-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CuOQOXw4YGHI8sckBk0/+lwifvPY/RD2TAJO/84eLlsa4DyeRTgMvlyMJyQCSRd5 88F5POBeezqXTj/NdiBRcg== /in/edgar/work/20000825/0001015402-00-002390/0001015402-00-002390.txt : 20000922 0001015402-00-002390.hdr.sgml : 20000922 ACCESSION NUMBER: 0001015402-00-002390 CONFORMED SUBMISSION TYPE: PRE 14A PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20001012 FILED AS OF DATE: 20000825 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DA CONSULTING GROUP INC CENTRAL INDEX KEY: 0001051209 STANDARD INDUSTRIAL CLASSIFICATION: [7389 ] IRS NUMBER: 760418488 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: PRE 14A SEC ACT: SEC FILE NUMBER: 000-24055 FILM NUMBER: 710246 BUSINESS ADDRESS: STREET 1: 5847 SAN FELIPE RD STE 3700 CITY: HOUSTON STATE: TX ZIP: 77057 BUSINESS PHONE: 7133613000 MAIL ADDRESS: STREET 1: 5847 SAN FELIPE RD STREET 2: STE 3700 CITY: HOUSTON STATE: TX ZIP: 77057 PRE 14A 1 0001.txt SCHEDULE 14(A) (RULE 14A-101) INFORMATION REQUIRED IN PROXY STATEMENT SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 [ x ] Filed by the Registrant [ ] Filed by a Party other than the Registrant Check the appropriate box: [ x ] Preliminary Proxy Statement [ ] Confidential For Use of the [ ] Definitive Proxy Statement Commission Only (as permitted by [ ] Definitive Additional Materials Rule 14a-6(e)(2)) [ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12 DA CONSULTING GROUP, INC. - ---------------------------------------------------------------------------- (Name of Registrant as Specified in Its Charter) - ---------------------------------------------------------------------------- (Name of Person(s) filing Proxy Statement, if Other than the Registrant) Payment of Filing Fee (Check the appropriate box): [ x ] No fee required. [ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. (1) Title of each class of securities to which transaction applies: (2) Aggregate number of securities to which transaction applies: (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): (4) Proposed maximum aggregate value of transaction: (5) Total fee paid: [ ] Fee paid previously with preliminary materials: [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing. (1) Amount previously paid: (2) Form, Schedule or Registration Statement No.: (3) Filing Party: (4) Date Filed: DA CONSULTING GROUP, INC. SAN FELIPE PLAZA 5847 SAN FELIPE, SUITE 3700 HOUSTON, TX 77057 __________________ NOTICE OF SPECIAL MEETING OF SHAREHOLDERS OCTOBER 12, 2000 __________________ To the Shareholders of DA Consulting Group, Inc.: A special meeting of shareholders (the "Special Meeting") of DA Consulting Group, Inc, a Texas corporation (the "Company"), will be held at 9:00 a.m., local time, on October 12, 2000, at the Company's principal executive offices, San Felipe Plaza, 5847 San Felipe, Suite 3700, Houston, Texas, for the following purpose: To approve the Securities Purchase Agreement (the "Purchase Agreement") between the Company and Purse Holding Limited, a British Virgin Islands limited company ("Purse"), dated August 2, 2000, attached as Annex I to the Proxy Statement, and in connection -------- therewith, to approve (i) the issuance to Purse of 2,000,000 shares of common stock, par value $0.01 per share of the Company (the "Common Stock"), (ii) the issuance to Purse of warrants to purchase up to 3,000,000 shares of Common Stock (and the exercisability thereof), and (iii) Board of Directors representation rights granted to Purse, all as set forth in the Purchase Agreement, as well as the other provisions thereof. Only holders of shares of the Common Stock at the close of business on August 22, 2000, are entitled to notice of, and to vote at, the Special Meeting and any adjournments or postponements thereof. Such shareholders may vote in person or by proxy. The stock transfer books of the Company will not be closed. The accompanying form of proxy is solicited by the Board of Directors of the Company. IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING. YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. WHETHER OR NOT YOU EXPECT TO ATTEND IN PERSON, YOU ARE URGED TO COMPLETE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE SELF-ADDRESSED ENVELOPE ENCLOSED FOR YOUR CONVENIENCE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. IF YOU DECIDE TO ATTEND THE MEETING AND WISH TO VOTE IN PERSON, YOU MAY REVOKE YOUR PROXY BY WRITTEN NOTICE AT THAT TIME. By Order of the Board of Directors Virginia L. Pierpont Chairman of the Board September 11, 2000 DA CONSULTING GROUP, INC. SAN FELIPE PLAZA 5847 SAN FELIPE, SUITE 3700 HOUSTON, TX 77057 PROXY STATEMENT FOR SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON OCTOBER 12, 2000 -------------- This Proxy Statement and accompanying form of proxy, which are first being mailed to shareholders on or about September 6, 2000, are being furnished in connection with the solicitation by the Board of Directors of DA Consulting Group, Inc. (the "Company") of proxies to be used at the special meeting of shareholders of the Company (the "Special Meeting"), to be held at 9:00 a.m. on October 12, 2000, at the Company's principal executive offices, San Felipe Plaza, 5847 San Felipe, Suite 3700, Houston, Texas, and at any adjournments or postponements thereof. If proxies in the accompanying form are properly executed and returned prior to voting at the Special Meeting, the shares represented thereby will be voted as instructed on the proxy. If no instructions are given on a properly executed and returned proxy, the shares represented thereby will be voted in favor of Proposal 1 as set forth below. Shareholders whose shares are held of record by a broker or other nominee are nevertheless encouraged to fill in the boxes of their choice on the proxy, as brokers and other nominees may not be permitted to vote shares with respect to certain matters for which they have not received specific instructions from the beneficial owners of the shares. Any proxy may be revoked by a shareholder prior to its exercise upon written notice to the Secretary of the Company, by delivering a duly executed proxy bearing a later date, or by the vote of a shareholder cast in person at the Special Meeting. VOTING Holders of record of the Company's common stock, par value $0.01 per share ("Common Stock"), on August 22, 2000, will be entitled to vote at the Special Meeting or any adjournments or postponements thereof. As of that date, there were 6,418,604 shares of Common Stock outstanding and entitled to vote. Each share of Common Stock entitles the holder thereof to one vote on any matter that may properly come before the Special Meeting. The Nasdaq Stock Market Marketplace Rules (the "Nasdaq Rules") applicable to the Company require shareholder approval of the matters set forth in Proposal 1 below. Accordingly, under the Nasdaq Rules the minimum vote which will constitute shareholder approval shall be the affirmative vote of a majority of the total votes cast on the proposal in person or by proxy at the Special Meeting. Broker non-votes, which occur when a broker or other nominee holding shares for a beneficial owner does not vote on a proposal because the broker or other nominee has not received specific instructions from the beneficial owners, are not voted and will therefore have no effect on the outcome of the matters to be voted upon at the Special Meeting. Votes that are withheld and abstentions will be counted in determining the presence of a quorum, but will not be counted in determining the number of votes cast in connection with any particular matter. Under Texas law and the By-laws of the Company, the presence of a quorum is required for each matter to be acted upon at the Special Meeting. The presence at the Special Meeting, in person or by proxy, of shareholders entitled to cast at least a majority of the votes that all shareholders are entitled to cast on a particular matter shall constitute a quorum for the purposes of consideration and action on Proposal 1. The cost of solicitation of proxies by the Board of Directors will be borne by the Company. Proxies may be solicited by mail, personal interview, telephone or telegraph and, in addition, directors, officers and regular employees of the Company may solicit proxies by such methods without additional remuneration. If determined necessary or advisable by the Board of Directors, the Company may retain a proxy solicitor to perform solicitation services in connection with this Proxy Statement. Banks, brokerage houses and other institutions, nominees or fiduciaries will be requested to forward the proxy materials to beneficial owners in order to solicit authorizations for the execution of proxies. The Company will, upon request, reimburse such banks, brokerage houses and other institutions, nominees and fiduciaries for their expenses in forwarding such proxy materials to the beneficial owners of the Company's stock. PROPOSAL NO. 1: APPROVAL OF THE SECURITIES PURCHASE AGREEMENT At the Special Meeting, shareholders will be asked to approve the Securities Purchase Agreement (the "Purchase Agreement") between the Company and Purse Holding Limited, a British Virgin Islands limited company ("Purse"), dated August 2, 2000, attached hereto as Annex I, and in connection therewith to ------- approve (i) the issuance to Purse of 2,000,000 shares of Common Stock, (ii) the issuance to Purse of warrants (the "Warrants") to purchase up to 3,000,000 shares of Common Stock (and the exercisability thereof), and (iii) Board of Directors representation rights granted to Purse, all as set forth in the Purchase Agreement, as well as the other provisions thereof. BACKGROUND On August 2, 2000, the Company signed a Purchase Agreement relating to the purchase by Purse of: - 2,000,000 shares of Common Stock (the "Shares") for $4.8 million; and - warrants to purchase up to 3,000,000 shares of Common Stock (the "Warrant Shares"). In addition to other customary conditions to closing, the closing of the transactions contemplated by the Purchase Agreement has been made contingent upon shareholder approval. The funds from the offering will principally be used to support the Company's new business development as it expands its current business model. This includes the development of the Company's web-enabled learning management solutions, which the Company plans to launch in the fourth quarter of 2000. According to the terms of the Purchase Agreement, following the Company's receipt of shareholder approval, the Company will: - issue and sell to Purse the Shares; and - issue to Purse warrants to purchase: - 2,000,000 shares of Common Stock, exercisable for a period of three years after the closing date of the Purchase Agreement (the "Closing Date"), at the greater of $3.00 per share or 85% of the market price of a share of the Common Stock at the time of exercise; and - 1,000,000 shares of Common Stock, exercisable for a period beginning January 2, 2002, and ending on the third anniversary of the Closing Date, at $3.00 per share. Both warrants will expire on the third anniversary of the Closing Date. If Purse's purchase of the Shares would make Purse subject to notification and reporting requirements of the Hart-Scott-Rodino Antitrust Improvement Act of 1976 ("HSR Act"), then Purse will only be required to purchase the maximum number of shares that it may purchase without subjecting itself to the HSR Act requirements. However, if Purse chooses to purchase Shares or Warrant Shares which subject Purse to the requirements of the HSR Act, then the Company and Purse have agreed to cooperate in making the required filings and to share the cost of the filing fees equally. The Purchase Agreement provides that within one year following closing, the Company will prepare and file with the Securities and Exchange Commission a registration statement pursuant to the Securities Act of 1933 so as to register for resale the Shares and Warrant Shares. The Purchase Agreement further provides that Purse will be entitled following closing to one seat on the Company's Board of Directors. During the 180-day period after closing, the Company will not privately sell any new securities without first offering Purse the right to purchase the new securities, provided that the aggregate purchase price of the new securities which Purse will have the right to purchase will not exceed $5.0 million. Pending closing, Purse has loaned the Company $2.0 million. This loan is unsecured and will be credited toward the purchase price of the Shares to be purchased by Purse at closing. If the Company does not receive shareholder approval, the loan must be repaid in full not later than 90 days following the Special Meeting. The Nasdaq Rules require shareholder approval of the issuance of a listed company's common stock in certain circumstances, including issuances of shares which will result in a change of control of the listed company. Upon the completion of the transactions contemplated by the Purchase Agreement, Purse will: - own 24% of the Company's issued and outstanding shares of Common Stock; - control at least one seat on the Company's Board of Directors; and - have the right to purchase up to an additional 3,000,000 shares of Common Stock which, if purchased, will result in Purse owning 44% of the Company's issued and outstanding shares of Common Stock. As a result, Purse will be in a position to exert substantial influence over the management and policies of the Company. The Company believes that the transactions contemplated by the Purchase Agreement could constitute a change of control under the Nasdaq Rules. Accordingly, the Company is seeking shareholder approval of the Purchase Agreement and the provisions thereof as set forth above. THE BOARD OF DIRECTORS BELIEVES THAT APPROVAL OF PROPOSAL 1 IS IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR PROPOSAL 1. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth information, as of July 31, 2000, with respect to the beneficial ownership of shares of Common Stock by each person who is known to the Company to be the beneficial owner of more than five percent of the outstanding Common Stock, each director, each of the named executive officers, and all directors and executive officers as a group.
Amount and Nature of Percent of Voting Name and Address of Beneficial Owner Beneficial Ownership (1) Power - -------------------------------------------- ------------------------ ----------------- EXECUTIVE OFFICERS AND DIRECTORS (2) Dennis C. Fairchild. . . . . . . . . . . . . --- * John E. Mitchell . . . . . . . . . . . . . 6,000 * Nigel W.E. Curlet (3)(4) . . . . . . . . . 31,538 * Gunther E.A. Fritze (4). . . . . . . . . . 33,658 * Richard W. Thatcher, Jr. (4) . . . . . . . 92,578 1.4% Virginia L. Pierpont (5) . . . . . . . . . . 704,468 11.0% OTHER SHAREHOLDERS Amicable Discretionary Trust (6)(7). . . . 693,200 10.8% Worcester Discretionary Trust (6)(8) . . . 631,092 9.8% Woodbourne Discretionary Trust (6)(8). . . . 629,034 9.8% Dimensional Fund Advisors, Inc. (9) 485,800 7.6% All directors and executive officers as a group ( 6 persons). . . . . . . . . . . . 868,242 13.4% ________________ * Less than 1% (1) Each beneficial owner's percentage ownership is determined by assuming that options that are held by such person (but not those held by any other person) and that are exercisable within 60 days of July 31, 2000, have been exercised. Options that are not exercisable within 60 days of July 31, 2000, have been excluded. Unless otherwise noted, the Company believes that all persons named in the above table have sole voting and investment power with respect to all shares of Common Stock beneficially owned by them. (2) The address of each of these people is: c/o DA Consulting Group, Inc., San Felipe Plaza, 5847 San Felipe, Suite 3700, Houston, TX 77057. (3) Includes 11,130 shares owned by Mr. Curlet's spouse and 1,450 shares owned by his son. (4) Includes 18,958 shares that may be acquired upon the exercise of stock options. (5) Includes (i) 370,000 shares owned by Ms. Pierpont's spouse, Nicholas H. Marriner, the former chairman of the Company, (ii) 4,200 shares held by Ms. Pierpont as custodian for three minors, and (iii) 1,025 shares that may be acquired upon the exercise of stock options. (6) John Andrew Cowan and Roger Geoffrey Barrs are the co-trustees of each of these trusts. The trustees of each of these trusts have the authority to appoint all or any part of the capital and income of the trust for one or more of the beneficiaries and in such names and proportions and at such time as such trustees shall determine. The address of these shareholders is c/o DA Consulting Group, Inc., San Felipe Plaza, 5847 San Felipe, Suite 3700, Houston, TX 77057. (7) The beneficiaries under this trust include Ms. Pierpont, her children and grandchildren, the spouses and children of any of the beneficiaries, and any other persons or class of persons named by the trustees. As of the date above, no other persons or classes of persons have been so named. (8) The beneficiaries under these trusts include Ms. Pierpont, her children, the spouses and children of any of the beneficiaries, and any other persons or class of persons named by the trustees. As of the date above, no other persons or classes of persons have been so named. (9) The address of this shareholder is 1299 Ocean Avenue, Eleventh Floor, Santa Monica, CA 90401.
OTHER BUSINESS The Board of Directors knows of no other matters that will be presented at the Special Meeting other than as set forth in this Proxy Statement. However, if any matter properly comes before the meeting, or any adjournment or postponement thereof, it is intended that proxies in the accompanying form will be voted, to the extent permitted by applicable law, in accordance with the judgment of the persons named therein. SHAREHOLDER PROPOSALS To be eligible for inclusion in the Company's proxy materials for the 2001 Annual Meeting of Shareholders, a proposal intended to be presented by a shareholder for action at that meeting must, in addition to meeting the shareholder eligibility and other requirements of the Securities and Exchange Commission's rules governing such proposals, be received not later than December 29, 2000, by the Chief Financial Officer of the Company at the Company's principal executive offices, San Felipe Plaza, 5847 San Felipe, Suite 3700, Houston, TX 77057. In addition, the execution of a proxy solicited by the Company in connection with the 2001 Annual Meeting of Shareholders shall confer on the designated proxyholder discretionary voting authority to vote on any shareholder proposal which is not included in the Company's proxy materials for such meeting and for which the Company has not received notice before March 14, 2001. By Order of the Board of Directors Virginia L. Pierpont Chairman of the Board Date: September 11, 2000 Houston, Texas INDEX TO ANNEX I ---------------- Page ---- ANNEX I: Securities Purchase Agreement . . . . . . . . . . . . . . . I-1 Exhibit A: Form of Promissory Note . . . . . . . . . . . . A-1 Exhibit B: Form of the Initial Warrant . . . . . . . . . . B-1 Exhibit C: Form of the Second Warrant . . . . . . . . . . C-1 DA CONSULTING GROUP, INC. PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FROM HOLDERS OF COMMON STOCK The undersigned, revoking all previous proxies, hereby appoints Virginia L. Pierpont and John E. Mitchell, and each of them acting individually, as the attorney and proxy of the undersigned, with full power of substitution, to vote all shares of common stock, par value $0.01 per share, of the Company (the "Common Stock") which the undersigned would be entitled to vote at the Special Meeting of the Shareholders of DA Consulting Group, Inc. to be held on October 12, 2000, and at any adjournment or postponement thereof. 1. Approval of the Securities Purchase Agreement (the "Purchase Agreement") between the Company and Purse Holding Limited, a British Virgin Islands limited company ("Purse"), dated August 2, 2000, attached as Annex I to the Proxy ------- Statement, and in connection therewith, approval of (i) the issuance to Purse of 2,000,000 shares of Common Stock, (ii) the issuance to Purse of warrants to purchase up to 3,000,000 shares of Common Stock (and the exercisability thereof), and (iii) Board of Directors representation rights granted to Purse, all as set forth in the Purchase Agreement, as well as the other provisions thereof. [ ] FOR [ ] AGAINST [ ] ABSTAIN THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. UNLESS OTHERWISE SPECIFIED, THE SHARES WILL BE VOTED "FOR" APPROVAL OF PROPOSAL 1 ABOVE. THIS PROXY ALSO DELEGATES DISCRETIONARY AUTHORITY WITH RESPECT TO ANY OTHER BUSINESS WHICH MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT OR POSTPONEMENT THEREOF. THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING AND PROXY STATEMENT. ______________________________________ Signature of Shareholder Date: ________________, 2000 ______________________________________ Signature of Shareholder NOTE: PLEASE SIGN THIS PROXY EXACTLY AS NAME(S) APPEARS ON YOUR STOCK CERTIFICATE. WHEN SIGNING AS ATTORNEY-IN-FACT, EXECUTOR, ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE ADD YOUR TITLE AS SUCH, AND IF SIGNER IS A CORPORATION, PLEASE SIGN WITH FULL CORPORATE NAME BY A DULY AUTHORIZED OFFICER OR OFFICERS AND AFFIX THE CORPORATE SEAL. WHERE STOCK IS ISSUED IN THE NAME OF TWO (2) OR MORE PERSONS, ALL SUCH PERSONS SHOULD SIGN. EX-1 2 0002.txt ANNEX I SECURITIES PURCHASE AGREEMENT This SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of August 2, 2000 is made by and between DA CONSULTING GROUP, INC., a Texas corporation (the "Company"), and the investor named on the signature page hereto (the "Investor"). RECITALS: A. The Company desires to borrow, and the Investor desires to lend to the Company, Two Million ($2,000,000) as an unsecured loan upon the terms and conditions stated in this Agreement. B. The Investor desires to purchase and the Company desires to sell, upon the terms and conditions stated in this Agreement (i) Two Million (2,000,000) shares of the Common Stock, (ii) a warrant to purchase Two Million (2,000,000) shares of Common Stock, and (iii) an additional warrant to purchase One Million (1,000,000) shares of Common Stock. C. The capitalized terms used herein and not otherwise defined have the meanings given them in Article X hereof. 