SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. _____)
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the
[ ] Definitive Proxy Statement Commission Only (as permitted
[ ] Definitive Additional Materials by Rule 14a-6(e)(2))
[ ] Soliciting Material Pursuant to
Sec. 240.14a-11(c) or Sec. 240.14a-12
INNOVUS CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
INNOVUS CORPORATION
4600 CAMPUS DRIVE
NEWPORT BEACH, CALIFORNIA 92660
(949) 833-1220
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER 27, 1998
To the stockholders of INNOVUS CORPORATION:
You are cordially invited to attend the Annual Meeting of Stockholders
of Innovus Corporation, a Delaware corporation (the "Company"), which will be
held at the principal executive office of the Company, 4600 Campus Drive, Suite
101, Newport Beach, California, at 10:00 a.m., Pacific Time, on Tuesday, October
27, 1998, to consider and act upon the following matters, all as more fully
described in the accompanying Proxy Statement which is incorporated herein by
this reference:
1. To elect a board of five directors to serve until the next
annual meeting of the Company's stockholders and until their
successors have been elected and qualify;
2. To authorize a reverse stock split (the "Reverse Stock Split")
in which each ten (10) shares of the Company's outstanding
Common Stock, par value $.001 (sometimes herein called "Old
Common Stock") shall be reclassified into one (1) share of the
Company's Common Stock, par value $.001, (sometimes herein
called "New Common Stock");
3. To authorize a change in the Company's name (the "Name
Change") to ESYNCH CORPORATION; and
4. To transact such other business as may properly come before
the meeting or any adjournment thereof.
Stockholders of record of the Company's common stock at the close of
business on October 2, 1998, the record date fixed by the Board of Directors,
are entitled to notice of, and to vote at, the meeting.
THOSE WHO CANNOT ATTEND ARE URGED TO SIGN, DATE, AND OTHERWISE COMPLETE
THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. ANY
STOCKHOLDER GIVING A PROXY HAS THE RIGHT TO REVOKE IT ANY TIME BEFORE IT IS
VOTED.
BY ORDER OF THE BOARD OF DIRECTORS
T. Richard Hutt
Secretary
Newport Beach, California
October 5, 1998
<PAGE>
INNOVUS CORPORATION
4600 CAMPUS DRIVE
NEWPORT BEACH, CALIFORNIA 92660
(949) 833-1220
----------------
PROXY STATEMENT
----------------
APPROXIMATE DATE PROXY MATERIAL FIRST SENT TO STOCKHOLDERS:
OCTOBER 7, 1998
The following information is in connection with the solicitation of
proxies for the Annual Meeting of Stockholders of Innovus Corporation, a
Delaware corporation (the "Company"), to be held at the principal executive
office of the Company, 4600 Campus Drive, Newport Beach, California, at 10:00
a.m., Pacific Time, on Tuesday, October 27, 1998, and adjournments thereof (the
"Meeting"), for the purposes stated in the Notice of Annual Meeting of
Stockholders preceding this Proxy Statement.
SOLICITATION AND REVOCATION OF PROXIES
A form of proxy is being furnished herewith by the Company to each
stockholder and, in each case, is solicited on behalf of the Board of Directors
of the Company for use at the Meeting. The entire cost of soliciting these
proxies will be borne by the Company. The Company may pay persons holding shares
in their names or the names of their nominees for the benefit of others, such as
brokerage firms, banks, depositaries, and other fiduciaries, for costs incurred
in forwarding soliciting materials to their principals. Members of the
Management of the Company may also solicit some stockholders in person, or by
telephone, telegraph or telecopy, following solicitation by this Proxy
Statement, but will not be separately compensated for such solicitation
services. The total amount that the Company estimates that it will expend in
connection with soliciting proxies is $5,000, none of which has been spent prior
to the date hereof.
Proxies duly executed and returned by stockholders and received by the
Company before the Meeting will be voted FOR the election of all five of the
nominee-directors specified herein, FOR the approval of the Reverse Stock Split,
and FOR the Name Change, unless a contrary choice is specified in the proxy.
Where a specification is indicated as provided in the proxy, the shares
represented by the proxy will be voted and cast in accordance with the
specification made. As to other matters, if any, to be voted upon, the persons
designated as proxies will take such actions as they, in their discretion, may
deem advisable. The persons named as proxies were selected by the Board of
Directors of the Company and each of them is a director of the Company.
Under the Company's bylaws and Delaware law, shares represented by
proxies that reflect abstentions or "broker non-votes" (i.e., shares held by a
broker or nominee which are represented at the Meeting, but with respect to
which such broker or nominee is not empowered to vote on a particular proposal)
will be counted as shares that are present and entitled to vote for purposes of
determining the presence of a quorum. Any shares represented at the Meeting but
not voted (whether by abstention, broker non-vote or otherwise) or voted against
a nominee will have no impact in the election of directors, except to the extent
that the failure to vote for an individual results in five other individuals
receiving a larger number of votes. Any shares represented at the Meeting but
not voted (whether by abstention, broker non-vote or otherwise) with respect to
the proposals to approve the Reverse Stock Split, and the Name Change will have
no effect on the vote for such proposals except to the extent the number of
shares not voted causes the number of shares voted in favor of such proposals
not to equal or exceed a majority of the outstanding shares (in which case such
proposals would not be approved).
Your execution of the enclosed proxy will not affect your right as a
stockholder to attend the Meeting and to vote in person. Any stockholder giving
a proxy has the right to revoke it at any time by either (i) a later-dated proxy
voted at the Meeting, (ii) a later dated proxy or written revocation sent to and
received by the Secretary of the Company prior to the Meeting, or (iii)
attendance at the Meeting and voting in person.
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<PAGE>
VOTING SECURITIES
The Company has outstanding Common Stock, of which __________ shares
were outstanding as of the close of business on October 2, 1998 (the "Record
Date"), and Series H Preferred Stock, of which __________ shares were
outstanding as of the close of business on the Record Date. Only stockholders of
record on the books of the Company at the close of business on the Record Date
will be entitled to vote at the Meeting. Each share of common stock is entitled
to one vote. Each share of Series H Preferred Stock is entitled to 562 1/2
votes. The outstanding shares of Series H Preferred Stock as of the Record Date
are entitled to an aggregate of _____ votes.
Representation at the Meeting by the holders of a majority of the
outstanding Common Stock of the Company and the holders of a majority of the
votes of all outstanding shares, as of the Record Date, either by personal
attendance or by proxy, will constitute a quorum.
STOCK OWNERSHIP OF MANAGEMENT
The following table sets forth as of September 28, 1998, information
regarding beneficial ownership of the Company's common stock and Series H
Preferred Stock by each director and each executive officer, and by all
directors and executive officers of the Company as a group. Each named person
and all directors and executive officers as a group are deemed to be the
beneficial owners of shares that may be acquired within 60 days upon exercise of
stock options. Accordingly, the number of shares and percentages set forth next
to the name of such person and all directors and executive officers as a group
include the shares issuable upon stock options exercisable within 60 days.
However, the shares so issuable upon such exercise by any such person are not
included in calculating the percentage of shares beneficially owned by any other
stockholder.
<TABLE>
<CAPTION>
COMMON PREFERRED
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED(1) OWNED(2)
-------------------- -------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT
- ------------------------------------- ------- ------- ------ -------
<S> <C> <C> <C> <C>
Thomas Hemingway(3) ___% ___%
T. Richard Hutt(4) ___% ___%
James H. Budd(5) ___% ___%
Robert Orbach * *
David Lyons * *
Kirit Goradia(6) ___% ___%
All Directors and Executive Officers ___% ___%
as a group (6 Persons)(7) ___% ___%
</TABLE>
- ----------
* Less than 1% of the outstanding shares of the class.
(1) Based upon __________ shares of Common Stock outstanding.
(2) Based upon __________ shares of Series H Preferred Stock Outstanding.
(3) Includes __________ shares which may be purchased pursuant to stock
options which are currently, or within the next 60 days, will be,
exercisable. These shares exclude the shares of Ms. Detra Mauro, the
spouse of Mr. Hemingway. See "Principal Stockholders."
(4) Includes __________ shares which may be purchased pursuant to stock
options which are currently, or within the next 60 days, will be,
exercisable.
(5) Includes __________ shares which may be purchased pursuant to stock
options which are currently, or within the next 60 days, will be,
exercisable.
(6) Includes __________ shares which may be purchased pursuant to stock
options which are currently, or within the next 60 days will be,
exercisable.
(7) Includes __________ shares which may be purchased pursuant to stock
options which are currently, or within the next 60 days, will be,
exercisable.
3
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding ownership of
outstanding shares of the Company's Common Stock and Series H Preferred Stock by
those individuals or groups, other than the Company's management, who own more
than five percent (5%) of either such class of outstanding shares to the
Company's knowledge based on filings made by such persons with the Securities
and Exchange Commission.
<TABLE>
<CAPTION>
COMMON PREFERRED
NAME OF SHARES OWNED AS OF SHARES OWNED AS OF
BENEFICIAL OWNER DECEMBER 31, 1997 DECEMBER 31, 1997
- ---------------------------------------- ----------------------- -----------------------
NUMBER PERCENT NUMBER PERCENT
---------- ------- --------- -------
<S> <C> <C> <C> <C>
David M. Mock 1,136,600 7.6% -- --
- -----------------------------
- -----------------------------
Detra Mauro
- -----------------------------
- -----------------------------
--------- ------- ---------- -------
</TABLE>
- --------------
(1) Reported as of April 13, 1998 in Form 10-KSB/A. Includes shares held by
a family corporation and a charitable foundation over which Mr. Mock
holds voting control. Mr. Mock disclaims beneficial ownership of shares
held by charitable foundation. Includes options held by Mr. Mock or his
affiliates which will entitle them to purchase 567,500 shares.
(2) Ms. Mauro is the spouse of Thomas Hemingway, whose shares are not
included in this table. See "Stock Ownership of Management."
PROPOSAL ONE
NOMINATION AND ELECTION OF DIRECTORS
The Company's directors are to be elected at each annual meeting of
stockholders to serve until the next annual meeting of stockholders or until
their successors are elected and qualified. The Board of Directors proposes the
election of five directors at the Meeting.
In the event that any of the nominees for director should become unable
to serve if elected, it is intended that shares represented by proxies which are
executed and returned will be voted for such substitute nominee(s) as may be
recommended by the Company's existing Board of Directors.
The five nominee-directors receiving the highest number of votes cast
at the Meeting will be elected as the Company's directors to serve until the
next annual meeting of stockholders and until their successors are elected and
qualify. Subject to certain exceptions specified below, stockholders of record
on the Record Date are entitled to cumulate their votes in the election of the
Company's directors (i.e., they are entitled to the number of votes determined
by multiplying the number of shares held by them times the number of directors
to be elected) and may cast all of their votes so determined for one person, or
spread their votes among two or more persons as they see fit. No stockholder
shall be entitled to cumulate votes for a given candidate for director unless
such candidate's name has been placed in nomination prior to the vote and the
stockholder has given notice at the Meeting, prior to the voting, of the
stockholder's intention to cumulate his or her votes. If any one stockholder has
given such notice, all stockholders may cumulate their votes for candidates in
nomination. Discretionary authority to cumulate votes is hereby solicited by the
Board of Directors.
4
<PAGE>
The following table and paragraphs set forth the names of and certain
information concerning the nominees for election as directors of the Company:
NOMINEE(1) POSITION(S) WITH THE COMPANY AGE
Thomas Hemingway Director and Chief Executive Officer 42
T. Richard Hutt Vice President of Sales and Secretary 57
James H. Budd Vice President of Marketing 56
Robert Orbach(2)(3) None __
David Lyons(2)(3) None __
- ----------
(1) The Company does not have a nominating committee of the Board of
Directors. The nominees for election as directors at the Meeting were
selected by the Board of Directors of the Company.
(2) Designated to become the members of the audit committee of the Board
of Directors of the Company, neither of whom is an employee of the
Company.
(3) Designated to become the members of the compensation committee of the
Board of Directors of the Company, neither of whom is an employee of
the Company.
Thomas ("Tom") Hemingway -- On August 5, 1998, Mr. Hemingway became the
Chief Executive Officer and a director of the Company pursuant to the Agreement
and Plan of Share Exchange among the Company, Intermark Corporation, a
California corporation ("Intermark"), and Intermark's securityholders upon the
consummation of that transaction. A co-founder of Intermark, from October 1995
to the present Mr. Hemingway has served as Chief Executive Officer and in other
senior management positions at Intermark, a software publishing, sales and
marketing company. From August 1994 to September 1995, Mr. Hemingway operated a
consulting business specializing in software sales and marketing. From January
1994 to July 1994, Mr. Hemingway was chief operating officer at Ideafisher
Systems, an artificial intelligence / associative processing software company.
From August 1993 to December 1993, Mr. Hemingway was serving as a consultant
with L3, an edutainment software company. From January 1993 to July 1993, Mr.
Hemingway was involved in computer-related consulting in the capacity of chief
executive officer of Becker/Smart House, LV, a home automation enterprise. In
1992, Mr. Hemingway was involved in making private investments in various
industries. Previously, from 1987 to 1991, Mr. Hemingway founded and served as
president of Intelligent Information Systems, a provider of network services and
systems. Earlier in his career, Mr. Hemingway was a founder of Omni Advanced
Technologies, a research and development firm developing products for the
computer and communications industry.
James H. ("Jim") Budd -- In August, 1998, Mr. Budd became a Vice
President of the Company pursuant to the Agreement and Plan of Share Exchange
among the Company, Intermark and Intermark's securityholders. A co-founder of
Intermark, from October 1995 to the present Mr. Budd has served as Vice
President of Marketing and in other executive capacities of Intermark, a
software publishing, sales and marketing company. From August 1994 to September
1995, Mr. Budd operated a consulting business specializing in software sales and
marketing. From March 1994 to July 1994, Mr. Budd was vice president of
marketing at Ideafisher Systems, an artificial intelligence / associative
processing software company. From November 1993 to February 1994, Mr. Hutt was
involved in making private investments in various industries. Previously, from
July 1978 to October 1993, Mr. Budd was founder and chief executive officer of
Command Business Systems, a developer of business software products. Earlier in
his career, Mr. Budd held marketing and sales management positions at Unisys,
Nixdorf, Tymshare, and Prime Computer.
T. Richard ("Dick") Hutt -- In August, 1998, Mr. Hutt became a Vice
President and the Secretary of the Company pursuant to the Agreement and Plan of
Share Exchange among the Company, Intermark and Intermark's securityholders. A
co-founder of Intermark, from October 1995 to the present Mr. Hutt has served as
Vice President of Sales and Secretary of Intermark. From September 1992 to
September 1995, Mr. Hutt was distribution sales manager for Strategic Marketing
Partners, a leading national software and technology marketing firm. Previously,
he was in the communications and mini-computer industry, with TRW where he
formed the Canadian subsidiary as vice president of sales. He moved to TRW's
Redondo Beach headquarters and managed the western division until Fujitsu
acquired the business unit. Before joining TRW, he was with NCR's financial
5
<PAGE>
sales division in Canada. Prior to that he managed the VAR division at Wang
Laboratories. Moving to Matsushita, he played a key role in the development of
the distribution channel for their Panasonic products.
Robert ("Bobby") Orbach. Mr. Orbach is the founder and president of
Orbach, Inc., providing high level consulting and advisory services for PC
hardware and software companies, regarding acquisitions and strategic partnering
as well as marketing, and has served in that capacity since May 1990. Earlier in
his career, Mr. Orbach served as Vice President, Business Development, at 47th
Street Photo, Computer Division, one of the earliest PC discount retailers. In
addition to being a nominee for the Company's Board of Directors, Mr. Orbach is
on the Board of Directors of Midisoft and In10city.
David Lyons. From 1997 to the present, David Lyons has been employed by
Communications Systems U.S.A., Inc., a start-up consolidation venture financed
by Northwestern (NYSE:NOR) to acquire telecommunications voice and data
companies. Serving as Vice President - Acquisitions, Eastern Region. Since
inception in November, 1997 CSUSA has acquired 14 companies with gross revenues
of over $180,000,000. From 1996 to 1997, Mr. Lyons was employed by Extel
Communications, Inc., a telecommunications installation and maintenance company,
as Executive Vice President. He was responsible for the expansion of the
customer base through the company's merger and acquisition program as well as
identifying opportunities for required outside financing. From 1992 to 1996,
David served as the principal in Sherman Investment Group, Inc., a Merchant
Banking Company which invests in and provides managerial assistance to medium
sized public and private companies. He was involved in a number of financing
transactions in the telecommunications industry, including the acquisition of
Vodavi Communications, Inc. from Executone Information Systems, Inc.
BOARD MEETINGS AND COMMITTEES
There were __________ meetings of the Board of Directors of the Company
during the fiscal year of the Company ended December 31, 1997. The Board of
Directors had established a standing Audit Committee and a Compensation
Committee. However, in the fiscal year ended December 31, 1997, neither
committee held a meeting separately from the meetings of the Board of Directors.
None of the directors of the Company at any time during fiscal year 1997 remains
an incumbent director or nominee at this time.
The Audit Committee function is to review, act on, and report to the
Board of Directors with respect to various auditing and accounting matters,
including the selection of the Company's independent public accountants, the
scope of the annual audits, the nature of nonaudit services, fees to be paid to
the independent public accountants, the performance of the Company's independent
public accountants, and the accounting practices of the Company. During the
fiscal year ended December 31, 1997, all functions of the Audit Committee were
undertaken by the Board of Directors as a whole.
