Note Purchase Agreement between Relationserve, Inc. and Investors (April 1, 2005)

 Exhibit 2.5 NOTE PURCHASE AGREEMENT This Note Purchase Agreement (this "AGREEMENT") is made as of April 1, 2005 (the "CLOSING DATE") by and between Relationserve, Inc., a Delaware corporation (the "Company"), and the persons or entities listed as investors and set forth on Schedule 1, annexed hereto (the "HOLDERS"). W I T N E S S E T H: WHEREAS, the Company desires to sell and issue to the Holders, and the Holders wish to purchase from the Company $240,000 of the Company's four (4%) percent Notes (the "NOTES") due December 31, 2005 (the "MATURITY DATE") having the rights and privileges set forth in the Form of Note of the Company substantially as set forth on Exhibit A annexed hereto; and WHEREAS, as additional consideration for the purchase of the Notes, Company has agreed to issue and sell to the Holders 4,000,000 shares (the "INVESTOR SHARES") of common stock, par value $0.0001 per share, of the Company (the "COMMON STOCK"), and issue to the Holders ten-year warrants (the "WARRANTS") to purchase 6,000,000 shares (the "WARRANT SHARES") of Common Stock at $0.50 per share as set forth on Schedule 1 annexed hereto. Now, therefore, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties to this Agreement hereby agree as follows: 1. THE FUNDS. On the Closing Date, the Holders shall deliver to the Company $240,000 in cash (the "FUNDS") by delivery of a certified check payable to the Company or by wire transfer to the account of the Company. 2. THE NOTE. On the Closing Date, the Company shall execute and deliver to the Holders a promissory note, the form of which is annexed hereto as Exhibit A. 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby represents and warrants to the Holders as follows: (a) ORGANIZATION AND STANDING. The Company is a corporation duly organized and validly existing under, and by virtue of, the laws of the State of Delaware and is in good standing under such laws. The Company has the requisite corporate power to own and operate its properties and assets, and to carry on its business as presently conducted and as proposed to be conducted. (b) NO CONFLICT. This Agreement does not: (i) conflict with any provision of the Company's Certificate of Incorporation or Bylaws, both as amended to date; 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, patent, patent license or instrument to which the Company is a party; or (iii) result in a violation of any federal,  state, local or foreign law, rule, regulation, order, judgment or decree (including Federal and state securities laws and regulations) applicable to the Company or by which any property or asset of the Company is bound or affected. (c) AUTHORIZATION. The execution, delivery and performance of this Agreement by the Company has been duly authorized by all requisite corporate action, and constitutes the valid and binding obligations of the Company enforceable in accordance with its terms, subject as to enforcement of remedies to applicable bankruptcy, insolvency, reorganization, or similar laws relating to or affecting the enforcement of creditors' rights. (d) CAPITALIZATION. The authorized capital stock of the Company consists of 40,000,000 shares of Common Stock, of which 1,000 shares of Common Stock are issued and outstanding, and 1,000,000 shares of preferred stock, par value $0.0001 per share. (e) COMMON SHARES. The Investor Shares are, and the Warrant Shares, when issued, will be, validly issued, fully-paid and non-assessable, free and clear of any and all liens, claims and encumbrances. The Warrant Shares will be reserved for issuance, based upon a conversion price of $0.50 per share. (f) NO UNDISCLOSED LIABILITIES. The Company has no material liabilities or obligations not disclosed to the Holders, other than those liabilities incurred in the ordinary course of the Company's business since March 29, 2005 its date of formation, incurred in connection with organization activities and this Agreement. (g) BROKERS. Neither the Holders nor the Company has taken any action which would give rise to any claim by any person for brokerage commissions, finder's fees or similar payments by the Company or the Holders relating to this Agreement or the transactions contemplated hereby. 4. REPRESENTATIONS AND WARRANTIES OF THE HOLDERS. The Holders represent and warrant to the Company as of the Closing Date as follows (the Note, the Investor Shares and the Warrant Shares are collectively referred to as the "SECURITIES"): (a) All action on the part of the Holders for the authorization, execution, delivery and performance by the Holders of this Agreement have been taken, and this Agreement constitutes a valid and binding obligation of the Holders, enforceable in accordance with its terms, except as may be limited by applicable bankruptcy, insolvency, reorganization, or similar laws relating to or affecting the enforcement of creditors' rights. (b) The Holders are acquiring the Securities for investment for their own account and not with a view to, or for resale in connection with, any distribution. The Holders understand that the Securities to be acquired have not been registered under the Act of 1933, as amended (the "ACT"), by reason of a specific exemption from the registration provisions of the Act which depends upon, among other things, the bona fide nature of the investment intent as expressed herein. 