As filed with the Securities and Exchange Commission on __________________
Registration No. 333-________
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
____________________
D.H. MARKETING & CONSULTING, INC.
(Name of small business issuer in its charter)
NEVADA 991-4000 88-0330263
(State or jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification No.)
organization)
300 Keystone Street
Hawley, PA 18428
(717) 226-8515
(Address and telephone number
of principal executive offices)
David D. Hagen WITH A COPY TO:
Chairman and Chief Executive Officer Max C. Tanner, Esq.
300 Keystone St. 2950 E. Flamingo, Suite G
Hawley, PA 18428 Las Vegas, NV 89121
(717) 226-8515 (702) 369-9614
(Name, address and telephone number
of agent for service)
Approximate date of proposed sale to the public: From time to time after the
effective date of the registration statement.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===========================================================================================
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH AMOUNT OFFERING AGGREGATE AMOUNT OF
CLASS OF SECURITIES TO BE PRICE PER OFFERING REGISTRATION
TO BE REGISTERED REGISTERED SHARE<F1> PRICE<F1> FEE<F1>
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.0003 par value, 1,000,000 $2.59375 $2,593,750 $765.16
reserved for issuance upon conversion
of Series A Preferred Stock <F2>
============================================================================================
</TABLE>
(1) Determined pursuant to Rule 457(c) solely for the purpose of calculating
the registration fee upon the basis of the average of the bid and asked
prices for the registrant's Common Stock as quoted on the OTC Bulletin
Board on October 13, 1998.
(2) To be offered and sold by the Selling Stockholders upon conversion of
up to 30 outstanding shares of Series A Preferred Stock ("Series A
Preferred Stock"). The conversion price is influenced by a number of
factors but for purposes of this Registration Statement, is equal to $3.45
per share. The Company is contractually obligated to register 1,000,000
shares into which the Series A Preferred Stock would be converted at the
time of registration in the event a lesser conversion price prevails and,
consequently, the number of shares registered is greater than presently
issuable upon conversion.
___________________________________
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
PROSPECTUS Dated ________________
D.H. MARKETING & CONSULTING, INC.
300 Keystone St. -- Hawley, PA 18428
Telephone (800) 786-9613 -- Facsimile (717) 226-3242
<this page is divided into two columns, column one:>
This prospectus relates to the offer and/or sale of
up to 1,000,000 shares of Common Stock which
may be sold in the market at market prices by two
shareholders of D.H. Marketing & Consulting,
Inc. These securities are not being offered or sold
by D.H. Marketing & Consulting, Inc.
The shares of Common Stock being offered and/or
sold by this prospectus are issuable upon
conversion of up to 30 shares of Series A
Convertible Preferred Stock of D.H. Marketing &
Consulting, Inc.
The conversion rate for the Series A Preferred
Stock is influenced by a number of factors. Please
see Page 3 of this Prospectus for a detailed
discussion of the conversion rate.
D.H. Marketing & Consulting, Inc.'s common
stock is listed and traded on the Over the Counter
Bulletin Board under the symbol "DHMG."
The Company has been advised that sales of
Common Stock may be made from time to time by
or for the account of the two selling shareholders
in the over-the-counter market or on any stock
exchange on which the Common Stock of the
Company may be listed at the time of sale, or in
block transactions or private transactions or
otherwise, through brokers or dealers. These sales
will be made either at market prices prevailing at
the time of sale or at negotiated prices. The
brokers or dealers may act as agents for the two
shareholders selling their stock or may purchase
any of the shares as principal and thereafter may
sell such shares from time to time at market prices
prevailing at the time of sale or at negotiated
prices.
<column two:>
Brokers or dealers used by the Selling
Stockholders may be deemed to be "underwriters"
as defined in the Securities Act of 1933. In
addition, the Selling Stockholders may be deemed
to be underwriters within the meaning of the
Securities Act with respect to the Common Stock
offered hereby.
D.H. Marketing & Consulting, Inc. will:
-- not receive any of the proceeds
from the sale of Common Stock
by these selling shareholders.
-- pay all of its expenses in
connection with this offering.
The two shareholders selling their stock will:
-- be solely responsible for paying
any sales or brokerage
commissions or underwriting
discounts they might incur in
connection with sales of the
shares offered by this prospectus.
Neither the Securities and Exchange Commission
nor any state securities commission has approved
or disapproved of these securities or determined if
this prospectus is truthful or complete. Any
representation to the contrary is a criminal
offense.
============================================
For a discussion of certain considerations
associated with the purchase of the common
stock offered hereby, see "Risk Factors"
starting on page 1.
============================================
<PAGE>
The Company has filed under the Securities Act with the Securities and
Exchange Commission (the "Commission") a Registration Statement on Form SB-2
(the "Registration Statement") with respect to its shares of Common Stock
offered hereby. This Prospectus was filed as a part of the Registration
Statement. As permitted by the rules and regulations of the Commission, this
Prospectus omits certain information contained in the Registration Statement,
and reference is hereby made to the Registration Statement for
further information with respect to the Company and its Common Stock.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy and information statements, and other
information with the Commission. Reports, proxy statements and other
information filed by the Company with the Commission pursuant to the
informational requirements of the Exchange Act may be inspected and copied at
the public reference facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of such
material may also be obtained upon written request addressed to the Commission,
Public Reference Section, Room 1024, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. The Commission also maintains a Web site that
contains reports, proxy and information statements and other information
regarding registrants that filed electronically with the Commission at
http://www.sec.gov.
No person has been authorized to give any information or to make any
representation other than as contained or incorporated by reference in this
Prospectus and, if given or made, such information or representation must not
be relied upon as having been authorized by the Company. Neither the delivery
of this Prospectus nor any sale of Common Stock made hereunder shall, under any
circumstances, create any implication that the information contained herein is
correct as of any date subsequent to the date hereof. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy the securities
offered by this Prospectus to any person or by anyone in any jurisdiction in
which it is unlawful to make such an offer or solicitation.
TABLE OF CONTENTS
PROSPECTUS SUMMARY . . . . . . . . . . 1 RISK FACTORS. . . . . . . . . 1
SELLING STOCKHOLDERS . . . . . . . . . 3 PLAN OF DISTRIBUTION. . . . . 4
MANAGEMENT'S DISCUSSION AND
PRICE RANGE OF COMMON STOCK AND ANALYSIS AND RESULTS OF
DIVIDEND POLICY. . . . . . . . . . . . 5 OPERATIONS. . . . . . . . . . 6
BUSINESS OF THE COMPANY. . . . . . . . 9 MANAGEMENT. . . . . . . . . .12
PRINCIPAL STOCKHOLDERS AND
SECURITY OWNERSHIP OF
MANAGEMENT . . . . . . . . . . . . . .14 DESCRIPTION OF CAPITAL STOCK.16
LITIGATION . . . . . . . . . . . . . .17 LEGAL MATTERS . . . . . . . .18
EXPERTS. . . . . . . . . . . . . . . .18
ii
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and Financial Statements and related notes thereto appearing
elsewhere in this Prospectus.
THE COMPANY
D.H. Marketing & Consulting, Inc. (the "Company") is engaged in the
network marketing business. The address of the Company's principal executive
offices is 300 Keystone Street, Hawley, Pennsylvania 18428, and its telephone
number is (717) 226-8515.
THE OFFERING
The shares offered hereby constitute issued and outstanding shares of
Common Stock of the Company and are being offered and sold by the Selling
Stockholders. The Company will not receive any of the proceeds from the sale of
the Common Stock by the Selling Stockholders.
PLAN OF DISTRIBUTION
The Company has been advised by the Selling Stockholders that sales of
Common Stock may be made from time to time by or for the account of the Selling
Stockholders in the over-the-counter market or on any exchange on which the
Common Stock of the Company may be listed at the time of sale, or in block
transactions or private transactions or otherwise, through brokers or dealers.
Brokers or dealers may be paid commissions or receive sales discounts in
connection with such sales, and the Selling Stockholders will be solely
responsible for paying such commissions or absorbing such discounts.
RISK FACTORS
See "Risk Factors" for a discussion of various matters that should be
considered in connection with the purchase of Common Stock hereunder.
RISK FACTORS
In addition to the other information presented in this Prospectus,
prospective investors should carefully consider the following factors in
evaluating an investment in the shares of Common Stock offered hereby.
Uncertainty of Market Acceptance. The Company plans to develop new
products, commence an infomercial campaign and expand into new territories. The
Company may not be able to sustain current market acceptance or be able to
attain market acceptance for new
1
<PAGE>
products. Further, it is possible that the infomercial campaign and expansion
plans may not be as successful as the Company desires. Therefore, investors
should not rely on market acceptance of the new products or the success of an
infomercial campaign and expansion plans.
Regulation. The Company's products are direct-marketed to customers in
numerous states and jurisdictions on a mass marketing scale. Each state or
jurisdiction has the power to create its own rules and regulations that affect
the direct marketing and mass marketing industries. Consequently, the Company
may be subject to ever-changing regulations within each jurisdiction
that its products are sold or distributed.
Competition. The home-based business industry is extremely large and also
very competitive. Many companies participating in the direct selling of
products seek distributors for multi-level and direct sales organizations. In
general, there are no significant barriers to entry into the direct sales
business. Therefore, the Company's operations are subject to substantial
present and future competition. Many of the Company's competitors are
substantially larger, have wider market acceptance and greater financial
resources than the Company. As such, there is a risk that the Company will
not be able to compete profitably with such companies on a long-term basis.
Dependence on Key Personnel. The Company is highly dependent on its
officers and directors for the profitable operation of the Company and the
expansion of its markets and product acceptance. None of the officers and
directors have an employment agreement with the Company. If the Company were
to lose the services of any one or more of its officers or directors, the
Company could suffer a significant setback. See "Management."
Limited Market for the Company's Common Stock; Possible Volatility of
Securities Prices. There is currently only a limited trading market for the
Common Stock of the Company. The Common Stock of the Company trades on the OTC
Bulletin Board under the symbol "DHMG" which is a limited market and subject to
substantial restrictions and limitations in comparison to the Nasdaq System.
There can be no assurance that a substantial trading market will be sustained
for the Common Stock. Recent history relating to the market prices of
newly public companies indicates that, from time-to-time, there may be
significant volatility in the market price of the Company's securities because
of factors unrelated, as well as related, to the Company's operating
performance. There can be no assurances that the Company's Common Stock will
ever qualify for inclusion within the Nasdaq System, or that more than a
limited market will ever develop for its Common Stock.
Lack of Dividends. The Company does not anticipate paying any cash
dividends on its Common Stock in the foreseeable future. The Company intends to
retain profits, if any, to fund growth and expansion. See "Dividend Policy."
2
<PAGE>
SELLING STOCKHOLDERS
The shares of Series A Preferred Stock owned by the Selling Stockholders
are convertible into Common Stock pursuant to the following conversion formula.
(.06)(N/365)(20,000) + 20,000
_____________________________
Conversion Price
"N" is equal to the number of days after the issuance date of the Series A
Preferred Shares (which was September 18, 1998) through the conversion date.
The Series A Preferred Shareholders have two choices for the "conversion price"
used in the above formula. The first choice involves a "Fixed Conversion Price"
of which the conversion price is equal to Three Dollars and Forty-Five Cents
($3.45). The second choice involves a "Conversion Percentage" of which the
conversion price is equal to 78% (subject to reduction under certain
circumstances, as discussed within this subsection) of the average closing bid
price of the Company's Common Stock for the five consecutive trading days
immediately preceding the conversion.
As of October 12, 1998, the number of shares of Common Stock into which
the Series A Preferred Stock is convertible, based upon the conversion price of
$3.45 in the above formula and assuming the conversion took place on October
12, 1998, is 174,599 shares. However, due to a contractual agreement with the
two shareholders selling their stock, the Company must register 1,000,000
shares of Common Stock for resale upon conversion in the event, among other
things, the conversion price decreases as a result of the foregoing formula.
The following table sets forth as of October 12, 1998, the names of the
Selling Stockholders, the number of Series A Preferred Stock shares held by
each, and the number of shares of Common Stock the Series A Preferred Stock
could be converted into, assuming the shares were converted pursuant to the
Fixed Conversion Price of $3.45 in the above formula and further assuming the
conversion took place on October 12, 1998.
Number of Shares
Number of Shares Obtainable Upon Exercise
Name of Preferred Stock of Preferred Stock
- ----------------------------- ------------------- -------------------------
Atlas Capital Fund, Ltd. 10 58,200
Atlantis Capital Fund, Ltd. 20 116,399
- -----------------------------------------------------------------------------
The Conversion Percentage is subject to a reduction of 2% for every 30
days beyond November 2, 1998 that the Company's Registration Statement on Form
SB-2 is not filed by the Company. Further, if the Registration Statement on
Form SB-2 is not declared effective by the
3
<PAGE>
SEC on or before December 18, 1998 or sales cannot be made pursuant to the
Registration Statement on Form SB-2 for various reasons, then:
(i) the Conversion Percentage shall be reduced by the product of (A)
three (3) and (B) the sum of the number of months (prorated for
partial months) after December 18, 1998 and prior to the date that
the Form SB-2 is declared effective by the SEC and the number of
months that sales cannot be made pursuant to the Form SB-2
has been declared effective.
(ii) The Fixed Conversion Price shall be reduced by an amount equal to the
product of (A) 3% multiplied by the Fixed Conversion Price and (B)
the sum of the number of months (prorated for partial months) after
December 18, 1998 and prior to the date that the Form SB-2 is
declared effective by the SEC and the number of months that sales
cannot be made pursuant to the Form SB-2 has been declared
effective.
The Conversion Price is subject to adjustment to prevent dilution of the
rights granted to the Series A Preferred Stock pursuant to the Certificate of
Designations, Preferences, and Rights of Series A Convertible Preferred Stock
of D.H. Marketing & Consulting, Inc.
PLAN OF DISTRIBUTION
The shares may be sold from time to time by the Selling Stockholders or by
pledgees, donees, transferees or other successors in interest. Such sales may
be made in the over-the-counter market or on any stock exchange on which the
Common Stock of the Company may be listed at the time of sale or otherwise at
prices and terms then prevailing or at prices related to the then current
market price, or in negotiated transactions. The shares may be sold by one or
more of the following:
(a) A block trade in which the broker or dealer so engaged will attempt
to sell the shares as agent but may position and resell a portion of
the block as principal to facilitate the transaction;
(b) Purchases by a broker or dealer as principal and resale by such
broker or dealer for its account pursuant to this Prospectus;
(c) Ordinary brokerage transactions and transactions in which the broker
solicits purchasers; or
(d) Privately negotiated transactions between the Selling Stockholder and
a purchaser.
4
<PAGE>
There is no underwriter or coordinating broker acting in connection with
this offering. Each Selling Stockholder may be deemed an "underwriter" within
the meaning of the Securities Act with respect to the shares of Common Stock
offered by such Selling Stockholder. The Company and each Selling Stockholder
have agreed to indemnify one another against certain liabilities, including
liabilities under the Securities Act.
In effecting sales, brokers or dealers engaged by the Selling Stockholder
may arrange for other brokers or dealers to participate. Brokers and dealers
will receive commissions or discounts from Selling Stockholders in amounts
to be negotiated immediately prior to the sale. Such brokers or dealers and
any other participating brokers or dealers may be deemed to be "underwriters"
within the meaning of the Securities Act, in connection with such sales.
The Company has agreed to pay for all costs and expenses incident to the
issuance, offer, sale and delivery of the shares of Common Stock offered by the
Selling Stockholders, including all expenses and fees of preparing, filing and
printing the Registration Statement and Prospectus and related exhibits,
amendments and supplements thereto and mailing of such items. The Company
will not pay sales or brokerage commissions or discounts with respect to sales
of the shares offered by the Selling Stockholders.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Company's Common Stock is traded on the OTC Bulletin Board under the
Symbol "DHMG." The following table shows the price range of the Company's
Common Stock for the last four quarters.
BID ASK
HIGH LOW HIGH LOW
Third Quarter Ending
September 30, 1998 2-5/8 2 5-1/8 3-3/16
Second Quarter Ending
June 30, 1998 2-13/16 1-7/8 4-5/8 3-7/8
First Quarter Ending
March 31, 1998 5-5/8 3-7/8 8-1/2 4-1/2
Fourth Quarter Ending
December 31, 1997 9-3/16 3-7/8 12-3/8 7-7/16
5
<PAGE>
HOLDERS
As of October 14, 1998, there were 655 record holders of the Company's
Common Stock and two holders of the Company's Series A Preferred Stock.
DIVIDENDS
The Company does not anticipate any stock or cash dividends on its Common
Stock in the foreseeable future.
MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS
OVERVIEW
D. H. Marketing & Consulting, Inc.'s (the "Company") Initial Public
Offering became effective with the Securities Exchange Commission on August 11,
1995.
The Company completed its Initial Public Offering October 11, 1995, having
sold 119,000 shares and received net proceeds of $537,990.
The proceeds of the Initial Public Offering significantly increased the
Company's working capital, cash availability, inventory and general business
capabilities. Shares first traded on the OTC Bulletin Board on January 4, 1996
at $5 per share under the symbol "DHMK."
On February 25, 1997, the Company undertook a three for one forward split
of its Common Stock and, as a result of the stock split, is now traded under
the symbol "DHMG." At the close of business, June 30, 1998, ending the second
quarter of 1998, shares were traded at the closing price of 2 9/16.
The Company, in the past, was segmented into four distinct operations,
consisting of the Network Marketing Division, the Collectible Division, the
Burn Cleansing Solution Division and the Acquisitions & Consulting Division.
The Company has since, in the first quarter of 1998, divested itself of all
business activities that do not relate to the Company's primary business, the
sale of tangible asset collectibles, especially as to how that business focus
relates to the Company's wholly owned subsidiary Universal Network of America,
Inc. and that Company's operating subsidiary Universal Network, Inc.
At December 31,1995, the Company's headquarters were located in Tarrytown,
New York, with regional offices in Vancouver, British Columbia, Canada and
Hawley, Pennsylvania. As of February 1, 1996, the Company relocated its
headquarters from Tarrytown, New York, to Milford, Pennsylvania. During the
fourth quarter of 1996, the Company opened a West Coast Relations Office in
Las Vegas, Nevada and, in the early part of the second quarter of 1997,
reopened its regional office in Vancouver, British Columbia. The Company
closed its West Coast
6
<PAGE>
Relations Office in Las Vegas, Nevada in December, 1997 and relocated the
headquarters from Milford, Pennsylvania to Hawley, Pennsylvania on February 1,
1998.
The Company was, until February 5, 1998, a 97% equity owner of Qualtronics
Corporation, Inc. ("QCI"), a contract manufacturer of electronic and
electromechanical assemblies based in Allentown, Pennsylvania.
The Company is also a 100% equity owner of Universal Network of America,
Inc. ("UNAI"), a direct sales organization distributing various tangible asset
collectibles through Independent Distributors. UNAI is based in Sarasota,
Florida and operates through its subsidiary Universal Network, Inc.
Selected Financial Data
for 3 mos for 3 mos for 6 mos for 6 mos
ended ended ended ended
6/30/98 6/30/97 6/30/98 6/30/97
Sales $ 384,282 $4,423,605 $1,334,621 $6,287,747
Cost of Goods 364,866 2,923,998 1,018,367 3,717,279
Sold
Net Income $(563,670) 763,594 (553,255) 1,447,289
Net Income/Share (.094) .19 (.092) .38
Weighted Average 6,005,464 3,950,671 6,005,464 3,818,507
# Common Shares
Liquidity
During 1995 and 1994, the first two years of operation, the Company
invested significant amounts of capital in formulating its business plan,
establishing market penetration and presence and preparing and completing its
Initial Public Offering. During this two-year period, the Company experienced
insufficient levels of sales to meet operating needs. This resulted in
operating losses for 1994 and 1995 of $183,657 and $192,852, respectively. The
Company supplemented cash availability by issuing stock in 1994 through a
private placement and in 1995 through the Initial Public Offering. Management
believes that as a result of the Initial Public Offering and continuing
business operations, the Company now has adequate cash availability and
income to satisfy present operating needs. The Company posted net income of
$684,970 in 1996 and $216,151 in 1997.
The Company has recently posted a net loss of $563,670 in the second
quarter of 1998 and a loss of $553,255 for the 6 months ending June 30, 1998.
The Company has also recorded Total Current Assets of 5,654,605 for the same
period. In addition, Total Stockholders' Equity at June 30, 1998 was
$5,400,313.
7
<PAGE>
Capital Resources
On June 30, 1998, the Company had recorded Total Current Assets of
$5,654,605 of which $186,770 was held in cash and cash equivalents and
$5,125,113 was held in inventory at cost. Approximate Total Current Assets at
June 30, 1997 was $3,331,522 of which $136,845 was held in cash and cash
equivalents.
Cash Expenditures
Total general and administrative expenses increased from $764,366 on June
30, 1997 to $996,553 on June 30, 1998. The most significant increases were due
to the increased activities of management as it related to the Company's
divestiture of unrelated businesses and assimilation of its subsidiary,
Universal Network of America, Inc., acquired in December 1997. In addition,
legal and professional expenses increased so the Company may reply to a formal
order of investigation being conducted by the United States Securities and
Exchange Commission, with which the Company's management is co-operating.
Long-Term Debt/Current Liabilities
The Company has satisfactorily retired all Long-Term Debt with the
exception of two(2) Capital Leases for Office Equipment that totaled
approximately $ 9,936 in current and long-term debt.
Revenue
Total revenue, less sales discounts, decreased from June 30, 1997 to June
30, 1998 from $4,423,605 to $384,282. Management of the Company points to key
restructuring projects and corresponding decreased sales activity related to
the Company's assimilation of its subsidiary Universal Network of America, Inc.
for reasons of the reduced sales activity, especially as it relates to the
divestiture of unrelated business operations.
In the network marketing division, operated and governed by the Company's
subsidiary Universal Network, Inc., representatives qualify Retail Sales
Centers with items of intrinsic value, and earn commissions or products.
Items that can be purchased include jewelry, authentic leafs from the
First Edition Noah Webster's American Dictionary of the English Language;
authentic leafs from the original issue of the King James Bible and collectible
numismatic Morgan Silver Dollars. Representatives then earn commissions
corresponding to the sales volume generated at their portion of the network.
Universal Network, Inc. has also introduced in this past quarter a new
consumable line of health and beauty products for both men and women. The
"Universal Collection" contains 24k gold flakes within the aloe vera based
products.
8
<PAGE>
BUSINESS OF THE COMPANY
GENERAL
D. H. Marketing & Consulting, Inc. (the "Company") was incorporated under
the laws of the State of Nevada on September 8, 1994 for the purpose of
acquiring D. H. Marketing & Consulting, Inc., a New York corporation ("D. H.
Marketing- New York"). D. H. Marketing-New York was organized on January 6,
1994 and has been actively engaged in business operations since that time. On
September 29,1994, the Company entered into a merger agreement with D. H.
Marketing-New York in a transaction in which the Company was the surviving
entity.
NETWORK MARKETING DIVISION
During the second quarter of 1995, The Company became a Representative
within Universal Network, Inc.'s Network Marketing system. In the system,
representatives sell products and qualify retail sales centers with items of
intrinsic and/or collectible value. In addition, by purchasing these items,
representatives are also eligible to earn commission and/or sell products.
At the close of 1995, the Company had earned over $136,000 in commissions
and was the third largest dollar earner within the entire system. At the close
of 1996, the Company had earned commissions in excess of $500,000 and was the
largest dollar earner within the entire system.
The network marketing system was developed and is governed by Universal
Network, Inc., the operating subsidiary of Universal Network of America, Inc.,
which became a wholly-owned subsidiary of the Company in December of 1997.
FUTURE PRODUCTS
The Company recently announced in a press release that it reached an
agreement with Garden State Nutritionals to manufacture a line of dietary
supplements which the Company will exclusively distribute. The first product to
be marketed will be an HGH/Potency Formula Dietary Supplement. The Company
expects to launch this product in early November of 1998.
COMPETITION
The Company is involved in a very competitive industry - network, multi-
level or direct marketing. There are several larger companies that also offer
wealth building products. These products are mainly coins, watches and fine
jewelry. The main method of competing in the market place is in diversity of
product lines. To increase its market share, the Company has recently started
offering a skin care/aloe-based product line and it is about to introduce a
dietary supplement line. With a wider range of products, the Company expects to
be able to appeal to a wider range of people.
9
<PAGE>
PRODUCT SUPPLIERS
The Company uses three main suppliers for its product lines, as follows:
1. The main supplier of its fine jewelry products is Hallock Coin
Jewelry located in Anaheim, California.
2. The main supplier of its skin care and aloe-based drink products is
Aloe Commodities International, Inc., located in Dallas, Texas.
3. The main supplier of its new dietary supplement product line is
Garden State Nutritionals located in West Caldwell, New Jersey.
STATE REGULATIONS
The Company is subject to individual state regulations which protect
individuals who purchase products in their homes. These regulations vary from
state to state. In general, customers have anywhere from three to ten days to
cancel an order or change their mind about a purchase. The Company has certain
products which are considered special order items. These special order items
have a no return policy due to their special order nature. The Company has
experienced very few problems with these regulations, as all of the Company's
distributors are made aware of the policy prior to purchasing any products.
PREVIOUS AREAS OF BUSINESS
The Company was previously segmented into four distinct operations,
consisting of a Burn Cleansing Solution Division, Network Marketing Division,
Collectible Division and an Acquisitions & Consulting Division. The Company has
divested itself of all business activities that do not relate to the Company's
primary business of network marketing. Following is a brief description of the
previous divisions of the Company.
1. Burn Cleansing Solution Division
In 1986, the PREVOR Laboratory of Valmondois, France, developed a
revolutionary chemical burn cleansing solution. Unlike current
rinsing solutions that dilute chemicals while they continue to burn
the skin, diphoterine absorbs the burning molecules on contact,
preventing additional exposure to the skin. Diphoterine is effective
on the skin for burns resulting from caustic acids, bases
and solvent. Testimonies from European Fortune 500 Companies credit
diphoterine for improving productivity, decreasing absence,
preventing permanent injury and improving employee safety.
10
<PAGE>
Diphoterine is effective on the skin for burns caused by all acids,
bases and caustic solvents except white phosphor and hydrofluoric
acid. Hexafluorine was developed specifically for use against burns
caused by hydrofluoric acid. Both cleansing solutions have been in
use in Europe for seven years. European users include Rohm and Haas,
IBM, Proctor and Gamble, BASF and DuPont. A Rhone Poulenc five year
study showed use of diphoterine decreased both the number of chemical
spatters reported and the number of employees requiring emergency
treatment due to chemical burns.
This division was divested in the first quarter of 1998 to Safe-
Stride of Washington located in Puyallup, Washington in exchange for
10% of the gross revenue generated by the sale of Diphoterine and
Hexafluorine ad infinitum.
2. Collectible Division
The Company's collectible and fine arts division is involved with the
purchase and sale of valuable and rare stamps, coins, fine art and
other tangible asset collectibles. Principals of the Company are
experts at locating and negotiating transactions to acquire
investment-grade collectibles. Clients are then able to purchase
these items directly from the Company. By selecting only the most
valuable, highest quality, and collectible pieces, both the Company
and its clients profit from the transaction.
Total revenue for this division totaled just over $58,000 in 1995 and
over $1,172,698 in 1996. The substantial increase in sales was
partially attributable to time. This division commenced activity
already one half way through 1995. However, this increase in sales is
more attributable to the Company's increased ability to participate
in more sizable and profitable activities as a result of its
increased asset base and cash position.
The December 1997 acquisition of Universal Network of America, Inc.
will reduce activities of this division in current and future years.
Sales activity of large packages of tangible asset collectibles will
be entertained on an infrequent basis.
3. Acquisitions and Consulting Division
The Acquisitions and Consulting Division commenced activities late in
the third quarter of 1996, acquiring 42% of Qualtronics Corporation,
Inc., a contract manufacturer of electromechanical and electronic
devices, and provided general consultation services.
This division was successful in acquiring an additional 55% of
Qualtronics Corporation, Inc. in the first quarter of 1997,
increasing its total holdings to 97%.
11
<PAGE>
This division was also successful in acquiring 24% of Universal
Network of America, Inc. throughout 1997 and the remaining 76% of the
company in December 1997. The Company has since, on February 5,
1998, divested itself of its interest in Qualtronics Corporation,
Inc.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to each of
the Directors, executive Officers of the Company.
Name Age Position
David D. Hagen 45 Chairman of the Board, President,
Treasurer and Chief Executive Officer
Michael J. Daily 50 Vice President, Secretary and a Director
Martin Grossbach 61 Director
Steve Krakonchuk 38 Director
Ronald W. Meredith 54 Director
William C. Bartley 48 Director
John C. Guttridge 36 Director
DAVID D. HAGEN, age 45, is Chairman of the Board, President, Treasurer and
Chief Executive Officer of the Company. Mr. Hagen was the President of Hagen
Development and Improvement Corp., a real estate company. From 1978-1982 Mr.
Hagen was the President of an investment firm in Greenwich, Connecticut. He
structured and operated investment banking private placement and franchising
organization. As Vice President of Sales of International Stamp Exchange in
New York, Mr. Hagen developed an international network for the sale and
distribution of collectible stamps, collectible coins, and hired, trained and
expanded the sales force from 1982-1985. From 1985-1988, Mr. Hagen was Sales
manager of International Coin Exchange Company, located in Brooklyn, New York.
Mr. Hagen developed an international network for the sale and distribution of
collectible coins, and hired, trained and expanded the sales force. From 1988-
1993, Mr. Hagen has traded coins, stamps, art and miscellaneous investments
for private investors and investment bankers, has owned and operated Park
Avenue Fine Art Archives among other collectible galleries. From 1993, Mr.
Hagen has been the President of the Company in Hawley, PA.
MICHAEL J. DAILY, age 50, is Vice President, Secretary and a director of
the Company. Mr. Daily was honorably discharged from the U.S. Army in 1969.
He majored in Business Administration in the California College system from
1970-1973. Mr. Daily was the
12
<PAGE>
plant manager of a large California based mail order firm from 1971-1976. From
1977-1985, Mr. Daily was a manager in the Food & Beverage industry in the
Pennsylvania Pocono Mountains. Mr. Daily was active in the Real Estate Industry
from 1985 to May 1995 when he joined the Company.
MARTIN GROSSBACH, age 61, is a director of the Company. In 1958, Mr.
Grossbach received a B.S. in Accounting from Queen's College and in 1961, he
received his law degree from New York Law School. Mr. Grossbach has been an
attorney in Westchester County, New York for the last 32 years, specializing in
commercial real estate.
STEVE KRAKONCHUK, age 38, is a director of the Company. Mr. Krakonchuk
began working for the Company in January of 1995 in the Company's Investor
Relations area and as Vice President of Sales. During his employment, sales
of the Company's network marketing division have increased dramatically due
in large part to his participation and leadership. Mr. Krakonchuk currently
is employed at the Company's wholly-owned international subsidiary, Financial
Communication Services, Inc., in Vancouver, British Columbia.
RONALD W. MEREDITH, age 54, is a director of the Company. Mr. Meredith is
President of the Company's wholly-owned subsidiary, Universal Network of
America, Inc. and its subsidiary, Universal Network, Inc. Mr. Meredith is an
Air Force veteran, having served from 1959 through 1979. From 1979 through 1988
he owned and operated a manufacturing company in Louisville, Kentucky.
He currently sits on the Board of Directors of that company. From July 1988
through 1994, Mr. Meredith was an Independent Representative and National
Marketing Director with an environmental products company, where he sat on the
Presidential Advisory Board. During this period annual sales of that company
grew from 30 million dollars to more than 400 million dollars. From September
1994 through February 1995, Mr. Meredith was an Independent Representative with
a jewelry company, and is a member of the Jewelers Board of Trade. In May of
1995, he and several partners founded Universal Network, Inc.
WILLIAM C. BARTLEY, age 48, is a director of the Company. Mr. Bartley is
Vice President of the Company's wholly-owned subsidiary, Universal Network of
America, Inc. and its subsidiary Universal Network, Inc. Mr. Bartley owned a
successful furniture and appliance store in Lexington, Kentucky from 1978 until
1992. From September 1990 through March of 1994, Mr. Bartley was an Independent
Representative and National Marketing Director with an environmental products
company. From March of 1994 through February 1995, he was an Independent
Representative and the top income earner with a jewelry company. Mr. Bartley, a
founder of Universal Network, Inc., was elected Vice President in July 1995.
JOHN C. GUTTRIDGE, age 36, is a Director of the Company. In 1984, Mr.
Guttridge received a B.S. in Political Science from Villanova University and
in 1988, he received his law degree from Pace University School of Law. Mr.
Guttridge has been an attorney in Westchester County, New York for the last 10
years specializing in litigation, the last five years of which have been at
the firm of Martin Grossbach, P.C.
13
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EXECUTIVE COMPENSATION
The following summary compensation table sets forth certain information
regarding compensation paid during each of the three fiscal years to David D.
Hagen, the Company's President, and to Ronald Meredith, a director of the
Company and President of the Company's wholly-owned subsidiary, Universal
Network of America, Inc. ("UNA"). No other executive's annual compensation
exceeded $100,000.
NAME AND PRINCIPAL FISCAL TOTAL REMUNERATION
POSITION YEAR SALARY BONUS
- ------------------------------ --------- ------------ -----------
David D. Hagen, President 1997 $59,166 $20,000
Treasurer and a Director 1996 $40,833 $20,000
1995 $26,291 $10,616
Ronald W. Meredith 1997 $122,200 -0-
Director of the Company, 1996 $98,000 -0-
and President of UNA 1995 $70,100 -0-
PRINCIPAL STOCKHOLDERS AND SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth information as of September 22, 1998 with
respect to persons known to the Company to be the beneficial owners of more
than 5% of its Common Stock and with respect to the beneficial ownership of
such Common Stock by each director of the Company and by all directors and
executive officers of the Company as a group.
