<PAGE>
[FOR INFORMATION ONLY]
This registration statement has been filed with the Securities and Exchange
Commission but has not yet become effective. Information contained herein is
subject to completion or amendment.
As filed with the Securities and Exchange Commission on
March 17, 2000.
- --------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS UNDER SECTION 12(b) OR 12(g) OF
THE SECURITIES EXCHANGE ACT OF 1934
-------------------------
Direct III Marketing, Inc.
(Name of Small Business Issuer in its Charter)
Delaware 33-0851387
- -------------------------------- ----------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
12760 High Bluff Drive, Suite 210, San Diego, California 92130
- -------------------------------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
(858) 793-4151
--------------
Issuer's Telephone Number
Securities to be registered pursuant to Section 12(b) of the Act:
None
----
(Title of Class)
Securities to be registered pursuant to Section 12(g) of the Act:
Title of Each Class Name of Each Exchange on
to be so Registered Which Each Class is to be Registered
------------------- ------------------------------------
Common Stock Nasdaq OTC Bulletin Board
-1-
<PAGE>
INFORMATION REQUIRED IN
REGISTRATION STATEMENT
PART I
Special Note Regarding Forward-looking Statements
Some of the statements contained in this registration statement discuss
future expectations, contain projections of results of operations or financial
condition or state other "forward-looking" information. Those statements are
subject to known and unknown risks, uncertainties and other factors that could
cause the actual results to differ materially from those contemplated by the
statements. The forward-looking information is based on various factors and was
derived using numerous assumptions.
Important factors that may cause actual results to differ from
forward-looking statements may include, for example,
o the success or failure of our efforts to implement our
business strategy, including expanding our international
operations;
o our ability to raise sufficient capital to expand our
business;
o the effect of changing economic conditions on the airline and
aircraft industries;
o changes in government regulations, tax rates and similar
matters;
o our ability to attract and retain quality employees; and
o other risks which may be described in our future filings with
the SEC.
We do not promise to update forward-looking information to reflect
actual results or changes in assumptions or other factors that could affect
those statements.
Item 1. Description of Business.
General
Direct III Marketing, Inc., was incorporated on March 26, 1999, and all
of the outstanding shares of capital stock of the corporation were owned by
Whirlwind Ventures, Inc., a Florida corporation. On May 24, 1999, Whirlwind
Ventures, Inc., was merged into Direct III Marketing, Inc., with Direct III
Marketing, Inc., being the surviving corporation and assuming all obligations
and obtaining all rights of Whirlwind Ventures, Inc. On the merger date, each
issued and outstanding share of Whirlwind Ventures, Inc., was exchanged for one
share of capital stock of Direct III Marketing, Inc., and the outstanding shares
of common stock of Direct III Marketing, Inc., owned by Whirlwind Ventures,
Inc., at the time of the merger were cancelled.
Industry Overview
Industry Growth - The use of direct marketing has increased over the
last few years due in part to the relative cost efficiency of direct marketing
compared to mass marketing, as well as the rapid development of more powerful
and more cost-effective information technology and data capture capabilities.
Industry Consolidation - The direct marketing industry is extremely
fragmented. There are almost 11,000 direct marketing service and database
service businesses in the United States. The Company believes that most of such
businesses are small, specialized companies which offer limited services.
However, industry consolidation has increased in the last few years resulting in
a greater number of large companies providing services similar to those provided
by the Company. The Company believes that much of this consolidation is due to:
(i) economies of scale in hardware, software and other marketing resources; (ii)
cross-selling of services; and (iii) coordinating various components of direct
marketing and media programs within a single, reliable environment. The Company
believes these trends are likely to continue due in part to client demand for
more cost-effective service to perform increasingly complex functions.
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Over the next decade demographic shifts and changes in lifestyle,
combined with new marketing mediums, are expected to create higher demand by
businesses for marketing information and services to provide businesses with
direct access to their customers and a more efficient means of targeting
specific audiences and developing long- term customer relationships. According
to a study commissioned by the Direct Marketing Association ("DMA"),
expenditures for direct marketing services in 1997 reached $153 billion. The
study estimated that annual direct marketing advertising expenditures may grow
to $205 billion by the year 2001, including $84.4 billion on telemarketing.
Corporate marketing departments often lack the technical expertise to create,
manage and control highly technical aspects of the direct marketing process. As
a result, the Company believes that there is a growing trend among direct
marketers to outsource direct marketing programs.
Operations
Through acquisitions of companies in the three business segments
targeted by the Company, the Company will provide direct marketing and database
marketing, custom telemarketing, media planning and buying, multi media
marketing, online consulting and commerce, Web design, interactive fulfillment,
and other direct marketing services to a diverse group of clients located
throughout the United States. These services will include customer and market
data analysis, database creation and analysis, data warehousing, merge/purge,
predictive behavioral modeling, list processing, brokerage and management, data
enhancement, other direct marketing information services, Web site design and
hosting, product warehousing and fulfillment, and custom outbound telemarketing
services. The Company believes it can create expertise in applying these
marketing tools increasing the productivity of its clients' marketing
expenditures. The Company seeks to become an integral part of its clients'
marketing programs and to foster long-term client relationships thereby
providing recurring revenue opportunities.
Strategy
Direct III Marketing, Inc., intends to acquire companies in three
specific areas (and subsets of each) of the marketing field. These areas consist
of the following:
1. Direct Marketing Companies,
2. Internet Marketing Companies, and
3. Telemarketing Companies
Direct marketing is used for a variety of purposes including
lead-generation and prospecting for new customers, enhancing existing customer
relationships, exploring the potential for new products and services and
establishing new products. Unlike traditional mass marketing, aimed at a broad
audience and focused on creating image and general brand or product awareness,
successful direct marketing requires the identification and analysis of
customers and purchasing patterns. Such patterns enable businesses to more
easily identify and create a customized message aimed at a highly defined
audience. Previous direct marketing activity consisted principally of direct
mail, but now has expanded into the use of multiple mediums including
telemarketing, print, television, radio, video, CD- ROM, on-line services, the
Internet and a variety of other interactive marketing formats. The success of a
direct marketing program is the result of the analysis of customer information
and related marketing data. Database management capabilities allow for the
creation of customer lists with specific, identifiable attributes. Direct
marketers use these lists to customize messages and marketing programs to
generate new customers whose purchasing patterns can be statistically analyzed
to isolate key determinants. In turn, this enables direct marketers to
continually evaluate and adjust their marketing programs, to measure customer
response rates in order to assess returns on marketing expenditures, and to
increase the effectiveness of such marketing programs. Database management
covers a range of services, including general marketing consultation, execution
of marketing programs and the creation and development of customer databases and
sales tracking and data analysis software. Data analysis software consolidates
and analyzes customer profile information to find common characteristics among
buyers of certain products. The results of such tracking and analysis are used
to define and match customer and product attributes from millions of available
database files for future direct marketing applications. The process is one of
continual refinement, as the number of points of contact with customers
increases, together with the proliferation of mediums available to reach
customers.
Internet marketing consists of web site creation and hosting,
e-commerce solutions, and marketing solutions that enable Internet retailers to
market customers on a personalized, one-to-one basis in real time. Based on a
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<PAGE>
customer's interaction at a site, programs are designed on-the-fly to adjust
marketing messages and product offerings to that customer. The goal is to
attract more customers, generate more products per order and increase customer
loyalty. This is accomplished through the analysis of past and current customer
behavior, including purchase history, stated preferences, demographic
information and Internet browsing behavior. Based on this information,
proprietary collaborative filtering technology is used to anticipate other
merchandise or information a customer is likely to be interested in purchasing
or viewing.
Telemarketing projects generally require significant amounts of
customer information supplied by the client or third party sources. Custom
telemarketing programs seek to maximize a client's direct marketing results by
utilizing appropriate databases to communicate with a specific audience. This
customization is often achieved through sophisticated and comprehensive data
analysis which identifies psychographic, cultural and behavioral patterns in
specific geographic markets.
The Company's strategy is to become a value-added premium provider of
marketing services to its clients by: (i) Increasing revenues by expanding the
range of marketing services offered and by selling additional services to
existing clients; (ii) Deepening market penetration in new industries and market
segments; (iii) Developing existing and creating new proprietary database
software and database management applications; and (iv) Pursuing strategic
acquisitions, joint ventures and marketing
Sales and Marketing; Customers
The Company's target customers will be any companies (particularly
mid-size companies, both public and private) needing or utilizing a strategic,
direct marketing plan including execution of that plan. The Company currently
has no customers.
Management Information System
We have upgraded our management information systems by acquiring
computer hardware and software. Our data system is being analyzed to incorporate
state-of-the-art records imaging, archiving, inventory and asset management
analysis, financial record and other support systems. We believe that upon full
implementation, our data management system will be adequate to manage our
requirements in accordance with our forecasted growth.
Competition
The direct marketing services industry is highly competitive and
fragmented, with no single dominant competitor. The Company will compete with
companies that have more extensive financial, marketing and other resources and
substantially greater assets than those of the Company, thereby enabling such
competitors to have an advantage in obtaining client contracts where sizable
asset purchases or investments are required. The Company also will compete with
in-house database management, telemarketing and direct mail operations of
certain of its clients or potential clients. Competition is based on quality and
reliability of products and services, technological expertise, historical
experience, ability to develop customized solutions for clients, technological
capabilities and price. The Company believes that it can compete favorably in
this market. Some of the Company's principal competitors are:
1. Marketing Services Group, Inc. (Main Competitor
2. Harte-Hanks, Inc.
3. Abacus Direct Corporation
4. 24/7 Media, Inc.
5. ADVO, Inc.
6. HA LO Industries
7. Modem Media. Poppe Tyson
8. Access Worldwide Communications, Inc.
9. Telespectrum Worldwide, Inc.
These competitors cover all three business segments of Direct III
Marketing, Inc. In addition, some of the listed competitors are in fields which
are subsets the Company's three main business segments.
There are relatively low barriers to entering the marketing arena,
especially the Internet marketing services area. The current market is highly
competitive and the Company anticipates that new competitors will continue to
enter the market.
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<PAGE>
Government Regulation
The telemarketing industry has become subject to an increasing amount
of federal and state regulation during the past five years. The federal
Telephone Consumer Protection Act of 1991 (the "TCPA") limits the hours during
which telemarketers may call consumers and prohibits the use of automated
telephone dialing equipment to call certain telephone numbers. The federal
Telemarketing and Consumer Fraud and Abuse Prevention Act of 1994 (the "TCFAPA")
broadly authorizes the Federal Trade Commission (the "FTC") to issue regulations
prohibiting misrepresentations in telemarketing sales. The FTC's new
telemarketing sales rules prohibit misrepresentations of the cost, terms,
restrictions, performance or duration of products or services offered by
telephone solicitation, prohibit a telemarketer from calling a consumer when
that consumer has instructed the telemarketer not to contact him or her,
prohibit a telemarketer from calling prior to 8:00 a.m. or after 9:00 p.m., and
specifically address other perceived telemarketing abuses in the offering of
prizes and the sale of business opportunities or investments. Violation of these
rules may result in injunctive relief, monetary penalties or disgorgement of
profits, and can give rise to private actions for damages. Additional federal or
state consumer-oriented legislation could limit the telemarketing activities of
the Company or its clients or significantly increase the costs of regulatory
compliance.
Credit and Personal Information Issues - In addition, the growth of
information and communications technology has produced a proliferation of
information of various types and has raised many new issues concerning the
privacy of such information. Congress and various state legislatures have
considered legislation which would restrict access to, and the use of, credit
and other personal information for direct marketing purposes. The direct
marketing services industry, including the Company, could be negatively impacted
in the event any of these or similar types of legislation are enacted.
Employees
As of December 31, 1999, the Company employed two persons, being the
President/Chief Executive Officer and the Chief Financial Officer.
Item 2. Management's Discussion and Analysis or Plan of Operation.
This Management's Discussion and Analysis of Financial Condition and
Results of Operations should be read in conjunction with the Company's financial
statements and accompanying notes. This prospectus contains certain
forward-looking information, which involves risks and uncertainties. The actual
results could differ from the results we anticipate. See "Special Note Regarding
Forward-Looking Statements."
Overview
During 1999, the Company began operations through the acquisition of a
public shell and the merger of Whirlwind Ventures, Inc., into Direct III
Marketing, Inc. After the merger, the Company began searching for acquisitions
within its identified business segments of (i) Direct marketing; (ii) Internet
marketing; and (iii) Telemarketing. Although the Company looked at a number of
firms in these business segments, no companies were found to meet the criteria
for an acquisition.
As the Company has just begun operations, we have only a limited
operating history upon which you may base an evaluation of our operations and
prospects. The results of operations for 1998 solely reflect the activity of
Whirlwind Ventures, Inc. The 1999 results reflect the operations of the combined
entities. Since the Company had not acquired any businesses, there were no sales
activities to report in 1999.
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<PAGE>
Twelve Months Ended December 31, 1999
Results of Operations
Effective in April 1999, the Company merged with Whirlwind Ventures,
Inc. For the year ended December 31, 1999, we incurred a operating loss of
$376,590. We had no sales activity during the year. The loss of $376,590
included employee related expense of $212,816 or 56.6% of the total loss. The
remaining expenses consisted of various general and administrative expenses
related with the merger and the analysis of various business opportunities
throughout the year. These consisted of $45,153 in legal fees, $25,853 in
consulting expense, $32,410 for office space, $13,917 in travel expenses,
$11,750 in accounting expenses, and $9,519 in telephone expense. The balance of
the loss, $33,891 or 9%, was related to other necessary expenses to run the
office operations of the Company.
Liquidity and Capital Resources
As of December 31, 1999, our principal source of liquidity was provided
through bridge financings from various entities and the issuance of additional
common stock through a private placement. As of December 31, 1999, the total
outstanding debt of the Company was $366,571.
Cash used in the operating activities of the Company for the twelve
(12) months ended December 31, 1999 was $369,361, primarily attributable to
loans and the issuance of shares of common stock through private placements.
We believe that the Company will require the completion of additional
private placements of equity securities and/or bridge financing in the year 2000
to meet the capital requirements of our current business for the next twelve
(12) months. In addition, the Company will require the issuance of additional
equity securities or debt in order to implement the Company's acquisition
strategy. Thereafter, if our capital requirements increase, we could be required
to secure additional sources of capital. There can be no assurance the Company
will be capable of securing additional capital or that the terms upon which such
capital shall be available to us will be acceptable.
Inflation
Although we cannot accurately anticipate the effect of inflation on our
operations, we do not believe that inflation has had, or is likely in the
foreseeable future to have, a material effect on our results of operations or
financial condition.
Year 2000 Issue
We believe all of our current computer hardware and software
applications as part of our normal business operations are Year 2000 compliant.
We have completed an assessment of our non-information technology systems, and
we are not currently aware of any Year 2000 problems relating to these systems
which would materially adversely affect our business operating results or
financial condition. As of March 15, 2000, we have not experienced any year 2000
problems, nor are we aware of any year 2000 problems experienced by any of our
vendors or customers.
Plan of Operation
Over the next twelve (12) months, we intend to raise additional funds
through private placements of equity securities. After successfully raising
additional funds, the Company will continue to seek out companies whose business
fits within our three business segments. Once these companies are identified, we
will attempt to acquire them with cash or through the issuance of equity
securities of the Company, or a combination of both.
We do not anticipate any material capital expenditures for the coming
fiscal year unless we acquire one or more complementary businesses as previously
described.
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<PAGE>
Item 3. Description of Property.
Our offices are located in San Diego, California. The office space
comprises a total of approximately 1,981 rentable square feet. The premises are
subject to a lease, under which Direct III Marketing, Inc., is the tenant, dated
March 17, 1999, and expires on March 16, 2004. Annual rental is $51,109.80, in
addition to pass-through of (1) utilities, (2) increases in real estate taxes,
(3) assessments, (4) increases in insurance. We have one additional three (3)
year option to renew. We currently sublet two offices within the office space on
a month to month basis for minimal rent. This office space is adequate for our
present and anticipated future needs.
Item 4. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth certain information regarding the
beneficial ownership of the common stock (including common stock acquirable
within sixty 60 days pursuant to options, warrants, conversion privileges or
other rights) of the Company as of December 31, 1999 (i) by each of the
Company's directors and executive officers, (ii) all executive officers and
directors as a group, and (iii) all persons known by the Company to own
beneficially more than five percent (5%) of the common stock. All persons listed
have sole voting and investment power over the indicated shares unless otherwise
indicated.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
NAME ADDRESS SHARES PERCENT
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Post Office Box 8082 980,000 22.23%
ROBERT DEROSE (1) Rancho Santa Fe, CA 92067
- -------------------------------------------------------------------------------------------------------------------
JAMES G. CLARK 1750 Pacific Beach Drive 100,000 2.67%
San Diego, CA 92109
- -------------------------------------------------------------------------------------------------------------------
DOUGLAS L. FEIST 12760 High Bluff Drive, Suite 210 50,000 1.37%
San Diego, CA 92130
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MARTIN A. MAYER 3324 Harbor View Drive 50,000 1.37%
San Diego, CA 92106
- -------------------------------------------------------------------------------------------------------------------
ALL OFFICERS AND DIRECTORS AS A GROUP 1,180,000 27.64%
(1)
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CAPITAL GROWTH TRUST 401 Paradise Road, Madrid 3R 230,000 5.22%
Swampscott, MA 01907
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CRANBOURNE INVESTMENTS LTD c/o Whitehill HSE 250,000 5.67%
Newby Road, Ind Est
Cheshire SK75DA England
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FAC ENTERPRISES, INC. 4960 South Virginia Street, Suite 300 300,000 6.81%
Reno, NV 89502
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KAB INVESTMENTS, INC. 24224 Kanis Road 300,000 6.81%
Little Rock, AR 72223
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SAH INVESTMENTS, INC. 648 Post Road 250,000 5.67%
Wakefield, RI
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V & M MANAGEMENT CO INC. 4725 East Sunrise Drive, Suite 225 500,000 11.34%
Tucson, AZ 85718
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WEST TROPICAL INVESTMENTS CORP 3100 North 29th Court 375,000 8.51%
Hollywood, FL 33020
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</TABLE>
(1) Includes 200,000 shares issued to Mr. deRose's sisters, Denise
Marrone (100,000) and Melissa DeRose (100,000), of which Mr. deRose has full
power of attorney.
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<PAGE>
Item 5. Directors, Executive Officers, Promoters, and Control Persons.
The Directors and executive officers of Direct III Marketing, Inc.,
their ages, and positions are set forth below:
NAME AGE POSITION
ROBERT DEROSE 53 Director, President, and CEO
JAMES G. CLARK 40 Director and Chief Financial
Officer
DOUGLAS L. FEIST 52 Director and Secretary
MARTIN A. MAYER 56 Director
Robert deRose, Director, President, and Chief Executive Officer. Mr.
DeRose has been President, CEO and a director since April 1999. Mr. deRose was
the President and CEO of American Express Educational Loans, one of the largest
student financial aid lenders in the country from October 1995 through January
1998, and continued to provide consulting services through April 1999. Mr.
deRose founded The Educational Funding Company LLC (American Express Education
Loans), and grew it in size for an American Express acquisition by developing
innovative direct marketing programs in telemarketing, direct mail, and
e-commerce, while successfully integrating all three. Prior to the Educational
Funding Company, Mr. deRose held senior management positions in Wall Street.
James G. Clark, Director and Chief Financial Officer. Mr. Clark has
been Chief Financial Officer and a director since April 1999. Mr. Clark was
formerly the Chief Financial Officer of DTS Communications, Inc. (DTS), a
software development company bringing electronic closing services (over the
Internet) to the real estate industry from May 1996 to February 1998. DTS was
eventually merged into Ocwen Financial Corporation, a New York Stock Exchange
member (OCN). In his role as the CFO, Mr. Clark was responsible for all of the
financial affairs of the Company, including budgeting, banking, cash management,
investor relations, insurance, and financial reporting. Mr. Clark was also
responsible for developing and implementing the Company's procedures in the
areas of purchasing, collections/accounts receivable, inventory, credit
approval, payroll/human resources, payment terms, and travel. Prior to joining
DTS, Mr. Clark was the Chief Financial Officer of Lava Enterprises, Inc. from
March 1994 to May 1996. Additionally, Mr. Clark was a senior manager with KPMG
Peat Marwick from August 1985 to December 1991 where he was responsible for
serving an extensive range of clients in all types of business matters. Mr.
