accordance with the applicable requirements of the Purchase
Agreement. In addition, each Holder shall have the right to assign its
rights hereunder to any other Person with the prior written consent of the
Company, which consent shall not be unreasonably withheld. The rights to
assignment shall apply to the Holders (and to subsequent) successors and
assigns.
(k) COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which when so executed shall be deemed to be an
original and, all of which taken together shall constitute one and the same
Agreement. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid binding obligation of the
party executing (or on whose behalf such signature is executed) the same with
the same force and effect as if such facsimile signature were the original
thereof.
(l) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without
regard to principles of conflicts of law thereof.
(m) CUMULATIVE REMEDIES. The remedies provided herein are
cumulative and not exclusive of any remedies provided by law.
(n) SEVERABILITY. If any term, provision, covenant or
restriction of this Agreement is held to be invalid, illegal, void or
unenforceable in any respect, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the
parties hereto shall use their reasonable efforts to find and employ an
alternative means to achieve the same or substantially the same result as
that contemplated by such term, provision, covenant or restriction. It is
hereby stipulated and declared to be the intention of the parties that they
would have executed the remaining terms, provisions, covenants and
restrictions without including any of such that may be hereafter declared
invalid, illegal, void or unenforceable.
(o) HEADINGS. The headings herein are for convenience only, do
not constitute a part of this Agreement and shall not be deemed to limit or
affect any of the provisions hereof.
(p) SHARES HELD BY THE COMPANY AND ITS AFFILIATES. Whenever the
consent or approval of Holders of a specified percentage of Registrable
Securities is required hereunder, Registrable Securities held by the Company
or its Affiliates (other than any Holder or transferees or successors or
assigns thereof if such Holder is deemed to be an Affiliate solely by reason
of its holdings of such Registrable Securities) shall not be counted in
determining whether such consent or approval was given by the Holders of such
required percentage and shall not be counted as outstanding.
(q) NOTICE OF EFFECTIVENESS. Within two (2) business days after
the Registration Statement which includes the Registrable Securities is
ordered effective by the Commission, the Company shall deliver, and shall
cause legal counsel for the Company to deliver, to the transfer agent for
such Registrable Securities (with copies to the Holders whose Registrable
Securities are included in such Registration Statement) confirmation that the
17
<PAGE>
Registration Statement has been declared effective by the Commission in the
form attached hereto as EXHIBIT A.
[Remainder of Page Intentionally Left Blank]
18
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Registration
Rights Agreement to be duly executed by their respective authorized persons
as of the date first indicated above.
ESYNCH CORPORATION
By: /s/ THOMAS HEMINGWAY
--------------------------------------
Name: Thomas Hemingway
Title: Chief Executive Officer
LIGHTLINE LIMITED
By: /s/ GIORA LAVIE
--------------------------------------
Name: Giora Lavie
Title: Attorney-In-Fact
ROSEWORTH GROUP LIMITED
By: /s/ HANS GASSNER
--------------------------------------
Name: Hans Gassner
Title: Director
TONGA PARTNERS, L.P.
By: /s/ J. CARLO CONNELL
--------------------------------------
Name: J. Carlo Connell
Title: General Partner
DANDEE LTD.
By: /s/ C.B. WILLIAMS
--------------------------------------
Name: C. B. Williams
Title: Secretary
<PAGE>
ACQUA WELLINGTON SMALL CAP VALUE
FUND, LTD.
By: /s/ ANTHONY L.M. INDER RIEDEN
--------------------------------------
Name: Anthony L.M. Inder Rieden
Title: Director
<PAGE>
EXHIBIT A
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
Interwest Transfer Co., Inc.
1981 E. Murray Holladay Road
Salt Lake City, UT 84117
Attn: _____________
Re: ESYNCH CORPORATION
Ladies and Gentlemen:
We are counsel to eSynch Corporation, a Delaware corporation (the
"COMPANY"), and have represented the Company in connection with that certain
Series K Convertible Preferred Stock Purchase Agreement (the "PURCHASE
AGREEMENT"), dated as of December 30, 1999, by and among the Company and the
purchasers named therein (collectively, the "HOLDERS") pursuant to which the
Company issued to the Holders shares of its Series K Convertible Preferred
Stock, par value $.001 per share, (the "PREFERRED SHARES") and may issue
warrants (the "WARRANTS") to purchase shares of the Company's common stock,
par value $.001 per share (the "COMMON STOCK"). Pursuant to the Purchase
Agreement, the Company has also entered into a Registration Rights Agreement
with the Holders (the "REGISTRATION RIGHTS AGREEMENT"), dated as of December
30, 1999, pursuant to which the Company agreed, among other things, to
register the Registrable Securities (as defined in the Registration Rights
Agreement), including the shares of Common Stock issuable upon conversion of
the Preferred Shares and exercise of the Warrants, under the Securities Act
of 1933, as amended (the "1933 ACT"). In connection with the Company's
obligations under the Registration Rights Agreement, on ________________,
1999, the Company filed a Registration Statement on Form ___ (File No.
333-________) (the "REGISTRATION STATEMENT") with the Securities and Exchange
Commission (the "SEC") relating to the resale of the Registrable Securities
which names each of the Holders as a selling stockholder thereunder.
In connection with the foregoing, we advise you that a member of the
SEC's staff has advised us by telephone that the SEC has entered an order
declaring the Registration Statement effective under the 1933 Act at
[ENTER TIME OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no
knowledge, after telephonic inquiry of a member of the SEC's staff, that any
stop order suspending its effectiveness has been issued or that any
proceedings for that purpose are pending before, or threatened by, the SEC
and the Registrable Securities are available for resale under the 1933 Act
pursuant to the Registration Statement.
Very truly yours,
[COMPANY COUNSEL]
By:
cc: [LIST NAMES OF HOLDERS]
<PAGE>
SCHEDULE 1 TO THE
REGISTRATION RIGHTS AGREEMENT
FOR ESYNCH CORP.
NAMES AND ADDRESS OF PURCHASERS
<TABLE>
<CAPTION>
NAMES AND ADDRESS NUMBER OF PREFERRED SHARES DOLLAR AMOUNT
OF PURCHASERS & WARRANTS PURCHASED OF INVESTMENT
- ----------------------------- -------------------------- -------------
<S> <C> <C>
Lightline Limited Preferred Shares 30 $300,000
P.O. Box 146 Warrants: 22,500
Road Town, Tortola
British Virgin Islands
Tel. No.:
Fax No.: 011-9723-544-1870
Attn: Giora Lavie
Roseworth Group Limited Preferred Shares: 30 $300,000
Curzon Capital Corp. Warrants: 22,500
c/o Wertminster Securities
100 Park Avenue, 28th Floor
New York, New York 10017
Tel. No.: 212-376-8753
Fax No. 212-214-0440
Attn: Thomas Badian
Tonga Partners, L.P. Preferred Shares: 30 $300,000
600 California Street, 14th Floor Warrants: 22,500
San Francisco, CA. 94108
Tel. No.: 415-835-8300
Fax No.: 415-835-8312
Attn: J. Carlo Cannell
Dandee Ltd. Preferred Shares: 60 $600,000
Gretton Secretarial Warrants: 45,000
Services Ltd.
