As filed with the Securities and Exchange Commission on September 15, 2003
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-8
REGISTRATION STATEMENT
Under
The Securities Act of 1933
ESYNCH CORPORATION
Delaware 87-0461856
---------------------- --------------------
(State or other jurisdiction (I.R.S. Employer I.D. Number)
of incorporation or organization)
One Technology Drive
Building H
Irvine, CA 92618
(949) 753-0593
(Address and telephone number of registrant's principal executive offices)
Thomas Hemingway
Chief Executive Officer
One Technology Drive
Building H
Irvine, CA 92618
(949) 753-0593
(Name, Address and telephone number of agent for service)
COPY TO:
NACCARATO & ASSOCIATES
Owen Naccarato, Esq.
19600 Fairchild, Suite 260
Irvine, CA 92612
(949) 851-9261
CALCULATION OF REGISTRATION FEE
Title of Each
Class of Securities Amount Being Estimated Price Aggregate Amount of
To Be Registered Registered Per Unit/Share(1) Estimated Price Registration Fee
Common Stock 16,760,000 $0.04 $670,400 $54.24
par value $.001
(1) Estimated solely for the purpose of determining the amount of registration
fee and pursuant to Rules 457(c) and 457 (h) of the General Rules and
Regulations under the Securities Act of 1993, based upon the average of the bid
and asked prices per share of the registrant's common stock reported by the
Pink Sheets on September 8, 2003.
1
EXPLANATORY NOTE
This registration statement registers offers and sales of shares of common
stock, issuable upon the exercise of options granted under our 2003 Stock
Incentive Plan that may include shares that constitute "control securities"
under General Instruction C to Form S-8. These control securities may be
offered and sold on a continuous or delayed basis in the future under Rule 415
of the Securities Act of 1933, as amended (the "Securities Act").
This registration statement contains two parts. The first part contains an
"offer prospectus" prepared in accordance with Part I of Form S-3 (in
accordance with Instruction C of Form S-8). The second part contains
information required in the registration statement pursuant to Part II of Form
S-8.
OFFER PROSPECTUS
ESYNCH CORPORATION
16,760,000 Shares of Common Stock under the 2003 Stock Incentive Plan of ESYNCH
Corporation
The shares we are registering are either currently held by or will be issued to
certain of our stockholders upon the exercise of stock options granted under
our 2003 Stock Incentive Plan. We will pay the expenses of registering the
shares.
Our common stock is quoted on the Pinksheets under the symbol "ESYN." The last
reported sale price of the common stock on September 4, 2003 was $0.04 per
share. You should carefully consider the "Risks Factors" section beginning on
page 3 of this Offer Prospectus. These shares have not been approved by the
Securities and Exchange Commission or any state securities commission nor have
these organizations determined whether this Prospectus is complete or accurate.
Any representation to the contrary is a criminal offense.
THE DATE OF THIS OFFER PROSPECTUS IS SEPTEMBER 10, 2003.
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TABLE OF CONTENTS
SUMMARY INFORMATION 4
THE COMPANY'S BUSINESS 4
RISK FACTORS 4
FORWARD LOOKING AND CAUTIONARY STATEMENT 6
USE OF PROCEEDS 7
SELLING STOCKHOLDERS 7
PLAN OF DISTRIBUTION 7
DESCRIPTION OF CAPITAL STOCK 8
INTERESTS OF NAMED EXPERTS AND COUNSEL 15
MATERIAL CHANGES AND SUBSEQUENT EVENTS 15
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE 16
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES 17
3
PROSPECTUS SUMMARY INFORMATION
This is only a summary and does not contain all of the information that may be
important to you. You should read the more detailed information contained in
this prospectus and all other information, including the financial information
and statements with notes, referred to in this prospectus as discussed in the
"Where You Can Find More Information" section of this prospectus.
THE COMPANY'S BUSINESS
eSynch Corporation (the "Company") is in the process of transitioning its
business. We have discontinued our core business and are reviewing a potential
series of transactions intended to transform the Company core business and to
strategically move forward with new market opportunities that can potentially
better enhance shareholder value.
eSynch Corporation is a Delaware corporation founded in 1994. eSynch's primary
activities consisted of developing and marketing media rights management
solutions, encryption and key-clearing services, video-on-demand services and
video streaming through the Internet, software sales through the Internet,
video encoding, and compression and authoring. The Company also developed PC
utility products, primarily for the Internet user.
The Company may be contacted at:
eSynch Corporation
One Technology Drive
Building H
Irvine, CA 92618
(949) 753-0593
RISK FACTORS
RISKS RELATING TO OUR BUSINESS:
There are various risks in the common stock, including those described below.
Additional risks, and uncertainties not presently known to us or that we
currently deem immaterial, may also impair our business operations. If any of
the following risks actually occur, our business could be harmed. In such case,
the shares of our common stock that you purchase could decline in value and you
may lose all or part of your investment. You should consider carefully these
risk factors before you decide to purchase our shares.
WE HAD ENTERED INTO AN IRREVOCABLE ESCROW AGREEMENT TO ACQUIRE ALL OF THE
OUTSTANDING COMMON AND PREFERRED SHARES OF NACIO SYSTEMS, WHICH WAS SUBJECT TO
A SUCCESSFUL COMPLETION OF THE PLAN OF REORGANIZATION. THE NECESSARY EVENTS
DID NOT MATERIALIZE AND THIS DEAL IS IN EFFECT ABANDONED.
eSynch entered into an irrevocable escrow agreement in July 2002 to acquire all
of the outstanding common and preferred shares of Nacio Systems, subject to a
successful completion of the plan of reorganization. This deal will not be
moving forward.
The Registrant, eSynch Corporation, a Delaware corporation, signed, but has not
consummated, an agreement to acquire all of the outstanding capital stock
of Nacio Systems, Inc. ("NSI"), a California corporation. The acquisition was
to be pursuant to an exchange of stock between holders of NSI stock and the
Registrant conducted in accordance with the original Plan of Reorganization
of
NSI under Chapter 11 of the U.S. Bankruptcy Code. NSI amended the Plan on
April 25, 2003 which was approved by the Bankruptcy Court's on May 22,
2003 which ordered that the Registrant undo the previous acquisition of NSI
capital stock
and undo the stock issuance previously consummated by the Registrant and
the common and preferred shareholders of NSI. The Registrant is appealing
that decision of the Bankruptcy Court but will only hope to receive monetary
damages.
WE HAVE A LIMITED OPERATING HISTORY AND ANY FUTURE REVENUES WILL BE MINIMAL AT
BEST
As a result of the sale and discontinuance of our core businesses, the Company
intends to commence new business operations which may experience significant
fluctuations in financial results. The Company had insignificant revenue from
its other activities and there can be no certainty that additional revenue can
be generated from new product lines in the future.
..
OUR FUTURE OPERATING RESULTS ARE UNPREDICTABLE
eSynch, intends to commence new business operations, which may experience
significant fluctuations in financial results if any in the immediate future.
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WE NEED ADDITIONAL CAPITAL
Since we do not have an operating business at present, we will incur operating
losses over the next several months. As a result of those losses and the funds
needed to keep a minimal structure in place plus cost of investigating and
managing any potential acquisitions and working capital and infrastructure
development, we anticipate that we will have to raise substantial additional
capital to sustain us during this period. We may not be able to obtain the
financing that our yet to be determined future business requires. Even if we
can obtain financing when it is needed, it may not be on favorable terms. In
addition, a financing could have the effect of reducing the percentage of our
shares owned by our existing stockholders, including investors purchasing
shares in this offering. A financing could have the additional effect of
diluting or reducing the value of the outstanding shares. We may sell shares or
grant options or warrants to buy shares at prices lower than the prevailing
value of your shares.