2  (c) The Holders represent that except as otherwise disclosed to the Company, in writing, prior to the Holders' execution of this Agreement, the Holders are each an Accredited Investor, as defined in Rule 501 promulgated under the Act. The Holders also represent the Holders have not been organized solely for the purpose of acquiring the Securities. (d) The Holders are experienced in evaluating and investing in securities of companies similarly situated to the Company, and acknowledge that they are able to fend for themselves, can bear the economic risk of an investment in the Securities, and have such knowledge and experience in financial or business matters that they are capable of evaluating the merits and risks of the investment in the Securities. (e) The Holders believe they have received all the information they consider necessary or appropriate for deciding whether to purchase the Securities. The Holders further represent that such Holders have had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of the Securities and the business, properties, prospects and financial condition of the Company. (f) The Holders acknowledge that the Securities must be held indefinitely unless subsequently registered under the Act or unless an exemption from such registration is available. The Holders are aware of the provisions of Rule 144 promulgated under the Act which permits limited resale of securities purchased in a private placement subject to the satisfaction of certain conditions, including, unless the Holders are an affiliate of the Company, among other things, the availability of certain current public information about the Company, the resale occurring not less than one year after a party has purchased and paid for the securities to be sold, the sale being through a "broker's transaction" or in transactions directly with a "market maker," and the number of shares being sold during any three-month period not exceeding specified limitations. (g) The Holders hereby represent that the Holders have satisfied themselves as to the full observance of the laws of the Holders' jurisdiction in connection with any invitation to subscribe for the Securities or any use of this Agreement, including: (i) the legal requirements within the Holders' jurisdiction for the purchase of the Securities; (ii) any foreign exchange restrictions applicable to such purchase; (iii) any governmental or other consents that may need to be obtained; and (iv) the income tax and other tax consequences, if any, that may be relevant to the purchase, holding, redemption, conversion, sale, or transfer of the Securities. The Holders' subscription and payment for, and the Holders' continued beneficial ownership of the Securities, will not violate any applicable securities or other laws of the Holders' jurisdiction. The Holders understand and agree that it (and not the Company) shall be responsible for its own tax liability that may arise as a result of this investment or the transactions contemplated by this Agreement 5. LEGENDS. All certificates representing any shares of the capital stock of the Company issuable upon conversion of the Note shall have endorsed thereon a legend substantially as follows: 3  "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED." 6. FILING OF REGISTRATION STATEMENT. A. DEMAND. Upon demand by Holders given following issuance by the Company of any amount in excess of $1,000,000 of additional securities issued by the Company following the date of this Agreement, Company shall prepare, and, as soon as practicable (a) file a registration statement with respect to the resale by Holders (or any transferee or assignee from Holders) of the Investor Shares and the Warrant Shares and shall include therein such number of shares of Common Stock as are held by Holders (and Holder's transferees or assignees) at the time of such registration (the "REGISTRABLE SECURITIES") (the "REGISTRATION STATEMENT"). The Company agrees that it shall file within thirty (30) days of demand and shall use its best efforts to cause to be declared effective a Registration Statement for all Registrable Securities by the Securities and Exchange Commission ("SEC") no later than one-hundred and eighty (180) days from the filing date. In the event either of these periods shall not be met, the Company shall pay a cash penalty of two (2%) percent per month of the Original Note principal amount and issue additional Warrants in an amount equal to the two (2%) percent per