The Compensation Committee function is to review the performance of the
executive officers of the Company and review the compensation programs for other
key employees, including salary and cash incentive payment levels and option
grants. During the fiscal year ended December 31, 1997, all functions of the
Compensation Committee were undertaken by the Board of Directors as a whole.
There is no standing nominating committee or other committee performing
a similar function.
COMPENSATION OF DIRECTORS
The Company's non-employee Directors are not currently compensated for
attendance at Board of Director meetings. Non-employee directors from time to
time have been, and in the future may be, granted, on an ad hoc basis, stock
options upon being appointed to the Board. The Company may adopt a formal
director compensation plan in the future. All of the Directors are reimbursed
for their expenses for each Board and committee meeting attended.
EXECUTIVE OFFICERS
The following table and paragraphs set forth the names of and certain
information concerning the executive officers of the Company:
NAME POSITION(S) WITH THE COMPANY AGE
---- ---------------------------- -----
Thomas Hemingway President and Chief Executive Officer 42
Kirit Goradia Chief Financial Officer 50
James Budd Vice President 56
T. Richard Hutt Secretary 57
For information on the business background of Messrs. Hemingway, Budd
and Hutt, see "Nomination and Election of Directors" above.
6
<PAGE>
Kirit Goradia -- Mr. Goradia became the Chief Financial Officer,
Treasurer and Controller of the Company in August 1998. Mr. Goradia has served
as the Controller of Intermark from August 1997 to the present. From July 1995
to July 1997, Mr. Goradia was controller of Towne Advertising, where he
supervised a staff of nine accountants. From September 1990 to August 1995 he
was controller of Cooperative Computer Services, where he was responsible for
all fiscal and administrative activities. Earlier in his career, he served for
Galaxy Distributing as controller and, previously to that, served Farmers
Cooperative as controller.
The information regarding executive officers of the Company during its
1997 fiscal year is incorporated herein by reference to Part I of the Company's
Form 10-KSB/A under the heading, "Item 9. Directors, Executive Officers,
Promoters and Control Persons; Compliance with Section 16(a) of the Exchange
Act."
SIGNIFICANT EMPLOYEES
Steven Repetti - Mr. Repetti joined Intermark in July 1998 and serves
as the company's Chief Technical Officer and brings 15 years of computer
technology and software development experience. He has most recently been
President and CTO of SmartDesk, Inc., an award winning software development and
leading Internet content provider, and a party to a joint venture agreement with
the Company regarding Internet technology development. Mr. Repetti also serves
on the board of directors of Advanced Desktop Research, Inc., an advanced
technology company. Also, Mr. Repetti founded Virtual Promote, a virtual
Internet community, featuring technical issues and software solutions to the
highly technical user. Virtual Promote has over one million page views per
month.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
The following table sets forth compensation received for the three
fiscal years ended December 31, 1997 by the Company's Chief Executive Officer
and by each of the persons who were, for the fiscal year ended December 31,
1997, the other four most highly compensated executive officers of the Company
whose total compensation during that year exceeded $100,000 (the "Named
Officers").
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------------------------- ----------------
OTHER ALL
ANNUAL SECURITIES OTHER
NAME AND COMPENSA- UNDERLYING COMPENSA-
PRINCIPAL POSITION YEAR SALARY BONUS TION(1) OPTIONS(#)(2) TION(3)
------------------ ---- ------ ----- ------- ------------- -------
<S> <C> <C> <C> <C> <C> <C>
Terry Haas 1997 $ 151,484 $ -0- -0- shs. $ -0-
President and CEO 1996 84,345 -0- -0- shs. -0-
1995 -0- -0- -0- shs. -0-
</TABLE>
- ----------
(1) Perquisites and other personal benefits did not for any Named Officer
in the aggregate equal or exceed the lesser of $50,000 or 10% of the
total of annual salary and bonus reported in this table for such
person.
(2) The amounts in the table represent shares of the Company's Common Stock
covered by stock options granted to the named individual under the
Innovus Corporation Omnibus Stock Option Plan.
(3) This column includes amounts, if any, of the Company's matching
contributions to the Innovus Corporation Deferred Compensation Plan and
group term life insurance premiums paid with respect to the named
executive.
7
<PAGE>
EXECUTIVE EMPLOYMENT AGREEMENTS
The Company had agreed to compensation Mr. Haas with a base salary of
$185,000 per year through March 31, 1999 with a one-time cash bonus of $50,000
in April, 1997 and such further incentives as may have been determined by the
Board. Upon a termination following a change in control, Mr. Haas would have
been entitled to one year's base salary as severance pay. The terms of
compensation have not been reduced to a written agreement. During the fourth
quarter of 1997, Mr. Haas verbally agreed to waive the change of control
severance package and ongoing salary provided that he only be required to devote
part-time to the Company. In fiscal year 1998, Mr. Haas and the Company
reconfirmed that agreement in connection with the transaction between the
Company and Intermark.
SECTION 401(K) PLAN
During 1997, the Company maintained a deferred compensation plan
pursuant to Section 401(k) of the Internal Revenue Code of 1986, as amended (the
"Plan"). Participation in the Plan is available to all employees 21 years and
older. The Company may, at its option, make contributions to the Plan equal to a
percentage of voluntary contributions made by participants or it may make a
contribution equal to a percentage of the salary of all participants. The
Company has not made contributions to the Plan. The Plan was terminated in 1998.
STOCK OPTION PLAN
The Company has adopted the Innovus Corporation Omnibus Stock Option
Plan (the "Option Plan") to assist the Company in securing and retaining key
employees and directors. The Option Plan provides that options to purchase a
maximum of 1,327,500 shares of Common Stock may be granted to (i) directors, and
(ii) officers (whether or not a director) or key employees of the Company
("Eligible Employees"). The Option Plan will terminate on September 6, 2004,
unless sooner terminated by the Board of Directors.
The Option Plan is administered by a committee (the "Option Committee")
currently consisting of the Board of Directors. The total number of options
granted in any year to Eligible Employees, the number and selection of Eligible
Employees to receive options, the number of options granted to each and the
other terms and provisions of such options are wholly within the discretion of
the Option Committee, subject to the limitations set forth in the Option Plan.
The option exercise price for options granted under the Plan may not be less
than 100% of the fair market value of the underlying common stock on the date
the option is granted. Options granted under the Option Plan expire upon the
earlier of an expiration date fixed by the Option Committee or five years from
the date of grant.
As of December 31, 1997, options to purchase 107,500 shares of Common
Stock were outstanding under the Plan. Following the Company's downsizing,
substantial numbers of previously granted options were forfeited as a result of
employee terminations.
The Company may also grant other options and warrants outside of the
Plan.
8
<PAGE>
OPTION GRANTS DURING FISCAL 1998
The following table sets forth information on grants of stock options
pursuant to the Innovus Corporation Omnibus Stock Option Plan during the fiscal
year ended December 31, 1997, to the Named Officers:
<TABLE>
<CAPTION>
OPTION GRANTS TABLE
OPTION GRANTS IN FISCAL YEAR 1997
POTENTIAL
INDIVIDUAL GRANTS REALIZABLE
% OF TOTAL VALUE AT ASSUMED
NUMBER OF OPTIONS ANNUAL RATES OF
SECURITIES GRANTED TO STOCK PRICE
UNDERLYING EMPLOYEES EXERCISE APPRECIATION FOR
OPTIONS IN FISCAL PRICE EXPIRATION OPTION TERM($)(4)
NAME GRANTED(1) YEAR(2) ($/SHARE) DATE(3) 5% 10%
---- --------------- -------------- ------------ -------------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Terry Haas 200,000 --% $2.50 2002 $138,141 $305,255
</TABLE>
- ----------
(1) The amounts in the table represent shares of the Company's Common Stock
covered by stock options granted to the named individual under the
Innovus Corporation Omnibus Stock Option Plan. Each option becomes
exercisable on a cumulative basis as to ___% of the option shares one
year after the date of grant and as to an additional _____% of the
option shares each __________ interval thereafter. In connection with
the transaction between the Company and Intermark, Mr. Haas agreed that
none of these options would be exercisable until such time as Proposal
Two herein shall have been approved.
(2) Options to purchase an aggregate of _______ shares of common stock were
granted to employees, including the Named Officers, during the fiscal
year ended December 31, 1997.
(3) Options granted have a term of 5 years, subject to earlier termination
in certain events related to termination of employment.
(4) These columns present hypothetical future values of the stock
obtainable upon exercise of the options net of the options' exercise
price, assuming that the market price of the Company's common stock
appreciates at a 5% and 10% compound annual rate over the ten year term
of the options. The 5% and 10% rates of stock price appreciation are
presented as examples pursuant to the rules and regulations of the
Securities and Exchange Commission ("SEC") and do not necessarily
reflect management's estimate or projection of the Company's future
stock price performance. The potential realizable values presented are
not intended to indicate the value of the options.
9
<PAGE>
OPTION EXERCISES IN FISCAL 1998 AND YEAR-END OPTION VALUES
The following table sets forth information concerning stock options
which were exercised during, or held at the end of, fiscal 1997 by the Named
Officers:
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
SHARES VALUE UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
ACQUIRED ON REALIZED AT FISCAL YEAR END(#) AT FISCAL YEAR END($)(1)
NAME EXERCISE ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- ----------- ----------------- ------------------ ----------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Terry Haas -0- -0-
</TABLE>
- ----------
(1) Market value of underlying securities at exercise date or year end, as
the case may be, minus the exercise or base price of "in-the-money"
options. The closing sale price for the Company's common stock as of
December 31, 1997 on the Nasdaq Small Cap Market was $_____.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee function, during the fiscal year ended
December 31, 1997, was served by the Board of Directors of the Company as a
whole, which included Messrs. Haas and Mock, each of whom were, neither during
the last completed fiscal year of the Company, an officer or employee of the
Company. During fiscal year 1997, no executive officer of the Company served as
a member of the Compensation Committee or as a director of any entity whose
executive officers served on either the Compensation Committee or the Board of
Directors of the Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On August 5, 1998, the Company finalized an Agreement and Plan of Share
Exchange with Intermark Corporation ("Intermark"). Under the Agreement, as
amended, the shareholders of Intermark exchanged all of the outstanding capital
stock of Intermark for 1,033,670 shares of common stock of the Company and for
2,665 shares of the Company's newly created Series H Preferred stock convertible
into approximately 44,272,241 shares of Common Stock. In addition, the Company
assumed Intermark options which are now exercisable to purchase up to 6,316,524
shares of the Company's common stock. See "Change in Control."
On April 2, 1998, the Board of Directors authorized the Company to
issue 10% Series A and Series B Convertible Debentures. As a result, $75,000 of
Series A debentures were issued for cash in April 1998, of which $25,000 were
issued to an officer and director of the Company. In addition, $45,000 of Series
B convertible debentures were issued at the end of June 1998 for the conversion
of accounts payable. The debentures total $120,000 at June 30, 1998 and are due
October 31, 1998. The debentures and related accrued interest are convertible
into common shares at $0.125 per share, subject to availability of authorized
and unissued common stock. The Company granted the holders of the debentures
registration rights with respect to the underlying common stock issuable upon
conversion and has agreed to pay the costs of such registration. The Company
granted the holders of the debentures, as a group, a security interest in
substantially all assets of the Company.
As an additional incentive to existing investors to purchase
debentures, the Company agreed to repriced existing warrants and options held by
each investor to $0.15 per share if the investor purchased debentures of at
least $25,000. The market value of the underlying common stock was less than the
new exercise price on the date the warrants and options were repriced;
accordingly, no additional interest expense or compensation expense was
recognized in connection with the repricing of the warrants and options. In
connection therewith, options to purchase ________ shares of Common Stock held
by ______________ were repriced.
During the second quarter of 1998, the Company received advances from
an officer/director in the amount of $8,000 which were included with additional
proceeds received during July 1998 in a $14,000 promissory note payable to the
officer/director. The note is due on demand and is unsecured.
10
<PAGE>
In June, 1997 the Company entered into bridge financing arrangements
with Mr. Mock and unrelated parties whereby the Company borrowed $235,000 from
Mr. Mock and $170,000 from the third parties. The bridge financing had a stated
interest rate of 10% per annum. In connection with the financing, Mr. Mock and
the other lenders were issued warrants to purchase 405,000 shares of Common
Stock at $3.00 per share; provided that half of the warrants would not vest if
the loans were repaid within 45 days. The Company recognized approximately
$526,500 of interest expense representing the estimated fair value of the
warrants. Borrowings under the bridge financing were secured by substantially
all of the assets of the Company, subject to the senior security interests of
the Company's bank lender. Mr. Mock surrendered the balance of the loans owing
to Mr. Mock in November, 1997 in order to purchase Common Stock in the Company
as described below. The terms of the bridge financing from Mr. Mock and from the
third parties were identical.
In August and September, 1997, the Company borrowed an additional
$65,000 from Mr. Mock on an unsecured basis.
In September, 1997 the Company made a private placement of 1,220,000
shares of Common Stock and warrants to purchase 305,000 shares of Common Stock.
The Company received consideration of $610,000 for issuance of the stock and
warrants. The exercise price of the warrants was $0.75 per share. Mr. Mock
applied the $470,000 balance of the bridge financing and unsecured loan owed to
him to the purchase of 940,000 shares and 235,000 warrants in such placement.
The remaining $140,000 of the placement was sold to third parties.
In September, 1996 the Company entered into bridge financing
arrangements with Mr. Mock and unrelated parties whereby the Company borrowed
$625,000 at prime plus 1% per annum. Borrowings under the bridge financing are
secured by substantially all of the assets of the Company, subject to the senior
security interest of the Bank. Warrants to purchase up to 312,500 shares at
$5.50 per share were issued to the lenders in connection with the bridge
financing.
Mr. Michael L. DeBloois, a director of the Company during the 1997
fiscal year, is a partner in the Multimedia Group. The Multimedia Group provides
substantially the same services as were previously offered by the Company's
services business. The Multimedia Group has agreed to complete work which the
services business had in process when it was discontinued in January, 1997 and
to provide similar support to the Company's customers in the future. The
Multimedia Group is utilizing a portion of the Company's facilities and
equipment, for which it has agreed to pay a fair rental value. The exact terms
of the rental and the other arrangements between the Company and the Multimedia
Group are being negotiated.
In 1997 accounts associated with The Free Methodist Foundation
purchased 23,000 shares of Series F Preferred Stock (convertible into at least
575,000 shares of Common Stock) and warrants to purchase 115,000 shares of
Common Stock. Mr. Richard M. Cott, a director of the Company during the 1997
fiscal year, is Chief Financial Officer of The Free Methodist Foundation. Such
shares and warrants were purchased prior to Mr. Cott joining the Company's Board
of Directors.
REPORT OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
The Board of Directors makes this report on executive compensation
pursuant to Item 402 of Regulation S-K. Notwithstanding anything to the contrary
set forth in any of the Company's previous filings under the Securities Act of
1933, as amended, or the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), that might incorporate future filings, including this Proxy
Statement, in whole or in part, this report and the graph which follows this
report shall not be incorporated by reference into any such filings, and such
information shall be entitled to the benefits provided in Item 402(a)(9).
During the 1997 fiscal year, the Board of Directors as a whole
undertook the functions of the Compensation Committee, which reviews the
performance of the executives of the Company, as to the compensation of the
Chief Executive Officer of the Company and the compensation programs for other
key employees, including salary and cash incentive payment levels and stock
awards under the Innovus Corporation Omnibus Stock Option Plan.
11
<PAGE>
The Board of Directors as presently constituted and signing below did
not participate in the determination or review of fiscal 1997 compensation.
The Company, in view of its limited cash resources in fiscal 1997,
generally conserved cash and decreased compensation expenditures with the
agreement of the respective executive employee. As described below, Mr. Haas
agreed to a reduction in compensation in return for the Company reducing its
demands on his time. We believe that the Company received more than
proportionate efforts on the part of Mr. Haas and the other executive officers,
each of whom also received compensation due to fiscal constraints.
Compensation of the Principal Executive Officer. The Board of Directors
reviewed the performance of the principal executive officer of the Company, as
well as other executives of the Company. Terry Haas was the Company's President
and Chief Executive Officer in fiscal 1997. As the principal executive officer
of the Company, Mr. Haas' compensation was determined based on a subjective
consideration of the various factors discussed above, including the performance
of the Company, the individual performance of Mr. Haas, a review of the
compensation packages of executives in technology companies similar in size and
complexity to the Company, and Mr. Haas' performance compared to various
objective and subjective goals established by the Board of Directors. It is the
practice of the Board of Directors to set performance goals at the commencement
of a fiscal year, to give a performance appraisal to the Chief Executive Officer
at the end of the fiscal year, and to set payment of incentive payments based on
the Chief Executive's performance as measured against such objectives.
Option Repricing. In April and June 1998, the Company authorized an
issuance of debentures for cash. As a measure that the Board of Directors
considered necessary at the time in order to induce investors to purchase
debentures, any investors who would agree to purchase $25,000 of debentures were
offered a repricing of all options and warrants held by the investor. The
options and warrants were repriced to $.15 per share, which exceeded the market
value of the underlying Common Stock at the time when the options and warrants
were repriced. During 1998, 1,248,750 warrants were repriced, as follows:
817,500 of the warrants that were initially exercisable at $0.75 to $5.50 were
repriced to being exercisable at $0.15 per common share and 431,250 of the
warrants that were initially exercisable at $0.75 to $5.50 were repriced to
being exercisable at $0.20 per warrant.