THE LOSS OF KEY PERSONNEL COULD ADVERSELY AFFECT OPERATIONS
Thomas Hemingway and others play a key role in our operations and in the
further development of our business. The loss of the services of any of them
could adversely impact our business and chances for success.
RISKS RELATING TO OUR STOCK:
ESYN's common stock is subject to the "Penny Stock" rules of the SEC and the
trading market in ESYN's securities is limited, which makes transactions in
ESYN's stock cumbersome and may reduce the value of an investment in ESYN's
stock.
ESYN's shares of Common Stock are "penny stocks" as defined in the Exchange
Act, which are quoted in the over-the-counter market on the OTC Bulletin Board.
As a result, an investor may find it more difficult to dispose of or obtain
accurate quotations as to the price of the shares of the Common Stock being
registered hereby. In addition, the "penny stock" rules adopted by the
Commission under the Exchange Act subject the sale of the shares of the Common
Stock to certain regulations which impose sales practice requirements on
broker-dealers. For example, broker-dealers selling such securities must,
prior to effecting the transaction, provide their customers with a document
that discloses the risks of investing in such securities. Included in this
document are the following:
* The bid and offer price quotes for the penny stock, and the number
of shares to which the quoted prices apply.
* The brokerage firm's compensation for the trade.
* The compensation received by the brokerages firm's salesperson for
the trade.
In addition, the brokerage firm must send the investor:
* Monthly account statement that gives an estimate of the value of
each penny stock in your account.
* A written statement of your financial situation and investment
goals.
Legal remedies, which may be available to you, are as follows:
* If penny stocks are sold to you in violation of your rights listed
above, or other federal or state securities laws, you may be able to
cancel your purchase and get your money back.
* If the stocks are sold in a fraudulent manner, you may be able to
sue the persons and firms that caused the fraud for damages.
* If you have signed an arbitration agreement, however, you may have
to pursue your claim through arbitration.
If the person purchasing the securities is someone other than an accredited
investor or an established customer of the broker-dealer, the broker-dealer
must also approve the potential customer's account by obtaining information
concerning the customer's financial situation, investment experience and
investment objectives. The broker-dealer must also make a determination
whether the transaction is suitable for the customer and whether the customer
has sufficient knowledge and experience in financial matters to be reasonably
expected to be capable of evaluating the risk of transactions in such
securities. Accordingly, the Commission's rules may limit the number of
potential purchasers of the shares of the Common Stock.
Resale restrictions on transferring "penny stocks" are sometimes imposed by
some states, which may make transactions in our stock cumbersome and may reduce
the value of an investment in our stock.
Various state securities laws impose restrictions on transferring "penny
stocks" and as a result, investors in the Common Stock may have their ability
to sell their shares of the Common Stock impaired. For example, the Utah
Securities Commission prohibits brokers from soliciting buyers for "penny
stocks", which makes selling them more difficult.
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ESYN's absence of dividends or the ability to pay them places a limitation on
any investors return.
ESYN anticipates that for the foreseeable future, there will be a lack of
earnings. Accordingly, ESYN does not anticipate paying dividends on the common
stock in the foreseeable future. The payment of future dividends will be at
the sole discretion of ESYN's Board of Directors and will depend on ESYN's
general business condition.
VOLATILITY AND STOCK MARKET RISK WILL PUT INVESTORS MONEY AT RISK
In addition, the stock market in general, and the stocks of web-based
businesses in particular, have experienced extreme volatility that often has
been unrelated to the operating performance of particular companies. These
broad market and industry fluctuations may adversely affect the trading price
of our common stock, regardless of our actual operating performance.
Among other things, such authority may make it more difficult for a person to
acquire the Company. In turn, this may make it less likely that holders of
common stock will receive a premium price for their shares.
OUR BUSINESS PLAN MAY CHANGE RESULTING IN INCREASED COSTS TO OPERATE
We intend to continue to investigate possible business plans and to explore
opportunities in many areas which show potential as an area we can develop and
grow.
LEGAL PROCEEDINGS
We are involved in several lawsuits in the normal course of business and all
amounts for exposure to these lawsuits have been recorded in our financial
statements except as noted below.
In September 1999, a lawsuit was filed by C-Group in United States District
Court, District of Maryland, against Intermark seeking $99,110 for goods that
were claimed to be purchased by Intermark. In October 1999, the plaintiff
amended the complaint and reduced the amount it is seeking to $81,326. In March
2001 a judgment was entered against Intermark in the amount of $133,658 related
to the claim against Intermark which included $53,332 related to a claim
against Softkat. As of December 31, 2000 the Company accrued $81,326. During
the year Entered December 31, 2001 the Company accrued the remaining $52,332.
There is a collection action filed on May 9, 2002 wherein Garfinle Limited
Partnership II ("GLP") alleged breach of a $450,000 promissory note. On August
21, 2002 the court granted GLP's application for right to attach order against
the company for the approximate sum of $528,696. Assitionally, GLP filed a
motion for summary judgement against the Company which is presently set for
August 14, 2003.
During the years 2001 and 2002 several lawsuits were filed against the Company
generally for non-payment of amounts due. These lawsuits resulted in Judgments
against the Company totaling $1,138,000. All amounts have been recorded in the
Company's financial statements as accounts payable. The Company is currently
attempting to negotiate settlements with all creditors.
On August 9, 2001, an action was filed in California Superior Court, County of
Orange, against the Company, certain officers and its current Directors by
Donald C. Watters, the Company's former president, chief operating officer and
director, claiming breaches of contract, good faith and fair dealing, and
fiduciary duty, and tortuous adverse employment action in violation of public
policy. Mr. Watters is seeking general damages of not less than $2,780,000,
punitive damages, interest, attorney's fees and court costs. Mr. Watters was
terminated by the Company for cause. The Company believes that the claims are
without merit and intends to vigorously defend the action and thus nothing has
been accrued as of December 31, 2002.
On May 16, 2003, the court granted multiple motions for summary judgment and
/or summary adjudication on a certain cause in favor of some of the Company's
directors and former directors including Tom Hemingway, T. Richard Hutt, James
Budd, Robert Orbach, David Lyons and Norton Garfinkle. Watters has filed an
appeal of that ruling which currently remains pending. The parties have
stipulated to stay the balance of the case pending resolution of the appeal.
On July 27, 2001, the Company filed a complaint against eLiberation
Corporation, which was subsequently amended January 3, 2002. The Company seeks
compensatory damages in the amount of $39,671. On September 28, 2001,
eLiberation Corporation filed a cross-complaint against the Company and an
officer claiming that the Company and the officer deliberately misrepresented
and made false representations to eLiberation Corporation. eLiberation
Corporations seeks general and special damages in the amount of not less than
$2,500,000. The Company agreed in August 2002 to a payment from eLiberation
Corporation in full settlement of the lawsuit
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FORWARD-LOOKING AND CAUTIONARY STATEMENTS
This prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 (the "Securities Act") and Section
21E of the Securities Exchange Act of 1934 (the "Exchange Act") and such
forward-looking statements are subject to the safe harbors created thereby. For
this purpose, any statements contained in this prospectus except for historical
information may be deemed to be forward-looking statements. Also, words such as
"may," "will," "expect," "believe," "anticipate," "intend," "could," "estimate"
or "continue" or the negative or other variations thereof or comparable
terminology are intended to help you identify forward-looking statements. In
addition, any statements that refer to expectations, projections or other
characterizations of future events or circumstances are forward-looking
statements. Forward-looking statements include, but are not limited to,
statements regarding:
* Our expectations about the marketplace and consumer acceptance. * Our
marketing and sales plans.