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 Investor hereby agree as follows: ARTICLE I LOAN 1.1 Loan. Upon execution of this Agreement, subject to the terms and ---- conditions hereof, (i) the Investor shall make a loan to the Company of Two Million Dollars ($2,000,000) (the "Loan"), by wire transfer of immediately available funds in accordance with the Company's written wire instructions against delivery by the Company to the Investor of a Promissory Note in the form of Exhibit A (the "Note"). ---------- 1.2 Repayment of the Loan. The principal amount of, and all accrued ------------------------ interest on, the Loan shall be payable on the date (the "Maturity Date") which is (i) ninety (90) days after the date of the Note, or (ii) in the event that a Special Meeting is held prior to the expiration of such ninety (90) day period, and (a) Shareholder Approval is obtained at such Special Meeting, on the earlier to occur of the Closing Date and seven (7) days after the date of such Special Meeting, or (b) Shareholder Approval is not obtained at such Special Meeting, then the Maturity Date shall be the date ninety (90) days after the date of such Special Meeting, at which time the Company shall transfer such sum to the Investor by wire transfer of immediately available funds. In the event that Shareholder Approval is obtained, on the Closing Date the principal amount of, and all accrued interest on, the Loan shall be applied to the Purchase Price (as defined in Section 2.1) without set-off or counterclaim. In either event, promptly upon payment in full, the Investor agrees to return the Note to the Company, marked "cancelled". As used herein, "Special Meeting" shall mean the special meeting of the shareholders of the Company described in Section 5.12 hereof. ARTICLE II PURCHASE AND SALE OF SECURITIES I - 1 2.1 Purchase and Sale of Securities. At the Closing, subject to the ---------------------------------- terms of this Agreement and the satisfaction or waiver of the conditions set forth in Articles VIII and IX hereof, the Company shall issue and sell to the Investor, and the Investor shall purchase from the Company, for an aggregate purchase price of Four Million Eight Hundred Thousand Dollars ($4,800,000) (the "Purchase Price"): (a) Two Million (2,000,000) shares of the Common Stock (the "Shares") at a purchase price per share of $2.40; (b) A warrant, substantially in the form of Exhibit B (the ---------- "Initial Warrant") to purchase Two Million (2,000,000) shares of the Common Stock (the "Warrant Shares") at an exercise price per share (subject to adjustment as provided therein) equal to the greater of (x) $3.00 or (y) an amount equal to eighty-five percent (85%) multiplied by the Market Price Per Share, exercisable for a period of three (3) years following the Closing Date; and (c) A warrant, substantially in the form of Exhibit C (the "Second --------- Warrant" and together with the Initial Warrant, the "Warrants", and each individually a "Warrant") to purchase One Million (1,000,000) shares of the Common Stock (the "Additional Warrant Shares") at an exercise price (subject to adjustment as provided therein) equal to $3.00 per share, exercisable during the period beginning January 2, 2002 and ending on the third anniversary of the Closing Date. (The Note, Shares, Warrant Shares and Additional Warrant Shares shall be referred to collectively herein as the "Securities"). Notwithstanding anything herein to the contrary, the Investor shall not be required to (but may, at its option) purchase more than such number of shares so as to cause Investor, as a result of the Closing, to be subject to the notification and report requirements under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"); provided that, in no event shall the foregoing clause entitle the Investor to purchase fewer Shares than the maximum number of Shares that may be purchased without causing the Investor to be subject to the requirements of the HSR Act. 2.2 Payment. The Investor shall pay the Purchase Price by wire ------- transfer of immediately available funds in accordance with the Company's written wire instructions, upon delivery by the Company to the Investor of the Warrants and certificates representing the Shares, and the Company shall deliver the Warrants and such certificates against delivery of the Purchase Price as described above; provided, however, that if Shareholder Approval is timely obtained in accordance with Section 1.2 hereof, the Company shall apply the principal of and accrued interest on the Loan to the Purchase Price without setoff or counterclaim, and the excess of the Purchase Price over such principal and interest shall be paid by the Investor to the Company in immediately available funds at the Closing. 2.3 Closing Date. Subject to the satisfaction or waiver of the ------------- conditions set forth in Articles VIII and IX hereof, the Closing shall take place at 12:00 noon central time on a date mutually agreed upon by the parties which shall be no later than six (6) days after the date that Shareholder Approval is obtained (the "Closing Date"). The Closing shall be held at the offices of the Company, or at such other place as the parties agree. At the Closing, after receipt of payment therefor, the Company shall deliver the Warrants to the Investor and the Company shall authorize its transfer agent (the "Transfer Agent") to arrange delivery to the Investor of one or more stock certificates representing the Shares, such Warrants and each such certificate to be registered in the name of the Investor or, if so indicated on the Stock Certificate Questionnaire attached hereto as Exhibit D, in the name of a nominee --------- designated by the Investor. I - 2 ARTICLE III INVESTOR'S REPRESENTATIONS AND WARRANTIES The Investor represents and warrants to the Company that: 3.1 Investment Purpose. The Investor is purchasing the Securities for ------------------- its own account and not with a present view toward the public sale or distribution thereof, except pursuant to sales registered or exempted from registration under the Securities Act; provided, however, that by making the representation herein, the Investor does not agree to hold any of the Securities for any minimum or other specific term and reserves the right to dispose of the Securities at any time in accordance with or pursuant to a registration statement or an exemption under the Securities Act. 3.2 Accredited Investor Status. The Investor is an "accredited ---------------------------- investor" as defined in Rule 501(a) of Regulation D and was not formed for the specific purpose of acquiring the Securities. 3.3 Reliance on Exemptions. The Investor understands that the ------------------------ Securities are being offered and sold to it in reliance upon specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying upon the truth and accuracy of, and the Investor's compliance with, the representations, warranties, agreements, acknowledgments and understandings of the Investor set forth herein in order to determine the availability of such exemptions and the eligibility of the Investor to acquire the Securities. 3.4 Information. The Investor 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 Securities, that have been requested by the Investor or its advisors, if any. The Investor and its advisors, if any, have been afforded the opportunity to ask questions of the Company. Neither such inquiries nor any other due diligence investigation conducted by the Investor or any of its advisors or representatives modifies, amends or affects the Investor's right to rely on the Company's representations and warranties contained in Article IV below. The Investor acknowledges and understands that its investment in the Securities involves a significant degree of risk. The Investor acknowledges that, except as set forth herein, it has not relied on any materials other than the SEC Documents in purchasing the Securities. 3.5 Governmental Review. The Investor understands that no United -------------------- States federal or state agency or any other government or governmental agency has passed upon or made any recommendation or endorsement of the Securities or an investment therein. 3.6 Transfer or Resale. The Investor understands that: -------------------- (a) except as provided in Article VI, the Securities have not been and are not required to be registered under the Securities Act or any applicable state securities laws and, consequently, the Investor may have to bear the risk of owning the Securities for an indefinite period of time because the Securities may not be transferred unless (i) the resale of the Securities is registered pursuant to an effective registration statement under the Securities Act; (ii) the Investor has delivered to the Company an opinion of counsel (in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that the Securities to be sold or transferred may be sold or transferred pursuant to an exemption from such registration; (iii) the Securities are sold or transferred pursuant to Rule 144; or (iv) the Securities are sold or transferred to an affiliate (as defined in Rule 144) of the Investor pursuant to an exemption from registration under the Securities Act; I - 3 (b) any sale of the Securities made in reliance on Rule 144 may be made only in accordance with the terms of Rule 144 and, if Rule 144 is not applicable, any resale of the 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 Securities Act) may require compliance with some other exemption under the Securities Act or the rules and regulations of the SEC thereunder; and (c) except as set forth in Article VI, neither the Company nor any other person is under any obligation to register the Securities under the Securities Act or any state securities laws or to comply with the terms and conditions of any exemption thereunder. 3.7 Legends. The Investor understands that until such time as (a) the ------- Securities may be sold by the Investor under Rule 144(k) or (b) the resale of the Securities has been registered under the Securities Act as contemplated by Article VI, the certificates representing the Securities shall bear a restrictive legend in substantially the following form (and a stop-transfer order may be placed against transfer of the certificates for such Securities): THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. THE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS, OR UNLESS OFFERED, SOLD OR TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS. The legend set forth above shall be removed and the Company shall issue a certificate without the legend to the holder of any certificate upon which it is stamped, in accordance with the terms of Article VI hereof. 3.8 Authorization; Enforcement. This Agreement has been duly and --------------------------- validly authorized, executed and delivered on behalf of the Investor and is a valid and binding agreement of the Investor enforceable in accordance with its terms, subject to the effect of any applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the rights of creditors generally and the application of general principles of equity. 3.9 Residency. The Investor is not a U.S. Person (as that term is --------- defined in Regulation S under the Securities Act ("Regulation S")) and is not acquiring the Securities for the account or benefit of any U.S. Person. The Investor agrees to resell the Securities only (i) in accordance with the provisions of Regulation S, (ii) pursuant to registration under the Securities Act, or (iii) pursuant to an available exemption from such registration; and agrees not to engage in hedging transactions with regard to the Securities unless in compliance with the Securities Act. The Investor acknowledges and understands that a legend will be placed on any certificates(s) representing the Securities stating that transfer of the Securities is prohibited except (i) in accordance with the provisions of Regulation S, (ii) pursuant to registration under the Securities Act, or (iii) pursuant to an available exemption from registration; and that hedging transactions involving those securities may not be conducted unless in compliance with the Securities Act. The Investor acknowledges and agrees that unless applicable foreign law prevents the Company from refusing to register securities transfers, the Company will refuse to register any transfer of the Securities not made (i) in accordance with the provisions of Regulation S, (ii) pursuant to registration under the Securities Act, or (iii) pursuant to an available exemption from such registration. I - 4 3.10 Organization. The Investor is duly organized, validly existing ------------ and in good standing under the laws of the British Virgin Islands and has all requisite power and authority to own and lease its properties, to carry on its business as presently conducted and to carry out the transactions contemplated hereby. 3.11 No Conflict. The execution and delivery of this Agreement will ------------ not violate or be in conflict with any order, judgment, injunction, agreement or controlling document to which the Investor is a party or by which it is bound. 3.12 No Ownership. Neither the Investor nor any of its affiliates (as ------------- defined in Rule 12-b under the Exchange Act) has record or beneficial ownership (as defined in Rule 13d-3 under the Exchange Act) of any shares of the Company's Common Stock. 3.13 Foreign Requirements. The issuance of the Securities to the --------------------- Investor, to the extent such issuance is governed by laws of a country other than the United States, does not require any filing, registration or other action by the Company in accordance with the local laws and customary practices and documentation of such country. 3.14 Note. The Investor acknowledges that treatment of the Note as a ---- security, as between the parties, does not constitute admission by the Company that the Note is a security under federal and state security laws. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company represents, warrants and covenants to the Investor that, except as set forth in the Disclosure Schedules attached hereto as Exhibit E (which --------- representations, warranties and covenants shall be deemed to apply, where appropriate, to each subsidiary of the Company): 4.1 Organization and Qualification. The Company is duly incorporated, ------------------------------- validly existing and in good standing under the laws of the State of Texas, with full power and authority (corporate and other) to own, lease, use and operate its properties and to carry on its business as and where now owned, leased, used, operated and conducted. The Company is duly qualified 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 where the failure to be so qualified or in good standing would not have a Material Adverse Effect, and to the Company's knowledge, no proceeding has been instituted in any such jurisdiction revoking, limiting or curtailing, or seeking to revoke, limit or curtail, such power and authority or qualification. 4.2 Authorization; Enforcement. (a) The Company has all requisite --------------------------- corporate power and authority to enter into and to perform its obligations under this Agreement, the Note and the Warrants, to consummate the transactions contemplated hereby and thereby and to issue the Securities in accordance with the terms hereof and thereof; (b) the execution, delivery and performance of this Agreement, the Note and the Warrants by the Company and the consummation by it of the transactions contemplated hereby (including without limitation the issuance of the Securities) have been duly authorized by the Company's Board of Directors, and no further consent or authorization of the Company, its Board of I - 5 Directors, or its shareholders is required except as expressly contemplated herein with respect to the Closing; (c) this Agreement and the Note have been duly executed by the Company; and (d) this Agreement and the Note constitute, and when executed and delivered by the Company, the Warrants will constitute, a legal, valid and binding obligation of the Company enforceable against the Company in accordance with their terms, subject to the effect of any applicable bankruptcy, insolvency, reorganization, or moratorium or similar laws affecting the rights of creditors generally and the application of general principles of equity. 4.3 Capitalization. The authorized capital stock of the Company -------------- consists of (a) 40,000,000 shares of Common Stock, $.01 par value per share, of which 6,418,604 shares were issued and outstanding as of July 31, 2000, and (b) 10,000,000 shares of preferred stock, $.01 par value per share, none of which are issued and outstanding. All of the outstanding shares of capital stock are duly authorized, validly issued, fully paid and nonassessable and have been issued in compliance with all federal and state securities laws. No shares of capital stock of the Company are subject to preemptive rights or any other similar rights of the shareholders of the Company or any liens or encumbrances imposed through the actions or failure to act of the Company. Except for the transactions contemplated hereby, (i) there are no outstanding options, warrants, scrip, rights to subscribe for, puts, calls, rights of first refusal, agreements, understandings, claims or other commitments or rights of any character whatsoever relating to, or securities or rights convertible into, exercisable for, or exchangeable for any shares of capital stock of the Company, or arrangements by which the Company is or may become bound to issue additional shares of capital stock of the Company; (ii) there are no agreements or arrangements (other than this Agreement) under which the Company is obligated to register the sale of any of its securities under the Securities Act; and (iii) there are no anti-dilution or price adjustment provisions contained in any security issued by the Company (or in any agreement providing rights to security holders) that will be triggered by the issuance of the Securities. There are no stockholder agreements, voting agreements or other similar agreements with respect to the Common Stock to which the Company is a party. The Company has made available to the Investor, if requested, true and correct copies of the Company's Certificate of Incorporation, as amended, as in effect on the date hereof, the Company's By-laws as in effect on the date hereof and the terms of all securities convertible into or exercisable for Common Stock of the Company and the material rights of the holders thereof in respect thereto. 4.4 Issuance of Securities. Each of the Shares, the Warrants, the ------------------------ Warrant Shares, and the Additional Warrant Shares are duly authorized and, upon issuance in accordance with the terms of this Agreement or the Warrants, as applicable, the Securities (other than the Note) will be validly issued, fully paid and nonassessable, free from all taxes, liens, claims, encumbrances and charges with respect to the issue thereof, will not be subject to preemptive rights or other similar rights of shareholders of the Company, and will not impose personal liability on the holders thereof. No further approval or authority of the shareholders or the Board of Directors of the Company is required for the issuance of the Note, and, except for the Shareholder Approval, for the issuance and sale of the Securities (other than the Note) to be sold by the Company as contemplated in this Agreement and the Warrants. Subject to the accuracy of the Investor' representations and warranties in Article III of this Agreement, the offer, sale, and issuance of the Securities in conformity with the terms of this Agreement constitute transactions exempt from the registration requirements of Section 5 of the Securities Act and from the registration or qualification requirements of the laws of any applicable state or United States jurisdiction. 4.5 No Conflicts; No Violation. ----------------------------- I - 6 (a) The execution and delivery of this Agreement and the Note, the execution and delivery by the Company of the Warrants to be executed and delivered by the Company, the performance of this Agreement and the Note and the Warrants and the consummation by the Company of the transactions contemplated hereby and thereby (including, without limitation, the issuance of the Securities and the Warrants), will not (i) conflict with or result in a violation of any provision of its Certificate of Incorporation, as amended, or By-laws, as amended, or (ii) violate or conflict with, or result in a breach of any provision of, or constitute a default (or an event which with notice or lapse of time or both could become a default) under, or give to others any rights of termination, amendment (including without limitation the triggering of any anti-dilution provision), acceleration or cancellation of, any agreement, indenture, patent, patent license, or instrument to which the Company is a party, or (iii) result in a violation of any law, rule, regulation, order, judgment or decree (including U.S. federal and state securities laws and regulations and regulations of any self-regulatory organizations to which the Company or its securities are subject) applicable to the Company or by which any property or asset of the Company is bound or affected (except for such conflicts, breaches, defaults, terminations, amendments, accelerations, cancellations and violations as would not, individually or in the aggregate, have a Material Adverse Effect and except to the extent that Shareholder Approval is required for the issuance and sale of the Securities (other than the Note). (b) The Company is not in violation of its Certificate of Incorporation, as amended, or By-laws, as amended, and the Company is not in default (and no event has occurred which with notice or lapse of time or both could put the Company in default) under any agreement, indenture or instrument to which the Company is a party or by which any property or assets of the Company are bound or affected, except for such possible defaults as would not, individually or in the aggregate, have a Material Adverse Effect. (c) The Company is not conducting its business in violation of any law, ordinance or regulation of any governmental entity, the failure to comply with which would, individually or in the aggregate, have a Material Adverse Effect. (d) Except as specifically contemplated by this Agreement and as required under the Securities Act and any applicable state securities laws or any listing agreement with any securities exchange or automated quotation system, 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 or any regulatory or self-regulatory agency in order for it to execute, deliver or perform any of its obligations under this Agreement in accordance with the terms hereof, or to issue and sell the Securities in accordance with the terms hereof. In the case of the issuance and sale of the Securities (other than the Note), except for Shareholder Approval, 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. 