Clark is a Certified Public Accountant in the State of California and received a
master's degree in accounting from San Diego State University.
Martin A. Mayer, Director and Consultant. Mr. Mayer has been a director
since April, 1999. Mr. Mayer currently is a member of the Board of Directors of
Paper Warehouse, a public company headquartered in Minnesota. In addition, Mr.
Mayer has been an adjunct professor of marketing at the University of San Diego
since 1995 and has been an independent financial consultant since 1992. Mr.
Mayer was a managing partner with KPMG, LLC., a public accounting firm, from
1973 until 1992. He is a certified public accountant in the State of California.
Mr. Mayer is currently a business and financial consultant to the Company.
Douglas L. Feist, Director, Secretary, and General Counsel. Mr. Feist
has been Secretary, General Counsel and a director since April 1999. Mr. Feist
was a partner in the law firm of Hinchy, Witte, Wood, Anderson, and Hodges from
February 1991 through January 1993, and Senior Vice President and General
Counsel of UBL Financial Corporation, an insurance services holding company,
from February 1993 through December 1998. Mr. Feist joined Mr. deRose at The
Educational Funding Company LLC (American Express Educational Loans) in October
1995 as an owner and general counsel, and was instrumental in the negotiations
with American Express during the acquisition. Mr. Feist received his Bachelor's
degree from the University of California at Santa Barbara in 1973 and his Juris
Doctor degree from the University of San Diego School of Law in 1977. Mr. Feist
is a member of the State Bar of California and the San Diego County Bar
Association, and his expertise is in the fields of business and corporate law.
Committees
Our Board of Directors has established a Compensation Committee to
manage and oversee the Direct III Marketing, Inc., 1999 Stock Option Plan,
adopted by the Board of Directors on April 21, 1999. The Compensation Committee
will recommend to the Board of Directors the granting of certain qualified and
non-qualified stock options to employees and non-employee Directors of the
Company. The Board of Directors has appointed Robert deRose and Douglas L.
Feist, as the initial members of the Compensation Committee.
Director Compensation
Our Directors have not received any compensation for their services as
Directors in the past. We do not intend to pay directors who are not employed by
us any fee for attending the meetings of the Board of Directors.
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<PAGE>
Item 6. Executive Compensation.
The following table reflects the compensation paid or accrued during
the 1999, which began on April 1 ended on December 31, 1999:
Summary Compensation Table
- --------------------------
<TABLE>
<CAPTION>
All other
Name and Principal Position Year Salary Bonus Other Compensation
- --------------------------- ---- ------ ----- ----- ------------
<S> <C> <C> <C> <C> <C>
ROBERT DEROSE 1999 $118,750 None None None
President and CEO
JAMES G. CLARK 1999 $71,250 None None None
Chief Financial Officer
</TABLE>
The following table contains information concerning stock options
granted to officers and Directors through December 31, 1999.
<TABLE>
<CAPTION>
Number of % of Options
Options/Warrants Granted to Exercise or Earliest
Name Granted Employees/Directors Base Price Exercise Date Expiration Date
---- ------- -------------------- ---------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
JAMES G. CLARK (1) 100,000 66.6% $1.00 April 22, 1999 April 21, 2009
Employee/Officer
MARTIN A. MAYER (1) 50,000 33.4% $1.00 April 22, 1999 April 21, 2009
Non-employee Director
</TABLE>
(1) On April 25, 1999, Mr. Clark and Mr. Mayer each exercised their
respective stock options and issued to the Company full recourse promissory
notes in the amount of $100,000 and $50,000, respectively, being interest at the
rate of 7.75% per annum, and all due and payable on or before April 25, 2000.
Employment Agreement
Prior to the merger with the Company, Robert deRose executed an
Employment Agreement with Whirlwind Ventures, Inc., providing for Mr. deRose's
employment as President and Chief Executive Officer of Whirlwind Ventures, Inc.
Upon the merger, the Company assumed the Employment Agreement with Mr. deRose.
The Employment Agreement is for a term of two and one-half (2 1/2) years, and
thereafter continues on a month to month basis. The Employment Agreement
provides for compensation consisting of (i) annual base compensation of
$150,000, and (ii) certain fringe and other employee benefits that are made
available to the senior executives of the Company. In the event Mr. deRose's
employment is terminated by the Company for any reason other than his death or
disability or for "cause" (as defined in the Employment Agreement), Mr. deRose
will be entitled to receive his Base Salary (as defined in the Employment
Agreement) for a period of ninety (90) days, including certain benefits and
COBRA coverage. In the event of Mr. deRose's death or disability or termination
without cause, Mr. deRose or his estate shall receive Mr. deRose's Base Salary
for eighteen (18) months, including participation for twelve (12) months after
the date of termination in all medical, dental, hospitalization, life and
disability insurance coverage and any other employee benefits in which Mr.
deRose was participating in at the time of termination.
Stock Option Plan
On April 21, 1999, the Board of Directors adopted the Direct III
Marketing, Inc., 1999 Stock Option Plan, effective April 21, 1999 (the "Plan").
This Plan provides for the grant of incentive stock options and non-qualified
stock options to employees selected by the Board of Directors and/or
Compensation Committee. The Plan also sets forth applicable rules and
regulations for stock options granted to non-employee Directors. As of the date
hereof, no options are outstanding under the Plan. The Plan is subject to
stockholder approval and will be submitted to the stockholders at the Company's
annual meeting in 2000.
Item 7. Certain Relationships and Related Transactions.
In March 1999, Robert deRose, a Director and the President and Chief
Executive Officer of the Company, received a consulting fee of $6,250 prior to
beginning as an employee on April 1, 1999. In March 1999, James G. Clark, a
Director and the Chief Financial Officer of the Company, received a consulting
fee of $3,750 prior to beginning as an employee on April 1, 1999.
Martin A. Mayer, a Director of the Company, currently provides business
and financial consulting services to the Company on a month to month basis at
the rate of $6,250 per month.
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During 1999, FAC Enterprises, Inc., (an 8.02% shareholder) loaned the
Company an aggregate of $180,500. During the year, the Company repaid $140,400,
with a balance owing of $40,100 at year-end. FAC Enterprises, Inc., has loaned
the Company an additional $170,000 during 2000, and the Company currently owes
FAC Enterprises, Inc., an aggregate of $210,000.
Item 8. Legal Proceedings.
Legal Proceedings
The Company is not currently involved in any litigation.
Item 9. Market Price of and Dividends on the Registrant's Common Equity and
Other Shareholder Matters.
Market Price of the Common Stock
Prior to April 27, 1999, the Company common stock did not trade. The
common stock began trading on April 27, 1999, in the over-the-counter market
through the OTC Bulletin Board under the symbol "DRCT." The market for our
common stock is sporadic, and the quarterly average daily volume of share traded
since April 27, 1999, ranged from a low of 7,300 shares to a high of 14,509
shares. The following table presents the range of the high and low close and
average daily volume (computed for days in which the shares traded) information
for our common stock for the periods indicated, which information was provided
by Reuters. The quotations reflect inter- dealer prices, without retail mark-up,
mark-down, or commission, and may not represent actual transactions.
<TABLE>
<CAPTION>
Year Ended December 31, 1999 High Low Average Daily Volume (Shares)
<S> <C> <C> <C>
First Quarter N/A N/A N/A
Second Quarter 8.00 2.25 14,509
Third Quarter 7.625 5.75 8,466
Fourth Quarter 9.25 6.50 7,300
</TABLE>
Records of our stock transfer agent indicate that as of December 31,
1999, there were 24 record holders of our common stock of the Company.
Dividend Policy
The Company has not paid any cash dividends to date or anticipates or
contemplates paying cash dividends in the foreseeable future.
Item 10. Recent Sales of Unregistered Securities.
The Company
The following sets forth all sales of unregistered securities by Direct
III Marketing, Inc. since its incorporation and merger with Whirlwind Ventures,
Inc., on April 21, 1999:
In September 1999, the Company issued a $50,000 promissory note, 6,250
shares of its common stock, and a warrant for the purchase of 6,250 additional
shares of common stock at $6.00 per share to Laurence S. Rivkin, as Trustee of
the L.N.R. Family Trust, who made representations stating that the trust was an
"accredited investor" (as defined in Rule 501(a) of Regulation D promulgated
under the Securities Act). The Company also issued a $200,000 promissory note,
25,000 shares of its common stock, and a warrant for the purchase of 25,000
additional shares of common stock at $6.00 per share to Salvatore Asaro, who
made representations stating that he was an "accredited investor" (as defined in
Rule 501(a) of Regulation D promulgated under the Securities Act).
-10-
<PAGE>
In February and March 2000, the Company issued 67,000 shares of common
stock at $2.50 per share to the following persons in the amounts set forth
immediately thereafter. All participants made representations stating that the
purchaser was an "accredited investor" (as defined in Rule 501(a) of Regulation
D promulgated under the Securities Act).
NAME SHARES
----
Paul R. Frankel, Trustee 2,000
Paul R. Frankel Separate Property Trust
Missouri Breaks, Inc. 2,000
Sean H. O'Neal 1,000
Fabrizio Balestri 3,000
Dr. Anthony F. Smith 5,000
Henry N. Pontell 8,000
David C. Zeiger, Trustee 12,000
David C. Zeiger Trust
Robert J. Filderman, Trustee 4,000
FBO Filderman Family Trust
Charles J. Lidman, Trustee 10,000
CJL Family Trust
Barry L. Seidman 10,000
Arnold Zousmer, Trustee
Arnold Zousmer & Michele Zousmer 10,000
Family Trust
Item 11. Description of Securities.
General
The Company is authorized to issue 40,000,000 shares of common stock,
$.001 par value per share, of which 3,741,250 shares were outstanding on
December 31, 1999, and 3,808,250 were outstanding as of the date of this filing.
The amount of 2,000,000 shares of common stock of the Company have been reserved
for issuance pursuant to our Direct III Marketing, Inc., 1999 Stock Option Plan,
of which 150,000 were granted in 1999, and exercised by the two (2) respective
participants on April 25, 1999.
Within the limits and restrictions contained in the Certificate of
Incorporation, Board of Directors has the authority, without further action by
the stockholders, to issue up to 10,000,000 shares of preferred stock, $.001 par
value per share, in one or more series, and to fix, as to any such series, the
dividend rate, redemption prices, preferences on liquidation or dissolution,
sinking fund terms, if any, conversion rights, voting rights, and any other
preferences or special rights and qualifications. As of the date hereof, the
Company has no preferred stock issued and outstanding.
Common Stock
Holders of common stock have equal rights to receive dividends when, as
and if declared by the board of directors, out of funds legally available
therefor. Holders of common stock have one vote for each share held of record
and do not have cumulative voting rights.
Holders of common stock are entitled upon our liquidation to share
ratably in the net assets available for distribution, subject to the rights, if
any, of holders of any preferred stock then outstanding. Shares of common stock
are not redeemable and have no preemptive or similar rights. All outstanding
shares of common stock are fully paid and non-assessable.
Outstanding Warrants
Warrants to purchase 31,250 shares of Direct III Marketing, Inc.,
common stock were issued on September 30, 1999, to Salvatore J. Asaro (25,000)
and Laurence S. Rivkin, Trustee, L.N.R. Family Trust (6,250), in connection with
a private placement. Each warrant entitles the holder to purchase one (1) share
of the Company's common stock at an exercise price of $6.00 until September 30,
2004.
-11-
<PAGE>
The warrants described above provide for adjustment of the exercise
price and for a change in the number of shares issuable upon exercise to protect
holders against dilution in the event of a stock dividend, stock split,
combination or reclassification of our common stock. A warrant may be exercised
upon surrender of the warrant certificate on or prior to the expiration date (or
earlier redemption date) of such warrant at the offices of our transfer agent,
with the form of "Election to Purchase" completed and executed as indicated,
accompanied by payment of the full exercise price (by certified or bank check)
for the number of shares with respect to which the warrant is being exercised.
Shares issued upon exercise of warrants and paid for in accordance with the
terms of the warrants will be fully paid and nonassessable.
The warrants do not confer upon the holder thereof any voting or other
rights of a stockholder.
Transfer Agent
Interwest Transfer Co., Inc., located at 1981 East 4800 South, Suite
100, Salt Lake City, Utah 84117, serves as transfer agent for the common stock
of the Company.
Item 12. Indemnification of Directors and Officers.
The Company has adopted in its Certificate of Incorporation and Bylaws
the provisions of Section 102(b)(7) of the Delaware General Corporation Law
which eliminate or limit the personal liability of a director of the Company, or
its stockholders for monetary damages for breach of fiduciary duty as a
director, except that this provision shall not eliminate or limit the liability
of a director for any breach of the director's duty of loyalty to the Company or
its stockholders, for acts or omissions not in good faith or which involve
intentional misconduct or a known violation of the law, under Section 174 of the
Delaware General Corporation Law, or for any transaction from which the director
derived an improper personal benefit.
Further, the Company's Bylaws provide that the Company shall indemnify
all persons whom it may indemnify pursuant to Section 145 of the Delaware
Corporation Law to the full extent permitted therein. Section 145 provides,
subject to various exceptions and limitations, that the Company may indemnify
its directors or officers if such director or officer is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that he is or was a director or officer of the Company, or is
or was serving at the request of the Company as a director or officer of another
corporation, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The determination of
whether indemnification is proper under the circumstances, unless made by a
court, shall be made by a majority of a quorum of disinterested members of the
Board of Directors, independent legal counsel or the stockholders of the
Company. In addition, the Company shall indemnify its directors or officers to
the extent that they have been successful on the merits or otherwise in defense
of any such action, suit or proceeding, or in the defense of any claim, issue or
matter therein, against expenses (including attorneys' fees) actually and
reasonably incurred by them in connection therewith.
Item 13. Financial Statements
See Item 15 below.
Item 14. Changes in and Disagreements with Accountants.
None.
-12-
<PAGE>
Item 15. Financial Statements and Exhibits
(a) The following financial statements of the Company are filed as
part of this registration statement:
DIRECT III MARKETING, INC./WHIRLWIND VENTURES, INC.
Independent Auditors' Report
Balance Sheet as of December 31, 1999 and December 31, 1998
Statement of Income for the Years Ended December 31, 1999 and 1998
Statement of Changes in Stockholders' Equity for the Years
Ended December 31, 1999 and 1998 Statements of Cash Flows for
the Years Ended December 31, 1999 and 1998 Notes to Financial
Statements
(b) The following exhibits are filed as part of this registration
statement. Exhibit numbers correspond to the exhibit
requirements of Regulation S-B.
Exhibit
Number Description
- ------- -----------
3.1 Certificate of Incorporation 3.2 Bylaws of the Company, as amended to date
3.3 Articles of Merger 3.4 Certificate of Ownership and Merger 4.1 Form of
Common Stock Certificate
10.1 Direct III Marketing, Inc., 1999 Stock Option Plan
10.2 Warrant to purchase 25,000 shares of common stock granted to Salvatore
Asaro
10.3 Warrant to purchase 6,250 shares of Common Stock granted L.N.R. Family
Trust
10.4 $200,000 Promissory Note dated 9/30/99 to Salvatore Asaro
10.5 $50,000 Promissory Note dated 9/30/99 to L.N.R. Family Trust
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the Registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
DIRECT III MARKETING, INC.
Date: March 17, 2000 By: /s/ ROBERT DEROSE
------------------------------
Robert deRose
President and Chief Executive
Officer
Date: March 17, 2000 By: /s/ JAMES G. CLARK
------------------------------
James G. Clark
Chief Financial Officer
(Principal Accounting and
Financial Officer)
-13-
<PAGE>
DIRECT III MARKETING, INC.
(A Developmental Stage Company)
FINANCIAL STATEMENTS
December 31, 1999
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Direct III Marketing, Inc.
We have audited the accompanying balance sheet of Direct III Marketing, Inc. (a
development stage company) as of December 31, 1999, and the related statements
of operations, stockholders' deficit, and cash flows for the years ended
December 31, 1999, and 1998. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Direct III Marketing, Inc. as
of December 31, 1999, and the results of its operations and its cash flows for
the years ended December 31, 1999, and 1998, in conformity with accounting
principles generally accepted in the United States.
/s/ Swenson Advisors, LLP
- ---------------------------
An Accountancy Firm
Temecula, California
March 16, 2000
F-1
<PAGE>
DIRECT III MARKETING, INC.
(A Development Stage Company)
Balance Sheet
December 31, 1999
ASSETS
Current assets:
Cash $ 742
Accounts receivable, net 12,363
Prepaid expenses 37,694
---------
Total current assets 50,799
---------
Property and equipment, net 13,802
---------
Other assets 4,924
---------
Total assets $ 69,525
=========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 25,363
Accrued expenses 36,108
Notes payable 250,000
Other current liabilities 55,100
---------
Total current liabilities 366,571
---------
Commitments and contingencies --
Stockholders' deficit:
Preferred stock-$.001 par value, 10,000,000 shares authorized --
Common stock-$.001 par value, 40,000,000 shares authorized
3,741,250 shares issued and outstanding 3,741
Additional paid in capital 278,759
Deficit accumulated during the development stage (379,546)
---------
(97,046)
Less notes receivable from stockholders (200,000)
---------
Total stockholders' deficit (297,046)
---------
Total liabilities and stockholders' deficit $ 69,525
See accompanying notes to financial statements
F-2
<PAGE>
DIRECT III MARKETING, INC.
(A Development Stage Company)
Statements of Operations
For the years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
Cumulative
from inception
to
Dec. 31, 1999 1999 1998
--------------- ----------- ------------
<S> <C> <C> <C>
Revenue $ -- $ -- $ --
Operating expenses:
General and administrative 306,444 304,488 1,956
Legal and professional 72,756 72,756 --
Interest expense 9,058 9,058 --
Depreciation 2,695 2,695 --
----------- ----------- -----------
Total operating expenses 390,953 388,997 1,956
----------- ----------- -----------
Operating loss (390,953) (388,997) (1,956)
----------- ----------- -----------
Other income - interest income 12,407 12,407 --
----------- ----------- -----------
Net loss $ (378,546) $ (376,590) $ (1,956)
=========== =========== ===========
Net loss per share:
Basic $ 0.268 $ 0.162 $ 0.004
=========== =========== ===========
Diluted $ 0.268 $ 0.162 $ 0.004
=========== =========== ===========
Weighted average common shares outstanding:
Basic 1,410,821 2,319,142 502,500
=========== =========== ===========
Diluted 1,410,821 2,319,142 502,500
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements
F-3
<PAGE>
<TABLE>
<CAPTION>
Deficit
Common Stock Accumulated
---------------------------- Additional During the
Number of Paid in Developmental
Shares Amount Capital Stage Total
---------- ---------- ---------- ------------ --------
<S> <C> <C> <C> <C> <C>
Balance
December 31, 1997 5,000 $ 5,000 $ (4,000) $ (1,000) $ --
Par value change from
$1.00 to $.001 per share (4,995) 4,995 --
Stock split (200:1) 995,000 995 (995) --
Net loss
December 31, 1998 (1,956) (1,956)
--------- ---------- ---------- ---------- ----------
Balance
December 31, 1998 1,000,000 1,000 -- (2,956) (1,956)
Issuance of stock 2,741,250 2,741 278,759 281,500
Net loss
December 31, 1999 (376,590) (376,590)
--------- ---------- ---------- ---------- ----------
Balance 3,741,250 3,741 278,759 (379,546) (97,046)
Notes receivable
from stockholders' (200,000) (200,000)
--------- ---------- ---------- ---------- ----------
Balance
December 31, 1999 3,741,250 $ 3,741 $ 78,759 $ (379,546) $ (297,046)
========= ========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements
F-4
<PAGE>
<TABLE>
<CAPTION>
Cumulative
from inception
to
Dec. 31, 1999 1999 1998
------------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(378,546) $(376,590) $ (1,956)
Adjustments to reconcile net loss to net cash
used by operations:
Depreciation and amortization 2,695 2,695 --
(Increase) in assets:
Accounts receivable (12,363) (12,363) --
Prepaid expenses (37,694) (37,694)
Other assets (4,924) (4,924)
Increase in liabilities:
Accounts payable 25,363 23,407 1,956
Accrued expenses 36,108 36,108
--------- --------- --------
Net cash used by operating activities (369,361) (369,361) --
--------- --------- --------
Cash flows from investing activities:
Acquisition of property and equipment (16,497) (16,497) --
--------- --------- --------
Net cash used in investing activities (16,497) (16,497) --
--------- --------- --------
Cash flows from financing activities:
Proceeds from credit facilities 305,100 305,100
Proceeds from issuance of stock 281,500 281,500 --
Notes receivable from stockholders (200,000) (200,000)
--------- --------- --------
Net cash provided by financing activities 386,600 386,600 --
--------- --------- --------
Net increase in cash 742 742 --
Cash and cash equivalents at beginning of period -- -- --
Cash and cash equivalents at end of period $ 742 $ 742 $ --
</TABLE>
See accompanying notes to financial statements
F-5
<PAGE>
DIRECT III MARKETING, INC.