* Our expectations regarding the growth of our business and success of our
business model.
* Our ability to introduce new services and products and improve technology. *
The success of our technology.
These statements are not guarantees of future performance. Future performance
is subject to risks, uncertainties and assumptions that are difficult to
predict and may be beyond our control. Therefore, our actual results could
differ materially from anticipated results. These risks and uncertainties
include those noted in "Risk Factors" above.
We do not undertake any obligation to update or revise any forward- looking
statements contained in this prospectus for any reason, even if new information
becomes available or other events occur in the future.
USE OF PROCEEDS
The proceeds from the sale of each Selling Stockholder's common stock will
belong to the Selling Stockholder. The Company will not receive any of the
proceeds from such sales of the common stock.
SELLING STOCKHOLDERS
SHARES BENEFICIALLY NUMBER OF SHARES OFFERED
OWNED PRIOR TO OFFERING BY THE PROSPECTUS (2)(3)
Name Number of Shares Percent Number of Shares Percent
-------------------------------- --------------------- -------- --------------------- --------
Thomas Hemingway . . . . .(1) 8,000,000 4.8% 8,000,000 4.1%
T. R. Hutt . . . . . . . .(1) 2,000,000 1% 2,000,000 1%
David Noyes. . . . . . . .(1) 2,000,000 1% 2,000,000 1%
Nick Yocca . . . . . . . .(1) 1,000,000 .5% 1,000,000 5%
Doug Decinces. . . . . . .(1) 1,000,000 .5% 1,000,000 .5%
Robin Cruse. . . . . . . .(1) 1,000,000 .5% 1,000,000 .5%
Scott Jackson. . . . . . .(1) 1,000,000 .5% 1,000,000 .5%
Owen Naccarato . . . . . .(1) 260,000 .1% 260,000 .1%
Andre Nazarian . . . . . .(1) 500,000 .3% 500,000 .3%
---------------------- ----- -------------------- -------
Total . . . . . . . . . . . . 16,760,000 8.5% 16,760,000 8.5%
(1) Includes all Shares issued to such named individuals upon the exercise of
options granted under the 2003 Employee Incentive Plan.
(2) Percentages based on 197,317,504 shares outstanding as of September 8, 2003
PLAN OF DISTRIBUTION
The shares being offered by the Selling Stockholders or their respective
pledgees, donees, transferees or other successors in interest, will be sold
from time to time in one or more transactions, which may involve block
transactions:
* on the Over-the-Counter Bulletin Board or on such other market on which the
common stock may from time to time be trading;
* in privately-negotiated transactions;
* through the writing of options on the shares;
* short sales; or
* any combination thereof.
7
The sale price to the public may be:
* the market price prevailing at the time of sale;
* a price related to such prevailing market price;
* at negotiated prices; or
* such other price as the Selling Stockholders determine from time to time.
The shares may also be sold pursuant to Rule 144. The Selling Stockholders
shall have the sole and absolute discretion not to accept any purchase offer or
make any sale of shares if they deem the purchase price to be unsatisfactory at
any particular time.
The Selling Stockholders or their respective pledgees, donees, transferees or
other successors in interest, may also sell the shares directly to market
makers acting as principals and/or broker-dealers acting as agents for
themselves or their customers. Such broker-dealers may receive compensation in
the form of discounts, concessions or commissions from the Selling Stockholders
and/or the purchasers of shares for whom such broker-dealers may act as agents
or to whom they sell as principal or both, which compensation as to a
particular broker-dealer might be in excess of customary commissions. Market
makers and block purchasers purchasing the shares will do so for their own
account and at their own risk. It is possible that a Selling Stockholder will
attempt to sell shares of common stock in block transactions to market makers
or other purchasers at a price per share which may be below the then market
price. The Selling Stockholders cannot assure that all or any of the shares
offered in this prospectus will be issued to, or sold by, the Selling
Stockholders. The Selling Stockholders and any brokers, dealers or agents, upon
effecting the sale of any of the shares offered in this prospectus, may be
deemed "underwriters" as that term is defined under the Securities Act or the
Exchange Act, or the rules and regulations under such acts.
The Selling Stockholders, alternatively, may sell all or any part of the shares
offered in this prospectus through an underwriter. No Selling Stockholder has
entered into any agreement with a prospective underwriter and there is no
assurance that any such agreement will be entered into. If a Selling
Stockholder enters into such an agreement or agreements, the relevant details
will be set forth in a supplement or revisions to this prospectus.
The Selling Stockholders and any other persons participating in the sale or
distribution of the shares will be subject to applicable provisions of the
Exchange Act and the rules and regulations under such act, including, without
limitation, Regulation M. These provisions may restrict certain activities of,
and limit the timing of purchases and sales of any of the shares by, the
Selling Stockholders or any other such person. Furthermore, under Regulation M,
persons engaged in a distribution of securities are prohibited form
simultaneously engaging in market making and certain other activities with
respect to such securities for a specified period of time prior to the
commencement of such distributions, subject to specified exceptions or
exemptions. All of these limitations may affect the marketability of the
shares.
We have agreed to indemnify the Selling Stockholders, or their transferees or
assignees, against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments the Selling Stockholders or their
respective pledgees, donees, transferees or other successors in interest, may
be required to make in respect of such liabilities.
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED AND OUTSTANDING STOCK
The authorized capital stock of the Company consists of 250,000,000 shares of
common stock, $.001 par value, and 1,000,000 shares of Preferred Stock, $.001
par value of which 275 shares of the Preferred Stock are designated as Series J
Convertible Preferred Stock, 250 shares are designated as Series K Convertible
Preferred Stock, 220 shares are designated as Series M Convertible Preferred
Stock.
As of September 8, 2003, there were 197,317,504 shares of common stock
outstanding. At the same date, there were 58.2 shares of Series J Convertible
Preferred Stock outstanding, 18.3 shares of Series K Convertible Preferred
Stock outstanding, and 196.9 shares of Series M Convertible Preferred Stock
outstanding. (See "Preferred Stock," below.)
The Company previously issued Series A, Series C, Series D, Series E, Series F,
Series G, Series H, Series I, and Series L Preferred shares, none of which
remain outstanding.
COMMON STOCK
Subject to legal and contractual restrictions on payment of dividends, the
holders of common stock are entitled to receive such lawful dividends as may be
declared by the Board of Directors. In the event of liquidation, dissolution or
winding up of the Company, the holders of shares of common stock are entitled
8
to receive all of the remaining assets of the Company available for
distribution to its stockholders after satisfaction of all its liabilities and
the preferences on Preferred Stock. Holders of our common stock do not have any
preemptive, conversion or redemption rights and there are no sinking fund
provisions applicable to our common stock.
Record holders of our common stock are entitled to vote at all meetings of
stockholders and at those meetings are entitled to cast one vote for each share
of record that they own on all matters on which stockholders may vote.
Stockholders do not presently have cumulative voting rights in the election of
the Company's directors. As a result, the holders of a plurality of the
outstanding shares can elect all of the directors of the Company, and the
holders of the remaining shares are not able to elect any of the Company's
directors.