Respectfully submitted,
The Board of Directors:
Thomas Hemingway
Shawn Cunningham
12
<PAGE>
PROPOSAL TWO
AMENDMENT TO CERTIFICATE OF INCORPORATION
TO EFFECT A REVERSE STOCK SPLIT
The Board of Directors believes that it would be in the best interests
of the Company and its stockholders for the stockholders to authorize, as
recommended by the Board of Directors, an amendment (the "Amendment") of the
Company's Certificate of Incorporation to effect a reverse stock split. The
applicable text of the Amendment is found in Exhibit A.
The applicable text of the stockholders' resolution is found in Exhibit
B.
Approval of Proposal Three is not a condition to the approval of
Proposal Two.
The intent of the Board of Directors insofar as recommending a reverse
stock split is to increase the long-term marketability and liquidity of the
Common Stock.
The Board of Directors believes that the relatively low per share
market price of the Common Stock impairs the marketability of the Common Stock
to institutional investors and members of the investing public and creates a
negative impression with respect to the Company when compared with the Company's
competitors. Thus, any increase in trading price resulting from a reverse stock
split is intended to be attractive to the financial community, the investing
public, and to consumers of the Company's products.
Theoretically, the number of shares of Common Stock outstanding should
not, by itself, affect the marketability of the Common Stock, the type of
investor who acquires it or the Company's reputation in the financial community.
In practice this is not necessarily the case, as many investors look upon low
priced stock as unduly speculative in nature and, as a matter of policy, avoid
investing in such stocks. The foregoing factors are believed to adversely affect
not only the liquidity of the Common Stock, but also the Company's ability to
raise additional capital through a sale of equity securities or other similar
transactions.
If a reverse stock split is approved by the stockholders of the
Company, ten (10) shares of Old Common Stock shall be reclassified into one (1)
share of New Common Stock (the "ratio"). The stockholders are requested to
approve a Reverse Stock Split in the ratio of one-for-ten (the "Reverse Stock
Split"). The Reverse Stock Split would become effective on any date (the
"Effective Date") on which the Amendment is filed by the Company with the
Secretary of State of the State of Delaware pursuant to the Delaware General
Corporation Law ("DGCL").
EFFECTS OF THE REVERSE STOCK SPLIT
Consummation of a Reverse Stock Split will not alter the number of
authorized shares of Common Stock, which will remain at 20,000,000 shares.
Consummation of a Reverse Stock Split will not alter the $.001 par
value of Old Common Stock, which will remain at $0.001 per share of New Common
Stock.
If the Reverse Stock Split takes place, a number of outstanding shares
will resume the status of authorized and unissued, and these shares will again
be available for issuance. Effective with the Reverse Stock Split, the
conversion rate of outstanding preferred stock, debentures and options would be
adjusted proportionately. When a one-for-ten Reverse Stock split is effected
each convertible debenture would thereafter be convertible into one-tenth as
many shares of New Common Stock. Outstanding options to purchase Common Stock
would be similarly adjusted. Each one (1) share of the Series H Preferred Stock,
which is convertible into 562 1/2 shares of Common Stock, would thereupon be
convertible into 56 1/4 shares of New Common Stock.
Shares of New Common Stock that are no longer necessary to be reserved
for issuance upon conversion or exercise will become uncommitted or unreserved
and available for future issuance or commitment or reservation.
Proportionate voting rights and other rights of stockholders will not
be altered by any Reverse Stock Split (other than as a result of payment in cash
in lieu of fractional shares).
13
<PAGE>
Consummation of a Reverse Stock Split should have no material federal
tax consequences to most stockholders; however, tax effects are especially
dependent upon a stockholder's individual circumstances, and may be material to
particular tax payers whose situations are atypical; and each stockholder must
obtain his or her own tax advice; and the general description under "Federal
Income Tax Consequences" below is not tax advice.
POSSIBLE ADVANTAGES
The holders of Old Common Stock should benefit directly from the
automatic conversion of the Series H Preferred Stock into New Common Stock. The
Series H Preferred Stock has a liquidation preference equal to approximately $84
per share, or in excess of $6,500,000 in the aggregate, which will be eliminated
by the Reverse Stock Split. Also all preferential voting rights, conversion
rights and other rights and privileges senior to the Old Common Stock will be
eliminated by the Reverse Stock Split. See "Description of Capital Stock."
Also the Board believes that a decrease in the number of shares of
Common Stock outstanding without any material alteration of the proportionate
economic interest in the Company represented by individual shareholdings may
increase the trading price of such shares and that a higher price should be more
appropriate for a more active or liquid trading market in the future, although
no assurance can be given that the market price of the Common Stock will rise in
proportion to the reduction in the number of shares outstanding resulting from
any Reverse Stock Split.
Additionally, the Board believes that an appropriate price per share of
New Common Stock could be achievable in the future, which should promote greater
interest by the brokerage community in marketing shares of Common Stock to their
customers. The current per share price of the Common Stock may limit the
effective marketability of the Common Stock because of the reluctance of many
brokerage firms and institutional investors to recommend lower-priced stocks to
their clients or to hold them in their own portfolios. Certain policies and
practices of the securities industry may tend to discourage individual brokers
within those firms from dealing in lower-priced stocks. Some of those policies
and practices involve time-consuming procedures that make the handling of
lower-priced stocks economically unattractive. The brokerage commission on a
sale of lower-priced stock may also represent a higher percentage of the sale
price than the brokerage commission on a higher-priced issue.
The increase in the spread between the authorized number of shares of
Common Stock and the number of shares outstanding or committed could have an
advantage of permitting the Company to issue shares of Common Stock for
acquisition, sale of equity, conversion of convertible debt, and other purposes
that could improve the financial position of the Company.
If the Reverse Stock Split is approved by stockholders, the Board will
have authority without further stockholder approval to effect a Reverse Stock
Split of one (1) share for each outstanding ten (10) shares, corresponding to
the amounts shown in the following Table. The following Table shows the number
of shares of Common Stock that would be outstanding (based on the number of
shares outstanding as of the Record Date) immediately after a Reverse Stock
Split. The reduction of the number of shares outstanding in the Reverse Stock
Split has the inverse effect on authorized and unissued shares. The table does
not attempt to account for cashing out fractional shares.
<TABLE>
<CAPTION>
Ratio of Reverse Stock Preferred Stock Authorized and Unissued
Split Common Stock Outstanding Outstanding Common Stock
- -------------------------- ------------------------ ------------------------ -------------------------
<S> <C> <C> <C>
None
1 for 10
</TABLE>
In addition, the Board shall have authority to determine the exact
timing of the Reverse Stock Split, which may be effected at any time within two
months following the meeting. The timing will be determined on the basis of
advice to the Board from its financial advisors and will be effected with the
intention of maximizing the benefit to stockholders and the Company of the
Reverse Stock Split. The Board of Directors believes that leaving the discretion
to the Board of Directors in these regards will permit flexibility to make an
attempt to effectuate the Reverse Stock Split in an appropriate and well-planned
manner.
14
<PAGE>
The Company's reporting obligations under the Securities Exchange Act
of 1934 should not be affected by the changes in capitalization contemplated
pursuant to the Reverse Stock Split because no significant reduction should be
anticipated in the number of record holders of the Common Stock below its Record
Date level of approximately _______. Of course, the present number of record
holders will remain below the Securities Exchange Act of 1934's going-private
threshold of fewer than 300 record holders (or fewer than 500 if the issuer's
total assets did not exceed $10,000,000 in its last three fiscal years).
POSSIBLE DISADVANTAGES
The Common Stock is sporadically traded, and is not quoted except on
the over the counter bulletin board. On the Record Date, the reported high bid
price of the Common Stock as reported on the over the counter bulletin board was
$0._____ per share. Such price may not reflect actual trades and does not
include retail mark-downs, mark-ups or commissions. No assurance can be made as
to the future price of New Common Stock.
The Board of Directors is hopeful that the decrease in the number of
shares of Common Stock outstanding will stimulate interest in the Company's
Common Stock and possibly promote greater liquidity. However, the possibility
does exist that such liquidity may be adversely affected by the reduced number
of shares which would be outstanding if the proposed Reverse Stock Split is
effected.
The Board of Directors is hopeful that the proposed Reverse Stock Split
will result in a price level for the shares that will mitigate the present
reluctance, policies and practices on the part of brokerage firms referred to
above and diminish the adverse impact of trading commissions on the potential
market for the Company's shares. However, there can be no assurance that the
proposed Reverse Stock Split will achieve these desired results outlined above,
nor can there be any assurance that the price per share of the Common Stock
immediately after the proposed Reverse Stock Split will increase proportionately
with the reverse split or that any increase can be sustained for a prolonged
period of time.
Any reduction in brokerage commissions resulting from a Reverse Stock
Split may be offset, however, in whole or in part, by increased brokerage
commissions which will be required to be paid by stockholders selling "odd lots"
created by such Reverse Stock Split.
The Reverse Stock Split will reduce the number of shares outstanding
held by the public to approximately ________ (after a one-for-ten Reverse Stock
Split is effected). The fewer the publicly held shares, the lower the trading
volume, the less the financial community is likely to be interested in the
shares. No assurance can be made that a lower trading volume will not depress
the Common Stock market price.
The Reverse Stock Split will cause the number of "odd-lot" holders to
go up and cause the number of "round-lot" holders of the Common Stock to go
down. The number of round lot holders is a common measure of a stock's
distribution, and a lower number may reflect more negatively on the Company's
shares.
Higher numbers of odd-lot holders may become reluctant to trade their
shares because of any stigma or higher commissions associated with odd-lot
trading. This may negatively impact the average trading volume and thereby
diminish interest in Common Stock by some investors and advisors.
One purpose of Proposal Two is to provide for a sufficient number of
authorized but unissued and uncommitted shares which will be available in the
event the Board of Directors determines that it is necessary and appropriate to
raise additional capital through the sale of securities in the public or private
market, enter into a strategic partnership with another company, grant options
to the Company's employees or acquire another company, business or assets, or in
other events. Common Stock could be issued in the discretion of the Board of
Directors without stockholder approval of each issuance. After Proposal Two is
approved by the stockholders, the Board does not intend to solicit further
stockholder approval prior to the issuance of any additional shares of Common
Stock. If applicable law or regulation does not require stockholder approval as
a condition to the issuance of such shares in any particular transaction, it is
expected that such approval will not be sought. The Company may fund its
existing obligations by raising capital through the sale or conversion of
shares. Any increase in the number of shares authorized or outstanding may
depress the price of shares and impair the liquidity of stockholders. In
15
<PAGE>
addition, the issuance may be on terms that are dilutive to stockholders.
Issuance of additional shares also could have the effect of diluting the
earnings per share and book value per share of shares outstanding.
From time to time, the Company has engaged in discussions concerning
possible acquisitions or financing arrangements. The Company may not be required
to disclose ongoing negotiations in all cases, and, as a policy, does not
disclose ongoing negotiations.
If effected, the Reverse Stock Split should not result in a significant
reduction of the number of stockholders of the Company, although the Company may
choose to engage in a repurchase of odd lot stock holdings subsequent to the
Reverse Stock Split which may result in such a reduction. The number of "even
lot" holders may decrease. The number of "even lot" holders of an issuer's stock
as a result of a Reverse Stock Split may be unpredictable. The trading volume
may depend more on trading by even lot holders than on trading by odd lot
holders. The Company has no present intention to cause the number of
stockholders to decrease; and notwithstanding the present intention, the acts of
the Company in the future may directly or indirectly cause such decrease, and
such a decrease could impair the trading market in the Company's shares.
Holders of New Common Stock will continue to be entitled to receive
such dividends as may be declared by the Board of Directors. To date no
dividends on the Common Stock have been paid by the Company and the Company's
bank loan and other similar agreements now, or in the future may, prohibit the
payment of dividends.
INDIVIDUAL INTERESTS OF MANAGEMENT IN PROPOSAL TWO
As of August 5, 1998, Messrs. Hemingway, Hutt and Budd, received
options to purchase shares of the Series H Preferred Stock of the Company, which
will be automatically converted into options to purchase approximately ___% of
the Common Stock of the Company in the event that Proposal Two is adopted. As a
result, their respective interests in the outcome of Proposal Two may differ in
certain respects from, and may conflict with, the interests of other Series H
Preferred Stock holders of the Company or the interests of holders of Common
Stock.
Otherwise, the Company's executive officers, directors and nominees for
director, have no substantial interest, except their pro rata interest as
shareholders of the Company, in the outcome of Proposal Two. Their interests in
Proposal Two as holders of Series H Preferred Stock and as holders of Common
Stock are substantially the same as the interests of the other holders of such
respective class of stock. The potential benefits to holders of Series H
Preferred Stock of adoption of Proposal Two include the receipt of Common Stock,
which is publicly traded and has a public market, upon the automatic conversion
of the Series H Preferred Stock. The potential detriments of receiving shares of
New Common Stock upon automatic conversion of the Series H Preferred Stock
include the loss of rights, preferences and privileges of the Series H Preferred
Stock relative to shares of Common Stock.
POTENTIAL ANTI-TAKEWOVER EFFECT OF AUTHORIZED BUT UNISSUED SECURITIES AND BYLAW
PROVISION
The Reverse Stock Split results in a greater spread between the number
of authorized shares and the number of outstanding shares. The issuance of
shares of Common Stock or Preferred Stock under particular circumstances may
have the effect of discouraging an attempt to change control of the Company,
especially in the event of a hostile takeover bid. The increase in the spread
between authorized and issued (and committed) Common Stock recommended by the
Board of Directors could have the overall effect of rendering more difficult the
accomplishment of an acquisition, and to make more difficult the removal of
incumbent management. The spread between authorized shares and outstanding (or
committed) shares might be used to the stock ownership or voting rights of
persons seeking to obtain control of the Company; and this anti-takeover effect
could benefit incumbent management at the expense of the stockholders. Also the
Board of Directors will continue to have broad discretion with respect to
designating and establishing the terms of each series of Preferred Stock prior
to its issuance. As mentioned above with respect to Common Stock, the Preferred
Stock may be used in connection with the acquisition of other businesses or
properties or to obtain additional financing for the Company.
The issuance of shares of Common Stock or Preferred Stock under
particular circumstances may have the effect of discouraging an attempt to
change control of the Company, especially in the event of a hostile takeover
bid. The increase in the spread between authorized and issued (and committed)
16
<PAGE>
Common Stock recommended by the Board of Directors could have the overall effect
of rendering more difficult the accomplishment of an acquisition, and to make
more difficult the removal of incumbent Management. Common Stock would be
authorized to be issued in the discretion of the Board of Directors without
stockholder approval of each issuance. The proportionate increase in the
authorized number of shares of Common Stock could have an advantage of
permitting the Company to issue shares for other purposes that could improve the
financial position of the Company. However, the proportionately larger spread of
additional authorized to outstanding (and committed) shares might be used to
impair the stock ownership or voting rights of persons seeking to obtain control
of the Company; and this anti-takeover effect could benefit incumbent management
at the expense of the stockholders. Issuance of additional shares also could
have the effect of diluting the earnings per share and book value per share of
shares outstanding of Common Stock. In the Board of Directors' discretion, an
amount of authorized and unissued and uncommitted shares may facilitate the
adoption of a "poison pill" and its anti-takeover purposes.
The Company had a class of securities listed on the Nasdaq Stock
Market, and certain rules would apply to the Company as a listed company (under
the Nasdaq listing agreements), which could have the effect of requiring a
stockholder vote to approve certain issuances of Common Stock, but there can be
no assurance that the Company will become listed or continue such listing.
Therefore no assurance is made that the stockholders will be entitled to vote on
any particular issuance.
The Company may issue new securities without first offering them to
stockholders. The holders of Common Stock of the Company have no preemptive
rights. Preemptive rights would have given stockholders a pro rata right to
purchase new securities issued by the Company. Preemptive rights protect such
holders from dilution to some extent by allowing holders to purchase shares
according to their percentage ownership in each issuance of new securities.
Therefore, the Company may issue its shares in a manner that dilutes current
stockholders.
Other anti-takeover defenses the Company might employ include a
variable-sized Board of Directors pursuant to the Bylaws of the Company. The
Board of Directors consists of not more than five and not fewer than three
directors. The exact number of directors on the Board may be fixed within the
variable range either by resolution of the Board or approval of the
stockholders. Although not intended by the Company to have an anti-takeover
effect, the authority of the Board to change the size of the Board could prevent
or make more difficult a takeover of the Company. Because the Board is
authorized under the Bylaws to expand the size of the Board and to appoint
additional directors to fill vacancies resulting from such expansion, the Board
could make it more difficult for an outside party to obtain majority
representation on the Board. Expansion of the Board in such a circumstance would
also make it more difficult to remove control of the Board from the incumbent
directors. The Board does not consider the variable sized Board of Directors to
be an effective deterrent against abusive takeovers.
ACCOUNTING FOR REVERSE STOCK SPLIT
If a Reverse Stock Split is effected, it will require that an amount be
transferred to the Company's Surplus Account (specifically, its Capital Surplus
Account) and from its Capital Account. That amount is equal to the number of
fewer shares issued times such shares' par value.
The number of shares of Common Stock outstanding will be reduced. As a
consequence, the aggregate par value of the outstanding Common Stock will be
reduced, while the aggregate capital in excess of par value attributable to the
outstanding Common Stock for statutory and accounting purposes will be increased
correspondingly. Offsetting this reduction, in part, will be an increase in the
number of shares of New Common Stock outstanding as a result of conversion of
Series H Preferred Stock.
The resolutions approving the Reverse Stock Splits provide that this
increase in capital in excess of par value will be treated as capital for
statutory purposes. However, under Delaware law, the Board of Directors of the
Company will have the authority, subject to various limitations, to transfer
some or all of such increased capital in excess of par value from capital to
surplus, which additional surplus could be distributed to stockholders as
dividends or used by the Company to repurchase outstanding stock. The Company
currently has no plans to use any surplus so created to pay any such dividend or
to repurchase stock.