(A Development Stage Company)
Notes to Financial Statements
For the years ended December 31, 1999, and 1998
Note 1 - Organization
Direct III Marketing, Inc. (the Company) has been in the development
stage since it was incorporated in Delaware on March 26, 1999. The
Company intends to acquire enterprises in the direct marketing,
internet marketing, and telemarketing areas. With these acquired
entities, the Company intends to provide a wide range of marketing
services to a diverse group of clients throughout the United States. On
April 20, 1999, Whirlwind Ventures, Inc. was merged into the Company.
The merger was treated as a pooling of interests.
On July 10, 1998, the Board of Directors approved a 200:1 stock split
increasing the number of outstanding common stock shares from 5,000
shares to 1,000,000 shares.
Note 2 - Liquidity and Business Risk
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. The Company has an
accumulated deficit of $297,046 and negative working capital of
$315,772 as of December 31, 1999. The Company's ability to continue
business in its present form is subject to a variety of factors, which
include, among other things, the Company's ability to raise working
capital and to generate profitable operations. In the opinion of
management, the Company will be able to improve its profitability and
raise adequate capital to meet its current working capital
requirements.
The Company is subject to a number of risks associated with companies
at a similar stage of development including; the need for funding its
operations and growth, marketplace acceptance, competition,
technological obsolescence, and the retention and reliance on key
personnel.
Note 3 - Significant Accounting Policies
Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and Cash Equivalents - The Company considers all unrestricted
highly liquid investments purchased with maturity of three months or
less to be cash equivalents. The carrying value of cash equivalents
approximates fair value.
Property and Equipment - Property and equipment is stated at cost, less
accumulated depreciation and amortization. Depreciation is determined
using the straight line method for all assets based on estimated useful
lives of the assets, which range from three to seven years for
furniture and equipment, and fifteen years for leasehold improvements.
F-6
<PAGE>
DIRECT III MARKETING, INC.
(A Development Stage Company)
Notes to Financial Statements
For the years ended December 31, 1999, and 1998
Note 3 - Significant Accounting Policies, continued
Income Taxes - For the year ended December 31, 1999, there was no
federal income tax liability for financial statement or tax bases. The
minimum franchise tax of $800 has been accrued.
Loss Per Share - Basic loss per share includes no dilution and is
computed by dividing loss available to common stockholders by the
weighted average number of common shares outstanding for the period.
Diluted loss per share in the periods presented is equal to basic loss
per share since any additional dilutive potential common shares are
considered antidilutive.
Note 4 - Note Receivable From Stockholders
In April, 1999, the Company executed three note receivables for common
stock with certain officers and directors of the Company for a total of
$200,000. The notes bear interest at 7.75% and are due in April, 2000.
Note 5 - Notes payable shown as current liabilities consist of the following at
December 31, 1999:
Unsecured note payable bearing interest at 12% with a
maturity date the earlier of May 15, 2000 or the date the
Company receives $1,000,000 in equity financing.
No payments of principal or interest are due
until the maturity date. $200,000
Unsecured note payable bearing interest at 12% with a
maturity date the earlier of May 15, 2000 or the date
the Company receives $1,000,000 in equity financing.
No payments of principal or interest are due until the
maturity date. 50,0000
--------
$250,000
========
Note 6 - Common Stock and Warrants
The Company has one class of common stock. There are no preferences
related to dividends, voting rights or dissolution.
The Company has 31,250 warrants outstanding at December 31, 1999. In
accordance with the terms of APB No. 25, the Company records no
compensation expense for these warrants. As required by SFAS No. 123,
the Company provides the following disclosure of hypothetical values
for these warrants. The warrants are valued at December 31, 1999, at
$3.68 per warrant. This value was estimated using the Black-Scholes
option-pricing model with the following weighted-average assumptions
for 1999; expected volatility of 126%; risk-free interest rate of
6.62%; and expected life of 4.75 years. Had
F-7
<PAGE>
DIRECT III MARKETING, INC.
(A Development Stage Company)
Notes to Financial Statements
For the years ended December 31, 1999, and 1998
Note 6 - Common Stock and Warrants, continued
compensation expense been recorded based on these hypothetical values,
the Company's 1999 net loss would have increased by $115,000. These
warrants vest over several years, and the effects of these hypothetical
calculations are not likely to be representative of similar future
calculations.
Note 7 - Commitments and Contingencies
The Company has entered into an agreement for a five year lease of
office space on March 17, 1999, from an outside party. The following is
a schedule by year of the future minimum rental payments due in the
future under noncancelable operating leases:
2000 $ 51,110
2001 51,110
2002 51,110
2003 51,110
Thereafter 12,777
---------
$ 217,217
=========
Note 8 - Stock Option Plan
On April 21, 1999, the Board of Directors adopted the Direct III
Marketing, Inc., 1999 Stock Option Plan, effective April 21, 1999 ( the
"Plan"). This Plan provides for the grant of Incentive Stock Options
and Non-qualified Stock Options to employees selected by the Board of
Directors or Compensation Committee. The Plan also sets forth
applicable rules and regulations for stock options granted to
non-employee Directors. As of December 31, 1999, no options are
outstanding under the Plan. The Plan is subject to stockholder approval
and will be submitted to the stockholders a the Company's annual
meeting in 2000.
F-8
<PAGE>
EXHIBIT 3.1
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 03/26/1999
991120448 - 3020922
CERTIFICATE OF INCORPORATION
OF
DIRECT III MARKETING, INC.
* * * * * *
1. The name of the corporation is:
DIRECT III MARKETING, INC.
2. The address of its registered office in the State of Delaware is
Incorporating Services, Ltd., 15 East North Street, Dover, Delaware 19901,
located in the County of Kent, Delaware. The name of its registered agent is
Incorporating Services, Ltd.
3. The nature of the business or purposes to be conducted or promoted
is:
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
4. The Corporation shall have authority to issue fifty million
(50,000,000) shares of capital stock, consisting of forty million (40,000,000)
shares of common stock, par value $.001 per share and ten million (10,000,000)
shares of preferred stock, par value $.001 per share. The Board of Directors
may, by resolution or resolutions, designate and fix the powers, preferences and
rights and the qualifications, limitations or restrictions of any number of
series of preferred stock of the Corporation.
<PAGE>
5. The name and mailing address of the sole incorporator is as follows:
Daniel P. O'Brien
Klehr, Harrison, Harvey, Branzburg & Ellers LLP
1401 Walnut Street
Philadelphia, PA 19102
6. In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, alter or repeal
the By-Laws of the Corporation.
7. Elections of Directors need not be by written ballot unless the
By-Laws of the Corporation shall so provide.
8. The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
9. A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director except (i) for any breach of the director's duty of loyalty
to the Corporation 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 Delaware General Corporation Law, or (iv) for any
transaction from which the director derived an improper personal benefit.
10. Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of ss.291 of Title 8 of the Delaware Code or on the application
of trustees in dissolution or of any receiver or receivers appointed for this
Corporation under the provisions of ss.279 of Title 8 of the Delaware Code,
order a meeting
-2-
<PAGE>
of the creditors or class of creditors and/or of the stockholders or class of
stockholders of this Corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority in number representing three
fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of this
Corporation as consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of this Corporation, as the case may be, and also on this
Corporation.
I, THE UNDERSIGNED, being the sole incorporator hereinbefore named, for
the purpose of forming a corporation pursuant to the General Corporation Law of
the State of Delaware, do make this certificate, hereby declaring and certifying
that this is my act and deed and the facts herein stated are true, and
accordingly have hereunto set my hand this 26th day of March, 1999.
/s/ Daniel P. O'Brien
------------------------------------
Daniel P. O'Brien, Sole Incorporator
-3-
<PAGE>
EXHIBIT 3.2
BY LAWS
OF
DIRECT III MARKETING, INC.
ARTICLE I
OFFICES
Section 1.1 The corporation may have offices at places both
within and without the State of Delaware as the board of directors may from time
to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 2.1 All meetings of the stockholders shall be held at
such time and place, within or without the State of Delaware, as shall be stated
in the notice of the meeting or in a duly executed waiver of notice thereof.
Section 2.2 A meeting of stockholders shall be held in each
year for the election of directors at such time and place as the board of
directors shall determine. Any other proper business, notice of which was given
in the notice of the meeting or in a duly executed waiver of notice thereof, may
be transacted at the annual meeting.
Section 2.3 Unless otherwise provided by law, written notice
of the annual meeting shall be given to each stockholder entitled to vote
thereat not less than ten nor more than ninety days before the date of the
meeting.
Section 2.4 The officer who has charge of the stock ledger of
the corporation shall prepare and make, at least ten days before every election
of directors, a complete list of the stockholders entitled to vote at said
election, showing the address of each stockholder and the
<PAGE>
number of shares registered in the name of each stockholder. Such list shall be
open to the examination of any stockholder during ordinary business hours, for a
period of at least ten days prior to the election, either at a place within the
city, town or village where the election is to be held and the list shall be
produced and kept at the time and place of election during the whole time
thereof, and subject to the inspection of any stockholder who may be present.
Section 2.5 Special meetings of the stockholders, for any
purpose or purposes, unless otherwise prescribed by statute or by the
certificate of incorporation, may be called by the president and shall be called
by the president or secretary at the request in writing of stockholders owning a
majority in amount of the entire capital stock of the corporation issued and
outstanding and entitled to vote. Such request shall state the purpose or
purposes of the proposed meeting.
Section 2.6 Unless otherwise provided by law, written notice
of a special meeting of stockholders, stating the time, place and purpose or
purposes thereof, shall be given to each stockholder entitled to vote thereat,
not less than ten nor more than ninety days before the date fixed for the
meeting.
Section 2.7 The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented any business may be
transacted which might have been transacted at the meeting as originally
notified.
-2-
<PAGE>
Section 2.8 When a quorum is present at any meeting, the vote
of the holders of a majority of the stock having voting power present in person
or represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or of
the certificate of incorporation, a different vote is required in which case
such express provision shall govern and control the decision of such question.
Section 2.9 Each stockholder shall at every meeting of the
stockholders be entitled to one vote in person or by proxy for each share of the
capital stock having voting power held by such stockholder, but no proxy shall
be voted after three years from its date, unless the proxy provides for a longer
period.
Section 2.10 Any action required to be taken at any annual or
special meeting of stockholders, or any action which may be taken at any annual
or special meeting of such stockholders, may be taken without a meeting, without
prior notice and without a vote, if a consent in writing, setting forth the
action so taken, shall be signed by the holders of outstanding stock having not
less than the minimum number of votes that would be necessary to authorize or
take such action at a meeting at which all shares entitled to vote thereon were
present and voted. Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
ARTICLE III
DIRECTORS
Section 3.1 The number of directors which shall constitute the
whole board shall be such number as the board of directors may determine. Except
as hereinafter provided in Section 3.2 of this Article, the directors, other
than those constituting the first board of directors, shall be elected by the
stockholders, and each director shall hold office until his successor is elected
and qualified or until his earlier resignation or removal. Directors need not be
stockholders.
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Section 3.2 Vacancies and newly created directorships may be
filled by a majority of the directors then in office, though less than a quorum,
or by a sole remaining director.
Section 3.3 The business and affairs of the corporation shall
be managed by or under the direction of its board of directors which may
exercise all such powers of the corporation and do all such lawful acts and
things as are not by statute or by the certificate of incorporation or by these
by-laws directed or required to be exercised or done by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 3.4 The board of directors of the corporation may hold
meetings, both regular and special, either within or without the State of
Delaware.
Section 3.5 The first meeting of each newly elected board of
directors shall be held immediately after and at the same place as the meeting
of the stockholders at which it was elected and no notice of such meeting shall
be necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present.
Section 3.6 Regular meetings of the board of directors may be
held without notice at such time and at such place as shall from time to time be
determined by the board.
Section 3.7 Special meetings of the board may be called by the
president on two days notice to each director, either personally or by mail or
by telegram; special meetings shall be called by the president or secretary in
like manner and on like notice on the written request of two directors.
Section 3.8 At all meetings of the board a majority of
directors shall constitute a quorum for the transaction of business and the act
of a majority of the directors present at any meeting at which there is a quorum
shall be the act of the board of directors, except as may be otherwise
specifically provided by statute or by the certificate of incorporation. If a
quorum shall not be present at any meeting of the board of directors, the
directors present thereat may adjourn the
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meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.
Section 3.9 Unless otherwise restricted by the certificate of
incorporation or these by-laws, any action required or permitted to be taken at
any meeting of the board of directors or of any committee thereof may be taken
without a meeting, if all members of the board or of such committee, as the case
may be, consent thereto in writing, and the writing or writings are filed with
the minutes of proceedings of the board or committee.
COMMITTEES OF DIRECTORS
Section 3.10 The board of directors may, by resolution passed
by a majority of the whole board, designate one or more committees, each
committee to consist of one or more of the directors of the corporation. In the
absence or disqualification of a member of a committee, the member or members
thereof present at any meeting and not disqualified from voting, whether or not
he or they constitute a quorum, may unanimously appoint another member of the
board of directors to act at the meeting in the place of any such absent or
disqualified member. Any such committee, to the extent provided in the
resolution of the board of directors, shall have and may exercise all the powers
and authority of the board of directors in the management of the business and
affairs of the corporation, and may authorize the seal of the corporation to be
affixed to all papers which may require it; but no such committee shall have the
power or authority in reference to amending the certificate of incorporation,
adopting an agreement of merger or consolidation, recommending to the
stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, recommending to the stockholders a
dissolution of the corporation or a revocation of a dissolution or amending the
by-laws of the corporation; and, unless the resolution expressly so provides, no
such committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock or to adopt a certificate of ownership and
merger.
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Section 3.11 Each committee shall keep regular minutes of its
meetings and report the same to the board of directors when required.
COMPENSATION OF DIRECTORS
Section 3.12 The board of directors shall have the authority
to fix the compensation of directors.
PARTICIPATION IN MEETING BY TELEPHONE
Section 3.13 Members of the board of directors or any
committee designated by such board may participate in a meeting of the board or
of a committee of the board by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
subsection shall constitute presence in person at such meeting.
ARTICLE IV
NOTICES
Section 4.1 Notices to directors and stockholders shall be in
writing and delivered personally, mailed, faxed or sent by telegram to the
directors or stockholders at their addresses appearing on the books of the
corporation. Notice sent by regular mail shall be deemed to be given two days
after the same shall be mailed.
Section 4.2 Whenever any notice is required to be given under
the provisions of the statutes or of the certificate of incorporation or by
these by-laws, a waiver thereof in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent to notice. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting, except when the person attends a
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
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regular, or special meeting of the stockholders, directors, or members of a
committee of directors need be specified in any written waiver of notice.
ARTICLE V
OFFICERS
Section 5.1 The officers of the corporation shall be chosen by
the board of directors as they deem appropriate and may include a president, a
vice-president, a secretary and a treasurer. The board of directors may also
choose additional vice-presidents, and one or more assistant secretaries and
assistant treasurers. Such officers shall hold their offices for such terms and
shall exercise such powers and perform such duties as shall be determined from
time to time by the board. Any number of offices may be held by the same person,
unless the certificate of incorporation otherwise provides.
Section 5.2 The salaries of all officers and agents of the
corporation shall be fixed by the board of directors.
Section 5.3 The officers of the corporation shall hold office
until their successors are chosen and qualified. Any officer elected or
appointed by the board of directors may be removed at any time by the
affirmative vote of a majority of the board of directors. Any vacancy occurring
in any office of the corporation shall be filled by the board of directors.
THE PRESIDENT
Section 5.4 If appointed by the board of directors and to the
extent consistent with the powers and duties assigned by the board of directors,
the president shall be the chief executive officer of the corporation, shall
preside at all meetings of the stockholders and the board of directors, shall
have general and active management of the business of the corporation and shall
see that all orders and resolutions of the board of directors are carried into
effect.
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Section 5.5 The president may execute bonds, mortgages and
other contracts requiring a seal, under the seal of the corporation, except
where required by law to be otherwise signed and executed.
THE VICE-PRESIDENTS
Section 5.6 If appointed by the board of directors and to the
extent consistent with the powers and duties assigned by the board of directors,
the vice-president, or if there shall be more than one, the vice-presidents in
the order determined by the board of directors, shall, in the absence or
disability of the president, perform the duties and exercise the powers of the
president and shall perform such other duties and have such other powers as the
board of directors may from time to time prescribe.
THE SECRETARY AND ASSISTANT SECRETARIES
Section 5.7 If appointed by the board of directors and to the
extent consistent with the powers and duties assigned by the board of directors,
the secretary shall attend all meetings of the board of directors and all
meetings of the stockholders and record all the proceedings of the meetings of
the corporation and of the board of directors in a book to be kept for that
purpose and shall perform like duties for the standing committees when required.
He shall give, or cause to be given, notice of all meetings of the stockholders
and special meetings of the board of directors, and shall perform such other
duties as may be prescribed by the board of directors or president, under whose
supervision he shall be. He shall have custody of the corporate seal of the
corporation and he, or an assistant secretary, shall have authority to affix the
same to any instrument requiring it and when so affixed, it may be attested by
his signature or by the signature of such assistant secretary. The board of
directors may give general authority to any other officer to affix the seal of
the corporation and to attest the affixing by his signature.
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Section 5.8 If appointed by the board of directors and to the
extent consistent with the powers and duties assigned by the board of directors,
the assistant secretary, or if there be more than one, the assistant secretaries
in the order determined by the board of directors, shall, in the absence or
disability of the secretary, perform the duties and exercise the powers of the
secretary and shall perform such other duties and have such other powers as the
board of directors may from time to time prescribe.
THE TREASURER AND ASSISTANT TREASURERS
Section 5.9 If appointed by the board of directors and to the
extent consistent with the powers and duties assigned by the board of directors,
the treasurer shall have the custody of the corporate funds and securities and
shall keep full and accurate accounts of receipts and disbursements in books
belonging to the corporation and shall deposit all moneys and other valuable
effects in the name and to the credit of the corporation in such depositories as
may be designated by the board of directors.
Section 5.10 He shall disburse the funds of the corporation as
may be ordered by the board of directors, taking proper vouchers for such
disbursements, and shall render to the president and the board of directors at
its regular meetings or when the board of directors so requires, an account of
all his transactions as treasurer and of the financial condition of the
corporation.
Section 5.11 If required by the board of directors, he shall
give the corporation a bond (which shall be renewed every six years) in such sum
and with such surety or sureties as shall be satisfactory to the board of
directors for the faithful performance of the duties of his office and for the
restoration to the corporation, in case of his death, resignation, retirement or
removal from office, of all books, papers, vouchers, money and other property of
whatever kind in his possession or under his control belonging to the
corporation.