All outstanding shares of common stock are fully paid and nonassessable, and
all shares of common stock to be offered and sold in this offering will be
fully paid and nonassessable.
COMMON STOCK OPTIONS
The Company is filing the 2003 Employee Stock Compensation Plan under which
25,000,000 shares of common stock will be reserved for grants under the plan.
The grants may be in the form of options, stock purchase rights or stock
grants. The Board of Directors, or a committee designated by the Board of
Directors, has discretion to determine the terms of the grants and the
recipients of grants.
Options can be issued with an option term of up to ten years. Options and
restricted stock may be subject to vesting restrictions. Vesting may be either
(a) over a period of time, (b) immediately upon grant, (c) upon the occurrence
of certain events, (d) upon attainment of performance goals, or (e) a
combination of any of these.
PREFERRED STOCK
The Board of Directors has the authority, without further action by the
stockholders, to issue the authorized and unissued shares of preferred stock in
one or more series and to fix the rights, preferences and privileges thereof,
including voting rights, terms of redemption, redemption prices, liquidation
preferences, number of shares constituting any series or the designation of
such series, without further vote or action by the stockholders. Although it
presently has no intention to do so, the Board of Directors, without
stockholder approval, may issue preferred stock with voting and conversion
rights which could adversely affect the voting power of the holders of common
stock. This provision may be deemed to have a potential anti-takeover effect,
and the issuance of preferred stock in accordance with such provision may delay
or prevent a change of control of the Company.
SERIES J CONVERTIBLE PREFERRED STOCK
The Series J Convertible Preferred Stock was issued for an original issue price
of $10,000 per share.
The holders of Series J Convertible Preferred Stock are entitled to dividends
at the rate of 7% per year. The dividends are not required to be paid until
conversion or redemption of the shares or an acquisition of the Company;
however unpaid dividends will cumulate. We have the option of paying the
dividends either in cash or in our common stock (in the latter case, based on
the conversion price then in effect).
The holders of Series J Convertible Preferred Stock are entitled to a
preference in the event the Company is liquidated. That preference is $10,000
per share, plus cumulated and unpaid dividends. The Series J Convertible
Preferred Stock, the Series K Convertible Preferred Stock, and the Series L
Convertible Preferred Stock are on parity as to liquidation preferences but
junior to the Secured Convertible Debentures. Any and all of the remaining
assets could be distributed to holders of junior securities (e.g., other shares
of preferred stock or common stock), in order of seniority.
We must give holders of Series J Convertible Preferred Stock 45 days' notice
prior to a merger or acquisition of the Company. Such a transaction can only be
effected if the holders of the Series J Convertible Preferred Stock maintain
their relative rights, preferences and privileges. A transaction that is
inconsistent with this provision is prohibited.
Holders of Series J Convertible Preferred Stock are not entitled to vote in the
election of directors. The vote of holders of three-fourths of the Series J
Convertible Preferred Stock outstanding is required, however, to reclassify any
of our outstanding securities (e.g., a stock split), to make a distribution
with respect to any stock that is junior to the Series J Convertible Preferred
Stock (e.g., any dividend to holders of common stock), or to authorize any
securities senior to the Series J Convertible Preferred Stock.
The Series J Convertible Preferred Stock became convertible into common stock
on January 28, 2000. The terms of the Series J Convertible Preferred Stock will
not permit the conversion of Series J Convertible Preferred Stock by a Selling
Stockholder if it and its affiliates would thereby own more than 4.99% of the
outstanding common stock.
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The Series J conversion price was initially equal to $3.50, subject to
adjustment. The conversion price of Series J Convertible Preferred Stock was
subject to a floor price of $3.50 until January 28, 2000. At the $3.50 price,
the number of shares of common stock issuable upon conversion of one share of
Series J Convertible Preferred Stock would be equal to $10,000 plus accrued and
unpaid dividends divided by $3.50.
After January 28, 2000, the conversion price became the lower of $3.50 or 80%
of the average of the six lowest closing bid prices in the twenty trading-day
period ending on the day before conversion.
For illustration, the shares of Series J Convertible Preferred Stock would be
convertible into the following numbers of shares of common stock at these
trailing average prices if the 58.2 shares outstanding on August 19, 2003, are
converted:
Average of Conversion Common Stock Percentage of
Lowest Price Issuable on Outstanding
Closing Bid Full Conversion Common Stock
---------------- ---------- --------------- --------------
$.0283 $.0227 24,072,176 21.42%
The conversion price is also subject to ordinary adjustments to prevent
dilution. Cash is payable in lieu of issuing any fractional shares upon
conversion.
The Series J Convertible Preferred Stock will automatically convert into common
stock on the third anniversary of the issuance of the Series J Convertible
Preferred Stock (the third anniversaries fall between August 2002 and October
2002), with extensions in certain events until not more than two years later.
The conversion price is the same as the normal conversion price that is
applicable on the date conversion becomes mandatory.
We have the right to redeem all or any of the outstanding Series J Convertible
Preferred Stock for cash. The redemption price is $12,000 per share, plus
cumulated dividends. The Company is required to give the holders 30 days'
notice and to deposit the redemption price in escrow.
In the event of a merger, acquisition, or sale of all of the Company's assets,
we are required to redeem all of the outstanding Series J Convertible Preferred
Stock. The redemption price in this event will be the greater of $12,500 per
share or the value of the number of shares of common stock issuable upon
conversion based on the closing bid price of the common stock, on the day
preceding the consummation of the transaction. The redemption price in such
event is payable at least $12,500 per share in cash and the balance, if any, in
cash or our shares of common stock, at our election.
Each holder of Series J Convertible Preferred Stock has a right to require us
to redeem all or a portion of its Series J Convertible Preferred Stock for cash
if we breach any agreement or representation made to the holders of Series J
Convertible Preferred Stock in a material respect, or in the event the
effectiveness of the registration statement that includes this prospectus
lapses or trading is suspended for a period of five consecutive business days,
or if we fail to perform our obligations to such holders concerning delivery of
common stock upon conversion within ten business days. The redemption price in
this event will be the greater of $12,500 per share or the value of the number
of shares of common stock issuable upon conversion based on the closing bid
price of the common stock, on the day preceding the triggering event.
SERIES K CONVERTIBLE PREFERRED STOCK
The Series K Convertible Preferred Stock was issued for an original issue price
of $10,000 per share.
The holders of Series K Convertible Preferred Stock are entitled to dividends
at the rate of 7% per year. The dividends are not required to be paid until
conversion or redemption of the shares or an acquisition of the Company;
however unpaid dividends will cumulate. We have the option of paying the
dividends either in cash or in our common stock (in the latter case, based on
the conversion price then in effect).
The holders of Series K Convertible Preferred Stock are entitled to a
preference in the event the Company is liquidated. That preference is $10,000
per share, plus cumulated and unpaid dividends. The Series J Convertible
Preferred Stock, the Series K Convertible Preferred Stock and the Series M
Convertible Preferred Stock are on a parity as to liquidation preferences but
junior to the Secured Convertible Debentures. Any and all of the remaining
assets could be distributed to holders of junior securities (e.g., other shares
of preferred stock or common stock), in order of seniority.
10
We must give holders of Series K Convertible Preferred Stock 45 days' notice
prior to a merger or acquisition of the Company. Such a transaction can only be
effected if the holders of the Series K Convertible Preferred Stock maintain
their relative rights, preferences and privileges. A transaction that is
inconsistent with this provision is prohibited.