=============================================================================
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP COMMON STOCK
=============================================================================
David D. Hagen<F1><F2> 300,000 Shares <F3> 4.1%
P.O. Box 621
Hawley, PA 18428
Ronald W. Meredith<F2> 375,401 Shares <F3><F4> 5.2%
5647 Beneva Road
Sarasota, FL 34233-4103
William C. Bartley<F2> 362,700 Shares <F3><F5> 5.0%
5647 Beneva Road
Sarasota, FL 34233-4103
14
<PAGE>
Martin Grossbach<F2> 63,334 Shares <F3> .8%
303 South Broadway
Suite 100
Tarrytown, NY 10591
Michael J. Daily<F1><F2> 151,550 Shares <F3> 2.1%
405 Prospect Street
Hawley, PA 18428
John C. Guttridge<F2> 5,000 Shares <F3> <F6>
303 South Broadway
Suite 100
Tarrytown, NY 10591
Steve Krakonchuk<F2> 152,000 Shares <F3> 2.1%
8611 General Currie Road
Apartment 111
Richmond, B.C.
Canada V6Y 3M1
- ----------------------------------------------------------------------------
All Officers and Directors 1,399,985<F7> 19.3%
as a Group (7 Persons)
============================================================================
____________________
<F1> An officer of the Company.
<F2> A director of the Company.
<F3> Includes Restricted Stock.
<F4> 327,501 of these shares are held in the name of Meretec Management
which is owned and controlled by Ronald W. Meredith. 37,900 of these
shares are held in the name of Ronald W. and Judy D. Meredith. 10,000
shares are held in the name of Aviara Marketing which is owned and
controlled in part by Ronald Meredith.
<F5> 352,700 of these shares are held in the name of William C. Bartley.
10,000 of these shares are held in the name of Aviara Marketing which
is owned and controlled in part by William C. Bartley.
<F6> Less than one percent.
<F7> This figure is 10,000 shares less than the total of the figures shown
above, as the 10,000 shares owned by Aviara Marketing, which is owned
and controlled by Ronald Meredith and William Bartley, appear under
both Ronald Meredith's and William Bartley's names.
The Company is not aware of any arrangement which might result in a change in
control in the future.
15
<PAGE>
CERTAIN TRANSACTIONS
Some of the officers and/or directors of the Company are engaged in other
businesses, either individually or through partnerships and corporations in
which they have an interest, hold an office or serve on boards of directors.
Certain conflicts of interest may arise between the Company and its directors.
Some of the directors have other business interests to which they devote a
major or significant portion of their time.
On June 30, 1998, the Company issued restricted common stock to the
following officers and/or directors as additional compensation. Aviary
Marketing Services is owned by both Ronald W. Meredith and William C. Bartley.
David D. Hagen 100,000 shares
Michael J. Daily 50,000 shares
Steve Krakonchuk 50,000 shares
Ronald W. Meredith 25,000 shares
William C. Bartley 25,000 shares
Martin Grossbach 35,000 shares
John C. Guttridge 5,000 shares
Aviary Marketing Services 20,000 shares
On July 2, 1998, the Company issued restricted common stock to the following
officers, directors and/or consultants as additional compensation.
Max. C. Tanner 50,000 shares
Gary Stafford 10,000 shares
Mark Cain 20,000 shares
Martin Grossbach 10,000 shares
The Company will attempt to resolve any such conflicts of interest in favor
of the Company. The officers and directors of the Company are accountable to
it and its shareholders as fiduciaries, which requires that such officers and
directors exercise good faith and integrity in handling the Company's affairs.
A shareholder may be able to institute legal action on behalf of the Company or
on behalf of itself and all similarly situated shareholders to recover damages
or for other relief in cases of the resolution of conflicts in any manner
prejudicial to the Company.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 75,000,000 shares of
capital stock, composed of 25,000,000 shares of Common Stock, par value $0.0001
per share, of which there were 7,287,964 shares outstanding as of October 14,
1998, and 50,000,000 shares of Preferred Stock, par value $.001 per share, of
which there are 30 shares outstanding as of October 14, 1998.
16
<PAGE>
COMMON STOCK
The holders of common stock (i) have equal ratable rights to dividends from
funds legally available therefore, when, as and if declared by the Board of
Directors of the Company; (ii) are entitled to share ratably in all of the
assets of the Company available for distribution or winding up of the affairs
of the Company; (iii) do not have preemptive subscription or conversion rights
and there are no redemption or sinking fund applicable thereto; and (iv) are
entitled to one non-cumulative vote per share, on all matters which
shareholders may vote on at all meetings of shareholders.
NON-CUMULATIVE VOTING
The holders of Shares of common stock of the Company do not have cumulative
voting rights which means that the holders of more than 50% of such outstanding
Shares, voting for the election of Directors, can elect all of the Directors to
be elected, if they so choose, and, in such event, the holders of the remaining
Shares will not be able to elect any of the Company's Directors.
PREFERRED STOCK
The Board of Directors of the Company has the authority to divide the
Authorized Preferred Stock into series, the shares of each series to have such
relative rights and preferences as shall be fixed and determined by the Board
of Directors. Depending upon the voting rights granted to any series of
Authorized Preferred Stock, issuance thereof could result in a reduction
in the voting power of the holders of Common Stock. In the event of any
dissolution, liquidation or winding up of the Company, whether voluntary or
involuntary, the holders of each series of the then outstanding Authorized
Preferred Stock may be entitled to receive, prior to the distribution
of any asset or funds to the holders of Common Stock, a liquidation preference
established by the Board of Directors, together with all accumulated and unpaid
dividends. Depending upon the consideration paid for Authorized Preferred
Stock, the liquidation preference of Authorized Preferred Stock and other
matters, the issuance of Authorized Preferred Stock could result in a reduction
in the assets available for distribution to the holders of Common Stock in the
event of the liquidation of the Company.
LITIGATION
The United States Securities and Exchange Commission is conducting a formal
investigation of the Company, with which the Company's management is co-
operating. The outcome of such investigation is not known at this time. The
Company is not a party to any material pending legal proceedings and, to the
best of its knowledge, no such action by or against the Company has been
threatened.
17
<PAGE>
LEGAL MATTERS
Securities matters in connection with this Offering will be passed upon for
the Company by the Law Offices of Max C. Tanner, 2950 East Flamingo Road, Suite
G, Las Vegas, Nevada 89121.
EXPERTS
The consolidated financial statements of the Company as of December 31, 1997
(audited) and June 30, 1998 (unaudited) included in this Prospectus and the
Registration Statement have been included herein in reliance upon the report of
Crouch, Bierwolf & Chisholm, 50 West Broadway, Suite 1130, Salt Lake City, Utah
84101, independent certified public accountants, given on the authority of said
firm as an expert in auditing and accounting.
18
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 78.751 of the Nevada Revised Statutes empowers a corporation to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal , administrative or investigative by reason of the fact that
he or she is or was a director, officer, employee or agent of the corporation
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation or enterprise. Depending on the
character of the proceeding, a corporation may indemnify against expenses
(including attorney's fees), judgements, fines and amounts paid in settlement
actually and reasonably incurred in connection with such action, suit or
proceeding if the person indemnified acted in good faith and in a manner he or
she 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
cause to believe his or her conduct was unlawful. In the case of an action by
or in the right of the corporation, no indemnification may be made in respect
to any claim, issue or matter as to which such person shall have been adjudged
to be liable for negligence or misconduct in the performance of his or her duty
to the corporation unless and only to the extent that the court in which such
action or suit was brought shall determine that despite the adjudication of
liability such person is fairly and reasonably entitled to indemnity for such
expenses which the court shall deem proper. Section 78.751 further provides
that to the extent a director or officer of a corporation has been successful
in the defense of any action, suit or proceeding referred to above or in the
defense of any claim, issue or matter therein, he or she shall be indemnified
against expenses (including attorney's fees) actually and reasonably incurred
by him or her in connection therewith.
(The Company's Articles of Incorporation and By-Laws provide in effect
that the Company may indemnify to the full extent of its power to do so, all
Directors, Officers, employees, and agents. It is anticipated that the Company
will indemnify its Officers and Directors to the full extent permitted by the
above quoted statute.)
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Registration Fee . . . . . . . . . . . . . . . . . . . . . . . 765.16
Printing Expenses* . . . . . . . . . . . . . . . . . . . . . . ______
Legal Fees and Expenses* . . . . . . . . . . . . . . . . . . . ______
Accounting Fees and Expenses*. . . . . . . . . . . . . . . . . ______
Blue Sky Fees* . . . . . . . . . . . . . . . . . . . . . . . . ______
Engineering Fees and Expenses* . . . . . . . . . . . . . . . . ______
Miscellaneous* . . . . . . . . . . . . . . . . . . . . . . . . ______
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . .$
========
- - ------------------------
* Estimated
All of the above expenses will be paid by the Company.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
The following information sets forth certain information for all securities
the Company sold during the past three years without registration under the
Securities Act. There were no underwriters in any of these transactions.
II-1
<PAGE>
In June 1998 the Company issued an aggregate of 310,000 shares of
restricted common stock to eight officers and/or directors as additional
compensation. In July, 1998, the Company issued an aggregate of 90,000 shares
of restricted common stock to four directors and/or consultants as additional
compensation. All of these shares were issued pursuant to an exemption from
registration afforded by Section 4(2) of the Securities Act for transactions
not involving a public offering.
The Company issued 1,000,000 of restricted common stock pursuant to an
offering under Regulation D, Rule 506 during the months of September and
October, 1998.
ITEM 27. EXHIBITS.
Exhibit
Number Description of Exhibits
- - ------ -----------------------
2.0 The Merger Agreement entered into by and between D.H. Marketing
& Consulting, Inc. a New York Corporation, and the Registrant,
dated September 29, 1994, filed with the Nevada Secretary of
State, November 10, 1994. (Filed with SEC on April 14, 1995, in
Registration Statement on Form SB-2 and incorporated herein by
reference.)
3.0 Certificate of Incorporation of the Registrant, consisting of
Articles of Incorporation filed with the Secretary of State of
the State of Nevada on September 8, 1994. (Filed with SEC on
April 14, 1995, in Registration Statement on Form SB-2 and
incorporated herein by reference.)
3.1 By-Laws of the Registrant, dated September 8, 1994. (Filed with
SEC on April 14, 1995, in Registration Statement on Form SB-2 and
incorporated herein by reference.)
3.2* Certificate of Amendment to the Articles of Incorporation of the
Registrant, filed with the Secretary of State of Nevada on
February 12, 1997, filed with the SEC in this Registration
Statement on Form SB-2.
3.3* Certificate of Amendment to the Articles of Incorporation of the
Registrant, filed with the Secretary of State of Nevada on August
19, 1998, filed with the SEC in this Registration Statement on
Form SB-2.
4.0* Certificate of Designations, Preferences and Rights of Series A
Convertible Preferred Stock of D.H. Marketing & Consulting, Inc.,
filed with the Secretary of State of Nevada on September 9, 1998,
filed with the SEC in this Registration Statement on Form SB-2.
4.1* Securities Purchase Agreement dated September 18, 1998, filed
with the SEC in this Registration Statement on Form SB-2.
4.2* Registration Rights Agreement dated September 18, 1998, filed
with the SEC in this Registration Statement on Form SB-2.
10.0* Placement Agency Agreement dated August 26, 1998, filed with the
SEC in this Registration Statement on Form SB-2.
10.1* Warrant Agreement dated September 18, 1998, filed with the SEC in
this Registration Statement on Form SB-2.
13.0 Annual Report on Form 10-KSB for the year-ended December 31,
1997, filed with the SEC on April 15, 1998 and incorporated
herein by reference.
13.1 Quarterly Report on Form 10-QSB for the period-ended March 31,
1998, filed with the SEC on May 29, 1998 and incorporated herein
by reference.
13.2 Quarterly Report on Form 10-QSB for the period-ended June 30,
1998, filed with the SEC on August 14, 1998 and incorporated
herein by reference.
21.0* Subsidiaries of the Registrant, filed with the SEC in this Form
SB-2.
23.0 Consent, dated April 14, 1998, of the Accountants, Crouch,
Bierwolf & Chisholm, to the publication of their report, dated
February 13, 1998. (Filed with the SEC on April 15, 1998 in
Form 10-KSB and incorporated herein by reference.)
23.1 Consent, dated May 28, 1998, of the Accountants, Crouch, Bierwolf
& Chisholm, to the publication of their report, dated May 19,
1998. (Filed with the SEC on May 29, 1998 in Form 10-QSB and
incorporated herein by reference.)
23.2 Consent, dated August 11, 1998, of the Accountants, Crouch,
Bierwolf & Chisholm, to the publication of their report, dated
August 4, 1998. (Filed with the SEC on August 14, 1998 in Form
10-QSB and incorporated herein by reference.)
27.0 Financial Data Schedule for the year-ending December 31, 1997.
(Filed with the SEC on April 15, 1998 in Form 10-KSB and
incorporated herein by reference.)
27.1 Financial Data Schedule for the 3-month period ending March 31,
1998. (Filed with the SEC on May 29, 1998 in Form 10-QSB and
incorporated herein by reference.)
27.2 Financial Data Schedule for the 3-month period ending June 30,
1998. (Filed with the SEC on August 14, 1998 in Form 10-QSB and
incorporated herein by reference.)
- - -----------------------------
* Filed herewith.
ITEM 28. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made of the securities registered hereby, a post-effective
amendment to this Registration Statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act;
(ii) To reflect in the prospectus any facts or events
which, individually or together, represent a fundamental
change in the information set forth in this Registration
Statement; and
(iii) To include any additional or changed material
information on the plan of distribution.
(2) That, for the purpose of determining any liability under
the Securities Act, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold
at the termination of the offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and has authorized this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Hawley, State of Pennsylvania on October 15, 1998.
D.H. MARKETING & CONSULTING, INC.
By: /s/ DAVID D. HAGEN
David D. Hagen
President, Chief Executive Officer
and Director
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated. Each person whose signature to the
Registration Statement appears below hereby appoints David D. Hagen, as such
person's attorney-in-fact with full power to act alone, with full power of
substitution or resubstitution, for such person and in such person's name,
place and stead, in any and all capacities to sign on such person's behalf,
individually and in the capacities stated below, and to file any and all
amendments and post-effective amendments to this Registration Statement, which
amendment or amendments may make such changes and additions as such attorney-
in-fact may deem necessary or appropriate.
Name Office Date
- -------- ---------- --------
/s/ DAVID D. HAGEN President, Chief Executive Officer 10/15/98
David D. Hagen Chief Financial Officer and Director
/s/ MICHAEL J. DAILY Secretary and Director 10/15/98
Michael J. Daily
/s/ RONALD MEREDITH Director 10/15/98
Ronald Meredith
/s/ STEVE KRAKONCHUK Director 10/15/98
Steve Krakonchuk
[file-stamped as follows: FILED in the Office of the Secretary of State of the
State of Nevada, Feb 12 1997, No. C13981-94, Dean Heller, Secretary of State]
CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION
OF
D.H. MARKETING & CONSULTING, INC.
Pursuant to NRS 78.385 and 78.390, the undersigned President and
Secretary of D. H. Marketing & Consulting, Inc. do hereby certify:
That the following amendments to the articles of incorporation were
approved by unanimous consent of the Board of Directors of said corporation by
written consent in lieu of a special meeting of the Board of Directors dated
January 30, 1997 and by a majority of the outstanding shares entitled to vote,
there being 1,268,447 shares authorized to vote and 649,415 shares having voted
in favor of the amended articles.
1. Change of Authorized Capital
After giving effect to a three for one (3 for 1) forward stock split of
the common stock, the authorized capital shall be increased from 25,000,000
shares of common stock to 75,000,000 shares of common stock, $.0003 par value
per share, which stock split and subsequent increase in the number of
authorized shares shall be effective on February 25, 1997.
Accordingly,
Effective February 25, 1997, Article VI, Section 1, is hereby amended to
read as follows:
Section 1. Authorized Shares. After giving effect to a three for one (3
for 1) forward stock split, the total number of shares which this Corporation
is authorized to issue is 75,000,000 shares of Common Stock at $.0003 par value
per share.
/s/ DAVID D. HAGEN /s/ T. CHRISTOPHER CIESIELKA
David D. Hagen T. Christopher Ciesielka
President Secretary
1
<PAGE>
ACKNOWLEDGMENTS
STATE OF PENNSYLVANIA )
)ss.
COUNTY OF MONTGOMERY )
On this 7th day of Feb, 1997, personally appeared before me, a Notary
Public, David D. Hagen, President of the above-mentioned corporation, who
acknowledged that he executed the Certificate of Amendment of Articles of
Incorporation of D. H. Marketing & Consulting, Inc..
/s/ ANN McC. CIESIELKA
Notary Public
(Notary stamp or seal)
[Notary Public, Ann McC. Ciesielka, Notary Public, Skippack Twp., Montgomery
Co., PA, My commission expires Nov. 17, 1997]
STATE OF PENNSYLVANIA )
)ss.
COUNTY OF MONTGOMERY )
On this 7th day of Feb, 1997, personally appeared before me, a Notary
Public, T. Christopher Ciesielka, Secretary of the above-mentioned corporation,
who acknowledged that he executed the Certificate of Amendment of Articles of
Incorporation of D.H. Marketing & Consulting, Inc.
/s/ ANN McC. CIESIELKA
Notary Public
(Notary stamp or seal)
[Notary Public, Ann McC. Ciesielka, Notary Public, Skippack Twp., Montgomery
Co., PA, My commission expires Nov. 17, 1997]
2
[file-stamped as follows: FILED in the Office of the Secretary
of State of the State of Nevada, Aug 19, 1998, No. C13981-94,
Dean Heller, Secretary of State]
CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION
OF
D.H. MARKETING & CONSULTING, INC.
Pursuant to NRS 78.207 and 78.209, the undersigned
President and Secretary of D. H. Marketing & Consulting, Inc.
do hereby certify:
That the following amendments to the articles of
incorporation were unanimously approved by the Board of
Directors of said corporation by written consent in lieu of a
special meeting of the Board of Directors dated August 18,
1998.
1. Change of Authorized Capital
Article VI Section 1 - Capital Stock - Authorized
Shares is hereby amended to read as follows:
Section 1. Authorized Shares. The total number of
shares which this Corporation is authorized to issue is
100,000,000 shares consisting of Common and Preferred
Stock as follows:
(a) After giving effect to a three for one (3
for 1) forward stock split, the total
number of shares which this Corporation is
authorized to issue is 75,000,000 shares of
Common Stock at $.0003 par value per share.
(b) The total number of shares of Preferred
Stock which this Corporation is authorized
to issue is 25,000,000 shares at $.001 par
value per share, which Preferred Stock may
contain special preferences as determined
by the Board of Directors of the
Corporation, including, but not limited to,
the bearing of interest and convertibility
into shares of Common Stock of the
Corporation.
This Certificate of Amendment of the Articles of
Incorporation may be executed in two or more counterparts.
D. H. MARKETING & CONSULTING,
INC.
/s/ DAVID D. HAGEN
David D. Hagen, President
/s/ MICHAEL J. DAILY
Michael J. Daily, Secretary
1
<PAGE>
STATE OF PENNSYLVANIA )
)ss.
COUNTY OF WAYNE )
On the 19th day of August, 1998, personally appeared
before me, a Notary Public, David D. Hagen, President of D.H.
Marketing & Consulting, Inc., who acknowledged that he
executed the Certificate of Amendment of Articles of
Incorporation.
/s/ LAURIE J. BISHOP
Signature of Notary
(Notary stamp or seal)
[Notarial Seal, Laurie J. Bishop, Notary Public, Berlin Twp.,
Wayne County, My commission expires Feb. 18, 1999, member,
Pennsylvania Association of Notaries]
STATE OF PENNSYLVANIA )
)ss.
COUNTY OF WAYNE )
On the 19th day of August, 1998, personally appeared
before me, a Notary Public, Michael J. Daily, Secretary of
D.H. Marketing & Consulting, Inc., who acknowledged that he
executed the Certificate of Amendment of Articles of
Incorporation.
/s/ LAURIE J. BISHOP
Signature of Notary
(Notary stamp or seal)
[Notarial Seal, Laurie J. Bishop, Notary Public, Berlin Twp.,
Wayne County, My commission expires Feb. 18, 1999, member,
Pennsylvania Association of Notaries]
2
[file stamped as follows: FILED, in the Office of the Secretary of State, State
of Nevada, Sep 09, 1998, No. C 13981-94, Dean Heller, Secretary of State]
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS
OF
SERIES A CONVERTIBLE PREFERRED STOCK
OF
D.H. MARKETING & CONSULTING, INC.
D.H. Marketing & Consulting, Inc. (the "Company"), a corporation organized
and existing under the General Corporation Law of the State of Nevada, does
hereby certify that, pursuant to authority conferred upon the Board of
Directors of the Company by the Certificate of Incorporation of the Company,
and pursuant to the General Corporation Law of the State of Nevada, the Board
of Directors of the Company at a meeting duly held, adopted resolutions (i)
authorizing a series of the Company's authorized preferred stock, $.001 par
value per share, and (ii) providing for the designations, preferences and
relative, participating, optional or other rights, and the qualifications,
limitations or restrictions thereof, of 150 shares of Series A Convertible
Preferred Stock of the Company, as follows:
RESOLVED, that the Company is authorized to issue 150 shares of
Series A Convertible Preferred Stock (the "Series A Preferred Shares"),
$.001 par value per share, which shall have the following powers,
designations, preferences and other special rights:
(1) Dividends. The Series A Preferred Shares shall not bear any
dividends.
(2) Holder's Conversion of Series A Preferred Shares. A holder of
Series A Preferred Shares shall have the right, at such holder's option,
to convert the Series A Preferred Shares into shares of the Company's
common stock, $.0003 par value per share (the "Common Stock"), on the
following terms and conditions:
(a) Conversion Right. Subject to the provisions of Sections
2(g) and 3(a) below, at any time or times on or after the earlier of
(i) 90 days after the Issuance Date (as defined herein), (ii) 5 days
after receiving a "no-review" status from the U.S. Securities and
Exchange Commission in connection with a registration statement
("Registration Statement") covering the resale of Common Stock issued
upon conversion of the Series A Preferred Shares and required to be
filed by the Company pursuant to the Registration Rights Agreement
between the Company and its initial holders of Series A Preferred
Shares (the "Registration Rights Agreement"), (iii)
<PAGE>
the date that the Registration Statement is declared effective by the
U.S. Securities and Exchange Commission (the "SEC") any holder of
Series A Preferred Shares shall be entitled to convert any Series A
Preferred Shares into fully paid and nonassessable shares (rounded to
the nearest whole share in accordance with Section 2(h) below) of
Common Stock, at the Conversion Rate (as defined below); provided,
however, that in no event other than upon a Mandatory Conversion
pursuant to Section 2(g) hereof, shall any holder be entitled to
convert Series A Preferred Shares in excess of that number of Series
A Preferred Shares which, upon giving effect to such conversion,
would cause the aggregate number of shares of Common Stock
beneficially owned by the holder and its affiliates to exceed 4.9% of
the outstanding shares of the Common Stock following such conversion.
For purposes of the foregoing proviso, the aggregate number of shares
of Common Stock beneficially owned by the holder and its affiliates
shall include the number of shares of Common Stock issuable upon
conversion of the Series A Preferred Shares with respect to which the
determination of such proviso is being made, but shall exclude the
number of shares of Common Stock which would be issuable upon (i)
conversion of the remaining, nonconverted Series A Preferred Shares
beneficially owned by the holder and its affiliates beneficially
owned by the holder and its affiliates. Except as set forth in the
preceding sentence, for purposes of this paragraph, beneficial
ownership shall be calculated in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended.
(b) Conversion Rate. The number of shares of Common Stock
issuable upon conversion of each of the Series A Preferred Shares
pursuant to Section (2)(a) shall be determined according to the
following formula (the "Conversion Rate");
(.06)(N/365)(20,000) + 20,000
Conversion Price
For purposes of this Certificate of Designations, the following terms
shall have the following meanings:
(i) "Conversion Price" means as, of any Conversion Date (as
defined below), the lower of the Fixed Conversion Price and the
Floating Conversion Price, each in effect as of such date, if
applicable, and subject to adjustment as provided herein;
(ii) "Fixed Conversion Price" means 120% of the Closing Bid
Price on any business day immediately preceding the Issuance
Date, subject to adjustment, as provided herein.
(iii) "Floating Conversion Price" means, as of any date of
determination, the amount obtained by multiplying the Conversion
Percentage
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<PAGE>
in effect as of such date by the Average Market Price for the
Common Stock for the five (5) consecutive trading days
immediately preceding such date;
(iv) "Conversion Percentage" means 78% and shall be reduced
by an additional 2% for every 30 days (pro-rated for partial
months) beyond 45 days from the Issuance Date (the "Scheduled
Filing Date") that the Registration Statement is not filed by
the Company (collectively the "Applicable Discount";
(v) "Average Market Price" means, with respect to any
security for any period, that price which shall be computed as
the arithmetic average of the Closing Bid Prices (as defined
below) for such security for each trading day in such period;
(vi) "Closing Bid Price" means, for any security as of any
date, the last closing bid price on the Nasdaq National Market
(the "Nasdaq-NM") as reported by Bloomberg Financial Markets
("Bloomberg"), or, if the Nasdaq-NM is not the principal trading
market for such security, the last closing bid price of such
security on the principal securities exchange or trading market
where such security is listed or traded as reported by
Bloomberg, or if the foregoing do not apply, the last closing
bid price of such security in the over-the-counter market on the
pink sheets or bulletin board for such security as reported by
Bloomberg, or, if no closing bid price is reported for such
security by Bloomberg, the last closing trade price of such
security as reported by Bloomberg. If the Closing Bid Price
cannot be calculated for such security on such date on any of
the foregoing bases, the Closing Bid Price of such security
on such date shall be the fair market value as reasonably
determined in good faith by the Board of Directors of the
Company (all as appropriately adjusted for any stock dividend,
stock split or other similar transaction during such period);
and
(vii) "N" means the number of days from, but excluding, the
Issuance Date through and including the Conversion Date for the
Series A Preferred Shares for which conversion is being elected.
(viii) "Issuance Date" means the date of issuance from time
to time by the Company of the Series A Preferred Shares.
(c) Adjustment to Conversion Price - Registration Statement.
If the Registration Statement is not declared effective by the SEC on
or before the ninetieth (90th) day following the Issuance Date (the
"Scheduled Effective Date"), or if after the Registration Statement
has been declared effective by the SEC, sales cannot be made pursuant
to the Registration Statement (whether because of a failure to keep
the
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<PAGE>
registration Statement effective, to disclose such information as is
necessary for sales to be made pursuant to the Registration
Statement, to register sufficient shares of Common Stock or
otherwise), then, as partial relief for the damages to any holder by
reason of any such delay in or reduction of its ability to sell the
underlying shares of Common Stock (which remedy shall not be
exclusive of any other remedies at law or in equity), the Conversion
Percentage and the Fixed Conversion Price shall be adjusted as
follows:
(i) Conversion Percentage. The Conversion Percentage in
effect, at such time for each time period set forth in Section
2(b)(iv) with respect to the Series A Preferred Shares which may
be converted as permitted by Section 2(a) hereof during the
period that sales cannot be made pursuant to the Registration
Statement, shall be reduced by a number of percentage points
equal to the product of (A) three (3) and (B) the sum of (I) the
number of months (prorated for partial months) after the
Scheduled Effective Date and prior to the date that the relevant
Registration Statement is declared effective by the SEC and (II)
the number of months (prorated for partial months) that sales
cannot be made pursuant to the Registration Statement after the
Registration Statement has been declared effective. (For
example, if the Registration Statement becomes effective one and
one-half (1 1/2) months after the Scheduled Effective Date, the
Conversion Percentage with respect to the Series A Preferred
Shares would decrease by four and one-half percent (4.5% to
73.5%) until any subsequent adjustment; if thereafter sales
could not be made pursuant to the Registration Statement for a
period of two (2) additional months, the Conversion Percentage
with respect to the Series A Preferred Shares would decrease by
an additional six percent (6%), for an aggregate decrease of ten
and one-half percent (10.5% to 64.5%); and
(ii) Fixed Conversion Price. The Fixed Conversion Price in
effect from time to time with respect to the Series A Preferred
Shares shall be reduced by an amount equal to the product of (A)
(3% multiplied by the Fixed Conversion Price for such Series A
Preferred Shares) and (B) the sum of (I) the number of months
(prorated for partial months) after the Scheduled Effective Date
and prior to the date that the Registration Statement is
declared effective by the SEC and (II) the number of months
(prorated for partial months) that sales cannot be made pursuant
to the Registration Statement after the Registration Statement
has been declared effective. (For example, if the Registration
Statement becomes effective one and one-half (1 1/2) months
after the Scheduled Effective Date, and the Fixed Conversion
Price were initially $1.00 for such Series A Preferred Shares,
the Fixed Conversion Price with respect to the Series A
Preferred Shares would be $0.955 until any subsequent
adjustment; if thereafter sales could not be made pursuant to
the Registration Statement for a period of two (2) additional
-4-
<PAGE>
months, the Fixed Conversion Price with respect to the Series A
Preferred Shares would then be $0.895).
(d) Adjustment to Conversion Price - Dilution and Other Events.
In order to prevent dilution of the rights granted under this
Certificate of Designations, the Conversion Price will be subject to
adjustment from time to time as provided in this Section 2(d).
(i) Adjustment of Fixed Conversion Price upon Subdivision
or Combination of Common Stock. If the Company at any time
subdivides (by any stock split, stock dividend, recapitalization
or otherwise) one or more classes of its outstanding shares of
Common Stock into a greater number of shares, the Fixed
Conversion Price in effect immediately prior to such subdivision
will be proportionately reduced. If the Company at any time
combines (by combination, reverse stock split or otherwise) one
or more classes of its outstanding shares of Common Stock into a
smaller number of shares, the Fixed Conversion Price in effect
immediately prior to such combination will be proportionately
increased.
(ii) Reorganization, Reclassification, Consolidation,
Merger, or Sale. Any recapitalization, reorganization
reclassification, consolidation. merger, sale of a or
substantially all of the Company's assets to another Person
(as defined below) or other similar transaction which is
effected in such a way that holders of Common Stock are entitled
to receive (either directly or upon subsequent liquidation)
stock, securities or assess with respect to or in exchange for
Common Stock is referred to herein as in "Organic Change."
Prior to the consummation of any Organic Change, the Company
will make appropriate provision (in form and substance
satisfactory to the holders of a majority of the Series A
Preferred Shares then outstanding) to insure that each
of the holders of the Series A Preferred Shares will thereafter
have the right to acquire and receive in lieu of or in addition
to (as the case may be) the shares of Common Stock immediately
theretofore acquirable and receivable upon the conversion of
such holder's Series A Preferred Shares, such shares of stock,
securities or assets as may be issued or payable with respect to
or in exchange for the number of shares of Common Stock
immediately theretofore acquirable and receivable upon the
conversion of such holder's Series A Preferred Shares had such
Organic Change not taken place. In any such case, the Company
will make appropriate provision (in form and substance
satisfactory to the holders of a majority of the Series A
Preferred Shares then outstanding) with respect to such holders'
rights and interests to insure that the provisions of this
Section 2(d) and Section 2(e) below will thereafter be
applicable to the Series A Preferred Shares. The Company will
not effect any such consolidation, merger or sale, unless prior
to the consummation thereof the successor entity (if other than
the Company) resulting from consolidation
-5-
<PAGE>
or merger or the entity purchasing such assets assumes, by
written instrument (in form and substance satisfactory to the
holders of a majority of the Series A Preferred Shares then
outstanding), the obligation to deliver to each holder of Series
A Preferred Shares such shares of stock, securities or assets
as, in accordance with the foregoing provisions, such holder may
be entitled to acquire. For purposes of this Agreement, "Person"
shall mean an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a government or any department
or agency thereof.
(iii) Notices.
(A) Immediately upon any adjustment of the Conversion
Price, the Company will give written notice thereof to each
holder of Series A Preferred Shares, setting forth in
reasonable detail and certifying the calculation of such
adjustment.
(B) The Company will give written notice to each
holder of Series A Preferred Shares at least twenty (20)
days prior to the date on which the Company closes its
books or takes a record (I) with respect to any dividend or
distribution upon the Common Stock, (II) with respect to
any pro rata subscription offer to holders of Common Stock
or (III) for determining rights to vote with respect to any
Organic Change, dissolution or liquidation.
(C) The Company will also give written notice to each
holder of Series A Preferred Shares at least twenty (20)
days prior to the date on which any Organic Change, Major
Transaction (as defined below), dissolution or liquidation
will take place.
(e) Purchase Rights. If at any time the Company grants,
issues or sells any Options, Convertible Securities or rights to
purchase stock, warrants, securities or other property pro rata to
the record holders of any class of Common Stock (the "Purchase
Rights"), then the holders of Series A Preferred Shares will be
entitled to acquire, upon the terms applicable to such Purchase
Rights, the aggregate Purchase Rights which such holder could have
acquired if such holder had held the number of shares of Common Stock
acquirable upon complete conversion of the Series A Preferred Shares
immediately before the date an which a record is taken for the grant
issuance or sale of such Purchase Rights, or, if no such record is
taken, the date as of which the record holders of Common Stock are to
be determined for the grant, issue or sale of such Purchase Rights.
-6-
<PAGE>
(f) Mechanics of Conversion. Subject to the Company's
inability to fully satisfy its obligations under a Conversion Notice
(as defined below) as provided for in Section 5 below:
(i) Holder's Delivery Requirements. To convert Series A
Preferred Shares into full shares of Common Stock on any date
(the "Conversion Date"), the holder thereof shall (A) deliver or
transmit by facsimile, for receipt on or prior to 11:59 p.m.,
Eastern Standard Time, on such date, a copy of a fully executed
notice of conversion in the form attached hereto as Exhibit I
(the "Conversion Notice") to the Company or its designated
transfer agent (the "Transfer Agent"), and (B) surrender to a
common carrier for delivery to the Company or the Transfer Agent
as soon as practicable following such date, the original
certificates representing the Series A Preferred Shares being
converted (or an indemnification undertaking with respect to
such shares in the case of their loss, theft or destruction)
(the "Preferred Stock Certificates") and the originally executed
Conversion Notice.