4.6 SEC Documents, Financial Statements. Since June 30, 1999, the -------------------------------------- Company has timely 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 Exchange Act (all of the foregoing filed prior to the date hereof and all exhibits included therein and financial statements and schedules thereto and documents (other than exhibits) incorporated by reference therein, being hereinafter referred to as the "SEC Documents"). The Company has delivered to the Investor, or the Investor has had access to, true and complete copies of the SEC Documents, except for such exhibits and incorporated documents. As of their respective dates, the SEC Documents complied in all material respects with the requirements of the Exchange Act or the Securities Act, as the case may be, and the rules and regulations of the SEC promulgated I - 7 thereunder applicable to the SEC Documents, and none of the SEC Documents, at the time they were filed with the SEC, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. As of their respective dates, the consolidated financial statements of the Company included in the SEC Documents 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 U.S. generally accepted accounting principles, consistently applied, during the periods involved (except (a) as may be otherwise indicated in such financial statements or the notes thereto, or (b) in the case of unaudited interim consolidated statements, to the extent they may not include footnotes or may be condensed or summary statements) and fairly present in all material respects the consolidated financial position of the Company as of the dates thereof and the consolidated 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). Except as set forth in the financial statements included in the SEC Documents, the Company has no liabilities, contingent or otherwise, other than (x) liabilities incurred in the ordinary course of business subsequent to the date of such financial statements, (y) liabilities of the type not required under generally accepted accounting principles to be reflected in such financial statements, and (z) obligations under contracts and commitments not required under generally accepted accounting principles to be reflected in such financial statements. Such liabilities and obligations would not, individually or in the aggregate, have a Material Adverse Effect. 4.7 Absence of Certain Changes. Since March 31, 2000, there has not ----------------------------- been (a) any material adverse change in or affecting the condition, financial or otherwise, or in the earnings or assets of the Company, whether or not arising in the ordinary course of business, except for net losses of the Company as previously disclosed to the Investor; (b) any transactions entered into by the Company, other than those in the ordinary course of business, which are material with respect to the Company; (c) any dividend or distribution of any kind declared, paid or made on the capital stock of the Company; or (d) any loss or damage (whether or not insured) to the physical property or assets of the Company which has a Material Adverse Effect. 4.8 Absence of Litigation. There is no action, suit, claim, ----------------------- 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, threatened against or affecting the Company or any of its officers or directors acting as such that would, individually or in the aggregate, have a Material Adverse Effect, or which would materially and adversely affect the consummation of this Agreement. The Company is not in default with respect to any judgment, order or decree of any court or governmental agency or instrumentality which, singly or in the aggregate, would have a Material Adverse Effect. 4.9 NASDAQ Compliance. The Company's Common Stock is registered ------------------ pursuant to Section 12(g) of the Exchange Act and is listed on The Nasdaq National Market (the "Nasdaq Stock Market"), and the Company has taken no action designed to terminate the registration of the Common Stock under the Exchange Act or delisting the Common Stock from the Nasdaq Stock Market. The Company is not aware of, and has not received any notice of, any efforts or actions to terminate the registration of the Common Stock under the Exchange Act or delist the Common Stock from the Nasdaq Stock Market. The Company shall use its commercially reasonable efforts to comply with all requirements of the National Association of Securities Dealers, Inc. with respect to the issuance of the Securities and the listing thereof on the Nasdaq Stock Market at all times during the period beginning on the date hereof and ending two years from the date of effectiveness of the Registration Statement. I - 8 4.10 No Manipulation of Stock. The Company has not taken and shall --------------------------- not, in violation of applicable law, take any action outside the ordinary course of business that is designed to, or that might reasonably be expected to, cause or result in unlawful manipulation of the price of the Common Stock to facilitate the sale or resale of the Securities. 4.11 Transfer Taxes. On the Closing Date and on the date the Warrant --------------- Shares and the Additional Warrant Shares are issued, all stock transfer or other taxes (other than income taxes) which are required to be paid in connection with the sale and transfer to the Investor of the Securities will be, or will have been, fully paid or provided for by the Company. 4.12 No Integrated Offering. All offers and sales of capital stock of ----------------------- the Company before the date of this Agreement were at all relevant times duly registered under or exempt from the registration requirements of the Securities Act and were duly registered or subject to an available exemption from the registration requirements of the applicable state securities or Blue Sky laws. 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 in any security or solicited any offers to buy any security under circumstances that would require registration under the Securities Act of the issuance of the Securities to the Investor. The issuance of the Securities to the Investor will not be integrated with any other issuance of the Company's securities (past, current or future) for purposes of the Securities Act or any applicable rules of Nasdaq. 4.13 No Brokers. The Company has taken no action which would give rise ---------- to any claim by any person for brokerage commissions, finder's fees or similar payments relating to this Agreement or the transactions contemplated hereby. 4.14 Investment Company Status. The Company is not and upon --------------------------- consummation of the sale of the Securities will not be an "investment company," a company controlled by an "investment company" or an "affiliated person" of, or "promoter" or "principal underwriter" for, an "investment company" as such terms are defined in the Investment Company Act of 1940, as amended. 4.15 Legal Opinion. The Company shall cause to be delivered to the -------------- Investor by counsel to the Company a legal opinion in the form attached as Exhibit F pertaining to, among other matters, the availability of an exemption - ---------- from the registration provisions of the Securities Act. 4.16 Offering Materials. Other than the SEC Documents, the Company has ------------------ not distributed and shall not distribute prior to the Closing Date any offering material in connection with the offering and sale of the Securities, and the Investor acknowledges that it has not relied on any materials other than the SEC Documents. The Company has not taken in the past nor shall it hereafter take any action to sell, offer for sale or solicit offers to buy any securities of the Company which would bring the offer, issuance or sale of the Securities, as contemplated by this Agreement, within the provisions of Section 5 of the Securities Act, unless such offer, issuance or sale was or shall be within the exemptions of Section 4 of the Securities Act. ARTICLE V COVENANTS I - 9 5.1 Best Efforts. Each party shall use its best efforts to satisfy in ------------- a timely fashion each of the conditions to be satisfied by it under Articles VIII and IX of this Agreement. 5.2 Form D. The Company shall file on a timely basis a Notice of Sale ------- of Securities on Form D with respect to the Securities, as required under Regulation D, and shall provide a copy thereof to the Investor promptly after such filing. 5.3 Securities Laws Compliance. From and after the Closing, the ---------------------------- Company and the Investor shall each comply with all applicable laws related to any Registration Statement relating to the sale of the Securities and to the offering and sale of securities and with all applicable rules and regulations of governmental authorities in connection therewith (including, without limitation, the Securities Act, the Exchange Act and the rules and regulations promulgated by the SEC). 5.4 Reporting Status; Eligibility to Use Form S-3. The Company's --------------------------------------------------- Common Stock is registered under Section 12 of the Exchange Act. The Company shall file with the SEC a Current Report on Form 8-K disclosing this Agreement and the transactions contemplated hereby within ten (10) business days after the date hereof. The Company currently meets, and shall use commercially reasonable efforts to continue to meet, the "registrant eligibility" requirements set forth in the general instructions to Form S-3. 5.5 Expenses. Each of the Company and the Investor is liable for, and -------- shall pay, its own expenses incurred in connection with the negotiation, preparation, execution and delivery of this Agreement and the other agreements to be executed in connection herewith, including, without limitation, attorneys' and consultants' fees and expenses. 5.6 Financial Information. From and after the Closing, the Company ---------------------- agrees to send to the Investor those reports that it generally sends to holders of its Common Stock, until the Investor transfers, assigns or sells all of its Securities. 5.7 Listing. On or before the twentieth (20th) business day following ------- the Closing Date, the Company shall use its commercially reasonable efforts to secure the listing of the Shares, and shall on or before the twentieth (20th) business day following the exercise of each Warrant, use commercially reasonable efforts to secure the listing of the Warrant Shares, or Additional Warrant Shares as the case may be, 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, so long as any Investor owns any of the Securities, shall use its commercially reasonable efforts to maintain such listing of the Securities. The Company shall use its commercially reasonable efforts to obtain and, so long as any Investor owns any of the Securities, maintain the listing and trading of its Common Stock on Nasdaq, or the American Stock Exchange or the New York Stock Exchange, and shall use its commercially reasonable efforts to comply in all respects with the Company's reporting, filing and other obligations under the bylaws or rules of the National Association of Securities Dealers, Inc. and such exchanges, as applicable. 5.8 No Integration. The Company shall not make any offers or sales of --------------- any security (other than the Securities) under circumstances that would cause the offering of the Securities to be integrated with any other offering of securities by the Company (a) for the purpose of any stockholder approval provision applicable to the Company or its securities or (b) for purposes of any registration requirement under the Securities Act. I - 10 5.9 Due Diligence; Confidentiality. -------------------------------- (a) Prior to the date hereof, the Company has made available for inspection by the Investor and its counsel (collectively, the "Inspectors"), such pertinent financial and other records, pertinent corporate documents and properties of the Company (collectively, the "Records"), as the Inspector reasonably deems necessary to enable the Inspector to exercise its due diligence responsibility. (b) Each Inspector shall hold in confidence, and shall not make any disclosure (except to the Investor) of, any Records or other information that the Company determines in good faith to be confidential, and of which determination the Inspectors are so notified, unless (i) the disclosure of such Records is necessary to avoid or correct a misstatement or omission in any Registration Statement, (ii) the release of such Records is ordered pursuant to a subpoena or other order from a court or government body of competent jurisdiction, or (iii) the information in such Records has been made generally available to the public other than by disclosure in violation of this or any other agreement. The Company is not required to disclose any confidential information in the Records to any Inspector unless and until such Inspector has entered into a confidentiality agreement (in form and substance satisfactory to the Company) with the Company with respect thereto, substantially in the form of this Section 5.9. The Investor shall, upon learning that disclosure of Records containing confidential information is (x) necessary to avoid or correct a material misstatement or material omission with respect to the Investor in any Registration Statement, or (y) 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 the Company's expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, the Records deemed confidential. Nothing herein shall be deemed to limit the Investor's ability to sell Securities in a manner that is otherwise consistent with applicable laws and regulations. (c) The Company shall hold in confidence, and shall not make any disclosure of, information concerning the Investor provided to the Company under this Agreement 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 order from a court or governmental body of competent jurisdiction, (iv) such information has been made generally available to the public other than by disclosure in violation of this Agreement or any other agreement, or (v) the Investor consents to the form and content of any such disclosure. If the Company learns that disclosure of such information concerning the Investor is sought in or by a court or governmental body of competent jurisdiction or through other means, the Company shall give prompt notice to the Investor prior to making such disclosure and allow the Investor, at its expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, such information. 5.10 Board of Directors. -------------------- (a) From and after the date that the Shareholder Approval is obtained, the Company agrees that, (A) the Company shall take appropriate action to cause to be elected to the Board of Directors no more than one (1) director designated by the Investor; and (B) thereafter for so long as the Investor shall hold at least twenty-five percent (25%) of the Shares, at each annual meeting of the shareholders of the Company, and at each special meeting of the shareholders of the Company called for the purpose of electing directors of the Company, and at any time at which shareholders of the Company shall have the right to, or shall, vote for directors of the Company, then, in each such event, the Company shall nominate for election to the Board of Directors one (1) director designated by the Investor. I - 11 (b) For so long as the Note remains unpaid, or until the date that the Company nominates for election to the Board of Directors one (1) director designated by the Investor as described in Section 5.10(a), if Shareholder Approval is obtained, the Investor shall have the right to have one person attend all meetings of the Company's Board of Directors as an observer. The Company shall provide each such person with all information provided to its Board of Directors, provided such person agrees: (A) to keep such information confidential and return same to the Company upon the request of the Company; (B) to be subject to the same insider trading policies and restrictions as members of the Board of Directors; and (C) that such person shall have no right to vote on any matter that comes before the Company's Board of Directors. 5.11 Right of First Offer. ----------------------- (a) The Company hereby grants to the Investor the right (but not the obligation) to purchase any New Securities (as hereinafter defined), which the Company may propose to sell and issue privately during the period (the "Offering Period") of 180 days after the Closing; provided, however, that the -------- ------- aggregate purchase price of New Securities which the Investor shall have the right to purchase pursuant to this Section 5.11 shall not exceed $5,000,000. For purposes of this Section 5.11, "New Securities" shall mean any Common Stock, and rights, options or warrants to purchase such Common Stock, but shall not include shares of Common Stock issued or issuable to officers, directors or employees of the Company pursuant to, or issued or issuable upon the exercise of options granted to such persons (regardless of whether such options were granted before or after the date of this Agreement) under, any stock option or other equity incentive plan approved by the Board of Directors. (b) If at any time the Company shall propose to sell and issue New Securities privately during the Offering Period, it shall deliver written notice to the Investor of its proposal. If the Investor shall desire to purchase all of the New Securities, it shall, no later than ten (10) business days after its receipt of the above-described notice from the Company, notify the Company of its desire to purchase the New Securities and specify the price, terms and conditions upon which the Investor desires to purchase the New Securities. The Investor's offer to purchase the New Securities shall by its terms remain open and irrevocable for a period of ten (10) business days from the date notice of such offer is given. (c) In the event that the Company shall decide not to sell and issue the New Securities to the Investor, the Company shall not sell New Securities to any third party during the Offering Period on any other terms without first having provided such purchase opportunity to the Investor with respect to such other terms. (d) Notwithstanding anything to the contrary herein, the Investor's right to purchase New Securities pursuant to this Section 5.11 shall be null and void if Nasdaq's Stock Market Marketplace Rules would require the Company to obtain shareholder approval for the issuance of such New Securities to the Investor. 5.12 Shareholder Meeting. The Company shall use its best efforts to -------------------- hold a Special Meeting as soon as practicable for the sole purpose of obtaining, in order to satisfy Nasdaq's rules relating to obtaining shareholder approval of a "change of control," the approval of its shareholders with respect to the transactions contemplated by this Agreement, including (x) the Company's issuance of the Shares, Warrants and the terms thereof, and the Warrant Shares and the Additional Warrant Shares, and (y) the board representation rights of the Investor set forth in Section 5.10 hereof (the "Shareholder Approval"). I - 12 5.13 Opinion. The Company shall cause the Investor to receive an ------- opinion letter of the Company's counsel, Pepper Hamilton LLP, dated as of the Closing Date containing opinions in substantially the form attached hereto as Exhibit F. - ---------- 5.14 Transfer Agent Instructions. The Company shall deliver evidence ----------------------------- reasonably satisfactory to the Investor that the Company's transfer agent has agreed to act in accordance with irrevocable instructions in the form attached hereto as Exhibit G. ---------- 5.15 HSR Act. In the event that the Investor elects to purchase Shares, ------- Warrant Shares or Additional Warrant Shares, as the case may be, which purchase would cause Investor to be subject to the notification and report requirements of the HSR Act, the parties shall, prior to any such purchase, file with the Federal Trade Commission and the Department of Justice the notifications and reports required to be filed pursuant to the HSR Act and shall file any supplemental information which may be reasonably requested in connection therewith, which notifications and reports and filing of supplemental information will comply in all material respects with the requirements of HSR Act. Each party shall be responsible for the payment of one half of the filing fees required to be made in connection with such notification. Each party shall furnish to the other party such information as such other party may reasonably request to assist it to make such filings as it may be legally required to make under the HSR Act. As promptly as practicable after the date of this Agreement, the parties shall each further prepare and file all other filings required under any foreign, federal, state or local laws relating to the transactions contemplated hereby and shall promptly respond to any request for additional information with respect thereof. ARTICLE VI REGISTRATION OF THE SECURITIES For the purpose of Articles VI and VII, the term "Registrable Securities" shall include (i) the Shares, (ii) the Warrant Shares, (iii) the Additional Warrant Shares and (iv) any shares of capital stock issued or issuable from time to time (with any adjustments) in exchange for or otherwise with respect to the Shares, Warrant Shares or Additional Warrant Shares. 