Attn: Director
Acqua Wellington Small Cap Preferred Shares: 50 $500,000
Value Fund, Ltd. Warrants: 37,500
c/o MeesPierson Fund Services
(Bahamas) Ltd.
Montague Sterling Centre
East Bay Street, P.O. Box SS-6238
</TABLE>
<PAGE>
SCHEDULE 1 TO THE
REGISTRATION RIGHTS AGREEMENT
FOR ESYNCH CORP.
(CONTINUED)
NAMES AND ADDRESS OF PURCHASERS
Nassau, Bahamas
Tel. No.:
Fax No.:
Attn: Anthony L.M. Inder Rieden
<PAGE>
FORM OF WARRANT
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE
HEREOF 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 CORPORATION SHALL
HAVE RECEIVED AN OPINION OF ITS COUNSEL THAT REGISTRATION OF SUCH SECURITIES
UNDER THE SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE
SECURITIES LAWS IS NOT REQUIRED.
WARRANT TO PURCHASE
SHARES OF COMMON STOCK
OF
ESYNCH CORPORATION
Expires December __, 2002
No.: W-K-__ Number of Shares: _____
Date of Issuance: December __, 1999 Warrant Price: $______
FOR VALUE RECEIVED, subject to the provisions hereinafter set forth,
the undersigned, eSynch Corporation, a Delaware corporation (together with
its successors and assigns, the "Issuer"), hereby certifies that
___________________ or its registered assigns is entitled to subscribe for
and purchase, during the period specified in this Warrant, up to _____ shares
(subject to adjustment as hereinafter provided) of the duly authorized,
validly issued, fully paid and non-assessable Common Stock of the Issuer, at
an exercise price per share equal to the Warrant Price then in effect,
subject, however, to the provisions and upon the terms and conditions
hereinafter set forth. Capitalized terms used in this Warrant and not
otherwise defined herein shall have the respective meanings specified in
Section 7 hereof.
1. TERM. The right to subscribe for and purchase shares of
Warrant Stock represented hereby shall commence on the date of issuance of
this Warrant and shall expire at 5:00 p.m., pacific time, on December __,
2002 (such period being the "Term").
2. METHOD OF EXERCISE PAYMENT: ISSUANCE OF NEW WARRANT: TRANSFER AND
EXCHANGE.
<PAGE>
(a) TIME OF EXERCISE. The purchase rights represented by this
Warrant may be exercised in whole or in part at any time and from time to
time during the Term.
(b) METHOD OF EXERCISE. The Holder hereof may exercise this
Warrant, in whole or in part, by the surrender of this Warrant (with the
exercise form attached hereto duly executed) at the principal office of the
Issuer, and by the payment to the Issuer of an amount of consideration
therefor equal to the Warrant Price in effect on the date of such exercise
multiplied by the number of shares of Warrant Stock with respect to which
this Warrant is then being exercised, payable at such Holder's election (i)
by certified or official bank check or (ii) by surrender to the Issuer for
cancellation of a portion of this Warrant representing that number of
unissued shares of Warrant Stock which is equal to the quotient obtained by
dividing (A) the product obtained by multiplying the Warrant Price by the
number of shares of Warrant Stock being purchased upon such exercise by (B)
the difference obtained by subtracting the Warrant Price from the Per Share
Market Value as of the date of such exercise, or (iii) by a combination of
the foregoing methods of payment selected by the Holder of this Warrant. In
any case where the consideration payable upon such exercise is being paid in
whole or in part pursuant to the provisions of clause (ii) of this subsection
(b), such exercise shall be accompanied by written notice from the Holder of
this Warrant specifying the manner of payment thereof and containing a
calculation showing the number of shares of Warrant Stock with respect to
which rights are being surrendered thereunder and the net number of shares to
be issued after giving effect to such surrender.
(c) ISSUANCE OF STOCK CERTIFICATES. In the event of any exercise
of the rights represented by this Warrant in accordance with and subject to
the terms and conditions hereof, (i) certificates for the shares of Warrant
Stock so purchased shall be dated the date of such exercise and delivered to
the Holder hereof within a reasonable time, not exceeding three Trading Days
after such exercise, and the Holder hereof shall be deemed for all purposes
to be the Holder of the shares of Warrant Stock so purchased as of the date
of such exercise, and (ii) unless this Warrant has expired, a new Warrant
representing the number of shares of Warrant Stock, if any, with respect to
which this Warrant shall not then have been exercised (less any amount
thereof which shall have been canceled in payment or partial payment of the
Warrant Price as hereinabove provided) shall also be issued to the Holder
hereof at the Issuer's expense within such time.
(d) TRANSFERABILITY OF WARRANT. Subject to Section 2(e), this
Warrant may be transferred by a Purchaser without the consent of the
Company. If transferred pursuant to this paragraph and subject to the
provisions of subsection (e) of this Section 2, this Warrant may be
transferred on the books of the Issuer by the Holder hereof in person or by
duly authorized attorney, upon surrender of this Warrant at the principal
office of the Issuer, properly endorsed (by the Holder executing an
assignment in the form attached hereto) and upon payment of any necessary
transfer tax or other governmental charge imposed upon such transfer. This
Warrant is exchangeable at the principal office of the Issuer for Warrants
for the purchase of the same aggregate number of shares of Warrant Stock,
each new Warrant to represent the right to purchase such number of shares of
Warrant Stock as the Holder hereof shall designate at the time of such
exchange. All Warrants issued on transfers or exchanges shall be dated the
Original Issue Date and shall be identical with this Warrant except as to the
number of shares of Warrant Stock issuable pursuant hereto.
2
<PAGE>
(e) COMPLIANCE WITH SECURITIES LAWS.
(i) The Holder of this Warrant, by acceptance hereof,
acknowledges that this Warrant or the shares of Warrant Stock to be
issued upon exercise hereof are being acquired solely for the Holder's
own account and not as a nominee for any other party, and for investment,
and that the Holder will not offer, sell or otherwise dispose of this
Warrant or any shares of Warrant Stock to be issued upon exercise hereof
except pursuant to an effective registration statement, or an exemption
from registration, under the Securities Act and any applicable state
securities laws.
(ii) Except as provided in paragraph (iii) below, this Warrant
and all certificates representing shares of Warrant Stock issued upon
exercise hereof shall be stamped or imprinted with a legend in
substantially the following form:
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE
UPON EXERCISE HEREOF 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
CORPORATION SHALL HAVE RECEIVED AN OPINION OF ITS
COUNSEL THAT REGISTRATION OF SUCH SECURITIES UNDER
THE SECURITIES ACT AND UNDER THE PROVISIONS OF
APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.