(ii) Company's Response. Upon receipt by the Company
of a facsimile copy of a Conversion Notice, the Company shall
immediately send, via Facsimile, a confirmation of receipt of
such Conversion Notice to such holder. Upon receipt by the
Company or the Transfer Agent of the Preferred Stock
Certificates to be converted pursuant to a Conversion Notice,
together with the originally executed Conversion Notice, the
Company or the Transfer Agent (as applicable) shall, within five
(5) business days following the date of receipt, (A) issue and
surrender to a common carrier for overnight delivery to the
address as specified in the Conversion Notice, a certificate,
registered in the name of the holder or its designee, for the
number of shares of Common Stock to which the holder shall be
entitled or (B) credit the aggregate number of shares of Common
Stock to which the holder shall be entitled to the holder's or
its designee's balance account at The Depository Trust Company.
(iii) Dispute Resolution. In the case of a dispute as
to the determination of the Average Market Price or the
arithmetic calculation of the Conversion Rate, the Company shall
promptly issue to the holder the number of shares of Common
Stock that is not disputed and shall submit the disputed
determinations or arithmetic calculations to the holder via
facsimile within three (3) business days of receipt of such
holder's Conversion Notice. If such holder and the Company are
unable to agree upon the determination of the Average Market
Price or arithmetic calculation of the Conversion Rate within
two (2) business days of such disputed determination or
arithmetic calculation being submitted to the holder, then the
Company shall within one (1) business day submit via facsimile
(A) the disputed determination of the Average
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<PAGE>
Market Price to an independent, reputable investment bank or (B)
the disputed arithmetic calculation of the Conversion Rate to
its independent, outside accountant. The Company shall cause the
investment bank or the accountant, as the case may be, to
perform the determinations or calculations and notify the
Company and the holder of the results no later than forty-eight
(48) hours from the time it receives the disputed determinations
or calculations. Such investment bank's or accountant's
determination or calculation, as the case may be, shall be
binding upon all parties absent manifest error.
(iv) Record Holder. The person or persons entitled to
receive the shares of Common Stock issuable upon a conversion of
Series A Preferred Shares shall be treated for all purposes as
the record holder or holders of such shares of Common Stock on
the Conversion Date.
(v) Company's Failure to Timely Convert. If the Company
shall fail to issue to a holder within five (5) business days
following the date of receipt by the Company or the Transfer
Agent of the Preferred Stock Certificates to be converted
pursuant to a Conversion Notice, a certificate for the number of
shares of Common Stock to which such holder is entitled upon
such holder's conversion of Series A Preferred Shares, in
addition to all other available remedies which such holder may
pursue hereunder and under the Securities Purchase Agreement
between the Company and the initial holders of the Series A
Preferred Shares (the "Securities Purchase Agreement")
(including indemnification pursuant to Section 8 thereof), the
Company shall pay additional damages to such holder on each day
after the fifth (5th) business day following the date of receipt
by the Company or the Transfer Agent of the Preferred Stock
Certificates to be converted pursuant to the Conversion Notice,
for which such conversion is not timely effected, an amount
calculated as follows:
Late Payment for Each
Principal Amount Being $10,000 of Preferred Stock
No. Business Days Late Converted
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
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<PAGE>
10 $1,000
11 $1,000 + $200 for each
Business Days Late Beyond
10 days
(g) Mandatory Conversion. If any Series A Preferred
Shares remain outstanding two (2) years from the Issuance Date, then
all such Series A Preferred Shares shall be converted as of such date
in accordance with this Section 2 as if the holders of such Series A
Preferred Shares had given the Conversion Notice on a date two (2)
years from the Issuance Date, and the Conversion Date had been fixed
as of the date two (2) years from the Issuance Date, for all purposes
of this Section 2, and all holders of Series A Preferred Shares shall
thereupon and with two (2) business days thereafter surrender all
Preferred Stock Certificates, duly endorsed for cancellation, to the
Company or the Transfer Agent. No person shall thereafter have any
rights in respect of Series A Preferred Shares, except the right to
receive shares of Common Stock on conversion thereof as provided in
this Section 2.
(h) Fractional Shares. The Company shall not issue any
fraction of a share of Common Stock upon any conversion. All shares
of Common Stock (including fractions thereof) issuable upon
conversion of more than one share of the Series A Preferred Shares
by a holder thereof shall be aggregated for purposes of determining
whether the conversion would result in the issuance of a fraction of
a share of Common Stock. lf, after the aforementioned aggregation,
the issuance would result in the issuance of a fraction of it share
of Common Stock, the Company shall round such fraction of a share of
Common Stock up or down to the nearest whole share.
(i) Taxes. The Company shall pay any and all taxes which may be
imposed upon it with respect to the issuance and delivery of Common
Stock upon the conversion of the Series A Preferred Shares.
(3) Company's Right to Redeem at its Election.
(a) At any time, commencing one hundred ten (110) days after the
Issuance Date, as long as the Company has not breached any of the
representations, warrants, and covenants contained herein or in any
related agreements, the Company shall have the right, in it sole
discretion, to redeem ("Redemption at Company's Election"), from time
to time, any or all of the Series A Preferred Stock: provided
(i) Company shall first provide thirty (30) days advance written
notice as provided in subparagraph 3(a)(ii) below (which can be given
any time on or after eighty (80) days after the Issuance Date, and
(ii) that the Company shall only be entitled to redeem Series A
Preferred Stock having an aggregate Stated Value (as defined below)
of at least Five Hundred Thousand Dollars ($500,000). If the Company
elects to redeem
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<PAGE>
some, but not all, of the Series A Preferred Stock, the Company shall
redeem a pro-rata amount from each Holder of the Series A Preferred
Stock.
(i) Redemption Price At Company's Election. The "Redemption
Price at Company's Election" shall be calculated as 125% of
Stated Value, as that term is defined below, of the Series A
Preferred Stock. For purposes hereof, "Stated Value" shall mean
the original principal amount of Preferred Stock being redeemed,
plus the unpaid 6% per annum premium being redeemed pursuant to
this Section 3(a).
(ii) Mechanics of Redemption at Company's Election. The
Company shall effect each such redemption by giving at least
thirty (30) days prior written notice ("Notice of Redemption at
Company's Election") to (A) the Holders of the Series A
Preferred Stock selected for redemption at the address and
facsimile number of such Holder appearing in the Company's
Series A Preferred Stock register and (B) the Transfer Agent,
which Notice of Redemption At Company's Election shall be deemed
to have been delivered three (3) business days after the
Company's mailing (by overnight or two (2) day courier, with a
copy by facsimile) of such Notice of Redemption at Company's
Election. Such Notice of Redemption At Company's Election shall
indicate (i) the number of shares of Series A Preferred Stock
that have been selected for redemption, (ii) the date which such
redemption is to become effective (the "Date of Redemption At
Company's Election") and (iii) the applicable Redemption Price
At Company's Election, as defined in subsection (a)(i) above.
Notwithstanding the above, Holder may convert into Common Stock,
prior to the close of business on the Date of Redemption at
Company's Election, any Series A Preferred Stock which it is
otherwise entitled to convert, including Series A Preferred
Stock that has been selected for redemption at Company's
election pursuant to this subsection 3(b).
(b) Company Must Have Immediately Available Funds or Credit
Facilities. The Company shall not be entitled to send any Redemption
Notice and begin the redemption procedure under Sections 3(a) unless
it has:
(i) the full amount of the redemption price to cash,
available in a demand or other immediately available account in
a bank or similar financial institution; or
(ii) immediately available credit facilities, in the full
amount of the redemption price with a bank or similar financial
institution, or
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<PAGE>
(iii) an agreement with a standby underwriter willing to
purchase from the Company a sufficient number of shares of stock
to provide proceeds necessary to redeem any stock that is not
converted prior to redemptions; or
(iv) a combination of the items set forth in (i), (ii), and
(iii) above, aggregating the full amount of the redemption
price.
(c) Payment of Redemption Price. Each Holder submitting
Preferred Stock being redeemed under this Section 3 shall send their
Series A Preferred Stock Certificates to redeemed to the Company or
its Transfer Agent, and the Company shall pay the applicable
redemption price to that Holder within five (5) business days of the
Date of Redemption at Company's Election.
(4) Redemption at Option of Holders.
(a) Redemption Option Upon Major Transaction. In addition to
all other rights of the holders of Series A Preferred Shares
contained herein, after a Major Transaction (as defined below), the
holders of Series A Preferred Shares shall have the right in
accordance with Section 4(f), at the option of the holders of at
least two-thirds (2/3) of the Series A Preferred Shares then
outstanding, to require the Company to redeem all of the Series A
Preferred Shares then outstanding at a price per Series A Preferred
Share equal to the greater of (i) 100% of the Liquidation Value (as
defined below) of such share and (ii) the price calculated in
accordance with the Redemption Rate (as defined below) calculated as
of the date of the public announcement of such Major Transaction or
the next date on which the exchange or market on which the Common
Stock is traded in open if such public announcement is made (A) after
1:00 p.m. Eastern Standard Time on such date or (B) on a date on
which the exchange or market on which the Common Stock is traded is
closed.
(b) Redemption Option Upon Triggering Event. In addition to
all other rights of the holders of Series A Preferred Shares
contained herein, after a Triggering Event (as defined below), the
holders of Series A Preferred Shares shall have the right in
accordance with Section 4(g), at the option of the holders of at
least two-thirds (2/3) of the Series A Preferred Shares then
outstanding, to require the Company to redeem all of the Series A
Preferred Shares then outstanding at a price per Series A Preferred
Shares equal to the greater of (i) 125% of the Liquidation Value of
such share and (ii) the price calculated in accordance with the
Redemption Rate as of the date immediately preceding such Triggering
Event on which the exchange or market on which the Common Stock is
traded is open.
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<PAGE>
(c) "Redemption Rate." The "Redemption Rate" shall, as of any
date of determination, be equal to (i) the Conversion Rate in effect
as of such date as calculated pursuant to Section 2(b) multiplied by
(ii) the Closing Bid Price of the Common Stock on such date.
(d) "Major Transaction." A "Major Transaction" shall be deemed
to have occurred at such time as any of the following events:
(i) the consummation of any merger, reorganization,
restructuring, consolidation, or similar transaction by or
involving the Company except (A) a merger or consolidation where
the Company is the survivor or (B) pursuant to a migratory
merger effected solely for the purpose of changing the
jurisdiction of incorporation of the Company;
(ii) sale of all or substantially all of the assets of the
Company or all of its material subsidiaries or any similar
transaction or related transactions which effectively results in
a sale of all or substantially all of the assets of the Company
and/or its subsidiaries;
(iii) the occurrence, after the date hereof, of the
acquisition, by any person (including any entity or association)
or persons (other than any existing stockholder of the Company
or two or more existing stockholders of the Company, acting in
concert, of securities of the Company (or the power to vote such
securities) representing 50% or more of the total voting power
of all outstanding Common Stock or other voting securities of
the Company; or
(iv) the failure of the Company to continue to own,
directly or indirectly, all of the capital stock of all of its
material subsidiaries (other than due to a merger or
consolidation of any subsidiary into the Company or a wholly-
owned subsidiary of the Company).
(e) "Triggering Event." A "Triggering Event" shall be deemed
to have occurred at such time as any of the following events:
(i) either (A) the failure of the Registration Statement
to be effective or to cover the resale of all of the shares of
Common Stock issued or issuable upon conversion of the Series A
Preferred Shares at any time after sixty (60) days after the
Scheduled Effective Date (provided that for purposes of
determining the Closing Bid Price under Section 4(c) above, the
Triggering Event shall be deemed to have occurred on the first
day of such 60-day period)or (B) for any period of sixty (60)
consecutive days after the date that is sixty (60) days after
the Scheduled Effective Date that Common Stock issued or
issuable upon conversion of the Series A Preferred Shares cannot
be
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<PAGE>
sold under the Registration Statement for any reason (provided
that for purposes of determining the Closing Bid Price under
Section 4(c) above, the Triggering Event shall be deemed to have
occurred on the first day of such 60-day period);
(ii) if for any reason the Company fails to perform or
observe any covenant, agreement, or other provision contained in
Section 9 or 10 hereof or in Section 4(g) of the Securities
Purchase Agreement;
(iii) David D. Hagen ceases to be the President of the
Company prior to the date two (2) years from the Issuance Date,
other than in connection with a Major Transaction;
(iv) the Company's notice to any holder of Series A
Preferred Shares, including by way of public announcement, at
any time, of its intention for any reason not to comply with
requests for conversion of any Series A Preferred Shares for
shares of Common Stock;
(v) if for any reason the Company fails to perform or
observe any covenant, agreement, or other provision contained
herein or in the Securities Purchase Agreement or the
Registration Rights Agreement, and such failure is not cured
within 30 days after the Company knows, or should have known
with the exercise of reasonable diligence, of the occurrence
thereof, and such failure has had, or could reasonably be
expected to have, a material adverse effect on (A) the financial
condition, operating results, business, properties, or
operations of the Company and its subsidiaries taken as a whole
taking into account any proceeds reasonably expected to be
received by the Company or its subsidiaries in the foreseeable
future from insurance policies or rights of indemnification or
(B) the Series A Preferred Shares; or
(vi) any representation or warranty contained in the
Securities Purchase Agreement or the Registration Rights
Agreement is false or misleading on or as of the date made and
which either reflects or has had a material adverse effect on
(A) the financial condition, operating results, business,
properties, or operations of the Company and its subsidiaries
taken as a whole taking into account any proceeds reasonably
expected to be received by the Company or its subsidiaries in
the foreseeable future from insurance policies or rights of
indemnification or (B) the Series A Preferred Shares.
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<PAGE>
(f) Mechanics of Redemption at Option of Buyer Upon Major
Transaction. No sooner than fifteen (15) days nor later than ten
(10) days prior to the consummation of a Major Transaction, but not
prior to the public announcement of such Major Transaction, the
Company shall deliver written notice thereof via facsimile and
overnight courier ("Notice of Major Transaction") to each holder of
Series A Preferred Shares. At any time after receipt of a Notice of
Major Transaction, the holders of at least two-thirds (2/3) of the
Series A Preferred Shares then outstanding may require the Company to
redeem all of the holders' Series A Preferred Shares then outstanding
in accordance with Section 4(a) by delivering written notice thereof
via facsimile and overnight courier ("Notice of Redemption at Option
of Buyer Upon Major Transaction") to the Company, which Notice of
Redemption at Option of Buyer Upon Major Transaction shall indicate
(i) the number of Series A Preferred Shares that such holders are
voting in favor of redemption and (ii) the applicable redemption
price, as calculated pursuant to Section 4(a) above.
(g) Mechanics of Redemption at Option of Buyer Upon Triggering
Event. Within one (1) day after the occurrence of a Triggering Event,
the Company shall deliver written notice thereof via facsimile and
overnight courier ("Notice of Triggering Event") to each holder of
Series A Preferred Shares. At any time after receipt of a Notice of
Triggering Event, the holders of at least two-thirds (2/3) of the
Series A Preferred Shares then outstanding may require the Company to
redeem all of the Series A Preferred Shares then outstanding in
accordance with Section 4(b) by delivering written notice thereof via
facsimile and overnight courier ("Notice of Redemption at Option of
Buyer Upon Triggering Event") to the Company, which Notice of
Redemption at Option of Buyer Upon Triggering Event shall indicate
(i) the number of Series A Preferred Shares that such holders are
voting in favor of redemption and (ii) the applicable redemption
price, as calculated pursuant to Section 4(b) above.
(h) Payment of Redemption Price. Upon the Company's receipt of
a Notice(s) of Redemption at Option of Buyer Upon Major Transaction
or a Notice(s) of Redemption at Option of Buyer Upon Triggering
Event, as the case may be, from the holders of at least two-thirds
(2/3) of the Series A Preferred Shares then outstanding, the Company
shall immediately notify each holder by facsimile of the Company's
receipt of such requisite notices necessary to affect a redemption
and each holder of Series A Preferred Shares shall thereafter
promptly send such holder's Preferred Stock Certificates to be
redeemed to the Company or its Transfer Agent. The Company shall pay
the applicable redemption price, as calculated pursuant to Section
4(a) or 4(b) above, in cash to such holder within thirty (30) days
after the Company' receipt of the requisite notices required to
affect a redemption; provided that a holder's Preferred Stock
Certificates shall have been so delivered to the Company or its
Transfer Agent; provided further that if the Company is unable to
redeem all of the Series A Preferred Shares, the Company shall redeem
an amount
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<PAGE>
from each holder of Series A Preferred Shares equal to such holder's
pro-rata amount (based on the number of Series A Preferred Shares
held by such holder relative to the number of Series A Preferred
Shares outstanding) of all Series A Preferred Shares being redeemed.
If the Company shall fail to redeem all of the Series A Preferred
Shares submitted for redemption (other than pursuant to a dispute as
to the determination of the Closing Bid Price or the arithmetic
calculation of the Redemption Rate), the applicable redemption price
payable in respect of such unredeemed Series A Preferred Shares shall
bear interest at the rate of 2.5% per month (prorated for partial
months) until paid in full. Until the Company pays such unpaid
applicable redemption price in full to each holder, holders of at
least two-thirds (2/3) of the Series A Preferred Shares then
outstanding, including shares of Series A Preferred Shares submitted
for redemption pursuant to this Section 4 and for which the
applicable redemption price has not been paid, shall have the option
(the "Void Optional Redemption Option") to, in lieu of redemption,
require the Company to promptly return to each holder all of the
Series A Preferred Shares that were submitted for redemption by such
holder under this Section 4 and for which the applicable redemption
price has not been paid, by sending written notice thereof to the
Company via facsimile (the "Void Optional Redemption Notice"). Upon
the Company's receipt of such Void Optional Redemption Notice(s) and
prior to payment of the full applicable redemption price to each
holder, (i) the Notice(s) of Redemption at Option of Buyer Upon
Triggering Event or the Notice(s) of Redemption at Option of Buyer
Upon Major Transaction, as the case may be, shall be null and void
with respect to those Series A Preferred Shares submitted for
redemption and for which the applicable redemption price has not been
paid, (ii) the Company shall immediately return any Series A
Preferred Shares submitted to the Company by each holder for
redemption under this Section 4(i) and for which the applicable
redemption price had not been paid, (iii) the Fixed Conversion Price
of such returned Series A Preferred Shares shall be adjusted to the
lesser of (A) the Fixed Conversion Price as in effect on the date on
which the Void Option Redemption Notice(s) is delivered to the
Company and (B) the lowest Closing Bid Price during the period
beginning on the date on which the Notice(s) of Redemption of Option
of Buyer Upon Major Transaction or the Notice(s) of Redemption at
Option of Buyer Upon Triggering Event, as the case may be, is
delivered to the Company and ending on the date on which the Void
Optional Redemption Notice(s) is delivered to the Company; provided
that no adjustment shall be made if such adjustment would result in
an increase of the Fixed Conversion Price then in effect, and (iv)
the Conversion Percentage in effect at such time and thereafter shall
be reduced by a number of percentage points equal to the product of
(A) two and one-half (2.5) and (B) the number of months (prorated for
partial months) in the period beginning on the date on which the
Notice(s) of Redemption at Option of Buyer Upon Major Transaction or
the Notice(s) of Redemption at Option of Buyer Upon Triggering Event,
as the case may be, is delivered to the Company and ending on the
date on which the Void Optional Redemption Notice(s) is delivered to
the Company. Notwithstanding the foregoing,
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<PAGE>
in the event of a dispute as to the determination of the Closing Bid
Price or the arithmetic calculation of the Redemption Rate, such
dispute shall be resolved pursuant to Section 2(f)(iii) above with
the term "Closing Bid Price" being substituted for the term "Average
Market Price" and the term "Redemption Rate" being substituted for
the term "Conversion Rate."
(5) Inability to Fully Convert.
(a) Holder's Option if Company Cannot Fully Convert. If at any
time after the earlier to occur of (i) effectiveness of the
Registration Statement or (ii) sixty (60) days after the Scheduled
Effective Date, upon the Company's receipt of a Conversion Notice,
the Company does not issue shares of Common Stock which are
registered for resale under the Registration Statement within five
(5) business days of the time required in accordance with Section
2(f) hereof, for any reason or for no reason, including, without
limitation, because the Company (x) does not have a sufficient
number of shares of Common Stock authorized and available, (y) is
otherwise prohibited by applicable law or by the rules or regulations
of any stock exchange, interdealer quotation system or other self-
regulatory organization with jurisdiction over the Company or its
Securities, including without limitation the Nasdaq-Small Cap, from
issuing all of the Common Stock which is to be issued to a holder of
Series A Preferred Shares pursuant to a Conversion Notice or (z)
fails to have a sufficient number of shares of Common Stock
registered and eligible for resale under the Registration Statement,
then the Company shall issue as many shares of Common Stock as it is
able to issue in accordance with such holder's Conversion Notice and
pursuant to Section 2(f) above and, with respect to the unconverted
Series A Preferred Shares, the holder, solely at such holder's
option, can, in addition to any other remedies such holder may have
hereunder, under the Securities Purchase Agreement (including
indemnification under Section 8 thereof), under the Registration
Rights Agreement, at law or in equity, elect to:
(i) require the Company to redeem from such holder those
Series A Preferred Shares for which the Company is unable to
issue Common Stock in accordance with such holder's Conversion
Notice ("Mandatory Redemption") at a price per Series A
Preferred Share (the "Mandatory Redemption Price") equal to the
greater of (x) 125% of the Liquidation Value of such share and
(y) the Redemption Rate as of such Conversion Date;
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<PAGE>
(ii) if the Company's inability to fully convert Series A
Preferred Shares is pursuant to Section 5(a)(z) above, require
the Company to issue restricted shares of Common Stock in
accordance with such holder's Conversion Notice and pursuant to
Section 2(f) above; or
(iii) void its Conversion Notice and retain or have
returned, as the case may be, the nonconverted Series A
Preferred Shares that were to be converted pursuant to such
holder's Conversion Notice.
(b) Mechanics of Fulfilling Holder's Election. The Company shall
immediately send via facsimile to a holder of Series A Preferred
Shares, upon receipt of a facsimile copy of a Conversion Notice from
such holder which cannot be fully satisfied as described in Section
5(a) above, a notice of the Company's inability to fully satisfy such
holder's Conversion Notice (the "Inability to Fully Convert Notice").
Such Inability to Fully Convert Notice shall indicate (i) the reason
why the Company is unable to fully satisfy such holder's Conversion
Notice, (ii) the number of Series A Preferred Shares which cannot be
converted and (iii) the applicable Mandatory Redemption Price. Such
holder must within five (5) business days of receipt of such
Inability to Fully Convert Notice deliver written notice via
facsimile to the Company ("Notice in Response to Inability to
Convert") of its election pursuant to Section 5(a) above.
(c) Payment of Redemption Price. If such holder shall elect to
have its shares redeemed pursuant to Section 5(a) above, the Company
shall pay the Mandatory Redemption Price in cash to such holder
within thirty (30) days of the Company's receipt of the holder's
Notice in Response to Inability to Convert. If the Company shall fail
to pay the applicable Mandatory Redemption Price to such holder on a
timely basis as described in this Section 5(c) (other than pursuant
to a dispute as to the determination of the Closing Bid Price or the
arithmetic calculation of the Redemption Rate), such unpaid amount
shall bear interest at the rate of 2.5% per month (prorated for
partial months) until paid in full. Until the full Mandatory
Redemption Price is paid in full to such holder, such holder may void
the Mandatory Redemption with respect to those Series A Preferred
Shares for which the full Mandatory Redemption Price has not been
paid and receive back such Series A Preferred Shares. Notwithstanding
the foregoing, if the Company fails to pay the applicable Mandatory
Redemption Price within such thirty (30) days time period due to a
dispute as to the determination of the Closing Bid Price or the
arithmetic calculation of the Redemption Rate, such dispute shall be
resolved pursuant to Section 2(f)(iii) above with the term "Closing
Bid Price" being substituted for the term "Average Market Price" and
the term, "Redemption Rate" being substituted for the term
"Conversion Rate."
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<PAGE>
(d) Pro-rata Conversion and Redemption. In the event the
Company receives a Conversion Notice from more than one holder of
Series A Preferred Shares on the same day and the Company can convert
and redeem some, but not all, of the Series A Preferred Shares
pursuant to this Section 5, the Company shall convert and redeem from
each holder of Series A Preferred Shares electing to have Series A
Preferred Shares converted and redeemed at such time an amount equal
to such holder's pro-rata amount (based on the number of Series A
Preferred Shares held by such holder relative to the number of Series
A Preferred Shares outstanding) of all Series A Preferred Shares
being converted and redeemed at such time.
(5) Reissuance of Certificates. In the event of a conversion or
redemption pursuant to this Certificate of Designations of less than all
of the Series A Preferred Shares represented by a particular Preferred
Stock Certificate, the Company shall promptly cause to be issued and
delivered to the holder of such Series A Preferred Shares a Preferred
stock certificate representing the remaining Series A Preferred Shares
which have not been so converted or redeemed.
(6) Reservation of Shares. The Company shall, so long as any of the
Series A Preferred Shares are outstanding reserve and keep available out
of its authorized and unissued Common Stock, solely for the purpose of
effecting the conversion of the Series A Preferred Shares, such number of
shares of Common Stock as shall from time to time be sufficient to affect
the conversion of all of the Series A Preferred Shares then outstanding;
provided that the number of shares of Common Stock so reserved shall at no
time be less than 200% of the number of shares of Common Stock for which
the Series A Preferred Shares are at any time convertible,
(7) Voting Rights. Holders of Series A Preferred Shares shall have
no voting rights, except as required by law, including but not limited to
the General Corporation Law of the State of Nevada and as expressly
provided in this Certificate of Designations.
(8) Liquidation, Dissolution, Winding-Up. In the event of any
voluntary or involuntary liquidation, dissolution, or winding up of the
Company, the holders of the Series A Preferred Shares shall be entitled to
receive in cash out of the assets of the Company, whether from capital or
from earnings available for distribution to its stockholders (the
"Preferred Funds"), before any amount shall be paid to the holders of any
of the capital stock of the Company of any class junior in rank to the
Series A Preferred Shares in respect of the preferences as to the
distributions and payments on the liquidation, dissolution and winding up
of the Company, an amount per Series A Preferred Share equal to the sum of
(i) $20,000 and (ii) an amount equal to the product of (.06) (N/365)
($20,000) (such sum being referred to as the "Liquidation Value");
provided that, if the Preferred Funds are insufficient to pay the full
amount due to the holders of Series A Preferred Shares and holders of
shares of other classes or series of preferred stock of the Company that
are of equal rank with the Series A Preferred Shares as to payments of
Preferred Funds (the "Pari Passu Shares"),
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<PAGE>
then each holder of Series A Preferred Shares and Pari Passu Shares shall
receive a percentage of the Preferred Funds equal to the full amount of
Preferred Funds payable to such holder as a liquidation preference, in
accordance with their respective Certificate of Designations, Preferences
and Rights as a percentage or the full amount of Preferred Funds payable
to all holders of Series A Preferred Shares and Pari Passu Shares. The
purchase or redemption by the Company of stock of any class in any manner
permitted by law, shall not for the purposes hereof, be regarded as a
liquidation, dissolution or winding up of the Company. Neither the
consolidation or merger of the Company with or into any other Person, nor
the sale or transfer by the Company of less than substantially all of its
assets, shall, for the purposes hereof, be deemed to be a liquidation,
dissolution or winding up of the Company. No holder of Series A Preferred
Shares shall be entitled to receive any amounts with respect thereto upon
any liquidation, dissolution or winding up of the Company other than the
amounts provided for herein.
(9) Preferred Rate. All shares of Common Stock shall be of junior
rank to all Series A Preferred Shares in respect to the preferences as to
distributions and payments upon the liquidation, dissolution, and winding
up of the Company. The rights of the shares of Common Stock shall be
subject to the Preferences and relative rights of the Series A Preferred
Shares. The Series A Preferred Shares shall be of greater than any Series
of Common or Preferred Stock hereinafter issued by the Company. Without
the prior express written consent of the holders of not less than two-
thirds (2/3) of the then outstanding Series A Preferred Shares, the
Company shall not hereafter authorize or issue additional or other
capital stock that is of senior or equal rank to the Series A Preferred
Shares in respect of the preferences as to distributions and payments upon
the liquidation, dissolution and winding up of the Company. Without the
prior express written consent of the holders of not less than two-thirds
(2/3) of the then outstanding Series A Preferred Shares, the Company shall
not hereafter authorize or make any amendment to the Company's Certificate
of Incorporation or bylaws, or make any resolution of the board of
directors with the Nevada Secretary of State containing any provisions,
which would adversely affect or otherwise impair the rights or relative
priority of the holders of the Series A Preferred Shares relative to the
holders of the Common Stock or the holders of any other class of capital
stock. In the event of the merger or consolidation of the Company with or
into another corporation, the Series A Preferred Shares shall maintain
their relative powers, designations, and preferences provided for herein
and no merger shall result inconsistent therewith.
(10) Restriction on Redemption and Dividends.
(a) Restriction on Dividend. If any Series A Preferred Shares
are outstanding, without the prior express written consent of the
holders of not less than two-thirds (2/3) of the then outstanding
Series A Preferred Shares, the Company shall not directly or
indirectly declare, pay or make any dividends or other distributions
upon any of the Common Stock so long as written notice thereof has
been given to holders of the Series A Preferred Shares at least 30
days prior to the earlier of (a) the record date taken for or (b) the
payment of any such dividend or other distribution.
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<PAGE>
Notwithstanding the foregoing, this Section 10(a) shall not prohibit
the Company from declaring and paying a dividend in cash with respect
to the Common Stock so long as the Company: (i) pays simultaneously
to each holder of Series A Preferred Shares an amount in cash equal
to the amount such holder would have received had all of such
holder's Series A Preferred Shares been converted to Common Stock
pursuant to Section 2 hereof one business day prior to the record
date for any such dividend, and (ii) after giving effect to the
payment of any dividend and any other payments required in connection
therewith including to the holders of the Series A Preferred Shares
under clause 10(a)(i) hereof, the Company has in cash or cash
equivalents an amount equal to the aggregate of: (A) all of its
liabilities reflected on its most recently available balance sheet,
(B) the amount of any indebtedness incurred by the Company or any of
its subsidiaries since its most recent balance sheet and (C) 125% of
the amount payable to all holders of any shares of any class of
preferred stock of the Company assuming a liquidation of the Company
as the date of its most recently available balance sheet.
(b) Restriction on Redemption. If any Series A Preferred
Shares are outstanding, without the prior express written consent of
the holders of not less than two-thirds (2/3) of the then outstanding
Series A Preferred Shares, the Company shall not directly or
indirectly redeem, purchase or otherwise acquire from any person or
entity other than from a direct or indirect wholly-owned subsidiary
of the Company, or permit any subsidiary of the Company to redeem,
purchase or otherwise acquire from any person or entity other than
from the Company or another direct or indirect wholly-owned
subsidiary of the Company, any of the Company's or any subsidiary's
capital stock or other equity securities (including, without
limitation, warrants, options and other rights to acquire such
capital stock or other equity securities).
(11) Vote to Change the Terms of Series A Preferred Shares. The
affirmative vote at a meeting duly called for such purpose or the written
consent without a meeting, of the holders of not less than two-thirds
(2/3) of the then outstanding Series A Preferred Shares, shall be required
for any change to this Certificate of Designations or the Company's
Certificate of Incorporation which would amend, alter, change or repeal
any of the powers, designations, preferences and rights of the Series A
Preferred Shares.
(12) Lost or Stolen Certificates. Upon receipt by the Company of
evidence satisfactory to the Company of the loss, theft, destruction or
mutilation of any Preferred Stock Certificates representing the Series A
Preferred Shares, and, in the case of loss, theft or destruction, of any
indemnification undertaking by the holder to the Company and, in the
case of mutilation, upon surrender and cancellation of the Preferred
Stock Certificate(s), the Company shall execute and deliver new preferred
stock certificate(s) of like tenor and date; provided, however, the
Company shall not be obligated to re-issue preferred stock certificates
if the holder contemporaneously requests the Company to convert such
Series A Preferred Shares into Common Stock.
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<PAGE>
(13) Withholding Tax Obligations. Notwithstanding anything herein to
the contrary, to the extent that the Company receives advice in writing
from its counsel that there is a reasonable basis to believe that the
Company is required by applicable federal laws or regulations and delivers
a copy of such written advice to the holders of the Series A Preferred
Shares so effected, the Company may reasonably condition the making of any
distribution (as such term is defined under applicable federal tax law and
regulations) in respect of any Series A Preferred Share on the holder of
such Series A Preferred Shares depositing with the Company an amount of
cash sufficient to enable the Company to satisfy its withholding tax
obligations (the "Withholding Tax") with respect to such distribution.
Notwithstanding the foregoing or anything to the contrary, if any holder
of the Series A Preferred Shares so effected receives advice in writing
from its counsel that there is a reasonable basis to believe that the
Company is not so required by applicable federal laws or regulations and
delivers a copy of such written advice to the Company, the Company shall
not be permitted to condition the making of any such distribution in
respect of any Series A Preferred Share on the holder of such Series A
Preferred Shares depositing with the Company any Withholding Tax with
respect to such distribution, provided, however, the Company may
reasonably condition the making of any such distribution in respect of any
Series A Preferred Share on the holder of such Series A Preferred Shares
executing and delivering to the Company, at the election of the holder,
either: (i) if applicable, a property completed Internal Revenue Service
Form 4224, or (a) an indemnification agreement in reasonably acceptable
form, with respect to any federal tax liability, penalties and interest
that may be imposed upon the Company by the Internal Revenue Service as a
result of the Company's failure to withhold in connection with such
distribution to such holder. If the conditions in the preceding two
sentences are fully satisfied, the Company shall not be required to pay
any additional damages set forth in Section 2(f)(v) of this Certificate of
Designations if its failure to timely deliver any Conversion Shares
results solely from the holder's failure to deposit any withholding tax
hereunder or provide to the Company an executed indemnification agreement
in the form reasonably satisfactory to the Company.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Certificate of
Designations to be signed by David D. Hagen, its President, as of the 9th day
of September, 1998.