month of the number of Investor Shares issued to Holders, for each month that the Registration Statement shall not be declared effective, or filed. B. COMPANY REGISTRATION. If (but without any obligation to do so) the Company proposes to register (including for this purpose a registration effected by the Company for stockholders other than the Holders) any of its stock under the Act in connection with the public offering of such securities solely for cash (other than a registration relating solely to the sale of securities to participants in a Company stock plan or a transaction covered by Rule 145 under the Act, a registration in which the only stock being registered is Common Stock issuable upon conversion of debt securities which are also being registered, or any registration on any form which does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Registrable Securities), the Company shall, at such time, promptly give each Holder written notice of such registration. Upon the written request of each Holder given within thirty (30) days after mailing of such notice by the Company, the Company shall cause to be registered under the Act all of the Registrable Securities that each such Holder has requested to be registered. C. REGISTRATION. (a) REGISTRATION PROCEDURES. The Registration Statement required under Section 6 A. or B. hereof shall be filed pursuant to the procedures set forth below: 4  (i) The Company shall use its best efforts to cause the Registration Statement to be filed and to become effective as soon as possible after it is filed, and remain continuously effective, until the earlier of (i) all of the Registrable Securities covered by such Registration Statement have been sold in accordance with the intended methods of disposition of the sellers set forth in such Registration Statement and (ii) three hundred sixty five (365) days after such Registration Statement has been declared effective provided, that if for any portion of such period the Registration Statement is not effective, then such requirement for maintaining the effectiveness of the Registration Statement shall be extended by the length of such interruption(s), and the Company shall prepare and file with the SEC such amendments to such Registration Statement and supplements to the prospectus contained therein as may be necessary to keep such Registration Statement effective and such Registration Statement and prospectus accurate and complete during such period. (ii) The Company shall notify the sellers participating in such registration, promptly after it shall receive notice thereof, of the date and time when such Registration Statement and each post-effective amendment thereto has become effective or a supplement to any prospectus forming a part of such Registration Statement has been filed; (iii) The Company shall furnish to the sellers participating in such registration such reasonable number of copies of the Registration Statement and prospectus and such other documents as the sellers may reasonably request in order to facilitate the public offering of the Registrable Securities; (iv) The Company shall use its best efforts to register or qualify the Registrable Securities covered by such Registration Statement under such state securities or blue sky laws of such jurisdictions as the sellers participating in such registration may reasonably request, provided, however, that the Company shall not be obligated to file any general consent to service of process or to qualify as a foreign corporation in any jurisdiction in which it is not so qualified or to subject itself to taxation in connection with any such registration or qualification of such securities; (v) The Company shall notify the sellers participating in such registration promptly of any request by the SEC for the amending or supplementing of such Registration Statement or prospectus or for additional information; (vi) The Company shall prepare and file with the SEC, promptly upon the request of any seller participating in such registration, the Registration Statement and any amendments or supplements to such Registration Statement or prospectus which, in the reasonable opinion of counsel for the sellers is required under the Act or the rules and regulations thereunder in connection with the distribution of the Registrable Securities by the sellers or to otherwise comply with the requirements of the Act and such rules and regulations; (vii) The Company shall prepare and promptly file with the SEC and promptly notify the sellers participating in such registration of the filing of such amendments or supplements to such Registration Statement or prospectus as may be necessary to correct any statements or omissions if, at the 5  time when a prospectus relating to the Registrable Securities is required to be delivered under the Act, any event has occurred as the result of which any such prospectus or any other prospectus then in effect may include an 