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Section 5.12 If appointed by the board of directors and to the
extent consistent with the powers and duties assigned by the board of directors,
the assistant treasurer, or if there shall be more than one, the assistant
treasurers in the order determined by the board of directors, shall, in the
absence or disability of the treasurer, perform the duties and exercise the
powers of the treasurer and shall perform such other duties and have such other
powers as the board of directors may from time to time prescribe.
ARTICLE VI
CERTIFICATES OF STOCK
Section 6.1 Every holder of stock in the corporation shall be
entitled to have a certificate signed by, or in the name of the corporation by,
the chairman or vice-chairman of the board of directors, or president or a
vice-president and the treasurer or an assistant treasurer, or the secretary or
an assistant secretary of the corporation, certifying the number of shares owned
by him in the corporation.
Section 6.2 Where a certificate is signed (i) by a transfer
agent or an assistant transfer agent or (ii) by a transfer clerk acting on
behalf of the corporation and a registrar, the signature of any such chairman or
vice-chairman of the board of directors, president, vice-president, treasurer,
assistant treasurer, secretary or assistant secretary may be by facsimile. In
case any officer or officers who have signed, or whose facsimile signature or
signatures have been used on, any such certificate or certificates shall cease
to be such officer or officers of the corporation, whether because of death,
resignation or otherwise, before such certificate or certificates have been
delivered by the corporation, such certificate or certificates may nevertheless
be adopted by the corporation and be issued and delivered as though the person
or persons who signed such certificate or certificates or whose facsimile
signature or signatures have been used thereon had not ceased to be such officer
or officers of the corporation.
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LOST CERTIFICATES
Section 6.3 The board of directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the board of
directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or his legal representative, to give the corporation a bond in
such sum as it may direct as indemnity against any claim that may be made
against the corporation with respect to the certificate alleged to have been
lost, stolen or destroyed upon the issuance of such new certificate.
TRANSFERS OF STOCK
Section 6.4 Upon surrender to the corporation or the transfer
agent of the corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transactions upon its books, unless the corporation has a duty to inquire as to
adverse claims with respect to such transfer which has not been discharged. The
corporation shall have no duty to inquire into adverse claims with respect to
such transfer unless (a) the corporation has received a written notification of
an adverse claim at a time and in a manner which affords the corporation a
reasonable opportunity to act on it prior to the issuance of a new, reissued or
re-registered share certificate and the notification identifies the claimant,
the registered owner and the issue of which the share or shares is a part and
provides an address for communications directed to the claimant; or (b) the
corporation has required and obtained, with respect to a fiduciary, a copy of a
will, trust, indenture, articles of co-partnership, by-laws or other
controlling instruments, for a purpose other than to obtain appropriate evidence
of the
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appointment or incumbency of the fiduciary, and such documents indicate, upon
reasonable inspection, the existence of an adverse claim.
Section 6.5 The corporation may discharge any duty of inquiry
by any reasonable means, including notifying an adverse claimant by registered
or certified mail at the address furnished by him or, if there be no such
address, at his residence or regular place of business that the security has
been presented for registration of transfer by a named person, and that the
transfer will be registered unless within thirty days from the date of mailing
the notification, either (a) an appropriate restraining order, injunction or
other process issues from a court of competent jurisdiction; or (b) an indemnity
bond, sufficient in the corporation's judgment to protect the corporation and
any transfer agent, registrar or other agent of the corporation involved from
any loss which it or they may suffer by complying with the adverse claim, is
filed with the corporation.
FIXING RECORD DATE
Section 6.6 (a) In order that the corporation may determine
the stockholders entitled to notice or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the board of directors may fix a record date, which record
date shall not precede the date upon which the resolution fixing the record date
is adopted by the board of directors, and which record date shall not be more
than sixty nor less than ten days before the date of such meeting.
(b) If no record date is fixed:
(1) The record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day preceding the day
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on which notice is given, or, if notice is waived, at the close of business on
the day preceding the day on which the meeting is held.
(2) The record date for determining
stockholders entitled to express consent to corporate action in writing without
a meeting, when no prior action by the board of directors is necessary, shall be
the first date on which a signed written consent is delivered to the
corporation.
(3) The record date for determining
stockholders for any other purpose shall be at the close of business on the day
on which the board of directors adopts the resolution relating thereto.
(c) A determination of stockholders of record
entitled to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the board of directors may
fix a new record date for the adjourned meeting.
REGISTERED STOCKHOLDERS
Section 6.7 Prior to due presentment for transfer of any share
or shares, the corporation shall treat the registered owner thereof as the
person exclusively entitled to vote, to receive notifications and to all other
benefits of ownership with respect to such share or shares, and shall not be
bound to recognize any equitable or other claim to or interest in such share or
shares on the part of any other person, whether or not it shall have express or
other notice thereof, except as otherwise provided by the laws of Delaware.
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ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
Section 7.1 Dividends upon the capital stock of the
corporation, subject to the provisions of the certificate of incorporation, if
any, may be declared by the board of directors at any regular or special
meeting. Dividends may be paid in cash, in property, or in shares of the capital
stock, subject to the provisions of the certificate of incorporation.
Section 7.2 Before payment of any dividend, there may be set
aside out of any funds of the corporation available for dividends such sum or
sums as the directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the corporation, or
for such other purpose as the directors shall think conducive to the interest of
the corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
ANNUAL STATEMENT
Section 7.3 The board of directors shall present at each
annual meeting, and at any special meeting of the stockholders when called for
by vote of the stockholders, a full and clear statement of the business and
condition of the corporation.
CHECKS
Section 7.4 All checks or demands for money and notes of the
corporation shall be signed by such officer or officers or such other persons as
the board of directors may from time to time designate.
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FISCAL YEAR
Section 7.5 The fiscal year of the corporation shall be as
determined by the board of directors.
ARTICLE VIII
AMENDMENTS
Section 8.1 These by-laws may be altered or repealed at any
regular meeting of the stockholders or of the board of directors or at any
special meeting of the stockholders or of the board of directors if notice of
such alteration or repeal be contained in the notice of such special meeting.
ARTICLE IX
INDEMNIFICATION
Section 9.1 The corporation shall indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that such person is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if such
person acted in good faith and in a manner such person reasonably believed to be
in or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which such
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person reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that such person's conduct was unlawful.
Section 9.2 The corporation shall indemnify any person who was
or is a party, or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that such person is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred by
such person in connection with the defense or settlement of such action or suit
if such person acted in good faith and in a manner such person reasonably
believed to be in or not opposed to the best interests of the corporation and
except that no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
Section 9.3 To the extent that a director, officer, employee
or agent of the corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in sections 9.1 or 9.2 of
this Article, or in defense of any claim, issue or matter therein, such person
shall be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection therewith.
Section 9.4 Any indemnification under sections 9.1 or 9.2 of
this Article (unless ordered by a court) shall be made by the corporation only
as authorized in the specific case upon a
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determination that indemnification of the present or former director, officer,
employee or agent is proper in the circumstances because such person has met the
applicable standard of conduct set forth in Section 9.1 or 9.2 of this Article.
Such determination shall be made:
(a) by a majority vote of directors who were
not parties to such action, suit or proceeding, even though less than a quorum;
(b) by a committee of such directors
designated by a majority vote of such directors, even though less than a quorum;
(c) if there are no such directors, or if
such directors so direct, by independent legal counsel in a written opinion; or
(d) by the stockholders.
Section 9.5 Expenses (including attorneys' fees) incurred by
an officer or director in defending any civil, criminal, administrative or
investigative action, suit or proceeding may be paid by the corporation in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of such director or officer to repay such
amount if it shall ultimately be determined that he is not entitled to be
indemnified by the corporation as authorized in this section. Such expenses
(including attorneys' fees) incurred by directors and officers or other
employees and agents may be so paid upon such terms and conditions, if any, as
the board of directors deems appropriate.
Section 9.6 The indemnification and advancement of expenses
provided by, or granted pursuant to the other sections of this Article shall not
be deemed exclusive of any other rights to which those seeking indemnification
or advancement of expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in such
person's official capacity and as to action in another capacity while holding
such office.
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Section 9.7 At the discretion of the board of directors, the
corporation may purchase and maintain insurance on behalf of any person who is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against such person and incurred by
such person in any such capacity, or arising out of such person's status as
such, whether or not the corporation would have the power to indemnify such
person against such liability under the provisions of this Article.
Section 9.8 The indemnification and advancement of expenses
provided by, or granted pursuant to, this Article shall, unless otherwise
provided when authorized or ratified, continue as to a person who has ceased to
be a director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
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EXHIBIT 3.3
FILED
99 MAY 24 PM 3:16
SECRETARY OF STATE
TALLAHASSEE, FLORIDA
ARTICLES OF MERGER
The following articles of merger are being submitted in accordance with
Section 607.1105 of the Florida Statutes.
FIRST:
Whirlwind Ventures, Inc., a Florida corporation, and Direct III
Marketing, Inc., a Delaware corporation, have duly adopted the following Plan of
Merger:
PLAN OF MERGER
1. Names of the Parties. Whirlwind Ventures, Inc., a Florida
corporation ("Parent"), shall be merged with and into Direct III Marketing,
Inc., a Delaware corporation and a wholly owned subsidiary of Parent
("Subsidiary").
2. The Merger. Upon the filing of Articles of Merger with the Florida
Department of State and the filing of a Certificate of Ownership and Merger with
the Secretary of State of the State of Delaware (the "Effective Time"), Parent
shall cease to exist and Subsidiary shall be the surviving corporation, assuming
all obligations and obtaining all rights of Parent.
3. Conversion of Capital Stock. At the Effective Time, each issued and
outstanding share of Parent's capital stock will constitute and will be
exchangeable for one equivalent share of Subsidiary's capital stock. Subsidiary
shall issue one share of its capital stock to the holders of each share of
Parent's capital stock upon the surrender of any certificates therefor to
Subsidiary. The ten shares of common stock issued by Subsidiary to Parent prior
to the Effective Time, representing all of the issued and outstanding common
stock of Subsidiary prior to the Effective Time, shall be canceled at the
Effective Time.
SECOND:
This Plan of Merger was adopted by the Board of Directors of Parent on
May 19, 1999, the shareholders of Parent on May 20, 1999 and the Board of
Directors of Subsidiary on May 19, 1999.
IN WITNESS WHEREOF, the undersigned have executed these Articles of
Merger as of this 21st day of May, 1999.
Whirlwind Ventures, Inc. Direct III Marketing, Inc.
By: /s/ Stephen P. Harrington By: /s/ Robert deRose
---------------------------- ------------------
Stephen P. Harrington Robert deRose
President and Sole Director President, Chief Executive Officer
and Chairman of the Board of Directors
<PAGE>
THIS NOTE HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION,
ANY STATE SECURITIES COMMISSION OR ANY OTHER REGULATORY AUTHORITY. THIS NOTE IS
BEING OFFERED PURSUANT TO EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF
FEDERAL AND STATE SECURITIES LAW AND CANNOT BE RESOLD OR OTHERWISE TRANSFERRED
UNLESS IT IS SUBSEQUENTLY REGISTERED UNDER SUCH LAWS OR UNLESS EXEMPTIONS FROM
REGISTRATION ARE AVAILABLE. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR
ANY OTHER GOVERNMENTAL AGENCY HAS PASSED ON, RECOMMENDED, OR ENDORSED THE MERITS
OF THIS NOTE.
PROMISSORY NOTE
$200,000 September 30, 1999
FOR VALUE RECEIVED AND INTENDING TO BE LEGALLY BOUND HEREBY, Direct III
Marketing, Inc., a Delaware corporation having its principal executive office at
12760 High Bluff Drive, Suite 210, San Diego, California 92130 (hereinafter
referred to, and obligated as, "Borrower"), promises to pay to the order of
Salvatore Asaro ("Lender"), the principal sum of Two Hundred Thousand Dollars
($200,000), together with interest as set forth below, until the date on which
the principal amount is paid in full, payable in lawful money of the United
States of America in accordance with the terms of this Promissory Note (the
"Note").
1. Maturity Date. The Note shall have a Maturity Date (the "Maturity
Date") of, and the outstanding principal amount hereunder and all interest
accrued hereon shall be payable on, the earlier of: (a) May 15, 2000; or (b) the
date on which Borrower receives the proceeds of equity financing in an aggregate
sum of One Million ($1,000,000.00) Dollars or more.
2. Interest.
(a) During the period beginning on the date hereof and ending on the
Maturity Date, interest shall accrue daily on the outstanding principal amount
hereunder at the simple rate of interest of twelve (12%) percent per annum.
(b) Interest shall be calculated hereunder for the actual number of
days that the principal is outstanding, based on a three hundred sixty (360) day
year.
3. Payment. No payments of principal or accrued interest shall be due
on the Note until the Maturity Date.
4. Prepayments. The Borrower may prepay any or all of the principal
indebtedness evidenced by this Note at any time prior to the Maturity Date,
without penalty or premium.
5. Security. The indebtedness evidenced by this Note will be unsecured.
<PAGE>
6. [Omitted].
7. Lender's Rights Upon Default.
Each of the following events shall constitute an "Event of Default"
and, upon the occurrence thereof, Lender shall have the option, without the
necessity of giving any prior written notice to Borrower, (i) to accelerate the
maturity of this Note and all amounts payable hereunder and demand immediate
payment thereof and (ii) to exercise all of Lender's rights and remedies under
this Note or otherwise available at law or in equity:
(a) Borrower shall fail to pay the principal amount of this Note or
accrued interest thereon on the Maturity Date;
(b) Borrower shall default in its obligations under that certain
Stock Purchase Warrant of even date herewith executed and delivered by Borrower
to Lender;
(c) Borrower shall admit an inability to pay its debts as they
mature, or shall make a general assignment for the benefit of any of its or
their creditors;
(d) Proceedings in bankruptcy, or for reorganization of Borrower for
the readjustment of any of its or their debts, under the United States
Bankruptcy Code, as amended, or any part thereof, or under any other laws,
whether state or federal, for the relief of debtors, now or hereafter existing,
shall be commenced by Borrower or shall be commenced against Borrower and shall
not be dismissed within sixty (60) days of their commencement;
(e) A receiver or trustee shall be appointed for Borrower or for any
substantial part of its assets, or any proceedings shall be instituted for the
dissolution or the full or partial liquidation of Borrower, and if such
appointment or proceedings are involuntary, such receiver or trustee shall not
be discharged within sixty (60) days of appointment, or such proceedings shall
not be discharged within sixty (60) days of their commencement, or Borrower
shall discontinue its business(es) or materially change the nature of its
business(es); or
(f) Borrower shall suffer any final judgment for the payment of
money in excess of Five Hundred Thousand ($500,000.00) Dollars and the same
shall not be discharged or stayed within a period of thirty (30) days from the
date of entry thereof.
8. Application of Funds. All sums realized by Lender on account of this
Note, from whatever source received, shall be applied first to any fees, costs
and expenses (including attorney's fees) incurred by Lender, second to accrued
and unpaid interest, and then to principal.
9. Attorney's Fees and Costs. In the event that Lender engages an
attorney to represent it in connection with (a) any default by Borrower under
this Note, (b) the enforcement of any of Lender's rights and remedies hereunder,
(c) any bankruptcy or other insolvency proceedings commenced by or against
Borrower and/or (d) any actual litigation arising out of or related to any of
the foregoing, then Borrower shall be liable to and shall reimburse Lender on
demand for all reasonable attorneys' fees, costs and expenses incurred by Lender
in connection with any of the
2
<PAGE>
foregoing, provided a final and unappealable judgment in favor of Lender has
been issued in connection therewith.
10. Governing Law. This Note is made and delivered in the State of
Delaware and shall be construed and enforced in accordance with and governed by
the internal laws of the State of Delaware without regard to conflicts of laws
principles. Borrower agrees to the exclusive jurisdiction of the federal and
state courts located in the State of Delaware in connection with any matter
arising hereunder, including the collection and enforcement of this Note.
11. Stock Purchase Warrant and Common Stock. This Note is being issued
as part of a unit investment that also includes the issuance to Lender of
Twenty-five Thousand (25,000) shares of Borrower's voting common stock, par
value $.001 per share, and a Stock Purchase Warrant entitling Lender to purchase
an additional Twenty-five Thousand (25,000) shares of such common stock.
12. Miscellaneous.
(a) Borrower hereby waives protest, notice of protest, presentment,
dishonor, notice of dishonor and demand. To the extent permitted by law,
Borrower hereby waives and releases all errors, defects and imperfections in any
proceedings instituted by Lender under the terms of this Note.
(b) The rights and privileges of Lender under this Note shall inure
to the benefit of its successors and assigns. All representations, warranties
and agreements of Borrower made in connection with this Note shall bind
Borrower's successors and assigns.
(c) If any provision of this Note shall for any reason be held to be
invalid or unenforceable, such invalidity or unenforceability shall not affect
any other provision hereof, but this Note shall be construed as if such invalid
or unenforceable provision had never been contained herein.
(d) The waiver of any Event of Default or the failure of Lender to
exercise any right or remedy to which it may be entitled shall not be deemed to
be a waiver of any subsequent Event of Default or of Lender's or Lender's right
to exercise that or any other right or remedy to which Lender is entitled.
(e) The rights and remedies of Lender under this Note shall be in
addition to any other rights and remedies available to Lender at law or in
equity, all of which may be exercised singly or concurrently.
(f) Lender shall have the right, without the prior consent of
Borrower, to assign all of Lender's rights and obligations hereunder.
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<PAGE>
IN WITNESS WHEREOF, Borrower has duly executed this Promissory Note the
day and year first above written and has hereunto set hand and seal.
DIRECT III MARKETING, INC.
By: /s/ Robert deRose
-------------------------------
Robert deRose, President
4
<PAGE>
EXHIBIT 3.4
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 05/21/1999
991204130 - 3020922
CERTIFICATE OF OWNERSHIP AND MERGER
MERGING
WHIRLWIND VENTURES, INC.
(a Florida corporation)
WITH AND INTO
DIRECT III MARKETING, INC.
(a Delaware corporation)
Whirlwind Ventures, Inc., a corporation organized and existing under
the laws of the State of Florida ("Parent"), does hereby certify:
FIRST: that Parent was incorporated on December 23, 1986, pursuant to
the Florida Business Corporation Act, the provisions of which permit the merger
of a corporation of another state and a corporation organized and existing under
the laws of the State of Florida.
SECOND: that Parent owns all of the outstanding shares of the capital
stock of Direct III Marketing, Inc., a corporation incorporated on March 26,
1999, pursuant to the General Corporation Laws of the State of Delaware
("Subsidiary").
THIRD: that the sole director of Parent adopted the following
resolutions by written consent on May 19, 1999:
RESOLVED, that Parent merge itself with and into Subsidiary, which
shall obtain all of the rights and assume all of the obligations of Parent;
FURTHER RESOLVED, that the merger shall be effective upon the filing of
a Certificate of Ownership and Merger with the Secretary of State of the State
of Delaware and the filing of Articles of Merger with the Florida Department of
State; and
<PAGE>
FURTHER RESOLVED, that Subsidiary shall issue one share of its common
stock in exchange for each share of Parent's common stock currently issued and
outstanding upon surrender of any certificates therefor.
FOURTH: that the merger has been adopted, approved, certified, executed
and acknowledged by Parent in accordance with the laws of the State of Florida,
under which the corporation was organized.
IN WITNESS WHEREOF, Whirlwind Ventures, Inc. has caused this
Certificate to be signed by Stephen P. Harrington, its President and sole
Director, as of this 21st day of May, 1999.
/s/ Stephen P. Harrington
-----------------------------------
Stephen P. Harrington, President
and Sole Director
2
<PAGE>
EXHIBIT 4.1
NOT VALID UNLESS COUNTERSIGNED BY TRANSFER AGENT
INCORPORATED UNDER THE LAWS OF THE STATE OF FLORIDA
CUSIP NO. 254567 10 0
DIRECT III MARKETING, INC.
AUTHORIZED COMMON STOCK: 50,000,000 SHARES
PR VALUE: $.001
THIS CERTIFIES THAT
IS THE RECORD HOLDER OF
Shares of Direct III Marketing, Inc. Common Stock
transferable on the books of the Corporation in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed. This Certificate
is not valid until countersigned by the Transfer Agent and registered by the
Registrar.