D.H. MARKETING & CONSULTING, INC.
By: /s/ DAVID D. HAGEN, PRESIDENT
David D. Hagen
President
By: /s/ MICHAEL J. DAILY, SECRETARY
Michael J. Daily
Secretary
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ACKNOWLEDGMENT
STATE OF PENNSYLVANIA )
) ss.
COUNTY OF WAYNE )
On this the 9th day of September, 1998, before me, the undersigned Notary
Public, personally appeared David D. Hagen, known to me to be the President of
D.H. Marketing & Consulting, Inc., a Nevada Corporation, the corporation which
executed the attached instrument, and who executed same on behalf of said
corporation, freely and voluntarily and for the uses and purposes therein
mentioned.
/s/ MELISSA V. GIAMONI
Notary Public
[notary seal as follows: Notarial Seal, Melissa V. Giamoni, Notary Public,
Hawley Boro. Wayne County, My Commission Expires April 22, 1999, Member,
Pennsylvania Association of Notaries]
STATE OF PENNSYLVANIA )
) ss.
COUNTY OF WAYNE )
On this the 9th day of September, 1998, before me, the undersigned Notary
Public, personally appeared Michael J. Daily, known to me to be the Secretary
of D.H. Marketing & Consulting, Inc., a Nevada Corporation, the corporation
which executed the attached instrument, and who executed same on behalf of said
corporation, freely and voluntarily and for the uses and purposes therein
mentioned.
/s/ MELISSA V. GIAMONI
Notary Public
[notary seal as follows: Notarial Seal, Melissa V. Giamoni, Notary Public,
Hawley Boro. Wayne County, My Commission Expires April 22, 1999, Member,
Pennsylvania Association of Notaries]
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EXHIBIT I
D.H. MARKETING & CONSULTING, INC.
CONVERSION NOTICE
Reference is made to the Certificate of Designations, Preferences and
Rights of D.H. Marketing & Consulting, Inc.(the "Certificate of Designations").
In accordance with and pursuant to the Certificate of Designations, the
undersigned hereby elects to convert the number of shares of Series A
Convertible Preferred Stock, $.001 par value per share (the "Series A Preferred
Shares"), of D.H. Marketing & Consulting, Inc., a Nevada corporation (the
"Company"), indicated below into shares of Common Stock, $.0003 par value per
share (the "Common Stock"), of the Company, by tendering the stock
certificate(s) representing the share(s) of Series A Preferred Shares specified
below as of the date specified below.
The undersigned acknowledges that any sales by the undersigned of the
securities issuable to the undersigned upon conversion of the Series A
Preferred Shares shall be made only pursuant to (i) a registration statement
effective under the Securities Act of 1933, as amended (the "Act"), or (ii)
advice of counsel that such sale is exempt from registration required by
Section 5 of the Act.
Date of Conversion:
_____________________________________________
Number of Series A
Preferred Shares to be converted
_____________________________________________
Stock certificate no(s). of Series A
Preferred Shares to be converted:
_____________________________________________
Please confirm the following information:
Conversion Price:
_____________________________________________
Number of shares of Common Stock
to be issued:
_____________________________________________
<PAGE>
please issue the Common Stock into which the Series A Preferred Shares are
being converted in the following name and to the following address:
Issue to:<1>
_____________________________________________
_____________________________________________
Facsimile Number:
_____________________________________________
Authorization:
_____________________________________________
By:__________________________________________
Title:_______________________________________
Dated:
_____________________________________________
ACKNOWLEDGED AND AGREED:
D.H. MARKETING & CONSULTING, INC.
By: _____________________________
Name:___________________________
Title:____________________________
Date:____________________________
_____________________________
<1> If other than to the record holder of the Series A Preferred
Shares, any applicable transfer tax must be paid by the undersigned.
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (the "Agreement"), dated as of
September 18, 1998, by and among D.H. Marketing & Consulting, Inc.,
a Nevada corporation, with headquarters located at 300 Keystone
Street, Hawley, Pennsylvania 18428 (the "Company"), and the
investors listed on the Schedule of Buyers attached hereto
(individually, a "Buyer" or collectively "Buyers").
WHEREAS:
A. The Company and the Buyers are executing and delivering
this Agreement in reliance upon the exemption from securities
registration pursuant to Section 4(2) and/or Regulation D
("Regulation D") as promulgated by the U.S. Securities and Exchange
Commission (the "SEC") under the Securities Act of 1933, as amended
(the "1933 Act");
B. The Company has authorized the following new series of
its Preferred Stock, $.001 par value per share (the "Preferred
Stock"): the Company's Series A Convertible Preferred Stock (the
"Series A Preferred Shares"), which shall be convertible into shares
of the Company's Common Stock, $.0003 par value per share (the
"Common Stock") (as converted, the "Conversion Shares"), in
accordance with the terms of the Company Certificate of
Designations, Preferences, and Rights of the Series A Preferred
Shares, substantially in the form attached hereto as Exhibit A (the
"Certificate of Designations");
C. The Buyer wishes to purchase, upon the terms and
conditions stated in this Agreement, an aggregate amount of up to
$3,000,000 or 150 shares of Series A Preferred Stock in the
respective amounts set forth opposite each Buyer's name on the
Schedule of Buyers;
D. Contemporaneously with the execution and delivery of
this Agreement, the parties hereto are executing and delivering a
Registration Rights Agreement substantially in the form attached
hereto as Exhibit "B" (the "Registration Rights Agreement") pursuant
to which the Company has agreed to provide certain registration
rights under the 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws; and
NOW THEREFORE, the Company and the Buyer hereby agree as
follows:
1 . PURCHASE AND SALE OF SERIES A PREFERRED STOCK.
a. Purchase of Series A Preferred Stock. Subject to the
satisfaction (or waiver) of the conditions set forth in Sections 6 and 7
below, the Company shall issue and sell to the Buyers and the Buyers shall
purchase from the Company an aggregate principal amount of thirty (30)
shares of Series A Preferred Stock, in the respective amounts set forth
opposite each Buyer's name on the Schedule of Buyers (the "Closing").
<PAGE>
b. Closing Date. The date and time of the Closing
(the "Closing Date") shall be 10:00 a.m. Eastern Standard
Time, within five (5) business days following the date hereof,
subject to notification of satisfaction (or waiver) of the
conditions to the Closing set forth in Sections 6 and 7 below
(or such later date as is mutually agreed to by the Company
and the Buyer). The Closing shall occur on the Closing Date
at the offices of Sims Moss Kline & Davis LLP, 400 Northpark
Town Center, Suite 310, 1000 Abernathy Road, N.E., Atlanta,
Georgia 30328.
c. Form of Payment. On the Closing Date, (i) each
Buyer shall pay the Purchase Price to the Company for the
Series A Preferred Shares to be issued and sold to such Buyer
at the Closing, by wire transfer of immediately available
funds in accordance with the Company's written wire
instructions, and (ii) the Company shall deliver to each
Buyer, certificates representing such Series A Preferred Stock
which such Buyer is then purchasing (as indicated opposite
such Buyer's name on the Schedule of Buyers), duly executed
on behalf of the Company and registered in the name of such
Buyer or its designee (the "Certificates").
2. BUYER'S REPRESENTATIONS AND WARRANTEES.
Each Buyer represents and warrants with respect to only
itself that:
a. Investment Purpose. Such Buyer is acquiring the
Series A Preferred Shares and, upon conversion of the Series
A Preferred Shares, will acquire the Conversion Shares then
issuable, for its own account for investment only and not with
a view towards, or for resale in connection with, the public
sale or distribution thereof, except pursuant to sales
registered or exempted under the 1933 Act; provided, however,
that by making the representations herein, such Buyer does not
agree to hold any Series A Preferred Shares or Conversion
Shares for any minimum or other specific term and reserves the
right to dispose of Series A Preferred Shares or Conversion
Shares at any time in accordance with or pursuant to a
registration statement or an exemption under the 1933 Act.
b. Accredited Investor Status. Such Buyer is an
"accredited investor" as that term is defined in Rule
501(a)(3) of Regulation D.
c. Reliance on Exemptions. Such Buyer understands
that the Series A Preferred Shares and the Conversion Shares
are being offered and sold to it in reliance on specific
exemptions from the registration requirements of United States
federal and state securities laws and that the Company is
relying in part upon the truth and accuracy of, and such
Buyer's compliance with, the representations, warranties,
agreements, acknowledgments and understandings of such Buyer
set forth herein in order to determine the availability of
such exemptions and the eligibility of such Buyer to acquire
such securities.
2
<PAGE>
d. Information. Such Buyer and its advisors, if any,
have been furnished with all materials relating to the
business, finances and operations of the Company and materials
relating to the offer and sale of the Series A Preferred
Shares and the Conversion Shares, which have been requested
by such Buyer. Such Buyer and its advisors, if any, have been
afforded the opportunity to ask questions of the Company.
Neither such inquiries nor any other due diligence
investigations conducted by such Buyer or its advisors, if
any, or its representatives shall modify, amend or affect such
Buyer's right to rely on the Company's representations and
warranties contained in Section 3 below. Such Buyer
understands that its investment in the Series A Preferred
Shares and the Conversion Shares involves a high degree of
risk. Such Buyer has sought such accounting, legal and tax
advice as it has considered necessary to make an informed
investment decision with respect to its acquisition of the
Series A Preferred Shares and the Conversion Shares.
e. No Governmental Review. Such Buyer understands
that no United States federal or state agency or any other
government or governmental agency has passed on or made any
recommendation or endorsement of the Series A Preferred Shares
and the Conversion Shares, or the fairness or suitability of
the investment in the Series A Preferred Shares and the
Conversion Shares, nor have such authorities passed upon or
endorsed the merits of the offering of the Series A Preferred
Shares and the Conversion Shares.
f. Transfer or Resale. Such Buyer understands that
except as provided in the Registration Rights Agreement: (i)
the Series A Preferred Shares and the Conversion Shares have
not been and are not being registered under the 1933 Act or
any state securities laws, and may not be offered for sale,
sold, assigned or transferred unless (a) subsequently
registered thereunder, (b) such Buyer shall have delivered to
the Company an opinion of counsel, in a generally acceptable
form, to the effect that such securities to be sold, assigned
or transferred may be sold, assigned or transferred pursuant
to an exemption from such registration, or (c) such Buyer
provides the Company with reasonable assurance that such
securities can be sold, assigned or transferred pursuant to
Rule 144 promulgated under the 1933 Act (or a successor rule
thereto), promulgated under the 1933 Act (or a successor rule
thereto); (ii) any sale of such securities made in reliance
on Rule 144 promulgated under the 1933 Act (or a successor
rule thereto) ("Rule 144") may be made only in accordance with
the terms of Rule 144 and further, if Rule 144 is not
applicable, any resale of such securities under circumstances
in which the seller (or the person through whom the sale is
made) may be deemed to be an underwriter (as that term is
defined in the 1933 Act) may require compliance with some
other exemption under the 1933 Act or the rules and
regulations of the SEC thereunder; and (iii) neither the
Company nor any other person is under any obligation to
register such securities under the 1933 Act or any state
securities laws or to comply with the terms and conditions of
any exemption thereunder.
g. Legends. Such Buyer understands that the
certificates or other instruments representing the Series A
Preferred Shares and, until such time as the sale of the
Conversion Shares have been registered under the 1933 Act as
contemplated by the Registration Rights
3
<PAGE>
Agreement, the stock certificates representing the
Conversion Shares shall bear a restrictive legend in
substantially the following form (and a stoptransfer order may
be placed against transfer of such stock certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED
FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SECURITIES UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS, OR AN OPINION OF COUNSEL, IN
A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION
IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE
STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT
TO RULE 144 UNDER SAID ACT.
The legend set forth above shall be removed and the Company
shall issue a certificate without such legend to the holder
of the Series A Preferred Shares and the Conversion Shares,
upon which it is stamped, if, unless otherwise required by
state securities laws, (i) the sale of the Conversion Shares
is registered under the 1933 Act, (ii) in connection with a
sale transaction, such holder provides the Company with an
opinion of counsel, in a generally acceptable form, to the
effect that a public sale, assignment or transfer of the
Series A Preferred Shares and the Conversion Shares may be
made without registration under the 1933 Act, or (iii) such
holder provides the Company with reasonable assurances that
the Series A Preferred Shares and the Conversion Shares can
be sold pursuant to Rule 144 without any restriction as to the
number of securities acquired as of a particular date that can
then be immediately sold.
h. Authorization, Enforcement. This Agreement has
been duly and validly authorized, executed and delivered on
behalf of such Buyer and is a valid and binding agreement of
such Buyer enforceable in accordance with its terms, subject
as enforceability to general principles of equity and to
applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation and other similar laws relating to, or affecting
generally, the enforcement of applicable creditors' rights and
remedies.
i. Residency. Such Buyer is a resident of that
country specified in its address on the Schedule of Buyers.
4
<PAGE>
j. No Scheme to Evade Registration. Buyer represents
and warrants to the Company that the acquisition of the Series A
Preferred Stock and the Conversion Shares is not a transaction (or
any element of a series of transactions)that is part of a plan or
scheme by the Buyer to evade the registration provisions of the 1933
Act.
3 . REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Buyers
that:
a. Organization and Qualification. The Company and
its subsidiaries are corporations duly organized and validly
existing in good standing under the laws of the jurisdiction
in which they are incorporated, and have the requisite
corporate power to own their properties and to carry on their
business as now being conducted. Each of the Company and its
subsidiaries is duly qualified as a foreign corporation to do
business and is in good standing in every jurisdiction in
which the nature of the business conducted by it makes such
qualification necessary, except to the extent that the failure
to be so qualified or be in good standing would not have a
material adverse effect on the Company and its subsidiaries
taken as a whole.
b. Authorization, Enforcement, Compliance with Other
Instruments. (i) The Company has the requisite corporate power
and authority to enter into and perform this Agreement, the
Registration Rights Agreement and any related agreements, and
to issue the Series A Preferred Shares and the Conversion
Shares in accordance with the terms hereof and thereof, (ii)
the execution and delivery of this Agreement, the Registration
Rights Agreement and any related agreements by the Company and
the consummation by it of the transactions contemplated hereby
and thereby, including without limitation the issuance of the
Series A Preferred Shares and the reservation for issuance and
the issuance of the Conversion Shares issuable upon conversion
or exercise thereof, have been duly authorized by the
Company's Board of Directors and no further consent or
authorization is required by the Company, its Board of
Directors or its stockholders, (iii) this Agreement and the
Registration Rights Agreement and any related agreements have
been duly executed and delivered by the Company, (iv) this
Agreement, the Registration Rights Agreement and any related
agreements constitute the valid and binding obligations of the
Company enforceable against the Company in accordance with
their terms, except as such enforceability may be limited by
general principles of equity or applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation or similar
laws relating to, or affecting generally, the enforcement of
creditors' rights and remedies, and (v) prior to the Closing
Date, the Certificate of Designations has been filed with the
Secretary of State of the State of Nevada and will be in full
force and effect, enforceable against the Company in
accordance with its terms.
5
<PAGE>
c. Capitalization. As of the date hereof, the
authorized capital stock of the Company consists of 75,000,000
shares of Common Stock, of which as of the date hereof
6,845,464 shares were issued and outstanding, and no series
of preferred stock or debentures or notes were issued and
outstanding. All of such outstanding shares have been validly
issued and are fully paid and nonassessable. Except as
disclosed in Schedule 3(c), no shares of Common Stock or
preferred stock are subject to preemptive rights or any other
similar rights or any liens or encumbrances suffered or
permitted by the Company. Except as disclosed in Schedule
3(c), as of the effective date of this Agreement, (i) there
are no outstanding options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, any
shares of capital stock of the Company or any of its
subsidiaries, or contracts, commitments, understandings or
arrangements by which the Company or any of its subsidiaries
is or may become bound to issue additional shares of capital
stock of the Company or any of its subsidiaries or options,
warrants, scrip, rights to subscribe to, calls or commitments
of any character whatsoever relating to, or securities or
rights convertible into, any shares of capital stock of the
Company or any of its subsidiaries, (ii) there are no
outstanding debt securities and (iii) there are no agreements
or arrangements under which the Company or any of its
subsidiaries is obligated to register the sale of any of their
securities under the 1933 Act (except the Registration Rights
Agreement). There are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by
the issuance of the Series A Preferred Shares or the
Conversion Shares as described in this Agreement. The Company
has furnished to the Buyer true and correct copies of the
Company's Certificate of Incorporation, as amended and as in
effect on the date hereof (the "Certificate of
Incorporation"), and the Company's By-laws, as in effect on
the date hereof (the "By-laws"), and the terms of all
securities convertible into or exercisable for Common Stock
and the material rights of the holders thereof in respect
thereto.
d. Issuance of Securities. The Series A Preferred
Shares are duly authorized and, upon issuance in accordance
with the terms hereof, shall be (i) validly issued, fully paid
and nonassessable, are free from all taxes, liens and charges
with respect to the issue thereof and are entitled to the
rights and preferences set forth in the Series A Preferred
Shares. The Conversion Shares issuable upon conversion of the
Series A Preferred Shares have been duly authorized and
reserved for issuance. Upon conversion or exercise in
accordance with the Series A Preferred Shares, the Conversion
Shares will be validly issued, fully paid and nonassessable
and free from all taxes, liens and charges with respect to the
issue thereof, with the holders being entitled to all rights
accorded to a holder of Common Stock.
e. No Conflicts. Except as disclosed in Schedule
3(e), the execution, delivery and performance of this
Agreement by the Company and the consummation by the Company
of the transactions contemplated hereby will not (i) result
in a violation of the Certificate of Incorporation, any
Certificate of Designations, Preferences, and Rights of any
outstanding series of preferred stock of the Company or By-laws or
(ii) conflict with or constitute a default (or an
event which with notice or lapse of time or both would become
a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation
6
<PAGE>
of, any agreement, indenture or instrument to which the
Company or any of its subsidiaries is a party, or result in
a violation of any law, rule, regulation, order, judgment or
decree (including federal and state securities laws and
regulations and the rules and regulations of the principal
market or exchange on which the Common Stock is traded or
listed) applicable to the Company or any of its subsidiaries
or by which any property or asset of the Company or any of its
subsidiaries is bound or affected. Except as disclosed in
Schedule 3(e), neither the Company nor its subsidiaries is in
violation of any term of or in default under its Certificate
of Incorporation or Bylaws or their organizational charter or
by-laws, respectively, or any material contract, agreement,
mortgage, indebtedness, indenture, instrument, judgment,
decree or order or any statute, rule or regulation applicable
to the Company or its subsidiaries. The business of the
Company and its subsidiaries is not being conducted, and shall
not be conducted in violation of any law, ordinance,
regulation of any governmental entity. Except as specifically
contemplated by this Agreement and as required under the 1933
Act and any applicable state securities laws, the Company is
not required to obtain any consent, authorization or order of,
or make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or
perform any of its obligations under or contemplated by this
Agreement or the Registration Rights Agreement in accordance
with the terms hereof or thereof Except as disclosed in
Schedule 3(e), all consents, authorizations, orders, filings
and registrations which the Company is required to obtain
pursuant to the preceding sentence have been obtained or
effected on or prior to the date hereof. The Company and its
subsidiaries are unaware of any facts or circumstances which
might give rise to any of the foregoing.
f. SEC Documents: Financial Statements. Since
January 1, 1996, the Company has filed all reports, schedules,
forms, statements and other documents required to be filed by
it with the SEC pursuant to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the "1934 Act")
(all of the foregoing filed prior to the date hereof and all
exhibits included therein and financial statements and
schedules thereto and documents incorporated by reference
therein, being hereinafter referred to as the "SEC
Documents"). The Company has delivered to the Buyer or its
representative true and complete copies of the SEC Documents.
As of their respective dates, the financial statements of the
Company attached as Schedule 3(f) hereto (the "Financial
Statements") complied as to form in all material respects with
applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Such financial
statements have been prepared in accordance with generally
accepted accounting principles, consistently applied, during
the periods involved (except (i) as may be otherwise indicated
in such financial statements or the notes thereto, or (ii) in
the case of unaudited interim statements, to the extent they
may exclude footnotes or may be condensed or summary
statements) and fairly present in all material respects the
financial position of the Company as of the dates thereof and
the results of its operations and cash flows for the periods
then ended (subject, in the case of unaudited statements, to
normal year-end audit adjustments). No other information
provided by or on behalf of the Company to the Buyer which is
not included in the SEC Documents, including, without
limitation, information referred to in Section 2(d) of this
Agreement, contains any
7
<PAGE>
untrue statement of a material fact or omits to state any
material fact necessary in order to make the statements
therein, in the light of the circumstance under which they are
or were made, not misleading.
g. Absence of Certain Changes. Except as disclosed
in Schedule 3(g), since January 1, 1996, there has been no
material adverse change and no material adverse development
in the business, properties, operations, financial condition,
results of operations or prospects of the Company or its
subsidiaries. The Company has not taken any steps, and does
not currently expect to take any steps, to seek protection
pursuant to any bankruptcy law nor does the Company or its
subsidiaries have any knowledge or reason to believe that its
creditors intend to initiate involuntary bankruptcy
proceedings.
h. Absence of Litigation. There is no action, suit,
proceeding, inquiry or investigation before or by any court,
public board, government agency, self-regulatory organization
or body pending or, to the knowledge of the Company or any of
its subsidiaries, threatened against or affecting the Company,
the Common Stock or any of the Company's subsidiaries, wherein
an unfavorable decision, ruling or finding would (i) have a
material adverse effect on the transactions contemplated
hereby (ii) adversely affect the validity or enforceability
of, or the authority or ability of the Company to perform its
obligations under, this Agreement or any of the documents
contemplated herein or (iii), except as expressly set forth
in Schedule 3(h), have a material adverse effect on the
business, operations, properties, financial condition or
results of operation of the Company and its subsidiaries taken
as a whole.
i. Acknowledgment Regarding Buyer's Purchase of
Series A Preferred Shares. The Company acknowledges and
agrees that the Buyer is acting solely in the capacity of an
arm's length purchaser with respect to this Agreement and the
transactions contemplated hereby. The Company further
acknowledges that the Buyer is not acting as a financial
advisor or fiduciary of the Company (or in any similar
capacity) with respect to this Agreement and the transactions
contemplated hereby and any advice given by the Buyer or any
of their respective representatives or agents in connection
with this Agreement and the transactions contemplated hereby
is merely incidental to such Buyer's purchase of the Series
A Preferred Shares or the Conversion Shares. The Company
further represents to the Buyer that the Company's decision
to enter into this Agreement has been based solely on the
independent evaluation by the Company and its representatives.
j. No Undisclosed Events, Liabilities, Developments
or Circumstances. No event, liability, development or
circumstance has occurred or exists, or is contemplated to
occur, with respect to the Company or its subsidiaries or
their respective business, properties, prospects, operations
or financial condition, which could be material but which has
not been publicly announced or disclosed in writing to the
Buyer.
8
<PAGE>
k. No General Solicitation. Neither the Company, nor
any of its affiliates, nor any person acting on its or their
behalf, has engaged in any form of general solicitation or
general advertising (within the meaning of Regulation D under
the 1933 Act) in connection with the offer or sale of the
Series A Preferred Shares or the Conversion Shares. The
Company represents that it has not offered the Series A
Preferred Stock or Conversion Shares to the Buyer in the U.S.
or, to the best knowledge of the Company, to any person in the
United States or any U.S. person.
1. No Integrated Offering. Neither the Company, nor
any of its affiliates, nor any person acting on its or their
behalf has, directly or indirectly, made any offers or sales
of any security or solicited any offers to buy any security,
under circumstances that would require registration of the
Series A Preferred Shares or the Conversion Shares under the
1933 Act or cause this offering of Series A Preferred Shares
or the Conversion Shares to be integrated with prior offerings
by the Company for purposes of the 1933 Act or any applicable
stockholder approval provisions.
m. Employee Relations. Neither the Company nor any
of its subsidiaries is involved in any labor dispute nor, to
the knowledge of the Company or any of its subsidiaries, is
any such dispute threatened. None of the Company's or its
subsidiaries' employees is a member of a union and the Company
and its subsidiaries believe that their relations with their
employees are good.
n. Intellectual Property Rights. The Company and its
subsidiaries own or possess adequate rights or licenses to use
all trademarks, trade names, service marks, service mark
registrations, service names, patents, patent rights,
copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights necessary to conduct
their respective businesses as now conducted. Except as set
forth on Schedule 3(n), none of the Company's trademarks,
trade names, service marks, service mark registrations,
service names, patents, patent rights, copyrights, inventions,
licenses, approvals, government authorizations, trade secrets,
or other intellectual property rights have expired or
terminated, or are expected to expire or terminate in the near
future. The Company and its subsidiaries do not have any
knowledge of any infringement by the Company or its
subsidiaries of trademark, trade name rights, patents, patent
rights, copyrights, inventions, licenses, service names,
service marks, service mark registrations, trade secret or
other similar rights of others, or of any such development of
similar or identical trade secrets or technical information
by others and, except as set forth on Schedule 3(n), there is
no claim, action or proceeding being made or brought against,
or to the Company's knowledge, being threatened against, the
Company or its subsidiaries regarding trademark, trade name,
patents, patent rights, invention, copyright, license, service
names, service marks, service mark registrations, trade secret
or other infringement; and the Company and its subsidiaries
are unaware of any facts or circumstances which might give
rise to any of the foregoing. The Company and its
subsidiaries have taken reasonable security measures to
protect the secrecy, confidentiality and value of all of their
intellectual properties.
9
<PAGE>
o. Environmental Laws. The Company and its
subsidiaries are (i) in compliance with any and all applicable
foreign, federal, state and local laws and regulations
relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes,
pollutants or contaminants ("Environmental Laws"), (ii) have
received all permits, licenses or other approvals required of
them under applicable Environmental Laws to conduct their
respective businesses and (iii) are in compliance with all
terms and conditions of any such permit, license or approval.
p. Title. The Company and its subsidiaries have good
and marketable title in fee simple to all real property and
good and marketable title to all personal property owned by
them which is material to the business of the Company and its
subsidiaries, in each case free and clear of all liens,
encumbrances and defects except such as are described in
Schedule 3(p) or such as do not materially affect the value
of such property and do not interfere with the use made and
proposed to be made of such property by the Company and its
subsidiaries. Any real property and facilities held under
lease by the Company and its subsidiaries are held by them
under valid, subsisting and enforceable leases with such
exceptions as are not material and do not interfere with the
use made and proposed to be made of such property and
buildings by the Company and its subsidiaries.
q. Insurance. The Company and each of its
subsidiaries are insured by insurers of recognized financial
responsibility against such losses and risks and in such
amounts as management of the Company believes to be prudent
and customary in the businesses in which the Company and its
subsidiaries are engaged. Neither the Company nor any such
subsidiary has been refused any insurance coverage sought or
applied for and neither the Company nor any such subsidiary
has any reason to believe that it will not be able to renew
its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers
as may be necessary to continue its business at a cost that
would not materially and adversely affect the condition,
financial or otherwise, or the earnings, business or
operations of the Company and its subsidiaries, taken as a
whole.
r. Regulatory Permits. The Company and its
subsidiaries possess all certificates, authorizations and
permits issued by the appropriate federal, state or foreign
regulatory authorities necessary to conduct their respective
businesses, and neither the Company nor any such subsidiary
has received any notice of proceedings relating to the
revocation or modification of any such certificate,
authorization or permit.
s. Internal Accounting Controls. The Company and
each of its subsidiaries maintain a system of internal
accounting controls sufficient to provide reasonable assurance
that (i) transactions are executed in accordance with
management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation
of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability,
(iii) access to assets is permitted only in accordance with
management's general or specific authorization and (iv) the
recorded accountability for assets is compared
10
<PAGE>
with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
t. No Materially Adverse Contracts, Etc. Neither the
Company nor any of its subsidiaries is subject to any charter,
corporate or other legal restriction, or any judgment, decree,
order, rule or regulation which in the judgment of the
Company's officers has or is expected in the future to have
a material adverse effect on the business, properties,
operations, financial condition, results of operations or
prospects of the Company or its subsidiaries. Neither the
Company nor any of its subsidiaries is a party to any contract
or agreement which in the judgment of the Company's officers
has or is expected to have a material adverse effect on the
business, properties, operations, financial condition, results
of operations or prospects of the Company or its subsidiaries.
u. Tax Status. Except as set forth on Schedule 3(u),
the Company and each of its subsidiaries has made or filed all
federal and state income and all other tax returns, reports
and declarations required by any jurisdiction to which it is
subject (unless and only to the extent that the Company and
each of its subsidiaries has set aside on its books provisions
reasonably adequate for the payment of all unpaid and
unreported taxes) and has paid all taxes and other
governmental assessments and charges that are material in
amount, shown or determined to be due on such returns, reports
and declarations, except those being contested in good faith
and has set aside on its books provision reasonably adequate
for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply.
There are no unpaid taxes in any material amount claimed to
be due by the taxing authority of any jurisdiction, and the
officers of the Company know of no basis for any such claim.
v. Certain Transactions. Except as set forth on
Schedule 3(v) and in the SEC Documents and except for arm's
length transactions pursuant to which the Company makes
payments in the ordinary course of business upon terms no less
favorable than the Company could obtain from third parties and
other than the grant of stock options disclosed on Schedule
3(c), none of the officers, directors, or employees of the
Company is presently a party to any transaction with the
Company (other than for services as employees, officers and
directors), including any contract, agreement or other
arrangement providing for the furnishing of services to or by,
providing for rental of real or personal property to or from,
or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company,
any corporation, partnership, trust or other entity in which
any officer, director, or any such employee has a substantial
interest or is an officer, director, trustee or partner.
w. Dilutive Effect. The Company understands and
acknowledges that the number of Conversion Shares issuable
upon conversion of the Series A Preferred Shares will increase
in certain circumstances. The Company further acknowledges
that its obligation to issue Conversion Shares upon conversion
of the Series A Preferred Shares in accordance with this
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Agreement and the Certificate of Designations and the Series
A Preferred Shares is absolute and unconditional regardless
of the dilutive effect that such issuance may have on the
ownership interests of other stockholders of the Company.
x. No Directed Selling Efforts in Regard to this
Transaction. Neither the Company nor, to the best knowledge
of the company, any distributor participating in this
offering, nor any person acting for the Company or any such
distributor, has conducted any "directed selling efforts" in
the United States as the term "directed selling efforts" is
defined in Rule 902 of Regulation S, which in general, means
any activity undertaken for the purpose of, or that could
reasonably be expected to have the effect of, conditioning the
market in the United States for any of the securities being
offered herein. Such activity includes, without limitation,
the mailing of printed material to investors residing in the
United States, the holding of promotional seminars in the
United States, and the placement of advertisements with radio
or television stations broadcasting in the United States or
in publications with a general circulation in the United
States, which discuss the offering of the such securities.
y. Fees and Rights of First Refusal. The Company is
not obligated to offer the securities offered hereunder on a
right of first refusal basis or otherwise to any third parties
including, but not limited to, current or former shareholders
of the Company, underwriters, brokers, agents or other third
parties.
z. Shareholder Approval The Company covenants to
submit to its, shareholders at its next shareholder meeting
a proposal for ratification of the issuance of the Series A
Preferred Stock and the Conversion Shares, if and as required
by the rules of the National Association of Securities
Dealers, Inc. (the "NASD") applicable to the transaction.
4. COVENANTS.
a. Best Efforts. Each party shall use its best
efforts timely to satisfy each of the conditions to be
satisfied by it as provided in Sections 6 and 7 of this
Agreement.
b. Form D. The Company agrees to file a Form D with
respect to the Series A Preferred Shares and the Conversion
Shares as required under Regulation D and to provide a copy
thereof to each Buyer promptly after such filing. The Company
shall, on or before the Closing Date, take such action as the
Company shall reasonably determine is necessary to qualify the
Series A Preferred Shares and the Conversion Shares for, or
obtain exemption for the Series A Preferred Shares and the
Conversion Shares for, sale to the Buyers at the Closing
pursuant to this Agreement under applicable securities or
"Blue Sky" laws of the states of the United States, and shall
provide evidence of any such action so taken to the Buyers on
or prior to the Closing Date.
c. Reporting Status. Until the earlier of (i) the
date as of which the Investors (as that term is defined in the
Registration Rights Agreement) may sell all of the Conversion
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<PAGE>
Shares without restriction pursuant to Rule 144(k) promulgated
under the 1933 Act (or successor thereto), or (ii) the date
on which (A) the Investors shall have sold all the Conversion
Shares and (B) none of the Series A Preferred Shares is
outstanding (the "Registration Period"), the Company shall
file all reports required to be filed with the SEC pursuant
to the 1934 Act, and the Company shall not terminate its
status as an issuer required to file reports under the 1934
Act even if the 1934 Act or the rules and regulations
thereunder would otherwise permit such termination.
d. Use of Proceeds. The Company will use the
proceeds from the sale of the Series A Preferred Shares for
substantially the same purposes and in substantially the same
amounts as indicated in Schedule 4(d).
e. Financial Information. The Company agrees to send
the following to each Buyer during the Registration Period:
(i) within five (5) days after the filing thereof with the
SEC, a copy of its Annual Reports on Form 10-K, its Quarterly
Reports on Form 10-Q, any Current Reports on Form 8-K and any
registration statements or amendments filed pursuant to the
1933 Act; (ii) within one (1) day after release thereof,
copies of all press releases issued by the Company or any of
its subsidiaries and (ii) copies of the same notices and other
information given to the stockholders of the Company
generally, contemporaneously with the giving thereof to the
stockholders.
f. Reservation of Shares. The Company shall take all
action necessary to at all times have authorized, and reserved
for the purpose of issuance, no less than 200% of the number
of shares of Common Stock needed to provide for the issuance
of the Conversion Shares; provided that all shares of the
Common Stock authorized and not otherwise reserved for other
purposes as of the date hereof shall be reserved for the
purpose of issuance of the Conversion Shares.
g. Listings. The Company shall promptly secure the
listing of the Conversion Shares upon each national securities
exchange or automated quotation system, if any, upon which
shares of Common Stock are then listed (subject to official
notice of issuance) and shall maintain, so long as any other
shares of Common Stock shall be so listed, such listing of all
Conversion Shares from time to time issuable under the terms
of this Agreement and the Registration Rights Agreement. The
Company shall maintain the Common Stock's authorization for
quotation in the over-the counter market. The Company shall
promptly provide to each Buyer copies of any notices it
receives regarding the continued eligibility of the Common
Stock for trading in the over-the-counter market.