Holders of Series K Convertible Preferred Stock are not entitled to vote in the
election of directors. The vote of holders of three-fourths of the Series K
Convertible Preferred Stock outstanding is required, however, to reclassify any
of our outstanding securities (e.g., a stock split), to make a distribution
with respect to any stock that is junior to the Series K Convertible Preferred
Stock (e.g., any dividend to holders of common stock), or to authorize any
securities senior to the Series K Preferred.
The Series K Convertible Preferred Stock became convertible into common stock
on April 29, 2000. The terms of the Series K Convertible Preferred Stock will
not permit the conversion of Series K Convertible Preferred Stock by a Selling
Stockholder if it and its affiliates would thereby own more than 4.99% of the
outstanding common stock.
The Series K conversion price is initially equal to $3.50, subject to
adjustment. The conversion price of Series K Convertible Preferred Stock was
subject to a floor price of $3.50 until April 29, 2000. At the floor price, the
number of shares of common stock issuable upon conversion of one share of
Series K Convertible Preferred Stock would be equal to $10,000.00 plus accrued
and unpaid dividends divided by $3.50.
After April 29, 2000, the conversion price became the lower of $3.50 or 80% of
the average of the six lowest closing bid prices in the twenty trading- day
period ending on the day before conversion.
For illustration, the shares of Series K Convertible Preferred Stock would be
convertible into the following numbers of shares of common stock at these
trailing average prices if the 18.3 shares outstanding on August 19, 2003 are
converted:
Average of Common Stock Percentage of
Lowest Conversion Issuable on Outstanding
Closing Bid Price Full Conversion Common Stock
---------------- ---------- --------------- --------------
$.0283 $.0227 4,072,191 4.41%
The conversion price is also subject to ordinary adjustments to prevent
dilution. Cash is payable in lieu of issuing any fractional shares upon
conversion.
The Series K Convertible Preferred Stock will be automatically converted into
common stock on the third anniversary of the issuance of the Series K
Convertible Preferred Stock (the third anniversaries fall between December 2002
and January 2003), with extensions in certain events until not more than two
years later. The conversion price is the same as the normal conversion price
that is applicable on the date conversion becomes mandatory.
We have the right to redeem all or any of the outstanding Series K Convertible
Preferred Stock for cash. The redemption price is $12,000 per share, plus
cumulated dividends. The Company is required to give the holders 30 days'
notice and to deposit the redemption price in escrow.
In the event of a merger, acquisition, or sale of all of the Company's assets,
we are required to redeem all of the outstanding Series K Convertible Preferred
Stock. The redemption price in this event will be the greater of $12,500 per
share or the value of the number of shares of common stock issuable upon
conversion based on the closing bid price of the common stock, on the day
preceding the consummation of the transaction. The redemption price in such
event is payable at least $12,500 per share in cash and the balance, if any, in
cash or our shares of common stock, at our election.
Each holder of Series K Convertible Preferred Stock has a right to require us
to redeem all or a portion of its Series K Convertible Preferred Stock for cash
if we breach any agreement or representation made to the holders of Series K
Convertible Preferred Stock in a material respect, or in the event the
effectiveness of the registration statement lapses or trading is suspended for
a period of five consecutive business days, or if we fail to perform our
obligations to such holders concerning delivery of common stock upon conversion
within ten business days. The redemption price in this event will be the
greater of $12,500 per share or the value of the number of shares of common
stock issuable upon conversion based on the closing bid price of the common
stock, on the day preceding the triggering event.
11
SERIES M CONVERTIBLE PREFERRED STOCK
The Series M Convertible Preferred Stock was issued for an original issue price
of $10,000 per share on the following terms.
The holders of Series M Convertible Preferred Stock are entitled to dividends
at the rate of 8% per year. The dividends are not required to be paid until
conversion or redemption of the shares or an acquisition of the Company;
however unpaid dividends will cumulate. We have the option of paying the
dividends either in cash or in our common stock (in the latter case, based on
the conversion price then in effect).
The holders of Series M Convertible Preferred Stock are entitled to a
preference in the event the Company is liquidated. That preference is $10,000
per share, plus cumulated and unpaid dividends. The Series J Convertible
Preferred Stock, the Series K Convertible Preferred Stock and the Series M
Convertible Preferred Stock are on a parity as to liquidation preferences but
junior to the Secured Convertible Debentures. Any and all of the remaining
assets could be distributed to holders of junior securities (e.g., other shares
of preferred stock or common stock), in order of seniority.
A merger or acquisition of the Company can only be effected if the holders of
the Series M Convertible Preferred Stock maintain their relative rights,
preferences and privileges. A transaction that is inconsistent with this
provision is prohibited.
Holders of Series M Convertible Preferred Stock are not entitled to vote in the
election of directors. The vote of holders of three-fourths of the Series M
Convertible Preferred Stock outstanding is required, however, to reclassify any
of our outstanding securities (e.g., a stock split), to make a distribution
with respect to any stock that is junior to the Series M Convertible Preferred
Stock (e.g., any dividend to holders of common stock), or to authorize any
securities senior to the Series M Convertible Preferred.
The Series M Convertible Preferred Stock became convertible into common stock
on the date of issue. The terms of the Series M Convertible Preferred Stock
will not permit, without prior shareholder approval, the conversion of Series M
Convertible Preferred Stock by a Selling Stockholder if it and its affiliates
would thereby own more than 19.99% of the outstanding common stock as of the
date of original issue.
The Series M Convertible Preferred Stock conversion price is the lower of
$1.375 or 78% of the average of the three lowest closing bid prices in the
twenty trading-day period ending on the day before conversion.
For illustration, the shares of Series M Convertible Preferred Stock would be
convertible into the following numbers of shares of common stock at these
trailing average prices if the approximately 196.9 shares outstanding on August
19, 2003 are converted:
Average of Common Stock Percentage of
Lowest Conversion Issuable on Outstanding
Closing Bid Price Full Conversion Common Stock
---------------- ---------- --------------- --------------
$.0283 $.0221 93,279,176 51.36%
The conversion price is also subject to ordinary adjustments to prevent
dilution. Cash is payable in lieu of issuing any fractional shares upon
conversion.
The Series M Convertible Preferred Stock will be automatically converted into
common stock on the third anniversary of the issuance of the Series M
Convertible Preferred Stock (the third anniversary being January 2004). The
conversion price is the same as the normal conversion price that is applicable
on the date conversion becomes mandatory.
We have the right to redeem all or any of the outstanding Series M Convertible
Preferred Stock for cash. The redemption price shall be the outstanding
principal amount multiplied by 120% plus cumulated dividends in each case. The
Company is required to deposit the redemption amount in escrow upon notice to
the holders. Upon receipt of the redemption notice, the holders of Series M
Convertible Preferred may elect to convert up to fifty percent (50%) of the
redemption amount so long as the Company receives such election with 24 hours
of the holder receiving the redemption notice.
FUTURE EVENTS
An action was taken by written consent dated July 15, 2003, by over 50% of the
stockholders of the Company to provide for a stock combination (reverse split)
of the common stock in an exchange ratio to be approved by the Board of
Directors, ranging from one newly issued share for each two outstanding shares
of common stock to one newly issued share for each forty outstanding shares of
common stock and the approval of a name change for the Company from eSynch
Corporation to Mergence Corporation.
12
In July 2003, the holders of all of the Company's outstanding Series J, K and M
Preferred Stock agreed to exchange their preferred stock for 23,000,000 shares
of the Company's common stock and agreed that the closing will take place
simultaneously with the reverse spilt of the Company's common stock at a rate
of 40 for 1.