(iii) The restrictions imposed by this subsection (e) upon the
transfer of this Warrant or the shares of Warrant Stock to be purchased
upon exercise hereof shall terminate (A) when such securities shall have
been resold pursuant to being effectively registered under the Securities
Act, (B) upon the Issuer's receipt of an opinion of counsel, in form and
substance reasonably satisfactory to the Issuer, addressed to the Issuer
to the effect that such restrictions are no longer required to ensure
compliance with the Securities Act and state securities laws or (C) upon
the Issuer's receipt of other evidence reasonably satisfactory to the
Issuer that such registration and qualification under state securities
laws is not required. Whenever such restrictions shall cease and
terminate as to any such securities, the Holder thereof shall be entitled
to receive from the Issuer (or its transfer agent and registrar), without
expense (other than applicable transfer taxes, if any), new Warrants (or,
in the case of shares of Warrant Stock, new stock certificates) of like
tenor not bearing the applicable legend required by paragraph (ii) above
relating to the Securities Act and state securities laws.
(f) CONTINUING RIGHTS OF HOLDER. The Issuer will, at the time of
or at any time after each exercise of this Warrant, upon the request of the
Holder hereof, acknowledge in writing the extent, if any, of its continuing
obligation to afford to such Holder all rights to which such
3
<PAGE>
Holder shall continue to be entitled after such exercise in accordance with
the terms of this Warrant, PROVIDED that if any such Holder shall fail to
make any such request, the failure shall not affect the continuing obligation
of the Issuer to afford such rights to such Holder.
3. STOCK FULLY PAID: RESERVATION AND LISTING OF SHARES: COVENANTS.
(a) STOCK FULLY PAID. The Issuer represents, warrants, covenants
and agrees that all shares of Warrant Stock which may be issued upon the
exercise of this Warrant or otherwise hereunder will, upon issuance, be duly
authorized, validly issued, fully paid and non-assessable and free from all
taxes, liens and charges created by or through Issuer. The Issuer further
covenants and agrees that during the period within which this Warrant may be
exercised, the Issuer will at all times have authorized and reserved for the
purpose of the issue upon exercise of this Warrant a sufficient number of
shares of Common Stock to provide for the exercise of this Warrant.
(b) RESERVATION. If any shares of Common Stock required to be
reserved for issuance upon EXERCISE of this Warrant or as otherwise provided
hereunder require registration or qualification with any governmental
authority under any federal or state law before such shares may be so issued,
the Issuer will in good faith use its best efforts as expeditiously as
possible at its expense to cause such shares to be duly registered or
qualified. If the Issuer shall list any shares of Common Stock on any
securities exchange or market it will, at its expense, list thereon, maintain
and increase when necessary such listing, of, all shares of Warrant Stock
from time to time issued upon exercise of this Warrant or as otherwise
provided hereunder, and, to the extent permissible under the applicable
securities exchange rules, all unissued shares of Warrant Stock which are at
any time issuable hereunder, so long as any shares of Common Stock shall be
so listed. The Issuer will also so list on each securities exchange or
market, and will maintain such listing of, any other securities which the
Holder of this Warrant shall be entitled to receive upon the exercise of this
Warrant if at the time any securities of the same class shall be listed on
such securities exchange or market by the Issuer.
(c) COVENANTS. The Issuer shall not by any action including,
without limitation, amending the Certificate of Incorporation or the by-laws
of the Issuer, or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
action, avoid or seek to avoid the observance or performance of any of the
terms of this Warrant, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such actions as may
be necessary or appropriate to protect the rights of the Holder hereof
against dilution (to the extent specifically provided herein) or impairment.
Without limiting the generality of the foregoing, the Issuer will (i) not
permit the par value, if any, of its Common Stock to exceed the then
effective Warrant Price, (ii) not amend or modify any provision of the
Certificate of Incorporation or by-laws of the Issuer in any manner that
would adversely affect in any way the powers, preferences or relative
participating, optional or other special rights of the Common Stock or which
would adversely affect the rights of the Holders of the Warrants, (iii) take
all such action as may be reasonably necessary in order that the Issuer may
validly and legally issue fully paid and nonassessable shares of Common
Stock, free and clear of any liens, claims, encumbrances and restrictions
(other than as provided herein) upon the exercise of this Warrant, and (iv)
use its best efforts to obtain all such authorizations, exemptions
4
<PAGE>
or consents from any public regulatory body having jurisdiction thereof as
may be reasonably necessary to enable the Issuer to perform its obligations
under this Warrant.
(d) LOSS, THEFT, DESTRUCTION OF WARRANTS. Upon receipt of evidence
satisfactory to the Issuer of the ownership of and the loss, theft,
destruction or mutilation of any Warrant and, in the case of any such loss,
theft or destruction, upon receipt of indemnity or security satisfactory to
the Issuer or, in the case of any such mutilation, upon surrender and
cancellation of such Warrant, the Issuer will make and deliver, in lieu of
such lost, stolen, destroyed or mutilated Warrant, a new Warrant of like
tenor and representing the right to purchase the same number of shares of
Common Stock.
(e) RIGHTS AND OBLIGATIONS UNDER THE REGISTRATION RIGHTS AGREEMENT.
The shares of Warrant Stock are entitled to the benefits and subject to the
terms of the Registration Rights Agreement dated as of even date herewith
between the Issuer and the Holders listed on the signature pages thereof (as
amended from time to time, the "Registration Rights Agreement"). The Issuer
shall keep or cause to be kept a copy of the Registration Rights Agreement,
and any amendments thereto, at its chief executive office and shall furnish,
without charge, copies thereof to the Holder upon request.
4. ADJUSTMENT OF WARRANT PRICE AND WARRANT SHARE NUMBER. The
number and kind of Securities purchasable upon the exercise of this Warrant
and the Warrant Price shall be subject to adjustment from time to time upon
the happening of certain events as follows:
(a) RECAPITALIZATION, REORGANIZATION, RECLASSIFICATION,
CONSOLIDATION, MERGER OR SALE. (i) In case the Issuer after the Original
Issue Date shall do any of the following (each, a "Triggering Event"): (a)
consolidate with or merge into any other Person and the Issuer shall not be
the continuing or surviving corporation of such consolidation or merger, or
(b) permit any other Person to consolidate with or merge into the Issuer and
the Issuer shall be the continuing or surviving Person but, in connection
with such consolidation or merger, any Capital Stock of the Issuer shall be
changed into or exchanged for Securities of any other Person or cash or any
other property, or (c) transfer all or substantially all of its properties or
assets to any other Person, or (d) effect a capital reorganization or
reclassification of its Capital Stock, then, and in the case of each such
Triggering Event, proper provision shall be made so that, upon the basis and
the terms and in the manner provided in this Warrant, the Holder of this
Warrant shall be entitled (x) upon the exercise hereof at any time after the
consummation of such Triggering Event, to the extent this Warrant is not
exercised prior to such Triggering Event, to receive at the Warrant Price in
effect at the time immediately prior to the consummation of such Triggering
Event in lieu of the Common Stock issuable upon such exercise of this Warrant
prior to such Triggering Event, the Securities, cash and property to which
such Holder would have been entitled upon the consummation of such Triggering
Event if such Holder had exercised the rights represented by this Warrant
immediately prior thereto, subject to adjustments (subsequent to such
corporate action) as nearly equivalent as possible to the adjustments
provided for in Section 4 hereof or (y) to sell this Warrant (or, at such
Holder's election, a portion hereof) concurrently with the Triggering Event
to the Person continuing after or surviving such Triggering Event, or to the
Issuer (if Issuer is the continuing or surviving Person) at a sales price
equal to the amount of cash, property and/or Securties to which a holder of
the number of shares of Common Stock
5
<PAGE>
which would otherwise have been delivered upon the exercise of this Warrant
would have been entitled upon the effective date or closing of any such
Triggering Event (the "Event Consideration"), less the amount or portion of
such Event Consideration having a fair value equal to the aggregate Warrant
Price applicable to this Warrant or the portion hereof so sold.