Witness the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated:
Secretary:
President:
<PAGE>
EXHIBIT 10.1
DIRECT III MARKETING, INC.
STOCK OPTION PLAN
<PAGE>
TABLE OF CONTENTS
Page No.
--------
ARTICLE 1. DEFINITIONS 1
1.1. General 1
ARTICLE 2. SHARES SUBJECT TO PLAN 4
2.1. Shares Subject to Plan 4
2.2. Add-back of Options 5
ARTICLE 3. GRANTING OF OPTIONS 5
3.1. Eligibility 5
3.2. Qualification for Incentive Stock Options 5
3.3. Granting of Options 5
ARTICLE 4. TERMS OF OPTIONS 6
4.1. Option Agreement 6
4.2. Option Price 6
4.3. Option Term 7
4.4. Option Vesting 7
4.5. Continued Employment 8
ARTICLE 5. EXERCISE OF OPTIONS 8
5.1. Partial Exercise 8
5.2. Manner of Exercise 8
5.3. Conditions to Issuance of Stock 9
5.4. Rights as Stockholders 9
5.5. Ownership and Transfer Restrictions 9
5.6. Limitations on Exercise of Options 10
ARTICLE 6. ADMINISTRATION 10
6.1. Compensation Committee 10
6.2. Duties and Powers of Committee 11
6.3. Majority Rule; Unanimous Written Consent 11
6.4. Compensation; Professional Assistance: Good Faith Actions 11
ARTICLE 7. MISCELLANEOUS PROVISIONS 11
7.1. Not Transferable 11
7.2. Amendment, Suspension or Termination of this Plan 12
7.3. Changes in Common Stock or Assets of the Company,
Acquisition or Liquidation of the Company and Other
Corporate Events. 12
(i)
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7.4. Approval of Plan by Stockholders 14
7.5. Tax Withholding 15
7.6. Loans 15
7.7. Forfeiture Provisions 15
7.8. Limitations Applicable to Section 16 Persons and
Performance-Based Compensation 15
7.9. Effect of Plan Upon Options and Compensation Plans 16
7.10. Compliance with Laws 16
7.11. Titles 16
7.12. Governing Law 16
(ii)
<PAGE>
DIRECT III MARKETING, INC.
STOCK OPTION PLAN
DIRECT III MARKETING, INC., a Delaware corporation (the "Company"),
adopts the Direct III Marketing, Inc. Stock Option Plan (the "Plan"), effective
April 21, 1999, for the benefit of eligible Employees of the Employer (as
defined in Section 1.1).
The purposes of this Plan are (a) to recognize and compensate selected
Employees of the Company who contribute to the development and success of the
Company; (b) to maintain the competitive position of the Company by attracting
and retaining Employees; and (c) to provide incentive compensation to such key
Employees based upon the Company's performance.
ARTICLE 1. DEFINITIONS
0.1. General. Wherever the following initially capitalized terms
are used in this Plan they shall have the meanings specified below, unless the
context clearly indicates otherwise.
"Award Limit" shall mean One Hundred Thousand (100,000) shares
of Common Stock.
"Board" shall mean the Board of Directors of the Company, as
comprised from time to time.
"Change in Control" shall mean a change in ownership or
control of the Company effected through any of the following transactions:
(a) Any person or related group of persons (other
than the Company or a person that directly or indirectly controls, is controlled
by, or is under common control with, the Company) directly or indirectly
acquires beneficial ownership (within the meaning of Rule 13d-3 under the
Exchange Act) of securities possessing more than fifty percent (50%) of the
total combined voting power of the Company's outstanding securities pursuant to
a tender or exchange offer made directly to the Company's stockholders which the
Board does not recommend such stockholders to accept; or
(b) There is a change in the composition of the Board
over a period of no more than thirty-six (36) consecutive months such that a
majority of the Board members (rounded up to the nearest whole number) ceases,
by reason of one or more proxy contests for the election of Board members, to be
comprised of individuals who either (i) have been Board members continuously
since the beginning of such period or (ii) have been elected or nominated for
election as Board members during such period by at least a majority of the Board
members described in clause (i) who were still in office at the time such
election or nomination was approved by the Board; or
<PAGE>
(c) There is a successful initial public offering of
the Company's Common Stock.
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
"Committee" shall mean the Compensation Committee of the
Board, appointed as provided in Section 6.1, as comprised from time to time, or
such other Committee designated by the Board to administer the provisions of
this Plan.
"Common Stock" shall mean the common stock of the Company.
"Company" shall mean Direct III Marketing, Inc., a Delaware
corporation.
"Corporate Transaction" shall mean any of the following
stockholder-approved transactions to which the Company is a party:
(a) A merger or consolidation in which the Company is
not the surviving entity, except for a transaction the principal purpose of
which is to (i) change the State in which the Company is incorporated, (ii) form
a holding company, or (iii) effect a similar reorganization as to form whereupon
this Plan and all Options are assumed by the successor entity;
(b) The sale, transfer, exchange or other disposition
of all or substantially all of the assets of the Company, in complete
liquidation or dissolution of the Company in a transaction not covered by the
exceptions to clause (a), above; or
(c) Any reverse merger in which the Company is the
surviving entity but in which securities possessing more than fifty percent
(50%) of the total combined voting power of the Company's outstanding securities
are transferred or issued to a person or persons different from those who held
such securities immediately prior to such merger.
"Director" shall mean a member of the Board.
"Employee" shall mean any officer or other employee (as
defined in accordance with Section 3401(c) of the Code) of the Employer.
"Employer" shall mean the Company and each member of (i) a
controlled group of corporations or (ii) trades or businesses under common
control, or (iii) an affiliated service group which, in each case, shall include
the Company, as determined under Section 414 of the Code.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
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<PAGE>
"Fair Market Value" of a share of Common Stock, as of a given
date shall be (i) the closing price of a share of Common Stock on the principal
exchange on which shares of Common Stock are then trading, if any (or as
reported on any composite index which includes such principal exchange), on the
trading day previous to such date, or if shares were not traded on the trading
day previous to such date, then on the next preceding date on which a trade
occurred, or (ii) if Common Stock is not traded on an exchange but is quoted on
NASDAQ or a successor quotation system, either the (i) closing sale price or
(ii) the mean between the closing representative bid and asked prices for the
Common Stock on the trading day previous to such date as reported by NASDAQ or
such successor quotation systems, as may be appropriate, or (iii) if Common
Stock is not publicly traded on an exchange and not quoted on NASDAQ or a
successor quotation system, the Fair Market Value of a share of Common Stock as
established by the Committee acting in good faith.
"Incentive Stock Option" shall mean an option which conforms
to the applicable provisions of Section 422 of the Code and which is designated
as an Incentive Stock Option by the Committee.
"Independent Director" shall mean a member of the Board who is
not also an Employee of the Employer.
"Non-Qualified Stock Option" shall mean an Option which the
Committee does not designate as an Incentive Stock Option.
"Option" shall mean a stock option granted under Article 3 of
this Plan. An option granted under this Plan shall, as determined by the
Committee, be either a Non-Qualified Stock Option or an Incentive Stock Option;
provided, however, that Options granted to Independent Directors shall be
Non-Qualified Stock Options.
"Optionee" shall mean an Employee granted an Option under this
Plan.
"Plan" shall mean the Direct III Marketing, Inc. Stock Option
Plan, as amended from time to time.
"QDRO" shall mean a qualified domestic relations order as
defined by the Code or Title I of the Employee Retirement Income Security Act of
1974, as amended, or the rules thereunder.
"Rule 16b-3" shall mean that certain Rule 16b-3 under the
Exchange Act, as such Rule may be amended from time to time.
"Section 162(m) Participant" shall mean any Employee
designated by the Committee to receive Options whose compensation for the fiscal
year in which the Employee is so designated or a future fiscal year may be
subject to the limit on deductible compensation imposed by Section 162(m) of the
Code, as determined by the Committee in its sole discretion.
3
<PAGE>
"Subsidiary" shall mean a corporation in an unbroken chain of
corporations beginning with the Company if each of the corporations other than
the last corporation in the unbroken chain then owns stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.
"Termination of Employment" shall mean the time when the
employee-employer relationship between an Optionee and the Employer is
terminated for any reason, with or without cause, including, but not by way of
limitation, a termination by resignation, discharge, death, disability or
retirement, but excluding (i) terminations where there is a simultaneous
reemployment or continuing employment of an Optionee by the Employer, and (ii)
at the discretion of the Committee, terminations which result in a temporary
severance of the employee-employer relationship. The Committee, in its absolute
discretion, shall determine the effect of all matters and questions relating to
Termination of Employment (subject to the provisions of any agreement between an
Employee and the Employer), including, but not by way of limitation, the
question of whether a Termination of Employment resulted from a discharge for
good cause, the application of the provisions of Section 7.7, and all questions
of whether particular leaves of absence constitute Terminations of Employment,
provided, however, that, unless otherwise determined by the Committee in its
discretion, a leave of absence, change in status from an employee to an
independent contractor or other change in the employee-employer relationship
shall constitute a Termination of Employment if, and to the extent that, such
leave of absence, change in status or other change interrupts employment for the
purposes of Section 422(a)(2) of the Code and the then applicable regulations
and revenue rulings under said Section. Notwithstanding, any other provision of
this Plan, the Employer has an absolute and unrestricted right to terminate an
Employee's employment at any time for any reason whatsoever, with or without
cause, except to the extent expressly provided otherwise in writing.
ARTICLE 2. SHARES SUBJECT TO PLAN
2.1 Shares Subject to Plan.
(a) The stock subject to an Option shall be shares of the
Company's authorized but unissued, reacquired, or treasury Common Stock. The
aggregate number of such shares which may be issued upon exercise of such
Options shall not exceed Two Million (2,000,000).
(b) The maximum number of shares which may be subject to
Options granted under the Plan to any individual in any fiscal year shall not
exceed the Award Limit. To the extent required by Section 162(m) of the Code,
shares subject to Options which are canceled continue to be counted against the
Award Limit and if, after grant of an Option, the price of shares subject to
such Option is reduced, the transaction is treated as a cancellation of the
Option and a grant of a new Option and both the Option deemed to be canceled and
the Option deemed to be granted are counted against the Award Limit.
2.2 Add-back of Options. If any Option expires or is canceled
without having been fully exercised, or is exercised in whole or in part for
cash as permitted by this Plan, the number of shares
4
<PAGE>
subject to such Option but as to which such Option was not exercised prior to
its expiration, cancellation or exercise may again be optioned, granted or
awarded hereunder, subject to the limitations of Section 2.1. Furthermore, any
shares subject to Options which are adjusted pursuant to Section 7.3 and become
exercisable with respect to shares of stock of another corporation shall be
considered canceled and may again be optioned, granted or awarded hereunder,
subject to the limitations of Section 2.1. Shares of Common Stock which are
delivered by the Optionee or withheld by the Company upon the exercise of any
Option or other award under this Plan, in payment of the exercise price thereof,
may again be optioned, granted or awarded hereunder, subject to the limitations
of Section 2.1. Notwithstanding the provisions of this Section 2.2, no shares of
Common Stock may again be optioned, granted or awarded if such action would
cause an Incentive Stock Option to fail to qualify as an incentive stock option
under Section 422 of the Code.
ARTICLE 3. GRANTING OF OPTIONS
3.1 Eligibility. Any individual selected by the Committee pursuant
to Section 3.3.1 shall be eligible to be granted an Option.
3.2 Qualification for Incentive Stock Options. No person may be
granted an Incentive Stock Option under this Plan if such person (i) is not an
Employee, or (ii) at the time the Incentive Stock Option is granted, the
Employee owns stock possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company or any then existing
Subsidiary or parent corporation (within the meaning of Section 422 of the Code)
unless such Incentive Stock Option conforms to the applicable provisions of
Section 422 of the Code.
3.3 Granting of Options.
(a) The Committee shall from time to time, in its absolute
discretion, and subject to applicable limitations of this Plan:
(1) Determine who (including Employees who have previously
received Options under this Plan) should be granted Options;
(2) Subject to the Award Limit, determine the number of
shares to be subject to such Options granted to the selected Employees;
(3) Subject to Section 3.2 above, determine whether such
Options are to be Incentive Stock Options or Non-Qualified Stock Options; and
(4) Determine the terms and conditions of such Options,
consistent with this Plan, provided, however, that the terms and conditions of
Options intended to qualify as performance-based compensation as described in
Section 162(m)(4)(C) of the Code shall include, but not be limited to, such
terms and conditions as may be necessary to meet the applicable provisions of
Section 162(m) of the Code.
5
<PAGE>
(b) The Committee shall issue the Option and may impose such
conditions on the grant of the Option as it deems appropriate. Without limiting
the generality of the preceding sentence, the Committee may, in its discretion
and on such terms as it deems appropriate, require as a condition on the grant
of an Option to an Employee that the Employee surrender for cancellation some or
all of the unexercised Options which have been previously granted to him or her
under this Plan or otherwise. An Option, the grant of which is conditioned upon
such surrender, may have an option price lower (or higher) than the exercise
price of such surrendered Option, may cover the same (or a lesser or greater)
number of shares as such surrendered Option or other award, may contain such
other terms as the Committee deems appropriate, and shall be exercisable in
accordance with its terms, without regard to the number of shares, price,
exercise period or any other term or condition of such surrendered Option or
other award.
(c) Any Incentive Stock Option granted under this Plan may be
modified by the Committee to disqualify such option from treatment as an
"incentive stock option" under Section 422 of the Code.
ARTICLE 4. TERMS OF OPTIONS
4.1 Option Agreement. Each Option shall be evidenced by a written
Stock Award Agreement, which shall be executed by the Optionee and an authorized
officer of the Company and which shall contain such terms and conditions as the
Committee shall determine, consistent with this Plan. Stock Award Agreements
evidencing Options intended to qualify as performance-based compensation as
described in Section 162(m)(4)(C) of the Code shall contain such terms and
conditions as may be necessary to meet the applicable provisions of Section
162(m) of the Code. Stock Award Agreements evidencing Incentive Stock Options
shall contain such terms and conditions as may be necessary to meet the
applicable provisions of Section 422 of the Code.
4.2 Option Price. The price per share of the shares subject to
each Option shall be set by the Committee, provided, however, that such price
shall be greater than the par value of a share of Common Stock, unless otherwise
permitted by applicable state law, and (i) in the case of Incentive Stock
Options and Options intended to qualify as performance-based compensation as
described in Section 162(m)(4)(C) of the Code, such price shall not be less than
100% of the Fair Market Value of a share of Common Stock on the date the Option
is granted; (ii) in the case of Incentive Stock Options granted to an individual
then owning (within the meaning of Section 424(d) of the Code) more than 10% of
the total combined voting power of all classes of stock of the Company or any
Subsidiary or parent corporation thereof (within the meaning of Section 422 of
the Code) such price shall not be less than 110% of the Fair Market Value of a
share of Common Stock on the date the Option is granted; and (iii) in the case
of Non-Qualified Stock Options granted to Independent Directors after the
Company is subject to the Exchange Act, such price shall equal 100% of the Fair
Market Value of a share of Common Stock on the date the Option is granted.
4.3 Option Term. The term of an Option shall be set by the
Committee in its discretion, provided, however, that, (i) in the case of
Non-Qualified Stock Options granted to Independent Directors, the term shall be
ten (10) years from the date the Option is granted, without variation or
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<PAGE>
acceleration hereunder, but subject to Section 5.6, and (ii) in the case of
Incentive Stock Options, the term shall not be more than ten (10) years from the
date the Incentive Stock Option is granted, or five (5) years from such date if
the Incentive Stock Option is granted to an Employee then owning (within the
meaning of Section 424(d) of the Code) more than 10% of the total combined
voting power of all classes of stock of the Company or any Subsidiary or parent
corporation thereof (within the meaning of Section 422 of the Code). Such
Incentive Stock Options shall be subject to Section 5.6. Except as limited by
requirements of Section 422 of the Code and regulations and rulings thereunder
applicable to Incentive Stock Options and by Section 7.2 hereof, the Committee
may extend the term of any outstanding Option in connection with any Termination
of Employment of the Optionee, or amend any other term or condition of such
Option relating to such a termination.
4.4 Option Vesting.
(a) The period during which the right to exercise an Option in
whole or in part vests in the Optionee shall be set by the Committee and the
Committee may determine that an Option may not be exercised in whole or in part
for a specified period after it is granted; provided, however, that Options
granted to Independent Directors shall become exercisable in full on the date of
Option grant. At any time after grant of an Option, the Committee may, in its
sole and absolute discretion and subject to whatever terms and conditions it
selects, accelerate the period during which an Option vests.
(b) No portion of an Option which is non-vested at Termination
of Employment shall thereafter become exercisable, except as may be otherwise
provided by the Committee either in the Stock Award Agreement or by action of
the Committee or the Board, as the case may be, following the grant of the
Option.
(c) To the extent that the aggregate Fair Market Value of
stock with respect to which "incentive stock options" (within the meaning of
Section 422 of the Code, but without regard to Section 422(d) of the Code) are
exercisable for the first time by an Optionee during, any calendar year (under
the Plan and all other incentive stock option plans of the Company and any
Subsidiary) exceeds $100,000, such Options shall be treated as Non-Qualified
Options to the extent required or permitted by Section 422 of the Code. The rule
set forth in the preceding sentence shall be applied by taking Options into
account in the order in which they were granted. For purposes of this Section
4.4.3., the Fair Market Value of stock shall be determined as of the time the
Option with respect to such stock is granted.
4.5 Continued Employment. Nothing in this Plan or in any Stock
Award Agreement hereunder shall confer upon any Optionee any right to continue
in the employ of the Employer, or shall interfere with or restrict any of the
rights of the Employer, hereby expressly reserved, to discharge any Optionee at
any time for any reason whatsoever, with or without good cause.
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<PAGE>
ARTICLE 5. EXERCISE OF OPTIONS
5.1 Partial Exercise. An exercisable Option may be exercised in
whole or in part. However, an Option shall not be exercisable with respect to
fractional shares and the Committee may require that, by the terms of the
Option, a partial exercise can only be effective with respect to a minimum
number of shares.
5.2 Manner of Exercise. All or a portion of an exercisable Option
shall be deemed exercised upon delivery of all of the following to the Secretary
of the Company or his or her office:
(a) A written notice stating that the Option, or a portion
thereof, is exercised. The notice shall be signed by the Optionee or other
person then entitled to exercise the Option or such portion and shall specify
the number of shares in respect of which the Option is to be exercised;
(b) Such representations and documents as the Committee, in
its absolute discretion, deems necessary or advisable to effect compliance with
all applicable provisions of the Securities Act of 1933, as amended, and any
other federal or state securities laws or regulations. The Committee or Board
may, in its absolute discretion, also take whatever additional actions it deems
appropriate to effect such compliance including, without limitation, placing
legends on share certificates and issuing stop-transfer notices to agents and
registrars;
(c) In the event that the Option shall be exercised pursuant
to Section 7.1 by any person or persons other than the Optionee, appropriate
proof of the right of such person or persons to exercise the Option (such as a
copy of the appropriate court order); and
(d) The Committee may specify in the stock option award
agreement that the option can be exercised by one or more of the following
methods: full cash payment to the Secretary of the Company for the shares with
respect to which the Option, or portion thereof, is exercised. However, the
Committee, may in its discretion (i) allow a delay in payment up to thirty (30)
days from the date the Option, or portion thereof, is exercised, (ii) allow
payment, in whole or in part, through the delivery of shares of Common Stock
owned by the Optionee, duly endorsed for transfer to the Company with a Fair
Market Value on the date of delivery equal to the aggregate exercise price of
the Option or exercised portion thereof; (iii) allow payment, in whole or in
part, through the surrender of shares of Common Stock then issuable upon
exercise of the Option having a Fair Market Value on the date of Option exercise
equal to the aggregate exercise price of the Option or exercised portion
thereof, (iv) allow payment, in whole or in part, through the delivery of
property of any kind which constitutes good and valuable consideration, (v)
allow payment, in whole or in part, through the delivery of a full recourse
promissory note bearing interest (at no less than such rate as shall then
preclude the imputation of interest under the Code) and payable upon such terms
as may be prescribed by the Committee or the Board, (vi) allow payment, in whole
or in part, through the delivery of a notice that the Optionee has placed a
market sell order with a broker with respect to shares of Common Stock then
issuable upon exercise of the Option, and that the broker has been directed to
pay a sufficient portion of the net proceeds of the sale to the Company in
satisfaction of the Option exercise price; or (vii) allow payment through any
combination of the consideration
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provided in the foregoing subparagraphs (iii), (iv), (v) and (vi). In the case
of a promissory note, the Committee may also prescribe the form of such note and
the security to be given for such note. The Option may not be exercised,
however, by delivery of a promissory note or by a loan from the Company when or
where such loan or other extension of credit is prohibited by law.