6.1 Registration Procedures. The Company shall: ------------------------ (a) Subject to receipt of necessary information from the Investor, prepare and file with the SEC, no later than one (1) year after the Closing Date (the "Anniversary Date"), a registration statement on Form S-3 (the "Registration Statement") to enable the resale of the Registrable Securities by the Investor from time to time through the automated quotation system of the Nasdaq Stock Market (or the facilities of any national securities exchange on which the Company's Common Stock is then traded) or in privately-negotiated transactions (if Form S-3 is not available at that time, then the Company shall file a Registration Statement on such form as is then available to effect a registration of the Registrable Securities then outstanding, subject to the consent of the Investor, which consent shall not be unreasonably withheld). The Company shall not, and shall not agree to, allow the holders of any securities of the Company to include any of their securities in any Registration Statement under this Section 6.1 without the consent of the holders of a majority in interest of the Registrable Securities then outstanding. In addition, beginning I - 13 six (6) months after the Closing Date, the Company shall not register, or agree to register, any of its securities for its own account or for the account of shareholders other than the holders of the Registrable Securities then outstanding, without the consent of the holders of a majority in interest of the Registrable Securities then outstanding, until the Registration Statement with respect to such has been declared effective. (b) Use its commercially reasonable efforts, subject to receipt of necessary information from the Investor, to cause the Registration Statement to be declared effective by the SEC as soon as practicable after filing. The Company's commercially reasonable efforts shall include, but not be limited to, promptly responding to all comments received from the staff of the SEC. If the Company receives notification from the SEC that the Registration Statement shall receive no action or review from the SEC, then the Company shall, subject to its rights under Section 6.2, cause the Registration Statement to become effective within five (5) business days after such SEC notification. (c) Use its commercially reasonable efforts to prepare and file with the SEC such amendments and supplements to the Registration Statement and the Prospectus used in connection therewith as may be necessary to keep the Registration Statement current and effective for a period not exceeding, with respect to the Registrable Securities, the earliest of (i) the second anniversary of the date of effectiveness of the Registration Statement with respect to the Registrable Securities, (ii) the date on which the Investor may sell all Registrable Securities then held by the Investor, without registration or without regard to any volume limitations by reason of Rule 144(k) of the Securities Act or (iii) such time as all Registrable Securities purchased by the Investor in this Offering have been sold pursuant to a Registration Statement (the "Registration Period"). (d) Furnish to the Investor whose Registrable Securities are included in a Registration Statement, and to its legal counsel, (i) promptly after each document is prepared and publicly distributed, filed with the SEC or received by the Company, one copy of any Registration Statement filed pursuant to this Agreement and any amendments thereto, each Preliminary Prospectus and final Prospectus and each amendment or supplement thereto; and each letter written by or on behalf of the Company to the SEC and each item of correspondence from the SEC or the staff of the SEC, in each case relating to such Registration Statement (other than any portion of any item thereof which contains information for which the Company has sought confidential treatment); and (ii) such number of copies of the Registration Statement, Prospectuses and Preliminary Prospectuses in conformity with the requirements of the Securities Act and such other documents as the Investor may reasonably request, in order to facilitate the public sale or other disposition of all or any of the Registrable Securities by the Investor, provided, however, that the obligation of the Company to deliver copies of Prospectuses or Preliminary Prospectuses to the Investor shall be subject to the receipt by the Company of reasonable assurances from the Investor that the Investor shall comply with the applicable provisions of the Securities Act and of such other securities or Blue Sky laws as may be applicable in connection with any use of such Prospectuses or Preliminary Prospectuses. The Company shall immediately notify by facsimile the Investor whose Registrable Securities are included in any Registration Statement of the effectiveness of the Registration Statement and any post-effective amendment. (e) Use its commercially reasonable efforts to (i) register and qualify the Registrable Securities covered by a Registration Statement under such other securities or Blue Sky laws of such jurisdictions as the Investor who holds (or has the right to hold) Registrable Securities being offered reasonably requests, (ii) prepare and file in those jurisdictions any amendments (including post-effective amendments) and supplements to such registrations and qualifications as may be necessary to maintain their effectiveness during the I - 14 Registration Period, (iii) take any other actions necessary to maintain such registrations and qualifications in effect at all times during the Registration Period, and (iv) take any other actions reasonably necessary or advisable to qualify the Registrable Securities for sale in such jurisdictions. Notwithstanding the foregoing, the Company is not required, in connection with such obligations, to (A) qualify to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 6.1, (B) subject itself to general taxation in any such jurisdiction, (C) file a general consent to service of process in any such jurisdiction, (D) provide any undertakings that cause material expense or burden to the Company, or (E) make any change in its Certificate of Incorporation or By-laws, which in each case the Board of Directors of the Company determines to be contrary to the best interests of the Company and its shareholders. (f) During the period when copies of the Prospectus are required to be delivered under the Securities Act or the Exchange Act, file all documents required to be filed with the Commission pursuant to Section 13, 14 or 15 of the Exchange Act within the time periods required by the Exchange Act and the rules and regulations promulgated thereunder. (g) Advise the Investor, promptly after it shall receive notice or obtain knowledge of the issuance of any stop order by the SEC delaying or suspending the effectiveness of the Registration Statement or of the initiation of any proceeding for that purpose; and it shall promptly use its commercially reasonable efforts to prevent the issuance of any stop order or to obtain its withdrawal at the earliest possible moment if such stop order should be issued. It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Section 6.1, that the Investor shall furnish to the Company such information regarding itself, the Registrable Securities to be sold by the Investor, and the intended method of disposition of such Registrable Securities as shall be required to effect the registration of the Registrable Securities. The Company understands that the Investor disclaims being an underwriter, but the Investor being deemed an underwriter by the SEC shall not relieve the Company of any obligations it has hereunder, provided, however, that if the Company receives notification from the SEC that the Investor is deemed an underwriter, then the period in which the Company is obligated to submit an acceleration request to the SEC shall be extended to the earlier of (i) the ninetieth (90th) day after such SEC notification, or (ii) one hundred twenty (120) days after the initial filing of the Registration Statement with the SEC. 6.2 Transfer of Registrable Securities After Registration; Suspension. ------------------------------------------------------------------ The Investor agrees that it shall not effect any disposition of the Registrable Securities except as contemplated in the Registration Statement referred to in Section 6.1 or as otherwise permitted by law, and that it shall promptly notify the Company of any changes in the information set forth in the Registration Statement regarding the Investor or its plan of distribution. (a) Any Registration Statement (including any amendments or supplements thereto and Prospectuses contained therein) filed by the Company covering the Registrable Securities 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. Except in the event that Section (c) below applies, the Company shall: (i) prepare and file from time to time with the SEC a post-effective amendment to the Registration Statement or a supplement to the related Prospectus or a supplement or amendment to any document incorporated therein by reference or file any other required document so that such I - 15 Registration Statement shall not contain an 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 not misleading, and so that, as thereafter delivered to the Investor of the Registrable Securities being sold thereunder, such Prospectus shall not contain an 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 under which they were made, not misleading; (ii) provide the Investor copies of any documents filed pursuant to Section 6.2(b)(i); and (iii) inform the Investor that the Company has complied with its obligations in Section 6.2(b)(i) (or that, if the Company has filed a post-effective amendment to the Registration Statement which has not yet been declared effective, the Company shall notify the Investor to that effect, shall use its commercially reasonable efforts to secure the effectiveness of such post-effective amendment as promptly as possible and shall promptly notify the Investor pursuant to Section 6.2(b)(i) hereof when the amendment has become effective). (b) In the event: (i) of any request by the SEC or any other federal or state governmental authority during the period of effectiveness of the Registration Statement for amendments or supplements to a Registration Statement or a related Prospectus or for additional information; (ii) of the issuance by the SEC or any other federal or state governmental authority of any stop order suspending the effectiveness of a Registration Statement or the initiation of any proceedings for that purpose; (iii) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction or the initiation of any proceeding for such purpose; or (iv) of any event or circumstance which necessitates the making of any changes in the Registration Statement or Prospectus, or any document incorporated or deemed to be incorporated therein by reference, so that, in the case of the Registration Statement, it shall not contain any untrue statement of a material fact or any omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and that in the case of the Prospectus, it shall not contain any untrue statement of a material fact or any omission to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; then the Company shall deliver a certificate in writing to the Investor (the "Suspension Notice") to the effect of the foregoing and, upon receipt of such Suspension Notice, the Investor shall refrain from selling any Registrable Securities pursuant to the Registration Statement (a "Suspension") until the Investor's receipt of copies of a supplemented or amended Prospectus prepared and filed by the Company, or until it is advised in writing by the Company that the current Prospectus may be used, and has received copies of any additional or supplemental filings that are incorporated or deemed incorporated by reference in any such Prospectus. In the event of any Suspension, the Company shall use its commercially reasonable efforts to cause the use of the Prospectus so suspended to be resumed as soon as reasonably practicable after delivery of a Suspension Notice to the Investor, shall prepare a supplement or amendment to the Registration Statement to correct such untrue statement or omission, and shall deliver a number of copies of such supplement or amendment to the Investor as the Investor may reasonably request. In addition to and without limiting any other remedies (including, without limitation, at law or at equity) available to the Investor, the Investor shall be entitled to specific performance in the event that the Company fails to comply with the provisions of this Section 6.2(b). Subject to the Company's rights under this Section 6.2(b), the Company shall use its commercially reasonable efforts to prevent the issuance of any stop order or other suspension of effectiveness of a Registration Statement and, if such an order is issued, shall use its commercially reasonable efforts to obtain the withdrawal of such order at the earliest possible time and to notify the Investor that holds the Registrable Securities being sold of the issuance of such order and the resolution thereof. If the use of the Registration Statement is suspended by the Company, the Company shall promptly give notice of the suspension to the Investor and shall promptly notify the Investor as soon as the use of the Registration Statement may be resumed. I - 16 (c) Provided that a Suspension is not then in effect, the Investor may sell the Registrable Securities under the Registration Statement, provided that it arranges for delivery of a current Prospectus to the transferee of such Registrable Securities. Upon receipt of a request therefor, the Company has agreed to provide an adequate number of current Prospectuses to the Investor and to supply copies to any other parties requiring such Prospectuses. 6.3 Review by the Investor. The Company shall permit the Investor's ------------------------- legal counsel to review the Registration Statement and all amendments and supplements thereto (as well as all requests for acceleration or effectiveness thereof) for a reasonable period of time prior to their filing with the SEC, and shall not file any document in a form to which such counsel reasonably objects, unless otherwise required by law in the opinion of the Company's counsel. The sections of any such Registration Statement, including information with respect to the Investor, the Investor' beneficial ownership of the Registrable Securities or the Investor' intended method of disposition of the Registrable Securities, must conform to the information provided to the Company by each of the Investor. 6.4 Expenses. Subject to the limitations contained herein, the Company -------- shall pay the following expenses incident to the registration of the Registrable Securities under this Article VI: registration, filing and NASD fees, all fees and expenses of complying with state securities or Blue Sky laws, all word processing, duplicating and printing expenses, messenger and delivery expenses, the fees and disbursements of counsel for the Company and of its independent public accountants, including the expenses of any "cold comfort" letters required by or incident to such performance and compliance, premiums and other costs of policies of insurance purchased by the Company at its option against liabilities arising out of the public offering of such Registrable Securities; but excluding discounts, spreads and commissions and fees and expenses of selling brokers, dealer managers or similar securities industry professionals relating to the distribution of the Registrable Securities, transfer taxes, fees and disbursements of counsel for any selling shareholder(s), fees and disbursements of the Company's public accountants for special audits and other selling expenses, if any, all of which expenses shall be borne by the Investor. 6.5 Indemnification. --------------- (a) For the purpose of this Section 6.5: (i) The term "Selling Stockholder" shall include the Investor and each person, if any, who controls the Investor within the meaning of the Securities Act or any affiliate of the Investor; (ii) The term "Registration Statement" shall include any final Prospectus, exhibit, supplement or amendment included in or relating to the Registration Statement referred to in Section 6.1; and (iii) The term "untrue statement" shall include any untrue statement or alleged untrue statement, or any omission or alleged omission to state in the Registration Statement a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. I - 17 (b) The Company agrees to indemnify and hold harmless each Selling Stockholder from and against any losses, claims, damages, liabilities or expenses, joint or several, to which such Selling Stockholder may become subject (under the Securities Act, the Exchange Act, or any other federal or state statutory law or regulation, or at common law or otherwise (including in settlement of any litigation, if such settlement is effected with the written consent of the Company, which consent shall not be unreasonably withheld), insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof as contemplated below) arise out of or are based upon any untrue statement of any material fact contained in the Registration Statement, including the Prospectus, financial statements and schedules, and all other documents filed as a part thereof, as amended at the time of effectiveness of the Registration Statement, including any information deemed to be a part thereof as of the time of effectiveness pursuant to paragraph (b) of Rule 430A, or pursuant to Rule 434, of the Rules and Regulations, or the Prospectus, in the form first filed with the Commission pursuant to Rule 424(b) of the Rules and Regulations, or filed as part of the Registration Statement at the time of effectiveness if no Rule 424(b) filing is required (the "Prospectus"), or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state in any of them a material fact required to be stated therein or necessary to make the statements in any of them, in light of the circumstances under which they were made, not misleading, or arise out of or are based in whole or in part on any inaccuracy in the representations and warranties of the Company contained in this Agreement, or any failure of the Company to perform its obligations under this Agreement or under law, and shall reimburse the Investor and each such controlling person for any legal and other expenses as such expenses are reasonably incurred by the Investor or such controlling person in connection with investigating, defending, settling, compromising or paying any such loss, claim, damage, liability, expense or action. The Company shall reimburse such Selling Stockholder for any reasonable legal or other expenses reasonably incurred in investigating, defending or preparing to defend any such action, proceeding or claim, provided, however, that the Company shall not be liable in any such case to the extent that such loss, claim, damage or liability arises out of, or is based upon, an untrue statement made in such Registration Statement in reliance upon and in conformity with written information furnished to the Company by or on behalf of such Selling Stockholder specifically for use in preparation of the Registration Statement or the failure of such Selling Stockholder to comply with its covenants and agreements contained in Sections 3.1, 3.6 or 6.2 hereof or any statement or omission in any Prospectus that is corrected in any subsequent Prospectus that was delivered to the Investor prior to the pertinent sale or sales by the Investor. (c) The Investor agrees to indemnify and hold harmless the Company (and each person, if any, who controls the Company within the meaning of Section 15 of the Securities Act, each officer of the Company who signs the Registration Statement and each director of the Company) from and against any losses, claims, damages or liabilities to which the Company (or any such officer, director or controlling person) may become subject (under the Securities Act or otherwise), insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) arise out of, or are based upon, (i) any failure to comply with the covenants and agreements contained in Sections 3.1, 3.6 or 6.2 hereof, or (ii) any untrue statement of a material fact contained in the Registration Statement but only to the extent that such untrue statement was made in reliance upon and in conformity with written information furnished by or on behalf of the Investor specifically for use in preparation of the Registration Statement, and the Investor shall reimburse the Company (or such officer, director or controlling person), as the case may be, for any legal or other expenses reasonably incurred in investigating, defending or preparing to defend any such action, proceeding or claim; provided, however, that the Investor shall not be liable for any such untrue statement which the Investor has delivered to the Company in writing a correction before the occurrence of the transaction from which such loss was incurred, and the Investor shall reimburse the Company, each of its directors, each of its officers who signed the Registration Statement or controlling person for any legal and other expense reasonably incurred by the Company, each of its directors, each of its officers who signed the Registration Statement or controlling person in connection with investigating, defending, settling, compromising or paying any such loss, claim, damage, liability, expense or action. I - 18 (d) Promptly after receipt by any indemnified person of a notice of a claim or the beginning of any action in respect of which indemnity is to be sought against an indemnifying person pursuant to this Section 6.5, such indemnified person shall notify the indemnifying person in writing of such claim or of the commencement of such action, but the omission to so notify the indemnifying party shall not relieve it from any liability which it may have to any indemnified party under this Section 6.5 (except to the extent that such omission materially and adversely affects the indemnifying party's ability to defend such action) or from any liability otherwise than under this Section 6.5. Subject to the provisions hereinafter stated, in case any such action shall be brought against an indemnified person, the indemnifying person shall be entitled to participate therein, and, to the extent that it shall elect by written notice delivered to the indemnified party promptly after receiving the aforesaid notice from such indemnified party, shall be entitled to assume the defense thereof, with counsel reasonably satisfactory to such indemnified person. After notice from the indemnifying person to such indemnified person of its election to assume the defense thereof, such indemnifying person shall not be liable to such indemnified person for any legal expenses subsequently incurred by such indemnified person in connection with the defense thereof, provided, however, that if there exists or shall exist a conflict of interest that would make it inappropriate, in the reasonable opinion of counsel to the indemnified person, for the same counsel to represent both the indemnified person and such indemnifying person or any affiliate or associate thereof, the indemnified person shall be entitled to retain its own counsel at the expense of such indemnifying person; provided, however, that no indemnifying person shall be responsible for the fees and expenses of more than one separate counsel (together with appropriate local counsel) for all indemnified parties. In no event shall any indemnifying person be liable in respect of any amounts paid in settlement of any action unless the indemnifying person shall have approved the terms of such settlement; provided that such consent shall not be unreasonably withheld. No indemnifying person shall, without the prior written consent of the indemnified person, effect any settlement of any pending or threatened proceeding in respect of which any indemnified person is or could have been a party and indemnification could have been sought hereunder by such indemnified person, unless such settlement includes an unconditional release of such indemnified person from all liability on claims that are the subject matter of such proceeding. Notwithstanding the provisions of this Section 6.5, the Investor shall not be liable for any indemnification obligation under this Agreement in excess of