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 not misleading. The Company shall make available to the sellers and to the underwriters any such supplement or amendment. The sellers participating in such registration agree that, upon receipt of any notice from the Company of the occurrence of any event of the kind described in this Section 6(a)(vii), the sellers will forthwith discontinue the offer and sale of Registrable Securities pursuant to the Registration Statement covering such Registrable Securities until receipt by the sellers and underwriters of the copies of such supplemented or amended prospectus and, if so directed by the Company, the sellers will deliver to the Company all copies, other than permanent file copies then in the sellers' possession, of the most recent prospectus covering such Registrable Securities at the time of receipt of such notice. In the event the Company shall give such notice, the Company shall extend the period during which such Registration Statement shall be maintained effective as provided in Section 6.2(a) hereof by the number of days during the period from and including the date of the giving of such notice to the date when the Company shall make available to the sellers such supplemented or amended prospectus; (viii) The Company shall advise the sellers participating in such registration, promptly after it shall receive notice or obtain knowledge thereof, of the issuance of any stop order by the SEC suspending the effectiveness of such Registration Statement or the initiation or threatening of any proceeding for that purpose and promptly use its best efforts to prevent the issuance of any stop order or to obtain its withdrawal if such stop order should be issued; (ix) The Company shall otherwise use its best efforts to comply with all applicable rules and regulations of the SEC, and make generally available to the Company's security Holders' earnings statements satisfying the provisions of Section 11(a) of the Act, no later than forty-five (45) days after the end of any twelve (12) month period (or ninety (90) days, if such a period is a fiscal year) beginning with the first month of the Company's first fiscal quarter commencing after the effective date of the Registration Statement; (x) The Company shall not file any amendment or supplement to the Registration Statement or prospectus to which a majority in interest of the sellers participating in such registration has objected on the grounds that such amendment or supplement does not comply in all material respects with the requirements of the Act or the rules and regulations thereunder, after having been furnished with a copy thereof at least three business days prior to the filing thereof unless the Company shall have obtained an opinion of counsel that such amendment is required under the Act or the rules or regulations adopted thereunder in connection with the distribution of Registrable Securities by the sellers. (xi) The Company may, at its option, register additional shares of Company common stock in the Registration Statement for sale by other holders of its Common Stock or include the Registrable Securities in a 6  registration in which shares of its Common Stock are sold to an underwriter for reoffering to the public (an "UNDERWRITTEN OFFERING"). (b) EXPENSES OF REGISTRATION. (i) All expenses of the Company incident to the Company's performance of or compliance with the provisions of this Section 6 shall be borne by the Company including without limitation: (ii) All registration and filing fees; (iii) Fees and expenses of compliance with all securities or blue sky laws (including fees and disbursements of counsel for the Company in connection with blue sky qualifications of the Registrable Securities; PROVIDED, HOWEVER, that the Company shall not be required to consent to general service of process in any such state); (iv) Fees and disbursements of counsel for the Company, and their independent auditors. Nothing in this Section 6 shall be deemed to require the Company to pay or bear any expenses of any seller's attorneys or accountants or any other personal expenses or any underwriting discounts relating to the Registrable Securities, selling commissions or similar fees attributable pro rata to the Registrable Securities if such registration results in an Underwritten Offering of all or any portion of the Registrable Securities. (c) SELLERS' AGREEMENTS. (i) The sellers participating in such registration shall promptly provide all information concerning such sellers and/or the Seller required to be included in the Registration Statement which is requested by the Company. (ii) In the event any of the Registrable Securities are included in an Underwritten Offering, each seller participating in such registration agrees to enter into with the managing underwriter of such offering, and perform its obligations under: (i) an underwriting agreement, in usual and customary form; and (ii) a lock-up