5.3 Conditions to Issuance of Stock. The Company shall not be
required to issue or deliver any certificate or other indicium evidencing
ownership of shares of stock purchased upon the exercise of any Option or
portion thereof prior to fulfillment of all of the following conditions:
(a) The admission of such shares to listing on all stock
exchanges on which such class of stock is then listed;
(b) The completion of any registration or other qualification
of such shares under any state or federal law, or under the rulings or
regulations of the Securities and Exchange Commission or any other governmental
regulatory body which the Committee or Board shall in its absolute discretion,
deem necessary or advisable;
(c) The obtaining of any approval or other clearance from any
state or federal governmental agency or transfer agent based on Committee
instructions for non-certificated shares which the Committee (or Board, in the
case of Options granted to Independent Directors) shall, in its absolute
discretion, determine to be necessary or advisable;
(d) The lapse of such reasonable period of time following, the
exercise of the Option as the Committee (or Board, in the case of Options
granted to Independent Directors) may establish from time to time for reasons of
administrative convenience; and
(e) The receipt by the Company of full payment for such
shares, including payment of any applicable withholding tax.
5.4 Rights as Stockholders. The holders of Options shall not be,
nor have any of the rights or privileges of, stockholders of the Company in
respect of any shares purchasable upon the exercise of any part of an Option
unless and until certificates or other indicia representing such shares have
been issued by the Company to such holders.
5.5 Ownership and Transfer Restrictions. The Committee (or Board,
in the case of Options granted to Independent Directors), in its absolute
discretion, may impose at the time of grant such restrictions on the ownership
and transferability of the shares purchasable upon the exercise of an Option as
it deems appropriate. Any such restriction shall be set forth in the respective
Stock Award Agreement and may be referred to on the certificates or other
indicia evidencing such shares. The Committee may require the Employee to give
the Company prompt notice of any disposition of shares of Common Stock acquired
by exercise of an Incentive Stock Option within (i) two (2) years from the date
of granting such Option to such Employee or (ii) one year after the transfer of
such shares to such Employee. The Committee may direct that the certificates or
other indicia evidencing shares acquired by exercise of an Option refer to such
requirement to give prompt notice of disposition.
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5.6 Limitations on Exercise of Options.
(a) Incentive Stock Options. Unless otherwise granted by
Committee to an Employee for a shorter period, no Incentive Stock Option granted
hereunder may be exercised to any extent by anyone after the first to occur of
the following events: (a) the expiration of twelve (12) months from the date of
the Optionee's death; (b) the expiration of twelve (12) months from the date of
the Optionee's Termination of Employment by reason of his or her permanent and
total disability (within the meaning of Section 22(e)(3) of the Code); or (c)
the expiration of three (3) months from the date of the Optionee's Termination
of Employment for any reason other than such Optionee's death or his or her
permanent and total disability, unless the Optionee dies within said three-month
period.
(b) Non-Qualified Stock Options. Non-Qualified Stock Options
may be exercised up and until their expiration date. No Option may be exercised
after its expiration date. The Committee, in its complete discretion, may limit
the exercise of Non-Qualified Stock Options.
ARTICLE 6. ADMINISTRATION
6.1 Compensation Committee.
(a) The Compensation Committee shall consist of:
(1) For awards to Independent Directors, the entire
Board;
(2) For awards to Section 162(m) Participants, solely of
2 or more Independent Directors appointed by and holding office at the pleasure
of the Board, each of whom is both a "non-employee director" as defined by Rule
16b-3 and as "outside director" for purposes of Section 162(m) of the Code; or
(3) For all other awards as determined by the
Compensation Committee.
(b) Appointment of Committee members shall be effective upon
acceptance of appointment. Committee members may resign at any time by
delivering written notice to the Board. The Board may fill vacancies in the
Committee. If a Committee is not appointed, the Board shall be the Committee.
6.2 Duties and Powers of Committee. It shall be the duty of the
Committee to conduct the general administration of this Plan in accordance with
its provisions. The Committee shall have the power to interpret this Plan and
the agreements pursuant to which Options are granted, and to adopt such rules
for the administration, interpretation, and application of this Plan as are
consistent therewith and to interpret, amend or revoke any such rules.
Notwithstanding the foregoing, the full
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Board, acting by a majority of its members in office, shall conduct the general
administration of the Plan with respect to Options granted to Independent
Directors. Any such grant or award under this Plan need not be the same with
respect to each Optionee. Any such interpretations and rules with respect to
Incentive Stock Options shall be consistent with the provisions of Section 422
of the Code. In its absolute discretion, the Board may at any time and from time
to time exercise any and all rights and duties of the Committee under this Plan
except with respect to matters which under Rule 16b-3 or Section 162(m) of the
Code, or any regulations or rules issued thereunder, are required to be
determined in the sole discretion of the Committee.
6.3 Majority Rule; Unanimous Written Consent. The Committee shall
act by a majority of its members in attendance at a meeting at which a quorum is
present or by a memorandum or other written instrument signed by all members of
the Committee.
6.4 Compensation; Professional Assistance; Good Faith Actions.
Unless otherwise determined by the Board, members of the Committee shall receive
no compensation for their services. All expenses and liabilities which members
of the Committee incur in connection with the administration of this Plan shall
be borne by the Company. The Committee may, with the approval of the Board,
employ attorneys, consultants, accountants, appraisers, brokers, or other
persons. The Committee, the Company and the Company's officers and Directors
shall be entitled to rely upon the advice, opinions or valuations of any such
persons. All actions taken and all interpretations and determinations made by
the Committee or the Board in good faith shall be final and binding upon all
Optionees, the Company and all other interested persons. No members of the
Committee or Board shall be personally liable for any action, determination or
interpretation made in good faith with respect to this Plan, and all members of
the Committee and the Board shall be fully protected by the Company in respect
of any such action, determination or interpretation.
ARTICLE 7. MISCELLANEOUS PROVISIONS
7.1 Not Transferable. Options under this Plan may not be sold,
pledged, assigned, or transferred in any manner other than by will or the laws
of descent and distribution or pursuant to a QDRO, unless and until such rights
or awards have been exercised, or the shares underlying such rights or awards
have been issued, and all restrictions applicable to such shares have lapsed. No
Option or interest or right therein shall be liable for the debts, contracts or
engagements of the Optionee or his or her successors in interest or shall be
subject to disposition by transfer, alienation, anticipation, pledge,
encumbrance, assignment or any other means whether such disposition be voluntary
or involuntary or by operation of law by judgment, levy, attachment, garnishment
or any other legal or equitable proceedings (including bankruptcy), and any
attempted disposition thereof shall be null and void and of no effect, except to
the extent that such disposition is permitted by the preceding sentence.
During the lifetime of the Optionee, only he or she or his or
her personal representatives may exercise an Option (or any portion thereof)
granted to him or her under the Plan, unless it has been disposed of pursuant to
a QDRO. After the death of the Optionee, any exercisable portion of an Option
may, prior to the time when such portion becomes unexercisable under the Plan
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or the applicable Stock Award Agreement or other agreement, be exercised by his
or her personal representative or by any person empowered to do so under the
deceased Optionee's will or under the then applicable laws of descent and
distribution.
7.2 Amendment, Suspension or Termination of this Plan. Except as
otherwise provided in this Section 7.2, this Plan may be wholly or partially
amended or otherwise modified, suspended or terminated at any time or from time
to time by the Board or the Committee. However, without the approval of the
Company's stockholders given within twelve months before or after the action by
the Board or the Committee, no action of the Board or the Committee may, except
as provided in Section 7.3, increase the limits imposed in Section 2.1 on the
maximum number of shares which may be issued under this Plan or modify the Award
Limit, and no action of the Board or the Committee may be taken that would
otherwise require stockholder approval as a matter of applicable law, regulation
or rule. No amendment, suspension or termination of this Plan shall, without the
consent of the holder of Options, alter or impair any rights or obligations
under any Options theretofore granted or awarded, unless the award itself
otherwise expressly so provides. No Options may be granted during any period of
suspension or after termination of this Plan, and in no event may any Incentive
Stock Option be granted under this Plan after the first to occur of the
following events:
(a) The expiration of ten (10) years from the initial date the
Plan is adopted by the Board: or
(b) The expiration of ten (10) years from the date the Plan
initially is approved by the Company's stockholders under Section 7.4 below.
7.3 Changes in Common Stock or Assets of the Company, Acquisition
or Liquidation of the Company and Other Corporate Events.
(a) In the event that the Committee determines that any
dividend or other distribution (whether in the form of cash, Common Stock, other
securities, or other property), on account of a recapitalization,
reclassification, stock split, reverse stock split, reorganization, merger,
consolidation, split-up, spin-off, combination, repurchase, liquidation,
dissolution, or sale, transfer, exchange or other disposition of all or
substantially all of the assets of the Company (including, but not limited to, a
Corporate Transaction), or exchange of Common Stock or other securities of the
Company, issuance of warrants or other rights to purchase Common Stock or other
securities of the Company, or other similar corporate transaction or event, in
the Committee's sole discretion (or in the case of Options granted to
Independent Directors, the Board's sole discretion), affects the Common Stock
such that an adjustment is determined by the Committee to be appropriate in
order to prevent dilution or enlargement of the benefits or potential benefits
intended to be made available under the Plan or with respect to an Option, then
the Committee shall, in such manner as it may deem equitable, adjust any or all
of:
(1) The number and kind of shares of Common Stock with
respect to which Options may be granted under the Plan (including, but not
limited to, adjustments of the limitations in Section 2.1 on the maximum number
and kind of shares which may be issued and adjustments of the Award Limit),
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(2) The number and kind of shares of Common Stock subject
to outstanding Options, and
(3) The grant or exercise price with respect to any
Option.
(b) In the event of any Corporate Transaction or other
transaction or event described in Section 7.3.1 or any unusual or nonrecurring
transactions or events affecting the Company, any affiliate of the Company, or
the financial statements of the Company or any affiliate, or of changes in
applicable laws, regulations, or accounting principles, the Committee in its
discretion is hereby authorized to take any one or more of the following actions
whenever the Committee determines that such action is appropriate in order to
prevent dilution or enlargement of the benefits or potential benefits intended
to be made available under the Plan or with respect to any option, right or
other award under this Plan, to facilitate such transactions or events or to
give effect to such changes in laws, regulations or principles:
(1) In its sole and absolute discretion, and on such terms
and conditions as it deems appropriate, the Committee may provide, either by the
terms of the agreement or by action taken prior to the occurrence of such
transaction or event and either automatically or upon the Optionee's request,
for the purchase of any such Option for the payment of an amount of cash equal
to the amount that could have been attained upon the exercise of such option or
realization of the Optionee's rights had such option been currently exercisable
or payable or fully vested or the replacement of such option with other rights
or property selected by the Committee in its sole discretion;
(2) In its sole and absolute discretion, the Committee may
provide in terms of such Option that it cannot be exercised after such event;
(3) In its sole and absolute discretion, and on such terms
and conditions as it deems appropriate, the Committee may provide, by the terms
of such Option or by action taken prior to the occurrence of such transaction or
event, that for a specified period of time prior to such transaction or event,
such option or award shall be exercisable as to all shares covered thereby,
notwithstanding anything to the contrary in (i) Section 4.4 or (ii) the
provisions of such Option;
(4) In its sole and absolute discretion, and on such terms
and conditions as it deems appropriate, the Committee may provide, by the terms
of such Option or by action taken prior to the occurrence of such transaction or
event, that upon such event, such option or award be assumed by the successor or
survivor corporation, or a parent or subsidiary thereof, or shall be substituted
for by similar options or awards covering the stock of the successor or survivor
corporation, or a parent or subsidiary thereof, with appropriate adjustments as
to the number and kind of shares and prices; and
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(5) In its sole and absolute discretion, and on such terms
and conditions as it deems appropriate, the Committee may make adjustments in
the number and type of shares of Common Stock subject to outstanding Options
and/or in the terms and conditions of (including the grant or exercise price),
and the criteria included in, outstanding options, rights and awards and
options, rights and awards which may be granted in the future.
(6) None of the foregoing discretionary actions taken
under this Section 7.3 shall be permitted with respect to Options granted to
Independent Directors to the extent that such discretion would be inconsistent
with the applicable exemptive conditions of Rule 16b-3.
(c) Subject to Section 7.3.4 and 7.8, the Committee may, in
its discretion, at the time of grant, include such further provisions and
limitations in any Option agreement or certificate, as it may deem equitable and
in the best interests of the Company.
(d) With respect to Options which are granted to Section
162(m) Participants and are intended to qualify as performance-based
compensation under Section 162(m)(4)(C), no adjustment or action described in
this Section 7.3 or in any other provision of the Plan shall be authorized to
the extent that such adjustment or action would cause the Plan to violate
Section 422(b)(1) of the Code or would cause such option to fail to so qualify
under Section 162(m)(4)(C), as the case may be, or any successor provisions
thereto. Furthermore, no such adjustment or action shall be authorized to the
extent such adjustment or action would result in short-swing profits liability
under Section 16 or violate the exemptive conditions of Rule 16b-3 unless the
Committee determines that the option or other award is not to comply with such
exemptive conditions. The number of shares of Common Stock subject to any option
or award shall always be rounded to the next whole number.
7.4 Approval of Plan by Stockholders. This Plan will be submitted
for the approval of the Company's stockholders within twelve months after the
date of the Board's initial adoption of this Plan. If the stockholders fail to
approve such Plan, all options granted hereunder shall be Non-Qualified Stock
Options.
7.5 Tax Withholding. The Company shall be entitled to require
payment in cash or deduction from other compensation payable to each Optionee of
any sums required by federal, state or local tax law to be withheld with respect
to the issuance, vesting or exercise of any Option. The Committee may in its
discretion and in satisfaction of the foregoing requirement allow such Optionee
to elect to have the Company withhold shares of Common Stock otherwise issuable
under such Option (or allow the return of shares of Common Stock) having a Fair
Market Value equal to the sums required to be withheld.
7.6 Loans. The Committee may, in its discretion, extend one or
more loans to Employees in connection with the exercise or receipt of an Option
granted under this Plan. The terms and conditions of any such loan shall be set
by the Committee.
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7.7 Forfeiture Provisions. Pursuant to its general authority to
determine the terms and conditions applicable to awards under the Plan, the
Committee shall have the right (to the extent consistent with the applicable
exemptive conditions of Rule 16b-3) to provide, in the terms of Options, or to
require the recipient to agree by separate written instrument, that (i) any
proceeds, gains or other economic benefit actually or constructively received by
the recipient upon any receipt or resale of any Common Stock underlying such
award, must be paid to the Company, and (ii) the award shall terminate and any
unexercised portion of such award (whether or not vested) shall be forfeited, if
(a) a Termination of Employment occurs prior to a specified date, or within a
specified time period following receipt or exercise of the award, or (b) the
recipient at any time, or during a specified time period, engages in any
activity in competition with the Company, or which is inimical, contrary or
harmful to the interests of the Company, as further defined by the Committee (or
the Board, as applicable).
7.8 Limitations Applicable to Section 16 Persons and
Performance-Based Compensation. Notwithstanding any other provision of this
Plan, any Option granted to any individual who is then subject to Section 16 of
the Exchange Act shall be subject to any additional limitations set forth in any
applicable exemptive rule under Section 16 of the Exchange Act (including any
amendment to Rule 16b-3 of the Exchange Act) that are requirements for the
application of such exemptive rule. To the extent permitted by applicable law
and the Plan, Options granted or awarded hereunder shall be deemed amended to
the extent necessary to conform to such applicable exemptive rule. Furthermore,
notwithstanding any other provision of this Plan, any Option which is granted to
a Section 162(m) Participant and is intended to qualify as performance-based
compensation as described in Section 162(m)(4)(C) of the Code shall be subject
to any additional limitations set forth in Section 162(m) of the Code (including
any amendment to Section 162(m) of the Code) or any regulations or rulings
issued thereunder that are requirements for qualification as performance-based
compensation as described in Section 162(m)(4)(C) of the Code, and this Plan
shall be deemed amended to the extent necessary to conform to such requirements.
7.9 Effect of Plan Upon Options and Compensation Plans. The
adoption of this Plan shall not affect any other compensation or incentive plans
in effect for the Employer. Nothing in this Plan shall be construed to limit the
right of the Employer (i) to establish any other forms of incentives or
compensation for Employees, or (ii) to grant or assume options or other rights
otherwise than under this Plan in connection with any proper corporate purpose
including but not by way of limitation, the grant or assumption of options in
connection with the acquisition by purchase, lease, merger, consolidation or
otherwise, of the business stock or assets of any corporation, partnership,
limited liability company, firm or association.
7.10 Compliance with Laws. This Plan, the granting and vesting of
Options under this Plan and the issuance and delivery of shares of Common Stock
and the payment of money under this Plan or under Options awarded hereunder are
subject to compliance with all applicable federal and state laws, rules and
regulations (including but not limited to state and federal securities law and
federal margin requirements) and to such approvals by any listing, regulatory or
governmental authority as may, in the opinion of counsel for the Company, be
necessary or advisable in connection therewith. Any securities delivered under
this Plan shall be subject to such restrictions, and the
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person acquiring such securities shall, if requested by the Company, provide
such assurances and representations to the Company as the Company may deem
necessary or desirable to assure compliance with all applicable legal
requirements. To the extent permitted by applicable law, the Plan shall be
deemed amended to the extent necessary to conform to such laws, rules and
regulations.
7.11 Titles. Titles are provided herein for convenience only and
are not to serve as a basis for interpretation or construction of this Plan.
7.12 Governing Law. This Plan and any agreements hereunder shall
be administered, interpreted and enforced under the internal laws of the State
of Delaware without regard to conflicts of laws thereof.
I hereby certify that the foregoing Plan was duly adopted by the
Board of Directors of Direct III Marketing, Inc., on April 21, 1999.
Executed on this 21st day of April, 1999, at San Diego, California
/s/ DOUGLAS L. FEIST
-----------------------------
DOUGLAS L. FEIST
Secretary and General Counsel
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EXHIBIT 10.2
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION, ANY STATE
SECURITIES COMMISSION OR ANY OTHER REGULATORY AUTHORITY. THIS WARRANT AND SUCH
SECURITIES ARE BEING OFFERED PURSUANT TO EXEMPTIONS FROM THE REGISTRATION
REQUIREMENTS OF FEDERAL AND STATE SECURITIES LAW AND CANNOT BE RESOLD OR
OTHERWISE TRANSFERRED UNLESS THEY ARE SUBSEQUENTLY REGISTERED UNDER SUCH LAWS OR
UNLESS EXEMPTIONS FROM REGISTRATION ARE AVAILABLE. NEITHER THE SECURITIES AND
EXCHANGE COMMISSION NOR ANY OTHER GOVERNMENTAL AGENCY HAS PASSED ON,
RECOMMENDED, OR ENDORSED THE MERITS OF THIS WARRANT OR SUCH SECURITIES. THIS
WARRANT AND SUCH SECURITIES MAY BE TRANSFERRED ONLY IN COMPLIANCE WITH THE
CONDITIONS SPECIFIED IN THIS WARRANT.
September 30, 1999
DIRECT III MARKETING, INC.