the amount of gross proceeds received by the Investor from the sale of the Registrable Securities. (e) If the indemnification provided for in this Section 6.5 is unavailable to or insufficient to hold harmless an indemnified party under subsection (b) or (c) above in respect of any losses, claims, damages or liabilities (or actions or proceedings in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to (i) reflect the relative benefits received by the Company and the Investor from the placement of Common Stock or if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but the relative fault of the Company and the Investor in connection with the statements or omissions or inaccuracies in the representations and warranties in this Agreement that resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The I - 19 respective relative benefits received by the Company on the one hand and the Investor on the other shall be deemed to be in the same proportion as the amount paid by the Investor to the Company pursuant to this Agreement for the Registrable Securities purchased by the Investor that were sold pursuant to the Registration Statement bears to the difference (the "Difference") between the amount the Investor paid for the Registrable Securities that were sold pursuant to the Registration Statement and the amount received by the Investor from such sale. The relative fault shall be determined by reference to, among other things, whether the untrue statement or the omission or alleged omission to state a mutual fact or the inaccurate or alleged inaccurate representation or warranty relates to information supplied by the Company on the one hand or the Investor on the other and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement. The provisions set forth in Section 6.5 with respect to the notice of the threat or commencement of any threat or action shall apply if a claim for contribution is to be made under this Section; provided, however, that no additional notice shall be required with respect to any threat or action for which notice has been given under Section 6.5 for purposes of indemnification. The Company and the Investor agree that it would not be just and equitable if contribution pursuant to this subsection (e) were determined by pro rata allocation (even if the Investor were treated as one entity for such purpose) or by any other method of allocation which does not take into account the equitable considerations referred to above in this subsection (e). The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above in this subsection (e) shall be deemed to include, subject to the limitations set forth in this Section 6.5, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this subsection (e), no Investor shall be required to contribute any amount in excess of the amount by which the Difference exceeds the amount of any damages which the Investor has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Investor' obligations in this subsection to contribute are several in proportion to their sales of the Registrable Securities to which such loss relates and not joint. (f) The parties to this Agreement hereby acknowledge that they are sophisticated business persons who were represented by counsel during the negotiations regarding the provisions hereof including, without limitation, the provisions of this Section 6.5, and are fully informed regarding said provisions. They further acknowledge that the provisions of this Section 6.5 fairly allocate the risks in light of the ability of the parties to investigate the Company and its business in order to assure that adequate disclosure is made in the Registration Statement as required by the Securities Act and the Exchange Act. The parties are advised that federal or state public policy as interpreted by the courts in certain jurisdictions may be contrary to certain of the provisions of this Section 6.5, and the parties hereto hereby expressly waive and relinquish any right or ability to assert such public policy as a defense to a claim under this Section 6.5 and further agree not to attempt to assert any such defense. 6.6 Termination of Conditions and Obligations. The conditions --------------------------------------------- precedent imposed by Article III or this Article VI upon the transferability of the Registrable Securities shall cease and terminate as to any particular number of the Registrable Securities upon the passage of two (2) years from the effective date of the Registration Statement or when such Registrable Securities shall have been effectively registered under the Securities Act and sold or otherwise disposed of in accordance with the intended method of disposition set forth in the Registration Statement covering such Registrable Securities or at such time as an opinion of counsel satisfactory to the Company shall have been rendered to the effect that such conditions are not necessary in order to comply with the Securities Act. I - 20 6.7 Information Available. So long as the Registration Statement is ---------------------- effective covering the resale of the Registrable Securities owned by the Investor, the Company shall furnish to the Investor: (a) as soon as practicable after it is available (but in the case of the Company's Annual Report to Shareholders, within one hundred twenty (120) days after the end of each fiscal year of the Company), one copy of (i) its Annual Report to Stockholders (which Annual Report shall contain financial statements audited in accordance with generally accepted accounting principles by a national firm of certified public accountants); (ii) if not included in substance in the Annual Report to Stockholders, its Annual Report on Form 10-K (the foregoing, in each case, excluding exhibits); (iii) if not included in substance in its Quarterly Reports to Shareholders, its quarterly reports on Form 10-Q; and (iv) a full copy of the particular Registration Statement covering the Registrable Securities (the foregoing, in each case, excluding exhibits); (b) upon the reasonable request of the Investor, all exhibits excluded by the parenthetical to subparagraphs (a)(ii), (iii) and (iv) of this Section 6.7 as filed with the SEC and all other information that is made available to shareholders; and (c) upon the reasonable request of the Investor, an adequate number of copies of the Prospectuses to supply to any other party requiring such Prospectuses; and the Company, upon the reasonable request of the Investor, shall meet with the Investor or a representative thereof at the Company's headquarters to discuss all information relevant for disclosure in the Registration Statement covering the Registrable Securities and shall otherwise cooperate with any Investor conducting an investigation for the purpose of reducing or eliminating the Investor's exposure to liability under the Securities Act, including the reasonable production of information at the Company's headquarters; provided, that the Company shall not be required to disclose any confidential information to or meet at its headquarters with any Investor until and unless the Investor shall have entered into a confidentiality agreement with the Company in form and substance reasonably satisfactory to the Company with respect thereto. 6.8 Rule 144 Information. In order to make available to the Investor ---------------------- the benefits of Rule 144 or any similar rule or regulation of the SEC that may at any time permit the Investor to sell the Registrable Securities to the public without registration, the Company shall use its commercially reasonable efforts to: (a) file with the SEC in a timely manner, and make and keep available, all reports and other documents required of the Company under the Securities Act and the Exchange Act so long as the Company remains subject to such requirements (it being understood that nothing herein limits the Company's obligations under Section 6.3 of the Purchase Agreement) and the filing and availability of such reports and other documents is required for the applicable provisions of Rule 144; and (b) furnish to the Investor, so long as the Investor holds the Registrable Securities, promptly upon the Investor's request, (i) a written statement by the Company that it has complied with the reporting requirements of Rule 144, the Securities Act and the Exchange Act, (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents filed by the Company with the SEC and (iii) such other information as may be reasonably requested to permit the Investor to sell such Registrable Securities pursuant to Rule 144 without registration. I - 21 6.9 Assignment of Registration Rights. The rights of the Investor ------------------------------------ hereunder, including the right to have the Company register the Registrable Securities pursuant to this Agreement, shall be automatically assigned by the Investor to transferees or assignees of all or any portion of such Registrable Securities, but only if (a) 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, (b) the Company is, within a reasonable time after such transfer or assignment, furnished with written notice of the name and address of such transferee or assignee and the Registrable Securities with respect to which such registration rights are being transferred or assigned, (c) after such transfer or assignment, the further disposition of such Registrable Securities by the transferee or assignee is restricted under the Securities Act and applicable state securities laws, (d) at or before the time the Company received the written notice contemplated by clause (b) of this sentence, the transferee or assignee agrees in writing with the Company to be bound by all of the provisions contained herein, and (e) the transferee is an "accredited investor" as that term is defined in Rule 501 of Regulation D. ARTICLE VII TRANSFER AGENT INSTRUCTIONS; REMOVAL OF LEGENDS 7.1 Issuance of Registrable Securities. The Company shall issue the ------------------------------------- Warrants and shall instruct its transfer agent to issue certificates, registered in the name of the Investor or its nominee, for the Shares and, when issued in accordance with the terms of the Warrants, the Warrant Shares and the Additional Warrant Shares. The Warrants and all such certificates shall bear the restrictive legend described in Section 3.7, except as otherwise specified in this Article VII. The Company shall not give to its transfer agent any instruction other than as described in this Article VII and stop-transfer instructions to give effect to Section 3.7 hereof (prior to registration of the Registrable Securities under the Securities Act). Nothing in this Section shall affect in any way the Investor's obligations and agreement set forth in Sections 3.6 and 3.7 hereof to resell the Registrable Securities pursuant to an effective registration statement or in compliance with an exemption from the registration requirement of applicable securities laws. 7.2 Unrestricted Registrable Securities. If, unless otherwise required ----------------------------------- by applicable state securities laws, (a) Registrable Securities represented by a certificate have been registered under an effective registration statement filed under the Securities Act, (b) a holder of the Registrable Securities provides the Company and the Transfer Agent with an opinion of counsel, in form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that a public sale or transfer of such Registrable Securities may be made without registration under the Securities Act and such sale either has occurred or may occur without restriction on the manner of such sale or transfer, (c) such holder provides the Company and the Transfer Agent with reasonable assurances that such Registrable Securities can be sold under Rule 144, or (d) such Registrable Securities can be sold without restriction as to the number of the Registrable Securities sold under Rule 144(k), the Company shall permit the transfer of such Registrable Securities, and the Transfer Agent shall issue one or more certificates, free from any restrictive legend, in such name and in such denominations as specified by such holder. In the event that the restrictive legend is removed from any of the certificates for such Registrable Securities and thereafter the effectiveness of a registration statement covering such Registrable Securities is suspended or terminated or the Company determines that a supplement or amendment thereto is required by applicable securities laws, then upon a reasonable advance notice to the Investor the Company may require that the restrictive legend be placed on any certificates for such Registrable Securities that cannot be sold pursuant to an effective registration statement or under Rule 144, and the Investor shall cooperate in the replacement of such legend. Such legend shall thereafter be removed when such Registrable Securities may again be sold pursuant to an effective registration statement or Rule 144. I - 22 ARTICLE VIII CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL The obligation of the Company to issue and sell the Shares and the Warrants to the Investor at the Closing is subject to the satisfaction by the Investor, on or before the Closing Date, of the following conditions. These conditions are for the Company's sole benefit and may be waived by the Company at any time in its sole discretion: 8.1 Shareholder Approval shall have been obtained. 8.2 The Investor shall have delivered the Purchase Price to the Company in accordance with this Agreement. 8.3 The representations and warranties of the Investor shall be true and correct in all material respects as of the Closing Date as though made on such date (except for representations and warranties that speak as of a specific date, which representations and warranties must be correct as of such date), and the Investor shall have performed and complied in all material respects with the covenants and conditions required by this Agreement to be performed or complied with by the Investor at or prior to the Closing. The Company shall have received a certificate or certificates dated as of the Closing Date and executed by the Investor or a duly authorized officer of the Investor certifying as to the matters contained in this Section 8.3. 8.4 No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by or in any court or governmental authority of competent jurisdiction or any self-regulatory organization having authority over the matters contemplated hereby which prohibits the consummation of any of the transactions contemplated by this Agreement. ARTICLE IX CONDITIONS TO THE INVESTOR'S OBLIGATION TO PURCHASE The obligation of the Investor hereunder to purchase the Shares and the Warrants from the Company at the Closing is subject to the satisfaction, on or before the Closing Date, of the following conditions. These conditions are for the Investor's benefit and may be waived by the Investor at any time in its sole discretion: 9.1 Shareholder Approval shall have been obtained. 9.2 The Company shall have delivered to the Investor duly executed certificates representing the Shares and the duly executed Initial Warrant and Second Warrant. 9.3 The representations and warranties of the Company shall be true and correct in all material respects as of the Closing Date as though made on such date (except for representations and warranties that speak as of a specific date, which representations and warranties must be true and correct as of such I - 23 date) and the Company must have performed and complied in all material respects with the covenants and conditions required by this Agreement to be performed or complied with by the Company at or prior to the Closing. The Investor shall have received a certificate or certificates dated as of the Closing Date and executed by the Chief Executive Officer or the Chief Financial Officer of the Company certifying as to the matters contained in this Section 9.3 and as to such other matters as may be reasonably requested by the Investor, including, but not limited to, the Company's Certificate of Incorporation, as amended, By-laws, as amended, Board of Directors' resolutions relating to the transactions contemplated hereby and the incumbency and signatures of each of the officers of the Company who may execute on behalf of the Company any document delivered at the Closing. 9.4 No litigation, statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated, endorsed or threatened by or in any court or governmental authority of competent jurisdiction or any self-regulatory organization having authority over the matters contemplated hereby which prohibits or seeks to prohibit the consummation of any of the transactions contemplated by this Agreement. 9.5 Trading and listing of the Common Stock on Nasdaq shall not have been suspended or materially limited by the SEC or Nasdaq. 9.6 The Investor shall have received an opinion letter of the Company's counsel, Pepper Hamilton LLP, dated as of the Closing Date, in form, scope and substance reasonably satisfactory to the Investor and containing opinions in substantially the form attached hereto as Exhibit F. ---------- 9.7 The Company shall have delivered evidence reasonably satisfactory to the Investor that the Company's transfer agent has agreed to act in accordance with irrevocable instructions in the form attached hereto as Exhibit ------- G. - - ARTICLE X DEFINITIONS 10.1 "Closing" means the closing of the purchase and sale of the Securities (other than the Note) under this Agreement. 10.2 "Closing Date" has the meaning set forth in Section 2.3. 10.3 "Common Stock" means the common stock, $.01 par value per share, of the Company. 10.4 "Company" means DA Consulting Group, Inc., a Texas corporation. 10.5 "Exchange Act" means the Securities Exchange Act of 1934, as amended. 10.6 "Investor" means the investor whose name is set forth on the signature pages of this Agreement. 10.7 "Market Price Per Share" means the average of the last sale price for the Common Stock as quoted on the NASDAQ National Market System for the five (5) trading days ending on the second trading day prior to the date on which the Warrants are exercised (from time to time as the case may be) or, if not so quoted, means the price as mutually agreed upon by the parties or if the parties can not so mutually agree, the price determined by a neutral party appraiser, as chosen by the Investor and reasonably agreed to by the Company. I - 24 10.8 "Material Adverse Effect" means a material adverse effect on the business, operations, assets or financial condition of the Company on a consolidated basis. 10.9 "Nasdaq" means the Nasdaq National Market System. 10.10 "Registrable Securities has the meaning set forth in Article VI. 10.11 "Regulation D" means Regulation D as promulgated by the SEC under the Securities Act. 10.12 "Rule 144" and "Rule 144(k)" mean Rule 144 and Rule 144(k), respectively, promulgated under the Securities Act, or any successor rule. 10.13 "SEC" means the United States Securities and Exchange Commission. 10.14 "SEC Documents" has the meaning set forth in Section 4.6. 10.15 "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations thereunder, or any similar successor statute. 10.16 "Shareholder Approval" has the meaning set forth in Section 5.12. ARTICLE XI GOVERNING LAW; MISCELLANEOUS 11.1 Governing Law; Jurisdiction. This Agreement shall be governed by ---------------------------- and interpreted in accordance with the laws of the State of New York without regard to the principles of conflict of laws. The parties hereto hereby submit to the exclusive jurisdiction of the United States federal and state courts located in the State of New York with respect to any dispute arising under this Agreement, the agreements entered into in connection herewith or the transactions contemplated hereby. 11.2 Counterparts; Signatures by Facsimile. This Agreement may be ---------------------------------------- executed in two or more counterparts, all of which are considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other parties. This Agreement, once executed by a party, may be delivered to the other parties hereto by facsimile transmission of a copy of this Agreement bearing the signature of the party so delivering this Agreement. In the event any signature is delivered by facsimile transmission, the party using such means of delivery shall cause the manually executed pages to be physically delivered to the other parties within five business days of the execution hereof. 11.3 Headings. The headings of this Agreement are for convenience of -------- reference only, are not part of this Agreement and do not affect its interpretation. 11.4 Severability. If any provision of this Agreement is invalid or ------------ unenforceable under any applicable statute or rule of law, then such provision shall be deemed modified in order to conform with such statute or rule of law. Any provision hereof that may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision hereof. I - 25 11.5 Entire Agreement; Amendments. This Agreement (including all ------------------------------ schedules and exhibits hereto), the Note and the Warrants constitute the entire agreement among the parties hereto with respect to the subject matter hereof. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein. This Agreement, the Note and the Warrants supersede all prior agreements and understandings among the parties hereto with respect to the subject matter hereof. 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. 11.6 Notices. Any notices required or permitted to be given under the ------- terms of this Agreement must be sent by certified or registered mail (return receipt requested) or delivered personally or by courier (including a recognized overnight delivery service) or by facsimile and shall be effective five (5) days after being placed in the mail, if mailed by regular U.S. mail, or upon receipt, if delivered personally, by courier (including a recognized overnight delivery service) or by facsimile, in each case addressed to a party. The addresses for such communications are: If to the Company: DA Consulting Group, Inc. San Felipe Plaza 5847 San Felipe, Suite 37000 Houston, Texas 77057 Attention: John E. Mitchell, Chief Executive Officer; and Dennis C. Fairchild, Chief Financial Officer Facsimile: 713-361-3001 With a copy to: Pepper Hamilton LLP 3000 Two Logan Square Philadelphia, Pennsylvania 19103 Attention: Barry M. Abelson, Esquire If to the Investor: To the addresses set forth immediately below the Investor's name on its signature page hereto. Each party shall provide written notice to the other party of any change in its address. 