(ii) Notwithstanding anything contained in this Warrant to the
contrary, the Issuer will not effect any Triggering Event unless, prior
to the consummation thereof, each Person (other than the Issuer) which
may be required to deliver any Securities, cash or property upon the
exercise of this Warrant as provided herein shall assume, by written
instrument delivered to, and reasonably satisfactory to, the Holder of
this Warrant, (A) the obligations of the Issuer under this Warrant (and
if the Issuer shall survive the consummation of such Triggering Event,
such assumption shall be in addition to, and shall not release the Issuer
from, any continuing obligations of the Issuer under this Warrant) and
(B) the obligation to deliver to such Holder such shares of Securities,
cash or property as, in accordance with the foregoing provisions of this
subsection (a), such Holder shall be entitled to receive, and such Person
shall have similarly delivered to such Holder an opinion of counsel for
such Person, which counsel shall be reasonably satisfactory to such
Holder, stating that this Warrant shall thereafter continue in full force
and effect and the terms hereof (including, without limitation, all of
the provisions of this subsection (a)) shall be applicable to the
Securities, cash or property which such Person may be required to deliver
upon any exercise of this Warrant or the exercise of any rights pursuant
hereto.
(iii) If with respect to any Triggering Event, the Holder of this
Warrant has exercised its right as provided in clause (y) of subparagraph
(i) of this subsection (a) to sell this Warrant or a portion thereof, the
Issuer agrees that as a condition to the consummation of any such
Triggering Event the Issuer shall secure such right of Holder to sell
this Warrant to the Person continuing after or surviving such Triggering
Event and the Issuer shall not effect any such Triggering Event unless
upon or prior to the consummation thereof the amounts of cash, property
and/or Securities required under such clause (y) are delivered to the
Holder of this Warrant. The obligation of the Issuer to secure such
right of the Holder to sell this Warrant shall be subject to such
Holder's cooperation with the Issuer, including, without limitation, the
giving of customary representations and warranties to the purchaser in
connection with any such sale. Prior notice of any Triggering Event
shall be given to the Holder of this Warrant in accordance with Section
11 hereof.
(b) SUBDIVISION OR COMBINATION OF SHARES. If the Issuer, at any
time while this Warrant is outstanding, shall subdivide or combine any shares
of Common Stock, (i) in case of subdivision of shares, the Warrant Price
shall be proportionately reduced (as at the effective date of such
subdivision or, if the Issuer shall take a record of Holders of its Common
Stock for the purpose of so subdividing, as at the applicable record date,
whichever is earlier) to reflect the increase in the total number of shares
of Common Stock outstanding as a result of such subdivision, or (ii) in the
case of a combination of shares, the Warrant Price shall be proportionately
increased (as at the effective date of such combination or, if the Issuer
shall take a record of Holders of its Common Stock for the purpose of so
combining, as at the applicable
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record date, whichever is earlier) to reflect the reduction in the total
number of shares of Common Stock outstanding as a result of such combination.
(c) CERTAIN DIVIDENDS AND DISTRIBUTIONS. If the Issuer, at any
time while this Warrant is outstanding, shall:
(i) STOCK DIVIDENDS. Pay a dividend in, or make any other
distribution to its stockholders (without consideration therefor) of,
shares of Common Stock, the Warrant Price shall be adjusted, as at the
date the Issuer shall take a record of the Holders of the Issuer's
Capital Stock for the purpose of receiving such dividend or other
distribution (or if no such record is taken, as at the date of such
payment or other distribution), to that price determined by multiplying
the Warrant Price in effect immediately prior to such record date (or if
no such record is taken, then immediately prior to such payment or other
distribution), by a fraction (1) the numerator of which shall be the
total number of shares of Common Stock outstanding immediately prior to
such dividend or distribution, and (2) the denominator of which shall be
the total number of shares of Common Stock outstanding immediately after
such dividend or distribution (plus in the event that the Issuer paid
cash for fractional shares, the number of additional shares which would
have been outstanding had the Issuer issued fractional shares in
connection with said dividends); or
(ii) OTHER DIVIDENDS. Pay a dividend on, or make any
distribution of its assets upon or with respect to (including, but not
limited to, a distribution of its property as a dividend in liquidation
or partial liquidation or by way of return of capital), the Common Stock
(other than as described in clause (i) of this subsection (c)), or in the
event that the Company shall offer options or rights to subscribe for
shares of Common Stock, or issue any Common Stock Equivalents, to all of
its holders of Common Stock, then on the record date for such payment,
distribution or offer or, in the absence of a record date, on the date of
such payment, distribution or offer, the Holder shall receive what the
Holder would have received had it exercised this Warrant in full
immediately prior to the record date of such payment, distribution or
offer or, in the absence of a record date, immediately prior to the date
of such payment, distribution or offer.
(d) ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK. If the Issuer,
at any time while this Warrant is outstanding, shall issue any Additional
Shares of Common Stock (otherwise than as provided in the foregoing
subsections (a) through (c) of this Section 4), at a price per share less
than the Warrant Price then in effect or less than the Per Share Market Value
then in effect or without consideration, then the Warrant Price upon each
such issuance shall be adjusted to that price (rounded to the nearest cent)
determined by multiplying the Warrant Price then in effect by a fraction:
(i) the numerator of which shall be equal to the sum of (A) the
number of shares of Common Stock outstanding immediately prior to the
issuance of such Additional Shares of Common Stock PLUS (B) the number of
shares of Common Stock (rounded to the nearest whole share) which the
aggregate consideration for the total
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number of such Additional Shares of Common Stock so issued would purchase
at a price per share equal to the greater of the Per Share Market Value
then in effect and the Warrant Price then in effect, and
(ii) the denominator of which shall be equal to the number of
shares of Common Stock outstanding immediately after the issuance of such
Additional Shares of Common Stock.