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<PAGE>
h. Expenses. Each of the Company and the Buyer shall
pay all costs and expenses incurred by such party in
connection with the negotiation, investigation, preparation,
execution and delivery of this Agreement and the Registration
Rights Agreement. The costs and expenses of J.P. Carey
Securities, Inc. and its counsel shall be paid for by the
Company at Closing.
i. Authorized Shares of Common Stock, Reservation of
Shares. The Company shall at all times, so long as any of the
Series A Preferred Shares are outstanding, reserve and keep
available out of its authorized and unissued Common Stock,
solely for the purpose of effecting the conversion of the
Series A Preferred Shares, such number of shares of Common
Stock equal to or greater than 200% of the number of shares
of Common Stock for which are issuable upon conversion of all
of the then outstanding Series A Preferred Shares which are
then outstanding or which could be issued at any time under
this Agreement or the Series A Preferred Shares.
j. Corporate Existence. So long as any Series A
Preferred Shares remain outstanding, the Company shall not
directly or indirectly consummate any merger, reorganization,
restructuring, consolidation, sale of all or substantially all
of the Company's assets or any similar transaction or related
transactions (each such transaction, a "Sale of the Company")
except if the surviving or successor entity in such
transaction (i) expressly assumes, in writing, the Company's
obligations hereunder and under the Registration Rights
Agreement, the Series A Preferred Shares and any other
agreements and instruments entered into or delivered by the
Company in connection herewith and (ii) is a publicly traded
corporation whose Common Stock is listed for trading on the
New York Stock Exchange, Inc., the American Stock Exchange or
the NASDAQ National Market.
k. Transactions With Affiliates. So long as (i) any
Series A Preferred Shares are outstanding or (ii) any Buyer
owns Conversion Shares with a market value equal to or greater
than $200,000, the Company shall not, and shall cause each of
its subsidiaries not to, enter into, amend, modify or
supplement, or permit any subsidiary to enter into, amend,
modify or supplement any agreement, transaction, commitment,
or arrangement with any of its or any subsidiary's officers,
directors, person who were officers or directors at any time
during the previous two years, stockholders who beneficially
own 5% or more of the Common Stock, or affiliates or with any
individual related by blood, marriage, or adoption to any such
individual or with any entity in which any such entity or
individual owns a 5% or more beneficial interest (each
a"Related Party"), except for (a) customary employment
arrangements and benefit programs on reasonable terms, (b) any
agreement, transaction, commitment, or arrangement on an arms-length
basis on terms no less favorable than terms which would
have been obtainable from a person other than such Related
Party, (c) any agreement transaction, commitment, or
arrangement which is approved by a majority of the
disinterested directors of the Company, for purposes hereof,
any director who is also an officer of the Company or any
subsidiary of the Company shall not be disinterested director
with respect to any such agreement, transaction, commitment,
or arrangement. "Affiliate" for
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<PAGE>
purposes hereof means, with respect to any person or entity,
another person or entity that, directly or indirectly, (i) has
a 5% or more equity interest in that person or entity, (ii)
has 5% or more common ownership with that person or entity,
(iii) controls that person or entity, or (iv) share common
control with that person or entity. "Control" or "controls"
for purposes hereof means that a person or entity has the
power, direct or indirect, to conduct or govern the policies
of another person or entity.
l. Shareholder Approval. The Company covenants to
submit to its shareholders at its next shareholder meeting a
proposal for ratification of the issuance of the Series A
Preferred Shares and the Conversion Shares, if and as required
by the rules of the NASD applicable to the transaction.
5. TRANSFER AGENT INSTRUCTIONS.
The Company shall issue irrevocable instructions to its
transfer agent to issue certificates, registered in the name of the
Buyer or its respective nominee(s), for the Conversion Shares in
such amounts as specified from time to time by the Buyer to the
Company upon conversion of the Series A Preferred Shares (the
"Irrevocable Transfer Agent Instructions"), except as provided in
Section 4(l) herein. Prior to registration of the Conversion Shares
under the 1933 Act, all such certificates shall bear the restrictive
legend specified in Section 2(g) of this Agreement. The Company
warrants that no instruction other than the Irrevocable Transfer
Agent Instructions referred to in this Section 5, and stop transfer
instructions to give effect to Section 2(f) hereof (in the case of
the Conversion Shares, prior to registration of such shares under
the 1933 Act) will be given by the Company to its transfer agent and
that the Series A Preferred Shares and the Conversion Shares shall
otherwise be freely transferable on the books and records of the
Company as and to the extent provided in this Agreement and the
Registration Rights Agreement. Nothing in this Section 5 shall
affect in any way the Buyer's obligations and agreement to comply
with all applicable securities laws upon resale of the Series A
Preferred Shares or Conversion Shares. If the Buyer provides the
Company with an opinion of counsel, reasonably satisfactory in form,
and substance to the Company, that registration of a resale by the
Buyer of any of the Series A Preferred Shares or Conversion Shares
is not required under the 1933 Act, the Company shall permit the
transfer, and, in the case of the Conversion Shares, promptly
instruct its transfer agent to issue one or more certificates in
such name and in such denominations as specified by the Buyer. The
Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the Buyer by vitiating the
intent and purpose of the transaction contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for a
breach of its obligations under this Section 5 will be inadequate
and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section 5, that the Buyer shall be
entitled, in addition to all other available remedies, to an
injunction restraining any breach and requiring immediate issuance
and transfer, without the necessity of showing economic loss and
without any bond or other security being required.
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<PAGE>
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell
the Series A Preferred Shares to the Buyer at the Closing is subject
to the satisfaction, at or before the Closing Date, of each of the
following conditions, provided that these conditions are for the
Company's sole benefit and may be waived by the Company at any time
in its sole discretion:
a. The Buyer shall have executed this Agreement and
the Registration Rights Agreement and delivered the same to
the Company.
b. The Certificate of Designations shall have been
filed with the Secretary of State of the State of Nevada.
c. The Buyer shall have delivered to the Company the
Purchase Price for the Series A Preferred Shares being
purchased by the Buyer at the Closing by wire transfer of
immediately available funds pursuant to the wire instructions
provided by the Company.
d. The representations and warranties of the Buyer
shall be true and correct in all material respects as of the
date when made and as of the Closing Date as though made at
that time (except for representations and warranties that
speak as of a specific date), and the Buyer shall have
performed, satisfied and complied in all material respects
with the covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the
Buyer at or prior to the Closing Date.
7. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The obligation of the Buyer hereunder to purchase the
Series A Preferred Shares at the Closing is subject to the
satisfaction, at or before the Closing Date, of each of the
following conditions, provided that these conditions are for the
Buyer's sole benefit and may be waived by the Buyer at any time in
its sole discretion:
a. The Company shall have executed this Agreement and
the Registration Rights Agreement, and delivered the same to
the Buyer.
b. The Common Stock shall be authorized for quotation
on the electronic bulletin board, over-the-counter market,
AMEX the NASDAQ National Market or The New York Stock
Exchange, Inc., trading in the Common Stock shall not have
been suspended for any reason and all of the Conversion Shares
issuable upon conversion of the Series A Preferred Shares
shall be approved for listing on the electronic bulletin
board, over-the-counter market, AMEX, the NASDAQ National
Market or The New York Stock Exchange, Inc.
c. The representations and warranties of the Company
shall be true and correct in all material respects (except to
the extent that any of such representations and warranties
16
<PAGE>
is already qualified as to materiality in Section 3 above, in
which case, such representations and warranties shall be true
and correct without further qualification) as of the date when
made and as of the Closing Date as though made at that time
(except for representations and warranties that speak as of
a specific date) and the Company shall have performed,
satisfied and complied in all material respects with the
covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the
Company at or prior to the Closing Date. The Buyer shall have
received a certificate, executed by the Chief Executive
Officer of the Company, dated as of the Closing Date, to the
foregoing effect and as to such other matters as may be
reasonably requested by the Buyer including, without
limitation an update as of the Closing Date regarding the
representation contained in Section 3(c) above.
d. The Buyer shall have received the opinion of the
Company's counsel dated as of the Closing Date, in form, scope
and substance reasonably satisfactory to the Buyer and in
substantially the form of Exhibit "D" attached hereto.
e. The Company shall have executed and delivered to
the Buyer the Certificates (in such denominations as the Buyer
shall request) for the Series A Preferred Shares being
purchased by the Buyer at the Closing.
f. The Board of Directors of the Company shall have
adopted the resolutions in substantially the form of Exhibit
"E" attached hereto.
g. As of the Closing Date, the Company shall as of
the Closing Date have reserved out of its authorized and
unissued Common Stock, solely for the purpose of effecting the
conversion of the Series A Preferred Shares, such number of
shares of Common Stock equal to or greater than 200% of the
number of shares of Common Stock for which are issuable upon
conversion of all of the Series A Preferred Shares which could
be issued at any time under this Agreement or the Series A
Preferred Shares.
h. The Irrevocable Transfer Agent Instructions, in
form and substance satisfactory to the Buyer, shall have been
delivered to and acknowledged in writing by the Company's
transfer agent.
8. INDEMNIFICATION.
In consideration of the Buyer's execution and delivery of
this Agreement and acquiring the Series A Preferred Shares and the
Conversion Shares hereunder and in addition to all of the Company's
other obligations under this Agreement, the Company shall defend,
protect, indemnify and hold harmless the Buyer and each other holder
of the Series A Preferred Shares and the Conversion Shares and all
of their officers, directors, employees and agents (including,
without limitation, those retained in connection with the
transactions contemplated by this Agreement) (collectively, the
"Indemnitees") from and against any and all actions, causes of
action, suits, claims, losses, costs,
17
<PAGE>
penalties, fees, liabilities and damages, and expenses in connection
therewith (irrespective of whether any such Indemnitee is a party to
the action for which indemnification hereunder is sought), and
including reasonable attorneys' fees and disbursements (the
"Indemnified Liabilities"), incurred by the Indemnitees or any of
them as a result of, or arising out of, or relating to (a) any
misrepresentation or breach of any representation or warranty made
by the Company in this Agreement, the Series A Preferred Shares or
the Registration Rights Agreement or any other certificate,
instrument or document contemplated hereby or thereby, (b) any
breach of any covenant, agreement or obligation of the Company
contained in this Agreement, the Certificate of Designations, or the
Registration Rights Agreement or any other certificate, instrument
or document contemplated hereby or thereby, or (c) any cause of
action, suit or claim brought or made against such Indemnitee and
arising out of or resulting from the execution, delivery,
performance or enforcement of this Agreement or any other
instrument, document or agreement executed pursuant hereto by any of
the Indemnities, any transaction financed or to be financed in whole
or in part, directly or indirectly, with the proceeds of the
issuance of the Series A Preferred Shares or the status of the Buyer
or holder of the Series A Preferred Shares or the Conversion Shares,
as an investor in the Company. To the extent that the foregoing
undertaking by the Company may be unenforceable for any reason, the
Company shall make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which is
permissible under applicable law.
9. GOVERNING LAW: MISCELLANEOUS.
a. Governing Law. This Agreement shall be governed
by and interpreted in accordance with the laws of the State
of Nevada without regard to the principles of conflict of
laws. Any dispute or controversy between the parties arising
in connection with this agreement or the subject matter
contemplated by this agreement shall be resolved by
arbitration before a three-member panel of the American
Arbitration Association in accordance with the commercial
arbitration rules of said forum and the Federal Arbitration
Act, 9 U.S.C. 1 et seq., with the resulting award being final
and conclusive. Said arbitrators shall be empowered to award
all forms of relief and damages claimed, including, but not
limited to, attorney's fees, expenses of litigation and
arbitration, exemplary damages, and prejudgment interest.
Notwithstanding the foregoing, Buyer may at any time and at
its option, whether or not an arbitration action is then
pending, initiate a civil action for temporary and permanent
injunctive and other equitable relief against Company.
Company acknowledges that upon any breach of Buyer's
conversion rights hereunder, Buyer's resulting injury may not
be adequately compensated by a remedy at law. Accordingly,
upon such breach, Buyer, at its election and without
limitation of its other remedies, shall be entitled to pursue
a claim for specific performance of this Agreement, and
Company hereby waives the right to assert any defense thereto
that Purchaser has an adequate remedy at law. The parties
further agree that any arbitration action between them shall
be heard in Atlanta, Georgia, and expressly consent to the
jurisdiction and venue of the Superior Court of Fulton County,
Georgia, and the United States District Court for the Northern
District of Georgia, Atlanta Division for the adjudication of
any civil action asserted pursuant to this Paragraph.
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<PAGE>
b. Counterparts. This Agreement may be executed in
two or more identical counterparts, all of which shall be
considered one and the same agreement and shall become
effective when counterparts have been signed by each party and
delivered to the other party. In the event any signature page
is delivered by facsimile transmission, the party using such
means of delivery shall cause four (4) additional original
executed signature pages to be physically delivered to the
other party within five (5) days of the execution and delivery
hereof
c. Headings. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect
the interpretation of, this Agreement.
d. Severability. If any provision of this Agreement
shall be invalid or unenforceable in any jurisdiction, such
invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of any
provision of this Agreement in any other jurisdiction.
e. Entire Agreement, Amendments. This Agreement
supersedes all other prior oral or written agreements between
the Buyer, the Company, their affiliates and persons acting
on their behalf with respect to the matters discussed herein,
and this Agreement and the instruments referenced herein
contain the entire understanding of the parties with respect
to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither the Company
nor any Buyer makes any representation, warranty, covenant or
undertaking with respect to such matters. No provision of
this Agreement may be waived or amended other than by an
instrument in writing signed by the party to be charged with
enforcement.
f. Notices. Any notices, consents, waivers, or
other communications required or permitted to be given under
the terms of this Agreement must be in writing and will be
deemed to have been delivered (i) upon receipt, when delivered
personally; (ii) upon receipt, when sent by facsimile,
provided a copy is mailed by U.S. certified mail, return
receipt requested; (iii) three (3) days after being sent by
U.S. certified mail, return receipt requested, or (iv) one (I)
day after deposit with a nationally recognized overnight
delivery service, in each case properly addressed to the party
to receive the same. The addresses and facsimile numbers for
such communications shall be:
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<PAGE>
If to the Company:
D.H. Marketing & Consulting, Inc.
300 Keystone Street
Hawley, Pennsylvania 18428
Attn: President
Telephone: (717) 226-8515
Facsimile: (717) 226-3242
With a copy to:
Max C. Tanner, Esq.
The Law Offices of Max C. Tanner
2950 East Flamingo Road, Suite G
Las Vegas, Nevada 89121
Telephone: (702) 369-9614
Facsimile: (702) 369-5731
If to the Transfer Agent:
Interwest Transfer Company
Suite 100
1981 E. Murray Holiday Road
Salt Lake City, Utah 84117
Attn: Mr. Kurt Hughes
Telephone: (801) 272-9294
Facsimile: (801) 277-3147
If to the Buyer, to its address and facsimile number on the
Schedule of Buyers, with copies to the Buyer's counsel as set
forth on the Schedule of Buyers. Each party shall provide
five (5) days' prior written notice to the other party of any
change in address or facsimile number.
g. Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties and their
respective successors and assigns. The Company shall not
assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Buyer. The Buyer may
assign its rights hereunder without the consent of the
Company, provided, however, that any such assignment shall not
release the Buyer from its obligations
20
<PAGE>
hereunder unless such obligations are assumed by such assignee
and the Company has consented to such assignment and
assumption.
h. No Third Party Beneficiaries. This Agreement is
intended for the benefit of the parties hereto and their
respective permitted successors and assigns, and is not for
the benefit of, nor may any provision hereof be enforced by,
any other person.
i. Survival. Unless this Agreement is terminated
under Section 9(l), the representations and warranties of the
Company and the Buyer contained in Sections 2 and 3, the
agreements and covenants set forth in Sections 4, 5 and 9, the
indemnification provisions set forth in Section 8, shall
survive the Closing. The Buyer shall be responsible only for
its own representations, warranties, agreements and covenants
hereunder.
j. Publicity. The Company and the Buyer shall have
the right to approve before issuance any press releases or any
other public statements with respect to the transactions
contemplated hereby; provided, however, that the Company shall
be entitled, without the prior approval of the Buyer, to make
any press release or other public disclosure with respect to
such transactions as is required by applicable law and
regulations (although the Buyer shall be consulted by the
Company in connection with any such press release or other
public disclosure prior to its release and shall be provided
with a copy thereof).
k. Further Assurances. Each party shall do and
perform, or cause to be done and performed, all such further
acts and things, and shall execute and deliver all such other
agreements, certificates, instruments and documents, as the
other party may reasonably request in order to carry out the
intent and accomplish the purposes of this Agreement and the
consummation of the transactions contemplated hereby.
1. Termination. In the event that the Closing shall
not have occurred with respect to the Buyer on or before five
(5) business days from the date hereof due to the Company's
or the Buyer's failure to satisfy the conditions set forth in
Sections 6 and 7 above (and the nonbreaching party's failure
to waive such unsatisfied condition(s)), the nonbreaching
party shall have the option to terminate this Agreement with
respect to such breaching party at the close of business on
such date without liability of any party to any other party-
provided, however, that if this Agreement is terminated
pursuant to this Section 9(l), the Company shall remain
obligated to reimburse the Buyer for the expenses described
in Section 4(i) above.
m. Finder. The Company acknowledges that it has
engaged a Finder in connection with the sale of the Series A
Preferred Shares, which placement agent may have formally or
informally engaged other agents on its behalf. The Company
shall be responsible for the payment of any Finder's fees
(which includes cash and warrants to purchase Common Stock)
relating to or arising out of the transactions contemplated
hereby.
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<PAGE>
n. No Strict Construction. The language used in this
Agreement will be deemed to be the language chosen by the
parties to express their mutual intent, and no rules of strict
construction will be applied against any party.
IN WITNESS WHEREOF, the Buyer and the Company have caused this
Securities Purchase Agreement to be duly executed as of the date
first written above.
"COMPANY"
D.H. MARKETING & CONSULTING, INC.
By: /s/ DAVID D. HAGEN
David D. Hagen, President
"BUYER"
ATLANTIS CAPITAL FUND, LTD
By: /s/ MARK E. VALENTINE
Mark E. Valentine, Agent
"BUYER"
ATLAS CAPITAL FUND, LTD
By: /s/ JOSEPH CANOUSE
Joseph Canouse
22
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as
of September 18, 1998, by and among D.H. Marketing & Consulting,
Inc., a Nevada corporation, with headquarters at 300 Keystone
Street, Hawley Pennsylvania 18428 (the "Company"), and the
undersigned buyer (the "Buyer" ).
WHEREAS:
A. In connection with the Securities Purchase Agreement
by and among the parties of even date herewith (the "Securities
Purchase Agreement"), the Company has agreed, upon the terms and
subject to the conditions of the Securities Purchase Agreement,
(i) to issue and sell to the Buyer's shares of the Company's
Series A Preferred Stock (the "Preferred Stock"), which will be
convertible into shares of the Company's common stock, $.0003 par
value per share (the "Common Stock") (as converted, the
"Conversion Shares") in accordance with the terms of the
Preferred Stock; and
B. To induce the Buyers to execute and deliver the
Securities Purchase Agreement, the Company has agreed to provide
certain registration rights under the Securities Act of 1933, as
amended, and the rules and regulations thereunder, or any similar
successor statute (collectively, the "1933 Act"), and applicable
state securities laws:
NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company and the Buyers hereby agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following terms shall have
the following meanings:
a. "Investor" means the Buyer and any transferee
or assignee thereof to whom the Buyer assigns its rights
under this Agreement and who agrees to become bound by the
provisions of this Agreement in accordance with Section 9.
b. "Person" means a corporation, a limited
liability company, an association, a partnership, an
organization, a business, an individual, a governmental or
political subdivision thereof or a governmental agency.
c. "Register," "registered," and "registration"
refer to a registration effected by preparing and filing
one or more Registration Statements in compliance with the
1933 Act and pursuant to Rule 415 under the 1933 Act or any
successor rule providing for offering securities on a
continuous basis ("Rule 415"), and the declaration or
ordering of effectiveness of such Registration Statement(s)
by the United States Securities and Exchange Commission
(the "SEC").
<PAGE>
d. Registrable Securities" means the Conversion
Shares issued or issuable upon conversion of the Preferred
Stock and any shares of capital stock issued or issuable
with respect to the Conversion Shares or the Preferred
Stock as a result of any stock split, stock dividend,
recapitalization, exchange or similar event.
e."Registration Statement" means a registration
statement of the Company filed under the 1933 Act.
Capitalized terms used herein and not otherwise defined
herein shall have the respective meanings set for-the in the
Securities Purchase Agreement.
2. REGISTRATION.
a. Mandatory Registration. The Company shall
prepare, and, on or prior to twenty (20) days after the
date of issuance of any Preferred Stock (the "Filing
Deadline"), file with the SEC a Registration Statement or
Registration Statements (as is necessary) on Form S-3 (or,
if such form is unavailable for such a registration, on
such other form as is available for such a registration,
subject to the consent of each Buyer and the provisions of
Section 2(e), which consent will not be unreasonably
withheld), covering the resale of all of the Registrable
Securities, which Registration Statement(s) shall state
that, in accordance with Rule 416 promulgated under the
1933 Act, such Registration Statement(s) also covers such
indeterminate number of additional shares of Common Stock
as may become issuable upon conversion of the Preferred
Stock (i) to prevent dilution resulting from stock splits,
stock dividends or similar transactions and (ii) by reason
of changes in the Conversion Price or Conversion Rate of
the Preferred Stock in accordance with the terms thereof
Such Registration Statement shall initially register for
resale at least 1,000,000 shares of Common Stock, subject
to adjustment as provided in Section 3(b), and such
registered shares of Common Stock shall be allocated among
the Investors pro rata based on the total number of
Registrable Securities issued or issuable as of each date
that a Registration Statement, as amended, relating to the
resale of the Registrable Securities is declared effective
by the SEC. The Company shall use its best efforts to have
the Registration Statement declared effective by the SEC
within ninety (90) days after the issuance of the Preferred
Stock (the "Registration Deadline"). The Company shall
permit the registration statement to become effective
within five (5) business days after receipt of a "no
review" notice from the SEC. In the event that the
Registration Statement is not filed by the Company with the
SEC by the Filing Deadline, then the Applicable Discount
(as defined in the Certificate of Designations) shall be
reduced by (i) an additional 2% for each 30 days from the
Filing Deadline for which the Registration is not filed by
the Company with the SEC. In the event that the
Registration Statement is not declared effective by the SEC
by the Registration Deadline then the Conversion Percentage
to be used in determining the Conversion Price (as defined
in the Certificate of Designations, Preferences, and Rights
filed by the Company on or before the date hereof in
connection herewith ("Certificate of Designations")shall be
reduced by (i) an
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<PAGE>
additional 3% if the Registration Statement is not declared
effective by the SEC within thirty (30) days following the
Registration Deadline, or (ii) an additional 6% if the
Registration Statement is not declared effective by the SEC
within sixty (60) days of the Registration Deadline.
b. Underwritten Offering. If any offering
pursuant to a Registration Statement pursuant to Section
2(a) involves an underwritten offering, the Buyers shall
have the right to select one legal counsel and an
investment banker or bankers and manager or managers to
administer their interest in the offering, which investment
banker or bankers or manager or managers shall be
reasonably satisfactory to the Company.
c. Piggy-Back Registrations. If at any time prior
to the expiration of the Registration Period (as
hereinafter defined) the Company proposes to file with the
SEC a Registration Statement relating to an offering for
its own account or the account of others under the 1933 Act
of any of its securities (other than on Form S-4 or Form S-8 or
their then equivalents relating to securities to be
issued solely in connection with any acquisition of any
entity or business or equity securities issuable in
connection with stock option or other employee benefit
plans) the Company shall promptly send to each Investor who
is entitled to registration rights under this Section 2(c)
written notice of the Company's intention to file a
Registration Statement and of such Investor's rights under
this Section 2(c) and, if within twenty (20) days after
receipt of such notice, such Investor shall so request in
writing, the Company shall include in such Registration
Statement all or any part of the Registrable Securities
such Investor requests to be registered, subject to the
priorities set forth in Section 2(d) below. No right to
registration of Registrable Securities under this Section
2(c) shall be construed to limit any registration required
under Section 2(a). The obligations of the Company under
this Section 2(c) may be waived by Investors holding a
majority of the Registrable Securities. If an offering in
connection with which an Investor is entitled to
registration under this Section 2(c) is an underwritten
offering, then each Investor whose Registrable Securities
are included in such Registration Statement shall, unless
otherwise agreed by the Company, offer and sell such
Registrable Securities in an underwritten offering using
the same underwriter or underwriters and, subject to the
provisions of this Agreement, on the same terms and
conditions as other shares of Common Stock included in such
underwritten offering.
d. Priority in Piggy-Back Registration Rights in
connection with Registrations or Company Account. If the
registration referred to in Section 2(c) is to be an
underwritten public offering for the account of the Company
and the managing underwriter(s) advise the Company in
writing, that in their reasonable good faith opinion,
marketing or other factors dictate that a limitation on the
number of shares of Common Stock which may be included in
the Registration Statement is necessary to facilitate and
not adversely affect the proposed offering, then the
Company shall include in such registration: (1) first, all
securities the Company proposes to sell for its own
account, (2) second, up to the full number of securities
proposed to be registered for the account of the holders of
securities entitled to inclusion of
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<PAGE>
their securities in the Registration Statement by reason of
demand registration rights, and (3) third, the securities
requested to be registered by the Investors and other
holders of securities entitled to participate in the
registration, drawn from them pro rata based on the number
each has requested to be included in such registration.
e. Eligibility for Form S-3. The Company
represents, warrants covenants that, except as provided in
Schedule 2e. attached hereto, it has filed and shall file
all reports required to be filed by the Company with the
SEC in a timely manner. In the event that Form S-3 is not
available for sale by the Investors of the Registrable
Securities, then (i) the Company, with the consent of each
Investor pursuant to Section 2(a), shall register the sale
of the Registrable Securities on another appropriate form,
such as Form SB-2 and (ii) the Company shall undertake to
register the Registrable Securities on Form S-3 as soon as
such form is available.
3 . RELATED OBLIGATIONS.
Whenever an Investor has requested that any Registrable
Securities be registered pursuant to Section 2(c) or at such time
as the Company is obligated to file a Registration Statement with
the SEC pursuant to Section 2(a), the Company will use its best
efforts to effect the registration of the Registrable Securities
in accordance with the intended method of disposition thereof
and, pursuant thereto, the Company shall have the following
obligations:
a. The Company shall promptly prepare and file
with the SEC a Registration Statement with respect to the
Registrable Securities (on or prior to the forty-fifth
(45th) day following the date of issuance of any Preferred
Stock, for the registration of Registrable Securities
pursuant to Section 2(a)) and use its best efforts to cause
such Registration Statement(s) relating to Registrable
Securities to become effective as soon as possible after
such filing (by the ninetieth (90th) day following the
issuance of the relevant Preferred Stock for the
registration of Registrable Securities pursuant to Section
2(a), and keep the Registration Statement(s) effective
pursuant to Rule 415 at all times until the earlier of (i)
the date as of which the Investors may sell all of the
Registrable Securities without restriction pursuant to Rule
144(k) promulgated under the 1933 Act (or successor
thereto) or (ii) the date on which (A) the Investors shall
have sold all the Registrable Securities and (B) none of
the Preferred Stock is outstanding (the "Registration
Period"), which Registration Statement(s) (including any
amendments or supplements thereto and prospectuses
contained therein) shall not contain any untrue statement
of a material fact or omit to state a material fact
required to be stated therein, or necessary to make the
statements therein, in light of the circumstances in which
they were made, not misleading.
b. The Company shall prepare and file with the SEC
such amendments (including post-effective amendments) and
supplements to the Registration Statement(s) and the
prospectus(es) used in connection with the Registration
Statement(s), which prospectus(es) are to be filed pursuant
to Rule 424 promulgated under the 1933 Act, as may be
necessary
4
<PAGE>
to keep the Registration Statement(s) effective at all
times during the Registration Period, and, during such
period, comply with the provisions of the 1933 Act with
respect to the disposition of all Registrable Securities of
the Company covered by the Registration Statement(s) until
such time as all of such Registrable Securities shall have
been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof as set forth
in the Registration Statement(s). In the event the number
of shares available under a Registration Statement filed
pursuant to this Agreement is insufficient to cover all of
the Registrable Securities, the Company shall amend the
Registration Statement, or file a new Registration
Statement (on the short form available therefor, if
applicable), or both, so as to cover all of the Registrable
Securities, in each case, as soon as practicable, but in
any event within fifteen (15) days after the necessity
therefor arises (based on the market price of the Common
Stock and other relevant factors on which the Company
reasonably elects to rely). The Company shall use its best
efforts to cause such amendment and/or new Registration
Statement to become effective as soon as practicable
following the filing thereof. For purposes of the
foregoing provision, the number of shares available under
a Registration Statement shall be deemed "insufficient to
cover all of the Registrable Securities" if at any time the
number of Registrable Securities issued or issuable upon
conversion of the Preferred Stock is greater than the
quotient determined by dividing (i) the number of shares of
Common Stock available for resale under such Registration
Statement by (ii) 1.5; provided that in the case of the
initial registration of the Registrable Securities pursuant
to Section 2(a), the Company shall be required to register
at least 1,000,000 shares of Common Stock for resale. For
purposes of the calculation set forth in the foregoing
sentence, any restrictions on the convertibility of the
Preferred Stock shall be disregarded and such calculation
shall assume that the Preferred Stock are then convertible
into shares of Common Stock at the then prevailing
Conversion Rate (as defined in the Preferred Stock).
c. The Company shall furnish to each Investor
whose Registrable Securities are included in the
Registration Statement(s) and its legal counsel without
charge (i) promptly after the same is prepared and filed
with the SEC at least one copy of the Registration
Statement and any amendment thereto, including financial
statements and schedules, all documents incorporated
therein by reference and all exhibits, the prospectus(es)
included in such Registration Statement(s) (including each
preliminary prospectus ) and, with regards to the
Registration Statement, any correspondence by or on behalf
of the Company to the SEC or the staff of the SEC and any
correspondence from the SEC or the staff of the SEC to the
Company or its representatives, (ii) upon the effectiveness
of any Registration Statement, ten (10) copies of the
prospectus included in such Registration Statement and all
amendments and supplements thereto (or such other number of
copies as such Investor may reasonably request) and (iii)
such other documents, including any preliminary prospectus,
as such Investor may reasonably request in order to
facilitate the disposition of the Registrable Securities
owned by such Investor.
d. The Company shall use reasonable efforts to (i)
register and qualify the Registrable Securities covered by
the Registration Statement(s) under such other securities
5
<PAGE>
or "blue sky" laws of such jurisdictions in the United
States as any Investor reasonably requests, (ii) prepare
and file in those jurisdictions, such amendments (including
post-effective amendments) and supplements to such
registrations and qualifications as may be necessary to
maintain the effectiveness thereof during the Registration
Period, (iii) take such other actions as may be necessary
to maintain such registrations and qualifications in effect
at all times during the Registration Period, and (iv) take
all other actions reasonably necessary or advisable to
quality the Registrable Securities for sale in such
jurisdictions; provided, however, that the Company shall
not be required in connection therewith or as a condition
thereto to (a) qualify to do business in any jurisdiction
where it would not otherwise be required to qualify but for
this Section 3(d), (b) subject itself to general taxation
in any such jurisdiction, or (c) file a general consent to
service of process in any such jurisdiction. The Company
shall promptly notify each Investor who holds Registrable
Securities of the receipt by the Company of any
notification with respect to the suspension of the
registration or qualification of any of the Registrable
Securities for sale under the securities or "blue sky" laws
of any jurisdiction in the United States or its receipt of
actual notice of the initiation or threatening of any
proceeding for such purpose.
e. In the event Investors who hold a majority of
the Registrable Securities being offered in the offering
select underwriters for the offering, the Company shall
enter into and perform its obligations under an
underwriting agreement, in usual and customary form,
including, without limitation, customary indemnification
and contribution obligations, with the underwriters of such
offering.
f. As promptly as practicable after becoming aware
of such event, the Company shall notify each Investor in
writing of the happening of any event, of which the Company
has knowledge, as a result of which the prospectus included
in a Registration Statement, as then in effect, includes an
untrue statement of a material fact or omission to state a
material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances
under which they were made, not misleading, and
promptly prepare a supplement or amendment to the
Registration Statement to correct such untrue
statement or omission, and deliver ten (10)
copies of such supplement or amendment to each
Investor (or such other number of copies as such
Investor may reasonably request). The Company
shall also promptly notify each Investor in
writing (i) when a prospectus or any prospectus
supplement or post-effective amendment has been
filed, and when a Registration Statement or any
post-effective amendment has become effective
(notification of such effectiveness shall be
delivered to each Investor by facsimile on the
same day of such effectiveness and by overnight
mail) (ii) of any request by the SEC for
amendments or supplements to a Registration
Statement or related prospectus or related
information, (iii) of the Company's reasonable
determination that a post-effective amendment to
a Registration Statement would be appropriate.
g. The Company shall use its best efforts
to prevent the issuance of any stop order or
other suspension of effectiveness of a
Registration Statement, or the suspension of
6
<PAGE>
the qualification of any of the Registrable
Securities for sale in any jurisdiction and, if
such an order or suspension is issued, to obtain
the withdrawal of such order or suspension at the
earliest possible moment and to notify each
Investor who holds Registrable Securities being
sold (and, in the event of an underwritten
offering, the managing underwriters) of the
issuance of such order and the resolution thereof
or its receipt of actual notice of the initiation
or threat of any proceeding for such purpose.
h. The Company shall permit each Investor
a single firm of counsel or such other counsel as
thereafter designated as selling stockholders'
counsel by the Investors who hold a majority of
the Registrable Securities being sold, to review
and comment upon the Registration Statement(s)
and all amendments and supplements thereto at
least seven (7) days prior to their filing with
the SEC, and not file any document in a form to
which such counsel reasonably objects. The
Company shall not submit a request for
acceleration of the effectiveness of a
Registration Statement(s) or any amendment or
supplement thereto without the prior approval of
such counsel, which consent shall not be
unreasonably withheld.
i. At the request of the Investors who
hold a majority of the Registrable Securities
being sold, the Company shall furnish, on the
date that Registrable Securities are delivered to
an underwriter, if any, for sale in connection
with the Registration Statement (i) if required
by an underwriter, a letter, dated such date,
from the Company's independent certified public
accountants in form and substance as is
customarily given by independent certified public
accountants to underwriters in an underwritten
public offering, addressed to the underwriters,
and (ii) an opinion, dated as of such date, of
counsel representing the Company for purposes of
such Registration Statement, in form, scope and
substance as is customarily given in an
underwritten public offering, addressed to the
underwriters and the Investors.
j. The Company shall make available for
inspection by (i) any Investor, (ii) any
underwriter participating in any disposition
pursuant to a Registration Statement, (iii) one
firm of attorneys and one firm of accountants or
other agents retained by the Investors, and (iv)
one firm of attorneys retained by all such
underwriters (collectively, the "Inspectors") all
pertinent financial and other records, and
pertinent corporate documents and properties of
the Company (collectively, the "Records"), as
shall be reasonably deemed necessary by each
Inspector to enable each Inspector to exercise
its due diligence responsibility, and cause the
Company's officers, directors and employees to
supply all information which any Inspector may
reasonably request for purposes of such due
diligence provided, however, that each Inspector
shall hold in strict confidence and shall not
make any disclosure (except to an Investor) or
use of any Record or other information which the
Company determines in good faith to be
confidential, and of which determination the
Inspectors are so notified, unless (a) the
disclosure of such Records is necessary to avoid
or correct a misstatement or omission in any
Registration Statement or is otherwise required
under the 1933 Act, (b) the release of such
Records is ordered pursuant to a final, non-appealable
subpoena or order from a court or
government body of competent jurisdiction, or (c)
the information in such Records has
7
<PAGE>
been made generally available to the public other
than by disclosure in violation of this or any
other agreement. Each Investor agrees that it
shall, upon learning that disclosure of such
Records is sought in or by a court or
governmental body of competent jurisdiction or
through other means, give prompt notice to the
Company and allow the Company, at its expense, to
undertake appropriate action to prevent
disclosure of, or to obtain a protective order
for, the Records deemed confidential.
k. The Company shall hold in confidence
and not make any disclosure of information
concerning an Investor provided to the Company
unless (i) disclosure of such information is
necessary to comply with federal or state
securities laws, (ii) the disclosure of such
information is necessary to avoid or correct a
misstatement or omission in any Registration
Statement, (iii) the release of such information
is ordered pursuant to a subpoena or other final,
non-appealable order from a court or governmental
body of competent jurisdiction, or (iv) such
information has been made generally available to
the public other than by disclosure in violation
of this or any other agreement. The Company
agrees that it shall, upon learning that
disclosure of such information concerning an
Investor is sought in or by a court or
governmental body of competent jurisdiction or
through other means, give prompt written notice
to such Investor and allow such Investor, at the
Investor's expense, to undertake appropriate
action to prevent disclosure of, or to obtain a
protective order for, such information.
l. The Company shall use its best efforts
either to (i) cause all the Registrable
Securities covered by a Registration Statement to
be listed on each national securities exchange on
which securities of the same class or series
issued by the Company are then listed, if any, if
the listing of such Registrable Securities is
then permitted under the rules of such exchange,
(ii) to secure designation and quotation of all
the Registrable Securities covered by the
Registration Statement on the Nasdaq National
Market System, (iii) if, despite the Company's
best efforts to satisfy the preceding clause (i)
or (ii), the Company is unsuccessful in
satisfying the preceding clause (i) or (ii) to
secure the inclusion for quotation on the Nasdaq
SmallCap Market for such Registrable Securities
or, (iv) if, despite the Company's best efforts
to satisfy the preceding clause (iii), the
Company is unsuccessful in satisfying the
preceding clause (iii), to secure the inclusion
for quotation on the over-the-counter market for
such Registrable Securities, and, without
limiting the generality of the foregoing, in the
case of clause (iii) or (iv), to arrange for at
least two market makers to register with the
National Association of Securities Dealers, Inc.