agreement similar in form and substance to lock-up agreements executed by other executive officers and directors of the Company. Notwithstanding anything to the contrary in Section 6(b), at any time after the Registration Statement has been declared effective, the Company may delay the disclosure of material, non-public information concerning the Company the disclosure of which at the time is not, in the good faith opinion of the Board of Directors of the Company and its counsel, in the best interest of the Company and, in the opinion of counsel to the Company, otherwise required (a "GRACE PERIOD"); provided, that the Company shall promptly (i) notify the 7  sellers participating in such registration in writing of the existence of material, non-public information giving rise to a Grace Period and the date on which the Grace Period will begin, and (ii) notify the sellers in writing of the date on which the Grace Period ends; and, provided further, that during any consecutive three hundred and sixty-five (365) day period, there shall be only three Grace Periods, any such Grace Period not to exceed seventy-five (75) consecutive days in the aggregate and all Grace Periods combined not to exceed one-hundred and eighty (180) days in the aggregate (an "ALLOWABLE GRACE PERIOD"). For purposes of determining the length of a Grace Period above, the Grace Period shall begin on and include the date the sellers receive the notice referred to in clause (i) above and shall end on and include the date the sellers receive the notice referred to in clause (ii) above. (d) Exception to Filing of Registration Statement. Notwithstanding the provisions of this Section 6, the Company shall have no further obligation to file any Registration Statement hereunder or maintain the effectiveness of any Registration Statement filed with respect to any seller in the event all of the Registrable Securities owned by such Seller: (i) have been distributed to the public pursuant to Rule 144 (or any similar provisions then in force) under the Act: or (ii) are otherwise freely transferable without restriction under the Act. 7. GENERAL PROVISIONS. (a) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED IN ALL RESPECTS BY THE INTERNAL LAWS OF THE STATE OF DELAWARE WITHOUT REFERENCE TO PRINCIPLES OF CONFLICTS OF LAWS. (b) NOTICES. Any notice or other communication required or permitted to be given hereunder shall be in writing by mail, facsimile or personal delivery and shall be effective upon actual receipt of such notice. The addresses for such communications shall be as set forth below until notice is received that any such address or contract information has been changed: IF TO THE COMPANY: Relationserve, Inc. 6400 Congress Avenue Suite 2700 Boca Raton, FL 33487 ###-###-#### (fax) Att: Jonathan Honig 8  With a copy to: Olshan Grundman Frome Rosenzweig & Wolosky LLP Park Avenue Tower 65 East 55th Street New York, New York 10022 ###-###-#### (fax) IF TO THE HOLDERS: To such names and addresses as shall be set forth on Exhibit A hereto With a copy to: Olshan Grundman Frome Rosenzweig & Wolosky LLP Park Avenue Tower 65 East 55th Street New York, New York 10022 ###-###-#### (fax) Att: Harvey J. Kesner, Esq. (c) ENTIRE AGREEMENT. Except as otherwise provided herein, this Agreement, the Note and the other documents delivered pursuant hereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof. (d) AMENDMENT. This Agreement may only be amended, waived, discharged or terminated by a written instrument signed by the party against whom enforcement of any such amendment, waiver, discharge or termination is sought. (e) SUCCESSORS AND ASSIGNS. This Agreement, the Notes, the Investors Shares, the Common Stock, and the Warrant Shares held by Holders' may be transferred or assigned by Holders in whole or in part, in such Holders' sole and absolute discretion. Except as otherwise expressly provided in this Agreement or the Note, the provisions of this Agreement and the Note shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto. (f) SEVERABILITY. In case any provision of this Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. (g) TITLES AND SUBTITLES. The titles of the Sections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement. 9  (h) EXPENSES. The Company and the Holders shall each bear their own expenses incurred with respect to this transaction. (i) COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall be deemed to constitute one instrument. IN WITNESS WHEREOF, the parties have caused this agreement to be executed by its officers thereunto duly authorized. "COMPANY" RELATIONSERVE, INC. By: /s/ Jonathan Honig ------------------------------------ Name: Jonathan Honig Title: President "HOLDERS" JH ASSOCIATES, INC. By: /s/ Jonathan Honig ------------------------------------ Name: Jonathan Honig Title: President GRQ CONSULTANTS, INC. By: /s/ Barry Honig ------------------------------------ Name: Barry Honig Title: Director 10