The provisions of this subsection (d) shall not apply under any of the
circumstances for which an adjustment is provided in subsections (a), (b) or
(c) of this Section 4. No adjustment of the Warrant Price shall be made
under this subsection (d) upon the issuance of any Additional Shares of
Common Stock which are issued pursuant to any Common Stock Equivalent if upon
the issuance of such Common Stock Equivalent (x) any adjustment shall have
been made pursuant to subsection (e) of this Section 4 or (Y) no adjustment
was required pursuant to subsection (e) of this Section 4. No adjustment of
the Warrant Price shall be made under this subsection (d) in an amount less
than $.01 per share, but any such lesser adjustment shall be carried forward
and shall be made at the time and together with the next subsequent
adjustment, if any, which together with any adjustments so carried forward
shall amount to $.01 per share or more, provided that upon any adjustment of
the Warrant Price as a result of any dividend or distribution payable in
Common Stock or Convertible Securities or the reclassification, subdivision
or combination of Common Stock into a greater or smaller number of shares,
the foregoing figure of $.01 per share (or such figure as last adjusted)
shall be adjusted (to the nearest one-half cent) in proportion to the
adjustment in the Warrant Price.
(e) ISSUANCE OF COMMON STOCK EQUIVALENTS. If the Issuer, at any
time while this Warrant is outstanding, shall issue any Common Stock
Equivalent and the price per share for which Additional Shares of Common
Stock may be issuable thereafter pursuant to such Common Stock Equivalent
shall be less than the Warrant Price then in effect or less than the Per
Share Market Value then in effect, or if, after any such issuance of Common
Stock Equivalents, the price per share for which Additional Shares of Common
Stock may be issuable thereafter is amended or adjusted, and such price as so
amended shall be less than the Warrant Price or less than the Per Share
Market Value in effect at the time of such amendment, then the Warrant Price
upon each such issuance or amendment shall be adjusted as provided in the
first sentence of subsection (d) of this Section 4 on the basis that (1) the
maximum number of Additional Shares of Common Stock issuable pursuant to all
such Common Stock Equivalents shall be deemed to have been issued (whether or
not such Common Stock Equivalents are actually then exercisable, convertible
or exchangeable in whole or in part) as of the earlier of (A) the date on
which the Issuer shall enter into a firm contract for the issuance of such
Common Stock Equivalent, or (B) the date of actual issuance of such Common
Stock Equivalent, and (2) the aggregate consideration for such maximum number
of Additional Shares of Common Stock shall be deemed to be the minimum
consideration received or receivable by the Issuer for the issuance of such
Additional Shares of Common Stock pursuant to such Common Stock Equivalent.
No adjustment of the Warrant Price shall be made under this subsection (e)
upon the issuance of any Convertible Security which is issued pursuant to the
exercise of any warrants or other subscription or purchase rights therefor,
if any adjustment shall previously have been made in the Warrant Price then
in effect upon the issuance of such warrants or other rights pursuant to this
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subsection (e). If no adjustment is required under this subsetion (e) upon
issuance of any Common Stock Equivalent or once an adjustment is made under
this subsection (e) based upon the Per Share Market Value in effect on the
date of such adjustment, no further adjustment shall be made under this
subsection (e) based solely upon a change in the Per Share Market Value after
such date.
(f) PURCHASE OF COMMON STOCK BY THE ISSUER. If the Issuer at any
time while this Warrant is outstanding shall, directly or indirectly through
a Subsidiary or otherwise, purchase, redeem or otherwise acquire any shares
of Common Stock at a price per share greater than the Per Share Market Value
then in effect, then the Warrant Price upon each such purchase, redemption or
acquisition shall be adjusted to that price determined by multiplying such
Warrant Price by a fraction (i) the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such purchase,
redemption or acquisition minus the number of shares of Common Stock which
the aggregate consideration for the total number of such shares of Common
Stock so purchased, redeemed or acquired would purchase at the Per Share
Market Value; and (ii) the denominator of which shall be the number of shares
of Common Stock outstanding immediately after such purchase, redemption or
acquisition. For the purposes of this subsection (f), the date as of which
the Per Share Market Value shall be computed shall be the earlier of (x) the
date on which the Issuer shall enter into a firm contract for the purchase,
redemption or acquisition of such Common Stock, or (y) the date of actual
purchase, redemption or acquisition of such Common Stock. For the purposes
of this subsection (f), a purchase, redemption or acquisition of a Common
Stock Equivalent shall be deemed to be a purchase of the underlying Common
Stock, and the computation herein required shall be made on the basis of the
full exercise, conversion or exchange of such Common Stock Equivalent on the
date as of which such computation is required hereby to be made, whether or
not such Common Stock Equivalent is actually exercisable, convertible or
exchangeable on such date.
(g) OTHER PROVISIONS APPLICABLE TO ADJUSTMENTS UNDER THIS SECTION
4. The following provisions shall be applicable to the making of adjustments
in the Warrant Price hereinbefore provided in Section 4:
(i) COMPUTATION OF CONSIDERATION. The consideration received
by the Issuer shall be deemed to be the following: to the extent that any
Additional Shares of Common Stock or any Common Stock Equivalents shall
be issued for a cash consideration, the consideration received by the
Issuer therefor, or if such Additional Shares of Common Stock or Common
Stock Equivalents are offered by the Issuer for subscription, the
subscription price, or, if such Additional Shares of Common Stock or
Common Stock Equivalents are sold to underwriters or dealers for public
offering without a subscription offering, the public offering price, in
any such case excluding any amounts paid or receivable for accrued
interest or accrued dividends and without deduction of any compensation,
discounts, commissions, or expenses paid or incurred by the Issuer for or
in connection with the underwriting thereof or otherwise in connection
with the issue thereof; to the extent that such issuance shall be for a
consideration other than cash, then, except as herein otherwise expressly
provided, the fair market value of such consideration at the, time of
such issuance as determined in good faith by the Board. The
consideration for any Additional Shares of Common Stock issuable pursuant
to any
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Common Stock Equivalents shall be the consideration received by the
Issuer for issuing such Common Stock Equivalents, plus the additional
consideration payable to the Issuer upon the exercise, conversion or
exchange of such Common Stock Equivalents. In case of the issuance at
any time of any Additional Shares of Common Stock or Common Stock
Equivalents in payment or satisfaction of any dividend upon any class of
Capital Stock of the Issuer other than Common Stock, the Issuer shall be
deemed to have received for such Additional Shares of Common Stock or
Common Stock Equivalents a consideration equal to the amount of such
dividend so paid or satisfied. In any case in which the consideration to
be received or paid shall be other than cash, the Board shall notify the
Holder of this Warrant of its deermination of the fair market value of
such consideration prior to payment or accepting receipt thereof. If,
within thirty days after receipt of said notice, the Majority Holders
shall notify the Board in writing of their objection to such
determination, a determination of the fair market value of such
consideration shall be made by an Independent Appraiser selected by the
Majority Holders with the approval of the Board (which approval shall not
be unreasonably withheld), whose fees and expenses shall be paid by the
Issuer.