("NASD") as such with respect to such Registrable
Securities. The Company shall pay all fees and
expenses in connection with satisfying its
obligation under this Section 3(l).
m. The Company shall cooperate with the
Investors who hold Registrable Securities being
offered and, to the extent applicable, any
managing underwriter or underwriters, to
facilitate the timely preparation and delivery of
certificates (not bearing any restrictive legend)
representing the Registrable Securities to be
offered pursuant to a Registration Statement and
enable such certificates to be in such
denominations or amounts,
8
<PAGE>
as the case may be, as the managing underwriter
or underwriters, if any, or, if there is no
managing underwriter or underwriters, the
Investors may reasonably request and registered
in such names as the managing underwriter or
underwriters, if any, or the Investors may
request. Not later than the date on which any
Registration Statement registering the resale of
Registrable Securities is declared effective, the
Company shall deliver to its transfer agent
instructions, accompanied by any reasonably
required opinion of counsel, that permit sales of
unlegended securities in a timely fashion that
complies with then mandated securities settlement
procedures for regular way market transactions.
n. The Company shall take all other
reasonable actions necessary to expedite and
facilitate disposition by the Investors of
Registrable Securities pursuant to a Registration
Statement.
o. The Company shall provide a transfer
agent and registrar of all such Registrable
Securities not later than the effective date of
such Registration Statement.
p. If requested by the managing
underwriters or an Investor, the Company shall
immediately incorporate in a prospectus
supplement or post-effective amendment such
information as the managing underwriters and the
Investors agree should be included therein
relating to the sale and distribution of
Registrable Securities, including, without
limitation, information with respect to the
number of Registrable Securities being sold to
such underwriters, the purchase price being paid
therefor by such underwriters and with respect to
any other terms of the underwritten (or best
efforts underwritten) offering of the Registrable
Securities to be sold in such offering; make all
required filings of such prospectus supplement or
post-effective amendment as soon as notified of
the matters to be incorporated in such prospectus
supplement or post-effective amendment; and
supplement or make amendments to any Registration
Statement if requested by a shareholder or any
underwriter of such Registrable Securities.
q. The Company shall use its best efforts
to cause the Registrable Securities covered by
the applicable Registration Statement to be
registered with or approved by such other
governmental agencies or authorities as may be
necessary to consummate the disposition of such
Registrable Securities.
r. The Company shall otherwise use its
best efforts to comply with all applicable rules
and regulations of the SEC in connection with any
registration hereunder.
4. OBLIGATIONS OF THE INVESTORS.
a. At least seven (7) days prior to the
first anticipated filing date of the Registration
Statement, the Company shall notify each Investor
in writing of the information the Company
requires from each such Investor if such Investor
elects to have any of such Investor's Registrable
Securities included in the Registration
Statement. It shall be a
9
<PAGE>
condition precedent to the obligations of the
Company to complete the registration pursuant to
this Agreement with respect to the Registrable
Securities of a particular Investor that such
Investor shall furnish to the Company such
information regarding itself, the Registrable
Securities held by it and the intended method of
disposition of the Registrable Securities held by
it as shall be reasonably required to effect the
registration of such Registrable Securities and
shall execute such documents in connection with
such registration as the Company may reasonably
request.
b. Each Investor by such Investor's
acceptance of the Registrable Securities agrees
to cooperate with the Company as reasonably
requested by the Company in connection with the
preparation and filing of the Registration
Statement(s) hereunder, unless such Investor has
notified the Company in writing of such
Investor's election to exclude all of such
Investor's Registrable Securities from the
Registration Statement.
c. In the event Investors holding a
majority of the Registrable Securities being
registered determine to engage the services of an
underwriter, each Investor agrees to enter into
and perform such Investor's obligations under an
underwriting agreement, in usual and customary
form, including, without limitation, customary
indemnification and contribution obligations,
with the managing underwriter of such offering
and take such other actions as are reasonably
required in order to expedite or facilitate the
disposition of the Registrable Securities, unless
such Investor notifies the Company in writing of
such Investor's election to exclude all of such
Investor's Registrable Securities from the
Registration Statement(s).
d. Each Investor agrees that, upon receipt
of any notice from the Company of the happening
of any event of the kind described in Section
3(g) or the first sentence of 3(f), such Investor
will immediately discontinue disposition of
Registrable Securities pursuant to the
Registration Statement(s) covering such
Registrable Securities until such Investor's
receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3(g)
or the first sentence of 3(f) and, if so directed
by the Company, such Investor shall deliver to
the Company (at the expense of the Company) or
destroy all copies in such Investor's possession,
of the prospectus covering such Registrable
Securities current at the time of receipt of such
notice.
e. No Investor may participate in any
underwritten registration hereunder unless such
Investor (i) agrees to sell such Investor's
Registrable Securities on the basis provided in
any underwriting arrangements approved by the
Investors entitled hereunder to approve such
arrangements, (ii) completes and executes all
questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents
reasonably required under the terms of such
underwriting arrangements, and (iii) agrees to
pay its pro rata share of all underwriting
discounts and commissions.
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5. EXPENSES OF REGISTRATION.
All reasonable expenses, other than underwriting
discounts and commissions, incurred in connection with
registrations, filings or qualifications pursuant to
Sections 2 and 3, including, without limitation, all
registration, listing and qualifications fees,
printers and accounting fees, and fees and
disbursements of counsel for the Company and fees and
disbursements of one counsel for the Investors, shall
be borne by the Company.
6. INDEMNIFICATION
In the event any Registrable Securities are
included in a Registration Statement under this
Agreement:
a. To the fullest extent permitted by law,
the Company will, and hereby does, indemnify,
hold harmless and defend each Investor who holds
such Registrable Securities, the directors,
officers, partners, employees, agents and each
Person, if any, who controls any Investor within
the meaning of the 1933 Act or the Securities
Exchange Act of 1934, as amended (the "1934
Act"), and any underwriter (as defined in the
1933 Act) for the Investors, and the directors
and officers of, and each Person, if any, who
controls, any such underwriter within the meaning
of the 1933 Act or the 1934 Act (each, an
"Indemnified Person"), against any losses,
claims, damages, liabilities, judgments, fines,
penalties, charges, costs, attorneys' fees,
amounts paid in settlement or expenses, joint or
several, (collectively, "Claims") incurred in
investigating, preparing or defending any action,
claim, suit, inquiry, proceeding, investigation
or appeal taken from the foregoing by or before
any court or governmental, administrative or
other regulatory agency, body or the SEC, whether
pending or threatened, whether or not an
indemnified party is or may be a party thereto
("Indemnified Damages"), to which any of them may
become subject insofar as such Claims (or actions
or proceedings, whether commenced or threatened,
in respect thereof) arise out of or are based
upon: (i) any untrue statement or alleged untrue
statement of a material fact in a Registration
Statement or any post-effective amendment thereto
or in any filing made in connection with the
qualification of the offering under the
securities or other "blue sky" laws of any
jurisdiction in which Registrable Securities are
offered ("Blue Sky Filing"), or the omission or
alleged omission to state a material fact
required to be stated therein or necessary to
make the statements therein, in light of the
circumstances under which the statements therein
were made, not misleading, (ii) any untrue
statement or alleged untrue statement of a
material fact contained in any preliminary
prospectus if used prior to the effective date of
such Registration Statement, or contained in the
final prospectus (as amended or supplemented, if
the Company files any amendment thereof or
supplement thereto with the SEC) or the omission
or alleged omission to state therein any material
fact necessary to make the statements made
therein, in light of the circumstances under
which the statements therein were made, not
misleading, or (iii) any violation or alleged
violation by the Company of the 1933 Act, the
1934 Act, any other law, including, without
limitation, any state securities law, or any rule
or regulation thereunder relating to the offer or
sale of the Registrable Securities
11
<PAGE>
pursuant to a Registration Statement (the matters
in the foregoing clauses (i) through (iii) being,
collectively, "Violations"). Subject to the
restrictions set forth in Section 6(d) with
respect to the number of legal counsel, the
Company shall reimburse the Investors and each
such underwriter or controlling person, promptly
as such expenses are incurred and are due and
payable, for any legal fees or other reasonable
expenses incurred by them in connection with
investigating or defending any such Claim.
Notwithstanding anything to the contrary
contained herein, the indemnification agreement
contained in this Section 6(a): (i) shall not
apply to a Claim arising out of or based upon a
Violation which occurs in reliance upon and in
conformity with information furnished in writing
to the Company by any Indemnified Person or
underwriter for such Indemnified Person expressly
for use in connection with the preparation of the
Registration Statement or any such amendment
thereof or supplement thereto, if such prospectus
was timely made available by the Company pursuant
to Section 3(c); (ii) with respect to any
preliminary prospectus, shall not inure to the
benefit of any such person from whom the person
asserting any such Claim purchased the
Registrable Securities that are the subject
thereof (or to the benefit of any person
controlling such person) if the untrue statement
or mission of material fact contained in the
preliminary prospectus was corrected in the
prospectus, as then amended or supplemented, if
such prospectus was timely made available by the
Company pursuant to Section 3(c), and the
Indemnified Person was promptly advised in
writing not to use the incorrect prospectus prior
to the use giving rise to a violation and such
Indemnified Person, notwithstanding such advice,
used it; (iii) shall not be available to the
extent such Claim is based on a failure of the
Investor to deliver or to cause to be delivered
the prospectus made available by the Company (i)
and (iv) shall not apply to amounts paid in
settlement of any Claim if such settlement is
effected without the prior written consent of the
Company, which consent shall not be unreasonably
withheld. Such indemnity shall remain in full
force and effect regardless of any investigation
made by or on behalf of the Indemnified Person
and shall survive the transfer of the Registrable
Securities by the Investors pursuant to Section
9.
b. In connection with any Registration
Statement in which an Investor is participating,
each such Investor agrees to severally and not
jointly indemnify, hold harmless and defend, to
the same extent and in the same manner as is set
forth in Section 6(a), the Company, each of its
directors, each of its officers who signs the
Registration Statement, each Person, if any, who
controls the Company within the meaning of the
1933 Act or the 1934 Act (collectively and
together with an Indemnified Person, an
"Indemnified Party"), against any Claim or
Indemnified Damages to which any of them may
become subject, under the 1933 Act, the 1934 Act
or otherwise, insofar as such Claim or
Indemnified Damages arise out of or are based
upon any Violation, in each case to the extent,
and only to the extent, that such Violation
occurs in reliance upon and in conformity with
written information furnished to the Company by
such Investor expressly for use in connection
with such Registration Statement; and, subject to
Section 6(d), such Investor will reimburse any
legal or other expenses reasonably incurred by
them in connection with investigating or
defending any such Claim; provided, however, that
the indemnity agreement contained in this Section
6(b) and Section 7 shall not apply to amounts
paid in settlement of any Claim if such
settlement is effected
12
<PAGE>
without the prior written consent of such
Investor, which consent shall not be unreasonably
withheld; provided, further, however, that the
Investor shall be liable under this Section 6(b)
for only that amount of a Claim or Indemnified
Damages as does not exceed the net proceeds to
such Investor as a result of the sale of
Registrable Securities pursuant to such
Registration Statement. Such indemnity shall
remain in full force and effect regardless of any
investigation made by or on behalf of such
Indemnified Party and shall survive the transfer
of the Registrable Securities by the Investors
pursuant to Section 9. Notwithstanding anything
to the contrary contained herein, the
indemnification agreement contained in this
Section 6(b) with respect to any preliminary
prospectus shall not inure to the benefit of any
Indemnified Party if the untrue statement or
omission of material fact contained in the
preliminary prospectus was corrected on a timely
basis in the prospectus, as then amended or
supplemented.
c. The Company shall be entitled to
receive indemnities from underwriters, selling
brokers, dealer managers and similar securities
industry professionals participating in any
distribution, to the same extent as provided
above, with respect to information such persons
so furnished in writing expressly for inclusion
in the Registration Statement.
d. Promptly after receipt by an
Indemnified Person or Indemnified Party under
this Section 6 of notice of the commencement of
any action or proceeding (including any
governmental action or proceeding) involving a
Claim such Indemnified Person or Indemnified
Party shall, if a Claim in respect thereof is to
be made against any indemnifying party under this
Section 6, deliver to the indemnifying party a
written notice of the commencement thereof, and
the indemnifying party shall have the right to
participate in, and, to the extent the
indemnifying party so desires, jointly with any
other indemnifying party similarly noticed, to
assume control of the defense thereof with
counsel mutually satisfactory to the indemnifying
party and the Indemnified Person or the
Indemnified Party, as the case may be; provided,
however, that an Indemnified Person or
Indemnified Party shall have the right to retain
its own counsel with the fees and expenses to be
paid by the indemnifying party, if, in the
reasonable opinion of counsel retained by the
indemnifying party, the representation by such
counsel of the Indemnified Person or Indemnified
Party and the indemnifying party would be
inappropriate due to actual or potential
differing interests between such Indemnified
Person or Indemnified Party and any other party
represented by such counsel in such proceeding.
The Company shall pay reasonable fees for only
one separate legal counsel for the Investors, and
such legal counsel shall be selected by the
Investors holding a majority in interest of the
Registrable Securities included in the
Registration Statement to which the Claim
relates. The Indemnified Party or Indemnified
Person shall cooperate fully with the
indemnifying party in connection with any
negotiation or defense of any such action or
claim by the indemnifying party and shall furnish
to the indemnifying party all information
reasonably available to the Indemnified Party or
Indemnified Person which relates to such action
or claim. The indemnifying party shall keep the
Indemnified Party or Indemnified Person fully
apprised at all times as to the status of the
defense or any settlement negotiations with
respect thereto. No indemnifying party shall be
13
<PAGE>
liable for any settlement of any action, claim or
proceeding effected without its written consent,
provided, however, that the indemnifying party
shall not unreasonably withhold, delay or
condition its consent. No indemnifying party
shall, without the consent of the Indemnified
Party or Indemnified Person, consent to entry of
any judgment or enter into any settlement or
other compromise which does not include as an
unconditional term thereof the giving by the
claimant or plaintiff to such Indemnified Party
or Indemnified Person of a release from all
liability in respect to such claim or litigation.
Following indemnification as provided for
hereunder, the indemnifying party shall be
subrogated to all rights of the Indemnified Party
or Indemnified Person with respect to all third
parties, firms or corporations relating to the
matter for which indemnification has been made.
The failure to deliver written notice to the
indemnifying party within a reasonable time of
the commencement of any such action shall not
relieve such indemnifying party of any liability
to the Indemnified Person or Indemnified Party
under this Section 6, except to the extent that
the indemnifying party is prejudiced in its
ability to defend such action.
e. The indemnification required by this
Section 6 shall be made by periodic payments of
the amount thereof during the course of the
investigation or defense, as and when bills are
received or Indemnified Damages are incurred.
f. The indemnity agreements contained
herein shall be in addition to (i) any cause of
action or similar right of the Indemnified Party
or Indemnified Person against the indemnifying
party or others, and (ii) any liabilities the
indemnifying party may be subject to pursuant to
the law.
7. CONTRIBUTION.
To the extent any indemnification by an
indemnifying party is prohibited or limited by
law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it
would otherwise be liable under Section 6 to the
fullest extent permitted by law; provided, however,
that: (i) no contribution shall be made under
circumstances where the maker would not have been
liable for indemnification under the fault standards
set forth in Section 6; (ii) no seller of Registrable
Securities guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the 1933 Act)
shall be entitled to contribution from any seller of
Registrable Securities who was not guilty of
fraudulent misrepresentation; and (iii) contribution
by any seller of Registrable Securities shall be
limited in amount to the net amount of proceeds
received by such seller from the sale of such
Registrable Securities.
14
<PAGE>
8. REPORTS UNDER THE 1934 ACT.
With a view to making available to the Investors
the benefits of Rule 144 promulgated
under the 1933 Act or any other similar rule or
regulation of the SEC that may at any time permit the
investors to sell securities of the Company to the
public without registration ("Rule 144"), the Company
agrees to:
a. make and keep public information
available, as those terms are understood and
defined in Rule 144;
b. file with the SEC in a timely manner
all reports and other documents required of the
Company under the 1933 Act and the 1934 Act so
long as the Company remains subject to such
requirements (it being understood that nothing
herein shall limit the Company's obligations
under Section 4(c) of the Securities Purchase
Agreement) and the filing of such reports and
other documents is required for the applicable
provisions of Rule 144; and
c. furnish to each Investor so long as
such Investor owns Registrable Securities,
promptly upon request, (i) a written statement by
the Company that it has complied with the
reporting requirements of Rule 144, the 1933 Act
and the 1934 Act, (ii) a copy of the most recent
annual or quarterly report of the Company and
such other reports and documents so filed by the
Company, and (iii) such other information as may
be reasonably requested to permit the investors
to sell such securities pursuant to Rule 144
without registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights to have the Company register
Registrable Securities pursuant to this Agreement
shall be automatically assignable by the Investors to
any transferee of all or any portion of Registrable
Securities if: (i) the Investor agrees in writing with
the transferee or assignee to assign such rights, and
a copy of such agreement is furnished to the Company
within a reasonable time after such assignment; (ii)
the Company is, within a reasonable time after such
transfer or assignment, furnished with written notice
of (a) the name and address of such transferee or
assignee, and (b) the securities with respect to which
such registration rights are being transferred or
assigned; (iii) immediately following such transfer or
assignment the further disposition of such securities
by the transferee or assignee is restricted under the
1933 Act and applicable state securities laws; (iv) at
or before the time the Company receives the written
notice contemplated by clause (ii) of this sentence
the transferee or assignee agrees in writing with the
Company to be bound by all of the provisions contained
herein; (v) such transfer shall have been made in
accordance with the applicable requirements of the
Securities Purchase Agreement; (vi) such transferee
shall be an "accredited investor" as that term is
defined in Rule 501 of Regulation D promulgated under
the 1933 Act; and (vii) in the event the assignment
occurs subsequent to the date of effectiveness of the
Registration Statement required to be filed pursuant
to Section 2(a), the transferee agrees to pay all
reasonable expenses of amending or supplementing such
Registration Statement to reflect such assignment.
15
<PAGE>
10. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of this Agreement may be amended and
the observance thereof may be waived (either generally
or in a particular instance and either retroactively
or prospectively), only with the written consent of
the Company and Investors who hold two-thirds of the
Registrable Securities. Any amendment or waiver
effected in accordance with this Section 10 shall be
binding upon each Investor and the Company.
11. MISCELLANEOUS.
a. A person or entity is deemed to be a
holder of Registrable Securities whenever such
person or entity owns of record such Registrable
Securities. If the Company receives conflicting
instructions, notices or elections from two or
more persons or entities with respect to the same
Registrable Securities, the Company shall act
upon the basis of instructions, notice or
election received from the registered owner of
such Registrable Securities.
b. Any notices consents, waivers or other
communications required or permitted to be given
under the terms of this Agreement must be in
writing and will be deemed to have been delivered
(i) upon receipt, when delivered personally; (ii)
upon receipt, when sent by facsimile, provided a
copy is mailed by U.S. certified mail, return
receipt requested; (iii) three (3) days after
being sent by U.S. certified mail, return receipt
requested, or (d) one (1) day after deposit with
a nationally recognized overnight delivery
service, in each case properly addressed to the
party to receive the same. The addresses and
facsimile numbers for such communications shall
be:
If to the Company: D.H. Marketing & Consulting,
Inc.
300 Keystone Street
Hawley, Pennsylvania 18428
Facsimile: (717) 226-3242
With a copy to: Max C. Tanner, Esq.
Law Offices of Max C. Tanner
2950 E. Flamingo Road, Suite G
Las Vegas, Nevada 89121
Facsimile: (702) 369-5731
If to a Buyer, to its address and facsimile
number on the Schedule of Buyers, with copies to such
Buyer's counsel as set forth on the Schedule of
Buyers. Each party shall provide five (5) days' prior
written notice to the other party of any change in
address or facsimile number.
c. Failure of any party to exercise any
right or remedy under this Agreement or
otherwise, delay by a party in exercising such
right or remedy, shall not operate as a waiver
thereof.
16
<PAGE>
d. This Agreement shall be governed by and
interpreted in accordance with the laws of the
State of Nevada without regard to the principles
of conflict of laws. If any provision of this
Agreement shall be invalid or unenforceable in
any jurisdiction, such invalidity or
unenforceability shall not affect the validity or
enforceability of the remainder of this Agreement
in that jurisdiction or the validity or
enforceability of any provision of this Agreement
in any other jurisdiction.
e. This Agreement and the Securities
Purchase Agreement constitute the entire
agreement among the parties hereto with respect
to the subject matter hereof and thereof. There
are no restrictions, promises, warranties or
undertakings, other than those set forth or
referred to herein and therein. This Agreement
and the Securities Purchase Agreement supersede
all prior agreements and understandings among the
parties hereto with respect to the subject matter
hereof and thereof.
f. Subject to the requirements of Section
9, this Agreement shall inure to the benefit and
of and be binding upon the permitted successors
and assigns of each of the parties hereto.
g. The headings in this Agreement are for
convenience of reference only and shall not limit
or otherwise affect the meaning hereof.
h. This Agreement may be executed in two
or more identical counterparts, each of which
shall be deemed an original but all of which
shall constitute one and the same agreement.
This Agreement, once executed by a party, may be
delivered to the other party hereto by facsimile
transmission of a copy of this Agreement bearing
the signature of the party so delivering this
Agreement.
i. Each party shall do and perform, or
cause to be done and performed, all such further
acts and things, and shall execute and deliver
all such other agreements, certificates,
instruments and documents, as the other party may
reasonably request in order to carry out the
intent and accomplish the purposes of this
Agreement and the consummation of the
transactions contemplated hereby.
17
<PAGE>
IN WITNESS WHEREOF, the parties have caused this
Registration Rights Agreement to be duly executed as
of day and year first above written.
COMPANY: BUYERS:
D.H. MARKETING & CONSULTING, ATLANTIS CAPITAL FUND, LTD.
INC.
By: /s/ DAVID D. HAGEN By: /s/ MARK VALENTINE
Name: David D. Hagen Name: Mark Valentine
Its: President and Chief Executive Its: Agent
Officer
ATLAS CAPITAL FUND, LTD.
By: /s/ JOSEPH CANOUSE
Name: Joseph Canouse
Its:
18
PLACEMENT AGENCY AGREEMENT
THIS AGREEMENT ("Agreement"), made as of the 26th day of August
1998, by and between D.H. Marketing & Consulting, Inc., a Nevada
corporation ("Company"), and J.P. Carey Securities, Inc., a Georgia
corporation (the "Agent").
WITNESSETH:
WHEREAS, the Company proposes to issue and sell Series A
Preferred Stock (the "Securities") resulting in gross proceeds to the
Company of up to $3,000,000 (the "Offering") not involving a public
offering without registration under the Securities Act of 1933, as
amended (the "Act"), pursuant to exemptions from the registration
requirements of the Act under Regulation D promulgated under the Act
("Regulation D"), as described below; and
WHEREAS, the Agent has offered to assist the Company in placing
the Securities on a "best efforts basis" with respect to the Series A
Preferred Stock (as defined below) and on a "best efforts" basis with
respect to sales of Securities thereafter up to the Maximum Series A
Preferred Stock (as defined below), and the Company desires to secure
the services of the Agent on the terms and conditions hereinafter set
forth;
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual
promises, conditions and covenants herein contained, the parties hereto
do hereby agree as follows:
1. Engagement of Agent. The Company hereby appoints the Agent
as its exclusive placement agent for the Offering, to sell up to of
$3,000,000 of Securities (the "Maximum Shares") on a "best efforts
basis," resulting in gross proceeds to the Company of up to $3,000,000.
The Agent, on the basis of the representations and warranties herein
contained, but subject to the terms and conditions herein set forth,
accepts such appointment and agrees to use its best efforts to find
purchasers for the Securities. This appointment shall be irrevocable
for the period commencing as of the date hereof and ending as further
described in Section 5 herein, which period maybe extended by the
consent of the Company and the Agent (the "Offering Period").
2. Representations and Warranties of the Company. In order
to induce the Agent to enter into this Agreement, the Company hereby
represents and warrants to and agrees with the Agent as follows:
2.1 Offering Documents. The Company and the Placement Agent
have prepared a Subscription Agreement, certain exhibits thereto,
Registration Rights Agreement, and the Preferred Stock regarding the
Securities, which documents have been or will be sent to proposed
investors. In addition, proposed investors have received or will
receive prior to closing copies of the Company's Report on 10-KSB for
the period ended December 31, 1997, and possibly other documents that
are to be filed with the SEC ("SEC Documents"). The SEC Documents were
prepared in conformity with the requirements (to the extent applicable)
of the Securities and Exchange Act of 1934, as amended (the "Act") and
the rules and regulations ("Rules and Regulations") of the Commission
promulgated thereunder. As used in this Agreement, the term "Offering
Documents" refers to and means the SEC Documents, the Subscription
Agreement and all amendments, exhibits and supplements thereto,
together with any other documents which are provided to the Agent by,
or approved for Agent's use by, the Company for the purpose of this
Offering.
2.2 Provision of Offering Documents. The Company shall deliver
to the Agent, without charge, as many copies of the Offering Documents
as the Agent may reasonably require for the purposes contemplated by
<PAGE>
this Agreement. The Company authorizes the Agent, in connection with
the Offering of the Securities, to use the Offering Documents as from
time to time amended or supplemented in connection with the offering
and sale of the Securities and in accordance with the applicable
provisions of the Act and Regulation D. The Company consents to the
Agent's distribution of the Offering Documents to prospective
subscribers as a disclosure document about the Company, its business,
prospects, financial condition and other matters.
2.3 Accuracy of Offering Documents. The Offering Documents,
at the time of delivery to subscribers for the Securities, conformed
in all material respects with the requirements, to the extent
applicable, of the Act and the applicable Rules and Regulations and did
not include any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they
were made, not misleading. On the Closing Date (as hereinafter
defined), the Offering Documents will contain all statements which are
required to be stated therein in accordance with the Act and the Rules
and Regulations for the purposes of the proposed Offering, and all
statements of material fact contained in the Offering memorandum will
be true and correct, and the Offering Documents will not include any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; provided, however, that the Company does not make any
representations or warranties as to the information contained in or
omitted from the Offering Documents in reliance upon written
information furnished on behalf of the Agent specifically for use
therein.
2.4 Duty to Amend. If during such period of time as in the
opinion of the Agent or its counsel any Offering Documents relating to
this offering are required to be delivered under the Act, any event
occurs or any event known to the Company relating to or affecting the
Company shall occur as a result of which the Offering Documents as then
amended or supplemented would include an untrue statement of a material
fact, or omit to state any material fact necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading, or if it is necessary at any time after the date
hereof to amend or supplement the Offering Documents to comply with the
Act or the applicable Rules and Regulations, the Company shall
forthwith notify the Agent thereof and shall prepare such further
amendment or supplement to the Offering Documents as may be required
and shall furnish and deliver to the Agent and to others, whose names
and addresses are designated by the Agent, all at the cost of the
Company, a reasonable number of copies of the amendment or supplement
or of the amended or supplemented Offering Documents which, as so
amended or supplemented, will not contain an untrue statement of a
material fact or omit to state any material fact necessary in order to
make the Offering Documents not misleading in the light of the
circumstances when it is delivered to a purchaser or prospective
purchaser, and which will comply in all respects with the requirements
(to the extent applicable) of the Act and the applicable Rules and
Regulations.
2.5 Corporation Condition. The Company's condition is as
described in its Offering Documents, except for changes in the ordinary
course of business and normal year-end adjustments that are not in the
aggregate materially adverse to the Company. The Offering Documents,
taken as a whole, present fairly the business and financial position
of the Company as of the Closing Date.
-2-
<PAGE>
2.6 No Material Adverse Change. Except as may be reflected in
or contemplated by the Offering Documents, subsequent to the dates as
of which information is given in the Offering Documents, and prior to
the Closing Date, there shall not have been any material adverse change
in the condition, financial or otherwise, or in the results of
operations of the Company or in its business taken as a whole.
2.7 No Defaults. Except as disclosed in the Offering Documents
or in writing to the Agent, the Company is not in default in any
material respect in the performance of any obligation, agreement or
condition contained in any material debenture, note or other evidence
of indebtedness or any material indenture or loan agreement of the
Company. The execution and delivery of this Agreement, and the
consummation of the transactions herein contemplated, and compliance
with the terms of this Agreement will not conflict with or result in
a breach of any of the terms, conditions or provisions of, or
constitute a default under, the Articles of Incorporation or By-Laws
of the Company (in any respect that is material to the Company), any
material note, indenture, mortgage, deed of trust, or other agreement
or instrument to which the Company is a party or by which the Company
or any property of the Company is bound, or to the Company's knowledge,
any existing law, order, rule, regulation, writ, injunction or decree
of any government, governmental instrumentality, agency or body,
arbitration tribunal or court, domestic or foreign, having jurisdiction
over the Company or any property of the Company. The consent,
approval, authorization or order of any court or governmental
instrumentality, agency or body is not required for the consummation
of the transactions herein contemplated except such as may be required
under the Act or under the Blue Sky or securities laws of any state or
jurisdiction.
2.8 Incorporation and Standing. The Company is, and at the
Closing Date will be, duly formed and validly existing in good standing
as a corporation under the laws of the State of Nevada and with full
power and authority (corporate and other) to own its properties and
conduct its business, present and proposed, as described in the
Offering Documents; the Company, has full power and authority to enter
into this Agreement; and the Company is duly qualified and in good
standing as a foreign entity in each jurisdiction in which the failure
to so qualify would have a material adverse effect on the Company or
its properties.