STOCK OPTIONS AND WARRANTS
The Company has issued stock options to employees and consultants under a
stock-based compensation plan and under individual contracts. Under the 1999
Stock Incentive Plan, which was approved by the shareholders in November 1999,
the Company may grant options to its employees and consultants for up to
3,000,000 shares of common stock. On September 6, 2002, the 1999 Stock
Incentive Plan was amended to allow the granting of options for up to
12,750,000 shares of common stock. Under the 1998 Stock Option Plan, options
may be granted to employees and consultants for up to 600,000 common shares.
Options were also granted in exchange for options outstanding under stock
option plans of Innovus and Kiss in connection with their purchases in prior
years. The exercise prices of options under the plans and under individual
option contract have generally been below the market price of the Company's
stock on the date of grant. Options generally vest from immediately to over
three years and are exercisable for up to five to ten years.
In March 2002, the Company issued options to purchase 250,000 share of common
stock at an exercise price of $0.04 per share. In August 2002, the Company
issued options to purchase 1,750,000 shares of common stock at an exercise
price of $0.03 per share. These options were issued under the 1999 Stock
Incentive Plan to officers, directors, and employees of the Company.
A summary of the status of the Company's stock options as of December 31, 2002
and 2001 and changes during the years then ended are presented below:
OPTIONS OUTSTANDING
---------------------
2002 2001
---------------- -------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
---------------------------------- -------------- ------- ----------- --------
Outstanding at beginning of year 1,946,863 $ 2.41 3,987,055 $2.52
Granted 2,000,000 0.03 - -
Forfeited (776,500) 0.96 (2,020,192) 2.31
Expired (43,750) 0.03 - -
Exercised (200,000) 0.03 (20,000) 0.25
-------------- ----------
Outstanding at end of year 2,926,613 1.34 1,946,863 2.41
============== ==========
Options exercisable at end of year 2,900,359 1.32 1,880,609 2.37
============== ==========
Weighted-average fair value of
options granted during year $ 0.01 $ -
============== ======
The following table summarizes information about stock options outstanding at
December 31, 2002:
OUTSTANDING EXERCISABLE
---------------- -----------
WEIGHTED-AVERAGE
----------------
RANGE OF NUMBER REMAINING WEIGHTED-AVERAGE NUMBER WEIGHTED-AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
---------------- ----------- ---------------- ----------------- ----------- -----------------
0.01-0.04 1,800,000 2.14 years $0.03 1,800,000 $0.03
0.25-0.50 61,900 5.32 $0.25 61,900 $0.25
2.11-2.63 9,713 4.38 2.11 9,713 2.11
3.63 1,055,000 7.57 3.63 1,028,746 3.63
---------------- --------------
0.01-3.63 2,926,613 7.57 3.72 2,900,359 3.72
================ ==============
13
The fair value of each option granted was estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 2002; dividend yield 0%; expected volatility of
214%; risk-free interest rate of 2.50%, expected life of the options of 2.48
years and underlying stock price $0.03
OPTIONS AND WARRANTS GRANTED TO NON-EMPLOYEES
During the year ended December 31, 2002, the Company issued options under a
consulting agreement for 3,390,000 shares of common stock for $0.01 per share.
The shares vested immediately. The options were valued at $45,900 using the
Black-Scholes option pricing model with the following weighted-average
assumptions: 1.73% risk-free interest rate, 0% expected dividend yield, 143.4%
volatility and 1.0 years, of which the entire amount was expensed during the
year ended December 31, 2002.
During the year ended December 31, 2002, the Company issued options under a
consulting agreement for 3,000,000 shares of common stock for $0.03 per share.
The shares vested immediately. The options were valued at $103,950 using the
Black-Scholes option pricing model with the following weighted-average
assumptions: 1.73% risk-free interest rate, 0% expected dividend yield, 143.4%
volatility and 1.0 years, of which the entire amount was expensed during the
year ended December 31, 2002.
During the year ended December 31, 2001 the Company granted 6,250,000 warrants
under consulting agreements and 250,000 warrants in consideration of the
extension of the due date of a loan. The warrants were valued at $330,850 using
the Black-Scholes option pricing model with the following weighted-average
assumptions; 4.04% risk-free interest rate, 0% expected dividend yield, 150%
volatility and 0.16 years. All amounts were expensed during the year ended
December 31, 2001.
The options and warrants are exercisable for periods from two to ten years. The
options and warrants are summarized as follows:
OPTIONS OUTSTANDING
-------------------------------------------
2002 2001
--------------------- --------------------
WEIGHTED- WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
--------- ------- -------- -------
Outstanding at beginning of year 1,615,000 $ 2.41 1,365,000 $ 2.71
Granted. 6,390,000 0.02 6,500,000 0.05
Cancelled - - - -
Exercised (6,390,000) 0.02 (6,250,000) 0.03
-------------- ----------
Outstanding at end of year 1,615,000 2.41 1,615,000 2.41
============== ==========
Options exercisable at end of year 1,615,000 2.41 1,615,000 2.41
============== ==========
Weighted-average fair value of
options granted during year . . . $ 0.02 $ 0.02
=========== =======
The following table summarizes information about non-employee stock options
outstanding at December 31, 2002:
OUTSTANDING EXERCISABLE
---------------- -----------
WEIGHTED-AVERAGE
RANGE OF NUMBER REMAINING WEIGHTED-AVERAGE NUMBER WEIGHTED-AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
---------------- ----------- ----------------- ---------------- ----------- -----------------
0.50 - 1.00. 750,000 4.25 $ 0.53 750,000 $ 0.53
1.25 - 2.00. 515,000 1.36 1.42 515,000 1.42
6.50 - 9.50. 350,000 1.09 7.89 350,000 7.89
---------------- -------------
0.50- 9.50. 1,615,000 2.64 2.41 1,615,000 2.41
================ =============
Compensation from non-employee options and warrants was determined based on the
fair value at the grant dates consistent with the method set forth under
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation. Compensation relating to the options and warrants is being
recognized over their vesting periods. Stock-based compensation charged to
operations for non-employees was $149,850 and $608,158 for the years ended
December 31, 2002 and 2001, respectively.
14
At December 31, 2001 and 2000, there were 2,496,875 warrants to purchase common
stock outstanding, at exercise prices ranging from $0.50 to $12.36 that were
issued in connection with purchase and financing transactions.
DELAWARE LAW AND CERTAIN CHARTER PROVISIONS
The Delaware General Corporation Law, certain terms of the Secured Convertible
Debentures, Series J Convertible Preferred Stock, Series K Convertible
Preferred Stock or Series M Convertible Preferred Stock, and our ability to
issue the authorized and available shares of Preferred Stock and common stock
may prevent or delay a takeover of our company. Thus the holders of common
stock might not be able to realize a premium price for their shares.
TRANSFER AGENT AND REGISTRAR
The stock transfer agent and registrar for our common stock is Interwest
Transfer Company, Inc., located at 1981 E. Murray Holladay Road, Salt Lake
City, Utah 84117.
DIVIDEND POLICY
Under applicable law, dividends cannot be paid until we have generated
earnings. Also we are prohibited from paying cash dividends to the holders of
common stock while any Secured Convertible Debentures, Series J Convertible
Preferred Stock, Series K Convertible Preferred Stock or Series M Convertible
Preferred Stock are outstanding. However, it will be our policy to retain
internally generated funds to support future expansion of our business.