(ii) READJUSTMENT OF WARRANT PRICE. Upon the expiration or
termination of the right to convert, exchange or exercise any Common
Stock Equivalent the issuance of which effected an adjustment in the
Warrant Price, if such Common Stock Equivalent shall not have been
converted, exercised or exchanged in its entirety, the number of shares
of Common Stock deemed to be issued and outstanding by reason of the fact
that they were issuable upon conversion, exchange or exercise of any such
Common Stock Equivalent shall no longer be computed as set forth above,
and the Warrant Price shall forthwith be readjusted and thereafter be the
price which it would have been (but reflecting any other adjustments in
the Warrant Price made pursuant to the provisions of this Section 4 after
the issuance of such Common Stock Equivalent) had the adjustment of the
Warrant Price been made in accordance with the issuance or sale of the
number of Additional Shares of Common Stock actually issued upon
conversion, exchange or issuance of such Common Stock Equivalent and
thereupon only the number of Additional Shares of Common Stock actually
so issued shall be deemed to have been issued and only the consideration
actually received by the Issuer (computed as in clause (i) of this
subsection (g)) shall be deemed to have been received by the Issuer.
(iii) OUTSTANDING COMMON STOCK. The number of shares of Common
Stock at any time outstanding shall (A) not include any shares thereof
then directly or indirectly owned or held by or for the account of the
Issuer or any of its Subsidiaries, and (B) be deemed to include all
shares of Common Stock then issuable upon conversion, exercise or
exchange of any then outstanding Common Stock Equivalents or any other
evidences of Indebtedness, shares of Capital Stock (including, without
limitation, the Preferred Stock) or other Securities which are or may be
at any time convertible into or exchangeable for shares of Common Stock
or Other Common Stock.
(h) OTHER ACTION AFFECTING COMMON STOCK. In case after the
Original Issue Date the Issuer shall take any action affecting its Common
Stock, other than an action described in any of the foregoing subsections (a)
through (g) of this Section 4, inclusive, and the failure to make any
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adjustment would not fairly protect the purchase rights represented by this
Warrant in accordance with the essential intent and principle of this Section
4, then the Warrant Price shall be adjusted in such manner and at such time
as the Board may in good faith determine to be equitable in the circumstances.
(i) ADJUSTMENT OF WARRANT SHARE NUMBER. Upon each adjustment in
the Warrant Price pursuant to any of the foregoing provisions of this Section
4, the Warrant Share Number shall be adjusted, to the nearest one hundredth
of a whole share, to the product obtained by multiplying the Warrant Share
Number immediately prior to such adjustment in the Warrant Price by a
fraction, the numerator of which shall be the Warrant Price immediately
before giving effect to such adjustment and the denominator of which shall be
the Warrant Price immediately after giving effect to such adjustment. If the
Issuer shall be in default under any provision contained in Section 3 of this
Warrant so that shares issued at the Warrant Price adjusted in accordance
with this Section 4 would not be validly issued, the adjustment of the
Warrant Share Number provided for in the foregoing sentence shall nonetheless
be made and the Holder of this Warrant shall be entitled to purchase such
greater number of shares at the lowest price at which such shares may then be
validly issued under applicable law. Such exercise shall not constitute a
waiver of any claim arising against the Issuer by reason of its default under
Section 3 of this Warrant.
(j) FORM OF WARRANT AFTER ADJUSTMENTS. The form of this Warrant
need not be changed because of any adjustments in the Warrant Price or the
number and kind of Securities purchasable upon the exercise of this Warrant.
5. NOTICE OF ADJUSTMENTS. Whenever the Warrant Price or Warrant
Share Number shall be adjusted pursuant to Section 4 hereof (for purposes of
this Section 5, each an "adjustment"), the Issuer shall cause its Chief
Financial Officer to prepare and execute a certificate setting forth, in
reasonable detail, the event requiring the adjustment, the amount of the
adjustment, the method by which such adjustment was calculated (including a
description of the basis on which the Board made any determination
hereunder), and the Warrant Price and Warrant Share Number after giving
effect to such adjustment, and shall cause copies of such certificate to be
delivered to the Holder of this Warrant promptly after each adjustment. Any
dispute between the Issuer and the Holder of this Warrant with respect to the
matters set forth in such certificate may at the option of the Holder of this
Warrant be submitted to one of the national accounting firms currently known
as the "big five" selected by the Holder, provided that the Issuer shall have
ten days after receipt of notice from such Holder of its selection of such
firm to object thereto, in which case such Holder shall select another such
firm and the Issuer shall have no such right of objection. The firm selected
by the Holder of this Warrant as provided in the preceding sentence shall be
instructed to deliver a written opinion as to such matters to the Issuer and
such Holder within thirty days after submission to it of such dispute. Such
opinion shall be final and binding on the parties hereto. The fees and
expenses of such accounting firm shall be paid by the Issuer.
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6. FRACTIONAL SHARES. No fractional shares of Warrant Stock will
be issued in connection with and exercise hereof, but in lieu of such
fractional shares, the Issuer shall make a cash payment therefor equal in
amount to the product of the applicable fraction multiplied by the Per Share
Market Value then in effect.
7. DEFINITIONS. For the purposes of this Warrant, the following
terms have the following meanings:
"Additional Shares of Common Stock" means all shares of Common
Stock issued by the Issuer after the Original Issue Date, and all shares
of Other Common, if any, issued by the Issuer after the Original Issue
Date, except any shares of Common Stock presently outstanding, any shares
of Common Stock issued upon the exercise of any existing or future stock
options or grants issued to any directors, officers, employees or
consultants of the Issuer under any employee incentive stock option
and/or any stock option plan approved by the Board, the Warrant Stock and
the Preferred Shares.
"Board" shall mean the Board of Directors of the Issuer.
"Capital Stock" means and includes (i) any and all shares,
interests, participations or other equivalents of or interests in
(however designated) corporate stock, including, without limitation,
shares of preferred or preference stock, (ii) all partnership interests
(whether general or limited) in any Person which is a partnership, (iii)
all membership interests or limited liability company interests in any
limited liability company, and (iv) all equity or ownership interests in
any Person of any other type.
"Certificate of Incorporation" means the Certificate of
Incorporation of the Issuer as in effect on the Original Issue Date, and
as hereafter from time to time amended, modified, supplemented or
restated in accordance with the terms hereof and thereof and pursuant to
applicable law.
"Common Stock" means the Common Stock, $.001 par value, of the
Issuer and any other Capital Stock into which such stock may hereafter be
changed.
"Common Stock Equivalent" means any Convertible Security or
warrant, option or other right to subscribe for or purchase any
Additional Shares of Common Stock or any Convertible Security.
"Convertible Securities" means evidences of Indebtedness, shares
of Capital Stock or other Securities which are or may be at any time
convertible into or exchangeable for Additional Shares of Common Stock.
The term "Convertible Security" means one of the Convertible Securities.
"Governmental Authority" means any governmental, regulatory or
self-regulatory entity, department, body, official, authority,
commission, board, agency or instrumentality, whether federal, state or
local, and whether domestic or foreign.
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"Holders" mean the Persons who shall from time to time own any
Warrant. The term "Holder" means one of the Holders.