11.7 Successors and Assigns. This Agreement is binding upon and inures ---------------------- to the benefit of the parties and their successors and assigns. The Company shall not assign this Agreement or any rights or obligations hereunder without the prior written consent of the Investor, and the Investor may not assign this Agreement or any rights or obligations hereunder without the prior written consent of the Company. Notwithstanding the foregoing, the Investor may assign all or part of its rights and obligations hereunder to any of its "affiliates," as that term is defined under the Securities Act, without the consent of the Company so long as the affiliate is an "accredited investor" (within the meaning of Regulation D under the Securities Act) and agrees in writing to be bound by this Agreement. 11.8 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. 11.9 Survival. The representations and warranties of the Company and -------- the agreements and covenants set forth herein shall survive the Closing hereunder and remain in full force and effect regardless of any investigations heretofore or hereafter made by or on behalf of either of the parties hereto for the period time commencing on the date hereof and ending on the third anniversary of the Closing Date, unless Shareholder Approval is not obtained, in which case, ending on the date the Note is paid in full. The Company makes no representations or warranties in any oral or written information provided to Investor, other than the representations and warranties included herein. I - 26 11.10 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 other agreements, certificates, instruments and documents, as another 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. 11.11 No Strict Construction. The language used in this Agreement is ------------------------ deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction shall be applied against any party. 11.12 Equitable Relief. Each party acknowledges that a breach by it or ---------------- its obligations hereunder will cause irreparable harm to the other parties by vitiating the intent and purposes of the transactions contemplated hereby. Accordingly, each party acknowledges that the remedy at law for a breach of its obligations hereunder will be inadequate and agrees, in the event of a breach, actual or threatened, by such party of the provisions of this Agreement, that the other party shall be entitled, in addition to all other available remedies, to temporary and permanent injunctive relief in any such case without the necessity of proving actual damages. I - 27 IN WITNESS WHEREOF, the Company and the Investor have caused this Agreement to be duly executed as of the date first above written. COMPANY: DA CONSULTING GROUP, INC. By: /s/ John E. Mitchell ------------------------------------- Name: John E. Mitchell Title: President and CEO INVESTOR: PURSE HOLDING LIMITED, a British Virgin Islands limited company By: /s/ B.K. Prasad ------------------------------------- Name: B. K. Prasad Title: Authorized Signatory Address: Altstetterstrasse 126 P.O. Box 1705 CH - 8048 Zurich, Switzerland Attention: Fredy Eckstein Facsimile: +41-1-439 6266 with copies of all notices to: Morrison & Foerster LLP 1290 Avenue of the Americas New York, New York 10104 Attention: Joseph Bartlett, Esq. Facsimile: (212) 468-7900 I - 28 EX-2 3 0003.txt EXHIBIT A THIS PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE SOLD, ASSIGNED OR TRANSFERRED UNLESS EITHER IT IS FIRST REGISTERED UNDER THE ACT OR SUCH SALE, ASSIGNMENT OR TRANSFER IS MADE PURSUANT TO AN EXEMPTION GRANTED UNDER THE ACT. IN ADDITION, THIS PROMISSORY NOTE MAY NOT BE SOLD, ASSIGNED OR OTHERWISE TRANSFERRED UNLESS PERMITTED HEREUNDER. PROMISSORY NOTE --------------- US $2,000,000 August 3, 2000 FOR VALUE RECEIVED, DA CONSULTING GROUP, INC., a Texas corporation (the "Borrower") promises to pay to the order of PURSE HOLDING LIMITED, a British Virgin Islands limited company ("Lender") at such place as Lender may designate from time to time in writing, the principal amount of Two Million Dollars ($2,000,000) in lawful money of the United States of America, together with interest thereon as hereinafter provided in this Promissory Note (this "Note"). This Note has been executed and delivered pursuant to the terms of a Securities Purchase Agreement, dated August 2, 2000, by and between the Borrower and the Lender (the "Purchase Agreement"). Capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to them in the Purchase Agreement. 1. Payment at Maturity. The principal amount evidenced hereby --------------------- shall be payable on the date (the "Maturity Date") which is (i) ninety (90) days after the date hereof, or (ii) in the event that a Special Meeting is held prior to the expiration of such ninety (90) day period, and (a) Shareholder Approval is obtained at such Special Meeting, on the earlier to occur of the Closing Date and seven (7) days after the date of such Special Meeting, or (b) Shareholder Approval is not obtained at such Special Meeting, then the Maturity Date shall be the date ninety (90) days after the date of such Special Meeting. 2. Interest. All amounts outstanding from time to time hereunder -------- shall bear interest until such amounts are paid, at a rate equal to the prime rate of interest announced from time to time by Citibank, N.A. ("Base Rate"), plus three percent (3%) per annum, which rate shall change from time to time when and as such Base Rate changes. The annual interest rate shall be calculated for the actual days elapsed on the basis of a 360-day year. Such interest rate shall apply before and after maturity and judgment. Such interest shall be payable on the Maturity Date. 3. Payments in General. In the event that Shareholder Approval is -------------------- obtained, the principal of and accrued interest on this Note shall be paid as set forth in the Purchase Agreement, and this Note shall be canceled in connection therewith by the Lender upon receipt of payment in full. 4. No Prepayments. This Note may not be prepaid in whole or in --------------- part. 5. Events of Default. The occurrence of one or more of the -------------------- following events shall constitute an event of default hereunder: (a) Borrower shall fail to make any payment due to Lender under this Note when and as the same shall become due and payable whether at maturity, by acceleration or otherwise. A - 1 (b) Any governmental authority or court shall take any action, or any other event shall occur with respect to the Borrower which has a Material Adverse Effect on the Borrower or on the ability of the Borrower to perform its obligations hereunder or under the Purchase Agreement; or (c) If Borrower becomes insolvent, bankrupt or generally fails to pay its debts as such debts become due; is adjudicated insolvent or bankrupt; admits in writing its inability to pay its debts; or shall suffer a custodian, receiver or trustee for it or substantially all of its property to be appointed and if appointed without its consent, not be discharged within ninety (90) days; makes an assignment for the benefit of creditors; or suffers proceedings under any law related to bankruptcy, insolvency, liquidation or the reorganization, readjustment or the release of debtors to be instituted against it and if contested by it not dismissed or stayed within ninety (90) days; if proceedings under any law related to bankruptcy, insolvency, liquidation, or the reorganization, readjustment or the release of debtors is instituted or commenced by Borrower; if any order for relief is entered relating to any of the foregoing proceedings; if Borrower shall call a meeting of its creditors with a view to arranging a composition or adjustment of its debts; or if Borrower shall by any act or failure to act indicate its consent to, approval of or acquiescence in any of the foregoing. 6. Remedies. -------- (a) Upon the occurrence of any event of default, the entire unpaid principal sum hereunder plus any and all interest accrued thereon plus all other sums due and payable to Lender hereunder shall, (i) if such event of default is referred to in paragraph 5(a) or (b) above, at the option of Lender, or (ii) if such event of default is referred to in paragraph 5(c) above, automatically become due and payable immediately without presentment, demand, notice of nonpayment, protest, notice of protest, or other notice of dishonor, all of which are hereby expressly waived by Borrower. (b) No right or remedy conferred upon or reserved to Lender hereunder or now or hereafter existing at law or in equity is intended to be exclusive of any other right or remedy, and each and every such right or remedy shall be cumulative and concurrent, and in addition to every other such right or remedy, and may be pursued singly, concurrently, successively or otherwise, at the sole discretion of Lender, and shall not be exhausted by any one exercise thereof but may be exercised as often as occasion therefor shall occur. 7. Waivers. Borrower hereby waives presentment, demand, notice of ------- nonpayment, protest, notice of protest, notice of dishonor and any and all other notices in connection with any default in the payment of, or any enforcement of the payment of, all amounts due under this Note. To the extent permitted by law, Borrower waives the right to any stay of execution and the benefit of all exemption laws now or hereafter in effect. 8. Notices. All notices required to be given to any of the ------- parties hereunder shall be in writing and shall be deemed to have been sufficiently given for all purposes when presented personally to such party or sent by telecopy or overnight courier to such party at its address set forth below: A - 2 Borrower: DA Consulting Group, Inc.San Felipe Plaza 5847 San Felipe, Suite 3700 Houson, Texas 77057 Attention: John E. Mitchell, Chief Executive Officer Telecopy No.: (713) 361-3001 With a copy to: Pepper Hamilton LLP 3000 Two Logan Square Eighteenth and Arch Streets Philadelphia, PA 19103-2799 Attention: Barry M. Abelson, Esquire Telecopy No.: (215) 981-4750 Lender: Purse Holding Limited Altstetterstrasse 126 P.O. Box 1705 CH-8048 Zurich, Switzerland Attention: Fredy Eckstein Telecopy No.: +41-1-439 6266 With a copy to: Morrison & Foerster LLP 1290 Avenue of the Americas New York, New York 10104 Attention: Joseph Bartlett, Esquire Telecopy No.: (212) 468-7900 Such notice shall be deemed to be given when received if delivered personally or by telecopy or two business days after the date mailed if sent by an overnight courier. Any notice of any change in such address shall also be given in the manner set forth above. Whenever the giving of notice is required, the giving of such notice may be waived in writing by the party entitled to receive such notice. 9. Severability. In the event that any provision of this Note is ------------ held to be invalid, illegal or unenforceable in any respect or to any extent, such provision shall nevertheless remain valid, legal and enforceable in all such other respects and to such extent as may be permissible. Any such invalidity, illegality or unenforceability shall not affect any other provisions of this Note, but this Note shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. 10. Successors; Transfer. This Note inures to the benefit of --------------------- Lender and binds Borrower, and their respective successors, and the words "Lender" and "Borrower" whenever occurring herein shall be deemed and construed to include such respective successors and assigns. Notwithstanding the foregoing, this Note may not be transferred by either (a) the Lender, except with the Borrower's consent which shall not be unreasonably withheld, or (b) the Borrower. 11. Governing Law; Submission to Jurisdiction. This Note shall be ----------------------------------------- governed by and construed in accordance with the laws of the State of New York, without regard to the principals of conflict of laws. Any proceeding relating to this Note may be brought only in the federal or state courts sitting the A - 3 State of New York, to the jurisdiction and venue of which the parties hereby submit. This Note may not be altered or amended, except by a writing duly signed by the party against whom such alteration or amendment is sought to be enforced. No course of dealing between the Lender and the Borrower or any delay on the part of the Borrower in exercising any rights hereunder shall operate as a waiver of any right. Upon receipt by the Borrower of the evidence satisfactory to it of the loss, theft, destruction or mutilation of this Note or any Note exchanged for it, and upon surrender and cancellation of such Note, if mutilated, the Borrower will make and deliver in lieu of such Note a new Note of like tenor and unpaid principal amount and dated as of the original date of this Note. The Borrower agrees to execute such further instruments and to take such further action as may reasonably be necessary to carry out the intent of this Note. IN WITNESS WHEREOF, the Borrower has duly executed this Note the day and year first above written. DA CONSULTING GROUP, INC. By: __________________________ Name: Title: A - 4 EX-3 4 0004.txt EXHIBIT B NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER EITHER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE SECURITIES LAWS, AND THIS WARRANT CANNOT BE EXERCISED, SOLD OR TRANSFERRED, AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT CANNOT BE SOLD OR TRANSFERRED, UNLESS AND UNTIL THEY ARE SO REGISTERED OR UNLESS AN EXEMPTION IS THEN AVAILABLE. Warrant to Subscribe for 2,000,000 Shares DA CONSULTING GROUP, INC. Warrant ------- To Subscribe for and Purchase Common Stock of DA CONSULTING GROUP, INC. THIS CERTIFIES that, for value received PURSE HOLDING LIMITED, a British Virgin Islands limited company, or its registered assigns ("Holder"), is entitled to subscribe for and purchase from DA CONSULTING GROUP, INC., a Texas corporation ("Company"), at an exercise price per share of the greater of (x) $3.00 or (y) an amount equal to eighty-five percent (85%) multiplied by the Market Price Per Share (as hereinafter defined) (the "Exercise Price"), 2,000,000 fully paid and nonassessable shares (the "Warrant Shares), of Company's common stock, par value $.01 per share (the "Common Stock"). For the purposes of this Warrant, Market Price Per Share means the average of the last sale price for the Common Stock as quoted on the NASDAQ National Market System for the five (5) trading days ending on the second trading day prior to the date on which the Warrant is exercised (from time to time as the case may be) or, if not so quoted, means the price as mutually agreed upon by the parties or if the parties can not so mutually agree, the price determined by a neutral party appraiser, as chosen by the Holder and reasonably agreed to by the Company. This Warrant may be exercised, in whole or in part, by Holder for a period of three (3) years following the Closing Date, pursuant to the terms of the Securities Purchase Agreement, dated August 2, 2000, by and between the Company and the Investor (the "Purchase Agreement"). Capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to them in the Purchase Agreement. This Warrant is subject to the following provisions, terms and conditions: B - 1 1. Exercise; Payment. The rights represented by this Warrant may ------------------ be exercised by Holder, in whole or in part, at any time following the date hereof by the surrender of this Warrant at the principal office of Company properly endorsed and accompanied by payment to Company of the Exercise Price for that number of shares of Common Stock sought to be purchased (the "Exercised Shares"), in the manner provided below. Company agrees that (a) shares purchased upon exercise of this Warrant shall be and are deemed to be issued to Holder as the record owner of such shares as of the close of business on the date on which this Warrant shall have been surrendered and payment made for such shares as provided herein, and (b) certificates for the shares of stock so purchased shall be delivered to Holder as promptly as reasonably practicable following any exercise of this Warrant, and unless this Warrant shall have been exercised in full, or shall have expired, a new Warrant representing the number of shares with respect to which this Warrant shall not yet have been exercised, shall also be delivered to Holder. Holder may pay the Exercise Price for any Exercised Shares by delivering cash, check, money order or wire transfer of funds to the Company in the amount of the Exercise Price of the Exercised Shares. 2. Covenants as to Common Stock. -------------------------------- (a) Company covenants and agrees that all shares which may be issued upon the exercise of the rights represented by this Warrant will, upon issuance and payment therefor in accordance with Section 1 above, be validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof; and without limiting the generality of the foregoing, Company covenants and agrees that it will from time to time take all such action as may be required to assure that the par value per share of the Common Stock is at all times equal to or less than the then effective Exercise Price per share of Common Stock issuable pursuant to this Warrant. Company further covenants and agrees that when the rights represented by this Warrant may be exercised, Company will at all times thereafter have authorized, and reserved for the purpose of issue or transfer upon exercise of the subscription rights evidenced by this Warrant, a sufficient number of shares of its Common Stock to provide for the exercise of the rights represented by this Warrant. (b) The Company shall undertake all the requirements set forth in Article VI of the Securities Purchase Agreement relating to registration of the Warrant Shares. (c) The Company will not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issuance or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed by it hereunder, but will at all times in good faith assist in the carrying out of all the provisions of this Warrant and in the taking of all such action as may reasonably be requested by the Holder in order to protect the exercise privilege of the Holder against dilution or other impairment, consistent with the tenor and purpose of this Warrant. B - 2 (d) This Warrant will be binding upon any entity succeeding to the Company by merger, consolidation or acquisition of all or substantially all of the Company's assets. 3. Taxes. Company shall pay any and all taxes which may be ----- payable with respect to the issuance and delivery of the Warrant Shares; provided, however, that the Company shall not be required to pay any taxes that - -------- ------- may be payable in respect of any transfer involved in the issue or delivery of Common Stock or other securities or property in a name other than that of the Holders to be converted and the Holder shall pay such amount, if any, to cover any applicable transfer or similar tax. 4. Adjustment for Splits, etc. ------------------------------ (a) In the event at any time or from time to time, all holders of Common Stock (or any other shares of stock or other securities at that time receivable upon exercise of this Warrant) shall have received, other or additional or less stock or other securities whether through a dividend in stock or any class of stock of Company or any other corporation, or through stock split, spinoff, split-off, reclassification, combination of shares or otherwise (a "Distribution"), then, and in each such case, Holder upon the ------------ exercise of this Warrant and payment of the Exercise Price provided above, shall be entitled to receive, in lieu of the shares called for under this Warrant, the shares or other securities or property to which Holder would have been entitled in the Distribution if Holder had exercised this Warrant immediately prior thereto. In case of the partial exercise of this Warrant under such circumstances, the number of shares of stock or other securities which would have been receivable upon the full exercise of this Warrant, and the Exercise Price payable therefor computed as provided above, shall be proportionately reduced. (b) In case of any reorganization of Company, or any other corporation the stock or securities of which are at the time deliverable on the exercise of this Warrant, or in case Company or such other corporation shall (x) be acquired through the consolidation or merger with or into another corporation, whether or not Company or such other corporation survives such merger, or (y) convey all or substantially all of its assets to another corporation, or liquidate, Holder, upon the exercise hereof and upon the payment of the Exercise Price provided above, shall be entitled to receive, in lieu of the shares called for under this Warrant, the stock or other securities or property to which Holder would have been entitled upon the consummation of such reorganization, consolidation, merger, conveyance or liquidation if Holder had purchased the shares called for hereby immediately prior thereto; and in such case, the provisions of this Warrant shall be applicable to the shares of stock or other securities or property thereafter deliverable upon the exercise of this Warrant. In the case of the partial exercise of this Warrant under such circumstances, the number of shares of stock or other securities or property which would have been receivable upon the full exercise of this Warrant, and the Exercise Price payable therefor, shall be proportionately reduced. B - 3 5. Adjustment for Dilutive Issuances. The Exercise Price and the ----------------------------------- number of shares of Common Stock issuable upon exercise of this Warrant shall be adjusted from time to time as follows: (a) Adjustment of Exercise Price and Number of Shares upon --------------------------------------------------------- Issuance of Common Stock. If and whenever on or after the date of issuance of - --------------------------- this Warrant, the Company issues or sells, or is deemed to have issued or sold, any shares of Common Stock (other than shares of Common Stock issuable by the Company (whether now or in the future) in connection with an approved stock plan and other than Common Stock or securities exercisable for shares of Common Stock issued to the Holder pursuant to the Purchase Agreement) for a consideration per share less than a price equal to the Exercise Price, then immediately after such issuance or sale the Exercise Price shall be reduced to an amount determined by dividing (1) the sum of (I) the product of the Exercise Price and the number of shares of Common Stock actually outstanding (determined on a Fully Diluted Basis, as defined below) immediately prior to such issuance or sale, and (II) the consideration, if any, received by the Company upon such issuance or sale, by (2) the number of shares of Common Stock outstanding (determined on a Fully Diluted Basis) immediately after such issuance or sale. Upon each such adjustment of the Exercise Price hereunder, the number of