2.9 Legality of Outstanding Securities. Prior to the Closing
Date, the outstanding securities of the Company have been duly and
validly authorized and issued, fully paid and nonassessable and conform
in all material respects to the statements with regard thereto
contained in the Offering Documents.
2.10 Legality of Securities. The Securities, when sold and
delivered, will constitute legal, valid and binding obligations of the
Company, enforceable in accordance with the terms thereof, and shall
be duly and validly issued and outstanding, fully paid and
nonassessable. The Common Stock into which the Securities are
convertible, when converted in accordance with the Company's Articles
of Incorporation shall be duly and validly issued and outstanding,
fully paid and non-assessable.
2.11 Litigation. Except as set forth in the Offering Documents,
there is now, and at the Closing Date there will be, no action, suit
or proceeding before any court or governmental agency, authority or
body pending or, to the knowledge of the Company, threatened, which
might result in judgements against the Company not adequately covered
by insurance or which collectively might result in any material adverse
change in the condition (financial or otherwise) or business of the
Company or which would materially adversely affect the properties or
assets of the Company.
2.12 Finders. The Company does not know of any outstanding
claims for services in the nature of a finder's fee or origination-
fees with respect to the sale of the Securities hereunder for which the
Agent may be responsible, and the Company will indemnify the Agent from
any liability for such fees by any party who has a claim for such
compensation from the Company and for which person the Agent is not
legally responsible.
-3-
<PAGE>
2.13 Tax Returns. The Company has filed all federal and state
tax returns which are required to be filed, and has paid all taxes
shown on such returns and on all assessments received by it to the
extent such taxes have become due. All taxes with respect to which the
Company is obligated have been paid or adequate accruals have been set
up to cover any such unpaid taxes.
2.14 Authority. The execution and delivery by the Company of
this Agreement have been duly authorized by all necessary action, and
this Agreement is the valid, binding and legally enforceable obligation
of the Company subject to standard qualifications as to the
availability of equitable remedies, the effect of bankruptcy and other
laws relating to the protection of debtors and public policy opinions
promulgated by the Commission with respect to indemnification against
liabilities under the Act.
2.15 Actions by the Company. The Company will not take any
action which will impair the effectiveness of the transactions
contemplated by this Agreement.
3. Issue, Sale and Delivery of the Securities.
3.1 Deliveries of Securities. Certificates in such form that,
subject to applicable transfer restrictions as described in the
Subscription Agreement, they can be negotiated by the purchasers
thereof (issued in such denominations and in such names as the Agent
may direct the Company to issue) for the Securities, and warrants
representing the Agent's warrant compensation described in Section 3.6
below ("Warrants"), shall be delivered by the Company to the Agent,
with copies made available to the Agent for checking at least one (1)
full business day prior to the Closing Date, it being understood that
the directions from the Agent to the Company shall be given at least
two (2) full business days prior to the Closing Date. The certificates
for the Securities and the Warrants shall be delivered at the Closing
and at each Subsequent Closing (as defined hereinafter).
3.2 Escrow of Funds. Pursuant to the Escrow Agreement, a copy
of which is attached hereto as Exhibit "A" (the "Escrow Agreement"),
executed by the Company, the Agent and the escrow agent (the "Escrow
Agent"), the subscribers shall place all funds for purchase of
Securities for each Closing in an escrow account. The Company shall
have the right to approve or object the subscriptions of each
subscriber, as described in the Subscription Agreement. At such time
as subscribers subscribing for the Shares delivered to the Escrow Agent
their signed subscription documents, those subscribers have been
approved by the Company and all other Closing conditions have been met,
Escrow Agent shall release the subscription funds to the Company and
the Agent shall release the certificates representing the Securities
to the subscribers (the "Closing"). In the event that the Initial
Closing shall be for an amount of Securities less than the Maximum
Amount, the Offering may be continued, and additional Closings may be
held (each a "Subsequent Closing") throughout the Offering Period. In
addition, the Agent shall have the right to act as agent for the sale
of additional Preferred Stock or Securities as set forth in Section 5
herein.
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3.3 Closing Date. The Initial Closing and any Subsequent
Closing shall take place at the offices of Sims Moss Kline & Davis LLP,
400 Northpark Town Center, Suite 310, 1000 Abernathy Road, NE, Atlanta,
Georgia 30328 at such time and date ("Closing Date") as will be fixed
either orally or in writing by notice to be given by the Agent to the
Company after consultation with the Company, such Closing Date to be
not less than one (1) full business day after the date on which such
notice shall have been given and not less than one (1)) and not more
than ten (10) full business days after the date on which the Escrow
Agent shall have given written notice to the Company and the Agent that
funds deposited with the Escrow Agent total at least the Minimum
Proceeds. The Closing Date may be changed by mutual agreement of the
Agent and the Company.
3.4 Agent's Compensation. The Company shall pay the Agent:
(a) A commission of ten and one-half percent (10.0%) of
the gross subscription proceeds of the Initial Offering and any
subsequent Offerings (the "Gross Proceeds") plus a
non-accountable expense allowance of one percent (1.0%) of the
Gross Proceeds; and
(b) In addition to the fees and reimbursement of costs
set forth in Sections 3.4 and 3.5 of this Agreement, the Company
shall issue to the Agent warrants ("Warrants") to purchase
shares of the Company's Common Stock, in an amount equal to
100,000 Warrants for every $1,000,000 raised in the Offering,
which shall be exercisable for the Company's Common Stock on a
one for one basis at 100% of the Closing Bid Price immediately
prior to the Closing Date (as defined in the "Securities
Purchase Agreement"). The Warrants shall have cashless exercise
provisions. The term of the Warrant shall be five (5) years and
shall become exercisable at any time after one hundred eighty
(180) days from the effective date of a registration,
registering the underlying shares of Common Stock. The shares
of Common Stock issuable upon exercise of the Warrants shall
have registration rights as described in the Registration Rights
Agreement, set forth as an exhibit to the Subscription
Agreement; it being understood that, if the SEC requires removal
of the Warrants from any registration statement in which the
Warrants have a right by contract to be included, the removal of
the Warrants shall not constitute a breach of contract by the
Company, and the Company will use best efforts to include the
Warrants (or underlying shares) in a registration statement in
a manner acceptable to the SEC. The Warrants shall be delivered
by the Company to the Escrow Agent prior to each Closing, and
the Escrow Agent shall deliver to the Agent the Warrants
applicable to each Closing simultaneous with the respective
Closing.
3.5 Payment of Fees. The Escrow Agent shall be instructed to
pay all fees (including, but not limited to Agent's legal fees) and
cost reimbursements and Warrants pursuant to section 3.4 of this
Agreement, directly to the Agent from the proceeds of the Closing and
all Subsequent Closing, simultaneous with the transfer of proceeds to
the Company.
4. Offering of the Securities on Behalf of the Company.
4.1 In offering the Securities for sale, the Agent shall offer
them solely as an agent for the Company, and such offer shall be made
upon the terms and subject to the conditions set forth in the Offering
Documents. The Agent shall commence making such offer as an agent for
the Company as soon as possible following delivery of the Offering
Documents.
4.2 The Agent will not make offers to sell the Securities to,
or solicit offers to subscribe for any Securities from, persons or
entities that are not "accredited investors" as defined in Regulation
D.
5. Right of First Refusal. The Company hereby grants Agent
rights of first refusal as follows:
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5.1 The Agent has the right of first refusal to act as
placement agent for any future private financings of the Company,
whether equity securities, convertible debt securities, or securities
or instruments convertible into or exchangeable for debt or equity
securities of the Company, mergers, acquisitions, or similar
transactions. The duration of the Agent's right of first refusal under
this Section 5.2 shall be for a period of ninety (90) days following
the Final Closing of this Offering.
5.2 In the event that the Company wishes to undertake a
transaction described in this Section 5, the Company must send Agent
a written notice of the proposed transaction (whether the transaction
is initiated by the Company or is offered to the Company by a third
party), in sufficient specificity to allow the Agent to understand the
proposed transaction clearly. This notice must be delivered to Agent
at least twenty days prior to the proposed closing of the transaction.
The Agent shall have ten days from receipt of that notice to determine
whether or not it wishes to exercise its right of first refusal with
respect to that transaction. The Agent shall notify the Company in
writing of its decision to exercise or waive its right of first refusal
with respect to the transaction described in the notice. If the Agent
waives its right of first refusal with respect to a particular
transaction, the Company may proceed with that transaction; provided,
however, that if the terms of the transaction are changed in any
material way from the terms set forth in the notice to the Agent, the
Agent's right of first refusal shall commence again. Agent's waiver
of its rights of first refusal with respect to any specific transaction
shall not act as a waiver of its rights with respect to future
transactions within the applicable time period.
5.3 The Company agrees to maintain the confidentiality of the
Agent's clients, except as required by applicable law. Such clients
shall be those entities which invest or have been offered an
opportunity to invest by the Agent in the Offering (the "Clients").
For a period of two years from the Closing, the Company will not
solicit or enter into any financing transaction with the clients
without the written consent of Agent and payment to Agent compensation
no less than the compensation to be paid to Agent hereunder for raising
a like amount.
5.4 In the event that Company breaches Section 5.1, 5.2, or 5.3
of this Agreement, Agent shall be entitled to receive compensation in
the same proportion to the financing done without Agent's participation
as the compensation to Agent under this Agreement bears to the
financing raised in this Offering.
6. Covenants of the Company. The Company covenants and agrees
with the Agent that:
6.1 After the date hereof, the Company will not at any time,
prepare and distribute any amendment or supplement to the Offering
Documents, of which amendment or supplement the Agent shall not
previously have been advised and the Agent and its counsel furnished
with a copy within a reasonable time period prior to the proposed
adoption thereof, or to which the Agent shall have reasonable objected
in writing on the ground that it is not in compliance with the Act or
the Rules and Regulations (if applicable).
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<PAGE>
6.2 The Company will pay, whether or not the transactions
contemplated hereunder are consummated or this Agreement is prevented
from becoming effective or is terminated, all costs and expenses
incident to the performance of its obligations under this Agreement,
including all expenses incident to the authorization of the Securities
and their issue and delivery to the Agent, any original issue taxes in
connection therewith, all transfer taxes, if any, incident to the
initial sale of the Securities, the fees and expenses of the Company's
counsel (except as provided below) and accountants, the cost of
reproduction and furnishing to the Agent copies of the Offering
Documents as herein provided.
6.3 As a condition precedent to the Initial Closing, the
Company will deliver to the Agent a true and correct copy of the
Articles of Incorporation of the Company, and all amendments and
certificates of designation of preferences of preferred stock,
including without limitation the certificate of designation of
preferences regarding the Securities, certified by the Secretary of
State of Nevada.
6.4 Prior to the Closing Date, the Company will cooperate with
the Agent in such investigation as it may make or cause to be made of
all of the properties, business and operations of the Company in
connection with the Offering of the Securities. The Company will make
available to it in connection therewith such information in its
possession as the Agent may reasonably request and will make available
to the Agent such persons as the Agent shall deem reasonably necessary
and appropriate in order to verify or substantiate any such information
so supplied.
6.5 The Company shall be responsible for making any and all
filings required by the Blue Sky authorities and filings required by
the laws of the jurisdictions in which the subscribers who are accepted
for purchase of Securities are located, if any. Agent shall assist
Company in this respect, but such filings shall be the responsibility
of Company.
6.6 Corporation Condition. The Company's condition is as
described in its Offering Documents, except for changes in the ordinary
course of business and normal year-end adjustments that are not
individually or in the aggregate materially adverse to the Company.
The Offering Documents, taken as a whole, will present fairly the
business and financial position of the Company as of each Closing Date.
6.7 No Material Adverse Change. Except as may be reflected in
or contemplated by the Offering Documents, subsequent to the dates as
of which information is given in the Offering Documents, and prior to
each Closing Date, there shall not have been any material adverse
change in the condition, financial, or otherwise, or in the results of
operations of the Company or in its business taken as a whole.
7. Indemnification.
7.1 The Company agrees to indemnify and hold harmless the
Agent, each person who controls the Agent within the meaning of Section
15 of the Act and the Agent's employees, accountants, attorneys and
agents (the "Agent's Indemnitees") against any and all losses, claims,
damages or liabilities, joint or several, to which they or any of them
may become subject under the Act or any other statute or at common law
for any legal or other expenses (including the costs of any
investigation and preparation) incurred by them in connection with any
litigation, whether or not resulting in any liability, but only insofar
as such losses, claims, damages, liabilities and litigation arise out
of or are based upon any untrue statement of material fact contained
in the Offering Documents or any amendment or supplement thereto or any
application or other document filed in any state or jurisdiction in
order to qualify the Securities under the Blue Sky or securities laws
thereof, or the omission to state therein a material fact required to
be stated therein or necessary to make the statements therein, under
the circumstances under which they were made, not misleading, all as
of the date of the Offering Documents or of
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<PAGE>
such amendment as the case may be; provided, however, that the
indemnity agreement contained in this Section 7.1 shall not apply to
amount paid in settlement of any such litigation, if such settlements
are made without the consent of the Company, nor shall it apply to the
Agent's Indemnitees in respect to any such losses, claims, damages or
liabilities arising out of or based upon any such untrue statement or
alleged untrue statement or any such omission or alleged omission, if
such statement or omission was made in reliance upon information
furnished in writing to the Company by the Agent specifically for use
in connection with the preparation of the Offering Documents or any
such amendment or supplement thereto or any application or other
document filed in any state or jurisdiction in order to qualify the
Securities under the Blue Sky or securities law thereof. This
indemnity agreement is in addition to any other liability which the
Company may otherwise have to the Agent's Indemnitees. The Agent's
Indemnitees agree, within ten (10) days after the receipt by them of
written notice of the commencement of any action against them in
respect to which indemnity may be sought from the Company under this
Section 7. 1, to notify the Company in writing of the commencement of
such action; provided, however, that the failure of the Agent's
Indemnitees to notify the Company of any such action shall not relieve
the Company from any liability which it may have to the Agent's
Indemnitees on account of the indemnity agreement contained in this
Section 7.1, and further shall not relieve the Company from any other
liability which it may have to the Agent's Indemnitees, and if the
Agent's Indemnitees shall notify the Company of the commencement
thereof, the Company shall be entitled to participate in (and, to the
extent that the Company shall wish, to direct) the defense thereof at
its own expense, but such defense shall be conducted by counsel of
recognized standing and reasonably satisfactory to the Agent's
Indemnitees, defendant or defendants, in such litigation. The Company
agrees to notify the Agent's Indemnitees promptly of the commencement
of any litigation or proceedings against the Company or any of the
Company's officers or directors of which the Company may be advised in
connection with the issue and sale of any of the Securities and to
furnish to the Agent's Indemnitees, at their request, to provide copies
of all pleadings therein and to permit the Company's Indemnitees to be
observers therein and apprise the Agent's Indemnitees of all
developments therein, all at the Company's expense.
7.2 The Agent agrees, in the same manner and to the same extent
as set forth in Section 7.1 above, to indemnify and hold harmless the
Company, and the Company's and Company's employees, accountants,
attorneys and agents (the "Company's Indemnitees") with respect to (i)
any statement in or omission from the Offering Documents or any
amendment or supplement thereto or any application or other document
filed in any state or jurisdiction in order to qualify the Securities
under the Blue Sky or securities laws thereof, or any information
furnished pursuant to Section 3.4 hereof, if such statement or omission
was made in reliance upon information furnished in writing to the
Company by the Agent on its behalf specifically for use in connection
with the preparation thereof or supplement thereto, or (ii) any untrue
statement of a material fact made by the Agent or its agents not based
on statements in the Offering Documents or authorized in writing by the
Company, or with respect to any misleading statement made by the Agent
or its agents resulting from the omission of material facts which
misleading statement is not based upon the Offering Documents, or
information furnished in writing by the Company or, (iii) any breach
of any representation, warranty or covenant made by the Agent in this
Agreement. The Agent's liability hereunder shall be limited to the
amount received by it for acting as Agent in connection with the
Offerings. The Agent shall not be liable for amounts paid in
settlement of any such litigation if such settlement was effected
without its consent. In case of the commencement of any action in
respect of which indemnity may be sought from the Agent, the Company's
Indemnitees shall have the same obligation to give notice as set forth
in Section 7.1 above, subject to the same loss of indemnity in the
event such notice is not given, and the Agent shall have the same right
to participate in (and, to the extent that it shall wish, to direct)
the defense of such action at its own expense, but such defense shall
be conducted by counsel of recognized standing reasonably satisfactory
to the Company. The Agent agrees to notify the Company's Indemnitees
and, at their request, to provide copies of all pleadings therein and
to permit the Company's Indemnitees to be observers therein and apprise
them of all the developments therein, all at the Agent's expense.
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<PAGE>
8. Effectiveness of Agreement. This Agreement shall become
effective (i) at 9:00 A.M., Atlanta, Georgia time, on the date hereof
or (ii) upon release by the Agent of the Securities for offering after
the date hereof, whichever shall last occur. The Agent agrees to
notify the Company immediately after the Agent shall have taken any
action by such release or otherwise wherein this Agreement shall have
become effective. This Agreement shall, nevertheless, become effective
at such time earlier than the time specified above after the date
hereof as the Agent may determine by notice to the Company.
9. Conditions of the Agent's Obligations. The Agent's
obligations to act as agent of the Company hereunder and to find
purchasers for the Securities shall be subject to the accuracy, as of
the Closing Date, of the representations and warranties on the part of
the Company herein contained, to the fulfillment of or compliance by
the Company with all covenants and conditions hereof, and to the
following additional conditions:
9.1 Counsel to the Agent shall not have objected in writing or
shall not have failed to give his consent to the Offering Documents
(which objection or failure to give consent shall not have been done
unreasonably).
9.2 The Agent shall not have disclosed to the Company that the
Offering Documents, or any amendment thereof or supplement thereto,
contains an untrue statement of fact, which, in the opinion of counsel
to the Agent, is material, or omits to state a fact, which, in the
opinion of such counsel, is material and is required to be stated
therein, or is necessary to make the statements therein, under the
circumstances in which they were made, not misleading.
9.3 Between the date hereof and the Closing Date, the Company
shall not have sustained any loss on account of fire, explosion, flood,
accident, calamity or any other cause of such character as would
materially adversely affect its business or property considered as an
entire entity, whether or not such loss is covered by insurance.
9.4 Between the date hereof and the Closing Date, there shall
be no litigation instituted or threatened against the Company, and
there shall be no proceeding instituted or threatened against the
Company before or by any federal or state commission, regulatory body
or administrative agency or other governmental body, domestic or
foreign, wherein an unfavorable ruling, decision or finding would
materially adversely affect the business, franchises, license, permits,
operations or financial condition or income of the Company considered
as an entity.
9.5 Except as contemplated herein or as set forth in the
Offering Documents, during the period subsequent to the most recent
financial statements contained in the Offering Documents, if any, and
prior to the Closing Date, the Company (i) shall have conducted its
business in the usual and ordinary manner as the same is being
conducted as of the date hereof and (ii) except in the ordinary course
of business, the Company shall not have incurred any liabilities or
obligations (direct or contingent) or disposed of any assets, or
entered into any material transaction or suffered or experienced any
substantially adverse change in its condition, financial or otherwise.
At the Closing Date, the equity account of the Company shall be
substantially the same as reflected in the most recent balance sheet
contained in the Offering Documents without considering the proceeds
from the sale of the Securities other than as may be set forth in the
Offering Documents.
9.6 The authorization of the Securities by the Company and all
proceedings and other legal matters incident thereto and to this
Agreement shall be reasonably satisfactory in all respects to counsel
to the Agent, who shall have furnished the Agent on the Closing Date
with such favorable opinion with respect to the sufficiency of all
corporate proceedings and other legal matters relating to this
Agreement as the Agent may reasonably
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<PAGE>
require, and the Company shall have furnished such counsel such
documents as he may have requested to enable him to pass upon the
matters referred to in this subparagraph.
9.7 The Company shall have furnished to the Agent the opinion,
dated the Closing Date, addressed to the Agent, from counsel to the
Company, as required by the Subscription Agreement.
9.8 The Company shall have furnished to the Agent a certificate
of the Chief Executive Officer and the Chief Financial Officer of the
Company, dated as of the Closing Date, to the effect that:
(i) the representations and warranties of the Company in
this Agreement are true and correct in all material respects at
and as of the Closing Date (other than representations and
warranties which by their terms are specifically limited to a
date other than the Closing Date), and the Company has complied
with all the agreements and has satisfied all the conditions on
its part to be performed or satisfied at or prior to the Closing
Date; and
(ii) the respective signers have each carefully examined
the Offering Documents, and any amendments and supplements
thereto, and, to the best of their knowledge, in the Offering
memorandum, and any amendments and supplements thereto, all
statements contained in the Offering Documents are true and
correct, and neither the Offering Documents, nor any amendment
or supplement thereto, includes any untrue statement of a
material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein under
the circumstances in which they were made not misleading, and
since the date hereof, there has occurred no event required to
be set forth in an amended or supplemented Offering Documents,
which has not been set forth; except as set forth in the
Offering Documents, since the respective dates as of which or
the periods for which the information is given in the Offering
Documents and prior to the date of such certificate, (a) there
has not been any substantially adverse change, financial and
otherwise, in the affairs of condition in the Company, and (b)
the Company has not incurred any material liabilities, direct or
contingent, or entered into any material transactions, otherwise
than in the ordinary course of business.
10. Termination.
10.1 This Agreement may be terminated by the Agent by notice to
the Company in the event that the Company shall have failed or been
unable to comply with any of the terms, conditions or provisions of
this Agreement on the part of the Company to be performed, complied
with or fulfilled within the respective times, if any, herein provided
for, unless compliance therewith or performance or satisfaction thereof
shall have been expressly waived by the Agent in writing.
10.2 This Agreement may be terminated by the Company by notice
to the Agent in the event that the Agent shall have failed or been
unable to comply with any of the terms, conditions or provisions of
this Agreement on the part of the Agent to be performed, complied with
or fulfilled within the respective times, if any, herein provided for,
unless compliance therewith or performance or satisfaction thereof
shall have been expressly waived by the Company in writing.
10.3 This Agreement may be terminated by the Agent by notice to
the Company at any time, if, in the reasonable, good faith judgment of
the Agent, payment for and delivery of the Securities is rendered
impracticable or inadvisable because: (i) additional material
governmental restrictions not in force and effect on the date hereof
shall have been imposed upon trading in securities generally; (ii) a
war or other national calamity shall have occurred; or (iii) the
condition of the market (either generally or with reference to the sale
of the
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<PAGE>
Securities to be offered hereby) or the condition of any matter
affecting the Company or any other circumstance is such that it would
be undesirable, impracticable or inadvisable, in the judgment of the
Agent, to proceed with this Agreement or with the Offering.
10.4 Any termination of this Agreement pursuant to this Section
shall be without liability of any character (including, but not limited
to, loss of anticipated profits or consequential damages) on the part
of any party thereto, except that the Company shall remain obligated
to pay the costs and expenses provided to be paid by it specified in
Sections 3, 5, and 6; and the Company and the Agent shall be obligated
to pay, respectively, all losses, claims, damages or liabilities, joint
or several, under Section 7.1 in the case of the Company and Section
7.2 in the case of the Agent.
11. Agent's Representations, Warranties, and Covenants. The
Agent represents and warrants to and agrees with the Company that:
11.1 Agent is a corporation duly incorporated and existing under
the laws of the state of Georgia. Agent is registered with the
Securities Exchange Commission and the NASD.
11.2 Agent understands and acknowledges that the Securities are
not being registered under the Act, and that the Offering is to be
conducted pursuant to Regulation D. Accordingly, in conducting its
activities under this Agreement. Agent shall offer Securities only to
"accredited investors," as defined in Regulation D.
11.3 Neither the Agent nor any of its Affiliates will take any
action which will impair the effectiveness of the transactions
contemplated by this Agreement.
11.4 All corporate actions by Agent required for the execution,
delivery and performance of this Agreement have been taken. The
execution and delivery of this Agreement by the Agent, the observance
and performance thereof, and the consummation of the transactions
contemplated herein or in the Offering Documents do not and will not
constitute a material breach of, or a material default under, any
instrument or agreement by which the Agent is bound, and does not and
will not, to the best of the Agent's knowledge, contravene any existing
law, decree or order applicable to it. This Agreement constitutes a
valid and binding agreement of Agent, enforceable in accordance with
its terms.
11.5 Agent understands that the Company is relying upon Agent's
representations and warranties in connection with the Offering and the
sale of the Securities contemplated by this Agreement.
11.6 Agent's representations and warranties under this Section
shall be true and correct as of the Closing, and shall survive the
Closing for a period of six months.
12. Notices. Except as otherwise expressly provided in this
Agreement:
12.1 Whenever notice is required by the provisions of this
Agreement to be given to the Company, such notice shall be in writing,
addressed to the Company, at:
If to Company: D.H. Marketing & Consulting, Inc.
300 Keystone Street
Hawley, Pennsylvania 18428
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With a copy to: Max C. Tanner, Esq.
Law Offices of Max C. Tanner
2950 E. Flamingo Road, Suite G
Las Vegas, Nevada 89121
12.2 Whenever notice is required by the provisions of this
Agreement to be given to the Agent, such notice shall be given in
writing, addressed to the Agent, at:
If to the Agent: J.P. Carey Securities, Inc.
Atlanta Financial Center, East Tower
3343 Peachtree Road, Suite 500
Atlanta, Georgia 30326
Attn: Joseph C. Canouse
With a copy to: Raymond L. Moss, Esq.
Sims Moss Kline & Davis LLP
400 Northpark Town Center, Suite 310
1000 Abernathy Road, N.E.
Atlanta, Georgia 30328
12.3 Any notice instructing the Escrow Agent to distribute
monies or Securities held in Escrow must be signed by authorized agents
of both the Company and the Agent in order to be valid.
13. Miscellaneous.
13.1 Benefit. This Agreement is made solely for the benefit of
the Agent and the Company, their respective officers and directors and
any controlling person referred to in Section 15 of the Act and their
respective successors and assigns, and no other person may acquire or
have any right under or by virtue of this Agreement, including, without
limitation, the holders of any Securities. The term "successor" or the
term"successors and assigns" as used in this Agreement shall not
include any purchasers, as such, of any of the Securities.
13.2 Survival. The respective indemnities, agreements,
representations, warranties, covenants and other statements of the
Company and the Agent, or the officers, directors or controlling
persons of the Company and the Agent as set forth in or made pursuant
to this Agreement and the indemnity agreements of the Company and the
Agent contained in Section 7 hereof shall survive and remain in full
force and effect, regardless of (i) any investigation made by or on
behalf of the Company or the Agent or any such officer, director or
controlling person of the Company or of the Agent; (ii) delivery of or
payment for the Securities; or (iii) the Closing Date, and any
successor of the Company or the Agent or any controlling person,
officer or director thereof, as the case may be, shall be entitled to
the benefits hereof.
13.3 Governing Law. The validity, interpretation, and
construction of this Agreement will be governed by the Laws of the
State of Georgia. This Agreement and each Warrant Certificate
hereunder shall be governed by and interpreted in accordance with the
laws of the State of Nevada without regard to the principles of
conflict of laws. Any dispute or controversy between the parties
arising in connection with this Agreement or the subject matter
contemplated by this Agreement shall be resolved by arbitration before
a three-member panel of the American Arbitration Association in
accordance with the commercial arbitration rules of said forum and the
Federal Arbitration Act, 9 U.S.C. 1 et seq., with the resulting award
being final and conclusive. Said arbitrators shall be empowered to
award all forms of relief and damaged claimed, including, but not
limited to, attorney's fees, expenses of litigation and arbitration,
exemplary damages, and prejudgment interest. The parties further agree
that any arbitration action between them shall be heard in Atlanta,
Georgia, and expressly consent to the jurisdiction and venue of the
Superior Court of Fulton County, Georgia, and the United States
District
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Court for the Northern District of Georgia, Atlanta Division for the
adjudication of any civil action asserted pursuant to this Paragraph.
13.4 Counterparts. This Agreement may be executed in any number
of counterparts, each of which may be deemed an original and all of
which together will constitute one and the same instrument.
13.5 Confidential Information. All confidential financial or
business information (except publicly available or freely usable
material otherwise obtained from another source) respecting either
party will be used solely by the other party in connection with the
within transactions, be revealed only to employees or contractors of
such other party who are necessary to the conduct of such transactions,
and be otherwise held in strict confidence.
13.6 Public Announcements. Prior to the Closing Date, neither
party hereto will issue any public announcement concerning the within
transactions without the approval of the other party.
13.7 Finders. The parties acknowledge that no person has acted
as a finder in connection with the transactions contemplated herein and
each will agree to indemnify the other with respect to any other claim
for a finder's fee in connection with the offering.
13.8 Recitals. The recitals to this Agreement are a material
part hereof, and each recital is incorporated into this Agreement by
reference and made a part of this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly caused this
Agreement to be executed as of the day and year first above written.
"THE COMPANY"
D.H. MARKETING & CONSULTING, INC.
By: /s/ DAVID D. HAGEN
David D. Hagen, President
"THE AGENT"
J.P. CAREY SECURITIES, INC.
By: /s/ JOSEPH CANOUSE
Joseph Canouse, President
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WARRANT AGREEMENT
WARRANT AGREEMENT dated as of September 18, 1998, between D.H.
Marketing & Consulting, Inc., a Nevada corporation (the "Company"), and
J.P. Carey Securities, Inc., a Georgia corporation (hereinafter
referred to as "J.P. Carey").
W I T N E S S E T H:
WHEREAS, J.P. Carey has assisted the Company in connection with
the Company's offering (the "Offering") of up to $3,000,000 in
principal amount of Series A Preferred Stock (the "Preferred Stock")
for an aggregate purchase price $3,000,000; and
WHEREAS, the Warrants issued pursuant to this Agreement are being
issued by the Company to J.P. Carey and/or its designees, in
consideration for, and as part of the compensation to be paid in
connection with, the services of J.P. Carey in connection with the
Offering;
NOW, THEREFORE, in consideration of the premises, the agreements
herein set forth and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Grant.
J.P. Carey and/or its designees are hereby granted the right to
purchase, at any time from the date of issuance of the aforementioned
Preferred Stock until 5:00 P.M., Eastern Standard Time, on September
18, 2003 (the "Warrant Exercise Term"), 60,000 Shares at an exercise
price (subject to adjustment as provided in Article 7 hereof) of 100%
of the Closing Bid Price (as defined in the Company's Certificate of
Designations, Preferences and Rights filed by the Company in connection
with the Offering) of the Company's Common Stock, par value $.0003 per
share on the last business day immediately prior to the date of closing
of the Offering, which is equal to $2.875 per share (the "Initial
Exercise Price").
2. Warrant Certificates.
The warrant certificates (the "Warrant Certificates)
delivered and to be delivered pursuant to this Agreement shall be in
the form set forth as Exhibit A, attached hereto and made a part
hereof, with such appropriate insertions, omissions, substitutions and
other variations as required or permitted by this Agreement.
3. Exercise of Warrants.
3.1 Cash Exercise. The Exercise Price may be paid in
cash or by check to the order of the Company, or any combination of
cash or check, subject to adjustment as provided in Article 7 hereof.
Upon surrender of the Warrant Certificate with the annexed Form of
Election to Purchase duly executed, together with payment of the
Exercise Price (as hereinafter defined) for the Shares purchased, at
the Company's executive offices currently located at 300 Keystone
Street, Hawley, Pennsylvania 18428, the registered holder of a Warrant
Certificate ("Holder" or "Holders") shall be entitled to receive a
certificate or certificates for the Shares so purchased. The purchase
rights represented by each Warrant Certificate are exercisable at the
option of the Holder hereof, in whole or in part (but not as to
fractional shares of the Common Stock). In the case of the purchase of
less than all the Shares purchasable under any Warrant Certificate, the
Company shall cancel said Warrant Certificate upon the surrender
thereof and shall execute and deliver a new Warrant Certificate of like
tenor for the balance of the Shares
<PAGE>
purchasable thereunder.
3.2 Cashless Exercise. At any time during the Warrant
Exercise Term, the Holder may, at its option, exchange this Warrant, in
whole or in part (a "Warrant Exchange"), into the number of Shares
determined in accordance with this Section 3.2, by surrendering this
Warrant at the principal office of the company or at the office of its
transfer agent, accompanied by a notice stating such Holder's intent to
effect such exchange, the number of Shares to be exchanged and the date
on which the Holder requests that such Warrant Exchange occur (the
"Notice of Exchange"). The Warrant Exchange shall take place on the
date specified in the Notice of Exchange or, if later, the date the
Notice of Exchange is received by the Company (the "Exchange Date").
Certificates for the Shares issuable upon such Warrant Exchange and, if
applicable, a new warrant of like tenor evidencing the balance of the
Shares remaining subject to this Warrant, shall be issued as of the
Exchange Date and delivered to the Holder within seven (7) business
days following the Exchange Date. In connection with any Warrant
Exchange, this Warrant shall represent the right to subscribe for and
acquire the number of Shares (rounded to the next highest integer)
equal to (i) the number of Shares specified by the Holder in its Notice
of Exchange (the "Total Number") less (ii) the number of Shares equal
to the quotient obtained by dividing (A) the product of the Total
Number and the then existing Exercise Price by (B) the current market
value of a share of Common Stock.
4. Issuance of Certificates.
Upon the exercise of the Warrants, the issuance of certificates
for the Shares shall be made forthwith (and in any event within five
business days thereafter) without charge to the Holder thereof
including, without limitation, any tax which may be payable in respect
of the issuance thereof, and such certificates shall be issued in the
name of, or in such names as may be directed by, the Holder thereof;
provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the
issuance and delivery of any such certificates in a name other than
that of the Holder 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 satisfaction of the
Company that such tax has been paid.