STOCK PURCHASE WARRANT
Direct III Marketing, Inc., a Delaware corporation (the "Company"), for
value received, hereby certifies that Salvatore Asaro or his registered assigns,
is entitled to purchase from the Company, at any time or from time to time
during the period specified in Section 2 hereof, Twenty- five Thousand (25,000)
fully paid and nonassessable shares of voting common stock, par value $.001, of
the Company (the "Common Stock"), at an exercise price equal to Six ($6.00)
Dollars per share, subject to adjustment hereunder (the "Exercise Price"), and
subject to the other terms herein. As used herein, the term "Warrant Shares"
means the shares of Common Stock issuable upon exercise of this Stock Purchase
Warrant (the "Warrant").
This Warrant is subject to the following terms, provisions and
conditions:
1. Manner of Exercise; Issuance of Certificates; Payment for Shares.
Subject to the provisions hereof, this Warrant may be exercised by the holder
hereof, in whole or in part, by the surrender of this Warrant, together with a
completed exercise agreement in the form attached hereto (the "Exercise
Agreement"), to the Company during normal business hours on any business day at
the Company's principal executive offices (or such other office of the Company
as it may designate by notice to the holder hereof), and upon payment to the
Company in cash, by certified or official bank check or by wire transfer to an
account specified by the Company of the Exercise Price for the Warrant Shares
specified in the Exercise Agreement. The Warrant Shares so purchased shall be
deemed to be issued to the holder hereof or such holder's designee, as the
record owner of such shares, as of the close of business on the date on which
this Warrant shall have been surrendered, the completed Exercise Agreement shall
have been delivered, and payment shall have been made for such shares as set
forth above. Certificates for the Warrant Shares so purchased, representing the
aggregate number of shares specified in the Exercise Agreement, shall be
delivered to the holder hereof within five business days after this Warrant
<PAGE>
shall have been so exercised and surrendered to the Company. The certificates so
delivered shall be in such denominations as may be reasonably requested by the
holder hereof and shall be registered in the name of such holder or such other
name as such holder may designate subject to the transfer restrictions herein
and upon payment by such holder of any applicable transfer taxes. In the event
this Warrant is exercised in part, the Company shall also deliver a new Warrant
to the holder hereof, which Warrant shall be identical to this Warrant, except
that the number of Warrant Shares exercisable therefor shall be decreased by the
number of Warrant Shares so purchased.
2. Period of Exercise. This Warrant is exercisable at any time or from
time to time on or after the date first listed above, and before 5:00 p.m.,
eastern time on the fifth anniversary after the date hereof (the "Exercise
Period").
3. Certain Agreements of the Company. The Company hereby covenants and
agrees as follows:
(a) Shares to be Fully Paid. All Warrant Shares shall, upon issuance
in accordance with the terms of this Warrant, be validly issued, fully paid, and
nonassessable and free from all taxes, liens, and charges with respect to the
issue thereof.
(b) Reservation of Shares. During the Exercise Period, the Company
shall at all times have authorized, and reserved for the purpose of issuance
upon exercise of this Warrant, a sufficient number of shares of Common Stock to
provide for the exercise of this Warrant.
(c) Certain Actions Prohibited. The Company shall not, by amendment
of its certificate of incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities, or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed by it hereunder, but shall at all
times in good faith assist in the carrying out of all the provisions of this
Warrant and in the taking of all such action as may reasonably be requested by
the holder of this Warrant in order to protect the exercise privilege of the
holder of this Warrant against impairment, consistent with the tenor and purpose
of this Warrant. Without limiting the generality of the foregoing, the Company
shall take all such actions as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable shares of
Common Stock upon the exercise of this Warrant.
(d) Successors and Assigns. This Warrant shall be binding upon any
entity succeeding to the Company by merger, consolidation, or acquisition of all
or substantially all the Company's assets.
4. Antidilution Provisions. During the Exercise Period, the Exercise
Price and the number of Warrant Shares shall be subject to adjustment from time
to time as provided in this Section 4.
(a) Subdivision or Combination of Common Stock. If the Company at
any time subdivides (by any stock split, stock dividend, recapitalization,
reorganization, reclassification or otherwise) the Common Stock into a greater
number of shares, then, after the record date for effecting such subdivision,
the Exercise Price in effect immediately prior to such subdivision shall be
proportionately reduced and the number of Warrant Shares shall be
proportionately increased. If the Company at any time combines (by reverse stock
split, recapitalization, reorganization, reclassification or otherwise) the
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Common Stock into a smaller number of shares, then, after the record date for
effecting such combination, the Exercise Price in effect immediately prior to
such combination shall be proportionately increased and the number of Warrant
Shares shall be proportionately decreased.
(b) Consolidation, Merger or Sale. In case the Company after the
date hereof (a) shall consolidate with or merge into any other entity and shall
not be the continuing or surviving corporation of such consolidation or merger,
(b) shall permit any other entity to consolidate with or merge into the Company
and the Company shall be the continuing or surviving entity but, in connection
with such consolidation or merger, all outstanding shares of Common Stock shall
be changed into or exchanged for stock or other securities of any other entity
or cash or any other property, (c) shall transfer all or substantially all of
its properties or assets to any other person or entity, or (d) shall effect a
capital reorganization or reclassification of the Common Stock (other than a
capital reorganization or reclassification for which adjustment in the Exercise
Price is provided in Section 4(a)), then, and in the case of each such
transaction, proper provision shall be made so that, upon the basis and the
terms and in the manner provided in this Warrant, the holder of this Warrant,
upon the exercise hereof at any time after the consummation of such transaction,
shall be entitled to receive (at the aggregate Exercise Price in effect at the
time of such consummation for all Common Stock issuable upon such exercise
immediately prior to such consummation), in lieu of the Common Stock issuable
upon such exercise immediately prior to such consummation, the highest amount of
securities, cash or other property to which such holder would have been entitled
as a shareholder upon such consummation if such holder had exercised this
Warrant immediately prior thereto, subject to adjustments (subsequent to such
consummation) as nearly equivalent as possible to the adjustments provided for
in this Section 4. The Company shall not effect any such consolidation, merger,
or sale of assets, or capital reorganization or reclassification unless prior to
the consummation thereof, the continuing or surviving corporation (if other than
the Company) assumes by written instrument the obligations under this Section 4
and the obligations to deliver to the holder of this Warrant such securities,
cash or other property as, in accordance with the foregoing provisions, the
holder may be entitled to acquire.
(c) Distribution of Assets. In case the Company shall declare or
make any distribution of its assets to all holders of Common Stock as a partial
liquidating dividend, by way of return of capital or otherwise, other than a
dividend payable in shares of Common Stock or in cash out of earnings of the
Company, the holder of this Warrant shall be entitled upon exercise of this
Warrant to receive the amount of cash, securities or other property that would
have been payable to the holder had such holder been the holder of such shares
of Common Stock on the record date for the determination of stockholders
entitled to such distribution.
(d) Notice of Adjustment. Upon the occurrence of any event that
requires any adjustment of the Exercise Price and the number of Warrant Shares
issuable upon exercise of this Warrant, the Company shall give notice thereof to
the holder of this Warrant, which notice shall state the Exercise Price
resulting from such adjustment and the increase or decrease, if any, in the
number of Warrant Shares, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based.
(e) Adjustment of Exercise Price. No adjustment of the Exercise
Price shall be made in an amount less than 1% of the Exercise Price in effect at
the time such adjustment is otherwise required to be made, but any such lesser
adjustment shall be carried forward and shall be made at the time and together
with the next subsequent adjustment which, together with any adjustments so
carried forward, shall amount to not less than 1% of such Exercise Price. In the
3
<PAGE>
event that any adjustment of the Exercise Price as required herein results in a
fraction of a cent, such Exercise Price shall be rounded up to the nearest cent.
(f) No Fractional Shares If any exercise of this Warrant would
result in the issuance of a fractional share of Common Stock, such fractional
share shall be disregarded and the number of shares of Common Stock issuable
upon such exercise shall be the nearest whole number of shares.
(g) Other Notices. In case at any time:
(i) the Company shall declare any dividend upon the Common Stock
payable in shares of stock of any class or make any other distribution (other
than dividends or distributions payable in cash out of retained earnings) to the
holders of the Common Stock;
(ii) the Company shall offer for subscription pro rata to all
holders of the Common Stock any additional shares of stock of any class or other
rights;
(iii) there shall be any capital reorganization of the Company,
or reclassification of the Common Stock, or consolidation or merger of the
Company with or into, or sale of all or substantially all its assets to another
entity; or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company;
then, in each such case, the Company shall give to the holder of this Warrant
notice of (a) the date on which the books of the Company shall close or a record
shall be taken for determining the holders of Common Stock entitled to receive
any such dividend, distribution or subscription rights, or for determining the
holders of Common Stock entitled to vote in respect of any such transaction, and
(b) the date (or, if not then known, a reasonable approximation thereof by the
Company) when such transaction shall occur. Such notice shall also specify the
date on which the holders of Common Stock shall be entitled to receive such
dividend, distribution or subscription rights or to exchange their Common Stock
for stock or other securities or property deliverable upon consummation of such
transaction. Such notice shall be given at least 30 days prior to the record
date or the date on which the Company's books are closed in respect thereto.
Failure to give any such notice or any defect therein shall not affect the
validity of any action referred to in clauses (i), (ii), (iii) and (iv) above.
(h) Certain Events. In case any event shall occur as to which
paragraphs (a), (b) or (c) of this Section 4 are not strictly applicable but the
failure to make any adjustment would not fairly protect the rights represented
by this Warrant in accordance with the essential intent of such provisions, the
Company shall give notice of such event as provided in Section 4(d) and shall
make an appropriate adjustment in the Exercise Price and the number of Warrant
Shares to preserve, without dilution, the rights represented by this Warrant.
5. No Rights as a Stockholder. Prior to the exercise of this Warrant,
the holder hereof, as such, shall not be entitled to any rights of a stockholder
of the Company, including, without limitation, the right to vote, to consent, to
exercise any preemptive right, to receive any notice of meetings of stockholders
for the election of directors of the Company or any other matter or to receive
any notice of any proceedings of the Company, except as may be specifically
provided for herein.
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<PAGE>
6. Transfer, Exchange, and Replacement of Warrant.
(a) Restriction on Transfer. The holder of this Warrant (including
any replacement Warrant) acknowledges that this Warrant and any Warrant Shares
may not be sold, transferred, assigned or otherwise disposed of unless such
securities have been registered under the Securities Act of 1933, as amended
(the "Securities Act") and all applicable state securities laws or are being
sold, transferred or assigned pursuant to an applicable exemption under the
Securities Act and the holder of this Warrant shall have delivered an opinion of
counsel to the Company stating that an exemption from such registration or
qualification is available (such opinion and such counsel to be acceptable to
the Company), except for (i) the exercise of this Warrant in accordance with its
terms, (ii) pledges to bona fide financial institutions to secure the repayment
of indebtedness and (iii) in case of natural persons, transfers to immediate
family members or a trust or trusts for the benefit of such family members for
estate planning purposes. The holder of this Warrant and each such permitted
transferee shall (A) be bound by the transfer restrictions contained herein and
(B) execute, prior to any transfer, such documents as the Company may reasonably
request to evidence and affirm their obligations hereunder. The Warrant Shares
shall be issued with a restrictive legend setting forth the above restrictions
on transfer.
(b) Replacement of Warrant. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
this Warrant and, in the case of any such loss, theft, or destruction, upon
delivery of an indemnity agreement reasonably satisfactory in form and amount to
the Company, or, in the case of any such mutilation, upon surrender and
cancellation of this Warrant, the Company, at its expense, shall execute and
deliver, in lieu thereof, a new Warrant of like tenor.
(c) Cancellation; Payment of Expenses. Upon the surrender of this
Warrant in connection with any transfer or replacement as provided in this
Section 6, this Warrant shall be promptly canceled by the Company. The Company
shall pay all taxes and all other reasonable expenses (other than legal
expenses, if any, incurred by the holder or transferees) and charges payable in
connection with the preparation, execution, and delivery of Warrants pursuant to
this Section 6.
(d) Register. The Company shall maintain, at its principal executive
offices (or such other office or agency of the Company as it may designate by
notice to the holder hereof), a register for this Warrant, in which the Company
shall record the name, address and social security number of the person in whose
name this Warrant has been issued, as well as the name, address and social
security number of each transferee and each prior owner of this Warrant.
7. Notices. All notices, requests, and other communications required or
permitted to be given or delivered hereunder to the holder of this Warrant shall
be in writing, and shall be personally delivered, or shall be sent by certified
or registered mail or by recognized overnight mail courier, postage prepaid and
addressed, to such holder at the address shown for such holder on the books of
the Company, or at such other address as such holder shall have furnished to the
Company. All notices, requests and other communications required or permitted to
be given or delivered hereunder to the Company shall be in writing, and shall be
personally delivered, or shall be sent by certified or registered mail or by
recognized overnight mail courier, postage prepaid and addressed, to Direct III
Marketing, Inc., 12760 High Bluff Drive, Suite 210, San Diego, California 92130,
or to such other address as the Company shall have furnished to the holder of
this Warrant. Any such notice, request or other communication may be sent by
facsimile, but shall in such case be subsequently confirmed by a writing
personally delivered or sent by certified or registered mail or by recognized
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<PAGE>
overnight mail courier as provided above. All notices, requests and other
communications shall be deemed to have been given either at the time of the
receipt thereof at the address specified in this Section 7 or, if mailed by
registered or certified mail or with a recognized overnight mail courier, upon
deposit with the United States Post Office or such overnight mail courier,
postage prepaid and properly addressed.
8. Governing Law. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF DELAWARE WITHOUT
REGARD TO ITS OR ANY OTHER JURISDICTION'S CONFLICTS OF LAW.
9. Miscellaneous.
(a) Amendments. This Warrant may only be amended by an instrument in
writing signed by the Company and the holder hereof.
(b) Headings. The headings of the sections and paragraphs of this
Warrant are for reference purposes only, and shall not affect the meaning or
construction of any of the provisions hereof.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer.
DIRECT III MARKETING, INC.
By: /s/ Robert deRose
------------------------
Robert deRose, President
6
<PAGE>
FORM OF EXERCISE AGREEMENT
Dated: ________, ____.
To:_____________________________
The undersigned, pursuant to the provisions set forth in the within
Warrant, hereby agrees to purchase ________ shares of Common Stock covered by
such Warrant, and makes payment herewith in full therefor at the price per share
provided by such Warrant in cash or by certified or official bank check in the
amount of $_________. Please issue a certificate or certificates for such shares
of Common Stock in the name of and pay any cash for any fractional share to:
Name:____________________________________
Signature:_______________________________
Address:_________________________________
_________________________________
Note: The above signature should
correspond exactly with the name on
the face of the within Warrant.
7
<PAGE>
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers all the rights of the undersigned under the within Warrant, with
respect to the number of shares of Common Stock covered thereby set forth below
to:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
, and hereby irrevocably constitutes and appoints ______________
________________________ as agent and attorney-in-fact to transfer said Warrant
on the books of the within-named corporation, with full power of substitution in
the premises.
Dated: _____________________, ____,
Name: _____________________________________________
Signature: __________________________________
Title of Signing Officer or Agent (if any): -
_____________________________________________
Address: ____________________________________
_____________________________________________
Note: The above signature should correspond
exactly with the name on the face of
the within Warrant.
8
<PAGE>
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION, ANY STATE
SECURITIES COMMISSION OR ANY OTHER REGULATORY AUTHORITY. THIS WARRANT AND SUCH
SECURITIES ARE BEING OFFERED PURSUANT TO EXEMPTIONS FROM THE REGISTRATION
REQUIREMENTS OF FEDERAL AND STATE SECURITIES LAW AND CANNOT BE RESOLD OR
OTHERWISE TRANSFERRED UNLESS THEY ARE SUBSEQUENTLY REGISTERED UNDER SUCH LAWS OR
UNLESS EXEMPTIONS FROM REGISTRATION ARE AVAILABLE. NEITHER THE SECURITIES AND
EXCHANGE COMMISSION NOR ANY OTHER GOVERNMENTAL AGENCY HAS PASSED ON,
RECOMMENDED, OR ENDORSED THE MERITS OF THIS WARRANT OR SUCH SECURITIES. THIS
WARRANT AND SUCH SECURITIES MAY BE TRANSFERRED ONLY IN COMPLIANCE WITH THE
CONDITIONS SPECIFIED IN THIS WARRANT.
September 30, 1999
DIRECT III MARKETING, INC.
STOCK PURCHASE WARRANT
Direct III Marketing, Inc., a Delaware corporation (the "Company"), for
value received, hereby certifies that Lawrence S. Rivkin, Trustee, L.N.R. Family
Trust or its registered assigns, is entitled to purchase from the Company, at
any time or from time to time during the period specified in Section 2 hereof,
Six Thousand Two Hundred Fifty (6,250) fully paid and nonassessable shares of
voting common stock, par value $.001, of the Company (the "Common Stock"), at an
exercise price equal to Six ($6.00) Dollars per share, subject to adjustment
hereunder (the "Exercise Price"), and subject to the other terms herein. As used
herein, the term "Warrant Shares" means the shares of Common Stock issuable upon
exercise of this Stock Purchase Warrant (the "Warrant").
This Warrant is subject to the following terms, provisions and
conditions:
1. Manner of Exercise; Issuance of Certificates; Payment for Shares.
Subject to the provisions hereof, this Warrant may be exercised by the holder
hereof, in whole or in part, by the surrender of this Warrant, together with a
completed exercise agreement in the form attached hereto (the "Exercise
Agreement"), to the Company during normal business hours on any business day at
the Company's principal executive offices (or such other office of the Company
as it may designate by notice to the holder hereof), and upon payment to the
Company in cash, by certified or official bank check or by wire transfer to an
account specified by the Company of the Exercise Price for the Warrant Shares
specified in the Exercise Agreement. The Warrant Shares so purchased shall be
deemed to be issued to the holder hereof or such holder's designee, as the
record owner of such shares, as of the close of business on the date on which
this Warrant shall have been surrendered, the completed Exercise Agreement shall
have been delivered, and payment shall have been made for such shares as set
forth above. Certificates for the Warrant Shares so purchased, representing the
aggregate number of shares specified in the Exercise Agreement, shall be
delivered to the holder
<PAGE>
hereof within five business days after this Warrant shall have been so exercised
and surrendered to the Company. The certificates so delivered shall be in such
denominations as may be reasonably requested by the holder hereof and shall be
registered in the name of such holder or such other name as such holder may
designate subject to the transfer restrictions herein and upon payment by such
holder of any applicable transfer taxes. In the event this Warrant is exercised
in part, the Company shall also deliver a new Warrant to the holder hereof,
which Warrant shall be identical to this Warrant, except that the number of
Warrant Shares exercisable therefor shall be decreased by the number of Warrant
Shares so purchased.
2. Period of Exercise. This Warrant is exercisable at any time or from
time to time on or after the date first listed above, and before 5:00 p.m.,
eastern time on the fifth anniversary after the date hereof (the "Exercise
Period").
3. Certain Agreements of the Company. The Company hereby covenants and
agrees as follows:
(a) Shares to be Fully Paid. All Warrant Shares shall, upon issuance
in accordance with the terms of this Warrant, be validly issued, fully paid, and
nonassessable and free from all taxes, liens, and charges with respect to the
issue thereof.
(b) Reservation of Shares. During the Exercise Period, the Company
shall at all times have authorized, and reserved for the purpose of issuance
upon exercise of this Warrant, a sufficient number of shares of Common Stock to
provide for the exercise of this Warrant.
(c) Certain Actions Prohibited. The Company shall not, by amendment
of its certificate of incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities, or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed by it hereunder, but shall at all
times in good faith assist in the carrying out of all the provisions of this
Warrant and in the taking of all such action as may reasonably be requested by
the holder of this Warrant in order to protect the exercise privilege of the
holder of this Warrant against impairment, consistent with the tenor and purpose
of this Warrant. Without limiting the generality of the foregoing, the Company
shall take all such actions as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable shares of
Common Stock upon the exercise of this Warrant.