17
<PAGE>
The following tables illustrate the principal effects of the Reverse
Stock Split to the Company's capital accounts on a pro forma basis as at August
5, 1998:
After 1-for-10
Prior to Reverse Reverse
Number of Shares Stock Split Stock Split
- -------------------------------------- ----------------- ---------------
Common Stock
Authorized........................ 20,000,000 20,000,000
Outstanding....................... __________ __________
Available for Future Issuance (1). __________ __________
Preferred Stock
Authorized........................ 1,000,000 1,000,000
Outstanding....................... __________ 0
Available for Future Issuance..... __________ 1,000,000
After 1-for-10
Prior to Reverse Reverse
Financial Data Stock Split Stock Split
Stockholders' Equity (Deficit)
Common Stock, $ __________ $ __________
$0.001 par value................
Preferred Stock, __________ __________
$0.001 par value................
Additional Paid-in Capital........
Treasury Stock....................
Retained Earnings.................
Total Stockholders' Equity........
Book Value per common share.......
..................
(1) Excludes any adjustment resulting from the repurchase of fractional shares.
LIQUIDATION OF FRACTIONAL SHARES
At the Effective Date, each ten (10) shares of the Common Stock issued
and outstanding immediately prior thereto (the "Old Common Stock"), will be
reclassified as and changed into one whole a share of the Company's Common Stock
(the "New Common Stock"). All shares that are not combined into whole shares
will be subject to the treatment of fractional share interests as described
below. Shortly after the Effective Date, the Company will send transmittal forms
to the holders of the Old Common Stock to be used in forwarding their
certificates formerly representing shares of Old Common Stock for (i) surrender
and exchange for certificates representing whole shares of New Common Stock and
(ii) cash in lieu of any fraction of a share of New Common Stock to which such
holders would otherwise be entitled.
The Company will either deposit sufficient cash with the Exchange Agent
or set aside sufficient cash for the purchase of the above referenced fractional
interests. Stockholders are encouraged to surrender their certificates to the
Exchange Agent for certificates evidencing whole shares of the New Common Stock
and to claim the sums, if any, due them for fractional interests, as promptly as
possible following the Effective Date. No interest will accrue or be payable to
stockholders on account of such deposit. The Company shall be entitled to
earnings, if any, on funds deposited.
Stockholders should be aware that, under the escheat laws of the
various jurisdictions where stockholders reside, where the Company is domiciled,
and where the funds will be deposited, sums due for fractional interests that
are not timely claimed after the Effective Date may be required to be paid to
the designated agent for each such jurisdiction, unless correspondence has been
received by the Company or the Exchange Agent concerning ownership of such funds
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within the time permitted in such jurisdictions. Thereafter, stockholders
otherwise entitled to receive such funds will have to seek to obtain them
directly from the state to which they were paid.
The ownership of a fractional interest will not give the holder thereof
any voting, dividend, or other rights except to receive payment therefor as
described herein. No service charge will be payable by stockholders in
connection with the exchange of certificates or the issuance of cash for
fractional interests, all of which costs will be borne and paid by the Company.
The number of holders of the Common Stock on the Record Date was ___.
The Company does not anticipate that the payment in cash in lieu of fractional
shares following any Reverse Stock Split would result in a significant reduction
in the number of such holders.
FEDERAL INCOME TAX CONSEQUENCES
The following description of federal income tax consequences is based
on the Internal Revenue Code of 1986, as amended (the "Code"), the applicable
Treasury Regulations promulgated thereunder, judicial authority and current
administrative rulings and practices as in effect on the date of this Proxy
Statement. This discussion is for general information only and does not discuss
the federal income tax consequences which may apply to non-resident aliens,
broker-dealers, stockholders who receive Common Stock in compensatory
transactions or insurance companies. This discussion does not address any
foreign, state or local tax consequences that may be relevant to the Company's
stockholders. Accordingly, each stockholder is urged to consult his or her own
tax advisor to determine the particular consequences to them of the Reverse
Stock Split.
The exchange of shares of Old Common Stock for shares of New Common
Stock will not result in recognition of gain or loss (except in the case of cash
received for fractional shares as further described below). The holding period
of the shares of New Common Stock will include the stockholder's holding period
for the shares of Old Common Stock exchanged therefor, provided that the shares
of Old Common Stock were held as a capital asset. The aggregate of the adjusted
basis of the shares of New Common Stock will be the same as the aggregate of the
adjusted basis of the Old Common Stock exchanged therefor, reduced by the basis
applicable to the receipt of cash in lieu of fractional shares.
A stockholder who receives cash in lieu of fractional shares will be
treated as if the Company has issued fractional shares to him and then
immediately redeemed such shares for cash. Such stockholder should generally
recognize gain or loss, as the case may be, measured by the differences between
the amount of cash received and the basis of his Old Common Stock allocable to
such fractional shares, as if they had actually been issued, provided that this
tax treatment would be inapplicable if such redemption is deemed to be
essentially equivalent to a dividend. Such gain or loss will be capital gain or
loss (if such stockholder's Old Common Stock was held as a capital asset), and
any such capital gain or loss will generally be long-term capital gain or loss
to the extent such stockholder's holding period for his or her Old Common Stock
then exceeds twelve months.
In the event the payment in cash for a fractional share is deemed to be
essentially equivalent to a dividend, the amount received will be taxable as
ordinary income to the extent of the Company's current and accumulated earnings
and profits, if any, determined on a pro rata basis. Any amount distributed
which is not a dividend on account of a lack of current or accumulated earnings
and profits of the Company will first be applied against and reduce a
stockholder's basis in his or her Common Stock and thereafter be treated as gain
from the sale or exchange of property.
REQUIRED VOTE
Under Delaware law, approval of the foregoing proposal requires
affirmative votes of at least a majority of the shares outstanding of Common
Stock and a majority of the outstanding shares of Series H Preferred Stock.
MANAGEMENT RECOMMENDS A CONSENT OR VOTE FOR
PROPOSAL TWO
AMENDMENT TO CERTIFICATE OF INCORPORATION
TO EFFECT A REVERSE STOCK SPLIT
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MARKET FOR THE COMPANY'S COMMON STOCK
From November, 1995 to November, 1997, the Company's Common Stock was
listed on the Nasdaq SmallCap market. In November, 1997, the Company was
de-listed from Nasdaq. The Common Stock is currently quoted on the OTC Bulletin
Board. Trading in the Common Stock is sporadic.
On the Record Date, the closing bid and asked quotations for the Common
Stock on the OTC Bulletin Board were $0.___ and $0.___, respectively. As of the
Record Date there were ___ holders of record of the Common Stock. The following
table reflects the high and low closing bid quotations reported by the OTC
Bulletin Board subsequent to November, 1997, as well as high and low last sales
prices reported by Nasdaq for prior periods. Such prices represent inter-dealer
quotations, do not include markups, markdowns, or commissions and may not
reflect actual transactions.
High Low
Year Ended December 31, 1996
January 1 to March 31, 1996 $10.75 $7.50
April 1 to June 30, 1996 $13.75 $9.38
July 1 to September 30, 1996 $11.50 $5.13
October 1 to December 31, 1996 $6.25 $3.25
Year Ended December 31, 1997
January 1 to March 31, 1997 $4.50 $2.25
April 1 to June 30, 1997 $3.50 $2.13
July 1 to September 30, 1997 $2.69 $0.50
October 1 to December 31, 1997 $0.75 $0.16
Year Ending December 31, 1998
January 1 to March 31, 1998 $____ $____
April 1 to June 30, 1998 $____ $____
July 1 to September 30, 1998 $____ $____
------------------------------------
The number of holders of record of Common Stock of the Company as of
the Record Date was approximately ---------.
EXCHANGE OF STOCK CERTIFICATES
Interwest Transfer Company, Inc. will act as the Company's exchange
agent (the "Exchange Agent") to act for holders of Old Common Stock in
implementing the exchange of their certificates.
DO NOT SEND STOCK CERTIFICATES UNTIL YOU RECEIVE A NOTICE REQUESTING
YOU TO TRANSMIT THEM TO THE EXCHANGE AGENT.
If the proposals are approved by stockholders and the Company files the
Amendment, the Amendment will become effective on the date therein specified as
the effective date of such filing (the "Effective Date"). After the Amendment is
filed, but before or after the Effective Date, stockholders will be notified and
requested to surrender their certificates representing shares of Old Common
Stock to the Exchange Agent in exchange for certificates representing New Common
Stock. Beginning on the Effective Date, each certificate representing shares of
the Company's Old Common Stock will be deemed for all corporate purposes to
evidence ownership of a proportionate number of shares of New Common Stock and a
right to payment in cash in lieu of fractional shares of New Common Stock.
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PROPOSAL THREE
NAME CHANGE
The Company's Board of Directors has authorized and recommends to
stockholders the change of the Company's name to Esynch Corporation (the "Name
Change"). The Name Change would be effected by filing an amendment of the
Company's Certificate of Incorporation to effect the Name Change. The applicable
text of the amendment is found in Exhibit A.
The applicable text of the stockholders' resolution is found in Exhibit
B.
In the judgment of the Board of Directors, the change of corporate name
is desirable in view of the significant change in the character and strategic
focus of the business of the Company resulting from the recent acquisitions of
Intermark. This acquisition is part of a strategic corporate program to focus
the Company's business operations into areas with higher growth potential, but
in which there are opportunities for collaborative product development and
electronic software distribution and marketing.
If the proposed name change is adopted, it is the intent of the Company
to use the trade name Esynch in its communications with stockholders and the
investment community as well as to use the name in the conduct of its
operations.
Approval of Proposal Two is not a condition to the approval of Proposal
Three.
If the amendment is adopted, stockholders will not be required to
exchange outstanding stock certificates for new certificates, unless Proposal
Two is also adopted.
APPROVAL OF STOCKHOLDERS
Approval of this proposal requires the affirmative vote of a majority
of the votes of the outstanding shares of Common Stock and Series H Preferred
Stock of the Company voting together as a single class. If approved by the
stockholders, the amendment to Article First will become effective upon filing
with the Secretary of the State of Delaware a Certificate of Amendment to the
Company's Certificate of Incorporation, which filing is expected to take place
shortly after the Annual Meeting. However, the Board of Directors will be
authorized, without a further vote of the stockholders, to abandon the name
change and determine not to file the Certificate of Amendment if the Board
concludes that such action would be in the best interest of the Company and its
stockholders.
THE BOARD BELIEVES THAT THE PROPOSAL TO AMEND THE COMPANY'S CERTIFICATE
OF INCORPORATION TO CHANGE THE CORPORATE NAME IS IN THE BEST INTEREST OF THE
COMPANY AND RECOMMENDS A VOTE FOR APPROVAL OF THE PROPOSAL. PROXIES RECEIVED BY
THE BOARD WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY OTHERWISE ON THEIR PROXY
CARD.
BOARD OF DIRECTORS' DISCRETION AND RESERVATION OF RIGHTS
The Board of Directors reserves the right, notwithstanding
stockholders' approval and without further action by the stockholders, to elect
not to proceed with any of the proposed actions, if at any time prior to filing
the Company's Restated Certificate of Incorporation with the Secretary of State
of the State of Delaware, the Board of Directors, in its sole discretion
determines that the proposed action is no longer in the best interests of the
Company and its stockholders. Pursuant to Section 242(c) of the General
Corporation Law of Delaware, the reservation by the Board of Directors of this
right to abandon a proposed amendment of the Company's Certificate of
Incorporation is set forth in the resolutions adopting the amendments.
Under each of Proposals Two and Three, the Board reserves the right to
delay the filing of the amendment for up to two months following the adoption of
the respective proposal.
The Board of Directors also retains the authority to take or to
authorize discretionary actions as may be appropriate to carry out the purposes
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and intentions of the proposed actions, including without limitation editorial
modifications, additions or deletions to the amendments under either of the
Proposals, or any change to the Restated Certificate of Incorporation which the
Board of Directors may adopt without shareholder vote in accordance with the
DGCL.
NO DISSENTERS' RIGHTS
Under Delaware law, stockholders are not entitled to dissenter's rights
of appraisal with respect to the proposed amendments to the Company's Restated
Certificate of Incorporation under any of the Proposals.
CHANGE IN CONTROL
On May 8, 1998, after the close of business, the Company entered into
an Agreement and Plan of Share Exchange dated as of May 8, 1998 (the
"Agreement") by and among the Company and Intermark Corporation, a California
corporation ("Intermark"), and the securityholders of Intermark Corporation
("Exchanging Securityholders"). On June 17, 1998, the Company entered into the
First Amendment of Agreement and Plan of Share Exchange dated as of May 8, 1998.
On July 30, 1998, the Company entered into the Second Amendment of Agreement and
Plan of Share Exchange dated as of May 8, 1998 ("Second Amendment").
The closing of the transactions contemplated by the Agreement
("Closing") occurred on August 5, 1998. The Closing resulted in a change in
control of the Company. The Agreement, as amended by the First Amendment and the
Second Amendment, provided for the Exchanging Securityholders to deliver and
exchange all of the outstanding capital stock of Intermark and options or other
rights to purchase such capital stock for capital stock of the Company
aggregately having voting power equal to 77.5% of the capital stock of the
Company aggregately outstanding as of immediately after the Closing. Accordingly
Messrs. Hemingway, Budd and Hutt became the beneficial owners of approximately
62% of the Company's capital stock as of the Closing. Furthermore, Thomas
Hemingway, the Chief Executive Officer of Intermark became the Chief Executive
Officer of the Company. In accordance with the Agreement, as amended, on the
Closing Thomas Hemingway was elected to the Board of Directors of the Company
and David Mock remained on the Company's Board of Directors after the Closing,
while all other directors of the Company resigned effective upon the Closing.
David Mock, who resigned from the Board of Directors on August 20, 1998, and
chose Shawn Cunningham, a former employee of the Company, to fill the vacancy on
the Board. The Agreement also provides that additional designates of Thomas
Hemingway, or the then-remaining directors, would be elected to the Board of
Directors of the Company 10 days following the Company's mailing to stockholders
and filing with the Securities and Exchange Commission (the "Commission")
information required by Rule 14f-1. In lieu of election in such manner, the
Company has determined to propose the nominees to the stockholders at the
Meeting.
The capital stock issued by the Company to the Exchanging
Securityholders upon the Closing was comprised of 1,033,669 of the authorized
and previously unissued shares of the Company's Common Stock, par value $.001
("Common Stock"), and 78,706 of the authorized and previously unissued shares of
Series H Preferred Stock, a new series designated before the Closing by the
Company's Board of Directors. Each one (1) such share is convertible into 562
and 1/2 shares of Common Stock (subject to and conditioned upon the future
availability of a sufficient number of authorized and unissued shares of Common
Stock) and has voting rights equivalent to the same number of shares of Common
Stock which would be issuable upon conversion (without regard to whether there
is an inadequate amount of authorized and unissued Common Stock actually
available for issuance upon conversion).
Accordingly, the Company's Board of Directors prior to the Closing also
authorized and agreed to recommend to the Company's stockholders for approval a
1-for-10 reverse stock split of the Common Stock, which would result in an
automatic conversion of all outstanding shares of the Series H Preferred Stock
into New Common Stock, as then reclassified. 20,000,000 shares of Common Stock
are presently authorized and the same number would remain authorized after the
Reverse Stock Split; however additional shares would become available for future
issuance because each ten outstanding shares of Old Common Stock will be
combined into one share of New Common Stock (and the conversion rate of each
share of the Series H Preferred Stock will be reduced proportionately from 562
1/2 shares of Old Common Stock to 56 and 1/4 shares of New Common Stock). These
available shares would be used for conversion of Series H Preferred Stock into
Common Stock and for other purposes. Upon such shares becoming available, as a
result of the Reverse Stock Split or otherwise, the Series H Preferred Stock
would be automatically converted into New Common Stock.
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Intermark became a wholly-owned subsidiary of the Company on the
Closing of the transactions contemplated in the Agreement.
Bill Kesselring, the Chief Operating Officer of the Company prior to
the Closing, is one of the Exchanging Securityholders. He received on the
Closing 508 shares of Series H Preferred Stock (including 17 escrowed shares).
He provided administrative services to Intermark valued at $25,000 and was
issued shares of Intermark Common Stock valued at $25,000, which he exchanged
for the shares of Series H Preferred Stock. Such services included relocating
the Company, assisting with negotiations with creditors of the Company's
subsidiary, and administrative assistance. The terms available to Mr. Kesselring
were not more favorable than those provided to other investors in Intermark from
approximately January 1998 to July 1998. His services were performed from May 9,
1998 through August 1, 1998, and were considered invaluable by Intermark. Prior
to May 9, 1998, Mr. Kesselring provided similar services to the Company, despite
the fact that the Company was financially unable to compensate its management,
such as Mr. Kesselring, fully.
Since approximately January 1998 and prior to the Closing, Intermark
raised funds in a private placement of its convertible notes, for a price equal
to the original principal amount thereof, with conversion prices ranging from
$1.00 to $1.25 per share of Intermark Common Stock. A portion of these funds
were utilized for transaction costs and to settle existing indebtedness of the
Company's subsidiary, Innovus Multimedia.