Accordingly, even if we do generate earnings, and even if we are not prohibited
from paying dividends, we will not declare or pay cash dividends on our common
stock, at least for the foreseeable future.
INTERESTS OF NAMED EXPERTS AND COUNSEL
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed upon
for the Company by Naccarato and Associates, Irvine, California. Attorneys who
are members of, employed by or of counsel with Naccarato and Associates
participating in such matter on behalf of such firm beneficially owned as of
the date of this document are 160,000 shares of common stock of the Company.
EXPERTS
The consolidated financial statements of the Company and Subsidiaries as of
December 31, 2002 and 2001 and for the years then ended incorporated by
reference in this Prospectus, have been included herein in reliance on the
report of Hansen, Barnett & Maxwell, independent certified public accountants,
given on the authority of that firm as experts in auditing and accounting.
MATERIAL CHANGES AND SUBSEQUENT EVENTS
On July 26, 2002 eSynch acquired irrevocable voting rights of Nacio Systems,
Inc. ("NSI"). eSynch entered into an irrevocable escrow agreement to acquire
all of the outstanding common and preferred shares of Nacio, subject to a
successful completion of the plan of reorganization. NSI is involved in managed
hosting, managed services, connectivity and collocation services.
The acquisition was to be pursuant to an exchange of stock in accordance with
the original Plan of Reorganization of NSI under Chapter 11 of the U.S.
Bankruptcy Code. In February 2003, the Company issued 40,006,021 shares of
common stock to the shareholders of NSI. NSI amended the Plan of Reorganization
on April 25, 2003, which was approved by the Bankruptcy Court on May 22, 2003,
and which ordered that the eSynch undo the acquisition. eSynch has
subsequently received back 13,599,316 shares of its common stock and has
cancelled those shares. The Company is endeavoring to recover the remaining
26,406,705 common shares but has not yet been successful and they remain
outstanding. The Company has filed an application for order canceling the stock
distributed to be heard on September 5, 2003.
During the period January 1, 2003 through August 14, 2003 the Company issued
21,000,000 shares of common stock for services valued at $609,000; 4,250,000
shares valued at $127,500 for payment of liquidated damages in connection with
series J and M preferred stock; 28,000,000 shares for compensation valued at
$625,000 and 550,000 shares issued pursuant to the excised of stock options.
An action was taken by written consent dated July 15, 2003, by over 50% of the
stockholders of the Company to provide for a stock combination (reverse split)
of the common stock in an exchange ratio to be approved by the Board of
Directors, ranging from one newly issued share for each two outstanding shares
of common stock to one newly issued share for each forty outstanding shares of
common stock and the approval of a name change for the Company from eSynch
Corporation to Mergence Corporation.
15
In July 2003, the holders of all of the Company's outstanding Series J, K and M
Preferred Stock agreed to exchange their preferred stock for 23,000,000 shares
of the Company's common stock and agreed that the closing will take place
simultaneously with the reverse spilt of the Company's common stock at a rate
of 40 for 1.
RECENTLY ENACTED ACCOUNTING STANDARDS
In April 2002, the FASB issued Statement of Financial Accounting Standards No.
145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections. Among other provisions, this
statement modifies the criteria for classification of gains or losses on debt
extinguishment such that they are not required to be classified as
extraordinary items if they do not meet the criteria for classification as
extraordinary items in APB Opinion No. 30, Reporting the Results of Operations
- Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions. The
Company will be required to apply the provisions of this standard to
transactions occurring after December 31, 2002. The Company has elected not to
adopt this standard early and has not reclassified the extraordinary gain from
debt forgiveness in its 2001 financial statements. Other than classifying
future debt forgiveness that may occur in loss before extraordinary gain, the
adoption of this standard in 2003 is not expected to have a material effect on
the Company's financial position or results of operations.
In May 2003, the FASB issued Statement of Financial Accounting Standards No.
150, Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equities. Statement No. 150 will require financial instruments
that are mandatorily redeemable or that contain an obligation to repurchase the
financial instrument be classified as liabilities. Statement No. 150 must be
applied by the Company beginning July 1, 2003. The adoption of Statement No.
150 is not expected to have a material effect on the financial position of the
Company.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The documents listed below have been filed by the Company with the Commission
under the Exchange Act and are incorporated herein by reference:
a. The Company's Annual Report on Form 10-KSB for the year ended December 31,
2002, filed August 27, 2003;
b. The Company's Current Report on Form 8-K filed on July 30, 2003, reporting
the termination of the Acquisition of Nacio Systems.
c. Quarterly Report on Form 10-QSB for the periods ended March 31, 2003 and
June 30, 2003, filed September 10, 2003;
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Report and prior to
the termination of the offering of the Shares shall be deemed to be
incorporated by reference in this Report and to be a part thereof from the date
of filing of such documents.
Any Statement contained in a document incorporated or deemed to be incorporated
by reference herein shall be deemed to be modified or superseded for the
purposes of this Report to the extent that a statement contained herein, or in
any other subsequently filed document that also is or is deemed to be
incorporated herein by reference, modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Report.
The public may read and copy any materials that the Company files with the SEC
at the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549. The public may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. SEC maintains an Internet
site that contains Report, proxy and information statements, and other
information regarding issuers that file electronically with the SEC, the web
address of which is http://www.sec.gov.
The Company will provide without charge to each person (including any
beneficial owner) to whom a copy of this Report is delivered, upon the written
or oral request of any such person, a copy of any or all the foregoing
documents incorporated herein by reference (other than exhibits to such
documents). Written or telephone requests should be directed to: T. Richard
Hutt, Secretary, eSynch Corporation, 3511 W. Sunflower Ave. # 250 Santa Ana, CA
92704, telephone:
(714) 258-1900.
16
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
The Company's Restated Certificate of Incorporation requires the Company to
indemnify any and all persons who may serve or who have served at any time as
directors or officers, or who, at the request of the board of directors of the
Company, may serve, or at any time have served as directors or officers of
another corporation in which the Company at such time owned or may own shares
of stock, or which it was or may be a creditor, and the respective heirs,
administrators, successors, and assigns. Indemnification is required to the
full extent permitted by the General Corporation Law of Delaware as it may from
time to time be amended. Subject to that limitation, the Company is required to
provide indemnification against any and all expenses, including amounts paid on
judgment, counsel fees, and amounts paid in settlement (before or after suit is
commenced), actually or necessarily by such persons in connection with the
defense or settlement or any claim, action, suit, or proceeding in which they,
or any of them, are made parties, or a party, or which may be assessed against
them or any of them, by reason of being or having been directors or officers of
the Company, or such other corporation.
The Company's Restated Certificate of Incorporation provides that a director of
the Company shall have no personal liability to the Company or its stockholders
for monetary damages for breach of fiduciary duty as a director, except (i) for
any breach of a director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under section 174 of the
General Corporation Law of Delaware as it may from time to time be amended or
any successor provision thereto (which concerns unlawful payment of dividends
or stock redemptions), or (iv) for any transaction from which a director
derived an improper personal benefit.
The Bylaws of the Company permit indemnification of persons who were directors,
officers, employees or agents of the Company or of another enterprise if the
person was serving at the request of the board of directors of the Company as a
director, officer, employee or agent of that enterprise. The indemnification is
permitted either (a) if the person is successful on the merits in defending the
claim or (b) if indemnification is authorized in the specific instance by the
Company. If claims are brought in the Company's name against the indemnified
person, indemnification is permitted only if the person was acting in good
faith and in a manner reasonably believed to be in the best interests of the
Company. If the person is unsuccessful in defending a claim brought in the
Company's name, indemnification is only permitted if the court acting in the
matter specifically allows it. The Company is authorized to advance expenses to
a person upon that person's agreement to repay the Company if ultimately such
person is not entitled to indemnification.