shares of Common Stock acquirable upon exercise of this Warrant shall be adjusted to the number of shares determined by multiplying the Exercise Price by the number of shares of Common Stock acquirable upon exercise of this Warrant and dividing the product thereof by the Exercise Price resulting from such adjustment. For purposes hereof, "Fully Diluted Basis" shall mean that number of shares of Common Stock outstanding assuming the conversion, exercise or exchange of all securities convertible into or exchangeable for Common Stock (hereinafter "convertible securities") regardless of whether any such securities are actually exercisable or convertible at such time, but excluding any shares of Common Stock owned or held by or for the account of the Company or issuable upon exercise of this Warrant or any other warrant issued to the Holder pursuant to the Purchase Agreement. (b) Calculation of Consideration Received. In case any ---------------------------------------- security is issued in connection with the issuance or sale of other convertible securities of the Company, together comprising one integrated transaction in which no specific consideration is allocated to such convertible securities by the parties thereto, the convertible securities will be deemed to have been issued for a consideration of $0.01. If any Common Stock or other convertible securities are issued or sold or deemed to have been issued or sold for cash, the consideration received therefor will be deemed to be the net amount received by the Company therefor. If any Common Stock or other convertible securities are issued or sold for a consideration other than cash, the amount of such consideration received by the Company will be the fair value of such consideration, except where such consideration consists of securities, in which case the amount of consideration received by the Company will be the Market Price (as defined below) of such securities for the twenty (20) consecutive trading days immediately preceding the date of receipt. If any Common Stock or other convertible securities are issued to the owners of the non-surviving entity in connection with any merger in which the Company is the surviving entity, the amount of consideration therefor will be deemed to be the fair value of such portion of the net assets and business of the non-surviving entity as is attributable to such Common Stock or other convertible securities, as the case may be. The fair value of any consideration other than cash or securities will B - 4 be determined jointly by the Company and the Holder. If such parties are unable to reach agreement within ten (10) days after the occurrence of an event requiring valuation (the "Valuation Event"), the fair value of such consideration will be determined within five (5) Business Days after the tenth (10th) day following the Valuation Event by an independent, reputable appraiser jointly selected by the Company and the Holder. The determination of such appraiser shall be final and binding upon all parties and the fees and expenses of such appraiser shall be borne jointly by the Company and the Holder. As used in this paragraph "Market Price" means, for any security as of any date, the last closing bid price for such security on The Nasdaq National Market (the "Nasdaq") as reported by Bloomberg Financial Markets ("Bloomberg"), or, if the Nasdaq 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 electronic 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 for such security as reported by Bloomberg, or, if no last closing trade price is reported for such security by Bloomberg, the average of the bid prices of any market makers for such security as reported in the "pink sheets" by the National Quotation Bureau, Inc. If the Closing Bid Price cannot be calculated for such security on such date on any of the foregoing bases, the Market Price of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. All such determinations to be appropriately adjusted for any stock dividend, stock split or other similar transaction during such period (c) Treasury Shares. The number of shares of Common Stock ---------------- outstanding at any given time shall not include shares owned or held by or for the account of the Company, and the disposition of any shares so owned or held will be considered an issuance or sale of Common Stock. (d) Record Date. If the Company takes a record of the holders ----------- of Common Stock for the purpose of entitling them (1) to receive a dividend or other distribution payable in Common Stock or in other convertible securities or (2) to subscribe for or purchase Common Stock or other convertible securities, then such record date will be deemed to be the date of the issuance or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be. (e) Certain Events. If any event occurs of the type --------------- contemplated by the provisions of this Section 4 but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Company's Board of Directors will make an appropriate adjustment in the Exercise Price and the number of shares of Common Stock obtainable upon exercise of this Warrant so as to protect the rights of the Holder; provided that no such -------- adjustment will increase the Exercise Price or decrease the number of shares of Common Stock obtainable as otherwise determined pursuant to this Section 4. B - 5 6. No Rights as Shareholder. Until the valid exercise of this --------------------------- Warrant, the holder hereof shall not be entitled to any voting right or other rights as a shareholder of Company with respect to this Warrant. 7. Transfer of Warrants. Subject to Section 8 hereof, this ---------------------- Warrant and all rights hereunder are transferable, in whole or in part, without charge to the Holder, at the office or agency of Company referred to in Section 1 by the Holder in person or by duly authorized attorney, upon surrender of this Warrant properly endorsed. Each taker and holder of this Warrant, by taking or holding the same, consents and agrees that this Warrant, when endorsed in blank, shall be deemed negotiable, and that the holder hereof, when this Warrant shall have been so endorsed, may be treated by Company and all other persons dealing with this Warrant as the absolute owner hereof for any purpose and as the person entitled to exercise the rights represented by this Warrant, or to the transfer hereof on the books of Company, any notice to the contrary notwithstanding; but until such transfer on such books, Company may treat the registered holder hereof as the owner for all purposes. The Company is obligated to register the shares of Common Stock for resale under the Securities Act of 1933, as amended, (the "Securities Act") pursuant to the Securities Purchase Agreement and the Holder (and certain assignees thereof) is entitled to the registration rights in respect of the shares of Common Stock as set forth in the Securities Purchase Agreement. 8. Fractional Interests. Company shall not be required to issue --------------------- fractional shares of Common Stock upon the exercise of this Warrant. If any fraction of a share of Common Stock would, except for the provisions of this Section 7, be issuable upon the exercise of this Warrant (or specified portion thereof), Company shall pay an amount in cash equal to the Fair Market Value (as defined below) of such fraction of a Common Share on the business day prior to the date of such exercise. As used in this Agreement, the "Fair Market Value" of the Common Stock shall be the closing price of the Common Stock on the date of determination on the principal stock market or quotation system on which the Common Stock is then traded; provided, however, if the Common Stock is not, as -------- ------- of the date of determination of the Fair Market Value, traded on a recognized public trading market or quoted on a recognized quotation system, then the Fair Market Value shall be determined by the Board of Directors of the Company in good faith on the basis of such valuation as it considers appropriate. 9. Compliance With Securities Laws. By acquiring this Warrant ---------------------------------- from Company on the date hereof, the Holder hereby represents and warrants as follows: (a) The Holder is acquiring this Warrant for its own account and not with a present view toward the public sale or distribution thereof, except pursuant to sales registered or exempted from registration under the Securities Act; provided, however, that by making the representation herein, the -------- ------- Holder does not agree to hold the Warrant or Warrant Shares for any minimum or other specific term and reserves the right to dispose of the Warrant and the Exercised Shares at any time in accordance with or pursuant to a registration statement or an exemption under the Securities Act. B - 6 (b) The Holder is an "accredited investor" as defined in Rule 501(a) of Regulation D. (c) The Holder understands that the Warrant and the Warrant Shares are being offered and sold to it in reliance upon specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying upon the truth and accuracy of, and the Holder's compliance with, the representations, warranties, agreements, acknowledgements and understandings of the Holder set forth herein in order to determine the availability of such exemptions and the eligibility of the Holder to acquire the Warrant and the Warrant Shares. (d) The Holder 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 Warrant and the Warrant Shares, that have been requested by the Holder or its advisors, if any. The Holder and its advisors, if any, have been afforded the opportunity to ask questions of the Company. Neither such inquiries nor any other due diligence investigation conducted by the Holder or any of its advisors or representatives modifies, amends or affects the Holder's right to rely on the Company's representations and warranties set forth in the Securities Purchase Agreement. The Holder acknowledges and understands that its investment in the Warrant and the Warrant Shares involves a significant degree of risk. The Holder acknowledges that, except as set forth herein, it has not relied on any materials other than the SEC documents in purchasing the Warrant and the Warrant Shares. (e) The Holder understands that no United States federal or state agency or any other government or governmental agency has passed upon or made any recommendation or endorsement of the Warrant or the Warrant Shares or an investment therein. (f) The Holder understands that: (1) except as provided in Article VI of the Purchase Agreement, the Warrant and the Warrant Shares have not been and are not required to be registered under the Securities Act or any applicable state securities laws and, consequently, the Holder may have to bear the risk of owning the Securities for an indefinite period to time because the Warrant and the Warrant Shares may not be transferred unless (i) the resale of the Warrant or the Warrant Shares is registered pursuant to an effective registration statement under the Securities Act; (ii) the Holder has delivered to the Company an opinion of counsel (in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that the Warrant or the Warrant Shares to be sold or transferred may be sold or transferred pursuant to an exemption from such registration; (iii) the Warrant or the Warrant Shares are sold or transferred pursuant to Rule 144; or (iv) the Warrant or the Warrant Shares are sold or transferred to an affiliate (as defined in Rule 144) of the Holder pursuant to an exemption from registration under the Securities Act; B - 7 (2) any sale of the Warrant or the Warrant Shares made in reliance on Rule 144 may be made only in accordance with the terms of Rule 144 and, if Rule 144 is not applicable, any resale of the Warrant or the Warrant Shares 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 Securities Act) may require compliance with some other exemption under the Securities Act or the rules and regulations of the SEC thereunder; and (3) except as set forth in Article VI of the Purchase Agreement, neither the Company nor any other person is under any obligation to register the Warrant or the Warrant Shares under the Securities Act or any state securities laws or to comply with the terms and conditions of any exemption thereunder. (g) The Holder understands that until such time as (a) the Warrant or the Warrant Shares may be sold by the Holder under Rule 144(k) or (b) the resale of the Warrant or the Warrant Shares has been registered under the Securities Act as contemplated by Article VI of the Purchase Agreement, the certificates representing the Warrant or the Warrant Shares shall bear a restrictive legend in substantially the following form (and a stop-transfer order may be placed against transfer of the certificates for such Warrant or the Warrant Shares): THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. THE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECUIRITIES UNDER APPLICABLE SECURITIES LAWS, OR UNLESS OFFERED, SOLD OR TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS. The legend set forth above shall be removed and the Company shall issue a certificate without the legend to the holder of any certificate upon which it is stamped, in accordance with the terms of Article VI of the Purchase Agreement. (h) Holder is not a U.S. Person (as that term is defined in Regulation S under the Securities Act ("Regulations S") and is not acquiring the Warrant Shares for the account or benefit of any U.S. Person. The Holder agrees to resell the Warrant Shares only (i) in accordance with the provisions of Regulation S, (ii) pursuant to registration under the Securities Act, or (iii) pursuant to an available exemption from such registration; and agrees not to engage in hedging transactions with regard to the Securities unless in compliance with the Securities Act. The Holder acknowledges and understands that a legend will be placed on any certificates(s) representing the Warrant Shares stating that transfer of the Warrant Shares in prohibited except (i) in accordance with the provisions of Regulation S, (ii) pursuant to registration under the Securities Act, or (iii) pursuant to an available exemption from registration; and that hedging transactions involving those securities may not be conducted unless in compliance with the Securities Act. The Holder B - 8 acknowledges and agrees that unless applicable foreign law prevents the Company from refusing to register securities transfers, the Company will refuse to register any transfer of the Warrant Shares not made (i) in accordance with the provisions of Regulation S, (ii) pursuant to registration under the Securities Act, or (iii) pursuant to an available exemption from such registration. 10. Notice. Company covenants and agrees to give notice in ------ writing to Holder at least 10 days prior to (or, if later, then as soon as reasonably practicable prior to) any action contemplated which would affect the per share Exercise Price, or number of shares purchasable upon exercise of this Warrant; provided, however, any failure of Company to provide such notice shall -------- ------- not affect the validity of any action by Company. Any notice, request or other communication provided for under this Warrant shall be given in writing, delivered by hand, by overnight United States mail, return receipt requested, postage prepaid, or through a reputable courier service (such as Federal Express) and shall be addressed to Company or to the Holder at the address shown below, unless notice of a change in address is furnished in accordance with this paragraph: If to Company: DA Consulting Group, Inc. San Felipe Plaza 5847 San Felipe, Suite 37000 Houston, Texas 77057 Attention: John E. Mitchell, Chief Executive Officer; and Dennis C. Fairchild, Chief Financial Officer with a copy to: Pepper Hamilton LLP 3000 Two Logan Square Philadelphia, Pennsylvania 19103 Attention: Barry M. Abelson, Esquire If to Holder: Purse Holding Limited Altstetterstrasse 126 P.O. Box 1705 CH - 8048 Zurich, Switzerland Attention: Fredy Eckstein with a copy to: Morrison & Foerster LLP 1290 Avenue of the Americas New York, New York 10104 Attention: Joseph Bartlett, Esquire B - 9 11. Descriptive Headings and Governing Law. The descriptive ------------------------------------------ headings of the several paragraphs of this Warrant are inserted for convenience only and do not constitute a part of this Warrant. The corporate laws of the State of Texas shall govern all issues concerning the relative rights of the Company and its stockholders. All other questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be governed by the internal laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York, or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of New York. 12. Lost, Stolen, Mutilated or Destroyed Warrant. If this Warrant --------------------------------------------- is lost, stolen, mutilated or destroyed, the Company shall, on receipt of an indemnification undertaking (or, in the case of a mutilated Warrant, the Warrant), issue a new Warrant of like denomination and tenor as this Warrant so lost, stolen, mutilated or destroyed. 13. Amendment and Waiver. This Warrant and any provisions hereof ---------------------- may be changed, waived, discharged or terminated only an instrument in writing signed by the party against which enforcement of the same is sought. 14. Date. The date of this Warrant is ____________, 2000. This ---- Warrant, in all events, shall be wholly void and of no effect after 5:00 p.m. New York time on the third anniversary of the Closing Date or if such day is not a Business Day then on the Business Day next succeeding such date, except that notwithstanding any other provisions hereof, the provisions of Section 2(b) shall continue in full force and effect after such date as to any shares of Common Stock or other securities issued upon the exercise of this Warrant. [signature page follows] B - 10 IN WITNESS WHEREOF, DA Consulting Group, Inc. has caused this Warrant to be signed by its duly authorized officer under its corporate seal, this ____ day of ____________, 2000. DA CONSULTING GROUP, INC. By:________________________________ Name: Title: B - 11 EX-4 5 0005.txt EXHIBIT C NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER EITHER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE SECURITIES LAWS, AND THIS WARRANT CANNOT BE EXERCISED, SOLD OR TRANSFERRED, AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT CANNOT BE SOLD OR TRANSFERRED, UNLESS AND UNTIL THEY ARE SO REGISTERED OR UNLESS AN EXEMPTION IS THEN AVAILABLE. Warrant to Subscribe for 1,000,000 Shares DA CONSULTING GROUP, INC. Warrant ------- To Subscribe for and Purchase Common Stock of DA CONSULTING GROUP, INC. THIS CERTIFIES that, for value received PURSE HOLDING LIMITED, a British Virgin Islands limited company, or its registered assigns ("Holder"), is entitled to subscribe for and purchase from DA CONSULTING GROUP, INC., a Texas corporation ("Company"), at an exercise price per share of $3.00 (the "Exercise Price"), 1,000,000 fully paid and nonassessable shares (the "Warrant Shares"), of Company's common stock, par value $.01 per share (the "Common Stock"). This Warrant may be exercised, in whole or in part, by Holder for a period commencing on January 2, 2002 and ending on the 3rd anniversary of the Closing Date (as such term is defined in the Securities Purchase Agreement, dated August 2, 2000, by and between the Company and the Investor (the "Purchase Agreement")). Capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to them in the Purchase Agreement. This Warrant is subject to the following provisions, terms and conditions: 1. Exercise; Payment. The rights represented by this Warrant may ------------------ be exercised by Holder, in whole or in part, at any time after January 2, 2002 by the surrender of this Warrant at the principal office of Company properly endorsed and accompanied by payment to Company of the Exercise Price for that number of shares of Common Stock sought to be purchased (the "Exercised --------- Shares"), in the manner provided below. Company agrees that (a) shares - ------ C - 1 purchased upon exercise of this Warrant shall be and are deemed to be issued to Holder as the record owner of such shares as of the close of business on the date on which this Warrant shall have been surrendered and payment made for such shares as provided herein, and (b) certificates for the shares of stock so purchased shall be delivered to Holder as promptly as reasonably practicable following any exercise of this Warrant, and unless this Warrant shall have been exercised in full, or shall have expired, a new Warrant representing the number of shares with respect to which this Warrant shall not yet have been exercised, shall also be delivered to Holder. Holder may pay the Exercise Price for any Exercised Shares by delivering cash, check, money order or wire transfer of funds to the Company in the amount of the Exercise Price of the Exercised Shares. 