In connection with the transactions contemplated by the Agreement, the
Company sought voluntary conversion by the holders of the Company's outstanding
Preferred Stock into shares of the Company's Common Stock. All of the Preferred
Stock outstanding prior to the Closing was converted, and an aggregate of
approximately 5 million shares of Common Stock were issued upon such
conversions. Such shares are freely-trading shares to the extent that the
holders thereof have satisfied the 2-year holding period requirement of Rule
144(k), and a large portion of the previously outstanding Preferred Stock had
been issued more than two years before the Closing.
The assets of the Company were relocated from Salt Lake City, Utah, to
Newport Beach, California prior to the Closing. Also prior to the Closing the
Company had furloughed substantially all of its employees. The Company intends
to liquidate Innovus Multimedia and apply the proceeds, to the extent thereof,
to pay creditors of Innovus Multimedia.
DESCRIPTION OF CAPITAL STOCK
The offering the authorized capital stock of the Company consists of
20,000,000 shares of Common Stock, $.001 par value ("Common Stock"), and
1,000,000 shares of preferred stock, $.001 par value ("Preferred Stock").
OUTSTANDING AND RESERVED SHARES
As of August 5, 1998, there were 13,202,496 shares of Common Stock
issued and outstanding and 2,811,334 shares of Common Stock reserved for
issuance upon the exercise of stock options or warrants or conversion of
debentures (1,023,750 of which are, by agreement with the holder, not
exercisable until the Series H Preferred Stock is converted into Common Stock).
Also as of August 5, 1998, as set forth under the heading "Series H Preferred
Stock," there were outstanding shares of Series H Preferred Stock and options to
purchase Series H Preferred Stock equivalent (on an "as-if" converted basis) to
an aggregate of 50,588,437 shares of Common Stock. Subsequent to August 5, 1998,
the Company issued an additional 622 shares of Series H Preferred Stock (or
350,000 shares of Common Stock issuable upon conversion of such shares of Series
H Preferred Stock) for cash aggregating $35,000. After the completion of a
private, unregistered offering of Series H Preferred Stock that the Company
intends to complete, a total of approximately 92,964,803 common equivalent
shares will be issued and outstanding, assuming the sale of 25,000 shares of
Series H Preferred Stock (14,062,500 common equivalent shares) in such offering.
The Company committed approximately 9,250 additional shares of Series H
Preferred Stock (or 5,200,000 shares of Common Stock issuable upon conversion of
such shares of Series H Preferred Stock) to Smartdesk, Inc., the Company's joint
venture partner as payment under the joint venture agreement for software to be
developed by Smartdesk, Inc. for Intermark, up to 12,000 shares of Series H
Preferred Stock (or 6,750,000 shares of Common Stock issuable upon conversion of
such shares of Series H Preferred Stock) committed for proposed acquisition of
Softkat, Inc. under an existing letter of intent. No assurance is possible that
any such acquisition will be completed, or be completed on the terms as
presently contemplated. The Company may issue additional shares in other
acquisitions. The Company has an aggregate of 1,000,000 shares of Preferred
Stock authorized, of which 240,000 shares are designated as Series H Preferred
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Stock. The shares of Series H Preferred Stock designated, in the aggregate,
including the presently outstanding shares of Series H Preferred Stock, and
shares of Series H Preferred Stock available for future issuances, are
equivalent to a maximum aggregate of 135,000,000 shares of Common Stock on an
"as-if" converted basis.
COMMON STOCK
The outstanding shares of Common Stock are fully-paid and
nonassessable. The Company's Certificate of Incorporation provides that holders
of Common Stock are entitled to one vote for each share on all matters submitted
to a vote of stockholders, provided that certain preferential voting rights
exist in favor of the holders of shares of Series H Preferred Stock.
Subject to the preferential dividend rights of the shares of Series H
Preferred Stock and any other series of Preferred Stock which the Company may
issue in the future, the holders of Common Stock are entitled to receive such
cash dividends, if any, as may be declared by the Board of Directors out of
legally available funds. Upon liquidation, dissolution or winding up of the
Company, after payment of all debts and liabilities and after payment of the
liquidation preferences described below of any shares of Preferred Stock then
outstanding, the holders of the Common Stock will be entitled to all assets that
are legally available for distribution. For the purpose of determining the
application of the preceding sentence, the disposition of all or substantially
all of the Company's assets, or the merger or consolidation of the Company into
another entity if the stockholders of this Company immediately prior to such
merger or consolidation do not own at least 50% of the equity of the combined
entity immediately after such merger or consolidation, will be deemed to be a
liquidation, dissolution or winding up of the Company.
The holders of Common Stock have no preemptive subscription,
redemption, sinking fund or conversion rights and have equal rights and
preferences. The rights and preferences of holders of Common Stock will be
subject to the rights of the shares of Series H Preferred Stock and any series
of Preferred Stock which the Company may issue in the future.
PREFERRED STOCK
The Board of Directors has the authority, without further action by the
stockholders, to issue up to 1,000,000 shares of Preferred Stock, $.001 par
value, in one or more series and to fix the rights, preferences and privileges
thereof, including voting rights, terms of redemption, redemption prices,
liquidation preferences, number of shares constituting any series or the
designation of such series, without further vote or action the stockholders. The
rights of the holders of the Common Stock will be subject to, and may be
adversely affected by, the rights of the holders of any Preferred Stock that may
be issued in the future. The issuance of Preferred Stock could have the effect
of making it more difficult for a third party to acquire a majority of the
outstanding voting stock of the Company, thereby delaying, deferring or
preventing a change in control of the Company. Furthermore, such Preferred Stock
may have other rights, including economic rights senior to the Common Stock,
and, as a result, the issuance thereof could have a material adverse effect on
the market value of the Common Stock. The Company has no present plans to issue
shares of Preferred Stock.
SERIES H PREFERRED STOCK
The shares of Series H Preferred Stock carry voting rights in general
matters in proportion to the number of shares of Common Stock receivable upon
conversion (notwithstanding the lack of available authorized common shares), and
is entitled to special voting rights in certain major corporate transactions or
events. The shares of Series H Preferred Stock have a liquidation preference of
$84.375 per share, and various mergers or reorganizations are deemed to be
liquidations for such purpose. The conversion rights are subject there being
sufficient available common shares to accommodate conversion, and such
conversion rights carry customary anti-dilution adjustments. For a complete
description of the rights, preferences and privileges of the Series H Preferred
Stock, see the Certificate of Designation of the Series H Preferred Stock,
executed August 4, 1998, attached hereto as Exhibit C and incorporated herein by
this reference.
In connection with the reverse acquisition of Intermark by the Company,
the Board of Directors initially designated 100,000 shares of Preferred Stock as
Series H Preferred Stock for issuance in exchange for shares of Intermark. After
the Closing of the Intermark transaction, the Board of Directors authorized an
increase in that amount to 240,000 shares of Series H Preferred Stock. At August
5, 1998, 78,737 shares of Series H Preferred Stock were outstanding (including
2,665 shares of Series H Preferred Stock escrowed by exchanging security holders
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and excluding 5,330 shares of Series H Preferred Stock escrowed by the Company);
and 11,198 shares of Series H Preferred Stock were reserved for grant on
exercise of outstanding options.
Subsequently, 622 additional shares of Series H Preferred Stock were
issued for cash. The Company has committed approximately 9,250 shares of Series
H Preferred Stock for issuance to Smartdesk, Inc. in payment for software
development services. The Company anticipates issuing approximately 12,000
shares of Series H Preferred Stock in the anticipated Softkat, Inc. acquisition,
up to 25,000 Shares in a private, unregistered offering, and additional shares
of Series H Preferred Stock for other general corporate purposes.
Upon the Reverse Stock Split, all of the Series H Preferred Stock will
be eliminated through automatic conversion into New Common Stock, and thereafter
the Company will issue no additional shares of the Series H Preferred Stock.
Although there are insufficient shares of Common Stock authorized to
issue any shares of Common Stock upon conversion of Series H Preferred Stock,
upon approval of additional authorized shares of Common Stock, the Shares shall
automatically convert into Common Stock. The shares of Common Stock issuable
upon conversion shall be validly issued, fully-paid and nonassessable. The
conversion ratio initially is 562 1/2 shares of Old Common Stock for each one
Share. The shares of Series H Preferred Stock have voting rights equivalent to
such number of shares of Common Stock as would be issuable at the conversion
ratio, and special voting rights and liquidation rights in certain events.
As contemplated in the agreement among the Company and the former
holders of stock of Intermark, the Company intends to solicit proxies to approve
a 1-for-10 reverse stock split, which will result in the 20,000,000 authorized
shares of Common Stock becoming sufficient to convert all of the shares of
Series H Preferred Stock, as a result of (a) the outstanding Old Common Stock
being combined into one-tenth as many shares of New Common Stock and (b) the
shares of Series H Preferred Stock conversion ratio being reduced in proportion.
The approval and effectiveness thereof will automatically result in the
conversion of all of the shares of Series H Preferred Stock into New Common
Stock, in an adjusted ratio of 56 1/4 shares of new common stock for each one
Share, subject to any further anti-dilution adjustment if applicable.
The approval of the Reverse Stock Split requires an amendment of the
Company's Certificate of Incorporation, which requires the approval of the
holders of a majority of the Company's outstanding Common Stock. Certain former
officers and directors of the Company believed to hold approximately 1,500,000
shares of Old Common Stock have granted the Company a proxy to vote in favor of
the Reverse Stock Split, and former stockholders of Intermark are record owners
of approximately 1,000,000 shares of Old Common Stock.
CONVERTIBLE DEBENTURES
In connection with its $120,000 debt financing in April and June 1998,
the Company issued and sold 10% Series A Convertible Debentures due October 31,
1998, convertible at the holder's election into shares of Common Stock. The
"Conversion Price" per share of Old Common Stock under the Debentures is $0.125.
REGISTRATION RIGHTS
The agreements between Intermark and certain investors provides the
investors, including Messrs. Hemingway, Hutt and Budd, with certain registration
rights with respect to an aggregate of approximately 6,046,875 shares of New
Common Stock issuable upon conversion of shares of Series H Preferred Stock. All
of the former securityholders of Intermark have limited "piggy-back"
registration rights whereby they are entitled to be notified of and participate
in registrations of the Company's Common Stock initiated by the Company or a
third party, subject to certain conditions and restrictions. In addition, if the
Company becomes eligible to file a resale registration statement on Form S-3,
the former securityholders of Intermark shall be able to require that their
shares be registered for resale on Form S-3. In the event that the shares of
Series H Preferred Stock are not converted into Common Stock prior to August 5,
1999, such registration rights granted by the Company shall be applicable to the
shares of Series H Preferred Stock. The Company has also agreed to indemnify and
hold harmless the stockholders who are a party to the agreement and their
affiliates from any loss, claim or damage arising from such registrations
unless, and to the extent that, such loss, claim or damage arises out of or is
based upon an untrue statement, alleged untrue statement or omission or alleged
omission made in reliance upon and in conformity with written information
furnished by or on behalf of such party for use in the preparation of the
documents related to the registration.
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CERTAIN PROVISIONS OF THE COMPANY'S CERTIFICATE OF INCORPORATION
The Company's Certificate of Incorporation limits the liability of
directors to the Company and its stockholders to the fullest extent permitted by
the Delaware General Corporation Law (the "DGCL"). Specifically, under the DGCL,
a director will not be personally liable for monetary damages for breach of the
director's fiduciary duty as a director, except liability (i) for a breach of
the director's duty of loyalty to the Company or its stockholders, (ii) for acts
or omissions by a director not in good faith or which involve intentional
misconduct or a knowing violation of the law, (iii) for liability arising under
Section 174 of the DGCL (relating to the declaration of dividends and purchase
or redemption of shares in violation of the DGCL), or (iv) for any transaction
from which the director derived an improper personal benefit. The inclusion of
this provision in the Company's Certificate of Incorporation may have the effect
of reducing the likelihood of derivative litigation against Directors and may
discourage or deter stockholders or management from bringing a lawsuit against
directors for breach of their duty of care. This limitation on monetary
liability does not alter the duties of Directors, affect the availability of
equitable relief, or affect the availability of monetary relief predicated on
claims based on federal law, including the federal securities laws.
DELAWARE LAW ON INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law makes provision for
the indemnification of officers and directors in terms sufficiently broad to
include indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "Securities Act"). Section 145 of the Delaware General
Corporation Law permits indemnification by a corporation of its officers and
directors against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by them in
connection with actions or proceedings against them if they acted in good faith
and in a manner they 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 reason to believe their conduct was unlawful. Section 145
provides that no indemnification may be made, however, without court approval,
in respect of any claim as to which the officer or director is adjudged to be
liable to the corporation. Such indemnification provisions of Delaware law are
expressly not exclusive of any other rights which the officers or directors may
have under the corporation's by-laws or agreements, pursuant to the vote of
stockholders or disinterested directors or otherwise.
The Company's Certificate of Incorporation, and agreements between the
Company and its officers and directors, each provide that the Company will, to
the maximum extent permitted by law, indemnify each of its officers and
directors against expenses, judgments, fines, settlements and other amounts
actually and reasonably incurred in connection with any proceeding arising by
reason of the fact any such person is or was a director or officer of the
Company or of any subsidiary of the Company or other entity if serving at the
request of the Company.
DIVIDEND POLICY
The Company anticipates that all future earnings will be retained to
finance future growth, and the Company does not anticipate paying any dividends
on its Shares or shares of Common Stock in the foreseeable future.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Interwest
Transfer Company, Inc.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
On June 1, 1998, the Company's Board of Directors elected to retain
Hansen Barnett & Maxwell, a professional corporation ("HBM") as its independent
auditor and to dismiss Grant Thornton LLP ("Grant"). Heretofore Grant had acted
as the Company's independent auditor. The decision to change auditors was
recommended by the Company's Board of Directors.
26
<PAGE>
The reports of Grant on the financial statements of the Company for
each of the two fiscal years in the period ended December 31, 1996, did not
contain any adverse opinion or disclaimer of opinion and were not qualified or
modified as to uncertainty, audit scope or accounting principles. The reports
state that the financial statements were prepared on the basis of the Company
continuing as a going concern, but that there were substantial doubt about the
Company's ability to continue as a going concern. Grant had not issued an audit
report for the year ended December 31, 1997.
During the Company's two most recent fiscal years and all subsequent
interim periods preceding such change in auditors, there was no disagreement
with Grant on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which, if not resolved to
the satisfaction of the former accountant, would have caused it to make a
reference to the subject matter of the disagreements in connection with its
report; nor has Grant ever presented a written report, or otherwise communicated
in writing to the Company or its Board of Directors the existence of any
"disagreement" or "reportable event" within the meaning of Item 304 of
Regulation S-K.
HBM had audited the Company's financial statements for the three years
ended December 31, 1994.
INDEPENDENT PUBLIC ACCOUNTANTS
The accounting firm of Hansen Barnett & Maxwell, a professional
corporation ("HBM") serves the Company as its independent public accountants at
the direction of the Board of Directors of the Company and has served in such
capacity since June 1, 1998. One or more representatives of HBM are expected to
be present at the Meeting and will have an opportunity to make a statement, if
they desire to do so, and to be available to respond to appropriate questions.
STOCKHOLDER PROPOSALS
Stockholders who wish to present proposals for action at the 1999
Annual Meeting of Stockholders should submit their proposals in writing to the
Secretary of the Company at the address of the Company set forth on the first
page of this Proxy Statement. Proposals must be received by the Secretary no
later than June 15, 1999 for inclusion in next year's proxy statement and proxy
card.
ANNUAL REPORT TO STOCKHOLDERS
The Annual Report to Stockholders of the Company for the fiscal year
ended December 31, 1997, including audited consolidated financial statements,
has been mailed to the stockholders concurrently herewith, but such report is
not incorporated in this Proxy Statement and is not deemed to be a part of the
proxy solicitation material.
OTHER MATTERS
The Management of the Company does not know of any other matters which
are to be presented for action at the Meeting. Should any other matters come
before the Meeting or any adjournment thereof, the persons named in the enclosed
proxy will have the discretionary authority to vote all proxies received with
respect to such matters in accordance with their judgment.
ANNUAL REPORT ON FORM 10-K
A copy of the Company's Annual Report on Form 10-K, as filed with the
Securities and Exchange Commission (exclusive of Exhibits), will be furnished by
first class mail within one business day of receipt of request without charge to
any person from whom the accompanying proxy is solicited upon written request to
Investor Relations, Innovus Corporation, 4600 Campus Drive, Newport Beach,
California 92660. If Exhibit copies are requested, a copying charge of $.20 per
page will be made.
27
<PAGE>
MANAGEMENT RECOMMENDS A CONSENT OR VOTE FOR PROPOSALS ONE, TWO and THREE.
BY ORDER OF THE BOARD OF DIRECTORS
T. Richard Hutt
Secretary
Newport Beach, California
October 5, 1998
STOCKHOLDERS ARE URGED TO SPECIFY THEIR CHOICES AND TO DATE, SIGN, AND
RETURN THE ENCLOSED PROXY IN THE ENCLOSED ENVELOPE. PROMPT RESPONSE IS HELPFUL
AND YOUR COOPERATION WILL BE APPRECIATED.
28
<PAGE>
EXHIBIT A
RESTATED CERTIFICATE OF INCORPORATION
OF
INNOVUS CORPORATION
<PAGE>
RESTATED CERTIFICATE OF INCORPORATION
OF
INNOVUS CORPORATION
(Originally incorporated under the name TRI-NEM, INC.)