The Warrant Certificates and the certificates representing the
Shares shall be executed on behalf of the Company by the manual or
facsimile signature of the present or any future Chairman or Vice
Chairman of the Board of Directors, Chief Executive officer or
President or Vice President of the Company under its corporate seal
reproduced thereon, attested to by the manual or facsimile signature of
the present or any future Secretary or Assistant Secretary of the
Company. Warrant Certificates shall be dated the date of execution by
the Company upon initial issuance, division, exchange, substitution or
transfer.
The Warrant Certificates and, upon exercise of the Warrants, in
part or in whole, certificates representing the Shares shall bear a
legend substantially similar to the following:
The securities represented by this certificate have not
been registered under the Securities Act of 1933, as
amended (the "Act"), and may not be offered or sold except
(i) pursuant to an effective registration statement under
the Act, (ii) to the extent applicable, pursuant to Rule
144 under the Act (or any similar rule under such Act
relating to the disposition of securities), or (iii) upon
the delivery by the holder to the Company of an opinion of
counsel, reasonably satisfactory to counsel to the issuer,
stating that an exemption from registration under such Act
is available.
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<PAGE>
5. Price.
5.1 Adjusted Exercise Price. The adjusted Exercise Price
shall be the price which shall result from time to time from any and
all adjustments of the Initial Exercise Price in accordance with the
provisions of Article 7 hereof.
5.2 Exercise Price. The term "Exercise Price" herein
shall mean the Initial Exercise Price or the adjusted Exercise Price,
depending upon the context.
6. Registration Rights.
6.1 Registration Under the Securities Act of 1933.
The Warrants and the Shares have not been registered for purposes of
public distribution under the Securities Act of 1933, as amended ("the
Act").
6.2 Registrable Securities. As used herein the term
"Registrable Security" means each of the Warrants, the Shares and any
shares of Common Stock issued upon any stock split or stock dividend in
respect of such Shares; provided, however, that with respect to any
particular Registrable Security, such security shall cease to be a
Registrable Security when, as of the date of determination, (i) it has
been effectively registered under the Securities Act and disposed of
pursuant thereto, (ii) registration under the Securities Act is no
longer required for the immediate public distribution of such security
or (iii) it has ceased to be outstanding. The term "Registrable
Securities" means any and/or all of the securities falling within the
foregoing definition of a "Registrable Security." In the event of any
merger, reorganization, consolidation, recapitalization or other change
in corporate structure affecting the Common Stock, such adjustment
shall be made in the definition of "Registrable Security" as is
appropriate in order to prevent any dilution or enlargement of the
rights granted pursuant to this Article 6.
6.3 Piggyback Registration. If, at any time during the
five years following the date of this Agreement, the Company proposes
to prepare and file any registration statement or post-effective
amendments thereto covering equity or debt securities of the Company,
or any such securities of the Company held by its shareholders (in any
such case, other than in connection with a merger, acquisition or
pursuant to Form S-8 or successor form), (for purposes of this Article
6, collectively, a "Registration Statement"), it will give written
notice of its intention to do so by registered mail ("Notice"), at ten
(10) business days prior to the filing of each such Registration
Statement, to all holders of the Registrable Securities. Upon the
written request of such a holder (a "Requesting Holder"), made within
ten (10) business days after receipt of the Notice, that the Company
include any of the Requesting Holder's Registrable Securities in the
proposed Registration Statement, the Company shall, as to each such
Requesting Holder, use its best efforts to effect the registration
under the Securities Act of the Registrable Securities which it has
been so requested to register ("Piggyback Registration"), at the
Company's sole cost and expense and at no cost or expense to the
Requesting Holders; Notwithstanding the provisions of this Section 6.3,
the Company shall have the right at any time after it shall have given
written notice pursuant to this Section 6.3 (irrespective of whether
any written request for inclusion of such securities shall have already
been made) to elect not to file any such proposed Registration
Statement, or to withdraw the same after the filing but prior to the
effective date thereof.
6.4 Demand Registration.
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<PAGE>
(a) At any time, commencing ninety (90) days from
the date of this Agreement and during the Warrant Exercise Term, any
"Majority Holder" (as such term is defined in Section 6.4(d) below) of
the Registrable Securities shall have the right (which right is in
addition to the piggyback registration rights provided for under
Section 6.3 hereof), exercisable by written notice to the Company (the
"Demand Registration Request"), to have the Company prepare and file
with the Securities and Exchange Commission (the "Commission"), on one
occasion, at the sole expense of the Company, a Registration Statement
and such other documents, including a prospectus, as may be necessary
(in the opinion of both counsel for the Company and counsel for such
Majority Holder), in order to comply with the provisions of the Act, so
as to permit a public offering and sale of the Registrable Securities
by the holders thereof, for nine (9) consecutive months.
(b) The Company covenants and agrees to give
written notice of any Demand Registration Request to all holders of the
Registrable Securities within ten (10) days from the date of the
Company's receipt of any such Demand Registration Request. After
receiving notice from the Company as provided in this Section 6.4(b),
holders of Registrable Securities may request the Company to include
their Registrable Securities in the Registration Statement to be filed
pursuant to Section 6.4(a) hereof by notifying the Company of their
decision to include such securities within twenty (20) days of their
receipt of the Company's notice.
(c) In addition to the registration rights provided
for under Section 6.3 and subsection (a) of this Section 6.4, at any
time during the Warrant Exercise Term, any Majority Holder (as defined
below in Section 6.4(d)) of Registrable Securities shall have the
right, exercisable by written request to the Company, to have the
Company prepare and file with the Commission, on one occasion in
respect of all holders of Registrable Securities, a Registration
Statement so as to permit a public offering and sale of such
Registrable Securities for nine (9) consecutive months, provided,
however, that all costs incident thereto shall be at the expense of the
holders of the Registrable Securities included in such Registration
Statement. If a Majority Holder shall give notice to the Company at
any time of its or their desire to exercise the registration right
granted pursuant to this Section 6.4(c), then within ten (10) days
after the Company's receipt of such notice, the Company shall give
notice to the other holders of Registrable Securities, advising them
that the Company is proceeding with such registration and offering to
include therein the Registrable Securities of such holders, provided
they furnish the Company with such appropriate information in
connection therewith as the Company shall reasonably request in
writing.
(d) The term "Majority Holder" as used in this
Section 6.4 shall mean any holder or any combination of holders of
Registrable Securities, if included in such holders, Registrable
Securities are that aggregate number of Shares (including Shares
already issued and Shares issuable pursuant to the exercise of
outstanding Warrants) as would constitute a majority of the aggregate
number of Shares (including Shares already issued and Shares issuable
pursuant to the exercise of outstanding Warrants) included in all of
the Registrable Securities.
-4-
<PAGE>
6.5 Covenants of the Company With Respect to
Registration. The Company covenants and agrees as follows:
(a) In connection with any registration under
Section 6.4 hereof, the Company shall file the Registration Statement
as expeditiously as possible, but in no event later than twenty (20)
business days following receipt of any demand therefor, shall use its
best efforts to have any such Registration Statements declared
effective at the earliest possible time, and shall furnish each holder
of Registrable Securities such number of prospectuses as shall
reasonably be requested.
(b) The Company shall pay all costs, fees and
expenses (excluding fees of holders for their counsel, transfer taxes
and underwriting discounts or commissions) in connection with all
Registration Statements filed pursuant to Sections 6.3 and 6.4(a)
hereof including, without limitation, the Company's legal and
accounting fees, printing expenses, and blue sky fees and expenses.
The holders of Registrable Securities included in any Registration
Statement filed pursuant to Section 6.4(c) hereof will pay all costs,
fees and expenses in connection with such registration.
(c) The Company will take all necessary action
which may be required in qualifying or registering the Registrable
Securities included in a Registration Statement for offering and sale
under the securities or blue sky laws of such states as are requested
by the holders of such securities.
(d) The Company shall indemnify any holder of the
Registrable Securities to be sold pursuant to any Registration
Statement and any underwriter or person deemed to be an underwriter
under the Act and each person, if any, who controls such holder or
underwriter or person deemed to be an underwriter within the meaning of
Section 15 of the Act or Section 20(a) of the Securities Exchange Act
of 1934, as amended ("Exchange Act"), against all loss, claim, damage,
expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to
which any of them may become subject under the Act, the Exchange Act or
otherwise, arising from such Registration Statement to the same extent
and with the same effect as the provisions pursuant to which the
Company has agreed to indemnify the purchasers of the Company's
Preferred Stock contained in the Registration Rights Agreement dated of
even date herewith.
(e) Any holder of Registrable Securities to be sold
pursuant to a Registration Statement, and its successors and assigns,
shall severally, and not jointly, indemnify, the Company, its officers
and directors and each person, if any, who controls the Company within
the meaning of Section 15 of the Act or Section 20(a) of the Exchange
Act, against all loss, claim, damage or expense or liability (including
all expenses reasonably incurred in investigating, preparing or
defending against any claim whatsoever) to which they may become
subject under the Act, the Exchange Act or otherwise, arising from
information furnished in writing by or on behalf of such holder, or its
successors or assigns, for specific inclusion in such Registration
Statement to the same extent and with the same effect as the provisions
pursuant to which purchasers of the Company's Preferred Stock have
agreed to indemnify the Company contained in the Registration Rights
Agreement dated of even date herewith.
(f) Nothing contained in this Agreement shall be
construed as requiring any Holder to exercise his Warrants prior to the
initial filing of any Registration Statement or the effectiveness
thereof.
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<PAGE>
(g) If the Company shall fail to comply with the
provisions of this Article 6, the Company shall, in addition to any
other equitable or other relief available to the holders of Registrable
Securities, be liable for any or all incidental, special and
consequential damages sustained by the holders of Registrable
Securities, requesting registration of their Registrable Securities.
(h) Except as otherwise provided to the contrary
herein, the Company shall not permit the inclusion of any securities
other than the Registrable Securities to be included in any
Registration Statement filed pursuant to Section 6.4 hereof, or permit
any other registration statement to be or remain effective during the
effectiveness of a Registration Statement filed pursuant to Section 6.4
hereof, without the prior written consent of the Majority Holders,
which consent shall not be unreasonably withheld.
(i) The Company shall deliver promptly to each
holder of Registrable Securities participating in the offering
requesting the correspondence and memoranda described in this Section
6.5(i) and to the managing underwriter, if any, copies of all
correspondence between the Commission and the Company, its counsel or
auditors and all memoranda relating to discussions with the Commission
or its staff with respect to the Registration Statement and permit each
holder of Registrable Securities and underwriters to do such
investigation, upon reasonable advance notice, with respect to
information contained in or omitted from the Registration Statement as
it deems reasonably necessary to comply with applicable securities laws
or rules of the National Association of Securities Dealers, Inc. Such
investigation shall include access to books, records and properties and
opportunities to discuss the business of the Company with its officers
and independent auditors, all to such reasonable extent and at such
reasonable times and as often as any such holder of Registrable
Securities or underwriter shall reasonably request.
(j) If the Company shall enter into an underwriting
agreement with the managing underwriter selected for such underwriting,
such agreement shall be satisfactory in form and substance to the
Company, each holder of Registrable Securities and such managing
underwriter, and shall contain such representations, warranties and
covenants by the Company and such other terms as are customarily
contained in agreements of that type used by the managing underwriter.
The holders of Registrable Securities shall be parties to any
underwriting agreement relating to an underwritten sale of their
Registrable Securities and may, at their option, require that any or
all the representations, warranties and covenants of the Company to or
for the benefit of such underwriter shall also be made to and for the
benefit of such holders of Registrable Securities. Such holders of
Registrable Securities shall not be required to make any
representations or warranties to or agreements with the Company or the
underwriter except as they may relate to such holders of Registrable
Securities and their intended methods of distribution.
7. Adjustments of Exercise Price and Number of Shares.
7.1 Computation of Adjusted Price. Except as hereinafter
provided, in case the Company shall at any time after the date hereof
issue or sell any shares of Common Stock (other than the issuances or
sales referred to in Section 7.6 hereof), including shares held in the
Company's treasury and shares of Common Stock issued upon the exercise
of any options, rights or warrants to subscribe for shares of Common
Stock (other than the issuances or sales of Common Stock pursuant to
rights to subscribe for such Common Stock distributed to all the
shareholders of the Company and Holders of Warrants pursuant to Section
7.6 hereof) and shares of Common Stock issued upon the direct or
indirect conversion or exchange of securities for shares of Common
Stock, for a consideration per share less than the lesser of either the
Exercise Price in effect immediately prior to the issuance or sale of
such shares or the "Market Price" (as defined in Section 7.1(vi)
hereof) per share of Common Stock or without consideration, then
forthwith upon such issuance or sale, the Exercise Price shall (until
another such issuance or sale) be reduced to the price (calculated to
the nearest full cent) equal to the price
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<PAGE>
determined by multiplying the Exercise Price in effect immediately
prior to such issuance or sale by a fraction, the numerator of which
shall be the sum of the number of shares of Common Stock outstanding
immediately prior to such issuance or sale and the number of shares of
Common Stock which the amount of all consideration, if any, received by
the Company upon such issuance or sale would purchase at the Market
Price, and the denominator of which shall be the number of shares of
Common Stock outstanding immediately after such issuance or sale.
For the purposes of any computation to be made in
accordance with this Section 7.1, the following provisions shall be
applicable:
(i) In case of the issuance or sale of shares
of Common Stock for a consideration part or all of which shall be cash,
the amount of the cash consideration therefor shall be deemed to be the
amount of cash received by the Company for such shares (or, if shares
of Common Stock are offered by the Company for subscription, the
subscription price, or, if such securities shall be sold to
underwriters or dealers for public offering without a subscription
offering, the initial public offering price) before deducting therefrom
any compensation paid or discount allowed in the sale, underwriting or
purchase thereof by underwriters or dealers or others performing
similar services, or any expenses incurred in connection therewith.
(ii) In case of the issuance or sale
(otherwise than as a dividend or other distribution on any stock of the
Company) of shares of Common Stock for a consideration part or all of
which shall be other than cash, the amount of the consideration
therefor other than cash shall be deemed to be the value of such
consideration as determined in good faith by the Board of Directors of
the Company.
(iii) Shares of Common Stock issuable by way of
dividend or other distribution on any stock of the Company shall be
deemed to have been issued immediately after the opening of business on
the day following the record date for the determination of shareholders
entitled to receive such dividend or other distribution and shall be
deemed to have been issued without consideration.
(iv) The reclassification of securities of the
Company other than shares of Common Stock into securities including
shares of Common Stock shall be deemed to involve the issuance of such
shares of Common Stock for a consideration other than cash immediately
prior to the close of business on the date fixed for the determination
of security holders entitled to receive such shares, and the value of
the consideration allocable to such shares of Common Stock shall be
determined as provided in subsection (ii) of this Section 7.1.
(v) The number of shares of Common Stock at
any one time outstanding shall include the aggregate number of shares
issued or issuable upon the exercise of options, rights, warrants and
upon the conversion or exchange of convertible or exchangeable
securities.
(vi) As used herein, the phrase "Market Price,
at any date shall be deemed to be the last reported sale price, or, in
case no such reported sale takes place on such day, the average of the
last reported sale prices for the last three (3) trading days, in
either case as officially reported by the principal securities exchange
on which the Common Stock is listed or admitted to trading, if the
Common Stock is not listed or admitted to trading on any national
securities exchange, the closing bid price as furnished by the National
Association of Securities Dealers, Inc. through NASDAQ or similar
organization if NASDAQ is no longer reporting such information, or if
the Common Stock is not quoted on NASDAQ, as determined in good faith
by resolution of the Board of Directors of the Company, based on the
best information available to it for the two (2) days immediately
preceding such issuance or sale and the day of such issuance or sale.
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<PAGE>
7.2 Options, Rights, Warrants and Convertible and
Exchangeable Securities. Except in the case of the Company issuing
rights to subscribe for shares of Common Stock distributed to all the
shareholders of the Company and Holders of Warrants pursuant to Section
7.8 hereof, if the Company shall at any time after the date hereof
issue options, rights or warrants to subscribe for shares of Common
Stock, or issue any securities convertible into or exchangeable for
shares of Common Stock, (i) for a consideration per share less than (a)
the Exercise Price in effect immediately prior to the issuance of such
options, rights or warrants, or such convertible or exchangeable
securities, or (b) the Market Price, or (ii) without consideration, the
Exercise Price in effect immediately prior to the issuance of such
options, rights or warrants, or such convertible or exchangeable
securities, as the case may be, shall be reduced to a price determined
by making a computation in accordance with the provisions of Section
7.1 hereof, provided that:
(a) The aggregate maximum number of shares of
Common Stock, as the case may be, issuable under all the outstanding
options, rights or warrants shall be deemed to be issued and
outstanding at the time all the outstanding options, rights or warrants
were issued, and for a consideration equal to the minimum purchase
price per share provided for in the options, rights or warrants at the
time of issuance, plus the consideration (determined in the same manner
as consideration received on the issue or sale of shares in accordance
with the terms of the Warrants), if any, received by the Company for
the options, rights or warrants, and if no minimum price is provided in
the options, rights or warrants, then the consideration shall be equal
to zero; provided, however, that upon the expiration or other
termination of the options, rights or warrants, if any thereof shall
not have been exercised, the number of shares of Common Stock deemed to
be issued and outstanding pursuant to this subsection (a) (and for the
purposes of subsection (v) of Section 7.1 hereof) shall be reduced by
such number of shares as to which options, warrants and/or rights shall
have expired or terminated unexercised, and such number of shares shall
no longer be deemed to be issued and outstanding, and the Exercise
Price then in effect shall forthwith be readjusted and thereafter be
the price which it would have been had adjustment been made on the
basis of the issuance only of shares actually issued or issuable upon
the exercise of those options, rights or warrants as to which the
exercise rights shall not have expired or terminated unexercised.
(b) The aggregate maximum number of shares of
Common Stock issuable upon conversion or exchange of any convertible or
exchangeable securities shall be deemed to be issued and outstanding at
the time of issuance of such securities, and for a consideration equal
to the consideration (determined in the same manner as consideration
received on the issue or sale of shares of Common Stock in accordance
with the terms of the Warrants) received by the Company for such
securities, plus the minimum consideration, if any, receivable by the
Company upon the conversion or exchange thereof; provided, however,
that upon the termination of the right to convert or exchange such
convertible or exchangeable securities (whether by reason of redemption
or otherwise), the number of shares deemed to be issued and outstanding
pursuant to this subsection (b) (and for the purpose of subsection (v)
of Section 7.1 hereof) shall be reduced by such number of shares as to
which the conversion or exchange rights shall have expired or
terminated unexercised, and such number of shares shall no longer be
deemed to be issued and outstanding and the Exercise Price then in
effect shall forthwith be readjusted and thereafter be the price which
it would have been had adjustment been made on the basis of the
issuance only of the shares actually issued or issuable upon the
conversion or exchange of those convertible or exchangeable securities
as to which the conversion or exchange rights shall not have expired or
terminated unexercised.
(c) If any change shall occur in the price per
share provided for in any of the options, rights or warrants referred
to in subsection (a) of this Section 7.2, or in the price per share at
which the securities referred to in subsection (b) of this Section 7.2
are convertible or exchangeable, the options, rights or warrants or
conversion or exchange rights, as the case may be, shall be deemed to
have expired or terminated on
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<PAGE>
the date when such price change became effective in respect of shares
not theretofore issued pursuant to the exercise or conversion or
exchange thereof, and the Company shall be deemed to have issued upon
such date new options, rights or warrants or convertible or
exchangeable securities at the new price in respect of the number of
shares issuable upon the exercise of such options, rights or warrants
or the conversion or exchange of such convertible or exchangeable
securities.
7.3 Subdivision and Combination. In case the Company
shall at any time subdivide or combine the outstanding shares of Common
Stock, the Exercise Price shall forthwith be proportionately decreased
in the case of subdivision or increased in the case of combination.
7.4 Adjustment in Number of Shares. Upon each adjustment
of the Exercise Price pursuant to the provisions of this Article 7, the
number of Shares issuable upon the exercise of each Warrant shall be
adjusted to the nearest full Share by multiplying a number equal to the
Exercise Price in effect immediately prior to such adjustment by the
number of Shares issuable upon exercise of the Warrants immediately
prior to such adjustment and dividing the product so obtained by the
adjusted Exercise Price.
7.5 Reclassification, Consolidation, Merger, etc. In
case of any reclassification or change of the outstanding shares of
Common Stock (other than a change in par value to no par value, or from
no par value to par value, or as a result of a subdivision or
combination), or in the case of any consolidation of the Company with,
or merger of the Company into, another corporation (other than a
consolidation or merger in which the Company is the surviving
corporation and which does not result in any reclassification or change
of the outstanding shares of Common Stock, except a change as a result
of a subdivision or combination of such shares or a change in par
value, as aforesaid), or in the case of a sale or conveyance to another
corporation of the property of the Company as an entirety, the Holders
shall thereafter have the right to purchase the kind and number of
shares of stock and other securities and property receivable upon such
reclassification, change, consolidation, merger, sale or conveyance as
if the Holders were the owners of the shares of Common Stock underlying
the Warrants immediately prior to any such events at a price equal to
the product of (x) the number of shares issuable upon exercise of the
Warrants and (y) the Exercise Price in effect immediately prior to the
record date for such reclassification, change, consolidation, merger,
sale or conveyance as if such Holders had exercised the Warrants.
7.6 No Adjustment of Exercise Price in Certain Cases.
No adjustment of the Exercise Price shall be made:
(a) Upon the issuance or sale of shares of Common
Stock upon the exercise of the Warrants; or
(b) Upon (i) the issuance of options pursuant to
the Company's employee stock option plan in effect on the
date hereof or the issuance or sale by the Company of any
shares of Common Stock pursuant to the exercise of any such
options, or (ii) the issuance or sale by the Company of any
shares of Common Stock pursuant to the exercise of any
options or warrants previously issued and outstanding on
the date hereof; or
(c) Upon the issuance of shares of Common Stock
pursuant to contractual obligations existing on the date
hereof; or
(d) If the amount of said adjustment shall be less
than 2 cents (2 cents) per Share, provided, however, that in
such case any adjustment that would otherwise be required
then to
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<PAGE>
be made shall be carried forward and shall be made at the
time of and together with the next subsequent adjustment
which, together with any adjustment so carried forward,
shall amount to at least 2 cents (2 cents) per Share.
7.7 Dividends and Other Distributions with Respect to
Outstanding Securities. In the event that the Company shall at any
time prior to the exercise of all Warrants declare a dividend (other
than a dividend consisting solely of shares of Common Stock or a cash
dividend or distribution payable out of current or retained earnings)
or otherwise distribute to its shareholders any monies, assets,
property, rights, evidences of indebtedness, securities (other than
shares of Common Stock), whether issued by the Company or by another
person or entity, or any other thing of value, the Holder or Holders of
the unexercised Warrants shall thereafter be entitled, in addition to
the shares of Common Stock or other securities receivable upon the
exercise thereof, to receive, upon the exercise of such Warrants, the
same monies, property, assets, rights, evidences of indebtedness,
securities or any other thing of value that they would have been
entitled to receive at the time of such dividend or distribution. At
the time of any such dividend or distribution, the Company shall make
appropriate reserves to ensure the timely performance of the provisions
of this Subsection 7.7.
7.8 Subscription Rights for Shares of Common Stock or
Other Securities. In the case the Company or an affiliate of the
Company shall at any time after the date hereof and prior to the
exercise of all the Warrants issue any rights to subscribe for shares
of Common Stock or any other securities of the Company or of such
affiliate to all the shareholders of the Company, the Holders of the
unexercised Warrants shall be entitled, in addition to the shares of
Common Stock or other securities receivable upon the exercise of the
Warrants, to receive such rights at the time such rights are
distributed to the other shareholders of the Company.
8. Exchange and Replacement of Warrant Certificates.
Each Warrant Certificate is exchangeable without expense, upon
the surrender hereof by the registered Holder at the principal
executive office of the Company, for a new Warrant Certificate of like
tenor and date representing in the aggregate the right to purchase the
same number of Shares in such denominations as shall be designated by
the Holder thereof at the time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory
to it of the loss, theft, destruction or mutilation of any Warrant
Certificate, and, in case of loss, theft or destruction, of indemnity
or security reasonably satisfactory to it, and reimbursement to the
Company of all reasonable expenses incidental thereto, and upon
surrender and cancellation of the Warrants, if mutilated, the Company
will make and deliver a new Warrant Certificate of like tenor, in lieu
thereof.
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9. Elimination of Fractional Interests.
The Company shall not be required to issue certificates
representing fractions of shares of Common Stock and shall not be
required to issue scrip or pay cash in lieu of fractional interests, it
being the intent of the parties that all fractional interests shall be
eliminated by rounding any fraction up to the nearest whole number of
shares of Common Stock.
10. Reservation and Listing of Securities.
The Company shall at all times reserve and keep available out of
its authorized shares of Common Stock, solely for the purpose of
issuance upon the exercise of the Warrants, such number of shares of
Common Stock as shall be issuable upon the exercise thereof. The
Company covenants and agrees that, upon exercise of the Warrants and
payment of the Exercise Price therefor, all shares of Common Stock
issuable upon such exercise shall be duly and validly issued, fully
paid, nonassessable and not subject to the preemptive rights of any
shareholder. As long as the Warrants shall be outstanding, the Company
shall use its best efforts to cause all shares of Common Stock issuable
upon the exercise of the Warrants to be listed on or quoted on the
electronic bulletin board, by NASDAQ or listed on such national
securities exchanges as requested by the Placement Agent.
11. Notices to Warrant Holders.
Nothing contained in this Agreement shall be construed as
conferring upon the Holder or Holders the right to vote or to consent
or to receive notice as a shareholder in respect of any meetings of
shareholders for the election of directors or any other matter, or as
having any rights whatsoever as a shareholder of the Company. If,
however, at any time prior to the expiration of the Warrants and their
exercise, any of the following events shall occur:
(a) the Company shall take a record of the holders of its
shares of Common Stock for the purpose of entitling them to
receive a dividend or distribution payable otherwise than in
cash, or a cash dividend or distribution payable otherwise than
out of current or retained earnings, as indicated by the
accounting treatment of such dividend or distribution on the
books of the Company; or
(b) the Company shall offer to all the holders of its
Common Stock any additional shares of capital stock of the
Company or securities convertible into or exchangeable for shares
of capital stock of the Company, or any option, right or warrant
to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the
Company (other than in connection with a consolidation or merger)
or a sale of all or substantially all of its property, assets and
business as an entirety shall be proposed;
then, in any one or more of said events, the Company shall give written
notice of such event at least fifteen (15) days prior to the date fixed
as a record date or the date of closing the transfer books for the
determination of the shareholders entitled to such dividend,
distribution, convertible or exchangeable securities or subscription
rights, options or warrants, or entitled to vote on such proposed
dissolution, liquidation, winding up or sale. Such notice shall
specify such record date or the date of closing the transfer books, as
the case may be. Failure to give such notice or any defect therein
shall not affect the validity of any action taken in connection with
the declaration or payment of any such dividend or distribution, or the
issuance of any convertible or exchangeable securities or subscription
rights, options or warrants, or any proposed dissolution, liquidation,
winding up or sale.
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12. Notices.
All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been duly
made when delivered, or mailed by registered or certified mail, return
receipt requested:
(a) If to a registered Holder of the Warrants, to the
address of such Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth in
Section 3 of this Agreement or to such other address as the
Company may designate by notice to the Holders.
13. Supplements and Amendments.
The Company and the Placement Agent may from time to time
supplement or amend this Agreement without the approval of any Holders
of Warrant Certificates in order to cure any ambiguity, to correct or
supplement any provision contained herein which may be defective or
inconsistent with any provisions herein, or to make any other
provisions in regard to matters or questions arising hereunder which
the Company and the Placement Agent may deem necessary or desirable and
which the Company and the Placement Agent deem not to adversely affect
the interests of the Holders of Warrant Certificates.
14. Successors.
All the covenants and provisions of this Agreement by or for the
benefit of the Company and the Holders inure to the benefit of their
respective successors and assigns hereunder.
15. Termination.
This Agreement shall terminate at the close of business on
September 18, 2003. Notwithstanding the foregoing, this Agreement will
terminate on any earlier date when all Warrants have been exercised and
all the Shares issuable upon exercise of the Warrants have been resold
to the public; provided, however, that the provisions of Article 6
shall survive such termination until the close of business on September
18, 2003.
16. Governing Law.
This Agreement and each Warrant Certificate hereunder shall be
governed by and interpreted in accordance with the laws of the State of
Nevada without regard to the principles of conflict of laws. Any
dispute or controversy between the parties arising in connection with
this Agreement or the subject matter contemplated by this Agreement
shall be resolved by arbitration before a three-member panel of the
American Arbitration Association in accordance with the commercial
arbitration rules of said forum and the Federal Arbitration Act, 9
U.S.C. 1 et seq., with the resulting award being final and conclusive.
Said arbitrators shall be empowered to award all forms of relief and
damages claimed, including, but not limited to, attorney's fees,
expenses of litigation and arbitration, exemplary damages, and
prejudgment interest. The parties further agree that any arbitration
action between them shall be heard in Atlanta, Georgia, and expressly
consent to the jurisdiction and venue of the Superior Court of Fulton
County, Georgia, and the United States District Court for the Northern
District of Georgia, Atlanta Division for the adjudication of any civil
action asserted pursuant to this Paragraph.
17. Benefits of This Agreement.
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Nothing in this Agreement shall be construed to give to any
person or corporation other than the Company and the Placement Agent
and any other registered holder or holders of the Warrant Certificates,
Warrants or the Shares any legal or equitable right, remedy or claim
under this Agreement; and this Agreement shall be for the sole and
exclusive benefit of the Company and the Placement Agent and any other
holder or holders of the Warrant Certificates, Warrants or the Shares.
18. Counterparts.
This Agreement may be executed in any number of counterparts and
each of such counterparts shall for all purposes be deemed to be an
original, and such counterparts shall together constitute but one and
the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed, as of the day and year first above written.
D.H. MARKETING & CONSULTING, INC.
By: /s/ DAVID D. HAGEN
Name: David D. Hagen
Title: President and Chief
Executive Officer
Attest: ___________________________
Name: ___________________________
Title:_____________________________
J.P. CAREY SECURITIES, INC.
By: /s/ JOSEPH C. CANOUSE
Name: Joseph C. Canouse
Title: President
Attest: ___________________________
Name: ___________________________
Title:_____________________________
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<PAGE>
EXHIBIT A
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES
ISSUABLE UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED
OR SOLD EXCEPT (i) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT, (ii) TO THE EXTENT APPLICABLE, PURSUANT TO RULE 144
UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING TO THE
DISPOSITION OF SECURITIES), OR (iii) UPON THE DELIVERY BY THE HOLDER TO
THE COMPANY OF AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO
COUNSEL FOR THE ISSUER, STATING THAT AN EXEMPTION FROM REGISTRATION
UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS
CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT
REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:00 P.M., EASTERN STANDARD TIME, SEPTEMBER 18, 2003
No. ___________________ 60,000 Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that J.P. Carey Securities,
Inc. ("J.P. Carey") or registered assigns, is the registered holder of
Warrants to purchase, at any time from September 18, 1998, until 5:00
P.M. Eastern Standard Time on September 18, 2003 ("Expiration Date"),
up to 60,000 shares ("Shares") of fully-paid and non-assessable common
stock,$.0003 par value per share ("Common Stock"), of D.H. Marketing &
Consulting, Inc., a Nevada corporation (the "Company"), at the Initial
Exercise Price, subject to adjustment in certain events (the "Exercise
Price"), of $2.875 per Share upon surrender of this Warrant Certificate
and payment of the Exercise Price at an office or agency of the
Company, but subject to the conditions set forth herein and in the
warrant agreement dated as of September 18, 1998, between the Company
and J.P. Carey (the "Warrant Agreement"). Payment of the Exercise
Price may be made in cash, or by certified or official bank check in
New York Clearing House funds payable to the order of the Company, or
any combination of cash or check.
No Warrant may be exercised after 5:00 P.M., Eastern Standard
Time, on the Expiration Date, at which time all Warrants evidenced
hereby, unless exercised prior thereto, shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a
duly authorized issue of Warrants issued pursuant to the Warrant
Agreement, which Warrant Agreement is hereby incorporated by reference
in and made a part of this instrument and is hereby referred to in a
description of the rights, limitation of rights, obligations, duties
and immunities thereunder of the Company and the holders (the words
"holders" or "holder" meaning the registered holders or registered
holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of
certain events, the Exercise Price and/or number of the Company's
securities issuable thereupon may, subject to certain conditions, be
adjusted. In such event, the Company will, at the, request of the
holder, issue a new Warrant Certificate evidencing the adjustment in
the Exercise Price and the number and/or type of securities issuable
upon the exercise of the Warrants; provided, however, that the failure
of the Company to issue such new Warrant Certificates shall not in any
way change, alter, or otherwise impair, the rights of the holder as set
forth in the Warrant Agreement.
<PAGE>
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant
Certificate or Warrant Certificates of like tenor and evidencing in the
aggregate a like number of Warrants shall be issued to the transferees)
in exchange for this Warrant Certificate, subject to the limitations
provided herein and in the Warrant Agreement, without any charge except
for any tax, or other governmental charge imposed in connection
therewith.
Upon the exercise of less than all of the Warrants evidenced by
this Certificate, the Company shall forthwith issue to the holder
hereof a new Warrant Certificate representing such number of
unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as
the absolute owner(s) of this Warrant Certificate (notwithstanding any
notation of ownership or other writing hereon made by anyone), for the
purpose of any exercise hereof, and of any distribution to the
holder(s) hereof, and for all other purposes, and the Company shall not
be affected by any notice to the contrary.
All terms used in this Warrant Certificate which are defined in
the Warrant Agreement shall have the meanings assigned to them in the
Warrant Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed under its corporate seal.
Dated: September 18, 1998 D.H. MARKETING & CONSULTING, INC.
By: /s/ DAVID D. HAGEN
Name: David D. Hagen
Title: President
Attest:_____________________
Name:_____________________
Title:______________________
SUBSIDIARIES OF THE REGISTRANT
The only subsidiary of the registrant is Universal Network of
America, Inc., a Nevada corporation, doing business as Universal
Network.