2. Covenants as to Common Stock. -------------------------------- (a) Company covenants and agrees that all shares which may be issued upon the exercise of the rights represented by this Warrant will, upon issuance and payment therefor in accordance with Section 1 above, be validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof; and without limiting the generality of the foregoing, Company covenants and agrees that it will from time to time take all such action as may be required to assure that the par value per share of the Common Stock is at all times equal to or less than the then effective Exercise Price per share of Common Stock issuable pursuant to this Warrant. Company further covenants and agrees that when the rights represented by this Warrant may be exercised, Company will at all times thereafter have authorized, and reserved for the purpose of issue or transfer upon exercise of the subscription rights evidenced by this Warrant, a sufficient number of shares of its Common Stock to provide for the exercise of the rights represented by this Warrant. (b) The Company shall undertake all the requirements set forth in Article VI of the Securities Purchase Agreement relating to registration of the Warrant Shares. (c) The Company will not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issuance or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed by it hereunder, but will at all times in good faith assist in the carrying out of all the provisions of this Warrant and in the taking of all such action as may reasonably be requested by the Holder in order to protect the exercise privilege of the Holder against dilution or other impairment, consistent with the tenor and purpose of this Warrant. (d) This Warrant will be binding upon any entity succeeding to the Company by merger, consolidation or acquisition of all or substantially all of the Company's assets. C - 2 3. Taxes. Company shall pay any and all taxes which may be ----- payable with respect to the issuance and delivery of the Warrant Shares; provided, however, that the Company shall not be required to pay any taxes that - -------- ------- may be payable in respect of any transfer involved in the issue or delivery of Common Stock or other securities or property in a name other than that of the Holders to be converted and the Holder shall pay such amount, if any, to cover any applicable transfer or similar tax. 4. Adjustments for Splits, etc. ------------------------------- (a) In the event at any time or from time to time, all holders of Common Stock (or any other shares of stock or other securities at that time receivable upon exercise of this Warrant) shall have received, other or additional or less stock or other securities whether through a dividend in stock or any class of stock of Company or any other corporation, or through stock split, spinoff, split-off, reclassification, combination of shares or otherwise (a "Distribution"), then, and in each such case, Holder upon the ------------ exercise of this Warrant and payment of the Exercise Price provided above, shall be entitled to receive, in lieu of the shares called for under this Warrant, the shares or other securities or property to which Holder would have been entitled in the Distribution if Holder had exercised this Warrant immediately prior thereto. In case of the partial exercise of this Warrant under such circumstances, the number of shares of stock or other securities which would have been receivable upon the full exercise of this Warrant, and the Exercise Price payable therefor computed as provided above, shall be proportionately reduced. (b) In case of any reorganization of Company, or any other corporation the stock or securities of which are at the time deliverable on the exercise of this Warrant, or in case Company or such other corporation shall (x) be acquired through the consolidation or merger with or into another corporation, whether or not Company or such other corporation survives such merger, or (y) convey all or substantially all of its assets to another corporation, or liquidate, Holder, upon the exercise hereof and upon the payment of the Exercise Price provided above, shall be entitled to receive, in lieu of the shares called for under this Warrant, the stock or other securities or property to which Holder would have been entitled upon the consummation of such reorganization, consolidation, merger, conveyance or liquidation if Holder had purchased the shares called for hereby immediately prior thereto; and in such case, the provisions of this Warrant shall be applicable to the shares of stock or other securities or property thereafter deliverable upon the exercise of this Warrant. In the case of the partial exercise of this Warrant under such circumstances, the number of shares of stock or other securities or property which would have been receivable upon the full exercise of this Warrant, and the Exercise Price payable therefor, shall be proportionately reduced. 5. Adjustment for Dilutive Issuances. The Exercise Price and the ----------------------------------- number of shares of Common Stock issuable upon exercise of this Warrant shall be adjusted from time to time as follows: (a) Adjustment of Exercise Price and Number of Shares upon --------------------------------------------------------- Issuance of Common Stock. If and whenever on or after the date of issuance of - --------------------------- this Warrant, the Company issues or sells, or is deemed to have issued or sold, any shares of Common Stock (other than shares of Common Stock issuable by the Company (whether now or in the future) in connection with an approved stock plan and other than Common Stock or securities exercisable for shares of Common Stock issued to the Holder pursuant to the Purchase Agreement) for a consideration per C - 3 share less than a price equal to the Exercise Price, then immediately after such issuance or sale the Exercise Price shall be reduced to an amount determined by dividing (1) the sum of (I) the product of the Exercise Price and the number of shares of Common Stock actually outstanding (determined on a Fully Diluted Basis, as defined below) immediately prior to such issuance or sale, and (II) the consideration, if any, received by the Company upon such issuance or sale, by (2) the number of shares of Common Stock outstanding (determined on a Fully Diluted Basis) immediately after such issuance or sale. Upon each such adjustment of the Exercise Price hereunder, the number of shares of Common Stock acquirable upon exercise of this Warrant shall be adjusted to the number of shares determined by multiplying the Exercise Price by the number of shares of Common Stock acquirable upon exercise of this Warrant and dividing the product thereof by the Exercise Price resulting from such adjustment. For purposes hereof, "Fully Diluted Basis" shall mean that number of shares of Common Stock outstanding assuming the conversion, exercise or exchange of all securities convertible into or exchangeable for Common Stock (hereinafter "convertible securities") regardless of whether any such securities are actually exercisable or convertible at such time, but excluding any shares of Common Stock owned or held by or for the account of the Company or issuable upon exercise of this Warrant or any other warrant issued to the Holder pursuant to the Purchase Agreement. (b) Calculation of Consideration Received. In case any ---------------------------------------- security is issued in connection with the issuance or sale of other convertible securities of the Company, together comprising one integrated transaction in which no specific consideration is allocated to such convertible securities by the parties thereto, the convertible securities will be deemed to have been issued for a consideration of $0.01. If any Common Stock or other convertible securities are issued or sold or deemed to have been issued or sold for cash, the consideration received therefor will be deemed to be the net amount received by the Company therefor. If any Common Stock or other convertible securities are issued or sold for a consideration other than cash, the amount of such consideration received by the Company will be the fair value of such consideration, except where such consideration consists of securities, in which case the amount of consideration received by the Company will be the Market Price (as defined below) of such securities for the twenty (20) consecutive trading days immediately preceding the date of receipt. If any Common Stock or other convertible securities are issued to the owners of the non-surviving entity in connection with any merger in which the Company is the surviving entity, the amount of consideration therefor will be deemed to be the fair value of such portion of the net assets and business of the non-surviving entity as is attributable to such Common Stock or other convertible securities, as the case may be. The fair value of any consideration other than cash or securities will be determined jointly by the Company and the Holder. If such parties are unable to reach agreement within ten (10) days after the occurrence of an event requiring valuation (the "Valuation Event"), the fair value of such consideration will be determined within five (5) Business Days after the tenth (10th) day following the Valuation Event by an independent, reputable appraiser jointly selected by the Company and the Holder. The determination of such appraiser shall be final and binding upon all parties and the fees and expenses of such appraiser shall be borne jointly by the Company and the Holder. As used in this paragraph "Market Price" means, for any security as of any date, the last closing bid price for such security on The Nasdaq National Market (the C - 4 "Nasdaq") as reported by Bloomberg Financial Markets ("Bloomberg"), or, if the Nasdaq 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 electronic 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 for such security as reported by Bloomberg, or, if no last closing trade price is reported for such security by Bloomberg, the average of the bid prices of any market makers for such security as reported in the "pink sheets" by the National Quotation Bureau, Inc. If the Closing Bid Price cannot be calculated for such security on such date on any of the foregoing bases, the Market Price of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. All such determinations to be appropriately adjusted for any stock dividend, stock split or other similar transaction during such period (c) Treasury Shares. The number of shares of Common Stock ---------------- outstanding at any given time shall not include shares owned or held by or for the account of the Company, and the disposition of any shares so owned or held will be considered an issuance or sale of Common Stock. (d) Record Date. If the Company takes a record of the holders ----------- of Common Stock for the purpose of entitling them (1) to receive a dividend or other distribution payable in Common Stock or in other convertible securities or (2) to subscribe for or purchase Common Stock or other convertible securities, then such record date will be deemed to be the date of the issuance or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be. (e) Certain Events. If any event occurs of the type --------------- contemplated by the provisions of this Section 4 but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Company's Board of Directors will make an appropriate adjustment in the Exercise Price and the number of shares of Common Stock obtainable upon exercise of this Warrant so as to protect the rights of the Holder; provided that no such -------- adjustment will increase the Exercise Price or decrease the number of shares of Common Stock obtainable as otherwise determined pursuant to this Section 4. 6. No Rights as Shareholder. Until the valid exercise of this --------------------------- Warrant, the holder hereof shall not be entitled to any voting right or other rights as a shareholder of Company with respect to this Warrant. 7. Transfer of Warrants. Subject to Section 8 hereof, this ---------------------- Warrant and all rights hereunder are transferable, in whole or in part, without charge to the Holder, at the office or agency of Company referred to in Section 1 by the Holder in person or by duly authorized attorney, upon surrender of this Warrant properly endorsed. Each taker and holder of this Warrant, by taking or C - 5 holding the same, consents and agrees that this Warrant, when endorsed in blank, shall be deemed negotiable, and that the holder hereof, when this Warrant shall have been so endorsed, may be treated by Company and all other persons dealing with this Warrant as the absolute owner hereof for any purpose and as the person entitled to exercise the rights represented by this Warrant, or to the transfer hereof on the books of Company, any notice to the contrary notwithstanding; but until such transfer on such books, Company may treat the registered holder hereof as the owner for all purposes. The Company is obligated to register the shares of Common Stock for resale under the Securities Act of 1933, as amended, (the "Securities Act") pursuant to the Securities Purchase Agreement and the Holder (and certain assignees thereof) is entitled to the registration rights in respect of the shares of Common Stock as set forth in the Securities Purchase Agreement. 8. Fractional Interests. Company shall not be required to issue --------------------- fractional shares of Common Stock upon the exercise of this Warrant. If any fraction of a share of Common Stock would, except for the provisions of this Section 7, be issuable upon the exercise of this Warrant (or specified portion thereof), Company shall pay an amount in cash equal to the Fair Market Value (as defined below) of such fraction of a Common Share on the business day prior to the date of such exercise. As used in this Agreement, the "Fair Market Value" of the Common Stock shall be the closing price of the Common Stock on the date of determination on the principal stock market or quotation system on which the Common Stock is then traded; provided, however, if the Common Stock is not, as -------- ------- of the date of determination of the Fair Market Value, traded on a recognized public trading market or quoted on a recognized quotation system, then the Fair Market Value shall be determined by the Board of Directors of the Company in good faith on the basis of such valuation as it considers appropriate. 9. Compliance With Securities Laws. By acquiring this Warrant ---------------------------------- from Company on the date hereof, the Holder hereby represents and warrants as follows: (a) The Holder is acquiring this Warrant for its own account and not with a present view toward the public sale or distribution thereof, except pursuant to sales registered or exempted from registration under the Securities Act; provided, however, that by making the representation herein, the -------- ------- Holder does not agree to hold the Warrant or Warrant Shares for any minimum or other specific term and reserves the right to dispose of the Warrant and the Exercised Shares at any time in accordance with or pursuant to a registration statement or an exemption under the Securities Act. (b) The Holder is an "accredited investor" as defined in Rule 501(a) of Regulation D. (c) The Holder understands that the Warrant and the Warrant Shares are being offered and sold to it in reliance upon specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying upon the truth and accuracy of, and the Holder's compliance with, the representations, warranties, agreements, acknowledgements and understandings of the Holder set forth herein in order to determine the availability of such exemptions and the eligibility of the Holder to acquire the Warrant and the Warrant Shares. C - 6 (d) The Holder 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 Warrant and the Warrant Shares, that have been requested by the Holder or its advisors, if any. The Holder and its advisors, if any, have been afforded the opportunity to ask questions of the Company. Neither such inquiries nor any other due diligence investigation conducted by the Holder or any of its advisors or representatives modifies, amends or affects the Holder's right to rely on the Company's representations and warranties set forth in the Securities Purchase Agreement. The Holder acknowledges and understands that its investment in the Warrant and the Warrant Shares involves a significant degree of risk. The Holder acknowledges that, except as set forth herein, it has not relied on any materials other than the SEC documents in purchasing the Warrant and the Warrant Shares. (e) The Holder understands that no United States federal or state agency or any other government or governmental agency has passed upon or made any recommendation or endorsement of the Warrant or the Warrant Shares or an investment therein. (f) The Holder understands that: (1) except as provided in Article VI of the Purchase Agreement, the Warrant and the Warrant Shares have not been and are not required to be registered under the Securities Act or any applicable state securities laws and, consequently, the Holder may have to bear the risk of owning the Securities for an indefinite period to time because the Warrant and the Warrant Shares may not be transferred unless (i) the resale of the Warrant or the Warrant Shares is registered pursuant to an effective registration statement under the Securities Act; (ii) the Holder has delivered to the Company an opinion of counsel (in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that the Warrant or the Warrant Shares to be sold or transferred may be sold or transferred pursuant to an exemption from such registration; (iii) the Warrant or the Warrant Shares are sold or transferred pursuant to Rule 144; or (iv) the Warrant or the Warrant Shares are sold or transferred to an affiliate (as defined in Rule 144) of the Holder pursuant to an exemption from registration under the Securities Act; (2) any sale of the Warrant or the Warrant Shares made in reliance on Rule 144 may be made only in accordance with the terms of Rule 144 and, if Rule 144 is not applicable, any resale of the Warrant or the Warrant Shares 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 Securities Act) may require compliance with some other exemption under the Securities Act or the rules and regulations of the SEC thereunder; and C - 7 (3) except as set forth in Article VI of the Purchase Agreement, neither the Company nor any other person is under any obligation to register the Warrant or the Warrant Shares under the Securities Act or any state securities laws or to comply with the terms and conditions of any exemption thereunder. (g) The Holder understands that until such time as (a) the Warrant or the Warrant Shares may be sold by the Holder under Rule 144(k) or (b) the resale of the Warrant or the Warrant Shares has been registered under the Securities Act as contemplated by Article VI of the Purchase Agreement, the certificates representing the Warrant or the Warrant Shares shall bear a restrictive legend in substantially the following form (and a stop-transfer order may be placed against transfer of the certificates for such Warrant or the Warrant Shares): THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. THE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS, OR UNLESS OFFERED, SOLD OR TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS. The legend set forth above shall be removed and the Company shall issue a certificate without the legend to the holder of any certificate upon which it is stamped, in accordance with the terms of Article VI of the Purchase Agreement. (h) Holder is not a U.S. Person (as that term is defined in Regulation S under the Securities Act ("Regulations S") and is not acquiring the Warrant Shares for the account or benefit of any U.S. Person. The Holder agrees to resell the Warrant Shares only (i) in accordance with the provisions of Regulation S, (ii) pursuant to registration under the Securities Act, or (iii) pursuant to an available exemption from such registration; and agrees not to engage in hedging transactions with regard to the Securities unless in compliance with the Securities Act. The Holder acknowledges and understands that a legend will be placed on any certificates(s) representing the Warrant Shares stating that transfer of the Warrant Shares in prohibited except (i) in accordance with the provisions of Regulation S, (ii) pursuant to registration under the Securities Act, or (iii) pursuant to an available exemption from registration; and that hedging transactions involving those securities may not be conducted unless in compliance with the Securities Act. The Holder acknowledges and agrees that unless applicable foreign law prevents the Company from refusing to register securities transfers, the Company will refuse to register any transfer of the Warrant Shares not made (i) in accordance with the provisions of Regulation S, (ii) pursuant to registration under the Securities Act, or (iii) pursuant to an available exemption from such registration. 10. Notice. Company covenants and agrees to give notice in ------ writing to Holder at least 10 days prior to (or, if later, then as soon as reasonably practicable prior to) any action contemplated which would affect the per share Exercise Price, or number of shares purchasable upon exercise of this Warrant; provided, however, any failure of Company to provide such notice shall -------- ------- C - 8 not affect the validity of any action by Company. Any notice, request or other communication provided for under this Warrant shall be given in writing, delivered by hand, by overnight United States mail, return receipt requested, postage prepaid, or through a reputable courier service (such as Federal Express) and shall be addressed to Company or to the Holder at the address shown below, unless notice of a change in address is furnished in accordance with this paragraph: If to Company: DA Consulting Group, Inc. San Felipe Plaza 5847 San Felipe, Suite 37000 Houston, Texas 77057 Attention: John E. Mitchell, Chief Executive Officer; and Dennis C. Fairchild, Chief Financial Officer with a copy to: Pepper Hamilton LLP 3000 Two Logan Square Philadelphia, Pennsylvania 19103 Attention: Barry M. Abelson, Esquire If to Holder: Purse Holding Limited Altstetterstrasse 126 P.O. Box 1705 CH - 8048 Zurich, Switzerland Attention: Fredy Eckstein with a copy to: Morrison & Foerster LLP 1290 Avenue of the Americas New York, New York 10104 Attention: Joseph Bartlett, Esquire 11. Descriptive Headings and Governing Law. The descriptive ------------------------------------------ headings of the several paragraphs of this Warrant are inserted for convenience only and do not constitute a part of this Warrant. The corporate laws of the State of Texas shall govern all issues concerning the relative rights of the Company and its stockholders. All other questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be governed by the internal laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York, or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of New York. C - 9 12. Lost, Stolen, Mutilated or Destroyed Warrant. If this Warrant --------------------------------------------- is lost, stolen, mutilated or destroyed, the Company shall, on receipt of an indemnification undertaking (or, in the case of a mutilated Warrant, the Warrant), issue a new Warrant of like denomination and tenor as this Warrant so lost, stolen, mutilated or destroyed. 13. Amendment and Waiver. This Warrant and any provisions hereof ---------------------- may be changed, waived, discharged or terminated only an instrument in writing signed by the party against which enforcement of the same is sought. 14. Date. The date of this Warrant is ______________, 2000. This ---- Warrant, in all events, shall be wholly void and of no effect after 5:00 p.m. New York time on the third anniversary of the Closing Date or if such day is not a Business Day then on the Business Day next succeeding such date, except that notwithstanding any other provisions hereof, the provisions of Section 6 shall continue in full force and effect after such date as to any shares of Common Stock or other securities issued upon the exercise of this Warrant. [signature page follows] C - 10 IN WITNESS WHEREOF, DA Consulting Group, Inc. has caused this Warrant to be signed by its duly authorized officer under its corporate seal, this ____ day of ____________, 2000. DA CONSULTING GROUP, INC. By:________________________________ Name: Title: C - 11 -----END PRIVACY-ENHANCED MESSAGE-----