(d) Successors and Assigns. This Warrant shall be binding upon any
entity ucceeding to the Company by merger, consolidation, or acquisition of all
or substantially all the Company's assets.
4. Antidilution Provisions. During the Exercise Period, the Exercise
Price and the number of Warrant Shares shall be subject to adjustment from time
to time as provided in this Section 4.
(a) Subdivision or Combination of Common Stock. If the Company at
any time subdivides (by any stock split, stock dividend, recapitalization,
reorganization, reclassification or otherwise) the Common Stock into a greater
number of shares, then, after the record date for effecting such subdivision,
the Exercise Price in effect immediately prior to such subdivision shall be
proportionately reduced and the number of Warrant Shares shall be
proportionately increased. If the Company at any time combines (by reverse
2
<PAGE>
stock split, recapitalization, reorganization, reclassification or otherwise)
the Common Stock into a smaller number of shares, then, after the record date
for effecting such combination, the Exercise Price in effect immediately prior
to such combination shall be proportionately increased and the number of Warrant
Shares shall be proportionately decreased.
(b) Consolidation, Merger or Sale. In case the Company after the
date hereof (a) shall consolidate with or merge into any other entity and shall
not be the continuing or surviving corporation of such consolidation or merger,
(b) shall permit any other entity to consolidate with or merge into the Company
and the Company shall be the continuing or surviving entity but, in connection
with such consolidation or merger, all outstanding shares of Common Stock shall
be changed into or exchanged for stock or other securities of any other entity
or cash or any other property, (c) shall transfer all or substantially all of
its properties or assets to any other person or entity, or (d) shall effect a
capital reorganization or reclassification of the Common Stock (other than a
capital reorganization or reclassification for which adjustment in the Exercise
Price is provided in Section 4(a)), then, and in the case of each such
transaction, proper provision shall be made so that, upon the basis and the
terms and in the manner provided in this Warrant, the holder of this Warrant,
upon the exercise hereof at any time after the consummation of such transaction,
shall be entitled to receive (at the aggregate Exercise Price in effect at the
time of such consummation for all Common Stock issuable upon such exercise
immediately prior to such consummation), in lieu of the Common Stock issuable
upon such exercise immediately prior to such consummation, the highest amount of
securities, cash or other property to which such holder would have been entitled
as a shareholder upon such consummation if such holder had exercised this
Warrant immediately prior thereto, subject to adjustments (subsequent to such
consummation) as nearly equivalent as possible to the adjustments provided for
in this Section 4. The Company shall not effect any such consolidation, merger,
or sale of assets, or capital reorganization or reclassification unless prior to
the consummation thereof, the continuing or surviving corporation (if other than
the Company) assumes by written instrument the obligations under this Section 4
and the obligations to deliver to the holder of this Warrant such securities,
cash or other property as, in accordance with the foregoing provisions, the
holder may be entitled to acquire.
(c) Distribution of Assets. In case the Company shall declare or
make any distribution of its assets to all holders of Common Stock as a partial
liquidating dividend, by way of return of capital or otherwise, other than a
dividend payable in shares of Common Stock or in cash out of earnings of the
Company, the holder of this Warrant shall be entitled upon exercise of this
Warrant to receive the amount of cash, securities or other property that would
have been payable to the holder had such holder been the holder of such shares
of Common Stock on the record date for the determination of stockholders
entitled to such distribution.
(d) Notice of Adjustment. Upon the occurrence of any event that
requires any adjustment of the Exercise Price and the number of Warrant Shares
issuable upon exercise of this Warrant, the Company shall give notice thereof to
the holder of this Warrant, which notice shall state the Exercise Price
resulting from such adjustment and the increase or decrease, if any, in the
number of Warrant Shares, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based.
(e) Adjustment of Exercise Price. No adjustment of the Exercise
Price shall be made in an amount less than 1% of the Exercise Price in effect at
the time such adjustment is otherwise required to be made, but any such lesser
adjustment shall be carried forward and shall be made at the time and together
3
<PAGE>
with the next subsequent adjustment which, together with any adjustments so
carried forward, shall amount to not less than 1% of such Exercise Price. In the
event that any adjustment of the Exercise Price as required herein results in a
fraction of a cent, such Exercise Price shall be rounded up to the nearest cent.
(f) No Fractional Shares If any exercise of this Warrant would
result in the issuance of a fractional share of Common Stock, such fractional
share shall be disregarded and the number of shares of Common Stock issuable
upon such exercise shall be the nearest whole number of shares.
(g) Other Notices. In case at any time:
(i) the Company shall declare any dividend upon the Common Stock
payable in shares of stock of any class or make any other distribution (other
than dividends or distributions payable in cash out of retained earnings) to the
holders of the Common Stock;
(ii) the Company shall offer for subscription pro rata to all
holders of the Common Stock any additional shares of stock of any class or other
rights;
(iii) there shall be any capital reorganization of the Company,
or reclassification of the Common Stock, or consolidation or merger of the
Company with or into, or sale of all or substantially all its assets to another
entity; or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company;
then, in each such case, the Company shall give to the holder of this Warrant
notice of (a) the date on which the books of the Company shall close or a record
shall be taken for determining the holders of Common Stock entitled to receive
any such dividend, distribution or subscription rights, or for determining the
holders of Common Stock entitled to vote in respect of any such transaction, and
(b) the date (or, if not then known, a reasonable approximation thereof by the
Company) when such transaction shall occur. Such notice shall also specify the
date on which the holders of Common Stock shall be entitled to receive such
dividend, distribution or subscription rights or to exchange their Common Stock
for stock or other securities or property deliverable upon consummation of such
transaction. Such notice shall be given at least 30 days prior to the record
date or the date on which the Company's books are closed in respect thereto.
Failure to give any such notice or any defect therein shall not affect the
validity of any action referred to in clauses (i), (ii), (iii) and (iv) above.
(h) Certain Events. In case any event shall occur as to which
paragraphs (a), (b) or (c) of this Section 4 are not strictly applicable but the
failure to make any adjustment would not fairly protect the rights represented
by this Warrant in accordance with the essential intent of such provisions, the
Company shall give notice of such event as provided in Section 4(d) and shall
make an appropriate adjustment in the Exercise Price and the number of Warrant
Shares to preserve, without dilution, the rights represented by this Warrant.
5. No Rights as a Stockholder. Prior to the exercise of this Warrant,
the holder hereof, as such, shall not be entitled to any rights of a stockholder
of the Company, including, without limitation, the right to vote, to consent, to
exercise any preemptive right, to receive any notice of meetings of stockholders
for the election of directors of the Company or any other matter or to
4
<PAGE>
receive any notice of any proceedings of the Company, except as may be
specifically provided for herein.
6. Transfer, Exchange, and Replacement of Warrant.
(a) Restriction on Transfer. The holder of this Warrant (including
any replacement Warrant) acknowledges that this Warrant and any Warrant Shares
may not be sold, transferred, assigned or otherwise disposed of unless such
securities have been registered under the Securities Act of 1933, as amended
(the "Securities Act") and all applicable state securities laws or are being
sold, transferred or assigned pursuant to an applicable exemption under the
Securities Act and the holder of this Warrant shall have delivered an opinion of
counsel to the Company stating that an exemption from such registration or
qualification is available (such opinion and such counsel to be acceptable to
the Company), except for (i) the exercise of this Warrant in accordance with its
terms, (ii) pledges to bona fide financial institutions to secure the repayment
of indebtedness and (iii) in case of natural persons, transfers to immediate
family members or a trust or trusts for the benefit of such family members for
estate planning purposes. The holder of this Warrant and each such permitted
transferee shall (A) be bound by the transfer restrictions contained herein and
(B) execute, prior to any transfer, such documents as the Company may reasonably
request to evidence and affirm their obligations hereunder. The Warrant Shares
shall be issued with a restrictive legend setting forth the above restrictions
on transfer.
(b) Replacement of Warrant. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
this Warrant and, in the case of any such loss, theft, or destruction, upon
delivery of an indemnity agreement reasonably satisfactory in form and amount to
the Company, or, in the case of any such mutilation, upon surrender and
cancellation of this Warrant, the Company, at its expense, shall execute and
deliver, in lieu thereof, a new Warrant of like tenor.
(c) Cancellation; Payment of Expenses. Upon the surrender of this
Warrant in connection with any transfer or replacement as provided in this
Section 6, this Warrant shall be promptly canceled by the Company. The Company
shall pay all taxes and all other reasonable expenses (other than legal
expenses, if any, incurred by the holder or transferees) and charges payable in
connection with the preparation, execution, and delivery of Warrants pursuant to
this Section 6.
(d) Register. The Company shall maintain, at its principal executive
offices (or such other office or agency of the Company as it may designate by
notice to the holder hereof), a register for this Warrant, in which the Company
shall record the name, address and social security number of the person in whose
name this Warrant has been issued, as well as the name, address and social
security number of each transferee and each prior owner of this Warrant.
7. Notices. All notices, requests, and other communications required or
permitted to be given or delivered hereunder to the holder of this Warrant shall
be in writing, and shall be personally delivered, or shall be sent by certified
or registered mail or by recognized overnight mail courier, postage prepaid and
addressed, to such holder at the address shown for such holder on the books of
the Company, or at such other address as such holder shall have furnished to the
Company. All notices, requests and other communications required or permitted to
be given or delivered hereunder to the Company shall be in writing, and shall be
personally delivered, or shall be sent by certified or registered mail or by
recognized overnight mail courier, postage prepaid and addressed,
5
<PAGE>
to Direct III Marketing, Inc., 12760 High Bluff Drive, Suite 210, San Diego,
California 92130, or to such other address as the Company shall have furnished
to the holder of this Warrant. Any such notice, request or other communication
may be sent by facsimile, but shall in such case be subsequently confirmed by a
writing personally delivered or sent by certified or registered mail or by
recognized overnight mail courier as provided above. All notices, requests and
other communications shall be deemed to have been given either at the time of
the receipt thereof at the address specified in this Section 7 or, if mailed by
registered or certified mail or with a recognized overnight mail courier, upon
deposit with the United States Post Office or such overnight mail courier,
postage prepaid and properly addressed.
8. Governing Law. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF DELAWARE WITHOUT
REGARD TO ITS OR ANY OTHER JURISDICTION'S CONFLICTS OF LAW.
9. Miscellaneous.
(a) Amendments. This Warrant may only be amended by an instrument in
writing signed by the Company and the holder hereof.
(b) Headings. The headings of the sections and paragraphs of this
Warrant are for reference purposes only, and shall not affect the meaning or
construction of any of the provisions hereof.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer.
DIRECT III MARKETING, INC.
By: /s/ Robert deRose
-----------------------------
Robert deRose, President
6
<PAGE>
FORM OF EXERCISE AGREEMENT
Dated: ________, ____.
To:_____________________________
The undersigned, pursuant to the provisions set forth in the within
Warrant, hereby agrees to purchase ________ shares of Common Stock covered by
such Warrant, and makes payment herewith in full therefor at the price per share
provided by such Warrant in cash or by certified or official bank check in the
amount of $_________. Please issue a certificate or certificates for such shares
of Common Stock in the name of and pay any cash for any fractional share to:
Name:________________________________
Signature:___________________________
Address:_____________________________
_____________________________
Note: The above signature should
correspond exactly with the name
on the face of the within Warrant.
7
<PAGE>
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers all the rights of the undersigned under the within Warrant, with
respect to the number of shares of Common Stock covered thereby set forth below
to:
Name of Assignee Address No of Shares
- ---------------- ------- ------------
, and hereby irrevocably constitutes and appoints ______________ ______________
as agent and attorney-in-fact to transfer said Warrant on the books of the
within-named corporation, with full power of substitution in the premises.
Dated: _____________________, ____,
Name: ____________________________
Signature: _______________________
Title of Signing Officer or Agent (if any): -
__________________________
Address: ________________________
_______________________
Note: The above signature should
correspond exactly with the name
on the face of the within Warrant.
8
<PAGE>
THIS NOTE HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION,
ANY STATE SECURITIES COMMISSION OR ANY OTHER REGULATORY AUTHORITY. THIS NOTE IS
BEING OFFERED PURSUANT TO EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF
FEDERAL AND STATE SECURITIES LAW AND CANNOT BE RESOLD OR OTHERWISE TRANSFERRED
UNLESS IT IS SUBSEQUENTLY REGISTERED UNDER SUCH LAWS OR UNLESS EXEMPTIONS FROM
REGISTRATION ARE AVAILABLE. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR
ANY OTHER GOVERNMENTAL AGENCY HAS PASSED ON, RECOMMENDED, OR ENDORSED THE MERITS
OF THIS NOTE.
PROMISSORY NOTE
$50,000 September 30, 1999
FOR VALUE RECEIVED AND INTENDING TO BE LEGALLY BOUND HEREBY, Direct III
Marketing, Inc., a Delaware corporation having its principal executive office at
12760 High Bluff Drive, Suite 210, San Diego, California 92130 (hereinafter
referred to, and obligated as, "Borrower"), promises to pay to the order of
Lawrence S. Rivkin, Trustee, L.N.R. Family Trust ("Lender"), the principal sum
of Fifty Thousand Dollars ($50,000), together with interest as set forth below,
until the date on which the principal amount is paid in full, payable in lawful
money of the United States of America in accordance with the terms of this
Promissory Note (the "Note").
1. Maturity Date. The Note shall have a Maturity Date (the "Maturity
Date") of, and the outstanding principal amount hereunder and all interest
accrued hereon shall be payable on, the earlier of: (a) May 15, 2000; or (b) the
date on which Borrower receives the proceeds of equity financing in an aggregate
sum of One Million ($1,000,000.00) Dollars or more.
2. Interest.
(a) During the period beginning on the date hereof and ending on the
Maturity Date, interest shall accrue daily on the outstanding principal amount
hereunder at the simple rate of interest of twelve (12%) percent per annum.
(b) Interest shall be calculated hereunder for the actual number of
days that the principal is outstanding, based on a three hundred sixty (360) day
year.
3. Payment. No payments of principal or accrued interest shall be due
on the Note until the Maturity Date.
4. Prepayments. The Borrower may prepay any or all of the principal
indebtedness evidenced by this Note at any time prior to the Maturity Date,
without penalty or premium.
5. Security. The indebtedness evidenced by this Note will be unsecured.
<PAGE>
6. [Omitted].
7. Lender's Rights Upon Default.
Each of the following events shall constitute an "Event of Default"
and, upon the occurrence thereof, Lender shall have the option, without the
necessity of giving any prior written notice to Borrower, (i) to accelerate the
maturity of this Note and all amounts payable hereunder and demand immediate
payment thereof and (ii) to exercise all of Lender's rights and remedies under
this Note or otherwise available at law or in equity:
(a) Borrower shall fail to pay the principal amount of this Note or
accrued interest thereon on the Maturity Date;
(b) Borrower shall default in its obligations under that certain
Stock Purchase Warrant of even date herewith executed and delivered by Borrower
to Lender;
(c) Borrower shall admit an inability to pay its debts as they
mature, or shall make a general assignment for the benefit of any of its or
their creditors;
(d) Proceedings in bankruptcy, or for reorganization of Borrower for
the readjustment of any of its or their debts, under the United States
Bankruptcy Code, as amended, or any part thereof, or under any other laws,
whether state or federal, for the relief of debtors, now or hereafter existing,
shall be commenced by Borrower or shall be commenced against Borrower and shall
not be dismissed within sixty (60) days of their commencement;
(e) A receiver or trustee shall be appointed for Borrower or for any
substantial part of its assets, or any proceedings shall be instituted for the
dissolution or the full or partial liquidation of Borrower, and if such
appointment or proceedings are involuntary, such receiver or trustee shall not
be discharged within sixty (60) days of appointment, or such proceedings shall
not be discharged within sixty (60) days of their commencement, or Borrower
shall discontinue its business(es) or materially change the nature of its
business(es); or
(f) Borrower shall suffer any final judgment for the payment of
money in excess of Five Hundred Thousand ($500,000.00) Dollars and the same
shall not be discharged or stayed within a period of thirty (30) days from the
date of entry thereof.
8. Application of Funds. All sums realized by Lender on account of this
Note, from whatever source received, shall be applied first to any fees, costs
and expenses (including attorney's fees) incurred by Lender, second to accrued
and unpaid interest, and then to principal.
9. Attorney's Fees and Costs. In the event that Lender engages an
attorney to represent it in connection with (a) any default by Borrower under
this Note, (b) the enforcement of any of Lender's rights and remedies hereunder,
(c) any bankruptcy or other insolvency proceedings commenced by or against
Borrower and/or (d) any actual litigation arising out of or related to any of
the foregoing, then Borrower shall be liable to and shall reimburse Lender on
demand for all reasonable attorneys' fees, costs and expenses incurred by Lender
in connection with any of the foregoing, provided a final and unappealable
judgment in favor of Lender has been issued in connection therewith.
2
<PAGE>
10. Governing Law. This Note is made and delivered in the State of
Delaware and shall be construed and enforced in accordance with and governed by
the internal laws of the State of Delaware without regard to conflicts of laws
principles. Borrower agrees to the exclusive jurisdiction of the federal and
state courts located in the State of Delaware in connection with any matter
arising hereunder, including the collection and enforcement of this Note.
11. Stock Purchase Warrant and Common Stock. This Note is being issued
as part of a unit investment that also includes the issuance to Lender of Six
Thousand Two Hundred Fifty (6,250) shares of Borrower's voting common stock, par
value $.001 per share, and a Stock Purchase Warrant entitling Lender to purchase
an additional Six Thousand Two Hundred Fifty (6,250) shares of such common
stock.
12. Miscellaneous.
(a) Borrower hereby waives protest, notice of protest, presentment,
dishonor, notice of dishonor and demand. To the extent permitted by law,
Borrower hereby waives and releases all errors, defects and imperfections in any
proceedings instituted by Lender under the terms of this Note.
(b) The rights and privileges of Lender under this Note shall inure
to the benefit of its successors and assigns. All representations, warranties
and agreements of Borrower made in connection with this Note shall bind
Borrower's successors and assigns.
(c) If any provision of this Note shall for any reason be held to be
invalid or unenforceable, such invalidity or unenforceability shall not affect
any other provision hereof, but this Note shall be construed as if such invalid
or unenforceable provision had never been contained herein.
(d) The waiver of any Event of Default or the failure of Lender to
exercise any right or remedy to which it may be entitled shall not be deemed to
be a waiver of any subsequent Event of Default or of Lender's or Lender's right
to exercise that or any other right or remedy to which Lender is entitled.
(e) The rights and remedies of Lender under this Note shall be in
addition to any other rights and remedies available to Lender at law or in
equity, all of which may be exercised singly or concurrently.
(f) Lender shall have the right, without the prior consent of
Borrower, to assign all of Lender's rights and obligations hereunder.
3
<PAGE>
IN WITNESS WHEREOF, Borrower has duly executed this Promissory Note the
day and year first above written and has hereunto set hand and seal.
DIRECT III MARKETING, INC.
By: /s/ Robert deRose
------------------------------
Robert deRose, President
4
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the application of our report dated March 16, 2000,
included in this Form 10-SB of Direct III Marketing, Inc., relating to the
financial statements for the year ended December 31, 1999.
/s/ Swenson Advisors, LLP
- ---------------------------
Temecula, California
March 16, 2000
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 742
<SECURITIES> 0
<RECEIVABLES> 12,363
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 50,799
<PP&E> 16,497
<DEPRECIATION> (2,695)
<TOTAL-ASSETS> 69,525
<CURRENT-LIABILITIES> 366,571
<BONDS> 0
0
0
<COMMON> 3,741
<OTHER-SE> (300,787)
<TOTAL-LIABILITY-AND-EQUITY> 69,525
<SALES> 0
<TOTAL-REVENUES> 12,407
<CGS> 379,139
<TOTAL-COSTS> 379,139
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (9,058)
<INCOME-PRETAX> (375,790)
<INCOME-TAX> (800)
<INCOME-CONTINUING> (376,590)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (376,590)
<EPS-BASIC> (0.162)
<EPS-DILUTED> (0.162)
</TABLE>