"Independent Appraiser" means a nationally recognized or major
regional investment banking firm or firm of independent certified public
accountants of recognized standing (which may be the firm that regularly
examines the financial statements of the Issuer) that is regularly
engaged in the business of appraising the Capital Stock or assets of
corporations or other entities as going concerns, and which is not
affiliated with either the Issuer or the Holder of any Warrant.
"Issuer" means eSynch Corporation, a Delaware corporation, and its
successors.
"Majority Holders" means at any time the Holders of Warrants
exercisable for a majority of the shares of Warrant Stock issuable under
the Warrants at the time outstanding.
"Original Issue Date" means December __, 1999.
"Other Common" means any other Capital Stock of the Issuer of any
class which shall be authorized at any time after the date of this
Warrant (other than Common Stock) and which shall have the right to
participate in the distribution of earnings and assets of the Issuer
without limitation as to amount.
"OTC Bulletin Board" means the over-the-counter electronic
bulletin board.
"Person" means an individual, corporation, limited liability
company, partnership, joint stock company, trust, unincorporated
organization, joint venture, Governmental Authority or other entity of
whatever nature.
"Per Share Market Value" means on any particular date (a) the
closing bid price per share of the Common Stock on such date on the OTC
Bulletin Board or other registered national stock exchange on which the
Common Stock is then listed or if there is no such price on such date,
then the closing bid price on such exchange or quotation system on the
date nearest preceding such date, or (b) if the Common Stock is not
listed then on the OTC Bulletin Board or any registered national stock
exchange, the closing bid price for a share of Common Stock in the
over-the-counter market, as reported by the OTC Bulletin Board or in the
National Quotation Bureau Incorporated or similar organization or agency
succeeding to its functions of reporting prices) at the close of business
on such date, or (c) if the Common Stock is not then reported by the OTC
Bulletin Board or the National Quotation Bureau Incorporated (or similar
organization or agency succeeding to its functions of reporting prices),
then the average of the "Pink Sheet" quotes for the relevant conversion
period, as determined in good faith by the holder, or (d) if the Common
Stock is not then publicly traded the fair market value of a share of
Common Stock as determined by an Independent Appraiser selected in good
faith by the Majority Holders; PROVIDED, HOWEVER, that the Issuer, after
receipt of the determination by such Independent Appraiser, shall have
the right to select an additional Independent Appraiser, in which case,
the fair market value shall be equal to the average
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of the determinations by each such Independent Appraiser; and PROVIDED,
FURTHER that all determinations of the Per Share Market Value shall be
appropriately adjusted for any stock dividends, stock splits or other
similar transactions during such period. The determination of fair
market value by an Independent Appraiser shall be based upon the fair
market value of the Issuer determined on a going concern basis as between
a willing buyer and a willing seller and taking into account all relevant
factors determinative of value, and shall be final and binding on all
parties. In determining the fair market value of any shares of Common
Stock, no consideration shall be given to any restrictions on transfer
of the Common Stock imposed by agreement or by federal or state
securities laws, or to the existence or absence of, or any limitations
on, voting rights.
"Preferred Shares" means Common Stock issuable upon the conversion
of any Preferred Stock.
"Preferred Stock" means the Series K Convertible Preferred Stock
issued and sold pursuant to the Purchase Agreement.
"Purchase Agreement" means the Series K Convertible Preferred
Stock Purchase Agreement dated as of December 30, 1999 among the Issuer
and the investors a party thereto.
"Registration Rights Agreement" has the meaning specified in
Section 3(e) hereof.
"Securities" means any debt or equity securities of the Issuer,
whether now or hereafter authorized, any instrument convertible into or
exchangeable for Securities or a Security, and any option, warrant or
other right to purchase or acquire any Security. "Security" means one of
the Securities.
"Securities Act" means the Securities Act of 1933, as amended, or
any similar federal statute then in effect.
"Subsidiary" means any corporation at least 50% of whose
outstanding Voting Stock shall at the time be owned directly or
indirectly by the Issuer or by one or more of its Subsidiaries, or by the
Issuer and one or more of its Subsidiaries.
"Trading Day" means (a) a day on which the Common Stock is traded
on the over the counter market as reported by the OTC Bulletin Board, or
(b) if the Common Stock is not listed on the OTC Bulletin Board, a day on
which the Common Stock is traded on any other registered national stock
exchange, or (c) if the Common Stock is not quoted on the OTC Bulletin
Board, a day on which the Common Stock is quoted in the over-the-counter
market as reported by the National Quotation Bureau Incorporated (or any
similar organization or agency succeeding its functions of reporting
prices); PROVIDED, HOWEVER, that in the event that the Common Stock is
not listed or quoted as set forth in (a), (b) and (c) hereof, then
Trading Day shall mean any day except Saturday, Sunday and any day which
shall be a legal holiday or a day on which banking institutions
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<PAGE>
in the State of New York are authorized or required by law or other
government action to close.
"Term" has the meaning specified in Section 1 hereof.
"Voting Stock", as applied to the Capital Stock of any
corporation, means Capital Stock of any class or classes (however
designated) having ordinary voting power for the election of a majority
of the members of the Board of Directors (or other governing body) of
such corporation, other than Capital Stock having such power only by
reason of the happening of a contingency.
"Warrants" means the Warrants issued and sold pursuant to the
Purchase Agreement, including, without limitation, this Warrant, and any
other warrants of like tenor issued in substitution or exchange for any
thereof pursuant to the provisions of Section 2(c), 2(d) or 2(e) hereof
or of any of such other Warrants.
"Warrant Price" means initially 115% of the closing bid price of
the Common Stock on the trading day immediately preceding the Closing
Date (as such term is defined in the Purchase Agreement), as such price
may be adjusted from time to time as shall result from the adjustments
specified in Section 4 hereof.
"Warrant Share Number" means at any time the aggregate number of
shares of Warrant Stock which may at such time be purchased upon exercise
of this Warrant, after giving effect to all prior adjustments and
increases to such number made or required to be made under the terms
hereof.
"Warrant Stock" means Common Stock issuable upon exercise of any
Warrant or Warrants or otherwise issuable pursuant to any Warrant or
Warrants.
8. OTHER NOTICES. In case at any time:
(A) the Issuer shall make any distributions to the
holders of Common Stock; or
(B) the Issuer shall authorize the granting to all
holders of its Common Stock of rights to subscribe
for or purchase any shares of Capital Stock of any
class or of any Common Stock Equivalents or
Convertible Securities or other rights; or
(C) there shall be any reclassification of the Capital
Stock of the Issuer; or
(D) there shall be any capital reorganization by the
Issuer; or
(E) there shall be any (i) consolidation or merger
involving the Issuer or (ii) sale, transfer or other
disposition of all or substantially all of the
Issuer's property, assets or business (except a
merger or other
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reorganization in which the Issuer shall be the
surviving corporation and its shares of Capital
Stock shall continue to be outstanding and
unchanged and except a consolidation, merger, sale,
transfer or other disposition involving a
wholly-owned Subsidiary); or
(F) there shall be a voluntary or involuntary
dissolution, liquidation or winding-up of the Issuer
or any partial liquidation of the Issuer or
distribution to holders of Common Stock;
then, in each of such cases, the Issuer shall give written notice to the
Holder of the date on which (i) the books of the Issuer shall close or a
record shall be taken for such dividend, distribution or subscription rights
or (ii) such reorganization, reclassification, consolidation, merger,
disposition, dissolution, liquidation or winding-up, as the case may be,
shall take place. Such notice also shall specify the date as of which the
holders of Common Stock of record shall participate in such dividend,
distribution or subscription rights, or shall be entitled to exchange their
certificates for Common Stock for securities or other property deliverable
upon such reorganization, reclassification, consolidation, merger,
disposition, dissolution, liquidation or winding-up, as the case may be.