(Original Certificate of Incorporation filed December 21, 1988)
INNOVUS CORPORATION, a corporation duly organized and existing under
the General Corporation Law of Delaware (the "Corporation"), does hereby certify
as follows:
1. The following provisions of the Restated Certificate of
Incorporation of the Corporation, shall be and become the certificate of
incorporation of the Corporation effective at 9:00 o'clock a.m. on the date of
filing of this instrument with the Delaware Secretary of State (the "Effective
Time"), and shall be amended and restated to read in its entirety as follows:
RESTATED
CERTIFICATE OF INCORPORATION
OF
INNOVUS CORPORATION
ARTICLE I
NAME
[THIS PARAGRAPH IS AMENDED BY PROPOSAL THREE.]
The name of the corporation (the "Corporation") is as follows:
-------------
ESYNCH CORPORATION
------------------
ARTICLE II
DURATION
The Corporation shall continue in existence perpetually unless
sooner dissolved according to law.
ARTICLE III
PURPOSES
The purposes for which the Corporation is organized are:
To seek, investigate, acquire interests in, and dispose of
business opportunities, ventures, and assets; to own and operate any
lawful enterprise whatsoever; to acquire, hold, and dispose of real or
personal properties of any kind or nature whether tangible or
intangible; and generally to do or perform any act necessary or
desirable in connection with the foregoing;
To acquire by purchase or otherwise, own, hold, lease, rent,
mortgage, or otherwise trade with and deal in real estate, lands, and
interests in lands and all other property of every kind and nature;
To borrow money and to execute notes and obligations and
security contracts therefor, and to lend any of the monies or funds of
the Corporation and to take evidence of indebtedness therefor, and also
to negotiate loans; to carry on a general mercantile business and to
purchase, sell, and deal in such goods and supplies, and merchandise as
are necessary or desirable in connection therewith;
To do all and everything necessary, suitable, convenient, or
proper for the accomplishment of any of the purposes or the attainment
of any one or more of the objects herein enumerated or incidental to
the powers herein named or which shall at any time appear conducive or
expedient for the protection or benefit of the Corporation, with all
the powers hereafter conferred by the laws under which this Corporation
is organized; and
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<PAGE>
To engage in any and all other lawful purposes, activities,
and pursuits, whether similar or dissimilar to the foregoing, for which
corporations may be organized under the General Corporation Law of
Delaware and to exercise all powers allowed or permitted thereunder.
ARTICLE IV
AUTHORIZED SHARES
The Corporation shall have authority to issue an aggregate of
21,000,000 shares, of which 1,000,000 shares shall be preferred stock,
$0.001 par value (hereinafter the "Preferred Stock"), and 20,000,000
shares shall be common stock, $0.001 par value (hereinafter the "Common
Stock"). The powers, preferences, and rights, and the qualifications,
limitations, and restrictions of the shares of stock of each class and
series which the Corporation shall be authorized to issue are as
follows:
(a) Preferred Stock. Shares of Preferred Stock may be issued
from time to time in one or more series as may from time to time be
determined by the board of directors. Each series shall be distinctly
designated. All shares of any one series of the Preferred Stock shall
be alike in every particular, except that there may be different dates
from which dividends thereon, if any, shall be cumulative, if made
cumulative. The powers, preferences, participating, optional, and other
rights of each such series and qualifications, limitations, or
restrictions thereof, if any, may differ from those of any and all
other series at any time outstanding. Except as hereinafter provided,
the board of directors of this Corporation is hereby expressly granted
authority to fix by resolution or resolutions adopted prior to the
issuance of any shares of each particular series of Preferred Stock,
the designation, powers, preferences, and relative participating,
optional, and other rights and the qualifications, limitations, and
restrictions thereof, if any, of such series, including, without
limiting the generality of the foregoing, the following:
(i) The distinctive designation of, and the number of
shares of Preferred Stock which shall constitute each series, which
number may be increased (except as otherwise fixed by the board of
directors) or decreased (but not below the number of shares thereof
outstanding) from time to time by action of the board of directors;
(ii) The rate and times at which, and the terms and
conditions on which, dividends, if any, on the shares of the series
shall be paid; the extent of preferences or relation, if any, of such
dividends to the dividends payable on any other class or classes of
stock of this Corporation or on any series of Preferred Stock and
whether such dividends shall be cumulative or noncumulative;
(iii) The right, if any, of the holders of the shares
of the same series to convert the same into, or exchange the same for,
any other class or classes of stock of this Corporation and the terms
and conditions of such conversion or exchange;
(iv) Whether shares of the series shall be subject to
redemption and the redemption price or prices, including, without
limitation, a redemption price or prices payable in shares of any other
class or classes of stock of the Corporation, cash, or other property
and the time or times at which, and the terms and conditions on which,
shares of the series may be redeemed;
(v) The rights, if any, of the holders of shares of
the series on voluntary or involuntary liquidation, merger,
consolidation, distribution, or sale of assets, dissolution, or winding
up of this Corporation;
(vi) The terms of the sinking fund or redemption or
purchase account, if any, to be provided for shares of the series; and
(vii) The voting powers, if any, of the holders of
shares of the series which may, without limiting the generality of the
foregoing, include (A) the right to more or less than one vote per
share on any or all matters voted on by the shareholders, and (B) the
right to vote as a series by itself or together with other series of
Preferred Stock or together with all series of Preferred Stock as a
class, on such matters, under such circumstances, and on such
conditions as the board of directors may fix, including, without
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<PAGE>
limitation, the right, voting as a series by itself or together with
other series of Preferred Stock or together with all series of
Preferred Stock as a class, to elect one or more directors of this
Corporation in the event there shall have been a default in the payment
of dividends on any one or more series of Preferred Stock or under such
other circumstances and upon such conditions as the board of directors
may determine.
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[THE FOLLOWING PARAGRAPH IS INSERTED BY PROPOSAL TWO]
At 9:00 a.m. local Delaware time on the date of the filing of
this instrument with the Delaware Secretary of State (the "Effective
Date"), each share of the Company's Common Stock, par value $0.001 per
share, issued and outstanding immediately prior to the Effective Date
(the "Old Common Stock") shall automatically and without any action on
the part of the holder thereof be reclassified as and changed into
one-tenth (1/10) of a share of the Company's Common Stock, par value
$0.001 per share (the "New Common Stock"), subject to the treatment of
fractional share interests as described below. Each holder of a
certificate or certificates which immediately prior to the Effective
Date represented shares outstanding of Old Common Stock (the "Old
Certificates," whether one or more) shall be entitled to receive upon
surrender of such Old Certificates to the Company's Exchange Agent for
cancellation, a certificate or certificates (the "New Certificates,"
whether one or more) representing the number of whole shares of the New
Common Stock into which and for which the shares of the Old Common
Stock formerly represented by such Old Certificates so surrendered, are
reclassified under the terms hereof. From and after the Effective Date,
Old Certificates shall represent only the right to receive New
Certificates (and, where applicable, cash in lieu of fractional shares,
as provided below) pursuant to the provisions hereof. No certificates
or scrip representing fractional share interests in New Common Stock
will be issued, and no such fractional share interest will entitle the
holder thereof to vote, or to any rights of a stockholder of the
Company. A holder of Old Certificates shall receive, in lieu of any
fraction of a share of New Common Stock to which the holder would
otherwise be entitled, a cash payment therefor on the basis of the
average of the closing bid and asked quotations price of the Old Common
Stock as reported by the over-the-counter bulletin board on the
Effective Date (or in the event the Company's Common Stock is not so
quoted on the Effective Date, such closing quotations on the next
preceding day on which such stock was quoted). If more than one Old
Certificate shall be surrendered at one time for the account of the
same stockholder, the number of full shares of New Common Stock for
which New Certificates shall be issued shall be computed on the basis
of the aggregate number of shares represented by the Old Certificates
so surrendered. In the event that the Company's Exchange Agent
determines that a holder of Old Certificates has not tendered all his
certificates for exchange, the Exchange Agent may carry forward any
fractional share until all certificates of that holder have been
presented for exchange such that payment for fractional shares to any
one person shall not exceed the value of one share. If any New
Certificate is to be issued in a name other than that in which the Old
Certificates surrendered for exchange are issued, the Old Certificates
so surrendered shall be properly endorsed and otherwise in proper form
for transfer, and the person or persons requesting such exchange shall
affix any requisite stock transfer tax stamps to the Old Certificates
surrendered, or provide funds for their purchase, or establish to the
satisfaction of the Transfer Agent that such taxes are not payable.
From and after the Effective Date the amount of capital represented by
the shares of the New Common Stock into which and for which the shares
of the Old Common Stock are reclassified under the terms hereof shall
be the same as the amount of capital represented by the shares of Old
Common Stock so reclassified, until thereafter reduced or increased in
accordance with applicable law, and will have no effect on the
stockholders' equity in the Corporation, except for an appropriate
transfer between stated capital and additional paid-in capital. All
shares returned to the Corporation as a result of the reverse split
will be canceled and returned to the status of authorized and unissued
shares.
-----------------------------------------------------------------------
(b) Common Stock. The Common Stock shall have the following
powers, preferences, rights, qualifications, limitations, and
restrictions:
(i) After the requirements with respect to
preferential dividends of Preferred Stock, if any, shall have been met
and after this Corporation shall comply with all the requirements, if
any, with respect to the setting aside of funds as sinking funds or
redemption or purchase accounts and subject further to any other
conditions which may be required by the General Corporation Law of
Delaware, then, but not otherwise, the holders of Common Stock shall be
entitled to receive such dividends, if any, as may be declared from
time to time by the board of directors without distinction to series;
A-3
<PAGE>
(ii) After distribution in full of any preferential
amount to be distributed to the holders of Preferred Stock, if any, in
the event of a voluntary or involuntary liquidation, distribution or
sale of assets, dissolution, or winding up of this Corporation, the
holders of the Common Stock shall be entitled to receive all of the
remaining assets of the Corporation, tangible and intangible, of
whatever kind available for distribution to stockholders, ratably in
proportion to the number of shares of Common Stock held by each without
distinction as to series; and
(iii) Except as may otherwise be required by law or
this Certificate of Incorporation, in all matters as to which the vote
or consent of stockholders of the Corporation shall be required or be
taken, including, any vote to amend this Certificate of Incorporation,
to increase or decrease the par value of any class of stock, effect a
stock split or combination of shares, or alter or change the powers,
preferences, or special rights of any class or series of stock, the
holders of the Common Stock shall have one vote per share of Common
Stock on all such matters and shall not have the right to cumulate
their votes for any purpose.
(c) Other Provisions.
(i) The board of directors of the Corporation shall
have authority to authorize the issuance, from time to time without any
vote or other action by the stockholders, of any or all shares of the
Corporation of any class at any time authorized, and any securities
convertible into or exchangeable for such shares, in each case to such
persons and for such consideration and on such terms as the board of
directors from time to time in its discretion lawfully may determine;
provided, however, that the consideration for the issuance of shares of
stock of the Corporation having par value shall not be less than such
par value. Shares so issued, for which the full consideration
determined by the board of directors has been paid to the Corporation,
shall be fully paid stock, and the holders of such stock shall not be
liable for any further call or assessments thereon.
(ii) Unless otherwise provided in the resolution of
the board of directors providing for the issue of any series of
Preferred Stock, no holder of shares of any class of the Corporation or
of any security or obligation convertible into, or of any warrant,
option, or right to purchase, subscribe for, or otherwise acquire,
shares of any class of the Corporation, whether now or hereafter
authorized, shall, as such holder, have any preemptive right whatsoever
to purchase, subscribe for, or otherwise acquire shares of any class of
the Corporation, whether now or hereafter authorized.
(iii) Anything herein contained to the contrary
notwithstanding, any and all right, title, interest, and claim in and
to any dividends declared or other distributions made by the
Corporation, whether in cash, stock, or otherwise, which are unclaimed
by the stockholder entitled thereto for a period of six years after the
close of business on the payment date, shall be and be deemed to be
extinguished and abandoned; and such unclaimed dividends or other
distributions in the possession of the Corporation, its transfer
agents, or other agents or depositories, shall at such time become the
absolute property of the Corporation, free and clear of any and all
claims of any person whatsoever.
ARTICLE V
LIMITATION ON LIABILITY
A director of the Corporation shall have no personal liability
to the Corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director, except (i) for any breach of a
director's duty of loyalty to the 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 General Corporation Law of Delaware as it may from time to time be
amended or any successor provision thereto, or (iv) for any transaction
from which a director derived an improper personal benefit.
ARTICLE VI
BUSINESS COMBINATIONS WITH INTERESTED STOCKHOLDERS
The Corporation elects not to be governed by the provisions of
section 203 of the General Corporation Law regarding business
combinations with interested shareholders.
A-4
<PAGE>
ARTICLE VII
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Corporation shall indemnify any and all persons who may
serve or who have served at any time as directors or officers, or who,
at the request of the board of directors of the Corporation, may serve,
or at any time have served as directors or officers of another
corporation in which the Corporation at such time owned or may own
shares of stock, or which it was or may be a creditor, and the
respective heirs, administrators, successors, and assigns, against any
and all expenses, including amounts paid on judgment, counsel fees, and
amounts paid in settlement (before or after suit is commenced),
actually or necessarily by such persons in connection with the defense
or settlement or any claim, action, suit, or proceeding in which they,
or any of them, are made parties, or a party, or which may be assessed
against them or any of them, by reason of being or having been
directors or officers of the Corporation, or such other corporation, to
the full extent permitted by the General Corporation Law of Delaware as
it may from time to time be amended.
ARTICLE VIII
OFFICERS AND DIRECTORS CONTRACTS
No contract or other transaction between the Corporation and
any other firm or corporation shall be affected by the fact that a
director or officer of the Corporation has an interest in, or is a
director or officer of the Corporation or any other corporation. Any
officer or director individually or with others, may be a party to, or
may have an interest in, any transaction of the Corporation, or any
transaction in which the Corporation is a party or has an interest.
Each person who is not or may become an officer or director of the
Corporation is hereby relieved from liability he might otherwise obtain
in the event such officer or director contracts with the Corporation
for the benefit of himself or any firm or other corporation in which he
may have an interest; provided, such officer or director acts in good
faith.
ARTICLE IX
REGISTERED OFFICE AND REGISTERED AGENT
The name and address of the Corporation's registered agent in
the state of Delaware is The Corporation Trust Company, 1209 Orange
Street, in the city of Wilmington, county of New Castle, Delaware.
Either the registered office or the registered agent may be changed in
the manner provided by law.
ARTICLE X
AMENDMENT
The Corporation reserves the right to amend, alter, change, or
repeal all or any portion of the provisions contained in its
Certificate of Incorporation from time to time in accordance with the
laws of the state of Delaware, and all rights conferred on stockholders
herein are granted subject to this reservation.
ARTICLE XI
ADOPTION AND AMENDMENT OF BYLAWS
The initial bylaws of the Corporation shall be adopted by the
board of directors. The power to alter, amend, or repeal the bylaws or
adopt new bylaws shall be vested in the board of directors, but the
stockholders of the Corporation may also alter, amend, or repeal the
bylaws or adopt new bylaws. The bylaws may contain any provisions for
the regulation or management of the affairs of the Corporation not
inconsistent with the laws of the state of Delaware now or hereafter
existing.
ARTICLE XII
DIRECTORS
The governing board of the Corporation shall be known as the
board of directors. The number of directors comprising the board of
directors shall be fixed and may be increased or decreased from time to
time in the manner provided in the bylaws of the Corporation, except
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<PAGE>
that at no time shall there be less than three nor more than fifteen
directors.
2. The Board of Directors of the Corporation duly adopted resolutions
that set forth the foregoing Restated Certificate of Incorporation (which
restates and integrates and also further amends the Corporation's certificate of
incorporation, as heretofore amended or supplemented), declared the proposed
amendment and restatement to be advisable, and directed that the amendment and
restatement be submitted to the Corporation's stockholders for adoption by
written consent.
3. The Restated Certificate of Incorporation was duly adopted by the a
majority of the holders of all shares outstanding of Common Stock and a majority
of the holders of all shares outstanding of Series H Preferred Stock, being the
holders of all shares outstanding of capital stock entitled to vote thereon, at
a duly held meeting in accordance with the applicable provisions of Sections 242
and 245 of the General Corporation Law of Delaware upon notice as provided in
Section 222 of the General Corporation Law of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this instrument is
executed as of the _____ day of __________, 1998 and each of the signatories to
this instrument acknowledges or affirms under penalties of perjury that this
instrument is the act and deed of the Corporation and that the matters set forth
in this instrument are true.
INNOVUS CORPORATION
By:
-----------------------------------------
Thomas Hemingway, Chief Executive Officer
ATTEST:
By:
-----------------------------------------
T. Richard Hutt, Secretary
A-6
<PAGE>
EXHIBIT B
PROPOSED STOCKHOLDER RESOLUTIONS
OF
INNOVUS CORPORATION
<PAGE>
PROPOSED STOCKHOLDER RESOLUTIONS
OF
INNOVUS CORPORATION
PROPOSAL TWO: THE REVERSE STOCK SPLIT.