The Company has indemnification agreements with its directors and certain
officers. These agreements require us to indemnify the parties to these
agreements to the maximum extent permitted by applicable law and to advance
expenses to such parties upon that such parties' agreement to repay the Company
if ultimately such parties are not entitled to indemnification.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to our directors, officers and controlling persons pursuant to the
foregoing provisions, or otherwise, we have been advised that in the opinion of
the SEC such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
ITEM 3. INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents filed by eSynch Corporation (the "Company") with the
Commission (File No. 0-26790) are incorporated in and made part of this
registration statement by reference, except to the extent that any statement or
information therein is modified, superseded or replaced by a statement or
information contained in any other subsequently filed document incorporated
herein by reference.
(1) The Company's Annual Report on Form 10-KSB (Amendment No.1) for the fiscal
year ended December 31, 2002 filed September 12, 2003.
(2). The Company's Current Report on Form 8-K filed on July 30, 2003, reporting
the termination of the Acquisition of Nacio Systems
(3). Quarterly Report on Form 10-QSB for the periods ended March 31, 2003 and
June 30, 2003, filed September 12, 2003;
(4) The Company's definitive 14C proxy filed September 12, 2003 concerning the
approval of a reverse split.
(5) the Registrant's Form 8-A pursuant to Section 12 of the Exchange Act, in
which there is described the terms, rights and provisions applicable to the
Registrant's outstanding Common Stock, and
17
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 and
15(d) of the Securities Exchange Act of 1934, subsequent to the filing hereof
and prior to the filing of a post-effective amendment which indicates that all
securities offered have been sold or which deregisters all securities then
remaining unsold, shall be deemed to be incorporated by reference and to be a
part hereof from the date of filing such documents.
For purposes of this registration statement, any document or any statement
contained in a document incorporated or deemed to be incorporated herein by
reference shall be deemed to be modified or superseded to the extent that a
subsequently filed document or statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated
herein by reference modifies or supersedes such document or such statement in
such document. Any statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this registration
statement.
ITEM 4. DESCRIPTION OF SECURITIES
Not applicable.
ITEM 5. INTERESTS OF NAMED EXPERTS AND COUNSEL
Owen M. Naccarato, Esq. of Naccarato & Associates, does consulting work for
eSynch Corporation from time to time and is being issued 260,000 shares of the
Company's common stock as consideration for filing this Registration Statement.
ITEM 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "Delaware GCL")
empowers a Delaware corporation, including the Company, to indemnify its
directors, officers, employees, and agents under certain circumstances. The
Company's Restated Certificate of Incorporation (the "Certificate") provides
that the Company shall indemnify current and former directors and officers of
the Company or persons who serve or have served, at the request of the Company,
as directors or officers of any other corporation in which the Company at such
time owns or owned shares of stock or is or was a creditor, to the full extent
authorized by the Delaware GCL as it may from time to time be amended.
Moreover, the Certificate provides that no director of the Company shall be
personally liable to the Company or its stockholders for monetary damages for
any breach of fiduciary duty as a director, except (i) for any breach of the
duty of loyalty to the Company or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) for liability under Section 174 of the Delaware GCL
(involving certain unlawful dividends or stock repurchases), or (iv) for any
transaction from which the director derived an improper personal benefit.
Under the Delaware GCL, to the extent that an officer or director of a
corporation is successful on the merits in the defense of an action, the
corporation must indemnify such person for his or her actual and reasonable
expenses incurred in connection with such defense. The Certificate provides
that the Company shall indemnify officers and directors against any and all
expenses, including amounts paid on judgment, counsel fees, and amounts paid in
settlement (before or after suit is commenced) by such persons in connection
with the defense or settlement of any claim, action, suit or proceeding in
which they, or any of them, are made parties, to the full extent permitted by
the Delaware GCL.
Under its Bylaws, the Company may indemnify its directors, officers, employees
and agents and the directors, officers, employees or agents of any other
corporation if the person was serving at the request of the Company. The
indemnification is required if the person is successful on the merits or
otherwise in defending the claim and is permitted in other circumstances, if
indemnification is authorized in the specific instance by the Company or by a
majority vote of the Company's stockholders. Indemnification is permitted only
if the person was acting in good faith in a manner reasonably believed to be in
or not opposed to the best interests of the Company. If the person is judged to
be liable to the Company in any action brought in the Company's name,
indemnification is only permitted if the court acting in the matter
specifically allows it. The Company is authorized to advance expenses to a
director or officer upon that person's agreement to repay the Company if such
person ultimately is not entitled to indemnification.
The Company is also empowered under its Bylaws to purchase insurance on behalf
of any person whom the Company is required or permitted to indemnify. The
Company has entered into agreements with its directors and executive officers,
which require the Company to indemnify such persons to the fullest extent
permitted by law against certain losses that they may incur in legal
proceedings arising in connection with their services to the Company and to
advance expenses upon their agreement to repay the Company if such person is
ultimately not entitled to indemnification.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers or persons controlling the
registrant pursuant to the foregoing provisions, the registrant has been
informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
ITEM 7. EXEMPTION FROM REGISTRATION CLAIMED
Not Applicable.
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ITEM 8. EXHIBITS
The exhibits listed on the accompanying Exhibit Index are filed or incorporated
by reference as part of this Registration Statement.
ITEM 9. UNDERTAKINGS
(a) The Company hereby undertakes to file, during any period in which offers or
sales are being made of the securities registered hereby, a post-effective
amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the Securities
Act;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in this registration statement;
and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
Provided, however, that paragraphs (a)(i) and (a)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Company pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934, that are
incorporated by reference in the registration statement.
(b) The Company hereby agrees that, for the purposes of determining any
liability under the Securities Act, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof;
(c) The Company hereby undertakes to remove from registration by means of a
post-effective amendment any of the securities being registered which remain
unsold at the termination of the offering;
(d) The Company hereby undertakes that, for purposes of determining any
liability under the Securities Act, each filing of the Company's annual report
pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of
1934 (and, where applicable, each filing of an employee benefit annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof; and
(e) Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or paid
by a director, officer or controlling person of the Company in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Irvine, State of California.
Date: September 10, 2003 ESYNCH CORPORATION
/s/Thomas Hemingway
By:-------------------------
Thomas Hemingway
Chief Executive Officer
& Director
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In accordance with the Securities Exchange Act of 1933, this registration
statement has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/Thomas Hemingway
Date: September 10, 2003 ----------------------
Thomas Hemingway
Chief Executive Officer
& Director
/s/ T. Richard Hutt
Date: September 10, 2003 ----------------------
T. Richard Hutt
Secretary, Vice President,
Chief Financial Officer and
Director
/s/ James H. Budd
Date: September 10, 2003 ----------------------
James H. Budd
Vice President and Director
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II-2
EXHIBITS
ESYNCH CORPORATION
FORM S-8 REGISTRATION STATEMENT
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
5.1 Opinion of Naccarato and Associates.
10.1 2003 Employee Stock Compensation Plan.
23.1 Consent of Naccarato and Associates. (included in
Exhibit 5.1).
23.2 Consent of Hansen Barnett & Maxwell.
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