Such notice shall be given at least twenty days prior to the action in
question and not less than twenty days prior to the record date or the date
on which the Issuer's transfer books are closed in respect thereto. The
Issuer shall give to the Holder notice of all meetings and actions by written
consent of its stockholders, at the same time in the same manner as notice of
any meetings of stockholders is required to be given to stockholders who do
not waive such notice (or, if such requires no notice, then two Trading Days
written notice thereof describing the matters upon which action is to be
taken). The Holder shall have the right to send two representatives selected
by it to each meeting, who shall be permitted to attend, but not vote at,
such meeting and any adjournments thereof. This Warrant entitles the Holder
to receive copies of all financial and other information distributed or
required to be distributed to the holders of the Common Stock.
9. AMENDMENT AND WAIVER. Any term, covenant, agreement or
condition in this Warrant may be amended, or compliance therewith may be
waived (either generally or in a particular instance and either retroactively
or prospectively), by a written instrument or written instruments executed by
the Issuer and the Majority Holders; provided, however, that no such
amendment or waiver shall reduce the Warrant Share Number, increase the
Warrant Price, shorten the period during which this Warrant may be exercised
or modify any provision of this Section 9 without the consent of the Holder
of this Warrant.
10. GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT
TO PRINCIPLES OF CONFLICTS OF LAW.
11. NOTICES. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earlier of (i) the date of
transmission, if such notice or communication is delivered via facsimile at
the facsimile telephone number specified for notice prior to 5:00 p.m.,
pacific
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standard time, on a Business Day, (ii) the Business Day after the date of
transmission, if such notice or communication is delivered via facsimile at
the facsimile telephone number specified for notice later than 5:00 p.m.,
pacific standard time, on any date and earlier than 11:59 p.m., pacific
standard time, on such date, (iii) the Business Day following the date of
mailing, if sent by nationally recognized overnight courier service or (iv)
actual receipt by the party to whom such notice is required to be given. The
addresses for such communications shall be with respect to the Holder of this
Warrant or of Warrant Stock issued pursuant hereto, addressed to such Holder
at its last known address or facsimile number appearing on the books of the
Issuer maintained for such purposes, or with respect to the Issuer, addressed
to:
eSynch Corporation
15502 Mosher Avenue
Tustin, California 92780
Telephone Number: (714) 258-1900
Facsimile Number: (714) 258-7177
Attention: Thomas Hemingway, C.E.O.
or to such other address or addresses or facsimile number or numbers as any
such party may most recently have designated in writing to the other parties
hereto by such notice. Copies of notices to the Issuer shall be sent to
Nicholas J. Yocca, Stradling Yocca Carlson & Rauth, PC, 660 Newport Center
Drive, Suite 1600, Newport Beach, CA 92660, Facsimile no.: (949) 823-5120.
Copies of notices to the Holder shall be sent to (a) Parker Chapin Flattau &
Klimpl, LLP, 1211 Avenue of the Americas, New York, New York 10036,
Attention: Christopher S. Auguste, Esq., Facsimile no.: (212) 704-6288.
12. WARRANT AGENT. The Issuer may, by written notice to each
Holder of this Warrant, appoint an agent having an office in New York, New
York for the purpose of issuing shares of Warrant Stock on the exercise of
this Warrant pursuant to subsection (b) of Section 2 hereof, exchanging this
Warrant pursuant to subsection (d) of Section 2 hereof or replacing this
Warrant pursuant to subsection (d) of Section 3 hereof, or any of the
foregoing, and thereafter any such issuance, exchange or replacement, as the
case may be, shall be made at such office by such agent.
13. REMEDIES. The Issuer stipulates that the remedies at law of
the Holder of this Warrant in the event of any default or threatened default
by the Issuer in the performance of or compliance with any of the terms of
this Warrant are not and will not be adequate and that, to the fullest extent
permitted by law, such terms may be specifically enforced by a decree for the
specific performance of any agreement contained herein or by an injunction
against a violation of any of the terms hereof or otherwise.
14. SUCCESSORS AND ASSIGNS. This Warrant and the rights evidenced
hereby shall inure to the benefit of and be binding upon the successors and
assigns of the Issuer, the Holder hereof and (to the extent provided herein)
the Holders of Warrant Stock issued pursuant hereto, and shall be enforceable
by any such Holder or Holder of Warrant Stock
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15. MODIFICATION AND SEVERABILITY. If, in any action before any
court or agency legally empowered to enforce any provision contained herein,
any provision hereof is found to be unenforceable, then such provision shall
be deemed modified to the extent necessary to make it enforceable by such
court or agency. If any such provision is not enforceable as set forth in
the preceding sentence, the unenforceability of such provision shall not
affect the other provisions of this Warrant, but this Warrant shall be
construed as if such unenforceable provision had never been contained herein.
16. HEADINGS. The headings of the Sections of this Warrant are for
convenience of reference only and shall not, for any purpose, be deemed a
part of this Warrant.
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IN WITNESS WHEREOF, the Issuer has executed this Warrant as of
the day and year first above written.
ESYNCH CORPORATION
By:
--------------------------
Name:
Title:
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EXERCISE FORM
[NAME OF ISSUER]
The undersigned _______________, pursuant to the provisions of the
within Warrant, hereby elects to purchase _____ shares of Common Stock of
___________________ covered by the within Warrant.
Dated: _________________ Signature ________________________
Address _____________________
_____________________
ASSIGNMENT
FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers
unto __________________ the within Warrant and all rights evidenced thereby and
does irrevocably constitute and appoint _____________, attorney, to transfer the
said Warrant on the books of the within named corporation.
Dated: _________________ Signature ________________________
Address _____________________
_____________________
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PARTIAL ASSIGNMENT
FOR VALUE RECEIVED, _________________ hereby sells, assigns and
transfers unto __________________ the right to purchase _________ shares of
Warrant Stock evidenced by the within Warrant together with all rights
therein, and does irrevocably constitute and appoint ___________________,
attorney, to transfer that part of the said Warrant on the books of the
within named corporation.
Dated: _________________ Signature ________________________
Address _____________________
_____________________
FOR USE BY THE ISSUER ONLY:
This Warrant No. W-K- cancelled (or transferred or exchanged) this
_____ day of ___________, _____, shares of Common Stock issued therefor in
the name of _______________, Warrant No. W-K- issued for ____ shares of
Common Stock in the name of _______________.
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