RESOLVED, that Article IV, paragraph (a) of the Company's Certificate
of Incorporation be amended by addition of the following provision immediately
prior to paragraph (b):
At 9:00 a.m. local Delaware time on the date of the filing of
this instrument with the Delaware Secretary of State (the "Effective
Date"), each share of the Company's Common Stock, par value $0.001 per
share, issued and outstanding immediately prior to the Effective Date
(the "Old Common Stock") shall automatically and without any action on
the part of the holder thereof be reclassified as and changed into
one-tenth (1/10) of a share of the Company's Common Stock, par value
$0.001 per share (the "New Common Stock"), subject to the treatment of
fractional share interests as described below. Each holder of a
certificate or certificates which immediately prior to the Effective
Date represented shares outstanding of Old Common Stock (the "Old
Certificates," whether one or more) shall be entitled to receive upon
surrender of such Old Certificates to the Company's Exchange Agent for
cancellation, a certificate or certificates (the "New Certificates,"
whether one or more) representing the number of whole shares of the New
Common Stock into which and for which the shares of the Old Common
Stock formerly represented by such Old Certificates so surrendered, are
reclassified under the terms hereof. From and after the Effective Date,
Old Certificates shall represent only the right to receive New
Certificates (and, where applicable, cash in lieu of fractional shares,
as provided below) pursuant to the provisions hereof. No certificates
or scrip representing fractional share interests in New Common Stock
will be issued, and no such fractional share interest will entitle the
holder thereof to vote, or to any rights of a stockholder of the
Company. A holder of Old Certificates shall receive, in lieu of any
fraction of a share of New Common Stock to which the holder would
otherwise be entitled, a cash payment therefor on the basis of the
average of the closing bid and asked quotations price of the Old Common
Stock as reported by the over-the-counter bulletin board on the
Effective Date (or in the event the Company's Common Stock is not so
quoted on the Effective Date, such closing quotations on the next
preceding day on which such stock was quoted). If more than one Old
Certificate shall be surrendered at one time for the account of the
same stockholder, the number of full shares of New Common Stock for
which New Certificates shall be issued shall be computed on the basis
of the aggregate number of shares represented by the Old Certificates
so surrendered. In the event that the Company's Exchange Agent
determines that a holder of Old Certificates has not tendered all his
certificates for exchange, the Exchange Agent may carry forward any
fractional share until all certificates of that holder have been
presented for exchange such that payment for fractional shares to any
one person shall not exceed the value of one share. If any New
Certificate is to be issued in a name other than that in which the Old
Certificates surrendered for exchange are issued, the Old Certificates
so surrendered shall be properly endorsed and otherwise in proper form
for transfer, and the person or persons requesting such exchange shall
affix any requisite stock transfer tax stamps to the Old Certificates
surrendered, or provide funds for their purchase, or establish to the
satisfaction of the Transfer Agent that such taxes are not payable.
From and after the Effective Date the amount of capital represented by
the shares of the New Common Stock into which and for which the shares
of the Old Common Stock are reclassified under the terms hereof shall
be the same as the amount of capital represented by the shares of Old
Common Stock so reclassified, until thereafter reduced or increased in
accordance with applicable law, and will have no effect on the
stockholders' equity in the Corporation, except for an appropriate
transfer between stated capital and additional paid-in capital. All
shares returned to the Corporation as a result of the reverse split
will be canceled and returned to the status of authorized and unissued
shares.
RESOLVED FURTHER, that the form, terms, and provisions of the Restated
and Amended Certificate of Incorporation as set forth in Exhibit A are approved,
ratified and confirmed; and
RESOLVED FURTHER, that pursuant to Section 242(c) of the Delaware
General Corporation Law, at any time prior to the filing of the amendment with
the Delaware Secretary of State, notwithstanding authorization of the proposed
amendment by the stockholders of the Corporation, the Board of Directors may
abandon the proposed amendment without further action by the stockholders; and
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<PAGE>
RESOLVED FURTHER, that the Board of Directors' actions taken and
authorized prior to the date of these resolutions are hereby confirmed and
ratified and the Board of Directors shall have authority to take such further
action and to authorize such further action as may be necessary, appropriate or
incidental to the carrying out of the purposes and effects of the foregoing
resolutions, including without limitation making such editorial, conforming,
typographical and similar incidental changes to the Amendment and the Restated
Certificate of Incorporation as such officer acting in the matter may deem
necessary or appropriate to approve, such approval to be conclusively evidenced
by the taking of such action or the execution and delivery of documents taking
such action.
PROPOSAL THREE: THE NAME CHANGE.
RESOLVED, that Article I of the Company's Certificate of Incorporation
be amended in its entirety to read as follows:
"ARTICLE I
NAME
The name of the corporation (the "Corporation") is as follows:
ESYNCH CORPORATION"
RESOLVED FURTHER, that the form, terms, and provisions of the Restated
and Amended Certificate of Incorporation as set forth in Exhibit A are approved,
ratified and confirmed; and
RESOLVED FURTHER, that pursuant to Section 242(c) of the Delaware
General Corporation Law, at any time prior to the filing of the amendment with
the Delaware Secretary of State, notwithstanding authorization of the proposed
amendment by the stockholders of the Corporation, the Board of Directors may
abandon the proposed amendment without further action by the stockholders.
Each of Proposals Two and Three, Independently:
RESOLVED, that the Board of Directors' actions taken and authorized
prior to the date of these resolutions are hereby confirmed and ratified and the
Board of Directors shall have authority to take such further action and to
authorize such further action as may be necessary, appropriate or incidental to
the carrying out of the purposes and effects of the foregoing resolutions,
including without limitation making such editorial, conforming, typographical
and similar incidental changes to the Restated and Amended Certificate of
Incorporation as such officer acting in the matter may deem necessary or
appropriate to approve, such approval to be conclusively evidenced by the taking
of such action or the execution and delivery of documents taking such action.
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<PAGE>
EXHIBIT C
CERTIFICATE OF DETERMINATION OF RIGHTS, PREFERENCES AND PRIVILEGES
OF
SERIES H PREFERRED STOCK
OF
INNOVUS CORPORATION
<PAGE>
CERTIFICATE OF DESIGNATION OF
SERIES H CONVERTIBLE PREFERRED STOCK
OF
INNOVUS CORPORATION,
A DELAWARE CORPORATION
(Pursuant to Section 151(g) of the
Delaware General Corporation Law)
The undersigned, Terry Haas and David Mock, hereby certify
that:
I. They are the duly elected and acting President and
Secretary, respectively, of Innovus Corporation, a Delaware corporation
(the "Company").
II. The Certificate of Incorporation of the Company authorizes
1,000,000 shares of preferred stock, par value $.001 per share, of
which none remain outstanding and no previous certificate of
designation of any series of preferred stock remains in existence.
III. The following is a true and correct copy of resolutions
duly adopted by the Board of Directors at a meeting duly held on May 8,
1998, which constituted all requisite action on the part of the Company
for adoption of such resolutions.
RESOLUTIONS
WHEREAS, the Board of Directors of the Company (the
"Board of Directors") is authorized to provide for the issuance of the
shares of Preferred Stock in series, and by filing a certificate
pursuant to the applicable law of the State of Delaware, to establish
from time to time the number of shares to be included in each such
series, and to fix the designations, powers, preferences and rights of
the shares of each such series and the qualifications, limitations or
restrictions thereof; and
WHEREAS, the Board of Directors desires, pursuant to
its authority as aforesaid, to designate a new series of preferred
stock, set the number of shares constituting such series and fix the
rights, preferences, privileges and restrictions of such series;
NOW, THEREFORE, BE IT RESOLVED, that the Board of
Directors hereby designates a new series of preferred stock and the
number of shares constituting such series and fixes the rights,
preferences, privileges and restrictions relating to such series as
follows:
Section 1. DESIGNATION, AMOUNT AND PAR VALUE. The
series of Preferred Stock shall be designated as the Series H
Convertible Preferred Stock (the "Preferred Stock"), and the number of
shares so designated shall be 100,000. The par value of each share of
Preferred Stock shall be $.001. Each share of Preferred Stock shall
have a stated value of $84.375 per share (the "Stated Value").
Section 2. DIVIDENDS. The holders of shares of Series
H Preferred Stock shall be entitled to receive dividends, out of any
assets legally available therefor, prior and in preference to any
declaration or payment of any dividend (payable other than in Common
Stock or other securities and rights convertible into or entitling the
holder thereof to receive, directly or indirectly, additional shares of
Common Stock of this Corporation) on the Common Stock of this
Corporation, when, as and if declared by the Board of Directors. Such
dividends shall not be cumulative and no undeclared or unpaid dividend
shall bear interest. The Corporation at its option may make any
dividend payment on the Series H Preferred Stock in shares of Common
Stock or cash, or both, with each share of Common Stock being valued
for this purpose at the Common Stock's fair market value on the date
such dividend is declared. For purposes of this paragraph, the fair
market value of such Common Stock shall be determined in good faith by
the Board of Directors of the Corporation as of the applicable date. No
dividends (other than those payable solely in the Common Stock of the
Corporation) shall be paid on any Common Stock of the Corporation
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during any fiscal year of the Corporation unless a dividend is paid
with respect to all outstanding shares of Series H Preferred Stock
(including the amount of any dividends paid pursuant to the above
provisions of this Section (C)1) in an amount for each such share of
Series H Preferred Stock equal to the aggregate amount of such
dividends for all shares of Common Stock into which each such share of
Series H Preferred Stock could then be converted as if the Preferred
Stock were able to convert and did convert into Common Stock, without
regard to the number of shares of authorized and unissued Common Stock
reserved for conversion.
Section 3. VOTING RIGHTS. Except as otherwise
provided herein and as otherwise provided by law, the Preferred Stock
shall vote together as a single class with the Common Stock with each
share of Preferred Stock having the same number of votes as all shares
of Common Stock into which each such share of Series H Preferred Stock
could then be converted as if the Preferred Stock were able to convert
and did convert to Common Stock, without regard to the number of shares
of authorized and unissued Common Stock reserved for conversion.
However, so long as any shares of Preferred Stock are outstanding, the
Company shall not, without the affirmative vote of the holders of a
majority of the shares of the Preferred Stock then outstanding, voting
as a separate class, (i) alter or change adversely the powers,
preferences or rights given to the Preferred Stock, (ii) authorize,
create, issue or reissue any class or series of stock ranking as to
voting, dividends or distribution of assets upon a Liquidation (as
defined below) senior to or prior to the Common Stock, or agree to do
any of the foregoing, (iii) authorize or adopt any agreement for
merger, reorganization, disposition of a substantial part of the assets
of the Company or any subsidiary, or issuance or disposition of a
substantial portion of the voting stock of the Company or any
subsidiary, except as expressly contemplated in the Share Exchange
Agreement, or (iv) authorize or adopt any agreement for issuance of any
shares of any series of preferred stock, except as expressly
contemplated in the Share Exchange Agreement.
Section 4. LIQUIDATION. Upon any liquidation,
dissolution or winding-up of the Company, whether voluntary or
involuntary (a "Liquidation"), the holders of shares of Preferred Stock
shall be entitled to receive out of the assets of the Company, whether
such assets are capital or surplus, before any distribution or payment
shall be made to the holders of any Junior Securities, an amount for
each share of Preferred Stock equal to the greater of (I) the Stated
Value, plus an amount equal to accrued but unpaid dividends per share,
whether declared or not, but without interest, or (II) the amounts that
would be payable on the number of shares of Common Stock into which
such share could be converted, regardless of an insufficient number of
shares of Common Stock being authorized and unissued, as if all shares
of Preferred Stock were converted in full; and if the assets of the
Company shall be insufficient to pay in full the greater of such
amounts, then the entire assets to be distributed shall be distributed
among the holders of Preferred Stock ratably in accordance with the
respective amounts that would be payable on such shares if all amounts
payable thereon were paid in full. A sale, conveyance or disposition of
all or substantially all of the assets of the Company or the
effectuation by the Company of a transaction or series of related
transactions in which more than 50% of the voting power of the Company
is disposed of shall be deemed a Liquidation; PROVIDED that, a
consolidation or merger of the Company with or into any other company
or companies shall not be treated as a Liquidation, but instead shall
be subject to the provisions of Section 5. The Company shall mail
written notice of any such liquidation, not less than 60 days prior to
the payment date stated therein, to each record holder of Preferred
Stock.
Section 5. CONVERSION.
(a) Each share of Preferred Stock shall
be convertible into shares of Common Stock at the Conversion Ratio (as
defined in Section 6) at the option of the holder in whole or in part
at any time after the Original Issue Date, subject only to the Company
having sufficient authorized and unissued shares of Common Stock
reserved for issuance upon conversion. In the event that the Holder of
Preferred Stock desires to convert shares of Preferred Stock and
insufficient shares of Common Stock are reserved for issuance, at any
time on or after the expiration of one year after the Original Issue
Date the Holder shall have registration rights with respect to the
Preferred Stock pursuant to the Registration Rights Agreement, dated
the Original Issue Date (the "Registration Rights Agreement"), by and
between the Company and the original holder of Preferred Stock in
accordance with the terms hereof. The holder shall effect conversions
by surrendering the certificate or certificates representing the shares
of Preferred Stock to be converted to the Company, together with the
form of conversion notice attached hereto as EXHIBIT A (the "Conversion
Notice") in the manner set forth in Section 5(j). Each Conversion
Notice shall specify the number of shares of Preferred Stock to be
converted and the date on which such conversion is to be effected,
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which date may not be prior to the date the Holder delivers such Notice
by facsimile (the "Conversion Date"). Subject to Section 5(b), and the
terms of the Conversion Notice as attached hereto, each Conversion
Notice, once given, shall be irrevocable. If the holder is converting
less than all shares of Preferred Stock represented by the certificate
or certificates tendered by the holder with the Conversion Notice, the
Company shall promptly deliver to the holder a certificate for such
number of shares as have not been converted.
(b) Not later than three (3) Trading Days
after the Conversion Date, the Company will deliver to the holder (i) a
certificate or certificates which shall be free of restrictive legends
and trading restrictions (other than those then required by law and as
set forth in the Share Exchange Agreement), representing the number of
shares of Common Stock being acquired upon the conversion of shares of
Preferred Stock and (ii) one or more certificates representing the
number of shares of Preferred Stock not converted; PROVIDED, HOWEVER
that the Company shall not be obligated to issue certificates
evidencing the shares of Common Stock issuable upon conversion of any
shares of Preferred Stock until certificates evidencing such shares of
Preferred Stock are either delivered for conversion to the Company or
any transfer agent for the Preferred Stock or Common Stock, or the
holder notifies the Company that such certificates have been lost,
stolen or destroyed and provides a bond (or other adequate security
reasonably acceptable to the Company) satisfactory to the Company to
indemnify the Company from any loss incurred by it in connection
therewith. The Company shall, upon request of the holder, use its best
efforts to deliver any certificate or certificates required to be
delivered by the Company under this Section 5(b) electronically through
the Depository Trust Corporation or another established clearing
corporation performing similar functions. In the case of a conversion
pursuant to a Conversion Notice, if such certificate or certificates
are not delivered by the date required under this Section 5(b), the
holder shall be entitled by written notice to the Company at any time
on or before such holder's receipt of such certificate or certificates
thereafter, to rescind such conversion, in which event the Company
shall immediately return the certificates representing the shares of
Preferred Stock tendered for conversion.
(c) Upon the effectiveness of the
reclassification of the Common Stock into New Common Stock as described
in Section 2(c) or Section 2(d) of the Share Exchange Agreement, all
outstanding shares of Preferred Stock shall automatically and without
any action of the Company or the Holder be converted into Common Stock
at the Conversion Ratio (as defined in Section 6), subject only to the
Company having sufficient authorized and unissued shares of Common
Stock reserved for issuance upon conversion.
(d) (i) The conversion price for
each share of Preferred Stock (the "Conversion Price") in effect on the
Original Issue Date shall be $0.15.
(ii) If the Company, at any time
while any shares of Preferred Stock are outstanding, (a) shall pay a
stock dividend or otherwise make a distribution or distributions on
shares of its Junior Securities payable in shares of its capital stock
(whether payable in shares of its Common Stock or of capital stock of
any class), (b) subdivide outstanding shares of Common Stock into a
larger number of shares, (c) combine outstanding shares of Common Stock
into a smaller number of shares, or (d) issue by reclassification of
shares of Common Stock any shares of capital stock of the Company, the
Conversion Price designated in Section 5(d)(i) shall be multiplied by a
fraction of which the numerator shall be the number of shares of Common
Stock outstanding before such event and of which the denominator shall
be the number of shares of Common Stock outstanding after such event.
Any adjustment made pursuant to this Section 5(d)(ii) shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and
shall become effective immediately after the effective date in the case
of a subdivision, combination or re-classification.
(iii) If the Company, at any time
while any shares of Preferred Stock are outstanding, shall issue rights
or warrants to all holders of Common Stock entitling them to subscribe
for or purchase shares of Common Stock at a price per share less than
the greater of (A) the Conversion Price prior to the record date
mentioned below or (B) the Per Share Market Value at the record date
mentioned below, the Conversion Price designated in Section 5(d)(i)
shall be multiplied by a fraction, of which the denominator shall be
the number of shares of Common Stock (excluding treasury shares, if
any) outstanding on the date of issuance of such rights or warrants
plus the number of additional shares of Common Stock offered for
subscription or purchase, and of which the numerator shall be the
number of shares of Common Stock (excluding treasury shares, if any)
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<PAGE>
outstanding on the date of issuance of such rights or warrants plus the
number of shares which the aggregate offering price of the total number
of shares so offered would purchase at the greater of the Conversion
Price or such Per Share Market Value. Such adjustment shall be made
whenever such rights or warrants are issued, and shall become effective
immediately after the record date for the determination of stockholders
entitled to receive such rights or warrants. However, upon the
expiration of any right or warrant to purchase Common Stock the
issuance of which resulted in an adjustment in the Conversion Price
designated in Section 5(d)(i) pursuant to this Section 5(d)(iii), if
any such right or warrant shall expire and shall not have been
exercised, the Conversion Price designated in Section 5(d)(i) shall
immediately upon such expiration be recomputed and effective
immediately upon such expiration be increased to the price which it
would have been (but reflecting any other adjustments in the Conversion
Price made pursuant to the provisions of this Section 5 after the
issuance of such rights or warrants) had the adjustment of the
Conversion Price made upon the issuance of such rights or warrants been
made on the basis of offering for subscription or purchase only that
number of shares of Common Stock actually purchased upon the exercise
of such rights or warrants actually exercised.
(iv) If the Company, at any time
while shares of Preferred Stock are outstanding, shall distribute to
all holders of Common Stock (and not to holders of Preferred Stock)
evidences of its indebtedness or assets or rights or warrants to
subscribe for or purchase any security (excluding those referred to in
Section 5(d)(iii) above) then in each such case the Conversion Price at
which each share of Preferred Stock shall thereafter be convertible
shall be determined by multiplying the Conversion Price in effect
immediately prior to the record date fixed for determination of
stockholders entitled to receive such distribution by a fraction of
which (I) the denominator shall be the greater of (A) the Conversion
Price in effect immediately prior to the record date or (B) the Per
Share Market Value of Common Stock determined as of the record date
mentioned above, and of which (II) the numerator shall be the
difference between (X) an amount equal to the greater of (A) the
Conversion Price in effect immediately prior to the record date or (B)
the Per Share Market Value of Common Stock determined as of the record
date mentioned above, in either case minus (Y) the then fair market
value at such record date of the portion of such assets or evidence of
indebtedness so distributed applicable to one outstanding share of
Common Stock as determined by the Board of Directors in good faith;
PROVIDED, HOWEVER that in the event of a distribution exceeding ten
percent (10%) of the net assets of the Company, such fair market value
shall be determined by a nationally recognized or major regional
investment banking firm or firm of independent certified public
accountants of recognized standing (which may be the firm that
regularly examines the financial statements of the Company) (an
"Appraiser") selected in good faith by the holders of a majority in
interest of the shares of Preferred Stock; and PROVIDED, FURTHER that
the Company, after receipt of the determination by such Appraiser shall
have the right to select an additional Appraiser, in which case the
fair market value shall be equal to the average of the determinations
by each such Appraiser. In either case the adjustments shall be
described in a statement provided to all holders of Preferred Stock of
the portion of assets or evidences of indebtedness so distributed or
such subscription rights applicable to one share of Common Stock. Such
adjustment shall be made whenever any such distribution is made and
shall become effective immediately after the record date mentioned
above.
(v) All calculations under this
Section 5 shall be made to the nearest cent or the nearest 1/100th of a
share, as the case may be.
(vi) Whenever the Conversion
Price is adjusted pursuant to Section 5(d)(ii),(iii), (iv) or (v), the
Company shall promptly mail to each holder of Preferred Stock, a notice
setting forth the Conversion Price after such adjustment and setting
forth a brief statement of the facts requiring such adjustment.
(vii) In case of any
reclassification of the Common Stock, any consolidation or merger of
the Company with or into another person, the sale or transfer of all or
substantially all of the assets of the Company or any compulsory share
exchange pursuant to which the Common Stock is converted into other
securities, cash or property, the holders of the Preferred Stock then
outstanding shall have the right thereafter to convert such shares only
into the shares of stock and other securities and property receivable
upon or deemed to be held by holders of Common Stock following such
reclassification, consolidation, merger, sale, transfer or share
exchange, and the holders of the Preferred Stock shall be entitled upon
such event to receive such amount of securities or property as the
shares of the Common Stock of the Company into which such shares of
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Preferred Stock could have been converted immediately prior to such
reclassification, consolidation, merger, sale, transfer or share
exchange would have been entitled, without regard to an insufficient
number of shares of authorized and unissued Common Stock reserved for
conversion. The terms of any such consolidation, merger, sale, transfer
or share exchange shall include such terms so as to continue to give to
the holder of Preferred Stock the right to receive the securities or
property set forth in this Section 5(d)(vii) upon any conversion
following such consolidation, merger, sale, transfer or share exchange.
This provision shall similarly apply to successive reclassifications,
consolidations, mergers, sales, transfers or share exchanges.
(viii) If:
a. the Company shall
declare a dividend (or any other distribution) on its Common Stock; or
b. the Company shall
declare a special nonrecurring cash dividend on or a redemption of its
Common Stock; or
c. the Company shall
authorize the granting to all holders of the Common Stock rights or
warrants to subscribe for or purchase any shares of capital stock of
any class or of any rights; or
d. the approval of any
stockholders of the Company shall be required in connection with any
reclassification of the Common Stock of the Company (other than a
subdivision or combination of the outstanding shares of Common Stock),
any consolidation or merger to which the Company is a party, any sale
or transfer of all or substantially all of the assets of the Company,
or any compulsory share exchange whereby the Common Stock is converted
into other securities, cash or property; or
e. the Company shall
authorize the voluntary or involuntary dissolution, liquidation or
winding-up of the affairs of the Company;
then the Company shall cause to be filed at each office or agency
maintained for the purpose of conversion of Preferred Stock, and shall
cause to be mailed to the holders of Preferred Stock at their last
addresses as they shall appear upon the stock books of the Company, at
least 30 calendar days prior to the applicable record or effective date
hereinafter specified, a notice stating (x) the date on which a record
is to be taken for the purpose of such dividend, distribution,
redemption, rights or warrants, or if a record is not to be taken, the
date as of which the holders of Common Stock of record to be entitled
to such dividend, distributions, redemption, rights or warrants are to
be determined, or (y) the date on which such reclassification,
consolidation, merger, sale, transfer, share exchange, dissolution,
liquidation or winding-up is expected to become effective, and the date
as of which it is expected that holders of Common Stock of record shall
be entitled to exchange their shares of Common Stock for securities or
other property deliverable upon such reclassification, consolidation,
merger, sale, transfer, share exchange, dissolution, liquidation or
winding-up; PROVIDED, HOWEVER, that the failure to mail such notice or
any defect therein or in the mailing thereof shall not affect the
validity of the corporate action required to be specified in such
notice.
(e) If at any time conditions shall
arise by reason of action taken by the Company which in the opinion of
the Board of Directors are not adequately covered by the other
provisions hereof and which might materially and adversely affect the
rights of the holders of Preferred Stock (different than or
distinguished from the effect generally on rights of holders of any
class of the Company's capital stock) or if at any time any such
conditions are expected to arise by reason of any action contemplated
by the Company, the Company shall mail a written notice briefly
describing the action contemplated and the material adverse effects of
such action on the rights of the holders of Preferred Stock at least 30
calendar days prior to the effective date of such action, and an
Appraiser selected by the holders of majority in interest of the
Preferred Stock shall give its opinion as to the adjustment, if any
(not inconsistent with the standards established in this Section 5), of
the Conversion Price (including, if necessary, any adjustment as to the
securities into which shares of Preferred Stock may thereafter be
convertible) and any distribution which is or would be required to
preserve without diluting the rights of the holders of shares of
Preferred Stock; PROVIDED, HOWEVER, that the Company, after receipt of
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the determination by such Appraiser, shall have the right to select an
additional Appraiser, in which case the adjustment shall be equal to
the average of the adjustments recommended by each such Appraiser. The
Board of Directors shall make the adjustment recommended forthwith upon
the receipt of such opinion or opinions or the taking of any such
action contemplated, as the case may be; PROVIDED, however, that no
such adjustment of the Conversion Price shall be made which in the
opinion of the Appraiser(s) giving the aforesaid opinion or opinions
would result in an increase of the Conversion Price to more than the
Conversion Price then in effect.
(f) The Company covenants that it will
use its best efforts to cause a sufficient number of shares of Common
Stock, or as large a portion thereof as possible, to be authorized and
unissued, and shall at all times thereafter reserve and keep available
out of its authorized and unissued Common Stock solely for the purpose
of issuance upon conversion of Preferred Stock as herein provided, free
from preemptive rights or any other actual contingent purchase rights
of persons other than the holders of Preferred Stock, such number of
shares of Common Stock as shall be issuable (taking into account the
adjustments and restrictions of Section 5(b) and Section 5(d) hereof)
upon the conversion of all outstanding shares of Preferred Stock. The
Company covenants that all shares of Common Stock that shall be so
issuable shall, upon issue, be duly and validly authorized, issued and
fully paid and nonassessable.
(g) Upon a conversion hereunder the
Company shall not be required to issue stock certificates representing
fractions of shares of Common Stock, but may if otherwise permitted,
make a cash payment in respect of any final fraction of a share based
on the Per Share Market Value at such time. If the Company elects not,
or is unable, to make such a cash payment, the holder of a share of
Preferred Stock shall be entitled to receive, in lieu of the final
fraction of a share, one whole share of Common Stock.
(h) The issuance of certificates for
shares of Common Stock on conversion of Preferred Stock shall be made
without charge to the holders thereof for any documentary stamp or
similar taxes that may be payable in respect of the issue or delivery
of such certificate, provided that the Company shall not be required to
pay any tax that may be payable in respect of any transfer involved in
the issuance and delivery of any such certificate upon conversion in a
name other than that of the holder of such shares of Preferred Stock so
converted and the Company shall not be required to issue or deliver
such certificates unless or until the person or persons requesting the
issuance thereof shall have paid to the Company the amount of such tax
or shall have established to the satisfaction of the Company that such
tax has been paid.
(i) Shares of Preferred Stock converted
into Common Stock shall be canceled and shall have the status of
authorized but unissued shares of preferred stock.
(j) Each Conversion Notice shall be
given by facsimile and by mail, postage prepaid, addressed to the
attention of the Chief Financial Officer of the Company at the
facsimile telephone number and address of the principal place of
business of the Company. Any such notice shall be deemed given and
effective upon the earliest to occur of (i)(a) if such Conversion
Notice is delivered via facsimile at the facsimile telephone number
specified in this Section 5(j) prior to 10:59 p.m. (Pacific Time) on
any date, such date or such later date as is specified in the
Conversion Notice, and (b) if such Conversion Notice is delivered via
facsimile at the facsimile telephone number specified in this Section
5(j) after 10:59 p.m. (Pacific Time) on any date, the next date or such
later date as is specified in the Conversion Notice, (ii) five days
after deposit in the United States mail, or (iii) upon actual receipt
by the party to whom such notice is required to be given.
Section 6. DEFINITIONS. For the purposes
hereof, the following terms shall have the following meanings:
"Business Day" means any day except Saturday, Sunday
and any day which shall be a legal holiday or a day on which banking
institutions in the state of New York are authorized or required by law
or other government actions to close.
"Common Stock" means shares now or hereafter
authorized of the class of Common Stock, par value $.001, of the
Company and stock of any other class into which such shares may
hereafter have been reclassified or changed.
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"Conversion Ratio" means, at any time, a fraction, of
which the numerator is Stated Value and of which the denominator is the
Conversion Price at such time.
"Junior Securities" means the Common Stock and all
other equity securities of the Company.
"Original Issue Date" shall mean the date of the
first issuance of any shares of the Preferred Stock regardless of the
number transfers of any particular shares of Preferred Stock and
regardless of the number of certificates which may be issued to
evidence such Preferred Stock.
"Per Share Market Value" means on any particular date
(a) the closing bid price per share of the Common Stock on such date on
the Nasdaq SmallCap Market or other national securities exchange on
which the Common Stock has been listed or if there is no such price on
such date, then the closing bid price on such national securities
exchange or market on the date nearest preceding such date, or (b) if
the Common Stock is not listed on the Nasdaq SmallCap Market or any
national securities exchange or market, the closing bid for a share of
Common Stock in the over-the-counter market, as reported by the Nasdaq
Stock Exchange at the close of business on such date, or (c) if the
Common Stock is not quoted on the Nasdaq Stock Exchange, the closing
bid price for a share of Common Stock in the over-the-counter market as
reported by the National Quotation Bureau Incorporated (or similar
organization or agency succeeding to its functions of reporting
prices), or (d) if the Common Stock is no longer reported by the
National Quotation Bureau Incorporated (or similar organization or
agency succeeding to its functions of reporting prices), then the
average of the "Pink Sheet" quotes for the relevant conversion period
as determined by the Holder, or (e) if the Common Stock is no longer
publicly traded the fair market value of a share of Common Stock as
determined by an Appraiser (as defined in Section 5(d)(iv) above)
selected in good faith by the Holders of a majority in interest of the
shares of the Preferred Stock; PROVIDED, HOWEVER, that the Company,
after receipt of the determination by such Appraiser, shall have the
right to select an additional Appraiser, in which case, the fair market
value shall be equal to the average of the determinations by each such
Appraiser.
"Person" means a corporation, an association, a
partnership, organization, a business, an individual, a government or
political subdivision thereof or a governmental agency.
"Share Exchange Agreement" means the Agreement and
Plan of Share Exchange dated as of May 8, 1998, as amended, among the
Company, Intermark Corporation, a California corporation, and the
Exchanging Securityholders as defined therein.
"Trading Day" means (a) a day on which the Common
Stock is traded on the Nasdaq SmallCap Market or principal national
securities exchange or market on which the Common Stock has been
listed, or (b) if the Common Stock is not listed on the Nasdaq SmallCap
Market or any stock exchange or market, a day on which the Common Stock
is traded in the over-the-counter market, as reported by the Nasdaq
Stock Market, or (c) if the Common Stock is not quoted on the Nasdaq
Stock Market, a day on which the Common Stock is quoted in the
over-the-counter market as reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding its
functions of reporting prices).
RESOLVED FURTHER, that the President and Secretary of
the Company be, and they hereby are, authorized and directed to
prepare, execute, verify, and file in Delaware, a Certificate of
Designation in accordance with these resolutions and as required by
law.
IN WITNESS WHEREOF, Innovus Corporation has caused its
corporate seal to be hereunto affixed and this certificate to be signed
by Terry Haas, its President, and attested by David Mock, its
Secretary, this 4th day of August, 1998.
INNOVUS CORPORATION
/s/ TERRY HAAS
--------------------------
Terry Haas, President
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Attest:
By: /s/ DAVID MOCK
------------------------------
David Mock, Secretary
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EXHIBIT A
NOTICE OF CONVERSION
The undersigned hereby irrevocably elects to convert the number of
shares of Series H Convertible Preferred Stock indicated below, into
shares of Common Stock, par value U.S. $.001 per share (the "Common
Stock"), of Innovus Corporation (the "Company") according to the
conditions hereof, as of the date written below. If shares are to be
issued in the name of a person other than undersigned, the undersigned
will pay all transfer taxes payable with respect thereto and is
delivering herewith such certificates and opinions as reasonably
requested by the Company in accordance therewith. No fee will be
charged to the Holder for any conversion, except for such transfer
taxes, if any.
Conversion calculations:
Date to Effect Conversion: __________________________
Number of shares of Preferred
Stock to be Converted:_______________________________
Applicable Conversion Price: ________________________
Signature:___________________________________________
Name:________________________________________________
Address:_____________________________________________
_____________________________________________________
_____________________________________________________
The Company undertakes, promptly upon its receipt of this conversion
notice (and, in any case prior to the time it effects the conversion
requested hereby), to notify the converting holder by facsimile of the
number of shares of Common Stock authorized and unissued and reserved
for issuance upon conversion of Common Stock on such date and the
number of shares of Common Stock which would be issuable to the holder
if the conversion requested in this conversion notice were effected in
full, whereupon, the holder may, within one day of the notice from the
Company, revoke the conversion requested hereby, in whole or in part,
if such conversion would result in a partial conversion of the shares
of Preferred Stock indicated above, and the Company shall issue to the
holder one or more certificates representing shares of Preferred Stock
which have not been converted as a result of this provision. If the
holder waives the applicability of this right of revocation by notice
to the Company delivered upon its receipt of the Company's notice
regarding the number of reserved shares of Common Stock or if the
Purchaser fails to respond to the Company's notice within one day
thereafter, the Company shall effect to the fullest extent possible the
conversion requested in this notice and Company shall issue to the
holder one or more certificates representing shares of Preferred Stock
which have not been converted as a result of the limitation.
<PAGE>
PROXY PROXY
INNOVUS CORPORATION
4600 CAMPUS DRIVE, NEWPORT BEACH, CALIFORNIA 92660
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Thomas Hemingway and T. Richard Hutt as
Proxies, each with full power to appoint substitutes, and hereby authorizes them
or either of them to represent and to vote as designated below, all the shares
of Common Stock of Innovus Corporation held of record by the undersigned on
October 2, 1998, at the Annual Meeting of Stockholders to be held on October 27,
1998, or any adjournments or postponements thereof.
PLEASE READ, SIGN, DATE, AND RETURN THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
(Continued and to be signed on reverse side.)
<PAGE>
INNOVUS CORPORATION
PLEASE MARK VOTE IN BRACKET IN THE FOLLOWING MANNER USING DARK INK ONLY. [X]
For All
1. ELECTION OF DIRECTORS For Withheld Except
FOR ALL EXCEPT NOMINEES CROSSED OUT. [ ] [ ] [ ]
Thomas Hemingway Robert Orbach
T. Richard Hutt David Lyons
James H. Budd
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE
MANNER DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO
DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS ONE,
TWO AND THREE.
2. APPROVAL OF THE 1-FOR-10 For Against Abstain
REVERSE STOCK SPLIT [ ] [ ] [ ]
3. APPROVAL OF THE NAME For Against Abstain
CHANGE TO ESYNCH CORPORATION [ ] [ ] [ ]
4.In their discretion, the Proxies are authorized to vote upon
such other business as may properly come before the meeting.
Please sign exactly as name appears below. When shares are held by joint tenant,
both should sign. When signing as attorney, as executor, administrator, trustee,
or guardian, please give full title as such. If a corporation, please sign in
full corporate name by President or other authorized officer. If a partnership,
please sign in partnership name by authorized person.
Dated:___________________________, 1998
________________________________________
Signature
